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Industrialization and Economic Development

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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

51 Nongovernmental Organizations (NGOs)
Defined: aid organizations that assist in boosting economic development and human rights throughout the world’s peripheral regions Always non-profit Many thousands exist around globe Deal with myriad of causes like women’s 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


53 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 Earth’s 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


55 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



58 Levels of Development Developed Countries Middle Income Countries
Highest level of development including high GDPs, high literacy and education levels and high levels of industrialization Middle Income Countries Middle levels of development where the urban areas look more developed and the rural areas look more developing Developing Countries Lowest level of development with low GDPs, low literacy and education levels and low levels of industrialization

59 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

60 World Human Development Levels

61 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 $ but with the PPP, buying power is closer to $4, Puts number comparisons into perspective Doesn’t reflect inequality among people in a country HDI highest score is with the lowest 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

62 GDP levels across the world



65 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 Women’s 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

66 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


68 Development Gap Countries


70 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!)

71 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 Europe’s colonial occupation of Africa as reason for Africa’s 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 doesn’t 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


73 Rostow’s 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


75 Criticisms of Rostow Some feel the model isn’t 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

76 Reducing the Development Gap
There is much debate on how to reduce the development gap Example of gap: African women’s 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

77 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 market’s 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

78 Eastern Europe

79 Western Europe

80 America

81 South America

82 Australia

83 India

84 Nepal

85 Mongolia

86 Africa

87 What does this population pyramid suggest about the future for developing nations?


89 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

90 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 security and protection for citizens and businesses Includes police, fire, public schools, etc. About 10% of American workers are in public services


92 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


94 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 country’s 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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