In some countries, TNCs are responsible for extremely high proportions of total domestic production— the mining, manufacturing, and petroleum sectors of the Canadian economy, for example. Today, TNCs control more than half of all international trade simply via intracorporate transfers of components, services, investments, profits, and managerial talent among their scattered plants and offices in various countries.
Most of this intrafirm trade is not finished products and services, but components, subassemblies, parts, and semifinished products. Thus TNCs, not countries, are the primary agents of international trade, largely between and within their organizations.
A TNC will operate in a country where a set of characteristics taken together is more attractive: location, resource endowments, size and nature of market, and political environment. Further, the TNC is able to use transfer pricing, the practice of setting prices for goods and services provided by subsidiaries so as to transfer taxable profits to countries that have the lowest corporate tax rates.
TNCs are able to compete on a world scale due to their transnational communications ability that allows them to share information, via the Internet and satellite and fiberoptic communication systems, with their subsidiaries and branches throughout the world. This is a tremendous advantage in that all components of the TNC can stay aware of markets, products, labor, and business opportunities.
TNCs also have the advantages of large stores of capital, technological and managerial skill, and overall economies of scale. Foreign direct investment FDI refers to investment by foreigners in factories that are operated by the foreign owners of a TNC. Japanese transnationals are most likely to invest in Asia and in North America. Since the s, governments in the three core regions where TNCs are based—North America, Europe, and East Asia—have made changes to accommodate international corporate capital, altering tax codes and regulations that formerly hindered transnational operations.
Other countries where TNCs wish to invest, especially developing countries, have also modified their laws, taxes, and regulations to encourage transnational operations within their borders. From the three major world cities, or command centers, in New York, London, and Tokyo, orders are sent instantaneously to factory shops and research centers around the world because manufacturing production and assembly lines and lower-cost offices have been located outside the high-cost core countries.
For example, most U. Latin America, Africa, and Asia contain three-fourths of the world population and almost all of its population growth. These countries find themselves on the periphery of the world economy, suffering a sustained lack of foreign investment; this pattern is the result of centuries of colonialism and a world system in which the rules often work against them.
Three trends are apparent in foreign direct investment FDI in developing countries. First, the proportion of FDI that core countries are allocating to periphery countries is declining. Core countries increasingly invest in one another. Second, FDI is becoming more geographically selective. Countries that attract the greatest FDI from the core countries are those that have chosen the export-led strategy of economic growth. Countries welcome foreign investment in order to build factories that will manufacture goods for international markets and employ local labor.
Export-led policies rely on global capital markets to facilitate international investment and global marketing networks to distribute the products. The countries that have grown the fastest in recent decades have generally followed the export-led approach as opposed to the alternate approach, import substitution. Locational Specialization In the global economy, every location plays a distinctive role based on its particular combinations of assets and weaknesses that have evolved over time, and TNCs assess the economic and locational assets of each place.
Today, brain power has largely replaced muscle power as the primary source of wealth in the world and transmaterialization substitutability among inputs has changed the nature of resources. Input factors and components move intrafirm, final goods are fabricated close to the point of consumption, and national boundaries count much less than they did in the global economy of the past.
In the new global economy, TNCs maintain a competitive edge by correctly identifying optimum geographic factors and locations for each of its activities, including engineering systems, raw material extraction, production, storage, office functions, marketing, and management.
Suitable places for each activity may be clustered in one country or may be disbursed in countries around the world. The resulting globalization of the economy has increased economic differences among have and have-not places in the world.
Factories are closed in some locations and reopened in other countries. Some countries become centers of technical research, whereas low-skilled manual tasks are concentrated in others. Changes in the geography of production have created a spatial division of labor in which regions specialize in particular functions. TNCs decide where to locate in response to the characteristics of the local labor force, its skill level, the prevailing wage, and attitudes toward unions, tariffs, and transportation rates.
A TNC may close factories in regions with high wage rates and strong labor unions. Globalization of Services The globalization of services and consumption also plays an important economic role. For example, U.
Business services are essential inputs to TNCs as they expand into the world arena. This international sector includes legal counsel, business consulting, accounting, marketing, sales, advertising, billing, and computer services. Many professionals—architects, software designers, business consultants—market their skills throughout the world. The sector also includes tourism, education of foreign students, and entertainment— TV, music recordings, and movies.
As with manufacturing, the globalization of services operates in a world of a declining role for the nation-state but a continuing emphasis on cultural differences at both the national and regional levels. The influence of the United States is reflected in the global transmission of television shows as intercontinental information networks allow international subscribers access to huge amounts of American culture, its most powerful export.
It is likely to broaden the common links among the younger generations of the developed world, especially those who are savvy about the Internet and the World 15 Wide Web. At the same time, it threatens to alienate the more conservative elements in those cultures, many of whom have turned to religious fundamentalism.
The highest rate of growth will take place in some developing countries, especially tropical regions and areas with picturesque scenery and those that provide both natural and cultural attractions for their visitors, along with pleasant climates, good beaches, and attractive social and political milieus. Political stability is critical to this industry. Information Technology and Globalization Improvements in communication mean that globalization of the world economy is moving forward rapidly, to a point where many people in any location can receive and send information to others elsewhere at almost any time.
Increasingly, the world economy depends on moving information instead of people. This export and import not of products but information will allow innovations to sweep the world at a rapid rate and will exacerbate and increase the disparity between the have and have-not nations. The information-based economy means that the relative success of individuals or groups is based on access to information, more than on money or products and more than on natural resources, labor pools, and other traditional metrics of power and wealth.
A global information network will allow a knowledge worker in the global economy to mine the databases and other knowledge bases of the world. The world will be interdependent and the interchange of information among researchers via information systems will be facilitated as never before.
Real-time information systems are those that make information available as it happens, or at least as soon as software programs process it and make it available, so that everyone can seek critical information by accessing a computer. This is one of the essential differences between the world economy of the future and the world economy of the past.
With real-time information systems, more people will make more decisions in a customized world economy as people who interface with customers become part of a self-managing business unit.
Real-time information systems allow business decisions to be made with the minimum of bureaucracy. The communications and information technology IT revolution has come about through the networking of individual computers, which are linked to global networks 16 The World Economy: Geography, Business, Development of personal computers and information databases. These communication networks, which include the Internet, allow instantaneous communication with anyone else on the network.
Communication can include photographs, voice and music, videos, television images and programs, films, documents, books, pictures, mail, and spreadsheets. High-speed Internet connections allow users to shop online at tens of thousands of stores, make reservations at hotels in almost any country in the world, buy airplane tickets, monitor the weather and stock market, pay bills, and read, comment on, and even contribute to newspapers, magazines, and encyclopedias.
Generally, it has damaged but not completely destroyed unique local diversity. Many current political, social, and economic problems arise from the tension between forces promoting globalization of the culture and economy versus those striving to preserve local cultural traditions and economic self-sufficiency.
The desire to retain traditional economies and cultural preferences in the face of increasing globalization has led to political conflict, social chaos, and market fragmentation in more traditional regions of the world. For this to take place, individuals must appreciate that they can advance both local and global values without damaging either and that multiple loyalties to different local, national, and transnational affiliations need not be mutually exclusive. In a globalized world, more and more people become aware of the extent to which their wellbeing is dependent on events and trends elsewhere.
Temporally, world economic growth rates have waxed and waned, dropping during recessions and rising during years of prosperity, and rates of economic growth are very uneven among different world regions. As growth plays out differentially over different regions it generates new geographies of wealth and poverty.
High growth rates, such as those that have occurred for decades in East Asia, pull people out of poverty and create a middle class.
Despite the economic progress in many parts of the world, there are still vast areas of the planet in which billions of people remain mired in deep poverty. Much of the world has not benefited from globalization. Economic development, and the lack of it, are thus important questions for economic geographers.
Development is a concept full of hope, even though the jolts and dislocations can be horrendous when long-standing traditions and relationships are broken down.
Whether development takes place depends on the extent to which social and economic changes and a restructuring of geographic space help or hinder in meeting the basic needs of the majority of people see Chapter Our attempts to understand development problems at the local, regional, and international levels must consider the principles of resource use as well as the principles surrounding the exchange and movement of goods, people, and ideas.
Two critical issues require immediate attention. One is the challenge to economic expansion posed by the environmental constraints of energy supplies, resources, and pollution Chapter 4. The other element is the enormous and explosive issue of disparities in the distribution of wealth between rich and poor countries, urban and rural areas, wealthy and poor people, dominant and subordinate ethnic groups, and men and women see Chapter Environmental Constraints The world environment—the complex and interconnected links among the natural systems of air, water, and living things—is caught in a tightening vise.
On the one hand, the environment is being stressed by the massive overconsumption and wasteful consumer culture of the developed world. On the other hand, the environment is being squeezed by the poor people in developing countries who must often destroy their resource base in order to stay alive. The constraints of diminishing energy supplies, resource limitations, and environmental degradation are three obstacles that threaten the possibility of future economic growth.
There is a significant energy problem in much of the developing world. In countries such as India, Haiti, Indonesia, Malaysia, Tanzania, and Brazil, fuelwood collection is a major cause of deforestation—one of the most severe environmental problems in the underdeveloped world. The fragility of the environment poses a formidable obstacle to economic growth. Are there limits to growth?
Is the world overpopulated? Topsoil, an irreplaceable resource, is being lost because of overcultivation, improper irrigation, grassland plowing, and deforestation. Water tables are falling, including in the United States, where, for example, the Ogallala water basin under the Great Plains is in increasing danger of being rapidly depleted.
Forests are being torn down by lumber and paper companies and by farmers in need of agricultural land and wood to keep warm or cook their food. Water is being poisoned by domestic sewage, toxic chemicals, and industrial wastes. Accumulated pollutants in the atmosphere—carbon dioxide, methane, nitrous oxide, sulfur dioxide, and chlorofluorocarbons— are said to be enhancing a natural greenhouse effect that may cause world temperatures to rise.
Yet another hazard to the environment is the fallout from nuclear bomb tests that took place in the s and s and from nuclear power reactor accidents such as those at Three Mile Island, Pennsylvania, and Chernobyl, Ukraine. Disparities in Wealth and Well-Being The world economy generates great variations in economic structures, standards of living, and quality of life around the globe.
These numbers point to the multifaceted nature of poverty and development, which is not just economic but also social and political. Poverty afflicts relatively few people in economically developed countries, although there are nonetheless disturbingly large numbers of poor in wealthy societies such as the United States, including hunger and malnutrition among families in Appalachia or on Native American reservations, bankrupt farmers on the Minnesota prairie, unemployed factory workers in Detroit, and single mothers on welfare in New York.
Deeply entrenched, institutionalized poverty confines billions of people to lives of inadequate food, shelter, health care, transportation, education, and access to other resources. Mass poverty is the single most important world development problem of our time.
You cannot doubt 17 this assertion when you see maimed people on the streets of Bombay, begging children in Mexico City, desperate farm laborers in Brazil, emaciated babies in Mali, or women and children carrying firewood on their backs in the countryside north of Nairobi. Mass poverty is ethically intolerable and a critical issue that we must try to overcome. They are the 15 million children in Africa, Asia, and Latin America who die of hunger every year. They are the 1.
These numbers are characteristic of impoverished countries in which much economic activity takes place outside of the market. These people are caught in a vicious cycle of poverty Figure 1. Their life expectancies tend to be short, infant mortality levels high, and access to energy, medical care, transportation, and education often minimal.
The economic geography of the world is at its core concerned with these social and spatial discrepancies among and within countries. The poor of the world overwhelmingly live in developing countries, most of them former European colonies, which failed for one reason or another to keep up with the economic levels of the West over the past years.
During the worldwide economic boom that occurred in the three decades following World War II — , the GNP of the developed countries more than doubled. Although per capita real income in developing countries also rose, incomes in developed countries rose much more quickly. By , the national income of the United States then million people was about equal to the total income of the Third World more than 3 billion people.
In short, over the past half-century the rich have become richer and the poor have gained only slightly. The developing world is far from a homogeneous entity; that is, there are enormous differences among and within developing countries in terms of their historical background, cultures, economies and standards of living, and when and how they were incorporated into the world system.
So great are the variations among countries, and often within, that it is simplistic to speak of a single developing world without immediately acknowledging its differences. With the debt crisis of the s, the United States finally discovered it had a real stake in the prosperity of the developing world. Most Third World nations have low per capita income, which leads to a low level of saving and a low level of demand for consumer goods. This makes it very difficult for these nations to invest and save.
Low levels of investment in physical and human capital result in low productivity for the country as a whole, which leads to underemployment and low per capita income. In addition, many of these countries are faced with rapid population growth, which contributes to low per capita incomes by increasing demand without increasing supply or output. Yet, the number of people going hungry in the world, as of , has been dropping since , partly due to a recession-fueled drop in world food prices.
Many U. This led to enormous pressure to resolve the immediate problems of the debt crisis, many of which were directly related to the poor performance of the economies of the debtor nations. Unfortunately, for many debtors, the solution often proved to be more painful than the problem itself. Under strict rules imposed by the IMF and other international agencies, which believed in market fundamentalism the narrow notion that only free markets can alleviate social problems , stringent limits were placed on the economic policies of debtors, with the result that a majority of citizens in these nations often found themselves worse off.
The goals of IMF conditionality, as it came to be called, were to restore growth, reduce central government involvement in the economy, and expand the exports of goods and Rapid population growth Low level of saving Low level of demand Low levels of investment in capital services while reducing imports so that the debtors would have sufficient earnings of foreign revenue to make payment on the interest and principal of their debt.
However, such changes did result in export surpluses that made debt servicing easier. As a consequence, the s saw a remarkable reversal in the flow of financial resources— instead of the flow from rich nations to poor nations to assist in development efforts, there was a flow from poor to rich. But debt repayments have become a serious obstacle to further economic development in poor countries where capital and financial resources are scarce and every dollar lost has repercussions throughout the economy.
Summary and Plan This book explores the economic geography of capitalism, especially on a global scale. Although it is important to understand the local and national levels of economic activity, the rapid growth of the world economy has increasingly focused attention on processes, problems, and policies at the international scale.
We provide a definition of the field and introduce the main concepts geographers use to interpret and explain world development problems at a variety of scales, ranging from small areas and regions to big chunks of the world.
The following chapters of this text, which progress in logical sequence, are organized around the themes of distribution and economic growth.
Chapter 2 provides a historical overview of the development of capitalism. Chapters 3 and 4 deal with population and resources, respectively, issues of major significance in economic geography. Chapter 5 summarizes many of the concepts and theories that inform the analysis of economic landscapes.
Chapters 6 through 8 apply these ideas to the primary, secondary, and tertiary economic sectors, respectively agriculture, manufacturing, and services , examining the unique dynamics of industries in each sector and how they change over time and space. Chapter 9 dwells on transportation and communications, fundamental industries in the movement of goods, people, and information among places.
Chapter 10 departs from the general global focus to explore the economic geography of cities; given that half the human race lives in urban areas, this topic is important. Chapter 11 turns to the issue of consumption, an integral part of economic activity and landscapes. The final chapter, Chapter 14, 19 examines the geography of development and illustrates how economic growth creates a world of uneven and unequal wealth and poverty.
Key Terms behavioral geographers 5 capital 6 capitalism 6 development 16 economic geography 2 First World 10 foreign direct investment FDI 14 globalization 12 greenhouse effect 17 hegemonic power 11 Homo economicus 4 IMF conditionality 18 international economic order 10 international economic systems 10 knowledge worker 15 labor 6 land 6 location theory 4 political economy 5 poststructuralism 6 product market 6 profit 6 raw materials 15 Second World 10 spatial integration 4 spatial interaction 4 Third World 11 transnational corporation TNC 13 world economy 9 Study Questions 1.
What defines the geographic perspective? Define economic geography. Why are geography and history inseparably linked? What are some ways in which nature shapes, and is shaped by, the economy? How is the economy related to culture? Why are social relations an important place to begin understanding economic landscapes?
Define the term globalization and list reasons why it has occurred. What are four ways in which globalization is manifested? What is location theory? What is the political economy approach to geography? How have poststructuralists contributed to the analysis of economic issues? Suggested Readings Coe, N. Kelly, and H. Economic Geography: A Contemporary Introduction.
Oxford: Blackwell. Dicken, P. New York: Guilford Press. Florida, R. The Rise of the Creative Class. New York: Basic Books. Friedman, T. New York: Farrar, Straus and Giroux. Harvey, D. A Brief History of Neoliberalism. Oxford: Oxford University Press. Knox, P. Agnew, and L. The Geography of the World Economy, 5th ed.
London: Edward Arnold. Scott, A. Geography and Economy. Shepard, E. Barnes, eds. A Companion to Economic Geography. New York: Wiley. Stiglitz, J. Globalization and Its Discontents. New York: WW Norton. Vast collection of data and reports about the U. Log in to www. The spatial distribution of people and economic activities reflects the imprint of processes that take years, even centuries, to unfold. For this reason, a historical understanding of economic landscapes is absolutely essential for understanding the contemporary geographies of the world.
Because the present is produced out of the past, and shaped by it in countless ways, any serious understanding of economic geography must include an appreciation of how the contemporary world came to be. A historical appreciation reminds us that the construction of the modern world took a long time to occur and that the landscapes of the present are constantly changing thus reflecting the first analytical theme introduced in Chapter 1.
This chapter provides a historical appreciation of capitalism in several ways. First, it delves into the context in which capitalist economies and societies were born and developed, particularly feudalism. Second, it explores the characteristics of capitalism, the features that make it unique.
Capitalism—the dominant form of production and consumption around the world—is not the only way in which human beings have organized themselves, but came into being in the sixteenth and seventeenth centuries, mostly in Western Europe. Third, this chapter describes the Industrial Revolution, which began in the eighteenth century and marked an exponential increase in the scale and speed of capitalist activities.
The agricultural revolution that began roughly 10, years ago saw a major transition in the ways in which people worked and lived, including the establishment of settlements and the first class-based societies. Many early agricultural societies were based on slavery; in Europe, this process culminated in the Roman Empire, which ended in the fifth century A. Prior to capitalism, the prevailing form of economic and social relations was feudalism, which lasted for more than a millennium, approximately from the fifth to the fifteenth centuries.
Sometimes called the Middle Ages or Dark Ages, the feudal system was deeply entrenched and relatively stable for a long period. Feudalism was not unique to Europe, as other places had a similar social organization, including Japan and to some extent India. Indeed, one of the major differences between Europe and the United States is the impact that feudalism had in Europe: In North America, capitalism emerged on a landscape that had not been shaped by more than a millennium of feudalism, as was Europe, including its land use and property systems, cities, and class and gender relations.
Characteristics of Feudalism Feudalism was marked by a distinct set of interlocking characteristics that made it qualitatively different from capitalism, reminding us of the uniqueness of the economy and social system in which we live and work today.
Compared to the dynamic, ever-changing world in which we exist, feudalism comprised a remarkably stable and conservative world that changed relatively little. To an observer of feudal France in the eighth century and Poland in 21 22 The World Economy: Geography, Business, Development the eighteenth century, there would appear to be relatively few differences.
Almost everyone lived like their fathers and mothers before them and their grandparents before them.
Tradition gave the dominant shape to human experience and to everyone a sense of where they fit into the world. In this sense, feudalism actively discouraged experimentation and change. Under capitalism, in contrast, novelty is the norm, for it helps to sell goods and services in the market. However, it is erroneous to think of the feudal era as completely static. Indeed, this view arose during the Renaissance, when historians sought to contrast the changes of their day with the alleged stasis of the past.
In fact, during the later feudal period there was significant change: Universities were established, new types of farming and new technologies introduced, wetlands drained, forests cleared, plagues and diseases spread, and political conflicts caused enduring changes.
The introduction of the longbow and guns in the fourteenth century, for example, made knights essentially obsolete. Most people were extremely religious, and their belief in god informed every aspect of their behavior and everyday life. The population fatalistically accepted its lot in life, and the idea of progress, of change for the better, was largely unthinkable. In most towns, the cathedral was the largest and most impressive building, its size and design a testimony to the wealth and power of the church Figure 2.
Education and schooling emphasized the Bible. In Rome, the Pope exerted great power over kings and nobles throughout the continent, often appointing leaders and threatening to excommunicate those who did not obey. Popes were masters of politics, wealthier than anyone else, and often corrupt. The church owned farmland and hunting estates, raised taxes, and even had its own armies.
Under the feudal system, an aristocratic nobility made up the ruling class, whose power lay in the ownership of land, which was the basis of wealth and political power. There were many tiers within this ruling class, including a variety of lords, dukes, earls, barons, and others. Ownership of land was the basis of wealth and political power. Aristocrats typically owned vast estates of farmland, and under the manorial system that characterized feudalism, the extraction of surplus value occurred through the payment of rent by tenant farmers who paid tribute to their local lords, who owned the land.
Often the farmers paid one-half or more of their output as rent, in exchange for protection. The size and beauty of medieval cathedrals, which often took more than a century to construct, testify to the power and wealth of the church during that era. The aristocracy controlled the reins of government, including the military and penal system, and their private interests were synonymous with those of the state. Knights and the military existed to enforce the rule of aristocratic law and to protect local communities from brigands, robbers, and invaders.
In an overwhelmingly rural society, in which the productivity of agriculture was comparatively low, the vast majority of people were peasants and farmers. Farming under feudalism was based on animate sources of energy, that is, living human and animal muscle power.
Peasants and draft animals worked the fields, collected firewood, drew water from wells, and performed the innumerable other tasks necessary to keep their society working.
Child labor on the farms was the norm, birthrates were high, and most people lived in large, extended families in small hamlets and villages, many of which were self-sufficient, producing their own food, clothing, and other necessities. Peasants were almost entirely illiterate, ignorant even of events a few miles away, unaware of what century they lived in.
Markets existed under feudalism but typically were small and poorly developed, and only the wealthy had the income required to buy luxury goods. Every chapter has been extensively rewritten to take into account not just new empirical developments but to incorporate new ideas on production, distribution, and consumption in the global economy.
The standard work on globalization provides " the most comprehensive and up-to-date coverage of economic globalization available " a clear guide to how the global economy is transformed by: transnational corporations; states and interest groups; and technology " detailed literature review that explains different theories of economic globalization in the larger context of a descriptive account of newly industrialising economies " sectoral case studies - with a new case study on agro-food industries - which illustrate diverse processes of globalization " new material on social movements, governance, environment, and alternative economic systems Extensive use of graphics, lack of jargon, clear definition of terms, makes Global Shift the key resource on economic globalization in the social science literature.
The scale and scope of such changes require urgent attention. With intellectual roots dating to the nineteenth century, economic geography has traditionally sought to examine the spatial distributions of economic activity and the principles that account for them.
More recently, the field has turned its attention to a range of questions relating to: globalization and its impact on different peoples and places; economic inequalities at different geographic scales; the development of the knowledge-based economy; and the relationship between economy and environment.
Now, more than ever, the changing fortunes of peoples and places demands our attention. Economic Geography provides a stimulating and innovative introduction to economic geography by establishing the substantive concerns of economic geographers, the methods deployed to study them, the key concepts and theories that animate the field, and the major issues generating debate. This book is the first to address the diverse approaches to economic geography as well as the constantly shifting economic geographies on the ground.
This unique introductory text covers the breadth of economic geography while engaging with a range of contemporary debates at the cutting-edge of the field. Written in an accessible and lucid style, this book offers a thorough and systematic introductory survey. This book also contains exercises based on the key concepts and annotated further reading and websites.
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