How Can Industrialization Affect National Economies of LDCs?

Industrialization—the period of transformation from an agricultural economy to an urban, mass-producing economy—has accompanied every period of sustained per capita gross domestic product (GDP) growth in recorded history. Less than 20% of the world's population lives in industrialized nations, yet they account for more than 70% of the world's output.

The transition from agrarian to industrial society is not always smooth, but it is a necessary step to escape the abject poverty found in less-developed countries (LDCs).

Industrialization

The first period of industrialization took place in Great Britain between 1760 and 1860. Historians disagree about the exact nature and causes of this first Industrial Revolution, but it marked the first period of compounding economic growth in world history. Industrialization reached the United States in the early 19th century and eventually spread to most western European nations before the end of the century.

There are two widely accepted dimensions of industrialization: a change in the types of predominant labor activity (farming to manufacturing) and the productive level of economic output. This process includes a general tendency for populations to urbanize and for new industries to develop.

Positive Effects of Industrialization

Economic and historical research has overwhelmingly shown that industrialization is linked to rising education, longer life spans, growing individual and national income, and improved overall quality of life.

For example, when Britain was industrializing, total national income increased by more than 600% from 1801 to 1901. By 1850, workers in the U.S. and Great Britain earned an average of 11 times more than workers in non-industrialized nations.

These effects have proven to be permanent and cumulative. By 2000, the per capita income in fully industrialized countries was 52 times greater than in non-industrial countries. Industrialization disrupts and displaces traditional labor, encouraging workers towards a more valuable and productive activity that is accompanied by better capital goods.

Some additional positive effects of industrialization on LDCs include:

• Increased access to education: Industrialization often leads to increased investment in education and training, which can improve the skills and knowledge of the workforce and support economic development.
• Improved infrastructure: Industrialization often requires the development of new infrastructure, such as roads, ports, and power plants, which can improve access to markets and support economic growth.
• Increased foreign investment: Industrialization can attract foreign investment, which can provide capital and technological expertise to support economic development.
• Enhanced export capacity: Industrialization can improve a country's ability to produce and export goods, which can increase its competitiveness in the global economy.
• Enhanced resilience to economic shocks: Industrialization can diversify a country's economy, making it less reliant on a single sector or commodity, and more resilient to economic shocks.
• Increased technological innovation: Industrialization can drive technological innovation, as companies compete to develop new products and processes that are more efficient and cost-effective. This can lead to increased productivity and competitiveness.
• Improved public health: Industrialization can lead to improved public health outcomes, as it is often accompanied by investments in healthcare infrastructure and the development of new pharmaceuticals and medical technologies.

Negative Effects of Industrialization

Industrialization in less developed countries (LDCs) can also have negative impacts on national economies, including environmental degradation, social inequality, and cultural disruption. Moreover, the positive effects are not usually spread equally across a society. Industrialization often leads to the concentration of wealth and power in the hands of a few industrial elites, while the majority of the population may struggle to find stable, well-paying jobs.

Industrialization can also lead to the depletion of natural resources, pollution, and other forms of environmental damage, which can have negative consequences for the health and well-being of local communities. This is especially true in places with less-developed infrastructure for dealing with waste removal and disposal.

Additionally, industrialization can lead to the erosion of traditional cultures and ways of life, as individuals are drawn towards urban centers and the modern economy. In order to mitigate these negative impacts, it is important for LDCs to adopt sustainable and equitable industrialization policies that take into account the needs and interests of all members of society.

Example: Hong Kong's Industrialization

Perhaps no industrialization was as rapid, unexpected, and transformational as that which occurred in Hong Kong between 1950 and 2000. In less than two generations, the small Asian territory grew into one of the wealthiest populations in the world.

Hong Kong is only 1,000 square kilometers in size. It lacks the land and natural resources of major industrial powers such as the U.S. and Germany. Its period of industrialization began with textile exports. Foreign businesses became increasingly attracted to operating in Hong Kong, where taxation was low, no minimum wage laws existed, and there were no tariffs or subsidies for international trade.

In 1961, the British governor of Hong Kong, Sir John James Cowperthwaite, instituted a policy of positive noninterventionism in the former colony. Between 1961 and 1990, the average GDP growth rate in Hong Kong was between 9% and 10%. The lowest five-year growth rate, from 1966 to 1971, was still 7.6% per year.

Industrialization in Hong Kong was accompanied by a huge number of small and medium-sized companies. Despite no pro-industrialization policies by the Hong Kong government, investment venture capital flooded into Hong Kong from the outside, though not from China, which placed an embargo on trade with its neighbor. As of 2020, Hong Kong's average annual income was approximately $56,643. In 1960, prior to industrialization, it was barely over $3,245 in 2020 dollars.

Future Growth

The growth of the world's economy will primarily come from developing countries, as they still need to industrialize and have the capacity to eventually do so. In January of 2020, the International Monetary Fund (IMF) provided its world outlook for 2020, and the largest growth numbers came from developing countries.

The IMF predicted that economic growth in the US would be 2%, in the Euro Zone it would be 1.3%, the U.K., 1.4%, and Japan, 0.7%. This can be contrasted to expected economic growth for developing countries, which are expected to be 5.8% in India, 6% in China, 2.5% in developing Europe, 3.5% in Sub-Saharan Africa, and 2.8% in the Middle East and Central Asia.

All of the growth rates for the developing regions of the world are higher than those of developed countries. As these countries have room to industrialize, they will continue to grow towards the modernity of currently developed countries.

The Bottom Line

The Industrial Revolution greatly impacted the world, by increasing output in a more efficient manner and improving the quality of life for the people in industrialized nations. As developing countries are not fully industrialized, they will continue to benefit as they do so, which will result in strong growth levels and better overall conditions for their populations. At the same time, more developed countries must be cognizant of the negative potential effects to society and the environment that may result.