Industrialization brings both positive and negative effects. During industrialization, the manufacturing sector enjoyed a rapid increase in output. It also creates more jobs and income in the economy as it increases the value added of primary sector output. However, industrialization has also resulted in more population, urbanization, and pressure on social and environmental problems.
Positive effects of industrialization
Goods available in abundance and variety
The goods available are more abundant and more diverse. Industrialization allows us to have more things to buy at affordable prices. Manufacturing increased its production significantly. Machines help workers be more productive, producing more goods than ever before. Thus, prices can fall as output increases on a large scale.
On the other hand, we can also enjoy more diverse goods. Various manufacturing businesses developed during industrialization. Research and development gives rise to new innovations, not only related to the production process but also to products.
More job opportunities
Industrialization spurred various businesses to develop. When the demand for manufacturing inputs increased significantly, various businesses in the primary sector sprang up. If previously relying on small-scale businesses, large companies have started working on the primary sector. An example is an agribusiness company, which has a supply chain from upstream to downstream.
On the other hand, the tertiary sector is also developing. The manufacturing sector requires various services from businesses in this sector. For example, to improve the skills of workers, they need training services. Other examples are transportation, logistics, warehousing, wholesale and retail businesses; which they play an important role in delivering the company’s output to consumers.
Higher labor productivity
Machines help workers produce more output and faster than doing it manually. It is even more significant because, at the same time, production technology and techniques are developing more advanced.
Furthermore, specialization and division of labor allow workers to become more proficient in carrying out their daily tasks. They focus on a specific task, making it easier for them to learn from experience how to get the job done faster.
Increase in state income
Manufacturing businesses add value to primary sector outputs by processing them into semi-finished or finished goods. It makes their contribution to gross domestic product increase.
Manufacturing expansion also creates more jobs. They recruit more workers. In addition, demand also came from supporting businesses for the manufacturing sector, especially in the service sector. That ultimately brings more employment and income opportunities into the economy.
Rising standard of living
People have access to cheap and varied goods. They get the things they need to make their lives easier and more productive. In addition, urbanization also allows people to have better access to education or health services.
On the other hand, manufacturing expansion creates more income for households. They earn higher wages than those earned in the primary sector. They can use it to buy goods and invest in education and training.
Trade balance improvement
Primary products or commodities have low added value so they are sold cheaply in foreign markets. They are also more volatile and vulnerable to price fluctuations in international markets.
On the other hand, manufactured products have higher added value. Thus, they can be sold at higher prices in international markets, leading to more export earnings for the economy.
An increase in manufacturing output is also beneficial for the exchange rate. Domestic production can better meet demand in the domestic market, reducing dependence on imports. More limited imports save foreign exchange. That ultimately helps improve the trade balance.
More qualified workforce
Specialization encourages workers to become professionals, specialized workers or experts in their functional area. They achieve this, for example by attending training or continuing their education to a higher level. It helps them improve their bargaining position when applying for new jobs, enabling them to earn higher salaries. However, this effect may vary between manufacturing industries and occupations.
Negative effects of industrialization
Increasing social problems in urban areas
The population of cities is increasing along with urbanization. For example, in the early 18th century, urban dwellers in England made up about 20% of the total population. This percentage then jumped to 50% in the mid-19th century due to the industrial revolution.
In cities, although people have better economic opportunities, the more dense the population also raises other problems such as access to housing and other social problems.
Some people come to the city without adequate skills. They are unemployed and need money to survive. That may lead to an increase in urban crime.
Environmental problems such as garbage appear in urban areas. With a dense population, garbage accumulates every day and without building an adequate waste treatment system, it raises various problems to the environment, such as water pollution.
In addition, the increase in greenhouse gas emissions – both coming from the manufacturing sector and households – also causes global warming and climate change. For example, global atmospheric carbon dioxide had already reached 315 ppm in 1858, an increase from 280 ppm before the Industrial Revolution began in the mid-1700s.
Natural resource depletion
Industrialization leads to an increase in demand for natural resources as raw materials. With the rapid growth of manufacturing, it leads to exploitative behavior, depleting natural resources and destroying environmental sustainability.
It then gave rise to the green approach as a solution. It emphasizes efforts to conserve natural resources while improving the economy in a sustainable manner.
Owners of capital enjoy the benefits of increased manufacturing activity and other services. They use their money to set up a business or invest their money in various corporate securities such as manufacturer’s stock. Finally, their money makes more money.
Instead, workers think more about how to meet their daily needs for any income they receive. They are more difficult to allocate more money for investment as capital owners. Eventually, their money runs out for daily expenses without being able to make more money.
Rising structural unemployment in the agricultural sector
Urbanization resulted in the depopulation of rural areas. That raises problems in the agricultural sector as it is difficult to recruit enough workers.
Industrialization also brought mechanization to the agricultural sector replacing farm laborers. Some farm laborers are unemployed and find it difficult to upgrade their skills according to market demand, making them structurally unemployed.
Increased imports of raw materials, components and capital goods
Industrialization contributes to improving the trade balance if resources are abundantly available in the domestic economy. Otherwise, it increases the demand for imported raw materials and components.
Likewise, if industrialization is not directed at building an integrated supply chain in the economy, it will also lead to an increase in imports of capital goods. Domestic industry is not enough to meet domestic demand. The reason may be because the transfer of technology from developed countries to developing countries is hampered.
Negative foreign investment effect
Industrialization may be driven more by foreign direct investment than by domestic direct investment. While creating jobs and income for local workers, multinational companies transfer some of the profits to owners in the home country.
In addition, more foreign players such as multinationals increase competition and reduce local business opportunities to develop due to more limited capital.
Furthermore, if economic or political conditions deteriorate, foreign investors can withdraw their investment. If the domestic economy is more dependent on foreign investment, these outflows increase the chances of an exchange rate crisis.
Miserable working conditions and the recruitment of underage workers could be a common practice during industrialization. Significant demand for labor leaves workers with no bargaining power. Moreover, the regulatory system and labor organization are often underdeveloped.
Indeed factories can produce more output and enjoy greater economies of scale. However, it requires workers to spend much of their time in jobs with deplorable and dangerous conditions. They have to perform the same routine and tasks over and over again, much like a robot assigned to a job. Finally, it gives rise to stress and between workers in the factory.
Less time for family
The development of factories made most of the male workers move to the cities. They expect better economic opportunities, even though the reality may not be as expected. Factory work makes them tired and stressed, making it difficult for them to enjoy leisure time and family life after returning from work.