Chapter 12: Economic Geography Developed by Joe Naumann
Economic systems are an important part of any culture • Every society (culture) must answer the basic economic questions: • What to produce • How to produce it • Who will get what is produced • Cultural influences on the economic system • World view of the culture • Technological level of the culture • Political structure of the culture
Economic system cont. • Non-cultural influences • Relative location & accessibility • Topography & Climate • Resources available from the environment • Factors of production in all economic systems • Land – real estate and natural resources – raw materials • Labor – mental and physical efforts applied to “land” and “capital” to facilitate production • Management or entrepreneurship – that segment of labor which organizes land, capital, and the other segment of labor to produce goods and services • Capital – the tools and facilities needed for production
It begins with physical place • What does nature provide that is useful? • Elements of physical place with economic significance: • Climate and flora and fauna • Topography: landforms • Soil • Rivers (nature and flow) OR lack of rivers • Mineral deposits • World View may influence both what and how elements are used in the society
It continues with relative location • Peripheral or central location? • Accessibility? Major world trade lanes Mongolia – rather inaccessible Western Europe -- centrality Australia (not seen) – peripheral
Location Factors for Firms &. . . • Many factors influence locational decisions of firms, individuals, governments, etc.
Technology & the Economy • Technology will influence the range of possible uses of economic elements • “Nature, despite the limitations with which it hedges human initiative and enterprise, is not only very diverse but also remarkably malleable.” W. Gordon East The Geography Behind History • In the interplay between humans and environmental conditions, humans are the “choosers.” Therefore, human choices become extremely meaningful.
Balanced Economic Approach • Governments & firms often consider only what can be quantified in dollars and discount other, difficult to quantify, factors. • The significance of the 4 laws of ecology must be factored in • Some “costs” are difficult to quantify, but must not be discounted because of that. • Human & social costs are important
Early Cradles of Civilization: Economic Factors • Productive soil to support agriculture • Adequate access to water: rainfall and/or rivers • Transportation – domesticated animals & rivers • Reasonable temperature range for human activity • Plants and animals that could be domesticated or already had been domesticated • Some metal ores that could be refined to make tools and/or weapons • Location where ideas could mix • Some degree of natural defensibility
Control of fire Stone tools Domestication of plants and animals Metal tools Boats Agriculture Urbanization Rise of the nation-state Renaissance Age of Reason Scientific Revolution Agricultural Revolution Democratic Revolution Industrial Revolution Internal combustion engine Communication Revolution Microelectronics and the computer age Cultural developments with economic implications
Classification • Market Economy [capitalism; free-enterprise] • Private ownership of capital & “land” • Minimal government ownership or regulation [laissez-faire capitalism – the impossible extreme of not government involvement in the economy] • Profit-motive is the driving force – the engine that drives the economy – encourages risk-taking. • Competition results in efficiency and the lowest possible consumer prices • Price regulating mechanism is supply and demand
Stock Market – supply & demand Many Americans have much of their financial future tied up in the stock market – insurance policies, 401K plans, pension funds, mutual funds, etc.
Classification cont. • Command economy disappearing? • Capital and land can’t be privately owned • Production & pricing planned by agency of govt. • Influenced by political/social agenda of the government • General absence of competition • Consumer interests may have a low priority • Efforts to have a totally command economy have never succeeded: Soviet Union, China, etc. • Tend to be inefficient, producing poor-quality goods • Needed elements of “capitalism” to be sort of successful • Really were “socialist” – much government control.
Russian disinfection center Homeless man cleans up
Homeless in Russia • Source of political instability – this condition didn’t exist under communism.
Traditional Economy • Non-industrial • Basic economic questions answered by doing what is “customary” • Generally opposed to risk-taking behaviors • Private ownership of capital • Land may be privately owned, but often is considered the property of the group – the tribe. • No country today has this economy, but there may be areas within developing countries where this is the type of economic system
Mixed economy – what all countries really have. • Mostly combination of market & command economies • U.S. – Mixed Market Economy – leans toward the market system, but there is government involvement in the economy • China – Mixed [socialist economy] – overall planning by the government, but some “privatization” has been allowed – joint ventures with capitalist firms from outside China – SEZ’s & unique status of Hong Kong • Brazil – Mixed Market Economy with pockets of traditional economy in the interior
Primary Economic Activities • The simplest, closest to nature, use of earth products • Hunting & gathering • Agriculture and animal husbandry – growing plants and harvesting the fruit and raising animals for sale • Extracting minerals from the earth – various ores, crude oil, natural gas, etc. • Fishing • Lumbering
Primary: Subsistence Agriculture • Extensive Subsistence Agriculture – involves large areas of land and minimal labor input per unit of land. • Nomadic herding • Shifting cultivation (milpa; slash-and-burn; swidden); less than 5% of world’s people engaged today • Intensive Subsistence Agriculture – involves small land holdings and great amounts of labor per unit of land. – Nearly half of the world’s people are engaged in it. • Traditional Chinese agriculture • Production of foodstuffs for sale in rapidly growing urban markets
extensive subsistence agriculture • Slash-and-burn agriculture – a form of crop rotation. Probably the most efficient use of the tropical lands in the long-term. Does not support a large population
Intensive subsistence agriculture • Labor Intensive
Green Revolution • Seed and management improvements– grains. • Increased production–1969-1999–4% increase in grain per capita world-wide • Chinese rice up 2/3 & India’s wheat 100% • Benefits not uniform – not much in Sub-Saharan Africa • Purchase of seeds [hybrids] & fertilizers and insecticides -- may be beyond the most needy’s abilities • Consumer resistance to “engineered” crops • Women benefited less – 1/3 to ½ of farm laborers -- work longer hours & have lower incomes then men farmers – in some cultures women prohibited from land ownership.
Green Revolution • Emphasis on crops not generally grown in Africa south of the Sahara • Greatest need exists in Africa due the large population growth rate
Commercial Agriculture • Often at the expense of domestic food needs • Production Controls • Market forces – supply & demand • Profit motive – i.e. fewer pigs in Jersey County, IL • Competition • Government farm policies – price subsidies, etc. • A Model of Agricultural Location – von Thünen rings • Value of land varies inversely with distance • Highest value agriculture (intensive commercial agriculture) located near urban markets – truck farms • At greater distances, extensive commercial agriculture – wheat fields
von Thünen rings • Distance in transportation miles & mode not point-to-point miles – Calhoun County, IL
Commercial Agriculture • Intensive Commercial Agriculture • Higher value land & closer to markets • Use of much machinery, fertilizers, labor, etc. • Dairy farms, truck farms – perishables (refrigerated trucks & railroad cars extended the economic distance from markets) • Livestock-grain farming – farther from markets in U.S. • Extensive Commercial Agriculture • Less expensive land & farther from markets • Wheat farms use expensive capital – combines are expensive so cooperatives may purchase some • Large land areas (low capital output per unit area) • Typified by large wheat farms and livestock ranching
Agriculture: Special Crops • Special circumstances, uaually climatic, make places far from markets intensively developed areas. • Mediterranean agriculture • Year-round warmth and dry summers – irrigation may be needed • Grapes (wine), olives, oranges, figs, some vegetables – these desirable crops grow best in limited climate areas • Plantations – tropical or warm subtropical climates • Usually foreign investment & may divert land from domestic subsistence farming resulting in need to import food • Often labor intensive -- employed alien labor forces • Produced 1 or 2 specialty crops: coffee, tobacco, rubber, bananas, pineapples, sugar cane, tea, jute, cacao
Agriculture: Planned Economies • Subject to government planning and political goals • Collective and state farms – tended to be inefficient • Lack of individual incentive • Emphasis on heavy industry and the military • “Private plots” introduced to improve productivity • Toward privatization – decline of “communism” • 2000, only 5% of Russian of farmland privately operated • China: from collectives to communes to private – 180 mil. new family farms under rent-free leases • Transition from command economies to market economies – difficult in agriculture and industry in countries that had called themselves communist
Other Primary Activities • Fishing and Forestry – renewable resources • Goal should be maximum sustainable yield • Mining and Quarrying – extracting • Exploiting an accident of nature – no correlation between area of country and quantity of resources • Transportation costs very important for low-value minerals (gravel, limestone, cement, and aggregate) • Nonrenewable resources – oil, coal, natural gas • Reusable resources – like metals (copper, lead, & iron)
Mining, etc. • Affected by balance of three factors: quantity available, richness of ore, and distance to markets • Land acquisition and royalty costs may equal the other three • Competition may also be a deciding factor
Trade in Primary Products • Share (%) of world trade is declining • Importance to Developing Economies • Depend on trade for foreign exchange revenue • Pay for needed imports • Source of capital investment • Danger of Commodity Trade Dependence – could be at mercy of fluctuating world markets • Banana & coffee republics of Central America • Exception may be something like oil – OPEC changed the focus of power in that market
Secondary Activities: Manufacturing • Industrial Locational Models • Variable costs have important role in location decisions: transportation charges, labor rates, power costs, plant construction or operation expenses, interest rates of money, raw materials • Seeking to reach a large enough market cheaply enough to produce profits • Alfred Weber – placed much weight on transportation costs
Weber’s model visualized • Rather rigid formula that may not give sufficient weight to factors other than location.
Other Locational Considerations • Transport Characteristics – declining cost factor • Cheapest is by water (rivers don’t go everywhere) • Air is the most expensive per pound • Agglomeration Economies • Industrial development tends to attract more • Parts suppliers – former Carter Carburetor • Complementary industries – tire manufacture near auto – FEDEX, UPS, car rentals, & hotels near major airports • Just-in-time approach dispenses with large parts inventories • Flexible production systems not rigid assembly lines
Location: Comparative Advantage • Areas tend to specialize in products for which they have the greatest relative advantage • When other countries’ comparative advantages reflect lower labor, land, raw material and capital costs, manufacturing activities may voluntarily relocate from higher-cost market locations – outsourcing by American firms – i.e. components may be made in Mexico and assembled in the U.S.A. • NAFTA – attempt to keep outsourcing from going elsewhere & enlarge the whole market
More on location • Imposed Considerations or other considerations • Land use, zoning & environmental quality restrictions • Government area-development incentives • Local tax abatements & Sale of development bonds • Stability of government & its economic policies • Presence or lack of necessary infrastructure • Multinational corporations play one location against another to get “best” deal for firm (usually reducing country’s benefit). Compete for auto assembly plant
Transnational Corporations (TNCs) • Growing international structure of modern manufacturing • 90% of the largest 100 have headquarters in USA, Japan, or European Union. • Benefits of foreign direct investment doesn’t reach all countries – i.e. little reaches Africa • Most capital flows go to advanced countries • Take advantage of comparative advantage • Often lose their original national identify & have budgets larger than many countries • Very difficult to regulate