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

De-industrialization, accelerated by the financial crisis, is a long term process. The comparative advantage of emerging economies shifted towards more advanced goods and their growing populations commanded an increasing share in global demand. This shift towards a factory-free economy in high income countries 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 volume proposes an economic analysis of this phenomenon and includes 11 contributions which complement each other and tackle the problem from different angles. The evidence in this book suggests that de-industrialization is a process that happens over time in all countries, even China. One implication is that criticism of China is not likely to provide a solution to these long term trends. Another implication is that 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. Contributors to this volume - Richard Baldwin, Graduate Institute, Geneva and Oxford University Andrew B. Bernard, Tuck School of Business at Dartmouth, CEPR and NBER Rosario Crino, CEMFI and CEPR Matthieu Crozet, University Paris Sud, CEPII and Institut Universitaire de France Aurelien D'Isanto, INSEE, Paris Avraham Ebenstein, Hebrew University of Jerusalem Paolo Epifani, Bocconi University Matteo Fiorini, European University Institute Lionel Fontagne, PSE - Universite Paris 1 and CEPII Teresa C. Fort, Tuck School of Business at Dartmouth Ann Harrison, The Wharton School, University of Pennsylvania and NBER Jean Imbs, Paris School of Economics (CNRS) and CEPR Marion Jansen, International Trade Centre 1 Francis Kramarz, CREST (ENSAE) Margaret McMillan, Tufts University and NBER Philippe Martin, Sciences-Po and CEPR Thierry Mayer, Sciences-Po, Banque de France, CEPII and CEPR Florian Mayneris, Universite catholique de Louvain, IRES and CORE Emmanuel Milet, Paris School of Economics (Paris I) Michael J. Ryan, Western Michigan University, USA Farid Toubal, Ecole Normale Superieure de Cachan, Paris School of Economics and CEPII, France Weisi Xie, University of Colorado at Boulder