With the passage of the North American Free Trade Agreement (NAFTA) in 1994 an estimated 300,000 jobs in the textile/apparel industry were lost, many to Latin America and Asia where wages are much lower. Other low-skill industries moved to Mexico, China and elsewhere greater profits were available for factory owners and shareholders. The cost-benefit analyses that are generated by free trade agreements, like NAFTA, generally focus on calculating the costs associated with job loss among low-skill workers against the reduction in costs for imported goods to consumers. In the case of NAFTA, there were also a few instances of job creation in the US, even in some manufacturing sectors. NAFTA brought some manufacturing jobs from Mexico to the US. For example, Cummins, a manufacturer of diesel engines for large trucks in Mexico prior to NAFTA. After the free trade agreement eliminated the Mexican import tariffs on American-made engines, Cummins closed their factory in Mexico and production relocated to Jamestown, New York.
Figure 12-5: Niagara Falls, Canada. This tractor-trailer rig parked in Canada at the US border, was leased by NAFTA trucking company from McAllen, TX on the US-Mexico border. Ironically, it is powered by a Cummins diesel engine, which could have been manufactured in Mexico prior to NAFTA (trade agreement) but after NAFTA was surely built in the United States.
The principle of comparative advantage is the key factor driving the location and re-location of industrial operations. Essentially, the logic behind the principle of comparative advantage forces countries engaged in free trade to specialize in the production of goods they produce most efficiently. In other words, under comparative advantage, locations focus on producing things they make cheapest, fastest and best. Locations should not try to build or grow things that they cannot build/grow efficiently. Instead, they should import those things from locations that specialize in that crop or product. Industrial systems benefit because inefficient industries are abandoned in favor of ones that are more efficient. Efficiency is profitable and consumers benefit because they can buy higher-quality goods for less money. This is small comfort to workers who lose jobs to lower-wage, or more efficient rivals elsewhere.
Containerization
Although wage competition and the declining quality of some American-made goods damaged America’s manufacturing sector during the 1970s and 1980s, one of the most important, yet least discussed, factors in the downfall of US manufacturing was the widespread adoption of the humble intermodal container. Invented in the 1950s, these simple metal boxes revolutionized the shipping industry and affected competition in the manufacturing sector. These containers were designed to be easily filled with cargo, stacked quickly upon one another (almost like Legos) thereby reducing the cost of shipping. Containers are also intermodal, which means that trucks, trains, barges, and ships can all transport goods in the same steel boxes. Eventually, multiple shipping companies adopted a standardized size and design allowing competing companies to mix and match cargo on a single transport carrier. The effect on the cost and speed of delivery was profound. In the 1950s, even small cargo ships took many hours to be unloaded by a large team of dockworkers (stevedores). The process was slow, inefficient and very costly. A train or series of trucks awaiting the cargo from the ship would then have to be reloaded by another team of dockworkers. The process is called breaking bulk. Each break of bulk represents a tax on the cost of each transported product each time it is loaded or unloaded. Breaking bulk, as you remember, was a significant factor in the creation of large cities because of the labor and warehousing needs it created. Today, thanks to containerization, a few people, with the help of large gantry cranes can unload massive container ships, and simultaneously reload containerized cargo onto intermodal trains or a fleet of trucks in a matter of hours. Thousands lost their high paying jobs at the docks thanks to intermodal containers. Hundreds of thousands lost their manufacturing jobs to overseas competition because the cost of transporting goods from places like China or Mexico fell so dramatically that goods coming from foreign factories now have shipping costs similar to goods produced locally.
Import Substitution Development
Many countries or regions find that adhering to the principle of comparative advantage works poorly for their economies and people. Certainly, the manufacturing regions of America’s Rust Belt suffered from the effects of comparative advantage as America increasingly embraced free-trade. Michael Moore’s well-known documentary Roger & Me is a tragic-comedy about the consequences of General Motors' decision to move manufacturing jobs from Michigan to Mexico. Governments in places unable or ill-equipped to compete in a free-trade environment often turn to a variety of trade barriers to protect industries from outside competition. Import tariffs, import quotas, and safety measures are just a handful of strategies used by protectionists to reduce foreign competition. Many countries, particularly in Latin America, adopted a policy known as import substitution industrialization which severely limited the importation of manufactured goods. Generally, they tried to protect their so-called infant industries, at least until those industries grew enough to compete on the world stage.
The strategy had some local successes, especially in terms of encouraging the development of low-skill manufacturing (textiles, electronics, etc.). However, the small domestic markets of many of these countries made it difficult to develop capital intensive, heavy industries, like automobile manufacturing, even with trade protectionism policies. Import substitution policies were also discouraged by capitalist countries, like the United States, even though most economically developed countries, like the US, pursued similar protectionist policies during the 19th century. Many of the overt import substitution policies were abandoned by the 1990s, partly upon the insistence of the International Monetary Fund, a global finance organization that refused to lend money to governments that persisted with protectionist policies. Though officially frowned upon by nearly every industrialized country today, almost every government engages in a variety of clever protectionist practices designed to shield home industries from foreign competition. Breaking with the Republican Party, President Trump embraced numerous protectionist policies, raising tariffs on a variety of goods including washing machines, solar panels, steel, and aluminum. Imports from places like China, Mexico, and Korea fell as the prices of those goods rose for consumers. Not surprisingly, those countries retaliated by raising tariffs on American goods, especially agricultural products, shipped to those countries.
Figure 12-8: World Map - Most governments, including the
United States, engages in protectionism despite repeated
condemnations of the practice. Source: Wikimedia.
Land
The cost of land is another major consideration for those who want to build a factory. When the raw materials needed at a factory are cheap to transport or widely available (like water), then factory owners have more options in terms of location. Generally, that is not the case - locations vary wildly in terms of profitability. Some land is just too expensive for industrial purposes. Factories are rarely built near downtowns, for example, because cheaper land is available at the edges of cities where land is more plentiful. Factories remaining in crowded, inner-city neighborhoods also often suffer from spatial diseconomies of scale because freight (truck) access is difficult and slow. Taking delivery of materials and shipping finished goods over congested street networks and/or jammed freeways increases costs and reduces profits. Locations near uncrowded freeways are ideal because they permit both workers and materials to easily travel to and from a factory. If rail or water transport access is available, then transport options become even more cost-effective.
Weber’s Location Model
Most manufacturers have complex sets of material and delivery costs to consider before locating a factory. Alfred Weber’s Least Cost Location Model provides site location analysts with a basic tool to evaluate several weighted input considerations. In the most basic version of the model, only transportation costs are considered. Therefore, the best place for a factory is closer to the input or output with the highest transport costs. In the example illustrated on the right, the factory (F1) is located nearest supplier 4 (S4) because transport costs are highest from that location. Should the cost of transportation to T1 (the town) increase significantly, the least cost location for F1 would move toward the top of the triangle. There are, of course, other factors worthy of consideration when siting a factory, but Weber’s model remains an important tool as people choose where to build factories today.
Figure 12-9: Infographic. Weber's location triangle helps us understand that the least cost location for certain economic activities is dictated by the cost of transportation.
Bulk Reducing – Bulk Gaining
The nature of the specific manufacturing process also has implications for where some products are made. For example, if the finished product made by a factory is cheaper to ship than the raw materials, then it makes sense to manufacture the product close to the source of the raw materials. Factories that operate under this condition are called bulk reducing industries because the finished product is lighter, or cheaper to transport than the raw materials. Geographers, therefore, note that these products have a raw material orientation.
Figure 12-10: Simsboro, LA. Abundant forest lands and the difficulty of efficiently transporting logs require sawmills be placed as close to the forest (raw material) as possible.
The lumber industry is a great example. Logs are expensive to transport. It would be very inefficient to ship logs directly from the forest to your local Home Depot without cutting the logs into boards first. Instead, logs are trucked to sawmills built near the forests where trees are felled. Sawmills process logs (timber) into boards (lumber) that can be neatly stacked on a truck or train car that efficiently (cheaply) transports the lumber to market. As a bonus, portions of the log unusable as lumber, including sawdust and wood chips, that remain after milling can be used to make additional products like plywood and particleboard, which can also be stacked and efficiently shipped.
Figure 12-11: Rainier, OR - Rail cars containing logs and lumber wait delivery to the sawmill and lumber yards respectively. Milling operations co-locate here near forests and shipping opportunities to cut transport costs.
The same logic that informs the location of lumber mills push other industries to do just the opposite. These are bulk gaining industries that have a market orientation. These sorts of industries make products that get heavier and/or more expensive to transport during the manufacturing process, and the main input is widely available. Coca-Cola is a good example. The “secret recipe” for Coke is kept in a vault near company headquarters in Atlanta, Georgia, where most of the world’s supply of concentrated Coca-Cola syrup is produced. Since the main ingredient in a bottle of Coke is water, which is available in all big cities, it makes no sense for Coca Cola to manufacture soda in Atlanta before shipping it to the rest of the world. Instead, Coca Cola ships only the concentrated syrup from Atlanta in large drums to thousands of bottling plants around the world, where local water, sweeteners, and carbonation are added to the syrup as the mixture is placed in cans/bottles just before the cans/bottles are sealed for shipment. Each bottling plant is franchised, and each franchise is awarded a specific geographic distribution region within which it has exclusive rights to manufacture and sell Coke products. Because each franchisee uses local water, Coke and Pepsi often taste different when you buy one in another town.
Workers employed in industries with significant location constraints often make higher wages than those working in footloose industries because industries with significant location constraints cannot profitably move production elsewhere in search of lower wages. Workers in locationally constrained industries engage in less wage competition than workers in footloose industries. For example, dockworkers at major ports can negotiate very high wages because of the great difficulty of re-locating a port.
Figure 12-12: Dublin, Ireland. Guinness Stout is brewed exclusively in Dublin to preserve the taste. This business model is highly unusual for major beer companies who chose to bottle locally rather than ship globally.
Capital
The final factor of production and commonly considered by those making industrial site location decisions is capital, or, investment money. Investors are necessary for industrialization. Capital comes from investors, who may be wealthy individuals, groups (shareholders) or banks that specialize in investment capital. A special type of investor, known as a venture capitalist, specializes in making high-risk loans to startup companies in hopes of reaping great rewards if the fledgling company “makes it big”. Some regions have many venture capitalists and/or ordinary investors, and other regions do not. California has a great number of venture capitalists, and their willingness to take chances on new ideas and technologies are partly responsible for California’s robust tech industry.
Capital has other forms as well. Investments to upgrade existing factories, for example, may make workers more productive, and occasionally makes workers unnecessary when robotic machinery replaces workers. This sort of capital boosts productivity and profits, though it may eliminate jobs. Capital affects other less visible factors of production, and not all of it comes from companies who reap the rewards. Governments are a very important source of indirect capital for many companies. Because it is indirect, many Americans, conveniently (or purposefully) overlook the role of government in the establishment, promotion, and maintenance of all sorts of businesses. Highways, airports, port facilities, universities, public schools, etc. are tax-funded investments that businesses use to make a profit. In other parts of the world, especially Asia, governments work directly with businesses to promote the interest of businesses.
Indirect government capital is the reason why factories do not always locate in the locations with the cheapest labor. In recent years, many US jobs have gone to China where wages are low. But that logic doesn’t compel factory owners to move to Zaire, Haiti or Guatemala where wages are even lower. Why? The answer is government capital. Efficient governments, like China’s, work very closely with companies to attract the investment necessary to build and equip factories. Governments in some developing countries may not have the resources needed to attract foreign investors. Many governments are also absurdly corrupt. So, even if factory owners wanted to locate where labor is cheapest, a variety of government-supplied infrastructure investments are often absent in the regions with very low wages. Industries need quality roads, bridges and port facilities for shipping and receiving. Factories need adequate electrical power, fast and reliable internet, and phone connections. Factories need educated workers, so governments must invest in their children, and not just the boys. Workers must be reasonably healthy, so countries with government-run health care systems are attractive to factory owners because workers are healthy, and factory owners do not have to pay for expensive health care for each worker.
Figure 12-13: Philadelphia, PA - Miles of highways, streets, electrical lines are among the hundreds of government investments that benefit industry. Geographers see these relationships in images such as this.
Human capital is also necessary – and this may be less a factor of cash investments. Factory operators need workers who are culturally ready for the regimented grind of factory life. A very important component of industrialization appears to be the availability of a pool of qualified women to work in factory settings. This sits at the intersection of economic capital and cultural capital. If family, government and cultural systems discourage or prohibit women from engaging in wage labor, chances are poor that such locations will enter the modern world economy. In regions where conservative versions of Islam, Hinduism, and Christianity are dominant, numerous well-educated female workers can be scarce. Other cultural elements that contribute to the likelihood of industrialization are things like worker honesty, loyalty, and pliability, among others.
MOTOWN VS SMALLTOWN
Cultural, political and economic conditions have contributed to the redistribution of the industry within the United States as well. Automobile manufacturing, for example, was for many years, the most important US industry. Detroit, Michigan was the headquarters of automobile manufacturing giants Ford, General Motors and Chrysler. In the early years of the Automobile Age, Detroit had several geographic advantages over other cities that built cars. Detroit had plenty of industrial laborers and vast hardwood forests that supplied wood for car bodies and wheel spokes. They luckily also had some human capital as well. Entrepreneurial engineer types, particularly Ransom Olds (Oldsmobile) and Henry Ford, pioneered manufacturing strategies in Detroit that helped their companies build reliable, inexpensive cars for a mass market. Other companies soon emerged from the original companies and competition bred innovation.
Figure 12-14: Tuscaloosa, AL - Daimler-Benz built a factory in Central Alabama where they could take advantage of a quality but placid work force, access to domestic and overseas transportation network and generous subsidies from local and state government.
By the 1970s, Detroit’s dominance in the automotive market and a lack of competition within the industry had allowed the auto industry to become a three company oligopoly, that bred industrial complacency. American cars in the 1970s were poorly built, overpriced, gas-guzzlers. After the price of gasoline skyrocketed Japanese cars became popular. Japan had been making small cars that were fuel-efficient for many years. Honda and Toyota also had pioneered several manufacturing techniques and strategies that allowed them to make cars that were more reliable and cheaper than those that were built in Michigan.
A significant retooling of the American automobile industry occurred in the 1980s, and a key element of it was a spatial reorganization of the industry. American, Japanese and German auto companies all built new factories in the US, but no new factories were built in Detroit. Instead, auto factories closed in Michigan. The new factories were often built in small towns within about 200 miles of Cincinnati, Ohio because that area is the least-cost location for both the receipt of parts into factories and the shipment of new cars to American consumers(see figure above: Weber’s Triangle). BMW, VW, and Mercedes Benz built factories further south because more of their parts and customers were international, and being closer to ports was important. None of the post-1980 car factories were built in large cities. Automobile companies sought rural, or small-town employees because they sought workers who were anti-union, pliable, hardworking and happier with their pay in a low wage environment. Small town plants became the rule. Marysville, Ohio; Georgetown, Kentucky and Spartanburg, South Carolina got new factories, while cities like Detroit, Cleveland, and Buffalo lost them. Even the Chevy plant in Van Nuys, California was closed.
Figure 12-15: Map of automobile assembly plants in the Eastern United States. Tesla is the only car factory on the West Coast.
In the 1980s, American car manufacturers adopted another key Japanese business innovation called just in time delivery. Rather than building warehouses to store car parts (bumpers, tires, fenders) near main assembly plants, companies like Honda have the parts they plan to use assembling cars delivered daily thereby eliminating most warehousing jobs in the supply chain. Quality control is better with just-in-time delivery because if a supplier is sending defective parts the problem is evident immediately before thousands of defective parts are shipped to the main assembly plant. Suppliers to the main manufacturing plant, therefore, must be within one day’s drive of the main assembly point. As a result, in the 1980s, numerous parts factories were built in small-towns surrounding main assembly plants. Various sub-assembly plants compete to win contracts with the main manufacturer and driving them to seek low-cost, non-union labor. Generally, this puts downward pressure on wages, benefits; undermining gains made by union workers and others.
Just-in-time manufacturing was very different from the supply chain strategies used by most American factories in the 1970s. Consider that Ford’s River Rouge factory at one time was the largest integrated factory in the world, at over one-mile in length and over a mile wide. Iron ore was delivered to one side of the factory and finished Ford Mustangs came out the other. One hundred miles of railroad tracks inside the mill helped keep production rolling. Workers used bikes to pedal from one part of the factor to the other. Almost all who worked there were well-paid members of the United Auto Workers union.
However, the spatial economics of the plant were less efficient than just-in-time manufacturing, so Ford’s River Rouge plant was shut down in 2004, after nearly 80 years of operations.
Just-in-time production allows car companies to outsource a lot of the work once done by union workers to non-union plants scattered around the Midwest. Union workers lost leverage in their struggle for good benefits and higher wages. However, just-in-time delivery created opportunities for workers in some parts plants (e.g., brakes manufacturer) to interrupt the entire supply chain. Since no large inventory of any single part is kept at the main assembly plant, workers in a parts sub-assembly plant can go on strike, which forces not only the main assembly plant to stop but all the other parts suppliers must stop as well because suppliers do not produce parts without an order from the main plant. Workers in a unionized factory in Dayton, Ohio did just that in the mid-1990s, causing nearly all of the General Motors assembly plants, and numerous sub-assembly plants to shut down.
Tertiary Sector
Jobs in the service industries have grown faster than any other part of the American economy since 1970. These jobs are in the tertiary sector and people working in these jobs handle the products created in the primary and secondary sectors of the economy. So you work in the service sector if you transport goods, sell goods or somehow help others use those goods. Service sector jobs include things like flipping hamburgers or selling shoes, but it involves a lot more. Entertainment, tourism, media, healthcare, financial and legal industries, and education are all in the broadly defined service sector. Before the 1980s, far more Americans worked in the primary and secondary sectors of the economy. Around 1970, a dramatic increase in the service sector, which now accounts for more than three-fourths of all jobs in the US. In some regions, that percentage is even higher.
Figure 12-16: Ruston, LA - Wal-Mart has come to dominate the retail landscape of many small towns in the US, and their treatment of employees emblematic of the post-industrial, service economy of the US.
Some service sector jobs are well-paying, but others are not. The growth of the service sector has been in part responsible for a bifurcation of the American economy. In the 1950s, nearly one-third of all US jobs were in manufacturing. Many of those jobs were relatively low skill, not requiring a college degree, but still paid good wages. As those jobs disappeared in the 1970s, Americans turned to service sector jobs. For workers in some places, manufacturing jobs were replaced by clean, safe, well-paying service sector jobs, like computer programming. Many regions in the US haven’t been so lucky. Workers in those locations were forced to either move or to accept low-paying service sector jobs, like working at Wal-Mart. As a result, since the early 1980s, the lower middle class has gotten much smaller, while the size of the lower class (working poor) has exploded. At the same time, pay for people in the upper-middle class has grown somewhat. The wealth of the tiny upper class, or so-called “one percent” has skyrocketed. The result is a widening gap between the haves and the have-nots.
Gini coefficient
Social scientists measure wealth inequality with a statistic called the Gini coefficient and graphing the change in the Gini coefficient shows how the gap between the rich and poor has widened over time. The Gini coefficient is a relative measure of wealth not an absolute measure of income. In other words, the average American may or may not be poorer than they used to be. They may even make a bit more money, or have a few more things. What is certain though is that average Americans are poorer relative to the wealthiest among us.
Figure 12-17: Infographic. Households in the top percentiles of the economy have made great strides in improving their situation, while those at the bottom of the social ladder have improved only marginally (inflation adjusted to 1970 dollars). Source: US Census, Wikimedia.
The gap has grown much faster since 1980, as the United States underwent both economic restructuring away from manufacturing and adopted the logic of supply-side economics(Reaganomics) to restructure both the tax structure and how we spending tax money. The economy has grown greatly since 1980, but little of the benefits of this growth has gone to average Americans. The Great Recession of the late 2000’s made it worse. Most Americans therefore just feel poorer, which may seem a silly thing to worry about, but feeling poor has significant effects on things like health outcomes, crime, and psychological health. In recent years the pattern of income equality in the United States has come to look much less like the pattern found in Europe, and more like that found in developing economies of Latin America.
The Gini coefficient also varies considerably within the United States. As noted earlier in this text, income inequality is lower in many of the farming states where the national grid system created a vast array of equal-sized farms. Utah, with its unique religious, cultural and ethnic profile has the lowest (most equitable) Gini coefficient. Other states with homogeneous populations also have low Gini coefficients. In some wealthy states (New York, California Connecticut), where great there is a great variety in ethnicity, religion, and culture coupled with exceptionally lucrative industries (software, banking, entertainment, etc.) wealth inequality is high. States in the Deep South (Louisiana, Mississippi, Alabama, Florida) with a strong legacy of racism and minimal government investment in education also rank high in terms of inequality; while at the same time counting among the poorest states in absolute terms.
Figure 12-18: Gini Coefficient by County. Source: Wikimedia
In many of the poorest regions of the United States, low-paying service sector jobs dominate the local economy. Most of these service sector jobs, especially in retail, are non-basic, which you will recall, indicates that they do not bring money in from outside the local area. Depending on the ownership of the retail operation, some retail stores, like Wal-Mart effectively remove more money from the local economy than the jobs create helping impoverish local people via a process opposite the multiplier effect.
Wal-Mart
Locally owned and operated businesses tend to circulate money within a local economy. Large retail chain stores, though they may employ many dozens of people, often pay little and rarely do their profits stay local. This effect has been called the Wal-Martization (sometimes Wal-Marting) of the economy by some observers because Wal-Mart pays poor wages and provides few benefits.
Wal-Mart’s business model has negative consequences for the economic structure of many small towns. Wal-Marts are accused of bleeding local economies dry by squashing locally owned (mom and pop) competition in the retail sector using their massive advantage in economies of scale. Wal-Mart also undermines businesses that do business with locally owned rivals of Wal-Mart. Manufacturers, transportation workers, and even local radio/newspaper businesses often suffer when Wal-Mart comes to town.
A large service sector can be beneficial if jobs are well-paying quality and/or function as generators of basic income. Los Angeles, for example, has a large service sector. A significant number of service sector jobs in L.A. are in the entertainment industry. People that work in television, movie, and music production are numerous and many are well-paid. Tourism also thrives in Los Angeles and though there are many more low paying jobs (hotel workers, e.g.) within the tourism industry, these jobs represent a significant source of basic income for the economy of Southern California, which generates a multiplier effect.
Figure 12-19: Natchitoches, LA - This general store manages to remain open in this small town in Louisiana, thanks to its touristy appeal. Most similar "mom and pop" operations fail competing with Wal-Mart.
Tourism
Tourism is likely the world’s largest industry, employing more people and generating more revenue than any other economic activity. Locations attracting numerous visitors are lucky. Not every place is attractive to tourists. Tourism can be great because it functions as a valuable source of basic income, especially in locations where extractive industries and/or manufacturing is not possible or profitable. Remote locations, in mountains or along seacoasts with nothing but great scenery and relaxation can attract visitors and their money.
Tourists are defined by their spatial behavior. Generally, if you stay more than 24 hours in a location outside your hometown, then you are considered a tourist. California is, by a wide margin, the top destination for Americans traveling within the US. If you stay a day or more in another country, then you are an international tourist. While European countries rank consistently high for the total number of international tourists, the United States easily outpaces all other countries in terms of the amount of money spent by international tourists. International tourists favor New York, Florida, and California by wide margins. Domestic tourism is important as well.
Tourism geography is an exciting sub-discipline within geography. Part of what makes it so interesting is analyzing the variety of strategies and tactics used to attract visitors. Nice beaches and warm weather are major attractors(Hawaii, Florida, California), but people also will visit a desert wasteland if the right type of entertainment can be provided (Las Vegas). Amusement parks (Disney), historic sites (the Alamo, the Washington Monument), unusual natural features (Niagara Falls, Grand Canyon) sporting venues, and even museums can be major attractors. In recent years, festival mall spaces, like the Mall of America near Minneapolis, Minnesota have become significant tourist hot spots, attracting tens of millions of visitors annually. Small towns and locations without exceptional natural resources frequently market themselves as “historic” or “quaint”, or rely upon themed festivals to attract people from out of town. Most are not successful.
Tourism, if well managed, may also be minimally damaging to the environment and even promote ecosystem conservation (ecotourism). Yosemite National Park, for example, draws nearly four million visitors yearly, and in turn, generates millions of dollars for the regional economy all the while ensuring the maintenance of an exceptional natural resource. Meanwhile, the neighboring Hetch Hetchy Valley, damned by the Federal Government in 1923, attracts only a few visitors (though it does supply water to the Bay Area). Ecotourism may serve to help protect endangered rainforests, the Serengeti Plains in Africa, glacial regions of the Arctic and Antarctica, among others.
Figure 12-20: Ft. Stockton, TX - Paisano Pete, a statue of a roadrunner, serves as a tourist attraction in a remote town in West Texas. It reminds us of the lengths some locations will go to attract tourist dollars.
Poorly managed, tourism fails to benefit local economies, causes environmental havoc and endangerslocal cultural traditions. Tourist destinations in many developing economies are almost completely run by outside interests. If you were to visit Cozumel, Mexico for example, you might arrive on an American-owned cruise ship or airline. You might go snorkeling, but you may find the coral reefs damaged by the construction of the deep-water port where your cruise ship docked, and the effluent from an overtaxed sewage system not designed to handle thousands of tourists. If you stay in an “All-Exclusive” resort (and there are many), your vacation dollars probably pay local housekeepers, kitchen workers, and maintenance men, but the profits probably go back to the ownership group in the US or Europe. This is part of a classic economic problem known as the multiplier leakage. The overall benefit to locals might be minimal or even harmful in the long-run. Still, most locations work very hard to establish a vibrant tourist economy.
Quaternary Sector
Around 1970, advances in communication technology touched off an information revolution that today is an integral part of all industries. So important is the collection, management, and analysis of data, that some have suggested that this part of the service industry should be removed from the tertiary sector and placed in the quaternary sector of the economy. Education, government and financial planning are part of the quaternary sector, but most of the focus is on high-tech software and information technology jobs.
High-skill information sector jobs come with good pay, solid benefits, little pollution and a generally higher quality of life. Although these kinds of jobs require a substantial investment in human capital by local governments (i.e. education), generating information sector jobs has become a key objective of many local/regional economic development efforts. California’s Silicon Valley, unofficially headquartered in Palo Alto, is the model high-tech region that other regions try to copy. The evolution of Silicon Valley into the high-tech capital of the world has been a topic of intense study by geographers, economists, and historians for many years. Most agree that pre-existing aerospace and defense industries located in California were a key starting point for the semi-conductor industry that gave birth to the computing revolution. Fueling the high-tech industries in the region were several universities, chief among them Stanford, which actively engaged in partnerships with local businesses, like Hewlett-Packard, Xerox and Bell Telephone. There was also an ample pool of venture capitalists willing to take chances investing in experimental electronics. However, those factors alone don’t seem to explain the extraordinary success enjoyed by tech companies in the Bay Area. After all, lots of places have elite universities, defense industries, and venture capitalists. California’s peculiar cultural climate appears to have played a significant role in the evolution of Silicon Valley into the pre-eminent center of high-tech innovation in the world.
Figure 12-21: Palo Alto, CA - Stanford University was a key element in the development of the Silicon Valley high tech region in California.
THE CREATIVE CLASS
A series of spatially-informed research studies by Richard Florida suggests that culture is especially important in the development of high tech and other high-end service sector jobs. He calls the people who work in these industries “The Creative Class”. Florida analyzed the growth of the quaternary sector of the economy and found that some regions were leaping ahead. In addition to California’s Silicon Valley, The “128 Corridor” near Boston; Austin, Texas, and Seattle, Washington stood out as hubs for high tech innovation.
Figure 12-22: Austin TX - This billboard proclaims Austin as the City of Ideas - and quirkily notes "Planet Earth". Bumper stickers around town urge residents to "Keep Austin Weird" and "Live Music Capital of the World" all speak to this city's embrace of difference – a characteristic especially unusual in Texas where social conservative dominate.
Florida argued that these locations stood out because each had permissive cultural environments that allowed the creative energy of individuals to flourish. Essentially, he argued that in places where people are free to be weird, cultural innovation is encouraged and economic success follows. Florida’s position stands in stark contrast to most neoclassical economists who argue that economic development is best promoted through tax breaks and business incentives, along with government deregulation (lax environmental, bureaucratic rules).
By studying the characteristics of the high-tech cities, like San Jose, Richard Florida found little evidence that neoclassical economic principles promote business growth. Instead, he identified a strong relationship between the quality of life in various locations and the ability of employers in those regions to attract high and nurture talented people. The central part of his argument was that talented people were attracted to places with a good quality of life; things like good schools, parks, health care, and entertainment. More controversially, Florida posited that tolerance of diversity was a secret ingredient in the business formula of places like Silicon Valley. He argued that creative, talented people tend to embrace ideas and lifestyles out of step with the mainstream, so places that permitted individuals to express their individuality (and creativity) without fear of personal, societal or industrial condemnation, attracted and nurtured talent.
A key indicator of a region’s tolerance of diversity and/or its openness to creativity was its gay friendliness, which, of course, was interpreted by some as a threat to family values, etc. Florida argues that gay-friendly places also welcome a great variety of lifestyles, ethnicities and cultural orientations. Still, it is worth noting that Tim Cook, CEO of Apple Inc., perhaps the most emblematic of all creative class companies is openly gay. What is evident is that locations where social conservatives discourage or “squelch” personal and/or industrial innovation, high tech innovation is rare. The prevailing culture in some locations encourages creative people to either abandon their ideas or to move elsewhere. So, according to this argument, eccentric people with big ideas migrate to places like San Francisco, Boston or Austin, where fellow citizens embrace eccentricity and diversity of opinion and lifestyle. Entire companies may move to creative cities to attract workers with creative ideas. The implications of these migration patterns are significant over time. One analyst called the process, The Big Sort, a process in which thousands of individual migrations have created increasingly different cultural conditions in various parts of the US. This process led another observer to predict that intolerance of diversity will lead some places to enter into a “dumb state death spiral” – where all the smart, creative, tolerant people move away, and only the less talented, less creative and less tolerant people remain.
Figure 12-23: Portland, OR - By embracing its quirkiness, Portland has managed to attract business investment and thousands of new residents. Its growth threatens Portland's unique cultural life.
FIRE Industries
Finance, Insurance and Real Estate (FIRE) industries also have a definite spatial logic. New York City is the headquarters for a lot of companies in this sector, but Chicago, San Francisco, Boston, and other cities have large FIRE sectors as well. The most obvious reason is that these locations function as service centers for large metropolitan areas and they have massive economic hinterlands. People and businesses require banking services, so populous regions generate many FIRE jobs. The internet has eroded some of the spatial logic of the FIRE industries, but for many people, personal networking still matters, so face-to-face interaction is still common in FIRE industries, and that is facilitated by agglomeration.
Figure 12-24: Map of LGBTIQ+ rights in the United States (2014). Note the correlation between business innovation and tolerance of sexual difference. In 2020, the US Supreme court struck down these laws nationwide. Source: ACLU / Huffington Post.
Hartford – The Insurance Capital
Some locations specialize in particular types of FIRE industries. Hartford, Connecticut for example, was for many years known as the “Insurance Capital of the World”. It may or may not have deserved the title, but Hartford is home to an unusually large number of insurance companies. Nearly one-tenth of Hartford’s population works in the insurance industry.
Hartford’s location near the coast and on the navigable Connecticut River helped make it both a manufacturing center and a port during the colonial period. Locals interested in protecting the value of their cargo being shipped across the Atlantic established one of the country’s first insurance companies. That company made a lot of money and dozens of spin-off companies were started by employees of the first company established competing companies (contagious diffusion). Over the years, other insurance companies moved to Hartford to take advantage of the existing pool of workers with advanced knowledge of the insurance industry. In recent years, some insurance companies have moved from away from Hartford. Some simply moved to nearby locations where real estate was cheaper, and quality-of-life issues were better. Like many other cities with a lot of FIRE industry workers, a huge gap evolved separating Hartford’s richest and poorest residents. While Hartford is one of the wealthier American metropolitan areas in terms of Gross Domestic Product per Capita (GDP), it also suffers from a high poverty rate.
Dover – The Credit Card Capital
As you begin to develop a geographer’s habit of mind and begin thinking spatially, you may notice things like the fact that the return address on some of your least favorite pieces of US mail is Dover, Delaware – the credit card capital of the United States. You may ask yourself, “Why do I send so much of my money to Delaware?” The answer isn’t quite as rooted in geography, as it was for Hartford or Detroit. Delaware doesn’t have a long history of banking. Credit cards are a recent invention as well. Bank of America (now VISA) first introduced credit cards in Fresno, California in 1958. Delaware became the credit card capital of the world when their state legislature eliminated almost all its traditional usury laws in the state in 1981. Because in Delaware there’s virtually no cap on interest rates and few other rules regarding how they can treat customers, credit card companies in Delaware quickly became far more profitable than those operating elsewhere. Many banks quickly moved their credit card divisions to Delaware. Utah and South Dakota have tried to emulate Delaware’s success by weakening laws protecting credit card users as well. Variations in usury law in the United States create a wildly uneven distribution of predatory lending companies engaged in payday lending, car title lending and check cashing services.
Figure 12-8: World Map - Most governments, including the
