Deindustrialization
The Changing Nature of Skills, Production, Performance and Competitiveness
Instructions:
The Changing Nature of Skills, Production, Performance and Competitiveness
Answer only one question
Critically discuss the extent to which ‘up-skilling’ is a viable response to deindustrialisation in advanced industrial countries.
Approaching the questions
Students are reminded that whilst some questions may very evidently refer to a particular unit
they are all designed to span issues across the entire module. A full answer to the question will
require reflection on the issues that you have encountered throughout the module. It is
important to bear in mind that the content of your answer will depend on the argument that
you wish to put forward in answer to the question and not solely on the concepts that the
question explicitly identifies.
Word limit: 4,000-5,000
– The number of sources is not absolute, writer can add any more relevant.
– Please refer to for ReferenceGuide.pdf for details of reference style.
– Essay Construction
Introduction:
Explain your understanding of the question
Explain how you organised your essay
Main Body:
Explain the main issues raised by question
Evaluate the issues and debates raised by the question
Put forward your central line of argument
Focus points back to the original question
Conclusion:
Summarise main points
Reiterate central line of argument
Focus points back to the original question
Solution.
The Changing Nature of Skills, Production, Performance and Competitiveness
Table of contents
Title page 1
Introduction 3
The concept of deindustrialization and evidence in select economies 4
Deindustrialization explained 5
Role of skills in economic growth 7
Upskilling and deindustrialization 11
Conclusion 16
References 18
Introduction
Industrialization has for a long time been regarded as a key route through which countries grow and develop and in which developing countries can easily catch up with advanced economies. However, recent developments in global economics have unearthed much less consensus on whether industrialization still remains the most important path to development, especially in the face of industrialization challenges such as current international production patterns, competition from manufacturing powerhouses such as China and the increasing importance of global manufacturing value chains. Despite these challenges, structural economics still emphasizes the importance of industrialization, deriving from a belief that the manufacturing sector has a high potential for increasing cumulative productivity, returns to scale and also an important engine for economic growth (Rowthorn&Ramaswamy,1997). Despite the relevance of industrialization in economic growth and development, there is a consistently notable trend where the share of manufacturing employment is declining in most developed countries; a phenomenon called Deindustrialization. Over the years, this phenomenon has received little attention in most academic debates. Most of the studies on this subject have confined it as a problem that is analogous to the growing disparity in earnings and increasing unemployment in advanced economies. At the heart of this debate is the role and viability of upskilling- the acquisition of or teaching of new and additional skills to employees with the aim of improving productivity, as a response to deindustrialization. Most researchers agree that a highly skilled society is a key component for driving economic growth and development, as well as reducing unemployment and income inequalities.Rowthorn & Ramaswamy,(1997), however, notes that there is a significant difference between income inequalities and deindustrialization, that as this paper argues, is an inevitable feature of economic development. The object of this paper is to establish the extent to which up-skilling is a viable response to deindustrialization in advanced economies. It will argue that despite the increasing relevance of up-skilling in increasing global productivity, economic growth and development, there is little evidence to show its effectiveness in remedying deindustrialization. It begins by discussing the concept of deindustrialization and its causes in advanced economies, later establishing the viability of upskilling in slowing down deindustrialization.
The concept of deindustrialization and evidence in select economies
According to Bluestone (1983), employment of civilians in the manufacturing sector has experienced a continuous decline since the beginning of the 1970’s in most of the advanced economies, a complete contrast from the previous period when the industrial revolution led to significant manufacturing sector employment. In a study carried out for the IMF (Rowthorn&Ramaswamy,(1997) noted that the share of employment in the manufacturing sector fell from about 28% in the 70’s to about 18% in 1994 in most advanced economies. This is corroborated by Lavopa&Szirmai (2012), who noted that while there was a consistent decrease in the share of manufacturing sector employment, it varied from one country to the other in terms of veracity and time of commencement. For instance, deindustrialization in the United States started as early as the mid 60’s and has experienced one of the steepest reduction in manufacturing sector employment (Lavopa&Szirmai,2012). Other countries such as Japan, in contrast, started experiencing deindustrialization much later and has rather been slower as compared to the US, from a high of 27.4% in the mid 70’s to about 23% in 1994. The European union countries, on the other hand, had a rather high manufacturing employment rate, totaling to 30% in the 70’s, which dropped to about 20% in 1994 (Rowthorn&Ramaswamy,1997) .
On the converse, the study found that there was a continuous increase in the share of employment in the service sector. This increase has been uniform in all advanced economies with increasing employment in service sector since 1960. In the Unites States, for instance, service sector employment stood at 56%, growing consistently to 73% in 1994, recording the highest service sector employment amongst all the advanced economies. This corroborates Rowthorn and Wells (1987) assertion that most advanced economies witnessed a continuous reduction in manufacturing sector employment and a comparatively large increase in the share of employment in the service sector.
Deindustrialization explained
There was a growing inclination to the belief that decline in manufacturing employment was mostly as a result of shifting in expenditure from manufacturing to service. Bluestone (1983), however, demonstrated that taken at constant prices, there was no evidence that such was the cause of deindustrialization. Particularly, researchers are interested in a trend that was observed in the United States and other advanced economies, where there was a consistent increase in manufacturing employment until the late 60’s and a reduction thereafter, and a sustained increase in service sector employment during this period. According to Lengelle, M (1966), the increasing employment in the manufacturing sector during the period of industrial revolution represents a shift of employment from the agricultural sector to manufacturing. Following the Engels law which states that the proportion of money spent on food reduces with an increase in income’’, it follows that increased income as a result of the industrial revolution led to a shift in demand patterns from agricultural products to manufactured goods and services. Another factor, on the supply side, is the increased productivity in the agricultural sector due to innovations, thus releasing many workers who were replaced by agricultural mechanizations, to seek employment in the manufacturing and service sector. The combination of these factors led to a large shift in employment from agriculture to the manufacturing sector, which accounted for the increasing manufacturing employment up to the late 60’s. Karaomerlioglu & Carlsson (1999), note that there was a dramatic reduction in agricultural employment from a high of 20% in the early 60’s to just over 11% in the mid 70’s. This reduction in the agricultural sector, coupled with an increase in the service sector has been responsible for the sustained reduction in the manufacturing sector employment. Dasgupta and Singh (2005) concludes that the continuous increase in service sector employment in most advanced economies is as a direct result of the shift in employment from agriculture to services and later from manufacturing to the services sector.
According to Rowthorn&Ramaswamy,(1997) the observed shift in employment to service sector from manufacturing since the 70’s has little to do with expenditures between the two sectors. Instead, deindustrialization is mainly as a result of differences in the growth in productivity between the two sectors. To this end, researchers note that there is no longer term trend for the real output of services to increase faster than manufactured products, however, productivity in the manufacturing sector is observed to increase sustainably faster than in the services industry and therefore employment generally shifts to services sector from manufacturing. It was also observed that labor productivity in services grew at a much slower rate as compared to manufacturing (UNIDO, 2015). Additionally, these studies noted that differences in productivity growth between the two sectors have been much larger than the output growth, highlighting the importance of productivity in explaining deindustrialization. Increased productivity in the manufacturing sector as a result of improved manufacturing methods and adoption of technology led to a consistent reduction of workers in the manufacturing industry, which contributed to deindustrialization.
Another cause of deindustrialization is the globalization of manufacturing, trade, and investments. According to Alderson, (1999) & Palma, (2005) opening up of global economies through advancements in technology, transport, and communication, has enabled for the manufacturing of components through subcontracting to overseas manufacturers, thus reducing the levels of employment in the home country manufacturing sectors. The 20th century saw the dismantling of various trade barriers by the signing of agreements such as the General Agreement on Tariffs and Trade, which was later replaced by the World Trade Organization (Rowthorn and Well,1987 ). The opening up of trade provided new possibilities for competition, which was mainly anchored on production cost and efficiency. Industries such as automobile engineering and electronic subsectors were amongst the first to go global, closely followed by telecommunication and others. Sources of more efficient manufacturing processes and cheap production labor led to overseas production, which ultimately led to reduced manufacturing employment in the domestic front.
Role of skills in economic growth
The foregoing discussion has raised pertinent issues on the causes of deindustrialization in advanced economies. It highlighted the role played by the agricultural sector, the industrial revolution and the service sector in deindustrialization of advanced economies. It identifies the increased productivity in the manufacturing sector, competition, globalization and the growth of the service sector as some of the key causes of deindustrialization. This section discusses the concept and role of skills in economic growth, with a view to establishing whether upskilling is a viable response to deindustrialization.
According to the Centre for Labor and Market studies (2011), the concept of skills and how it relates to wealth production dates back to the 18th century, when Adam smith in his book, ‘wealth of nations’ identified the skills possessed by the labor force as a key determinant of the wealth of nations(Smith, 1776, quoted in Skinner, 1976: 104). This argument supports current research findings among academics and policy makers that the future of economies and especially in advanced societies depends mostly on their skills supply. Further, modern scholars identify various dimensions of skills as personal attributes-often residing in the person, jobs demand different skills, and skills are attained as a collaboration between the workers, organizations, professions, management and even unions.
Various researchers have explained the prominence of training and skills development in enhancing economic growth. Finegold and Soskice (1988) for instance note that education and training is a major issue at the heart of world industrial powers, with the need for adapting education and training systems to the changing economic environment gaining significant prominence in the recent past. They identify the increase in world markets integration, the shift in mass manufacturing and the development of new technologies as some of the main global changes which require adaptation of education and training systems. To this end, education and training are noted to play an important role in maintaining or restoring a nation’s international competitiveness both at the micro and macro levels. At the macro levels, a well-educated workforce is able to easily transit from one industry or country to the other while at the micro levels, firms are able to produce high quality goods and specialized services if it attracts and maintains a well-qualified workforce that has the capacity to rapidly adjust to production processes and is continually innovative.
According to Leitch,(2006), there is a clear relationship between a nation’s skills levels and economic growth. Britain, for instance, has suffered for its failure to educate its workforce at the same levels with its competitors, mostly as a product and cause of the nation’s relatively poor economic performance. Britain’s manufacturing environment is characterized by a large number of less skilled workers and a very small number of well-educated and trained workforces, thus making it difficult for industries to respond to changes in economic conditions. The countries failure to train and educate its workforce was solely responsible for the countries poor record in economic growth in the post-war era.
Empirically, it’s not easy to demonstrate the relationship between a nation’s skills and economic growth; however, there are many factors that affect labor productivity. In their study, Ashton.and Green, (1996), demonstrated that education and training had a direct relationship with performance. A survey of existing literature on this subject reveals that shortage of skills in key sectors such as engineering and IT have always been a problem for the UK industry, with many researchers concluding that the lack of, or insufficient skilled labor has been a key hindrance to economic expansion. In fact, in a study carried out by the Donovan Commission in 1968 (p.92) maintained that approximately 68 percent of engineering company’s reported a restricted output solely due to the absence of enough skilled workers.
Skills shortages are not a preserve of the manufacturing sector, with public sector professions still experiencing shortages in specialized skills.Recent studies show a very strong positive correlation between skills levels and productivity at the industry levels. In a study carried out by Daly (1984) comparing several industries in both the US and Britain noted that a shift of one percent of labor from the unskilled pool to the skilled category led to a two percent increase in productivity, highlighting the significant role played by skilled workers in ensuring organizational efficiency and productivity.
Further research indicates that the role of education and training does not end with increasing absolute productivity, but rather opens doors for overall improvements in production processes. According to Brown, (2001), a high level of education and training plays an important role in enabling firms to reorganize their work processes in order to pursue overall goals such as new product markets in a flexible system of production strategies. A more skilled workforce is more likely to respond and adapt rapidly to change, ensure product quality and work best in teams, besides being more innovative in their tasks. These studies recommend that for economies to progress towards world class levels, upskilling across all levels is an important consideration. Investment by the state, individuals and employers in increasing education and skills level is a sure way to increase contribution to the global gross domestic product. In fact, in some countries, employers have been encouraged to sign a pledge in which they voluntarily commit to training new workers, in consultation with unions and other stakeholders in order to increase productivity.
A more recent study by Leitch (2006) reviews the global skills levels, with emphasis on the UK, US, and China. In this study, the researcher notes that the UK continues to be a strong economic position, good employment levels and a long stretch of economic growth, albeit with a lot of potentials to do even better on the skills level if it’s to fairly compete at the world’s economic arena. In the UK, just like other advanced economies, the share of manufacturing sector employment is at an all times low, with the service sector accounting for at least 75% of the workforce. The challenge that the economy faces is how the economy can drive faster and greater increase in prosperity, with changes in the global economy. With dramatic growth of economies such as China and India, there is the need for other advanced economies to improve productivity if they are to stay competitive. The use of technology has broken most barriers allowing for trade in the world, as well as increasing opportunities for skills transfer across the globe, as well as increasing the importance of such skills. In fact, The Organization for Economic Cooperation and Development stresses that the as changes in the global economy continue to be witnessed, countries that continually increase their skills base stand the best chance to survive or take advantage of future opportunities.
In order for nations to improve their productivity levels, Leitch (2006) recommends an increase in employer and state investment in training and skills acquisition, improving collaborations between universities, vocational training institutions, and industry employers among others. The impact of skills development will influence individuals to appreciate the value of skills development and access to opportunities in different sectors and have even small firms having access to a pool of well-trained workforce. Finally, upskilling and economically valuable and portable qualifications available in the entire workforce is a key component of improved labor supply which enables nations to effectively compete with the rest of the world.
Upskilling and deindustrialization
In the first section of this paper, the concept of deindustrialization was discussed, with emphasis on its main causes. This was followed by a discussion on the role of skills in economic growth and development where it was noted that growth of skills levels in the workforce is directly related to the growth of economic output. In this last section, the relationship between productivity and deindustrialization will be explored in depth, in an attempt to establish the efficacy of upskilling as a response to deindustrialization. It will be argued that upskilling is not an effective response to deindustrialization, as the causes of deindustrialization are complex and natural processes. In fact, the paper posits that upskilling, which ultimately leads to increased productivity are one of the key causes of deindustrialization in advanced economies.
One of the arguments made at the onset of this paper is that the increased productivity in the manufacturing sector, at a relatively higher rate as compared to the service sector, was a key contributor to the deindustrialization phenomenon. A case in point is the emergence of new and more productive ways of production in Japan. Although most of the ideas developed, such as Total Quality Management (TQM) was originally from Western nations, they were best developed by the Japanese companies during the post second world war period. Companies utilized their highly skilled labor and used modern production techniques such as just-in- time inventory management systems and effective quality control systems, thereby raising the productivity of labor way beyond those of their European and western competitors.
The increased productivity of labor in Japan sent shock waves through the global manufacturing sector and especially to established manufacturers in the West. Companies in the US then started an initial benchmarking process in a bid to establish the source of competitive advantage among the Japanese. Researchers recommended that all industries globally should adopt the proven effective Japanese production model of lean production; a recommendation that was quickly adopted by the US and European competitors in their quest to attain the same level of productivity. The increased competition and the demand for lean production led production process re-engineering in order to improve quality and remain competitive.
Adoption of upskilling as a means to increase productivity led to labor downsizing or what was commonly known as rightsizing, where organizations shed unnecessary labor in the face of improved productivity. This was characterized by delayering, a process where organizations sought to reduce the number of management levels and increase returns to shareholders. Emphasis on productivity during this period ultimately led to a reduction of workers and increasing the pay for the existing workers so as to improve their productivity. Koike, (1995) notes that one consequence of this reduction in the number of workers led to increased responsibilities for remaining workers who were forced to increase their skills, work in teams and multitask.
The above discussion points to the fact that to the contrary, rather than increasing employment in the manufacturing sector, upskilling, which was the driving factor for increased productivity, actually led to reduced employment in the manufacturing sector, compared to other sectors such as services sector.The late 20th century saw rapid upskilling especially in the areas of information technology. Through the adoption of appropriate technology, companies were able to improve production processes, increase efficiency in the production-for example by using computer software to specify production requirements, move data and information globally and basically revolutionized the production process. Use of technology facilitated business process re-engineering, redesigning of manufacturing processes and improvement of labor productivity. Improved efficiency and productivity as a result of the acquisition of IT skills meant that work could he handled by a few workers as opposed to having very many unskilled workers doing things manually. The result was reduced proportion of employment in the manufacturing sector relative to its contribution to the GDP and other sectors.
As noted earlier, the late 20th century saw increased productivity in the manufacturing sector due to the adoption of modern production processes and use of technology. This meant that fewer workers were needed in this sector. On the other hand, there was a trend where customers were becoming more discerning, thus demanding higher levels of customer service and experience which led to an increase in the demand for customer service skills and increased labor force in the service sector. Demand for quality services means that upskilling was more prominent, in order to increase efficiency and effectiveness in service delivery. Now, since services delivery is mostly a personalized affair, there was the need for shifting of labor from manufacturing to the services sector, effectively reducing the proportion of manufacturing workforce in employment.
According to the Centre for Labour Market Studies (Pg 3-16 ), older industrial economies banked on ‘high skilled ecosystems’ and their policy of expanding their education and training with the aim of providing a basis for a high skilled, knowledge economy as the best response to globalization challenges and also as a means of solving the problem of equity and fairness however, as Crouch, Colin &Finegold, David. &Sako, Mari. (2001) noted, skills are only a part of what makes a successful and prosperous nation, with recent research presenting a gloomy relationship among upskilling, creation of employment, equity and fairness. Notably, improving the education levels of a population does not often lead to creation of employment as was the case in the US in the mid 70’s during the period of the ‘over-educated American’. European countries in recent years have also witnessed a higher percentage of their population being graduates of their now expanded education system (Pg 6). In other countries such as France, there has been a trend where employers use the high education levels as a tool to determine the most qualified candidate for a position, instead of using the opportunity to create jobs that require such higher skills levels. This means that improving education levels can solve an individual’s problem as it increases their competitiveness in the market but cannot solve collective national issues.
They noted various problems associated with upskilling; firstly, upskilling is generally a response to the increased education levels, since increased education levels mean that most jobs will require higher education levels and consequently increased skills levels. It was also noted that real upskilling results in a reduced number of manpower required to execute a given job, resulting in reduced employment levels and again, if the front level workers are adequately skilled, it eliminates the need for middle level managers who are charged with the control function and lastly, with higher skills levels, low skilled jobs become fewer, and yet they are the ones that employ most people.This limits government policy on upskilling, especially with advancements in production technology since it not only increases the skills levels but with the use of robotic technology, most of the low skilled jobs are scrapped, further complicating the unemployment, equity and fairness matrix.
They conclude that while skills are an important component of productivity, they are ‘necessary but insufficient’. Notably, there is no one particular policy guideline that can adequately solve the issue of unemployment and most importantly, the search for a highly skills economy cannot, in itself be the answer to unemployment, making the need to replace general social policy guidelines with the prominent education policy to be unrealistic. This leads to a conclusion that upskilling will not solve the problem of deindustrialization, as industries only need a few skilled workers who are highly productive. In fact, as discussed, upskilling has a negative impact of accelerated deindustrialization as industries hire few skilled and highly productive workers, thereby reducing the proportion of manufacturing employment.
Conclusion
In the above discussion, it was noted that skills acquisition, popularly known as upskilling, is a key requirement for economic growth. A review of the literature on this subject has pointed to the fact that a well-educated and skilled workforce is likely to be more productive, efficient and effective in any sector. Investment by employers and industry players, individuals, and governments in learning and dissemination of the relevant skills is a welcome gesture, which ensures a culture of productivity and great service delivery. Nations, whose workforce fail in skills upskilling often lag behind the global economic growth trajectory and are often forced to play catch-up with the developed world. This is supported by other researchers Nübler, (2014), Ashton, and Green, (1996).
The paper, however, notes that while upskilling is highly correlated to increase in productivity, it is a key cause of deindustrialization, and therefore not a viable response to deindustrialization. This is so because high productivity in the manufacturing sector as a result of upskilling and adoption of modern manufacturing technology has led to a reduction in the number of jobs in this sector, relative to other sectors.
In order to increase employment in the manufacturing sector and slow down the process of deindustrialization, it’s recommended that consumption of manufactured goods must increase so as to increase demand and ultimately increase employment in the sector. Secondly, there is a need for incentives such as tax reliefs and to be channeled towards the manufacturing sector so as to increase manufacturing activities and consumption of manufactured goods which has a direct impact on employment in this sector. Propping up of manufacturing industries that are on the verge of collapse, as was the case of General Motors and other industries during the 2008 global financial crisis is a sure way to ensure that many manufacturing concerns stay afloat which helps in reversing the process of deindustrialization by increasing employment in this sector.
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