Deindustrialisation

Abstract

Deindustrialisation refers to the contraction of the industrial (or secondary) sector which has been a notable feature of many advanced economies. It has generated widespread concern, accompanied by many calls — particularly when economies are in recession — for policies to reverse the process and to re-establish a revitalised and growing industrial base. For instance, referring to the UK, the Director-General of the Engineering Employers’ Federation has stated:

The country has expectations for living standards which the economy will be unable to deliver in the immediate future. It will be unable to deliver them at all unless industry is rebuilt (Financial Times, 13 January 1993).

Such concern may be misplaced. Deindustrialisation has largely been analysed from a macroeconomic viewpoint. Consideration of the changes taking place at a more disaggregated level provides important insights into the process of change. Furthermore, the decline of the industrial sector has been accompanied by a growing service (or tertiary) sector. The service sector in most advanced countries employs more people than the industrial sector — substantially more than half the workforce in many cases. But this sector has received scant attention from economists.