The Factory-Free Economy: Outsourcing, Servitization and the Future of Industry

34 Pages Posted: 11 Jan 2017 Last revised: 22 May 2023

See all articles by Lionel Gérard Fontagné

Lionel Gérard Fontagné

Banque de France; CEPII; University of Paris 1 Panthéon Sorbonne; Paris School of Economics

Ann E. Harrison

University of California, Berkeley; National Bureau of Economic Research (NBER)

Date Written: January 2017

Abstract

The shift towards a “factory-free” economy has drawn the attention of policy makers in North America and Europe. Some politicians have articulated alarming views, initiating mercantilist or ‘beggar-thy-neighbour’ cost-competitiveness policies. Yet companies that concentrate research and design innovations at home but no longer have any factories there may be the norm in the future. This paper summarizes the key themes emerging from a conference on de-industrialization. De-industrialization is a process that happens over time in all countries, even China. The distinction between manufacturing and services is likely to become increasingly blurry. More manufacturing firms are engaging in services activities, and more wholesale firms are engaging in manufacturing. One optimistic perspective suggests that industrial country firms may be able to exploit the high-value added and skill-intensive activities associated with design and innovation, as well as distribution, which are all components of the global value chain for manufacturing. Although this ongoing transformation of the industrial economies may be consistent with evolving comparative advantage, it has significant short-run costs and requires far-sighted investments. These include the costs to workers who are caught in the shift from an industrial to a service economy, and the need to invest in new infrastructure and education to prepare coming generations for their changing roles.

Suggested Citation

Fontagné, Lionel and Harrison, Ann E., The Factory-Free Economy: Outsourcing, Servitization and the Future of Industry (January 2017). NBER Working Paper No. w23016, Available at SSRN: https://ssrn.com/abstract=2895870

Lionel Fontagné (Contact Author)

Banque de France ( email )

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Paris School of Economics ( email )

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Ann E. Harrison

University of California, Berkeley ( email )

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United States

National Bureau of Economic Research (NBER)

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