Industrialization and Economic Development

1. Industrialization and Economic Development

2. What is economics? • Economics is the social science that analyzes the production, distribution, and consumption of goods and services. • Economics actually includes a whole bunch of things that we generally don’t think of. • Micro-economics examines the behavior of basic elements in the economy, including individual agents (such as households and firms or as buyers and sellers) and markets, and their interactions. It thinks a lot about why people do things. • Macro-economics analyzes the entire economy and issues affecting it, including unemployment, inflation, economic growth, and monetary and fiscal policy. • This is what we’re going to be talking about, and what most people think of when you say, “Economics.”

3. Economics • Deals with issue of scarcity • ½ people in the world live on less than $2.00 a day, 20 % of worlds population lives on less than $1.00 a day • Economic geographers study locations and reason for economic patterns in world’s human landscape • Analyze patterns of economic wealth, poverty, growth and decline • Industrialization key component to understanding economic development level • Impact of industrialization on humans and environment

4. Basic Terms • Opportunity Cost: when we make a choice to do one thing, something else won’t get done so you do the most important thing • This is very subjective and we make the choice in accordance with expected costs and benefits • Scarcity: resources are not unlimited so we develop a system to allocate all resources • Marginal: additional costs and benefits • Example: you need your car washed for $10 or it is $5 with 10 gallon gas purchase-you need gas so the marginal cost is $5.00 • A marginal benefit of working at FJH is I can get free candy. • Market: anywhere buyers (demand) and sellers (supply) meet • When exchanges are made under FREE CHOICE, they will benefit both parties • Externalities: additional costs or benefits imposed upon a non-consenting 3rd party • Negative externalities: costs imposed, spill over or third party effects • Example: loud music, tobacco (health care) or pollution • Positive externalities: benefits imposed • Examples: education, vaccines, bee keeper keeps bees for honey, but his plants also get pollenated

6. Economic Systems • Capitalism: process of letting competitive market determine price of goods • Supply and demand • Some argue that the competition inevitably creates winners and losers and in a capitalistic society the losers are those in poverty • Socialism: when the government controls basic items in an economy • Government control of food prices, transportation and energy prices to ensure that everyone can pay for essential services • Taxes usually higher to pay for services but services like health care are usually free or are offered at minimal cost • Communism: total government control of all prices in society • Former USSR tried this approach with some success (in military sectors) but left people with limited services • China is still largely a communist country, but has been returning to some capitalistic principles recently

8. Economic Classifications • Economy defined: system of production, consumption and distribution • Primary Sector: most basic components of economy • Activities revolve around getting raw materials from earth • Examples: farming, fishing, raw mining • Secondary Sector: processing raw materials acquired through primary activities into finished products of greater value • Activities revolve around factories and manufacturing • Examples: baby food, cars • Tertiary Sector: focuses on moving, selling and trading products made in primary and secondary levels • Activities involve professional and financial institutions and services • Examples: carpet cleaning business, restaurant, banks, grocery stores • Quaternary Sector: involves information creation and transfer • Activities assemble, distribute and process information • Examples: research, universities or business operations • Subsector known as Quinary Economic Activities that involve highest level of decision making like legislature or presidential cabinet

9. People working in service sector

10. Industrialization • Defined: growth of manufacturing activity in the economy or a region and usually occurs alongside a decrease in number of primary activities within a country • Industrial Revolution • Began in England in 1760s when machines replaced human labor and new sources of energy were tapped-primarily coal • Defined by assembly-line manufacturing that tended to be located near coal fields and water sources • Allowing with manufacturing, transportation and shipping infrastructure improved

11. Industrial Revolution, cont. • By 1960s oil replaced coal as dominant source of industrial energy • Before 1960s Russia, Venezuela and U.S were primary oil suppliers-after 1960s Middle East moved to leader in oil market • Diffusion of Industrialization • By 1825, England’s technology began spreading to North America and Western Europe • Areas with large coal deposits saw greatest amount of industrialization • Ohio and Pennsylvania in U.S., Ukraine in Russia and Ruhr region in Germany • By 1920s U.S. automobile factories changed method of assembly lines by building out not up allowing goods to move more easily around factory (Fordist or Ford Production Method)

13. Weber’s Least Cost Theory of Industrial Location • Answers questions like where will factories grow? What factors affect industrial location? • Alfred Weber studied locations of industrial activities in the early 20th century-predicted where industries would locate based on the places that would be the lowest cost to them-hence the name, least cost theory

14. Weber’s Assumptions • The cost of transportation is determined by the weight of the goods being shipped and the distance to the market • The heavier the good and/or the farther the distance, the more expensive it is to ship • Industries are competitive and aim to minimize their costs and maximize their profits • Markets are fixed location • Labor exists only in certain places and is not mobile • Physical geography (land quality) and political-cultural landscape are uniform across the model’s space (no mountains, lakes or rivers would get in way of transportation) • Location of industry is driven by four factors; transportation, labor, agglomeration and deglomeration

15. Transportation and Distance • Industries want to locate where transportation costs are minimized and must consider two factors • Distance to market and weight of goods • Early factories located near energy resources but electricity enable factories to locate far from energy sources without incurring high costs • Spatially variable costs: costs that vary or change depending on the space in which it is located • Example: companies using perishable raw materials may want to locate near perishables to limit loss and minimize transportation costs • Weight-losing processes: manufacturing processes that create a product lighter and the raw materials going into it-example paper plant • Material orientation: when weight losing industries locate near the raw resource supply • Weight-gaining processes: take raw materials and create a heavier final product-example beverage companies • Market orientation: when weight gaining industries locate near the place where heavier product will be sold to limit transportation costs • Spatially fixed costs: when costs remain the same no matter where a company chooses to locate-example computer chips • Can also be known as Footloose industries because they are not bound to locational constraints

16. Other transportation issues • Space-time compression: effort to increase efficiency of time in delivery process by diminishing distance obstacles • Most effective way to do this is with modern technologies • Truck: very mobile and efficient but weather, slower traffic, use of fossil fuels and maintenance costs are all disadvantages • Trains: most efficient and most cost-effective but can’t cross oceans and have high start up costs • Airplanes: fastest way to get products to market, can access isolated areas and have high flexibility in route but are most expensive and experience weather delays • Pipelines: highly efficient but can only move liquid or gas and are very expensive to create and many fear spills harming the environment • Most famous in U.S. is Alaskan Pipeline • Ships: most energy efficient transportation but are slowest, can’t take perishable goods, have high terminal costs with port facilities and are weather dependent • Panama and Suez canal have increase efficiency of ships

19. Agglomeration • Defined: advantages and savings made when industries clump together for mutual advantages • Example: factories in the same area share costs associated with resources such as electrical lines, roads, pollution control, etc. • Agglomeration economy: when agglomeration has positive effects for both the clustered industries and consumers of their products • Example: high-tech corridor (place where technology and computer industries agglomerate) in California’s Silicon Valley-companies located here to benefit from shared resources like highly trained workforce, similar support businesses • Negative consequence of agglomeration is called backwash effect • Example: out-migration of talented computer engineers and other skilled workers who migrated to Silicon Valley • Locational interdependence: states that industries choose locations based on where their competitors are located to maximize their dominance in the market • Example: large numbers of gas stations near a freeway exit

21. Agglomeration of major shopping areas

22. Deglomeration • Defined: the “unclumping” of factories because of the negative effects of higher costs associated with industrial overcrowding • Happens when a region becomes too clustered or too crowded-can cause excessive pollution, traffic congestion, lack of resources and labor, etc • Criticism of Weber • Doesn’t identify the fact that markets and labor are often mobile • Doesn’t address labor variations in age, skill sets, gender, language and other traits • Doesn’t address some transportation costs not being directly proportional to distance

23. Other things businesses look at… • Situation: relationship a location has with locations around it • Creates basic industries (focal point of a cities economy) and nonbasic industries (secondary businesses that sprout after the city has already established its basic industry) • Multiplier effect: expansion of the economic base of a city as a result of nonbasic and basic activities located there • Industrial Cost: costs of doing business • Fixed costs: do not fluctuate based on quantity ordered • Variable costs: fluctuate based on the volume of orders

25. Globalization • Spatial interaction has occurred throughout history at many different levels • Tribe to tribe; village to village; empire to empire • Globalization defined: increasing sense of interconnectedness and spatial interaction among governments, cultures and economies • Example: Starbucks or McDonalds • Many countries see this as the “Americanization” of world culture with some areas seeking to “purify” this new culture

27. Multinational Corporations (MNC) • Defined: businesses with headquarters in one country and production facilities in one or more other countries • Sometimes referred to as transnational corporations – but more often TNCs are countries that are from a country but emphasize a global perspective • Usually they are conglomerate corporations where one massive corporation owns and operates a collection of smaller companies that provide it with specific services in its production process • Example: owning a bottling company and a food-coloring company • MNC can also include companies that own completely unrelated businesses • Example: owning a movie studio, TV production and a bottling company • Usually locate headquarters in core countries and build production facilities in peripheral countries • Outsourcing: practice of MNCs to relocate a piece (or all) of its manufacturing operations to factories in other countries • Companies outsource to take advantage of lower labor costs, lower tax rates and cheaper land prices in countries outside the United States

31. What brings economic success? • Environmentally friendly activities: really becoming more of an issue that in past • Political support: local politicians zone areas allowing factories and businesses to be created • Societal acceptance: companies must sell product people want that doesn’t violate cultural standards • Economic support base: worker training and experience

33. New Industrial Countries • New Industrial Countries (NIC) are states that have climbed the economic ladder and established and industrialized economy based on manufacturing and global trade • Traditional MNCs were found in U.S., Canada, Germany, U.K., France and Japan • Asian Tigers • Four countries that became NICs in late 20th Century • Taiwan, South Korea, Hong Kong and Singapore • These four countries with China make up the core of Asian economic growth • Also known as the Pacific Rim economic region

34. Other Global Industrial Zones • NE U.S. and SE Canada • Sub regions include New England, Mid-Atlantic, Eastern Great Lakes, Western Great Lakes and the South • Russia and Ukraine • Ukraine is agricultural, Russia is industrial on the European side • Central and Western Europe • Britain, Germany, France and Ireland • China • Beijing (majority of natural resources), Hong Kong (trading; one of Asian Tigers) and Shanghai (largest city, Yangtze River, massive industrial parks) • Japan • Technological leader with highly educated work force

35. The Rust Belt • Greatest amount of industrial area in the United States • Has seen huge factories shut down within last two or three decades creating the name • Has created crumbling infrastructure and environmental problems

37. Russia and Ukraine

38. China’s economic zones

40. Four Tigers

41. Foreign Direct Investment • Defined: Less-developed countries actively solicited foreign corporations’ investment in their countries to improve economic development • Countries can provide Special Economic Zones: regions offering special tax breaks, eased environmental restrictions and other incentives to attract businesses-China is great example • Export-processing zones: regions that offer tax breaks and loosened labor restrictions to attract export-driven production processes like factories producing goods for foreign markets • Free-trade zones: regions where duties and tariffs are waived by governments wanting to encourage MNCs to invest in their countries • In 1982, global total of foreign direct investment flows was nearly $57 billion. By 2000, number had grown to $1.3 trillion (20 times larger than 1982)

43. Maquiladoras • Established in Mexico • Special economic zones on its northern boarder with the U.S. where MNCs can outsource labor to take advantage of labor costs in Mexico that are far below those required for U.S. workers to manufacture the same products-tax breaks also provided • Created program to create jobs for Mexican farmers no longer able to make a living • Today nearly 500,000 Mexicans work in maquiladoras creating overpopulation and pollution problems • Program supposed to be phased out as part of NAFTA

44. Maquiladoras and Economic Growth

45. International Division of Labor • Defined as the material production of a society – in other words, what type of jobs to people have and what sector are they in • Happened with the rise of globalization and assembly-line concept developed during Industrial Revolution • Breaks up the manufacturing process by having various pieces in another country • In some cases, MNCs have a total yearly sales larger than the GNP of the countries they are in • Many MNCs have considerable power in less-developed countries because of economic importance

47. Free trade vs. Fair trade • Currently, there is a large debate over whether foreign direct investment is helping increase economic development or is causing exploitation by profit-driven MNCs • Many human right advocacy groups claim MNCs are not paying workers in the periphery a living wage • Free trade: idea of allowing MNCs to outsource without any regulation except for basic forces of market capitalism • Critics argue free trade only protects interests of MNCs and does nothing to protect workers rights • Fair Trade: idea of creating policies that favor oversight of foreign direct investment and outsourcing to ensure workers throughout the world are guaranteed a living wage for their work • Currently women’s rights is big topic in this issue because many believe that women typically work in sweatshop-like conditions of outsourced factories

50. Privatization • Defined: selling of publicly operated industries to market-driven corporations • Proposed as solution to increasing economic efficiency in less-developed countries • Problem is privatization can cause social hardship for families that once depended on government-owned and operated resources being sold off to profit-driven corporations • Many fear the movement of foreign companies into local economies threatens survival of local businesses driven out of the market by larger MNCs • Advocates of structural adjustment believe idea that long-term economic benefits to countries will outweigh the immediate and often difficult side effects of making the economic changes