What is Deindustrialization?

Deindustrialization refers to a shift away from industrial production, or manufacturing, in an economy. It contrasts with industrialization—the movement toward an economy organized around industry. A loss in manufacturing jobs in a country may be accompanied by a rise in service-oriented jobs or jobs that are geared toward proving a service rather than creating a product. One common cause of deindustrialization is the outsourcing of labor-intensive jobs to countries with cheaper labor.

Industrialization generally refers to the kind of shift in economic organization experienced by Great Britain in the 18th and 19th centuries. Improvements in agricultural efficiency freed up many farmers to pursue other trades. Coal-burning technology allowed the main source of manufacturing power to transfer away from draft animals and towards mechanized power plants. Coal also opened up railway and steamship-based trading, which spurred further technological innovation. The Second Industrial Revolution was a peak of industrialization, fueled by electricity and the internal combustion engine.

One source of deindustrialization is a shift of jobs from the manufacturing sector towards the service sector. The service sector includes jobs that are concerned with providing a service to a customer rather than simply producing a good. Examples include restaurants, casinos, home repair and financial services. As a society becomes wealthier, the demand for services tends to increase. People with high income tend to be more willing to pay for entertainment and consulting services in addition to material goods.

Improvements in digital and communication technology during the past few decades have allowed many new jobs to be based solely on knowledge. Companies are increasingly hiring contractors to provide them with specific information they need to attract and serve customers. This trend is behind the concept of the “information economy.” When jobs involve generating information itself, they are considered part of the service sector.

One particular country may experience deindustrialization because manufacturing work is being outsourced to other countries. This is often because poorer countries have less expensive labor or easier access to natural resources. Workers in highly developed countries tend to demand high pay to support high standards of living, which provides an incentive for companies to find cheaper sources of labor. Additionally, access to natural resources in developed countries is often highly regulated by the government. Thus, a trend towards deindustrialization in one country does not necessarily indicate a global trend.