5.7 - Impact of Industrialization and Economic Development
Rapid industrialization combined with fossil fuel dependence produces environmental and political crises that governments have to address one way or another.
Government Solutions
Governments respond in several ways: physically relocating polluting factories away from population centers (China moved some heavy industry from eastern cities toward interior regions); subsidizing green technologies to incentivize cleaner production and reward compliance with environmental standards (China subsidizes solar panel production and electric vehicle manufacturing); building infrastructure and regulation for environmental monitoring, pollution control, and waste management; passing laws requiring conversion to hybrid or electric vehicles to address urban air pollution (China promotes EV adoption through subsidies and license plate preferences, while the UK will end sales of new petrol and diesel cars in 2030, with hybrids allowed until 2035); and building health infrastructure specifically to handle pollution-related disease, with Chinese cities issuing air quality alerts and distributing masks while health systems respond to pollution-caused respiratory illness and cancer.
Governments act for a mix of reasons: citizen pressure, since pollution affects quality of life directly and produces real protests; legitimacy threats, since failing to address environmental damage undermines the regime; economic costs, since health problems reduce overall productivity; and international pressure through climate agreements and reputational costs. China faced massive protests over air and water pollution, and the regime responded with environmental regulation specifically to maintain its legitimacy.
China's clearest example is its "war on pollution." After severe smog in 2013, the State Council issued an Air Pollution Action Plan that cut coal use in key regions, closed or moved polluting factories, and set air quality targets for cities, and Premier Li Keqiang declared a "war on pollution" in 2014. Beijing's average PM2.5 level fell from about 90 micrograms per cubic meter in 2013 to 27 in 2025, a drop of about 70 percent.
Trade Liberalization's Wider Effects
Reducing tariffs affects multiple areas of society at once. It creates winners and losers in domestic business: export-oriented firms and industries with a genuine comparative advantage tend to win, while domestic producers facing new import competition tend to lose; Mexican manufacturers near the US border (maquiladoras) thrived under NAFTA, while more traditional industries struggled. Lower tariffs also attract foreign direct investment, since foreign companies invest more readily when market access is guaranteed; China's 2001 WTO membership combined with low tariffs attracted massive foreign manufacturing investment. Trade volumes affect foreign exchange rates too, since trade surpluses tend to strengthen a currency while deficits weaken it. Trade liberalization often accompanies population movement as well, with NAFTA facilitating Mexican migration to the US and Chinese export industrialization driving massive rural-to-urban migration. And environmental quality generally suffers, at least initially, since liberalization tends to prioritize growth over environmental protection, as seen clearly in China's severe pollution during its rapid industrialization.
Tariff Policy Trade-offs
Reducing tariffs lowers consumer prices since imports get cheaper, but costs domestic industry jobs; Mexican corn farmers were harmed by cheap US corn imports under NAFTA even as consumers benefited. Increasing tariffs protects domestic jobs and industries but raises consumer prices and risks retaliation; Trump-era tariffs on Chinese goods protected some US industries but raised consumer costs, and China retaliated in ways that hurt American exporters. Governments constantly have to balance consumer interests against domestic producer interests here, with no clean answer either way.
Austerity Measures
Budget deficits from market fluctuations often force austerity, which then forces funding cuts. Deficits arise from commodity price crashes (oil-dependent states like Russia, Nigeria, Iran, and Mexico lose revenue whenever prices fall and can't maintain existing spending levels), global recessions (tax revenues decline while social spending pressures increase), and currency crises (devaluation increases debt costs while capital flight reduces available resources).
Austerity responses typically involve cutting social welfare programs, education funding, healthcare spending, infrastructure investment, and public sector employment. Mexico's 1980s debt crisis forced massive austerity, with public spending slashed to meet IMF conditions and social services suffering as a result. Russia's budget cuts after oil price crashes and sanctions forced pension reform attempts and reduced public services, and Nigeria periodically cuts fuel subsidies whenever oil revenues crash, sparking protests even as the government insists on fiscal necessity.
The political consequences can be severe: popular resistance as austerity reduces living standards, protests and instability, and real legitimacy challenges, along with electoral costs as incumbents get punished for cuts and opposition exploits the resulting grievances. Nigerian attempts to remove fuel subsidies have repeatedly triggered major protests, including the 2012 Occupy Nigeria movement that forced a partial reversal. This creates a genuine regime dilemma: fiscal sustainability often requires cuts, but those same cuts threaten political stability.
Nigeria finally removed the petrol subsidy in 2023: President Bola Tinubu announced "fuel subsidy is gone" at his May 2023 inauguration, and the central bank let the naira float that June. Petrol prices roughly tripled within weeks and kept rising, the naira lost more than two-thirds of its value against the dollar by 2024, and inflation passed 30 percent, sparking the August 2024 #EndBadGovernance protests, which police broke up with tear gas and hundreds of arrests. The government argued the subsidy had cost trillions of naira a year that it could no longer afford.
Rapid Development Forces Radical Policy Change
Industrialization forces governments to shift from agricultural to industrial policy (supporting urbanization and manufacturing while reducing agricultural subsidies), develop environmental regulation that was previously ignored but becomes essential, evolve labor policy from agricultural or informal norms toward industrial labor codes with union recognition and workplace safety, transform education from basic literacy toward technical and professional training matched to workforce needs, and expand infrastructure like roads, electricity, and water for both industrial zones and the urban infrastructure needed to support migrant workers. China's development required exactly this kind of massive policy overhaul, transforming from an agricultural to an industrial and service economy that required a completely different government role than before.
Bottom line: rapid industrialization creates environmental crises that governments address through regulation, technology subsidies, and infrastructure investment. Trade liberalization affects business, investment, migration, and environmental quality all at once, and tariff decisions always involve balancing consumer costs against domestic industry protection. Market fluctuations force austerity cuts that can threaten political stability directly. Development requires genuinely radical policy transformation as countries industrialize, shifting government focus from agriculture to manufacturing, from rural to urban, and ideally from growth-at-any-cost toward something more sustainable, though managing all these consequences while maintaining stability remains a real ongoing challenge.