Postindustrial False Start

Contemporary emerging economies leave out the stage of industrial development much faster than early industrializers used to. The social, political and economic consequences of this process are not by Andrzej Barabasz


Over time, manufacturing ceded its place to services. In Britain, the birthplace of the Industrial Revolution, manufacturing’s share of employment peaked at around 45% before World War I and then fell to just above 30%, where it hovered until the early 1970s, when it began a precipitous decline. Manufacturing now accounts for slightly less than 10% of the workforce.

All other rich economies have gone through a similar cycle of industrialization followed by deindustrialization. In the United States, manufacturing employed less than 3% of the labor force in the early nineteenth century. After reaching 25–27% in the middle third of the 20th century, deindustrialization set in, with manufacturing absorbing less than 10% of the labor force in recent years.




Thanks to export markets, South Korea industrialized exceptionally rapidly. With manufacturing’s share of employment rising from the low single digits in the 1950s to a high of 28% in 1989, South Korea underwent in three decades a transformation that took a century or longer in  the early industrializers

Consider Brazil and India, two emerging economies that have done comparatively well in the last decade or so. In Brazil, manufacturing’s share of employment barely budged from 1950 to 1980, rising from 12% to 15%. Since the late 1980s, Brazil has begun to deindustrialize, a process which recent growth has done little to stop or reverse. India presents an even more striking case: manufacturing employment there peaked at a meager 13% in 2002, and has since trended down.

One’s own way




An immediate consequence is that developing countries are turning into service economies at substantially lower levels of income. When the U.S., Britain, Germany, and Sweden began to deindustrialize, their per-capita incomes had reached $9,000–11,000 (at 1990 prices). In developing countries, by contrast, manufacturing has begun to shrink while per-capita incomes have been a fraction of that level: Brazil’s deindustrialization began at $5,000, China’s at $3,000, and India’s at $2,000.

The economic, social, and political consequences of premature deindustrialization have yet to be analyzed in full. On the economic front, it is clear that early deindustrialization impedes growth and delays convergence with the advanced economies. Manufacturing industries are what I have called ‘escalator industries’: labor productivity in manufac-turing has a tendency to converge to the frontier, even in economies where policies, institutions, and geography conspire to retard progress in other sectors of the economy.




Dani Rodrik is Albert O. Hirschman Professor of Social Science at the Institute for Advanced Study.

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