The economic history of the United States in the mid-20th century demonstrates how nations and companies can use diversification as a critical strategy for adapting to changing conditions. This process is extensively covered in Michael Gort’s study, “Patterns and Trends in Diversification” (1962), which describes the evolution of multi-sector structures in American companies, as well as the causes and outcomes of diversification. This experience is particularly relevant for Kazakhstan, as diversification can become an essential tool for developing its economy, reducing dependency on raw material exports, and increasing resilience to global changes.
Economic diversification in the U.S. had begun in the first half of the 20th century with the most significant growth occurring after World War II. This period saw increasing competition and market instability, which compelled companies to seek new ways of adapting. According to Gort’s study from 1929 to 1939 the average annual number of new products introduced by major U.S. companies was 48.4 units. During this period companies began adding new areas of activity to reduce their dependency on a single product or sector.
The chemical industry provides a relevant example, as it significantly expanded in the 1930s by investing in related areas like plastics and rubber production. This practice allowed companies not only to respond flexibly to shifts in demand but also to establish a foundation for sustainable growth. This lesson is especially relevant for Kazakhstan, where the oil and gas and metallurgy sectors represent a substantial portion of the economy, making it vulnerable to global price fluctuations in raw materials.
Gort’s study shows that in the post-war period, diversification became a deliberate strategy for American companies. From 1950 to 1954, the average annual number of new products introduced by companies reached 107.8 units, nearly doubling the previous period’s levels. This growth was driven by the need to adapt to a rapidly changing economic environment and increasing competition. Companies sought to minimize risks associated with fluctuations in core areas and to find new sources of income.
For Kazakhstan, which also faces global competition challenges, this could be a strategic guide. Introducing new products and services, especially in the agro-industrial and processing sectors, can help reduce reliance on oil and metals. For example, developing agricultural processing and producing consumer goods could become promising areas, allowing Kazakhstan to make the most of its resources.
One of the key conclusions from Gort’s study is the vital role small and secondary areas play in the success of the multi-sector model. In 1954 about 45.3% of production operations in American multi-sector companies were in areas that provided less than 2% of total employment. These secondary areas created an essential reserve of resilience, allowing companies to remain flexible in times of market shocks.
For Kazakhstan, this approach can help reduce dependency on one or two industries. For example, in the chemical or metallurgy sectors, adding new products such as fertilizers or construction materials could help diversify risks. Although these areas may contribute minimally to overall revenue, they create opportunities for flexible responses to demand changes. This “insurance buffer” helps companies maintain production and retain jobs during periods of economic instability.
The multi-sector model was not only a means of enhancing resilience for American companies but also a factor in strengthening competitiveness in the global market. According to Gort, diversification allowed American companies to compete successfully both domestically and internationally, as they could offer a wide range of products and services. This multi-sector structure gave them the flexibility that more narrowly specialized companies lacked.
For Kazakhstan aiming to develop its export potential such an approach could be advantageous. For instance, metallurgy companies could expand their range of services by offering processed metal products for international markets. This would not only increase the added value of products but also strengthen Kazakhstan’s position on the global stage. Moreover, this approach could help Kazakhstan cope with cyclical changes in the global economy, maintaining stable income and competitiveness.
The American experience with diversification also highlights the importance of this model in job creation. Diversification allows for the reallocation of labor across different sectors, reducing reliance on a single sector and creating job opportunities even during economic downturns. In 1954 the multi-sector structure of American companies meant that over 38% of all jobs in the economy were provided by companies operating in multiple sectors.
For Kazakhstan where the labor market largely depends on the oil and metallurgy sectors diversification can become an essential component of increasing employment. Developing such areas as agricultural processing, consumer goods production, and services could create new jobs and reduce dependence on core industries. This is particularly important for regions where the economy is heavily dependent on a single sector, making them vulnerable to external economic shocks.
Despite its obvious benefits diversification comes with certain risks. Companies seeking to enter new industries face the need for significant investments, management structure changes, and potential initial losses. However, as the U.S. experience shows, these risks can be minimized by gradually introducing new areas, starting with those that require minimal investment and allow quick adaptation to market changes.
Implementing a multi-sector model in Kazakhstan will also require considerable effort, including investments in infrastructure and human resource development. However, as in the U.S., this process can be phased and focused on strategically important areas that will ensure growth and stability. State support, such as the creation of special economic zones and tax incentives for new enterprises, could be an essential element for the successful implementation of this model.
The experience of the American economy in the mid-20th century shows that diversification is not just a way to mitigate risks but also a crucial element for sustainable growth and increased competitiveness. A multi-sector structure that allows companies to allocate resources flexibly and adapt to change was the key to stability and growth for the U.S.
For Kazakhstan whose economy still depends heavily on raw material exports this experience can serve as a guide in developing a long-term diversification strategy. Developing new areas, creating “insurance buffers” in the form of secondary products and services, and supporting innovations and exports can make the country’s economy more resilient to external shocks.
Thus, diversification will not only serve as a tool for adapting to global challenges but also an opportunity for Kazakhstan to reach a new level of development by creating jobs, enhancing competitiveness, and forming a sustainable economic system.
