4 Reasons for Deindustrialization

Steel worker with molten metal. Getty Images, Monty Rakusen

Deindustrialization is the process through which manufacturing declines in a society or region as a proportion of total economic activity. It is the opposite of industrialization, and thus represents a step backwards in the growth of a society’s economy.

Reasons for Deindustrialization

There are a number of reasons why a society’s economic activity would change to eliminate manufacturing and other heavy industry.

1. A consistent decline in employment in manufacturing, due to social conditions that make such activity impossible (states of war or environmental upheaval)

2. Shift from manufacturing to service sectors of the economy

3. Manufacturing declines as a percentage of external trade, making an export surplus impossible

4. A trade deficit whose effects preclude the investment in manufacturing

Is Deindustrialization Always a Negative?

It is easy to deindustrialization as the result of a bad economy. But it may also be viewed as the result of a maturing economy. Most recently in the United States, the “jobless recovery” from the financial crisis of 2008 has produced deindustrialization without actual declines in economic activity.

Economists Christos Pitelis and Nicholas Antonakis suggest that the higher productivity of manufacturing (due to new technology and other efficiencies) leads to a reduction in cost of goods; subsequently these goods make up a smaller relative portion of the economy.

Similarly, changes in the economy like those brought about by free-trade agreements led to a decline in manufacturing locally, but didn’t have adverse effects on the health of multinational corporations or domestic concerns with the resources to outsource manufacturing.