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How industry varies around the world

 

industry

Industry differs greatly between developed and developing nations. Developed nations include most countries in Europe and North America, as well as Japan. Developing nations include most countries in Africa, Asia, and Latin America. Industry in developed countries produces more goods and services per person than it does in developing ones.

The low production in developing nations is due to shortages of machinery and other capital goods, and to less advanced technology. Workers produce much food, shelter, and other needs with primitive tools and techniques, so that each worker's output is small. Unlike industrialized countries, developing nations also lack sufficient human capital, including the engineers, managers, and skilled workers needed for industrial growth.

Several obstacles restrict industrial expansion in developing countries. Rapid population growth prevents the expansion of capital because more resources must be used for food and other goods used directly by consumers. Most of the people spend everything they earn to survive and have nothing to invest. Among those people who are able to save, many invest their savings in gold, jewels, idle land, or other kinds of wealth rather than in capital goods. In addition, a shortage of schools and teachers limits the production of human capital. Developing nations also differ from developed countries in what they produce. A large share of the industry in developing countries provides food and other basic needs. In developed countries, many industries produce leisure products and luxuries of various kinds. In addition, many poor nations produce only one or two raw materials, which they exchange with the rest of the world. They suffer if the price of these materials falls.

Problems and challenges

Modern industry faces many problems and challenges. Industry's most important problems include labor productivity, energy supply, and government regulation. In addition, industrial societies face such challenges as environmental pollution and unemployment.

Labor productivity. Businesses continually strive to produce more output with the same amount of labor. When productivity improves, firms can lower prices and still have enough money for the inputs used in production. They can also pay higher wages to workers and managers, and can give bigger dividends to their stockholders.

Higher rates of productivity also give businesses an advantage in international markets. Firms in the same industry compete with one another throughout the world. For example, European automakers compete with Japanese car companies for customers in many countries. In most cases, customers will buy the products that offer the best quality at the lowest price, regardless of where they are produced. A high rate of labor productivity enables businesses to offer better and cheaper products.

Many factors affect labor productivity, but one of the most important is the structure of an industry-that is, whether production is concentrated in one company or a few companies, or spread out among many firms. Most industries dominated by a single firm have little competition, which typically leads to low rates of productivity. As a result, such industries may fall behind similar industries in other countries. An example is the United States steel industry, which for many years was dominated by a single large company. Until the 1980's, that industry operated with outdated equipment and processes. It found itself losing business to steel industries in Japan, Canada, South Korea, and other countries, in part because some of those countries used modern equipment and methods to produce cheaper steel.

Industries with many firms, however, may do much better. Labor productivity and product quality often increase rapidly in such industries. An example is the U.S. pharmaceutical industry, which has many firms that compete vigorously. As a result, the industry produces high-quality drugs and medicines that are used throughout the world. For more information about structure, see the section on Structure later in this article.

Energy supply. Industry requires huge amounts of energy to run machines and to provide heat for manufacturing processes. The cost and availability of energy play major roles in the choice of industrial location and other business decisions. Industry also produces automobiles, heating systems, and other goods that require energy. Most energy today is generated from such natural resources as coal, natural gas, and petroleum.

Because these natural resources cannot be replaced, some people believe that government should control energy prices and limit individual and industrial use of fuel and electricity. But most economists call for less government intervention. They argue that past energy shortages resulted from government policies which kept the prices of petroleum and natural gas artificially low. They believe that if the government allowed the prices to rise, the higher prices would encourage energy producers to increase their output. Higher prices would also stimulate the development of substitute sources of energy.

Government regulation. The term regulated industry refers to industries in which government agencies control prices, standards of service, or some other aspect of the business. Industries regulated by the U.S. government include radio and television, which are supervised by the Federal Communications Commission (FCC); and the drug industry, whose products are controlled by the Food and Drug Administration (FDA). Other regulated industries include such public utilities as electric, gas, and telephone companies, which operate under state public service commissions. Many public utilities have a monopoly on their service within a given area. The United States government permits such monopolies but regulates the prices they charge and their activities.

However, nearly all United States industries are subject to some government regulation. The Occupational Safety and Health Administration (OSHA) enforces job safety and health standards. The Food and Drug Administration (FDA) administers laws on the purity of food and the safety and effectiveness of drugs. The Consumer Product Safety Commission sets safety standards for consumer goods. The Environmental Protection Agency (EPA) issues regulations dealing with automobile exhaust and gasoline mileage. The Federal Trade Commission (FTC) and the Department of Justice enforce laws that prohibit monopolies or monopolistic behavior.

Government regulation protects consumers from environmental pollution, unsafe products, and dishonest advertising and trade practices. But regulation may also harm consumers. For example, the lack of competition in a regulated industry could cause companies to become inefficient and to neglect product improvement. In such cases, members of society pay several times-not only in higher taxes and higher prices but also in poorer-quality products and services.

Environmental pollution is a side effect of many industrial processes. Some factories pour smoke and other pollutants into the air and dump waste products into lakes and rivers. Pollution harms the environment and can endanger the health of living things.

To fight pollution, industries can install filter systems to remove harmful substances from waste products. They can develop production methods that create less pollution. They can also find ways to make useful products from waste substances. For example, sewage can be turned into fertilizer or fuel. Aluminum cans, glass and plastic bottles, and paper products can be recycled.

But fighting pollution uses resources, just as producing goods and services does. Pollution control devices and new processes that reduce pollution require capital, labor, technology, and other inputs. They may mean higher prices for consumers or lower profits for industry.

Unemployment results in lost income for the jobless, reduced sales for industry, and lost production for society as a whole. High unemployment occurs during economic slumps, when many businesses reduce production and lay off workers. People who have lost their jobs spend less on goods and services, and the reduced demand leads to still more joblessness. Unemployment also can result if consumer tastes change or new products are developed, causing some industries to decline. To fight unemployment, the government may help create jobs by increasing its spending or reducing taxes. It may also reduce interest rates and increase the availability of money and loans.

Even if jobs are available, unemployment can occur if workers lack the skills needed for those jobs. Many individuals cannot find work, and many businesses cannot find skilled workers. In the United States, the federal, state, and local governments have worker-training programs to help combat this type of unemployment.


Contributor: William S. Comanor, Ph.D., Professor of Economics, University of California, Santa Barbara; Professor of Health Services, University of California, Los Angeles.
Source : World Book 2005

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