Industrialization is a key strategy to the game: factories can be highly profitable in the mid to late game.
The danger of early industrialization
Industrializing early is difficult for even the most powerful nations.
- Artisans start out more efficient than industry and as a result will put factories out of business
- The World Market doesn't have enough resources (e.g. they are not extracted efficiently and in sufficient quantity) to fuel mass production. For example, trying to industrialize early as Prussia causes factories to starve for critical resources half the time, even if they are factories that need something like coal, which Germany makes in mass quantities. Between POPs and RGO inefficiency, there isn't enough coal to keep cement or steel factories running at full speed every day.
- Labour isn't being efficiently used in RGOs due to inferior technology, thus there is no ready pool of labor to run factories. National focus on craftsmen would be disastrous: miners and farmers would leave inefficient RGOs for factories, further reducing the availability of raw material inputs for industry.
Having factories as early as 1836 is not necessarily bad (look at the UK) but it can be challenging. Many nations will need to subsidize factories for some time while encouraging capitalists with their National Focus points. This essentially transfers money from the state's treasury to capitalists, which will give you an edge once technological advances make RGO's more efficient and factories more profitable. Wealthy capitalists will build new factories and upgrade railroads for you. If you can appoint a party with State Capitalism, start by building factories that make basic goods like cement, steel, lumber, etc. in states with the requisite RGO's. Beware of military goods factories in particular, as availability of inputs as well as demand may be sporadic. Later in the game, your economy will function with less input from you.
Creating the foundations for industrialization
The early game needs to be spent focusing on how to create a solid foundation for future industrialization. Generally, industry can't be effective until at least the 1860s.
Research industrial and commercial techs to increase RGO efficiencies to allow for naturally firing POPs from the RGOs. Increasing RGO efficiency makes labor available while increasing industrial efficiency enables factories to compete with artisans. Commercial techs are a top priority.
- Commerce—Economic Thought And Critique: -4% factory input is possible by around 1850.
- Commerce—Market Functionality: +30% in RGO output, +5% factory throughput, +2% factory output and -2% factory input is possible by around 1850.
- Commerce—Organization: +16% factory output is possible by around 1850.
- Industry—Power: +30-60% in RGO output is possible by around 1850.
- Industry—Mechanization: +20% factory throughput is possible by around 1850. Also improves the output of several RGOs and couple of different factories.
- While Laissez-Faire has been greatly improved in A House Divided, it is still only advisable when one has an established industrial base. Once a country has a developed economy, with more than five factories being built by capitalists at a time, Laissez-Faire is an extremely effective policy, especially considering the throughput boost it gives. It basically puts a nation's industry on autopilot. However, smaller countries will most always benefit from a human controlled industry.
- Promoting literacy is key to ensuring a natural promotion of the population. All national focuses should be devoted to clergy, rather than craftsmen, until they are 2% nationally. After that national focus on clerks and capitalists helps tremendously, as they both make factories more efficient: Clerks can increase factory input by up to 50%.
- Railroads improve factory and RGO throughput. Railroads are another example of where increased technology provides continual benefits to factories, while artisans are left in the dust bin of history.
- Tariffs are extremely important, as anything over ten percent will starve factories, causing a snowball effect. Eventually, a country's POPs will demote to farmers, and you will be exactly where you started. As a result, whenever possible, tariffs should be set to 0%.
- Taxes should be used primarily to ensure that POPs are having their needs met. This ensures that local POPs can afford to purchase the goods that industry produces.
Sphere of Influence
Nations that are a great power should work on bringing countries into their sphere that provide raw materials for industry. However, beware of China! Sphering large countries with a substantial RGO and artisan base will cause demand for factory-made goods to cease. Sphering any of the large Chinese nations in the early game (1836 to 1880), will cause your industry (and possibly the world economy) to implode.
Prestige is absolutely critical. The difference between being #2, #7, and #29 is vast. If you can get and keep #1, you are well on your way to building an awesome economy.
Successful nations must either sphere or annex critical resources, lest they are doomed to be an agrarian power until gaining enough prestige to buy them from nations that finally produce enough.
- Dye is controlled by the UK and Netherlands until Synthetic Dye is invented, so you are at their mercy if you want to produce cloth.
- Coal is used in so many industries, not to mention POPs using it up, that if you don't have your own coal, you are at a serious disadvantage to everyone else.
- Iron is really important in the early and middle game.
- Timber is useful early on, but once Russia gets some techs, it gets much more common.
- Sulfur is vital to anyone who wants to produce weapons.
- Guide industrial development during the first half of the game using available resources. Let the artisans satisfy demand in other products, but let factories only work along supply chains you have full access to. During the second half of the game, you can start looking at demand more often, but even then you still need to monitor supply. The specter of supply chain problems never disappears completely.
- Subsidizing industries must be carefully considered. Industries that just keep failing every day of their life should be deleted or closed. The only time subsidizing is important is when you have a sine-wave supply bottleneck or when you need to immobilize labor in a state while you build new factories. That sine-wave bottleneck is a real problem, since the factory gets its inputs half the time, but half the time it's missing something. Rather than just close it down or let it fire workers, I can run that factory at 100% the moment it gets inputs again. Still, letting workers move to industries that are doing better is usually the best strategy.
Heart of Darkness Changes
In Heart of Darkness, the industry system has been massively revamped. Factories are now able to artificially reduce throughput temporarily when running a deficit, instead of immediately laying off workers. Furthermore, Capitalists are once again somewhat improved. Most important however, are the resource throughput bonuses. Factories can achieve up to a 25% bonus if all inputs are produced in the state, either by RGOs or by other factories. An example chain of industry for Scotland to maximize production would then be as follows;
- Steel produced in the Lowlands, garnering a 15% bonus from the coal (but not the full 25%, because the Lowlands lack iron)
- Machine Parts and Steamers produced in the Lowlands, getting the full 25% bonus from the coal and the Steel plant
- Ammunition, Fertilizer, Explosives and Artillery all produced in the Highlands, as they complement each other and create a full chain of production from RGO to artillery guns
As you can see, planning factories in Hearts of Darkness is somewhat more in-depth than simply building in your most populated states.