Human Geography – The Globalisation of Economic Activity
1. Uneven Development in the Global Economy
· Globalisation
- Characteristics
- Processes
- Impact on the world economy
· Uneven global distribution of activities
- Illustrate how globalisation has affected the economies of LDCs, DCs and NIEs
· NIDL
- Causes of the emergence of a new NIDL
- Impact of the emergence of NIDL on the global economic activities
- Impact of new technologies on work
Ø Job specialisation, multi-skilled production, changes in production and labour
· Impact of global economic change
- Rise in new service sectors: tertiary, quaternary and quinary
- Locational trends in producer and consumer services
- Internationalisation of service firms
- Rise of SMEs
- Privatisation / Deregulation of public services
2. Transnational Corporations
· Characteristics of TNCs
· Spatial organisation of TNC’s activities
· Linkages with host economy
- FDI and influence on national and regional economies
· Case study of TNC
3. Role of the State and Supranational Bodies
· Role of state in economic development and its impact on national economies
· Supranational bodies and their impact on national and regional economies
- Trading blocs / regional blocs
- International institutions
1. Uneven Development in the Global Economy
Globalisation
Ø Discuss the characteristics and processes of globalisation.Ø Discuss the impact of globalisation on the world economy.
What is globalisation?
· Increasing interconnectedness & interdependency of people, cultures, economics and politics at all spatial scales.
· More functionally integrated and independent. The compression of the world.
Processes involved in globalisation
· Economic: Flow of capital and goods: production and investments by TNCs, etc., the changing structure of firms
· Social: Movement of people: migration, tourism, demographic changes, multicultural states.
· Cultural: Diffusion of information and cultures: InfoTech like internet, cultural forms (movies, brands), cultural homogenisation
· Political: Rise of international organisations: UN, IMF, ASEAN, EU etc. Supranational organisations, trade blocs, FTAs
Globalisation is driven by:
· Improvements in transport – air freights, shipping.
· Improvements in communication – Internet, phones, email
· The search for new, unsaturated markets by economic agents like firms
· Need to find the most efficient methods of production – comparative advantages
The impacts of globalisation on the world economy
· Shrinkage of distance – a ‘Shrinking World’
· Spatial division of the global economy
· Spatial interdependence – the global supply chain
· Increased mobility and flexibility – increased flow of funds, capital
· Accentuation of regional disparities
· Convergence and divergence of economic activities
Reasons for economic globalisation
PUSH FACTORS from home countryExpensive labour on standardised goods / · For textile companies, the hourly operation cost in Switzerland is US$35, compared to US$12 in Sri Lanka or $11 in Bangladesh.
Strong unions / · In the US, in addition to health care, unions fought for and gained retirement plans, compensated sick days, and defined benefits plans. The median weekly income of a union worker is $917 compared to $717 for non-union workers.
High expenses on labour welfare
Saturated markets / · The technology market in the US or Japan are far more saturated in comparison.
PULL FACTORS from host country
Cheaper labour / · In China, wages are a fraction of those in the US, and six times cheaper than Mexico - averaging about 40 US cents an hour for a factory worker.
‘Standardisation’ of products / · Mass production technology – Fordist car assembly lines
Cheap raw materials / · Oil production in Nigeria by Shell – cheap oil.
Cheap land, low taxes, laxer laws / · Union Carbide moving to Bhopal, India to take advantage of laxer environmental laws to produce otherwise banned chemicals.
·
Increased mobility, transport and communications / · The increased ubiquity of shipping or air routes, email and Internet technology.
Search for new markets / · China has a large consumer base, having a population of 1.3 billion.
The Reason for Standardisation of Products
Theodore Levitt (1983) put his focus on marketing of standardised products and brands worldwide as:
1. Customer needs and interests are becoming increasingly homogenous worldwide.
2. People around the world are willing to sacrifice preferences in product features, functions, design, and the like for lower prices at high quality.
3. Substantial economies of scale in production and marketing can be achieved through supplying global markets.
TYS Questions:
2009 H1 Q7 Either: Describe the processes that contribute to globalisation. [9m]
2009 H2 Q5 Either: With the help of examples, explain the concept of “a shrinking world”. [9m]
2010 H2 Q5 Either: With the help of examples, explain how technological change has contributed to globalisation. [9m]
Uneven Global Distribution of Economic Activities
Ø Discuss what is meant by ‘the globalisation of economic activity’.Ø Discuss the global, regional and national variations in economic wealth.
Ø Discuss the development gap.
Ø Evaluate the usefulness of various indicators used to measure the level of development.
The globalisation of economic activity
It is the process of merging between domestic economies, businesses and societies. The phrase relates to economic activity that indicates that globalization involves the participation of companies and corporations actively contributing to the integration of international businesses. The features of the globalization of economic activity include an international development of trade, production, investments and flow of workforce.
International Trade
International trade relates to the exchange of capital and goods in the global market. It is an essential component of the globalization of economic activity as business acts on an international level mainly to ensure benefiting from participation in the global trade system. Imports and exports are the aspects of international trade – countries and corporations producing more than they can consume focus on exporting goods to countries which demand production. For example, a report by the European Central Bank indicates that through the satisfaction of foreign demand, countries like China and India have massively expanded their economies. These destinations are now a major focus for businesses looking to buy goods and import them in countries that require production, such as the U.S. and the E.U.
International Production
International production in the global economy – or exported production – is when businesses start producing their goods in countries with cheaper labour and more relaxed tax systems. This allows big companies to produce more and pay less for the labour and the country housing their production facilities and activities. For example, the German car industry giants, as indicated by Turkish economist Lale Duruiz, have already exported their production in Turkey, benefiting from the economic treaty of the country with the E.U. for free movement of goods. Thus, the German producers pay no import fees when delivering their production in Europe and save up from labour costs and taxation.
International Investments
Investing on an international level allows companies and financial organizations to participate in projects in different areas in the world depending on profitability and market situation. For example, where financial organizations from the developed world seek to expand their influence on an international level, they would offer to invest in the developing economies to either have a share in the production or to receive a fixed interest upon the investment they have made. This has happened in the relationships between United Arab Emirates and the United States as described by the U.A.E - U.S. Business Council. When first started investing in the developing Arab Union in the late 1990s, the U.S. input $540 million in investments. Seven years later, the U.S. investments had already grown by 724 percent, thus turning the Emirates into one of the most successful destinations American financial institutions have ever participated in. This increase in the investment value has contributed to the development of stronger ties between the countries and stable trade relations between businesses from both sides.
Workforce
The globalization of economic activity includes the integration of people willing to work in foreign economies. The most advanced example of such integration is the European Union – every citizen of the Union is allowed to participate and exercise a profession in all the member states of the organization through a freedom of movement legislation.
What is the development gap?
Traditionally known as the North-South divide which is shown by the Brandt Line, it splits the countries of the world into two sides, with DCs in the “North” and LDCs in the “South”. N and S are merely categories and are not defined geographically. More recently, it has been termed the development continuum gap. (Blue is N, Red is S)
Development in this case is mostly defined as economic development. It refers to advancements in technology, a transition from an economy based largely on agriculture to one based on industry and an improvement in living standards. Other factors that are included in the conceptualization of what a developed country is include life expectancy and the levels of education, poverty and employment in that country. It is essentially measured by the HDI, which includes GDP/capita, education (adult literacy rate and primary, secondary and tertiary education) and life expectancy at birth.
Globalization as the leading cause for global inequality: globalization enhances social and economic gaps between countries, since it requires economies and societies to adapt in a very rapid manner, and because this almost never happens in an equal fashion, some nations grow faster than others. Rich countries exploit poorer countries to a point where developing countries become dependent on developed countries for survival. The very structure and process of globalization perpetuates and reproduces unequal relationships and opportunities between the North and the South, it tends to "favour the privileged and further marginalize the already disadvantaged".
Impacts on Economically Less Developed Countries (LDCs)Positive Economic / Negative Economic
· Industrialisation
- 4 Asian tigers: From 1980-2000, South Korea industrialised by 20-25%.
· Employment – direct job creation
- Shell in Nigeria has employed 5000 locals directly to work in oil extracting plants and another 20000 indirectly, increasing employment in the local delta area and per capita income.
- Nike pays around 5 times the minimum wage and 3 times the minimum wage in Indonesia. Those working in export factories in Dhaka earn 86% more than those who do not.
· Improvement of technology and skills
- Intel, IBM, Microsoft and Texas Instruments invested in research centers in India to train and employ thousands of Indian engineers at low costs.
- Farmers in India taking Monsanto’s gene technology via cross-breeding to improve their other crops.
· Financial income for country
- Taxes: In Nigeria, Oil is a very important part of the country’s economy, accounting for 20% of GDP and 95% of its export earnings. The foreign MNC Shell produces half the country’s oil output.
- Industrial Linkages: Coca Cola has an estimated multiplier effect in China of 414 000 people, like local glass suppliers.
- Investor Confidence: General Electric setting up in Singapore’s Jurong Industrial Park was a big plus that improved credibility, such that even as labour costs were rising in the 1990s, firms such as Seagate still located in Singapore.
· Increased income for workers
- China’s disposable income grew from 46 dollars in 1978 to 10493 in 2005.
- Mexican rural poverty falls from 24.2 to 17.6, overall poverty falls from 42% to 27.9% in the maquiladora regions. / · Local producers unable to compete
- Produce farmers in Africa unable to penetrate tariffs protecting the EU agricultural market. Many African and Asian dairy, tomato and poultry farmers cannot keep up with cheap competition from Europe, thus their incomes can no longer provide for their families. They end up relying heavily on imports, which are often the EU's subsidized exports.
· Exploitation of workers
- Child labour: forced, unsafe employment of children in the textile industry in Bangladesh.
- Sweatshop phenomenon: Nike’s employees forced to work for extremely long hours with comparably little pay – working 40 hours overtime a week with $2.46 a day.
· Brain drain
- Brain drain has cost the African continent over $4.1 billion in the employment of 150,000 expatriate professionals annually.
- Indian students going abroad for their higher studies costs India a foreign exchange outflow of $10 billion annually.
- There is only one doctor for every 10000 people in Kenya. It takes $150,000 to train a doctor, who leaves after an internship, and Africa has lost everything that goes with it.
· Encourages dependency
- Remittances to the Philippines from domestic workers abroad makes up more than 10% of its GDP ($17.3 billion), which has resulted in dependency and laziness.
· Remittances
- Not all income generated by TNCs goes to host country – most of it is remitted to its home country.
Positive Social / Negative Social
· Increase in literacy rates
- To help with export led growth, the government of South Korea increased literacy rates via education from 22% in 1945 to 87.6% in 1970.
· Improve sanitation and healthcare
- Better infrastructure and technology transfer has caused IMR in the UN’s list of least developed countries to fall by half in 1960 from 180 to 2005 at 90.
· Decreased child labour
- Improvements in income are generally spent on education – globalisation can accelerate this e.g. Dhaka, India.
· Urbanisation
- Due to manufacturing jobs in cities made available by globalization, urbanization in China has grown from 18% to 39%. / · Health and safety issues
- Bhopal, India, 1984, a gas leak from a pesticide plant, Union Carbide in the heart of the city killed many thousands of people and injured half a million people.
- In the Ramatex textiles factory in Namibia, workers are not provided with protective clothing. Some workers have developed chest problems whereas others have had allergic reactions, creating added personal medical costs to the individual and government as they are not covered by the TNC.
· Inequality
- Poor people’s incomes grew at an average rate of 3% in China from 1960 to 1990, but rich people’s incomes grew at a rate of 5% (50:50 percentile)