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Anyone who lived through the 1970s and 1980s in Britain - or any of the industrialised northern nations - will probably have images of de-industrialisation in their mind: rusting steelworks, echoing factories stripped of employees and machinery, dole queues, and confident service-sector staff in neat suits and ties. These images bring with them a cluster of highly politicised associations about the role of the state, the ability of the state to mitigate adverse economic developments, and the assumed indispensability of the industrial sector as the economy's paramount component. Here, it will be suggested that, while these politicised views are important, it is also crucial to assess the domestic and global long- and short-term economic developments that influenced the process of de-industrialisation.
`De-industrialisation' can be briefly defined for our purposes here. It refers to the decline in the share that manufacturing constitutes in a country's national income. It should be noted here that the key word is share: de-industrialisation in the abstract and in the real world does not have the corollary of falling value or quantity of manufactured output in absolute terms.
As the 1970s dawned the US still maintained a central position in the world economy, and its position can still be seen as a strong one in many respects: in the ten years since 1960, GDP had almost doubled - from $513 billion to $1, 010 billion, [1] it had a positive balance of payments, it was the highest capitalised economy in the world (and had been for twenty years), and over the last twenty years its output growth per head of population had averaged 2.2%. In manufacturing, the US produced vast quantities of consumer and production goods both for the domestic market and for export, a position consolidated during and immediately after the second world war. Consumer goods such as cars and domestic appliances were particularly important in these respects. The manufacturing sector represented 23.4% of the US labour force. [2] With twenty years of constant growth and expansion in the world economy behind, what could go wrong?
The simplest way to answer the question why the US economy experienced de-industrialisation is to say `the same reason so many other industrialised nations did'. To answer more fully, we must expand on this glibness a little and examine some of the wider trends on the global economy after the second world war. Firstly, the period 1945 - 1970 is widely characterised as a `golden age', where growth was universal and markets were expanding, both domestically and in terms of international trade. A caveat is required here: the golden age was not universally experienced - African and East European countries might have another view of the period. However, for the established industrialised countries, for the recovering war-damaged economies, and for the newly industrialising countries (NICs), it is true to say that times were good, with growth rates of output per head for a basket of 15 countries running at an average 3.8% from 1950 - 1973. Secondly, the regeneration of the world economy after 1945 was predicated on the expansion of world trade. This, in turn was driven and paralleled by technological change. The years after 1945 saw the introduction of important technologies - electronics, microprocessors, plastics, synthetic products - which were to become important factors in the global economy. [3] Technological change also contributed to the transformation of transport and communications, with intercontinental air travel becoming a commonplace, with vast supertankers shifting the vital energy resource - oil - around the globe, and, latterly, with computer technology and electronic communication transforming the world's money markets and the financial sector generally. The third factor we might highlight here is also rooted in technological change: productivity. The changes in production techniques, products and materials made possible by technological development were integrated into existing systems of production. In the US, manufacturing dominance had been built and consolidated on large-scale mass-production, so the US was already used to increasing productivity to lower unit costs and boost demand. Indeed, between 1948 and 1973 the US manufacturing sector had enjoyed labour productivity which averaged in excess of 2%. [4] The US had also maintained, since 1945, a technological lead over other countries which had contributed to its high levels of productivity. However, it is worth noting that this lead had declined substantially, from a position where other industrialised countries averaged 50% of US levels in 1950 to 70% in 1973.
The world economy since the war, then, had grown in size and complexity, with this growth being driven and regulated - to a great extent - by the possibilities opened up by technical change. These changes had, for the twenty years since 1950, worked largely to the advantage of the US economy. We will now turn to the deleterious effects that these changes eventually had on the US economy and the influences that these changes exercised over de-industrialisation.
The US's 1950 pre-eminence in manufacturing was reduced as competitor economies rebuilt and as they gained ground on the US, both in terms of technological advancement, and productivity. Additionally, countries with lower cost-bases than the US began to emerge as industrial producers. The US dominance was eroded as other countries' producers competed in both international and US domestic markets: the decline of US competitiveness has been symbolically represented by the importation of foreign cars into the `home of the automobile', but this is perhaps only one aspect of a broader liberalisation of world trade whereby national sovereignty and `buy from home' behaviours have been eroded by the globalisation of trade and the growth of transnational companies. This increasing competitiveness and penetration by competitor economies placed great strain on US manufacturing. Additionally, the increasingly technology-intensive nature of modern production techniques - largely facilitated by electronics, robotics, and computers - meant that even though output quantities and values rose, jobs were shed as plants modernised and rationalised over time.
As suggested above, the US was a world leader in productivity. The conventional economic wisdom seems to have been that the jobs lost when productivity increased and fewer people were required to produce the same amount of goods would be mopped up elsewhere in the expanding economy - for example, in the service sector. For a long period in the post-war this seems to have held true, at least while the rest of the world's economies were still recovering. It is apparent though, that unemployment was on a gradually rising curve from the 1960s onwards, accompanied by incipient inflation which was ratcheted higher through the 1960s an 70s. [5] An important inflationary pressure came from rising energy prices, which rose by some 300% in the 1970s. [6] Government's response to inflationary and unemployment pressures had, in the years since the war, centred on the politically attractive macroeconomic interventions - "tax, public-expenditure and especially monetary action." [7] In the 1970s, these measures became passé as growing budget deficits and the new economic orthodoxy of monetarism reduced the government's capacity and inclination to act. These policy changes, coupled with foreign competition, served to exacerbate the effects of de-industrialisation. As Eric Hobsbawm has pointed out, "governments and public entities ceased to be what has been called the `employer of last resort.'" [8] Increasingly, the incipient moves towards de-industrialisation created by technological change, foreign competition, relative US decline and by the growth of the service sector became more deeply entrenched, partly as a result of government policy, and partly due to a more general decline in business confidence. These two latter points come into sharp focus when one considers the Federal Reserve's interest rate policy of the late 1970s, [9] whereby interest rate rises (to 15.3% in 1980) made borrowing for investment a highly unattractive proposition. Just when industry needed a bit of Keynesian impetus, the monetarist dicta of `sound money' precluded any boost: "borrowing for economic purposes, for new or improved plant in particular, [was] impossibly expensive, thereby forcing obsolescence of machinery and equipment on the nation's industries." [10] Long-term domestic and inernational trends were therefore compounded by policy decisions, although these decisions were not themselves responsible for the de-industrialisation phenomenon. Anybody familiar with the politics and economics of Britain in the 1970s and 1980s might detect a familiar pattern, a pattern which perhaps suggests the relative impotence of any supposedly sovereign government to mitigate the exigencies of an increasingly globalised and fluid world economy.
In conclusion, it might be observed that US de-industrialisation was the result of a confluence of long and short-term factors which were rooted both in the historical development of the US economy and in the wider developments of the global economy, the latter in terms of `rival' economies' development and in the `qualitative' shifts in production that changing technology had brought about. The pre-eminence that the US enjoyed in the world economy in 1950 was gradually eroded by emergent or recovering economies which took greater advantage of the new opportunities that technological change and lower cost bases offered them. The US, with a degree of comfort built into it, and extensive vested interests which might militate against change, was less able to take advantage of these opportunities, and lost competitiveness as a result. Long-term trends - energy- and capital-intensive industry, rising inflation and unemployment were brought to a `crisis' in the 1970s as energy prices rocketed and the economic policies of Keynesianism were largely abandoned in the face of `stagflation'. In the crises of confidence which followed, industrial investment was hit, and crippled by policies which argued against borrowing and investment. In retrospect, it all seems very mechanical and somewhat predictable. However, hindsight can make us miss the point that the economic world that we operate in is not amenable to rapid and simple actions which allow us to control its flux. An economic world where change is probably the only certainty, our desire for stability and continuity is in conflict with the reality that the cycle of technological and economic development will (almost inevitably) move on.
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Galbraith, J. K. - The World Economy Since the Wars; Sinclair Stevenson, 1994
Kennedy, Paul - The Rise and Fall of the Great Powers; Fontana, 1989
Hobsbawm, Eric - Age of Extremes; Penguin, 1994
Kenwood, A.G.
and
Lougheed, A. L. - The Growth of the International Economy 1820 - 1990; Routledge, 1992
Snooks, Graeme - The Dynamic Society; Routledge, 1996
Walton, Gary M.
and
Rockoff, Hugh - History of the American Economy; Harcourt Brace, 1994
[1] Source - Statistic Abstract of the United State, 1994
[2] Walton and Rockoff, p. 659
[3] see Kenwood and Lougheed, Ch. 20, passim.
[4] Walton and Rockoff, p. 669
[5] see Walton and Rockoff, pp. 641 - 2
[6] Galbraith, p. 205
[7] ibid.
[8] Hobsbawm, p. 415
[9] see Galbraith, pp. 209 - 211
[10] ibid., p. 211