Causes of Economic Change and the Post-Industrial Economy

From an industrial economy to a service economy

Economic change involves changes in what a country produces and the kinds of jobs people do. The UK's industrial structure describes how employment is divided between four sectors. Farming and mining belong to the primary sector, which obtains natural resources. Manufacturing belongs to the secondary sector, which makes products. The tertiary sector provides services, such as teaching, shopping and banking. The quaternary sector involves knowledge-based work, such as scientific research and developing new technologies.

Before industrialisation, primary activities were especially important. During the Industrial Revolution, roughly between 1750 and 1900, manufacturing expanded and more people worked in factories. Traditional industries such as coal mining, steel production and shipbuilding became important sources of employment.

The UK has since moved towards a post-industrial economy: services and knowledge-based activities have grown in importance while traditional manufacturing employment has declined. This does not mean that the UK no longer makes things. Manufacturing continues, but it employs a smaller share of the workforce.

Why traditional industrial employment declined

De-industrialisation is the decline in the importance of manufacturing, particularly its share of employment. Several connected changes help explain it.

Manufacturing has shifted towards newly emerging economies where production costs, especially wages, can be lower. A UK manufacturer competing with cheaper imported products may struggle to remain profitable. It may reduce its workforce, close a factory or move production overseas.

Mechanisation also reduces the need for manual labour. Machines can carry out tasks previously done by workers, allowing a factory to produce goods with fewer employees. Therefore, falling manufacturing employment does not always mean that production has stopped: a factory may still operate but need fewer workers.

The effects are uneven between places. A town dependent on one large industrial employer can lose many jobs when that employer closes. Meanwhile, places attracting service firms or research businesses may gain new employment. The new jobs do not necessarily replace the old ones directly, because they may be elsewhere or require different qualifications.

How globalisation changes the UK economy

Globalisation means that countries are increasingly connected through trade, investment and flows of information. UK firms compete in international markets rather than only with other UK businesses.

This has contributed to industrial decline because cheaper imports compete with UK-made goods, and companies can organise production across several countries. However, globalisation also creates opportunities. UK businesses can sell services overseas, and overseas companies can invest in UK businesses and workplaces. This is called inward investment.

The result is not simply economic decline. Some activities contract while others expand. Financial services, information technology and research can benefit from international customers, investment and connections.

How government policies influence change

Governments influence the economy through ownership, regulation, spending and investment. Their decisions can affect which businesses survive and where new jobs develop.

After the Second World War, particularly during 1945–1979, governments took major industries into state ownership and supported some that were unprofitable. This helped maintain employment in traditional industries.

From 1979, policy shifted towards privatisation, transferring state-owned businesses to private ownership. Support for some traditional industries was reduced, and businesses were sold or closed. Greater emphasis on competition and profitability contributed to restructuring and job losses in some industries. Deregulation, the reduction of government controls, also changed how businesses operated and helped financial services expand.

International policy matters too. Joining the European Economic Community, or Common Market, in 1973 strengthened the UK's trading links with other member countries.

More recent policies have sought to encourage inward investment and improve infrastructure. Better transport and communications can make a location more attractive to businesses. Government decisions therefore influence both the type of economic activity and its location, alongside changes in technology and global competition.

Information technology, services and finance

Information technology (IT) involves using computers and digital systems to store, process and communicate information. The internet and mobile devices allow information to be accessed and exchanged over long distances. This supports homeworking, self-employment and businesses serving customers beyond their local area.

IT also supports other sectors. A financial business can communicate with international customers, while researchers can share information across different locations. Technology therefore creates jobs directly and changes how existing businesses work.

Service industries provide services rather than manufacture products. They include education, healthcare, retail, transport and professional services, and form the largest part of the UK economy.

Finance is an important service industry. Banking, insurance and investment services support households and businesses: banks provide loans, insurers help manage risks, and investment helps businesses develop. London is a major international financial centre, linking the UK economy with customers and money from around the world.

Research and the knowledge economy

Research and development is central to the growing quaternary sector, sometimes called the knowledge economy. It involves developing knowledge and applying it to new or improved products and processes.

UK research includes biomedical, computer and environmental work. Universities, government organisations and private companies all contribute. For example, the British Antarctic Survey carries out scientific research and employs skilled staff in Cambridge and the polar regions.

Research can generate business opportunities when discoveries become useful technologies or services. It also creates demand for highly qualified workers, making universities and their graduates important to economic growth.

Why science parks and business parks develop

Science parks bring research and technology-based businesses together, often close to a university. Cambridge Science Park is an example. University links give firms access to research, specialist facilities and graduates with scientific and technical skills. Sharing a location can make collaboration and the exchange of ideas easier.

Business parks contain a wider range of firms, potentially including offices, small-scale manufacturing and research businesses. They are often on urban fringes, where land is cheaper and more readily available than in city centres. Good transport and communications help firms reach workers, customers and suppliers.

Businesses on a park can supply each other. For example, a printing company might produce materials for nearby firms. Science and business parks show how economic change affects locations as well as occupations: employment increasingly develops around knowledge, communications and business connections, rather than solely around raw materials.

Causes of economic change

• De-industrialisation: traditional manufacturing declines in importance. Cheaper overseas production and imports increase competition; mechanisation reduces labour requirements.
• Globalisation: stronger international connections encourage trade, relocation and inward investment. Manufacturing may decline while internationally traded services grow.
• Government policies: post-war state ownership and support gave way to privatisation, reduced support and deregulation from 1979. Investment in infrastructure can attract businesses.

The post-industrial economy

Services and knowledge-based activities dominate employment; manufacturing has not disappeared.

• IT: digital communication, homeworking, new businesses and links between distant locations.
• Services: education, healthcare, retail and professional services.
• Finance: banking, insurance and investment; London is a major international centre.
• Research: biomedical, computer and environmental innovation; links with universities and skilled graduates.

Science parks versus business parks

• Science parks: research and technology firms; university links, facilities and graduates. Example: Cambridge Science Park.
• Business parks: a wider mix of firms; often urban-fringe sites with cheaper land and good communications. Firms can supply one another.

Employment and location

Factory closures and mechanisation reduce traditional jobs. Services and research create different jobs, often requiring different skills and developing in different places.