Industry

I

Introduction

Industry, in a general sense, the production of goods and services in an economy. The term industry also refers to a group of enterprises (private businesses or government-operated corporations) that produce a specific type of good or service—for example, the beverage industry, the gold industry, or the music industry. Some industries produce physical goods, such as lumber, steel, or textiles. Other industries—such as the airline, railroad, and trucking industries—provide services by transporting people or products from one place to another. Still other industries, such as the banking and restaurant industries, provide services such as lending money and serving food, respectively.

The word industry comes from the Latin word industria, which means “diligence,” reflecting the highly disciplined way human energy, natural resources, and technology are combined to produce goods and services in a modern economy.

While societies have always produced goods and services, large-scale production did not occur until the Industrial Revolution, a period of mechanization that began in Britain during the 18th century. Large-scale production is driven by machinery, makes use of advancing technologies, and employs a sizeable workforce unconstrained by preindustrial relationships, such as those of slavery or feudalism.

The Industrial Revolution did not occur in the United States until the first half of the 19th century. Although many countries have since developed or are beginning to develop industries in the second half of the 20th century, most of the world’s poorest countries have yet to establish a solid industrial base.

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II

Industry Classifications

An industry is usually classified either by a major input (good or service used to produce the final product) or by the industry’s final product. When a final product is used by another industry, it is called a producer good. Steel, which is used by other industries to produce automobiles, airplanes, construction materials, and numerous other products, is an example of a producer good. Final products, such as automobiles, which are purchased and used by individuals, are called consumer goods.

Industries also may be classified as primary, secondary, or tertiary industries. Primary industries use raw natural resources as major inputs. Agriculture, commercial fishing, mining, and the forest industry are primary industries. They use farmland, oceans, mineral deposits, and forests, respectively, as their major inputs.

Secondary industries use producer goods to assemble their products. For example, the construction industry produces houses, other buildings, and roads. Its inputs include lumber manufactured by the forest industry. The largest group of secondary industries is the manufacturing industries. Manufacturing industries produce a vast array of consumer and producer goods, such as processed food, clothing, heavy machinery, automobiles, electronics, and household appliances.

Final products manufactured by secondary industries are classified as durable goods and nondurable goods. Durable goods are products that are used repeatedly over long periods of time, such as automobiles and washing machines. Nondurable goods are products that are used for a short period of time, such as disposable contact lenses, clothing, food, toothpaste, soap, and other items.

Tertiary industries are those that provide services. For example, retail stores, universities, hotels, banks, television stations, hospitals, and travel agencies are all tertiary industries. Also classified as tertiary industries are all forms of government activity, ranging from local trash disposal to the armed forces.

III

Components of Industry

Industries use a range of inputs, such as capital, technology, natural resources, labor, and management, to produce goods and services. In order to manufacture products, money is needed to purchase buildings, equipment, and machinery and to pay workers. This money is called finance capital. Buildings, machinery, and other equipment are referred to as physical capital.

Physical capital, natural resources, and labor (workers considered as a group) are combined to yield the final product, which is sold for money. The amount of money received that exceeds the cost of producing the good is called profit. Profit can be used to pay for another cycle of production. When profits are used to hire more labor and purchase additional physical capital, production expands and industrial growth occurs.

A

Physical Capital and Finance Capital

Industrial growth depends on the availability of both finance capital and physical capital. Finance capital is often raised by borrowing money from a financial institution, such as a bank, or by selling stocks (certificates representing shares of ownership in a business). If finance capital is scarce in a country, industrial growth may be curtailed. Similarly, if a country lacks the resources to manufacture or import its own physical capital (such as buildings, machinery, and equipment), industrial development will also be limited.

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