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