Industrialization and Economic Development

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Industrialization and Economic Development
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What is economics?

• Answers question of Who gets what?
• 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 worlds 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

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Basic Terms

• Opportunity Cost when we make a choice to do one
  thing, something else wont 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
• 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 mosquito spraying, vaccines, tobacco
  (never pull social security)

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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

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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

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People working in service sector
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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

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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, Englands 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)

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Webers 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 paces
  that would be the lowest cost to them-hence the
  name, least cost theory

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Webers 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 models 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

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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

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Other transportation issues

• Time-space 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 cant 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, cant take perishable goods, have
  high terminal costs with port facilities and are
  weather dependent
• Panama and Suez canal have increase efficiency of
  ships

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Labor Costs

• Can the factory owner hire the workforce needed
  for the factory?
• Labor considerations include the availability of
  industrial capital (machinery and money to
  purchase the tools and workers the factory needs)
• Industry may move to place with lower labor
  costs, even though transportation costs might
  increase-this decision is called substitution
  principle

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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 electoral
  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 Californias 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

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• Agglomeration of major shopping areas

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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
• Doesnt identify the fact that markets and labor
  are often mobile
• Doesnt address labor variations in age, skill
  sets, gender, language and other traits
• Doesnt address some transportation costs not
  being directly proportional to distance

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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

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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

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Multinational Corporations

• Defined businesses with headquarters in one
  country and production facilities in one or more
  other countries
• Sometimes referred to as transnational
  corporations
• 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
• Remember the substitution principle?

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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 doesnt violate cultural
  standards
• Economic support base worker training and
  experience

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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

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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

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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

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Russia and Ukraine
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Chinas economic zones
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Four Tigers
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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)

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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

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Maquiladoras and Economic Growth
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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

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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 womens rights is big topic in this
  issue because many believe that women typically
  work in sweatshop-like conditions of outsourced
  factories

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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

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Nongovernmental Organizations (NGOs)

• Defined aid organizations that assist in
  boosting economic development and human rights
  throughout the worlds peripheral regions
• Always non-profit
• Many thousands exist around globe
• Deal with myriad of causes like womens rights,
  health care, eradication of poverty, animal
  rights, education, etc.
• Often supply resources and money to local
  businesses and causes advancing economic and
  human development
• Have worked to combat HIV/AIDS and hunger
• Examples Doctors without Borders or Save the
  Children

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Sustainable Development

• Defined rate of growth and resource consumption
  that can be maintained from one generation to
  another
• Many feel with will protect future generations
  from us consuming all Earths resources
• In 1992, UN Commission on Sustainable Development
  called for conservation and careful use of
  resources
• Focused on caring for soil, protecting species
  from extinction and reducing air pollution
• Recycling and alternative sources of fuel seen as
  important as well

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Globalization and Sustainability

• With increased industrialization and economic
  interaction, many wonder if this increased rate
  of production and development can be sustained
• Fossil fuels and natural resources (including
  land) are being depleted
• Travel availability are altering landscapes to
  fit what tourists want
• Ecotourism tourist operations that aim to do as
  little harm to the environment as possible
• Costa Rica is excellent example

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Contemporary Patterns and Impacts of
Industrialization and Development

• Development process of improving the material
  condition of people through the growth and
  diffusion of technology and knowledge
• Different levels of development exist in
  different countries
• Human development is continuous and unending but
  we classify areas to make it easier to understand
• Developing countries wealthier side of
  development spectrum
• Developed countries on the economically poorer
  side of the spectrum
• Middle-income countries in the middle of the
  spectrum-has aspects of both developed and
  developing
• Many factors influence the level of development!

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UN Human Development Index

• Defined uses a formula to measure development
  that can be used to compare the various
  development levels of regions and countries
• Based on idea that development is a process of
  expanding choice
• Factors three areas into measurement life
  expectancy, average educational levels and
  standard of living
• Economic component of the HDI is GDP (gross
  domestic product)
• GDP value of total outputs of goods and services
  produced in a country, usually over a one year
  period
• Per-capita GDP is simply the GDP divided by the
  population
• Developed countries have per-capita GDP greater
  than 20,000 developing countries have
  per-capita GDP less than 1,000
• GNP value of all goods and services owned and
  produces by a country overseas

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World Human Development Levels
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Uses for the GDP

• Gives PPP (purchasing power parity)-a measurement
  tool for calculating the exchange rates required
  for each currency to buy an equal amount of goods
• Example GDP per capita in sub-Saharan African
  countries is at or below 750.00 but with the
  PPP, buying power is closer to 4,000.00.
• Puts number comparisons into perspective
• Doesnt reflect inequality among people in a
  country
• HDI highest score is 1.000 with the lowest .000.
  In 2006 lowest country was Niger with score of
  .311, highest country was Norway with score of
  .965.
• U.S. ranked 8th among 177 countries

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GDP levels across the world
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The Informal Sector

• Many countries do not know and/or report data
  from their informal sector in GDP
• Defined network of business transactions that
  are not reported, therefore, not included in the
  countrys GDP and official economic projections
• Examples babysitting, street vendors, drug
  trafficking
• In many less developed countries, this sector is
  prominent in overall economic activity
• Why does the informal sector exist?
• Good produces in informal sector may be meeting
  need the formal sector has ignored
• Good produced here may be in high demand because
  they are inexpensive-the negative to this is
  people who work in this sector rarely make enough
  to meet basic needs
• Often this sector involves illegal immigrants

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Other indicators of development

• Because of problems with GDP, we often use other
  measures to analyze economic development. These
  include
• Access to raw materials
• Amount of consumer goods
• Amount of technology in the country/region
• Number of TVs and radios per person
• Womens rights and level of equality
• Expendable income the amount of money left over
  after all bills have been paid
• Big Mac Index compares price of Big Mac
  throughout the world
• In Thailand, costs 1.78 where GNP per person is
  8,440
• In United Sates, costs 3.22 where GNP per person
  is 42,000
• This shows the Big Mac is an expensive meal in
  Thailand

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The Development Gap

• Defined the widening difference between
  development levels in more-and less- developed
  countries
• More-developed countries are improving their
  development levels faster than less-developed
  countries with this difference widening
• In last 10 years, GDP tripled in more-developed
  countries but only doubled in less-developed
  countries
• Natural population increase fell by 85 in
  more-developed countries but only by 5 in
  less-developed countries
• North-South Gap more-developed countries located
  in Northern Hemisphere and less-developed
  countries primarily located in Southern Hemisphere

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Development Gap Countries
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This map shows what happens to the world if you
remove the countries producing the bottoms 5 of
the worlds GDP. (realize this is ONLY 5 of the
worlds GDP!)
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Structuralists vs. Liberal economic development
theories

• Structuralist theories
• Argue less developed countries are locked into
  vicious cycle of entrenched underdevelopment by
  global economic system that supports unequal
  structure
• Dependency theory argues that political and
  economic relations among countries limit the
  ability of less-developed countries to modernize
  and develop
• Uses Immanuel Wallerstiens world-systems analysis
  (we will learn more about this later) but
  basically states there are core, periphery and
  semi-periphery countries
• Use Europes colonial occupation of Africa as
  reason for Africas poverty
• Offers little hope for less-developed countries
  because the dominance of more-developed countries
  is highly linked to continued economic and
  political inferiority of less-developed countries
• Major criticism is it doesnt allow for cultural
  geographic differences

• Liberal Theories The Rostow Modernization Model
• Claim that development is process through which
  all countries can move
• Assumes all countries follow similar path of
  development toward becoming modernized
• Similar to demographic transition model that
  predicts countries will move through stages of
  structural change to attain development
• 5 total levels
• More developed countries exist in stages 4-5
  while less-developed countries exist in stages
  1-3

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Rostows Stages of Development

• Stage 1 traditional where economic activities
  focus on subsistence with outcome of activity
  consumed primarily by those producing the
  product-sees large amount of national wealth
  allocated to tasks that are not economically
  productive like building temples or a military
• Example subsistence agriculture
• Stage 2 preconditions to take off where small
  groups of people initiate innovative economic
  activities that pave the way to economic
  development-these people invest in new
  technologies and infrastructure- causes some
  surpluses for trading
• Example better water systems and modes of
  transportation
• Stage 3 takeoff where small number of new
  industries that the elite invested in during
  stage 2 begin to show rapid economic
  growth-industrialization increases but some areas
  remain dominated by traditional activities like
  agriculture
• Example Industrial Revolution
• Stage 4 drive to maturity where diffusion of
  advanced technology moves beyond just the few
  initial industries-other industries experience
  rapid growth, workers become more skilled and
  specialized and the economy begins to diversify
• Stage 5 high mass consumption where economy
  shifts from dominance of secondary manufacturing
  jobs to dominance of service-sector tertiary
  jobs- most incomes fairly high and people become
  mass consumers of produced goods

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Criticisms of Rostow

• Some feel the model isnt applicable to all
  countries because model is based on European and
  Anglo-American development patterns
• Does not account for road blocks to development
  like postcolonial dependency on former colonizer
  that many countries experience while struggling
  to develop their economies
• Considers each country an independent agent
  rather than one that interlocks with other
  countries

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Reducing the Development Gap

• There is much debate on how to reduce the
  development gap
• Example of gap African womens chances of dying
  in childbirth is 1 in 16 while in the industrial
  world, chances are 1 in 2,800
• Popular method developed in the 1900s is the
  self-sufficiency model
• Defined as ability to provide for a countries own
  people, independent from foreign economies
• Country should spread its investments and
  development equally across all sectors of its
  economy and regions
• Rural areas develop along with urban areas
• Poverty reduced across the entire country
• Favors closed economic state
• Imports are limited and heavily taxes so local
  businesses can flourish without competing with
  foreign countries
• China, India, eastern Europe and Africa are using
  this approach to improve development in their
  regions
• This system can and does create corruption and
  inefficiency limited develop
• Example Indian government paid failing
  businesses to stay open and continue rather than
  face competition that could improve product and
  by extension, business success

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Reducing the Development Gap with International
Trade

• This approach encourages international trade
• Pushes a country to identify its strengths in the
  world then channel investment toward those
  strengths
• Argues that to compete internationally, a country
  must find out what it can offer the world and
  then capitalize on that good or service
• Argue that eventually a country will develop a
  comparative advantage (when the country is better
  at producing a particular good or offering some
  service than another country) over the rest of
  the world in producing that good or service
• This comparative advantage can fill the markets
  need for a good or service at a lower production
  cost than other places can
• Example Japan invested money and power into
  developing a comparative advantage in
  high-technology products

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Eastern Europe
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Western Europe
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America
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South America
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Australia
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India
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Nepal
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Mongolia
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Africa
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What does this population pyramid suggest about
the future for developing nations?
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Services

• Defined as any activity that fulfills a human
  want or need and returns money to those who
  provide it
• In the modern economy, most people work in the
  service industry!
• Where services are located and why they grow
  where they do is a major part of geography

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Types of Services

• Consumer Services provides services to
  individual consumers who desire and can pay for
  them
• Retail Services about ¼ of all jobs in U.S.
  this is shopping
• Personal Services 1/5 of all jobs in U.S.
  these improve quality of life like health care or
  education
• Business facilitate other businesses
• Producer services provide services to help
  people conduct other business like financial,
  real estate, law or management
• Transportation businesses that distribue and
  diffuse services includes information services
  like broadcasting and publishing
• Public provides securty and protection for
  citizens and businesses
• Includes police, fire, public schools, etc.
• About 10 of American workers are in public
  services

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Where are services located?

• Central Place Theory defined as a market center
  for the exchange of goods and services by people
  attracted from the surrounding areas
• Central places compete with each other to provide
  services
• A.K.A. the Christaller model
• Primarily deals with question of How far will you
  drive to receive a particular service?
• Ex. Pizza vs. Neurosurgeon

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Rank-Size Distribution of Settlements

• Defined where the countrys nth largest
  settlement is 1/n the population of the largest
  settlement
• Lets do an activity!

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World Cities

• Defined Cities that are integrated into the
  global economic system and are at the center of
  the flow of information and capital
• Three major world cities London, New York and
  Tokyo
• Why would they be important?
• Where are these?