Working Paper: NBER ID: w23016
Authors: Lionel Fontagn; Ann Harrison
Abstract: The shift towards a “factory-free” economy has drawn the attention of policy makers in North America and Europe. Some politicians have articulated alarming views, initiating mercantilist or ‘beggar-thy-neighbour’ cost-competitiveness policies. Yet companies that concentrate research and design innovations at home but no longer have any factories there may be the norm in the future. This paper summarizes the key themes emerging from a conference on de-industrialization. De-industrialization is a process that happens over time in all countries, even China. The distinction between manufacturing and services is likely to become increasingly blurry. More manufacturing firms are engaging in services activities, and more wholesale firms are engaging in manufacturing. One optimistic perspective suggests that industrial country firms may be able to exploit the high-value added and skill-intensive activities associated with design and innovation, as well as distribution, which are all components of the global value chain for manufacturing. Although this ongoing transformation of the industrial economies may be consistent with evolving comparative advantage, it has significant short-run costs and requires far-sighted investments. These include the costs to workers who are caught in the shift from an industrial to a service economy, and the need to invest in new infrastructure and education to prepare coming generations for their changing roles.
Keywords: deindustrialization; outsourcing; servitization; labor markets; global value chains; economic policy
JEL Codes: F16; F23; O14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Deindustrialization (L52) | Job losses in traditional manufacturing sectors (O14) |
| Deindustrialization (L52) | Demand for high-skill roles in design and innovation (O36) |
| Outsourcing (L24) | Downward pressure on wages for routine tasks (F66) |
| Servitization (O14) | Hidden form of deindustrialization (L52) |
| Reorganization of production within global value chains (L23) | Disconnection between value added and job creation (O49) |