Is Industrialization Good for the Economy? (2024)

Industrialization is the process by which an economy moves from primarily agrarian production to mass-produced and technologically advanced goods and services. This phase is characterized by exponential leaps in productivity, shifts from rural to urban labor, and increased standards of living. Industrialization can be considered the most important economic development in human history based on typical measurements such as income per capita or labor productivity.

The major industrial shifts in Western economies occurred during the Industrial Revolution of the 18th and 19th centuries. Economic historians tend to point to four significant national industrializations:

1. The original industrialization in Great Britain between 1760 and 1840.
2. The industrialization of the United States from 1790 until 1870.
3. The unmatched industrial gains in Japan between the 1880s and 1970.
4. The industrialization of China from 1960 until contemporary times.

Economic Growth

There are a few known methods of generating real economic growth. The first is trade specialization, by which a laborer is better able to perform an activity through education, training, and insight. Specialization tends to occur naturally as individuals and businesses look to improve their gains from trade.

The second known method is through improved capital goods. Better tools lead to more productivity per labor hour. An 18-wheeler can transport goods over a distance far more efficiently than a man with a bicycle and a backpack.

The last method of improving productivity is through the discovery of previously unutilized resources. Examples of this method include oil wells in the 1850s and the invention of the Internet.

The cost of acquiring goods declines when more goods can be produced more quickly. Declining real costs make it easier for individuals and families to purchase these goods. This increases the standard of living. Most families would be priced out of owning refrigerators, automobiles, computers, TVs, electricity, running water, or a myriad of other goods without increases in productivity.

Industrialization and Growth

According to estimates from the Federal Reserve branch in Minneapolis, human productivity and corresponding standards of living were essentially unchanged from the beginning of the agricultural age until 1750 A.D.

That all started to change in Great Britain in the 1760s. Average income and population levels began an unprecedented, sustained increase. Gross domestic product (GDP) per capita had been fixed for thousands of years but it grew dramatically with the emergence of the modern capitalist economy.

Economic historian Deirdre McCloskey, writing in the Cambridge University Press in 2004, argued that industrialization was "certainly the most important event in the history of humanity since the domestication of animals and plants, perhaps the most important since the invention of language."

Progression of the Industrial Revolution

Marginal productivity rose dramatically during this period through the development of better capital goods, such as the steam engine, and through the mastery of production techniques, such as the assembly line.

Relatively more goods were produced in relatively less time. More and better food supported population growth and fought malnutrition. More time was left for education, innovation, and recreation. Average real incomes rose dramatically, which only increased the demand for better goods and services.

The Bottom Line

Industrialization is the impetus behind the world's economic health or lack thereof. The study of industrialization has radically improved production for centuries upon centuries and this has resulted in a much kinder and more comfortable way of life for individuals.