Positive and Negative Externalities of Industrialization

Industries and factories provide more than the products we buy.

Externalities are the side effects of industrial processes, and can have both positive and negative impacts.

This article explains the effects that industrial externalities have on our planet.

What Are Externalities?

When the production of an item results in unseen consequences that don’t directly affect the consumer or the producer, the resulting benefits and costs are known as externalities. These can have positive or negative effects, and are not limited to the consumer or the manufacturer. Externalities can include impacts on:

  • Economies
  • Environments
  • Human health
  • Communities

These impacts are rarely included in the product’s price or manufacturing considerations and can result in dramatic effects to outside parties.

Negative Externalities

When the outside costs and drawbacks outweigh the profit gained from a product, the externalities are considered negative. Many of the externalities of industrial processes are negative and largely focused on the environment and human health. Manufacturing processes, as well as resource harvesting and product distribution, result in significant amounts of pollution that do not reflect consequences on the consumer or manufacturer.


Pollution is a primary externality of manufacturing. Industrial processes can impact the environment through:

  • Land
  • Water
  • Air
  • Climate
  • Destruction of ecosystems

These occur through harvesting resources that are refined into the final products we purchase, as well as the waste and emissions that result from refinement and manufacturing practices.

Many of the products we buy require substantial refinement, in which raw materials like timber, oil, and ore are converted into usable materials like paper, plastic, and metals. The refinement processes generate significant pollution externalities, including:

  • Habitat degradation from harvesting materials
  • Solid waste from byproducts
  • Chemical waste
  • Toxic air emissions

These types of environmental externalities have significant impacts on our planet, and generate further externalities by impacting human health.

Read more: Industrial Pollution of Shared Resources

Human Health

Impacts on human health are another major externality caused by industrial processes, due largely to pollution. Industrial pollution causes decreases in air and water quality. Air emissions from factories can have severe effects on human health, including:

  • Increased risk of stroke and heart conditions
  • Cancers
  • Respiratory diseases

Read more: How Industrial Pollution Affects Global Air Quality

Water quality is also a major consequence of industrialization, resulting in contaminated waters from chemical and solid waste that limits the availability of clean drinking water. Not only does this put pressure on communities that lack drinking water, but it can result in people unknowingly drinking contaminated water, which can result in:

  • Gastrointestinal diseases
  • Cancers
  • Infections and waterborne diseases (cholera, typhoid, hepatitis, etc.)
  • Damages to nervous systems
  • Damages immune systems

Read more: How Industrial Pollution Affects Global Waters

The external impacts on human health from industrial pollution are significant factors in decreasing global human health. Clean air and water are invaluable resources that every person on the planet relies on, and industrial activities significantly decrease the quality and availability of these resources. In addition, factory conditions play a major role in the livelihood of workers, where the working conditions pose severe risks to health and safety.

Many industries cut costs on their products by limiting safety regulations of their factories and exploiting their workers. This results in externalities that affect the workers, who are neither the consumers nor the direct beneficiaries of the profits. Worker health is impacted by:

  • Long hours with minimal breaks, if any
  • Low wages
  • Unstable job security
  • Dangerous working conditions
  • Physical injuries
  • Respiratory conditions from poor ventilation

Read more: How Industrial Pollution Affects Human Health

Positive Externalities

While the majority of externalities from industrialization are negative, externalities can also have positive effects on economies and local communities. Positive externalities occur when there are positive benefits or outside profits that don’t directly impact the producer or consumer. Positive externalities include benefits to:

  • Local economies
  • Local communities

These benefits come from factories providing jobs and income to local people, and funneling money from the industries into local economies. By providing income, even when minimal, people can increase the welfare of themselves, their families, and their communities.

In many places across the world, including Indonesia and Bangladesh, the majority of factory workers are women. While factory conditions can be harsh and dangerous, workers are able to use their income to provide for themselves and their families. This results in positive externalities in improved livelihoods and access to better living conditions, when factories pay their workers fairly.

Read more: How Factories Impact Local Economies

The positive externality of factories providing income extends onto local communities as well. Workers can increase their social capital from their factory jobs, whereby they learn skills such as craftsmanship and financial management, and bring these skills into their communities to improve the financial independence of their community members. The increased income of factory workers can also help provide better education to workers and their families by enabling them afford better schooling and higher education. This leads to higher paying jobs, financial stability, and reduced poverty, and can further spread independence and stability across communities.

Industrial activities have long-lasting and widespread impacts on far more than the consumer and producer. The externalities created by industrialism can be deeply harmful or widely beneficial, and must be managed properly to avoid such negative impacts.

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