Industrialization Movement - Essay Example

Industrialization Movement Introduction The world economy has seen great changes in the politico-economic scenes especially from late 18th century onwards. Prior to that China dominated the economic scene producing over a third of world production. The Industrial revolution in UK changed the panorama and the focus of production shifted West-ward. Western economies prevailed and the onset of industrialization took place beginning from the UK to Europe and then on to USA. The next great change took place during the 2nd world war (Hutton, W 1995), where the US economy, since it was protected from the vagaries of war, became the foremost industrial nation. US adopted the free market policy and private enterprise flourished. Fordism and post-Fordism assisted in industrialization of high order. However, banks operated with great conservatism and companies were forced to make quick profits and improve their value if they had to obtain financial support (Hutton, W 1995) Companies could downsize at will as per market requirements and as a consequence labour fetched high wages. It achieved economies of scale, had an active and vibrant financial market, a vast pool of skilled labour force, institutions of the state supporting labour welfare and the capitalist system was established as the dominant force of Industrialization (Hutton, W 1995). Post 1945, for its own sake to avoid recession, the US supported the industrialization movement in war wrecked Europe which also adopted the free market policies of competition for rebuilding its industry, but due to its cultural and political makeup of consensus building they adopted a more socialistic outlook. Lead by Germany and closely followed by Austria, Holland and Switzerland they industrialized with cooperation between all stakeholders, the financial institutions, the entrepreneurs and the labour, who had power sharing representation on company boards (Hutton, W 1995). The respective governments also looked at this arrangement benignly as they themselves were products of national coalitions and consensus was of paramount importance. They invested heavily in social welfare. The result was that profit was not the prime motive but sharing of profits was more important. Labour was therefore content with less, and so was the banks that held large shares in the companies and ensured their survival as vital stakeholders. . Japan was a unique model of late industrialization. It was shattered by the war, had little or no raw materials but was previously industrialized and needed to export for survival as its domestic economy was too small to support it. It took the capitalistic free market model but mixed it well with its dominant culture of consensus and offered lifetime employment to its labour in return for commitment (Abe and Fitzgerald 1995). It transformed itself from a trading nation to a manufacturing nation (Abe and Fitzgerald 1995). It also adopted lean technologies that later became the envy of the industrial world. This inspired the rise of the East Asian Economies, comprising South Korea, Taiwan, Hong Kong and Singapore, who were even later entrants in industrialization. They took the lessons of both liberalization as well as socialism and it was like reinventing the wheel. Their late industrialization also took into account active participation and patronage of the state. State owned enterprises and private capitalistic policies worked side by side to become a new force to reckon with. Labour got a better deal although not the lifetime promise. Financing was provided for and mostly guaranteed by the state. However this was a fragile arrangement and failed the test in the Asian crisis of 1997-98. But to the credit of these economies, they survived although they could not scale the earlier heights of growth. Nevertheless they continue to be playing their vital roles in the global market today. The latest entrant in the late industrialization scene is China, with others like India and Mexico following. China too adopted the open market liberal policies and allowed free enterprise that saw a mushrooming of small enterprises (Reference?). But it used its state power to set up large industrial units that private enterprise could not form due to their more restricted outlook and limited financing. Banks played a pivotal role here too and most loans were guaranteed by the state. This led to heavy losses for the banks and a number of restructuring exercises were required to prop up the economy. Subsidization, both direct and indirect is normal, and there is great state control over commodities. All these economies are now dominant on the world political/economic map but they display vast differences both in institutions and industries. The commonality begins and ends with free trade and liberalization. The differences are many. Institutions By far the vital factor is the role of the state in the late industrialized economies and it has played dominant role in each of the economies and economic regions including that of the US, considered as the bastion of capitalism. They promote growth; and the concept of growth amongst countries has been described as self sustained growth in this context by Landes (1969) and Arndt (1987). It is the role of the state to provide the environment for both public and private institutions to establish for supporting all its various constituents; capitalists and labour; producer and consumer; and financiers and those who need finances (Reference?). Institutions are problem solving by nature. Therefore significantly it is the state that created the environment that helped to build institutions that assist or regulate the markets. It has been accepted that institutions are made to safeguard the society in general and that the state as the representative as well as the guardian of society either creates or helps to create institutions necessary towards this objectives (Reference?). With such institutions in place firms take responsible decisions in formulating industrial and business strategies; banks and financial institutions invest in industries with accountability and performance as vital ingredients; and labour commits itself aware that it has an important role in productivity and profitability. Through these institutions the state provides subsidies, support, welfare for the unemployed and healthcare for its population in varying degrees. The US institutions were mainly private and the state played minimal role like preventing monopolies (Reference?). The state allowed maximum stimulus for private enterprise with no intervention from the state save for social security which was kept at minimum levels. Stock markets were barometers of success and failure of firms. Markets rule the day. UK followed similar patterns but the state owned some of the largest organization hence labour got better wages as well as better welfare from the state as they also doubled up as voters (Reference?). In contrast in Germany there were political coalitions and regional cooperation that filtered down to the corporates (Reference?). Here the institutions were more socialistic and leaned towards welfare and a great bonhomie between stakeholders prevailed. Stock markets had little meaning as shareholding was mainly by institutions and banks and they propped the industry which was also well supported by labour. Immigration was high to fill in for labour shortages. The formation of the European Union was a result of cooperation extending even among nations (Reference?). Indeed Hofstede (1991) called the EU as the biggest laboratory of inter-cultural collaborations. Japan was literally a world apart as they took cooperation and collaboration to a new level where the worker became a lifetime partner in the firm; the trouble shooter at the shop level; and was trained to the highest skill levels (Reference?). The operative words in Japanese Institutions and organization are trust, continuity, reputation and cooperation. The state also formulated industrial policy and assisted in R&D through its institutions to bring about innovations that soon matched and in some areas even overtook those of the West. This state intervention is unmatched by the West and is the innate characteristic of its late industrialization. (Hikino and Amsden 1994), The East Asian Economies took the best of both worlds and adopting the capitalist policies took the Japanese labour practices, except for lifetime employment, and the state patronage (Reference?). This evolved into a formidable economic force with high growth rates. Institutions, both state and private still play a major role in their late industrialization. The Chinese gave a new twist to the Institutions. They adopted capitalistic methods but used unorthodox measures like building national teams to compete with global firms (Nolan P 2001). These large State Owned Enterprises funded liberally by banks. There are financial disasters that were again covered up by the state, but these institutions were instrumental, along with willing cheap labour, in attracting huge Foreign Direct Investment by organizations of all industrialized countries. This has resulted in China becoming a major economic zone having 10% share of the world trade (The Economist). Pathways to Industrialization It is this mixture of organisation and institutionalization that brings about industrialization to countries and regions. Late development of these institutions results in late industrialization. Besides with structural upgradation of these institutions firms find improved comparative advantage in the markets. Early in 1960 Rustow concluded that economic growth and industrialization of countries rests on four phases, calling them as stages of economic development. He classified them as first comers, second comers, late joiners, countries on the path of development and backward countries. But since every country passes through these stages in its quest for industrialization and Rustow could not explain the passage in between two stages, this theory has largely been ignored. It can best be applied in the case of Britain that really set globalization rolling through its imperial empire, although the term came to be in usage in the late twentieth century, after the extinction of this empire. However, Rustow (1978) was able to relate UK as the first comer country. According to Porter (1980) competitive advantage is what promotes business. But this is on individual level. On the level of countries Porter (1990) laments poor understanding of the politic-economic history in the stages of development of a nation. According to him a firm’s capability is dependant on prevailing national and market conditions of demand as a result countries pass through various stages. This is also the driver of innovations and strategies in clustering of industries. This is experienced by economies of all nations. This is the pathway to industrialization and development of nations. Convergence The current era is that of globalization. With increasing global industrialization organizations are becoming multicultural. Similarly nations are also experiencing cultural diversity on a grand scale. Demographics are changing with migration now being recognised a necessity for the Western economies. Raghavan (1995) states that globalization is a synonym for liberalization and greater openness of the economies, both domestic and external; while Braudel (1979) opines that there are four special aspect of globalization; economic, social, cultural and political. A convergence therefore seems the order of the day. Further it is mentioned by Putnam (1993) that networks and trust enable convergence more effectively in pursuance of shared objectives and Coleman (1990) calls trust as a product of social capital. Fukuyama (1995, 1997) goes a step further to call trust as social capital itself. Fukuyama (1995, 1998), equates the wellbeing of nations on the size of the reservoir of trust: and considers it as the lubricating factor of the market system. Conclusion We are yet to witness the unfolding of the convergence era that has begun with industrialized countries being influenced by each other and finding common ground for development. The learning path continues to proceed in that direction. Convergence will also be brought about by the near stagnation of early industrializers and the high growth patterns of the late industrializers as both will need to achieve some equilibrium in order to develop new patterns by merging existing ones. On a global level organized growth is necessary to enable prosperity to become widespread. Bibliography Abe, E., and R Fitzgerald, (1995), ‘Japanese Economic Success: timing, culture and organizational capability, in E Abe and R Fitzgerald, ed., Origins of Japanese Economic Power Arndt H.W., (1987), Economic Development. 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