While at times painful, each new era of industrialization opened up previously unimaginable opportunities over the long term. This cyclical nature of progress is relevant today, as manufacturing branches into the digital world and increased automation causes much anxiety. Yet each industrial phase builds on the last and sows the seeds for the next, reaping benefits for those who adapt and seize new opportunities.

This article examines the evolution of U.S. manufacturing in four phases, from steam power to digitalization. It explores the underlying economic, social and technological forces that enabled each shift and the results of these changes, as well as their impact on the labor force.

An age of steam power and mobility

The Industrial Revolution first sparked in Europe in the 18th century, then soon spread to the U.S. Steam power mechanized cotton mills, transforming the textiles industry. Its impact on the transport sector helped unleash greater economic dynamism by moving people and goods across the country.

This era marked the rise of industrial magnates like Andrew Carnegie and John D. Rockefeller. It was also an age of dangerous and grueling work. Still, cities grew as industries diversified and industrial work opportunities attracted immigrants and motivated Americans to transition from craftwork and small-scale agriculture.

In turn, the actual “building” of America to accommodate these changes—through construction booms in housing and public works like infrastructure—further boosted manufacturing through demand for building materials and prefabricated structures.

Mass production and prosperity

Electrification in the late 19th century and the invention of assembly line systems in the early 20th century ushered in the next big shift—the era of mass production. This period birthed some of today’s largest American manufacturing corporations. It also introduced luminaries like Thomas Edison and Alexander Graham Bell—forefathers of the Elon Musks of the modern era.

Assembly line work created a high demand for labor and manufacturing employment grew sharply, especially in the 1940s as part of the war effort.1

Increased production encouraged women to join the workforce and created economic opportunities for African Americans, who moved to the cities in the north during the Great Migration. Cities grew larger still, as workers increasingly abandoned lower-income production sectors, such as textiles and agriculture.

During this period, various forces combined to raise standards of living. Workers successfully organized to improve working conditions and sent children to school instead of factories. Cost savings in manufacturing production lowered prices. Greater affordability along with the higher wages earned in manufacturing enabled the rise of a middle class. Meanwhile, the G.I. Bill widened access to higher education, creating engineers and other professionals.

Computer power: IT manufacturing and mass computing

The second half of the 20th century marked the next phase in U.S. manufacturing, ushered in by computerization and related technological advancements. The development of microprocessors in the 1970s signaled the dawn of the personal computer era. This drove production in hardware, from floppy disks and hard drives to central processing units (CPUs), motherboards and power supply units. Computing generated many new jobs, such as programmers and computer scientists—predecessors of the software and app developers of today.

Meanwhile, innovations in aerospace and defense technologies like satellite communications, GPS and remote sensing would cross over to other manufacturing segments to produce higher-tech goods. The commercial manufacture of fiber optic cables in the 1970s spurred growth in telecommunications, later providing the physical infrastructure of the internet. The wide adoption of intermodal transportation transformed logistics in manufacturing, accelerating the pace of globalization.

But advances in computing also made some jobs obsolete as computing enabled greater automation. Combined with the rise of lower-cost manufacturing labor in East Asia, the 1980s thus marked the beginning of a long decline in assembly line employment. However, the computer and electronics sector remains one of the leading manufacturing segments in terms of employment2 and value-added contribution to GDP.3

Digitizing industry

The U.S. is now in the throes of a new industrial era characterized by the fusion of cyber and physical systems (“Industry 4.0”). This era is seeing the creation of smart factories, as well as the rise of more skills-intensive jobs in advanced engineering and prototype design.

“There is a massive reorientation of who is working in manufacturing industries, with a relative increase in the number of engineers and software developers,” says Mark Muro, a senior fellow at the Metropolitan Policy Program at Brookings Institution. “The fastest growing and biggest job posting in Detroit in the auto industry, for instance, is for software developers. [Fewer] people in factories have no digital skills or are doing the kind of routine manual work of the old days.”

Advanced technologies and the rise of digital platforms like Amazon are also helping nurture custom manufacturing through faster distribution systems. “It used to be that you would have a manufacturing operation and the distribution grew around it. One-day delivery enables a whole business model where custom manufacturing operations are located near fulfillment centers, so they can turn around stuff to customers almost immediately,” says Michael Mandel, chief economic strategist at the Progressive Policy Institute in Washington and senior fellow at Wharton’s Mack Institute for Innovation Management at the University of Pennsylvania. “This could give U.S. manufacturers a durable competitive advantage against foreign rivals.”

Disruptive forces create opportunities

History shows that technological change in manufacturing—while disruptive—revitalizes manufacturing in new and unexpected ways. It can also change the fortunes of the U.S. population as a whole, improving livelihoods and thus driving broader socioeconomic transformation.

Steam power transformed industrial production, even as it left traditional wares outmoded. Electricity and the assembly line system improved productivity, giving rise to the modern American corporation and a middle class. The computer era rapidly modernized manufacturing, greatly increasing the precision, output and variety of the goods we can make. The rise of the digital industrial revolution looks set to bring similar changes—threatening jobs through automation, while creating vast new opportunities.

The next article will explore this latest phase further, examining how it is spurring innovation and, like previous waves of change, offering manufacturers the prospect of emerging from times of uncertainty stronger than before.


  1. Federal Reserve Bank of St. Louis. “All employees: Manufacturing/All employees: Total nonfarm payrolls,” https://fred.stlouisfed.org/graph/?g=cAYh
  2. Bureau of Labor Statistics, “Table 4,” https://www.bls.gov/web/empsit/tab4.txt
  3. Bureau of Economic Analysis, “Value added,” https://www.bea.gov/industry/gdpbyind_data.htm


The Economist Intelligence Limited 2017.

This article was written by The Economist Intelligence Unit and sponsored by Prudential. For more information call Prudential Retirement® at 800-353-2847.

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