Transcript Economic Globalization

Economic Globalization
How Industry Decides Where to Be:
Distance and Location
► Spatially Variable Costs: factors of
production that change depending on
location: transportation, energy, labor...
these often depend on if its weight-losing or
weight-gaining industry
► Spatially Fixed Costs: costs that remain the
same no matter where you’re located.
“footloose industries” microchip manufactur
How Industries decide location cont:
Labor Costs
► Substitution principle: deciding to move
location in order to take advantage of
another region’s cheaper labor cost… even if
it raises transport costs, it often works out
in the industry’s favor through labor savings.
(substituting one labor force for another)
How Industries decide location cont:
Site and Situation
► Agglomeration: when industries clump together for
mutual advantage… compatibility and shared costs for
needed resources and infrastructure (energy, roads
etc…) high-tech corridor/technopole
► Backwash effect: negative consequence of
agglomeration: surrounding regions suffer a drain of
resources and talent caused by the agglomeration
 Locational Interdependence: related to agglomeration:
competitors choose locations based on the locations of their
competitors.
Deglomeration: when an agglomerated region becomes too
clustered… polution, traffic, lack of resources and labor…
Globalization of Economic Activity:
► Globalization:
the increasing sense of
interconnectedness and spatial interaction
among governments, cultures, and
economies… originally, only referenced
spreading out of economic activity…
however, as it turns out, sharing economic
activity has VASTLY influenced governments
and cultures.
Economic Globalization:
► Multinational
(transnational) Corporation: MNCs
are businesses with headquarters in one country
and production facilities in other countries. They
are usually conglomerate corporations meaning
that one massive corp. owns and operates a
collection of smaller companies: Walmart, GE,
Viacom, Nestle…there lots of’em.
► Usually MNCs locate their headquarters in core
countries and build production facilities in
peripheral countries… outsourcing!
New Industrial Countries (NICs)
► Several
states have climbed the economic
ladder and have established an industrialized
economy based on manufacturing and global
trade: NICs
► The “Asian Tigers”: Taiwan, S. Korea, Hong
Kong, and Singapore. Followed the high-tech
boom in the late 20th century and have profited
BIG TIME! Their capital investment into hightech industry has created a comparative
advantage for corporations to base production
in these Asian countries.
Foreign Direct Investment
► As
a tactic to improve their economic development,
many less-developed countries actively solicit foreign
corporations’ investment in their countries, referred to
a foreign direct investment.
► SEZs (speciallized economic zones) zones created
within LDCs where laws/rules favor MNCs in an effort
to attract their business/investment. China does this a
lot: Hong Kong, Macao “neoliberal counterrevolution”
► Export-processing zones/ Free Trade zones: areas in
LDCs offering tax breaks and loosened labor
restrictions to attract export-driven factories producing
goods for foreign markets
Maquiladora zones
► SEZs
in Mexico on the border with the US.
MNCs in the US then use these
maquiladoras for their cost-saving cheap
labor… the Mexican government gave tax
breaks to MNCs to locate there and to ship
back into the US tariff-free
Free Trade vs Fair Trade
► Free
Trade: the concept of allowing MNCs to
outsource without any regulation except for the
basic forces of market capitalism.
► Fair Trade: policies that favor oversight of
foreign direct investment and outsourcing to
ensure that workers throughout the world are
guaranteed a living wage for their work. The
push for these policies has generated a worldwide movement to raise awareness of the
impact our purchasing practices have on the
people of the LDCs of the world.
Fair Trade Product Labels
Privatization
► The
selling of publicly operated industries to
market-driven corporations.
► This happens a lot more as the world
globalizes. MNCs move in to areas and buy
up control or ownership of important
industries or commodities such as water
rights and land… leaving people at the
mercy of these massive corporations and
dependent on them for survival.
Supranational Organizations
► These
organizations are made up of member
states and typically have either a political or
economic purpose (sometimes both). Ex: UN,
IMF (International Monetary Fund), WB (World
Bank), G8 (“Group of 8”)
► The IMF and WB are the two that have the
most direct influence on international trade,
credit/debt finance, and money supply between
the MDCs and LDCs… often HARSHLY criticized
for perpetuating the cycle of dependency and
unfair trade practices.
Trading Blocs
► Regional
organizations that work to create
favorable manufacture, commerce, and
tax/tariff conditions for the
business/corporations of that region.
► NAFTA, EU, CARICOM, APEC
► Criticisms: produces favorable conditions for
business… not for people/labor.
Non-governmental Organizations
► NGOs
are organizations that are typically
humanitarian in nature
ex: Doctors Without Borders, Red Cross,
Save The Children etc…
► These organizations have become
increasingly important in an ever-globalizing
world.
Environmental Degradation
► Kuznet’s
curve: “as nations develop=
pollution, the more they develop= the
better the environmental situation gets.
► Global warming/climate change
► Acid rain
► CFCs
► Deforestation
► Desertification
► Water pollution