Economic Economic GlobalizationGlobalization

How Industry Decides Where to How Industry Decides Where to Be:Be:

Distance and LocationDistance and Location►Spatially Variable CostsSpatially Variable Costs: factors of : factors of

production that change depending on production that change depending on location: transportation, energy, labor... location: transportation, energy, labor... these often depend on if its these often depend on if its weight-weight-losinglosing or or weight-gainingweight-gaining industry industry

►Spatially Fixed CostsSpatially Fixed Costs: costs that remain : costs that remain the same no matter where you’re the same no matter where you’re located. “located. “footloose industriesfootloose industries” microchip ” microchip manufacturmanufactur

How Industries decide location How Industries decide location cont:cont:

Labor CostsLabor Costs►Substitution principleSubstitution principle: deciding to : deciding to

move location in order to take move location in order to take advantage of another region’s cheaper advantage of another region’s cheaper labor cost… even if it raises transport labor cost… even if it raises transport costs, it often works out in the costs, it often works out in the industry’s favor through labor savings. industry’s favor through labor savings. (substituting one labor force for (substituting one labor force for another)another)

How Industries decide location How Industries decide location cont:cont:

Site and SituationSite and Situation► AgglomerationAgglomeration: when industries clump together for : when industries clump together for

mutual advantage… compatibility and shared costs mutual advantage… compatibility and shared costs for needed resources and infrastructure (energy, for needed resources and infrastructure (energy, roads etc…) roads etc…) high-tech corridor/technopolehigh-tech corridor/technopole

► Backwash effect: Backwash effect: negative consequence of negative consequence of agglomeration: surrounding regions suffer a drain agglomeration: surrounding regions suffer a drain of resources and talent caused by the of resources and talent caused by the agglomerationagglomeration Locational Interdependence: Locational Interdependence: related to agglomeration: related to agglomeration:

competitors choose locations based on the locations of competitors choose locations based on the locations of their competitors.their competitors.

DeglomerationDeglomeration: when an agglomerated region becomes : when an agglomerated region becomes too clustered… polution, traffic, lack of resources and too clustered… polution, traffic, lack of resources and labor…labor…

Globalization of Economic Globalization of Economic Activity:Activity:

►GlobalizationGlobalization: the increasing sense of : the increasing sense of interconnectedness and spatial interconnectedness and spatial interaction among governments, interaction among governments, cultures, and economies… originally, cultures, and economies… originally, only referenced spreading out of only referenced spreading out of economic activity… however, as it economic activity… however, as it turns out, sharing economic activity turns out, sharing economic activity has VASTLY influenced governments has VASTLY influenced governments and cultures. and cultures.

Economic Globalization:Economic Globalization:

► Multinational (transnational) CorporationMultinational (transnational) Corporation: : MNCs are businesses with headquarters in one MNCs are businesses with headquarters in one country and production facilities in other country and production facilities in other countries. They are usually countries. They are usually conglomerate conglomerate corporations corporations meaning that one massive corp. meaning that one massive corp. owns and operates a collection of smaller owns and operates a collection of smaller companies: Walmart, GE, Viacom, Nestle…companies: Walmart, GE, Viacom, Nestle…there lots of’em. there lots of’em.

► Usually MNCs locate their headquarters in Usually MNCs locate their headquarters in core countries and build production facilities in core countries and build production facilities in peripheral countries… peripheral countries… outsourcingoutsourcing!!

New Industrial Countries New Industrial Countries (NICs)(NICs)

►Several states have climbed the economic Several states have climbed the economic ladder and have established an ladder and have established an industrialized economy based on industrialized economy based on manufacturing and global trade: manufacturing and global trade: NICsNICs

►The “The “Asian TigersAsian Tigers”: Taiwan, S. Korea, Hong ”: Taiwan, S. Korea, Hong Kong, and Singapore. Followed the high-Kong, and Singapore. Followed the high-tech boom in the late 20tech boom in the late 20thth century and have century and have profited BIG TIME! Their capital investment profited BIG TIME! Their capital investment into high-tech industry has created a into high-tech industry has created a comparative advantage for corporations to comparative advantage for corporations to base production in these Asian countries. base production in these Asian countries.

Foreign Direct InvestmentForeign Direct Investment► As a tactic to improve their economic As a tactic to improve their economic

development, many less-developed countries development, many less-developed countries actively solicit foreign corporations’ investment in actively solicit foreign corporations’ investment in their countries, referred to a their countries, referred to a foreign direct foreign direct investmentinvestment. .

► SEZs (SEZs (speciallized economic zonesspeciallized economic zones) zones created ) zones created within LDCs where laws/rules favor MNCs in an within LDCs where laws/rules favor MNCs in an effort to attract their business/investment. China effort to attract their business/investment. China does this a lot: Hong Kong, Macao “does this a lot: Hong Kong, Macao “neoliberal neoliberal counterrevolutioncounterrevolution””

► Export-processing zones/ Free Trade zonesExport-processing zones/ Free Trade zones: areas : areas in LDCs offering tax breaks and loosened labor in LDCs offering tax breaks and loosened labor restrictions to attract export-driven factories restrictions to attract export-driven factories producing goods for foreign marketsproducing goods for foreign markets

Maquiladora zonesMaquiladora zones

►SEZs in Mexico on the border with the SEZs in Mexico on the border with the US. MNCs in the US then use these US. MNCs in the US then use these maquiladorasmaquiladoras for their cost-saving for their cost-saving cheap labor… the Mexican cheap labor… the Mexican government gave tax breaks to MNCs government gave tax breaks to MNCs to locate there and to ship back into to locate there and to ship back into the US tariff-freethe US tariff-free

Free Trade vs Fair TradeFree Trade vs Fair Trade►Free TradeFree Trade: the concept of allowing MNCs to : the concept of allowing MNCs to

outsource without any regulation except for outsource without any regulation except for the basic forces of market capitalism.the basic forces of market capitalism.

►Fair TradeFair Trade: policies that favor oversight of : policies that favor oversight of foreign direct investment and outsourcing foreign direct investment and outsourcing to ensure that workers throughout the world to ensure that workers throughout the world are guaranteed a living wage for their work. are guaranteed a living wage for their work. The push for these policies has generated a The push for these policies has generated a world-wide movement to raise awareness of world-wide movement to raise awareness of the impact our purchasing practices have the impact our purchasing practices have on the people of the LDCs of the world.on the people of the LDCs of the world.

Fair Trade Product LabelsFair Trade Product Labels

PrivatizationPrivatization

►The selling of publicly operated The selling of publicly operated industries to market-driven corporations. industries to market-driven corporations.

►This happens a lot more as the world This happens a lot more as the world globalizes. MNCs move in to areas and globalizes. MNCs move in to areas and buy up control or ownership of important buy up control or ownership of important industries or commodities such as water industries or commodities such as water rights and land… leaving people at the rights and land… leaving people at the mercy of these massive corporations and mercy of these massive corporations and dependent on them for survival. dependent on them for survival.

Supranational OrganizationsSupranational Organizations►These organizations are made up of These organizations are made up of

member states and typically have either a member states and typically have either a political or economic purpose (sometimes political or economic purpose (sometimes both). Ex: UN, IMF (both). Ex: UN, IMF (International Monetary International Monetary FundFund), WB (), WB (World BankWorld Bank), G8 (“Group of 8”)), G8 (“Group of 8”)

►The IMF and WB are the two that have the The IMF and WB are the two that have the most direct influence on international most direct influence on international trade, credit/debt finance, and money trade, credit/debt finance, and money supply between the MDCs and LDCs… supply between the MDCs and LDCs… often HARSHLY criticized for perpetuating often HARSHLY criticized for perpetuating the cycle of dependency and unfair trade the cycle of dependency and unfair trade practices.practices.

Trading BlocsTrading Blocs

►Regional organizations that work to Regional organizations that work to create favorable manufacture, create favorable manufacture, commerce, and tax/tariff conditions for commerce, and tax/tariff conditions for the business/corporations of that the business/corporations of that region.region.

►NAFTA, EU, CARICOM, APECNAFTA, EU, CARICOM, APEC►Criticisms: produces favorable Criticisms: produces favorable

conditions for business… not for conditions for business… not for people/labor. people/labor.

Non-governmental Non-governmental OrganizationsOrganizations

►NGOsNGOs are organizations that are are organizations that are typically humanitarian in naturetypically humanitarian in nature

ex: Doctors Without Borders, Red ex: Doctors Without Borders, Red Cross, Save The Children etc…Cross, Save The Children etc…

►These organizations have become These organizations have become increasingly important in an ever-increasingly important in an ever-globalizing world. globalizing world.

Environmental DegradationEnvironmental Degradation

►Kuznet’s curveKuznet’s curve: “as nations develop= : “as nations develop= pollution, the more they develop= the pollution, the more they develop= the better the environmental situation gets.better the environmental situation gets.

►Global warming/climate changeGlobal warming/climate change►Acid rainAcid rain►CFCsCFCs►DeforestationDeforestation►DesertificationDesertification►Water pollutionWater pollution