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11.5: Global Production

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  • 11.5.1 Hegemony and Economic Ascendency

    At times industrialization has propelled countries to great economic heights. Britain, The United States and Japan all rode an industrial wave to international prominence. In those countries and others, a (largely mythical) golden age centers around a time when low-skilled workers could earn a sufficient wage to secure economic security. This is more-or-less what the “American Dream” was. Deindustrialization has changed the economic trajectories of these countries and the people living in these countries. However, it must be noted that post-industrial countries that have not seen rapid increases in poverty. Wages have been largely stagnant for decades, but they have not generally gone down. The largest difference has to do with relative prosperity for industrial and post-industrial countries. Countries such as Japan, the UK or the US are no longer far wealthier than their neighbors. In the same way that flooding a market with a particular product reduces the value of that product, flooding the world with industrial capacity lowersthe relative value of that activity. Developing countries function as appendages to the larger economies in the world. The poor serve the needs of the wealthy. Unindustrialized countries buy goods from developed countries, or they license or copy technology and make the products themselves.

    11.5.2 Space and Production

    In the context of a globalized market, a factory built in one market may not built in another. This is not to say that producing goods is a zero-sum game, but there are limits to the amount of any good that can be sold. It’s a valid question to ask why transnational corporations (TNCs) have bought into China at rates far greater than in Cuba, Russia, or other Communist or formerly Communist (to varying degrees) countries? There is only so much spare capacity for production in the world. If one giant country (China) is taking all the extra capacity, then there will be none left for others. FDI is simply easier in China, since there is more bang for the buck. This is largely a function of population. The population of China is roughly two times the population of Sub Saharan Africa. And China has a single political/economic running class, as opposed to 55 different sets of often fractious political classes. If the industrialization of Africa happens at all, it will occur after China and its immediate neighbors who have been drawn into its larger economic functioning have largely finished their own industrializing. An example of this proximate effect is seen in the shift of some industries from China to Vietnam and Indonesia.

    China’s industrialization had to do with promoting itself as a huge cheap labor pool, and as a gigantic market for goods. It successfully leveraged both of these characteristics to attract foreign investment, and to gain foreign technology from the companies that have invested in producing goods there. Industrialization overall seems to have slowed. The speed at which China industrialized has not been matched by other countries following China. One current idea is that the world is in a race between industrial expansion and rapid over capacity of production. In other words, the reason that industrialization isn’t expanding as rapidly as before is that we are already making enough goods to satisfy demand. Remember that goods require demand. Unsold goods don’t produce any income. If the factories in the world are already producing enough, or even too much, then new factories are much less likely to be built. Technological advances and the massive industrialization of China might have ended the expansion of industry.

    It also appears that the highest levels of manufacturing income are well in the past. According to economist Dani Rodrik, the highest per capita incomes from manufacturing occurred between 1965 and 1975, and has fallen dramatically since then. This is even considering inflation. Many countries industrializing now only see modest improvements in income. This is related to supply and demand. When there are fewer factories, they make comparatively more money. When factories are everywhere, they are competing with everyone.

    11.5.3 Trade

    Even more than expansion of industrial production, the world has seen an expansion of trade. Global trade has produced an intricate web of exchanges as products are now designed in one country, parts are produced in 10 others, assembled in yet another country, and then marketed to the world. Consider something as complex as an automobile. The parts of a car can be sourced from any of dozens of countries, but they all have to be brought to one spot for assembly. Such coordination would have been impossible in the past.

    Individuals can buy directly from another country on the internet, but most international trade is business-to-business. TNCs are able to conduct an internal form of international trade in goods that can be moved and produced in a way that is most advantageous for the company. Tax breaks, easy credit and banking privacy laws exist to siphon investment from one place to another.

    Because of global trade, improvements in communication and transportation have enabled some companies to enact just in time delivery, in which the parts need for a product only arrive right before they are needed. The advantage of this is that a company has less money trapped in components in a storage facility, and it becomes easier to adjust production. Once again, such coordination at a global scale was not possible even in the relatively recent past.

    11.5.4 Deindustrialization

    Historically industrialized countries were the wealthy countries of the world. Industrialization, however, is now two centuries old. In the last decades of the twentieth century, deindustrialization began in earnest in the United Kingdom, the United States, and many other places. Factories left and the old jobs left with them. Classical economics holds that such jobs had become less valuable, and that moving them offshore was a good deal for everyone. Offshored goods were cheaper for consumers, and the lost jobs were replaced by better jobs. The problem with this idea is that it separates the condition of being a consumer from the condition of being a worker. Most people in any economy are workers. They can only consume as long as they have an income, and that is tied to their ability to work. Many workers whose jobs went elsewhere found that their new jobs paid less than their old jobs.

    11.5.5 What Happens After Deindustrialization?

    The simple answer to the above question is this. The service economy happens! As manufacturing provides fewer jobs, service industries tend to create new jobs. This is a very delicate balance, however. If you are a 50-year old coal minerwhose job has been eliminated by automation, it is very difficult for you to simply change jobs and enter the ‘service sector’. This transition is very damaging to those without the right skills, training, education, or geographic location. Many parts of the American Midwest, for example, have become known as the “rust belt” as industrial facilities closed, decayed, and literally rusted to the horror of those residents who once had good jobs there. The city of Detroit, for example, lost nearly half of its urban population from 1970-2010. Meanwhile the state of Illinois loses one resident every 15 minutes as job growth has weakened in the post-industrial age. However, job growth and productivity in the service economy have strengthened and provide more job opportunities today than the industrial era ever did in the U.S.

    There are 3 sectors to every economy:

    1. Primary (agriculture, fishing, and mining)
    2. Secondary (manufacturing and construction)
    3. Tertiary (service related jobs)

    The vast majority of economic growth in the post-industrialized world comes in the tertiary sector. This doesn’t mean that all tertiary jobs pay well. Just ask any fast-food worker if the service sector is making them rich! However, service sector jobs are very dynamic and offer tangible opportunities to millions of people around the world to earn a living providing services to somebody else. We can further break down the service sector into 1) public (the post office, public utilities, working for the government) 2) business (businesses providing services to other businesses) 3) consumer (anything that provides a service to a private consumer e.g. hotels, restaurants, barber shops, mechanics, financial services). Traditionally, service sector jobs worked very much like manufacturing jobs in that employees worked regular hours, earned benefits from the employer, gained raises through increased performance, and went to work somewhere outside of their home. Many service jobs in the 21st century, however, have been categorized as the gig economy, in which workers serve as contractors (rather than employees), have no regular work schedules, don’t earn benefits, and often work in isolation from other workers rather than as a part of a team. Examples of ‘jobs’ in the gig economy include private tutor, Uber/Lyft driver, AirBNB host, blogger, and YouTuber. Work, in this economy, is not necessarily bound by particular places and spaces in the way that it did in manufacturing. Imagine a steel worker calling in to tell his/her boss that they’re just going to work from home today! Even public schools have adapted to this model in the following manner. As schools cancel class due to weather, the new norm is to hold class online, whereby students do independent work submitted to the teacher even though nobody is at school. As such, some workers are freed up from the traditional constraints of time and place and can choose to live anywhere as long as they maintain access to a computer and the Internet. Services like fiverr. com facilitate a marketplace for freelance writers compose essays for others or for graphic artists to sell their design ideas directly to customers without every meeting one another.

    The global marketplace continues to be defined as a place where the traditional relationships between employer and employee are changing dramatically. A word of caution is necessary here, however. As many choose to celebrate the freedom that accompanies flexible work schedules, there is also a darker side in that the traditional ‘contract’ and social cohesive element between workers and owners is very much at risk. One defining factor of the 20th century was the development of civil society that fought for and won a host of protective measures for workers, who otherwise could face abusive work conditions. Child labor laws, minimum wage, environmental safety measures, overtime pay, and guards against discrimination were all based upon an employer-employee relationship that seems increasingly threatened by the gig economy. Uber drivers can work themselves to exhaustion since they are not employees. AirBNB hosts can skirt environmental safety precautions since they do not face the same safety inspections required at hotels. These are just a few examples, but they are very worth consideration. Regardless of the positives and negatives, the new service economy is having a transformative effect upon all facets of society. Although, the authors of this textbook are all geography professors with PhD’s from a variety of universities, perhaps the next version of this textbook will simply draw upon the gig economy to seek the lowest cost authors who are willing to write about all things geographical. Will you be able to tell the difference? (We hope so!!!)

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