Nonbasic industries versus Basic Industries – Basic industries are defined as sectors that produce the goods or services used by the rest of the economy. Read on for more details.
What Are Basic Industries?
These industries are typically not involved in retail or wholesale activities, but they do provide the raw materials and parts that other factories and businesses use to make finished products.
As a result of their importance, basic industries play a significant role in the economic development of many countries around the world.
These industries must meet certain criteria to qualify as such. Businesses involved in basic industry are usually large companies that function at a national level or even a multinational level.
In most instances, these organizations have research arms that employ a high number of scientists and engineers who work to improve upon current technologies and develop new ones.
The goods and services produced by basic industry are typically used directly by other businesses rather than individual consumers, although there are some exceptions.
Basic Industries Are Referred to as Heavy Industries
Basic industries, sometimes referred to as heavy industries, are vital to the development of a country.
Heavy industry often produces items that are used in other sectors of the economy.
What are some basic industries?
Heavy industries include:
- Iron and steel mills,
- Steel production facilities,
- Oil refineries,
- Petrochemical plants,
- Natural gas processing plants and
- Smelters (which convert raw minerals into more usable forms).
Basic Industries Definition
- The U.S. National Bureau of Economic Research defines basic industries as those that have very little competition from imports, possess more than average financial leverage, and are more debt-intensive because of their capital-intensive nature.
- Heavy industry is an economic sector that covers the production of goods such as machinery and other equipment, which are generally made with large quantities of raw materials and processed using large amounts of labor. The term is used primarily in industrial countries and can be associated with pollution from production processes.
- A capital-intensive industry or sector uses a lot of machinery to produce goods or services. Industries that are capital intensive require a high level of fixed assets per employee in order to maintain productivity levels.
- Basic industries have very little competition from imports, possess more than average financial leverage, and are more debt-intensive because of their capital-intensive nature. In contrast, nonbasic industries face substantial import competition and usually have less financial leverage than the economy as a whole.
An industry with low import penetration is considered basic; however, petroleum refining has become a nonbasic industry because it faces much higher levels of foreign competition today than it did 20 years ago.
Non-basic industries are industries that do not produce basic goods and services. They include:
- Wholesale trade,
- Retail trade,
- Transportation and warehousing,
- Information media and telecommunications,
- Real estate and rental and leasing,
- Scientific and technical services,
- Educational services,
- Health care and social assistance,
- Recreation and accommodation, and
- Food services.
There are two types of nonbasic industries:
- Cyclical (e.g., construction) and
- Nondefense oriented (e.g., home furnishings).
Utilities Industry Are Basic Industries
The utilities industry is considered a basic industry, even though it produces a service rather than a manufactured good.
This segment involves supplying gas, electricity, water and telecommunications to commercial, industrial and residential customers and includes energy companies involved in exploration and production as well as utilities that distribute natural gas or electricity.
Other heavy industries include chemicals manufacturing, construction materials manufacturing and gold mining.
Utilities are deemed heavy industries because they supply essential services to other industries and the public.
They are often more debt-intensive than other capital-intensive sectors, such as industrials, because of the nature of their operations and their legal requirements.
Utilities also typically have higher debt levels than financial or technology companies do.
Examples of Basic Industries
Basic industries are the foundation of a country’s economy, providing the raw materials and infrastructure necessary for other sectors to thrive.
These industries are usually very capital-intensive and debt-intensive, since they tend to have large upfront costs but long-term, reliable revenue streams.
Examples of these industries include coal mining , cement plants , petroleum refining , iron ore smelting , waste-water treatment plants and construction companies .
Why Basic Industries Are Extremely Important
You may wonder, why are basic industries important? Heavy industries are extremely important in an economy because they produce intermediate goods and infrastructure that all other sectors depend upon.
The raw materials produced by these industries are used in the production of many goods including packaged foods , automobiles , medicine , furniture and textiles .
For example, crude oil is a commodity used to create products such as gasoline, lubricants and plastics.
In the United States and in every industrialized nation, a common group of industries provides the foundation for economic growth.
Basic industries are those that must be developed early in the process of industrialization or expansion.
They are involved with removing essential elements from their environments, like soil or water. And because they require specific natural resources, basic industries must always come first.
The heavy industries are not only those industries that produce basic products; they are also those industries without high technological inputs.
In this definition even the products of mechanical industry can be included, provided that the steel and other products are produced by using low-cost locally available material such as pig iron.
For example, the steel industry uses scrap, electricity is produced from biogas, paper is manufactured from waste materials, etc.