Industrialization is the process by which an economy moves from primarily agrarian production to mass-produced, 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. By typical measurements, such as income per capita or labor productivity, industrialization can be considered the most important economic development in human history.

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: the original industrialization in Great Britain between 1760 and 1860; the industrialization of the United States from 1790 until 1870; the unmatched industrial gains in Japan between the 1880s and 1970; and the industrialization of China from 1960 until contemporary times.

Economic Growth

A few known methods of generating real economic growth exist. 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 actors 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. For example, an 18-wheeler can transport goods over a distance far more efficiently than a man with a bicycle and backpack.

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

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

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 around 8000 - 5000 B.C. until 1750 A.D. That all started to change in Great Britain in 1760. Average income and population levels began an unprecedented, sustained increase. GDP per capita, which had been fixed for thousands of years, 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." Not all historians agree about the spark that ignited the Industrial Revolution. Most economists point to the changes in legal and cultural foundations in Great Britain that allowed free trade and gave entrepreneurs the room and incentives to take risks, innovate, and profit.

Progression of the Industrial Revolution

Throughout this period, marginal productivity rose dramatically through the development of better capital goods, such as the steam engine, and the mastery of new 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.