Deindustrialization Is Not Necessarily Bad Essay

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China may manufacture computers, but Americans design them. Poor government policy makes it more difficult for resources to be allocated to these knowledge industries, even though those industries are necessary to transition to a post-industrial economy.

Even if it is taken as a given that deindustrialization reduces real wages -- something for which the evidence is inconclusive (Krugman, 2008) -- the impact of deindustrialization is significantly affected by the policy responses to the situation. While real wages in one sector of industry may drop, good policy will ensure that the nation still has competitive advantages in other sectors, and this will allow wages to remain high. Deindustrialization, after all, is simply an effect of competition. By shifting the competitive mindset from an "us vs. them" approach, governments can focus on finding areas where competition is less great, and then exploit those areas to generate high wages.

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There are examples where deindustrialization produced negative outcomes for economies - Williamson (2004) points to the case of colonial India as one. However, these examples show evidence of poor economic stewardship. Deindustrialization has invited poor policy because its impacts are evident in the short-run (higher unemployment and lower industrial output). However, in the long run deindustrialization simply represents an opportunity for the reallocation of resources into less competitive sectors. If a nation sets its policies to take advantage of that opportunity, deindustrialization is not necessary bad for the economy.

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