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Summarizing reflections: Gabriel Palma – Deindustrialization

September 21, 2011

The conventional understanding of economic development assumes increase in agricultural surpluses fuelling (both capital and labor for) growth in manufacturing (essentially referred to as industrialisation) and surpluses in latter fuelling the growth of services; This is in essence being the classical interpretation of the trajectory of economic development. But really, is the world so simple? As notably as Weiss (2002) points out in relation to understanding economic growth over geographies, “Naturally one should not expect all countries to grow at equal rates, since factors like natural resources , endowments, current output levels, social systems, political and economic external links and economic policies will all influence growth that can be achieved in a specific period”. What it will not only influence is economic growth but kinds of economic activities being undertaken, livelihoods, production processes (choices), sectoral experiences and more as well. Economic phenomenons, as sociological phenomenons are inherently very complex and result into complex consequences.

Gabriel Palma’s (2007) is an attempt to bring in this complexity and study deindustrialization (the decline in share of manufacturing employment) as much more than merely a transition from manufacturing to services and its relevance in the real world across across geographies.De-industrialization as a phenomenon is unique post 1970s, and these being as well the times of tremendous economic and sociological changes in the world, across geographies, transitions from fordism to post-fordism, decline of modernism (very relevant to the developed world), rise of finance sector (which also comes to substitute to a large degree the dominance of public provisioning), ushering in of neo-liberalism, oil shocks and multiply more. In such turbulent times, deindustrialization certainly can not be a unique, untouched, natural, uncaused (by these incidents) phenomena; and as Palma argues is very relevant to and embedded into what all is going on around this period. He starts by complicating the Rowthorn’s hypothesis of inverted-U relationship between manufacturing employment and per-capita income; asserts that overtime, the levels of per-capita income and employment (both) at which the share of manufacturing employment starts to decline have been decreasing. And these declines being rooted in what all is going on around this period. Palma cites four hypothesis which have been majorly put in thesis for de-industrialization [i). Statistical illusion – reallocation of labor form manufacturing to services following a number of activities being contracted out by manufacturing firms to specialist service producers; ii). due to significant reduction in income elasticity for demand for manufactures; iii). consequence of rapid growth in productivity in manufacturing; iv). new inter National redistribution of labor]. And these thesis are again very relevant to the end of Fordism and Keynesianism and the rise of newer processes of production and Monetarism. This is very relevant to how Thatcher era leads to large scale decreases in manufacturing activities in Britain and the rise of service sector, especially of finance (and relevant to how this is also an era, where finance is tending to replace a lot of activities which were functions of the Welfare state, as Keynesianism sees its demise in face of monetarism) This is very relevant to how Weiss (2002) cites manufacturing activities are having tremendous geographic relocation and not specifically in some kind of production processes or commodities but overall (ranging diverse manufactures which can be classified along lines of labor intensity in production processes to the degree of sophistication in technology). Conclusively, policies being substantially important to the the incidence of deindustrialization and the overtime decreasing levels of saturation between per capita income and manufacturing employment.

Something beyond saturating levels of manufacturing in an economy in relevance to deindustrialization is the unique concept of ‘Dutch disease”. Such happens when, nations in order to generate trade surplus pre-maturely shift from manufacturing activities to either trade in primary commodities (for resource rich countries, also signalling a shift to Ricardian state of comparative advantage) or services [examples of the former being Latin American countries and of the latter, Netherlands itself, from where the name comes which made a marked shift to tourism and other service related activities].

Palma shows how deindustrialization while being a structural change is a very very complex phenomena in its incidence. And how structural compositions/transitions themselves are very complex, and how analyses cutting across sectors and activities are very important to understand relevant (long-term, short-term) impacts and causes; and what kind of activities and what sectors have what plausible for human beings in times to come [for e.g. what plausible to various manufacturing activities have in store for future, their sustainability, scales of growth, scope of R&D, increasing returns, forward-backward linkages etc. and similarly for other sectors/activities].

Rather of well known theses towards loss of manufacturing employment is of increasing capital intensification on account of reducing the labor costs and thus raising productivity; however Palma’s argument is strongly rooted in output led deindustrialization (noting that productivity growth overtime has declined as well). However what must be understood is that the phenomenon of deindustrialization is rooted in its pervasive contexts and not a phenomena in vacuum and thus it’s effects and implications should need to be looked in the larger framework of its existence. Some of the marked characteristics of capitalism post 1970s have also been the dismantling of notions of social democracy and autonomous individualism in the spheres of production and increasing class stratification in cities (Krier, 2010) . This also signifies the movement of capital to geographic regions where such would be rather easily feasible, and this can be substantially linked to Wiess’s and Palma’s observation of prevalent deindustrialization phenomena largely widespread in the Anglo-American north and the industrialisation phenomena notably substantial in Asian regions. And then one also sees theses on the growth and developmental experiences of relatively authoritarian countries, somehow also challenging the necessity of democracy in attaining socio-economic development (such as Bardhan, 2008). In stark contrast capitalism earlier would be thought of inconceivable in absence of democracy, and experiences of deindustrialization are strongly embedded into the diaspora of these politico-economic realities. These are plausible ways in which the incidence of industrialisation/deindustrialization are socially, politically and economically relevant for the involved geographies and involve substantial concerns, discourses on which are very substantial today.

Another substantial way in which the accompanying neo-liberal framework (and Palma makes a substantial note of it) impacts countries is by bringing them to a Ricardian state, where countries would find little political incentive to industrialise if rich in primary resources, despite plausible capacities to industrialise (e.g. Of Latin America). So there are instances of downward deindustrialization, loss of skills and capacities and even plausibly adverse terms of trade in store (see Prebish-Singer thesis) on account of extensive dependence on primary products for generation of trade surpluses.

Lastly, the incidence of deindustrialization has also been on account of tremendous rise of service sector, and that too, especially finance. And finance is of key note here; for deindustrialization on account of rise of financial activities, substantially leaves the question on the nature of these activities and plausible long-term scope in these activities. A substantial rise in finance activities is of nature far and wide not connected to any production of good and services, but based on mere speculation, derivatives for e.g. (see Chossudovsky, 2008) and both, the East Asian Crisis and the Global financial crisis of 2008 are outcomes of such. With highest salaries across the world being paid out to the trained in finance, sectoral and activity concerns in the economy become of substantial concern, and resultantly policy making should be extremely sensitive to the nature and impact of economic activities. I would also argue that there is an immanent need, especially post-financial crisis for seeking renewed ethical context to economic activities widely taking place all around us.

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