Deindustrialisation by country
Deindustrialisation refers to the process of social and economic change caused by the removal or reduction of industrial activity and employment in a country or region, especially heavy industry or manufacturing industry. Deindustrialisation is common to all mature Western economies, as international trade, social changes, and urbanisation have changed the financial demographics after World War II. Phenomena such as the mechanisation of labour render industrial societies obsolete, and lead to the de-establishment of industrial communities.
Further information: Industrialisation and ReindustrializationBackground[edit]
Theories that predict or explain deindustrialisation have a long intellectual lineage. Karl Marx's theory of declining (industrial) profit argues that technological innovation enables more efficient means of production, resulting in increased physical productivity, i.e., a greater output of use value per unit of capital invested. In parallel, however, technological innovations replace people with machinery, and the organic composition of capital increases. Assuming only labour can produce new additional value, this greater physical output embodies a smaller value and surplus value. The average rate of industrial profit therefore declines in the longer term.
George Reisman (2002) identified inflation as a contributor to deindustrialisation. In his analysis, the process of fiat money inflation distorts the economic calculations necessary to operate capital-intensive manufacturing enterprises, and makes the investments necessary for sustaining the operations of such enterprises unprofitable.
The term deindustrialisation crisis has been used to describe the decline of labour-intensive industry in a number of countries and the flight of jobs away from cities. One example is labour-intensive manufacturing. After free-trade agreements were instituted with less developed nations in the 1980s and 1990s, labour-intensive manufacturers relocated production facilities to Third World countries with much lower wages and lower standards. In addition, technological inventions that required less manual labour, such as industrial robots, eliminated many manufacturing jobs.
Germany[edit]
Historic[edit]
In occupied Germany after World War II the Morgenthau Plan was implemented, although not in its most extreme version.[12]: 530 The plan was present in the U.S. occupation directive JCS 1067[13][12]: 520 and in the Allied "industrial disarmament" plans.[12]: 520 On February 2, 1946, a dispatch from Berlin reported:
According to some historians, the U.S. government abandoned the Morgenthau plan as policy in September 1946 with Secretary of State James F. Byrnes' speech "Restatement of Policy on Germany".[15]
Others have argued that credit should be given to former U.S. President Herbert Hoover, who in one of his reports from Germany, dated March 18, 1947, argued for a change in occupation policy, amongst other things stating, "There is the illusion that the New Germany left after the annexations can be reduced to a 'pastoral state'. It cannot be done unless we exterminate or move 25,000,000 people out of it."[16]
Worries about the sluggish recovery of the European economy, which before the war had depended on the German industrial base, and growing Soviet influence amongst a German population subject to food shortages and economic misery, caused the Joint Chiefs of Staff, and Generals Clay and Marshall to start lobbying the Truman administration for a change of policy.[17]
In July 1947, President Harry S. Truman rescinded on "national security grounds"[17] the punitive occupation directive JCS 1067, which had directed the U.S. forces of occupation in Germany to "take no steps looking toward the economic rehabilitation of Germany [or] designed to maintain or strengthen the German economy". It was replaced by JCS 1779, which instead noted that "[a]n orderly, prosperous Europe requires the economic contributions of a stable and productive Germany."[18]
It had taken over two months for General Clay to overcome continued resistance to the new directive JCS 1779, but on July 10, 1947, it was finally approved at a meeting of the SWNCC. The final version of the document "was purged of the most important elements of the Morgenthau plan."[19]
Dismantling of (West) German industry ended in 1951, but "industrial disarmament" lingered in restrictions on actual German steel production, and production capacity, as well as in restrictions on key industries. All remaining restrictions were finally rescinded on May 5, 1955. "The last act of the Morgenthau drama occurred on that date or when the Saar was returned to Germany."[12]: 520
Vladimir Petrov concluded: "The victorious Allies … delayed by several years the economic reconstruction of the war torn continent, a reconstruction which subsequently cost the US billions of dollars."[20]
Poland[edit]
In Poland, as in many other former communist countries, deindustrialisation occurred rapidly in the years after the fall of communism in 1989, with many unprofitable industries going bankrupt with the switch to market economy, and other state-owned industries being destroyed by a variety of means, including arbitrarily changed credit and tax policies. The deindustrialisation in Poland was based on a neoliberalism-inspired doctrine (systemic transformation according to the requirements of Western financial institutions) and on the conviction that industry-based economy was a thing of the past. However, the extent of deindustrialisation was greater in Poland than in other European, including post-communist, countries: more than ⅓ of total large and midsize industrial assets were eliminated. The perceived economic reasons for deindustrialisation were reinforced by political and ideological motivations, such as removal of the remaining socialist influences concentrated in large enterprises (opposed to rapid privatization and shock therapy, as prescribed by the Balcerowicz Plan) and by land speculation (plants were sold at prices even lower than the value of the land on which they were located). Among such "privatized" institutions there were many cases of hostile takeovers (involved in 23% of all assets transferred), when industrial entities were sold and then changed to the service sector or liquidated to facilitate a takeover of the old company's market by the buying (typically foreign) firm.[21][22][23]
According to comprehensive research data compiled by economist Andrzej Karpiński and others, 25-30% of the reductions were economically justified, while the rest resulted from various processes that were controversial, often erroneous or pathological, including actions aimed at quick self-enrichment on the part of people with decision-making capacities. Unlike in the case of the Western deindustrialisation of the preceding years, in Poland modern competitive industries with established markets were also eliminated, including the electronic, telecommunications, computer, industrial machinery, armament and chemical industries. The abandoned domestic and foreign markets, often in Eastern Europe and the Third World countries, had subsequently been taken over by non-Polish interests. Nearly half (47%) of the lost enterprises represented consumer product light industry, rather than heavy industry. Capitalist Poland's early economic policies resulted in economic and social crises including high unemployment, and in what some see as irredeemable losses, impacting Poland's situation today. At the same time however, many constructive developments took place, including the widespread rise of entrepreneurship, and, especially after Poland joined the European Union, significant economic growth. The transformation process, as executed, generally replaced large enterprises with small, creating an environment inimical to innovation but conducive to human capital flight.[21][22][23]
The evaluation of Poland's economic advancement depends on the criteria used. For example, the country's industrial output had increased 2.4 times between 1989 and 2015, while the Polish GDP's percentage of the gross world product dropped from 2.4 in 1980 to 0.5-0.6 in 2015. In a number of measured categories of progress, Poland places behind its European Union formerly communist neighbors (the Czech Republic, Slovakia, Hungary, Lithuania), which had not undertaken deindustrialisation policies as radical as that of Poland.[22][23][24]
Soviet Union[edit]
Prior to its dissolution in 1991, the Soviet Union had the second-largest economy in the world after the United States.[25] The economy of the Soviet Union was the world's first and most notable centrally planned economy. It was based on a system of state ownership and managed through Gosplan (the State Planning Commission), Gosbank (the State Bank) and Gossnab (State Commission for Materials and Equipment Supply). Economic planning was through a series of five-year plans. The emphasis was put on rapid development of heavy industry, and the nation became one of the world's top manufacturers of a large number of basic and heavy industrial products, but it lagged behind in the output of light industrial production and consumer durables.
As the Soviet economy grew more complex, it required more and more complex disaggregation of control figures (plan targets) and factory inputs. As it required more communication between the enterprises and the planning ministries, and as the number of enterprises, trusts, and ministries multiplied, the Soviet economy started stagnating. The Soviet economy was increasingly sluggish when it came to responding to change, adapting cost−saving technologies, and providing incentives at all levels to improve growth, productivity and efficiency.
Most information in the Soviet economy flowed from the top down, and economic planning was often done based on faulty or outdated information, particularly in sectors with large numbers of consumers. As a result, some goods tended to be underproduced, leading to shortages, while other goods were overproduced and accumulated in storage. Some factories developed a system of barter and either exchanged or shared raw materials and parts, while consumers developed a black market for goods that were particularly sought after but constantly underproduced.
Conceding the weaknesses of their past approaches in solving new problems, the leaders of the late 1980s, headed by Mikhail Gorbachev, were seeking to mold a program of economic reform to galvanise the economy. However, by 1990 the Soviet government had lost control over economic conditions. Government spending increased sharply as an increasing number of unprofitable enterprises required state support and consumer price subsidies to continue.
The industrial production system in the Soviet Union suffered a political and economic collapse in 1991, after which a transition from centrally planned to market-driven economies occurred. With the collapse of the Soviet Union, the economic integration of the Soviet republics was dissolved, and overall industrial activity declined substantially.[26] A lasting legacy remains in the physical infrastructure created during decades of combined industrial production practices.