Restructuring industry

Industrial restructuring

Context

A vulnerable or declining industry may be deliberately restructured in accordance with a given plan, often negotiated among the various affected parties (other than consumers).

Implementation

Restructuring is best undertaken in times of economic depression or transition. When people are worried about their jobs they are willing to change, but when things look like they are going well they would rather leave everything as it is.

Among the objectives underlying the restructuring of industries in the countries in transition after 1989 is the need to modernize and reorient production in order to improve the availability of quality consumer goods and reduce imports; strengthen export potential and increase exports; develop and strengthen the private sector and entrepreneurship; and increase investment activity. A further objective in some countries is to convert military establishments which comprise communications, engineering, electronics and aircraft plants in order to reorient the production of these establishments to the manufacture of consumer goods for domestic and export markets.

Claim

To a very large extent, success in the process of restructuring the economies of the countries in transition depends on the success which they achieve in industrial restructuring, transformation and privatization. The real issue facing the governlments and entrepreneurs in these countries is therefore how to restructure their industrial sectors and industries in such a way that they can become viable in the context of an integrated regional and global economy and contribute effieciently to nationjal wealth and welfare in terms of value added, tax revenues, employment opportunities, foreign curency, etc.

Counter-claim

While this approach can facilitate adjustment, experience from a number of industrialized countries has revealed some severe problems: bringing firms and employees together to develop an industrial plan is apt to engender a well-organized plea for protection; if substantial parts of the industry are unviable, they generate strong pressures for a significant commitment of subsidized funds to pursue the elusive objective of restoring their competitiveness; and, within a market economy any industry-wide plan tends to be difficult to administer and to become rapidly outdated. Re-equipping firms works best where they are well-managed, and have strong markets rather than declining ones.