Download Unit 8 - Industrialization _ Economic Development Review

Industrialization & Economic
Development (Unit 5) Review
AP HUG REVIEW
QUICK OVERVIEW
MAIN IDEAS
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Classifying development
Economic activities
Economic development theories
Outsourcing
ESSENTIAL QUESTIONS
– Do the benefits outweigh the problems and injustices
associated with sweatshops?
– What role do women play in development? What role should
they play?
– What causes the economic and development differences
between countries? Are these causes intentional?
CLASSIFYING DEVELOPMENT
What is Development?
The act of
improving/advancin
g the quality of life
(standard of living)
of people.
What is sustainable development?
• Sustainable
development –is
development that
meets the needs of
the present without
compromising the
ability of future
generations to meet
their own needs.
“Rich Countries”
“Poor Countries”
Developed
Undeveloped
More Developed
Less Developed
Time
Developed
Developing
First World (capitalist)
Third World
“The North”
“The South”
MEDC’s
LEDC’s
LEDCs/LDCs
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Less economically developed countries (LEDCs) or
Less Developed Countries (LDCs) these are the
poorest of the developing countries.
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They have major economic, institutional and human
resource problems.
In 2009, 49 countries were labeled as LEDCs/LDCs
many are in Sub-Saharan Africa
MEDCs/DCs
• More economically developed countries
(MEDCs) or Developed Countries (DCs)- these
are the richest of the developed countries.
The World of Haves and Have-Nots:
UN Human Development Report
• The richest 20% of the world's
people consumes 86% of all goods
and services
• the poorest 20% consumes just 1.3%
The World of Haves and Have-Nots: UN Human
Development Report
• the richest 20% consumes:
– 45% of all meat and fish
– 58% of all energy used and
– 84% of all paper
– has 74% of all telephone lines and
– owns 87% of all vehicles
Have-nots
• Of 4.5 billion people in developing countries:
– nearly 60% lack access to safe sewers
– 1/3 have no access to clean water
– 1/4 do not have adequate housing and
– 20% have no access to modern health services of
any kind
Measuring Economic Development
All these are indicators of income
Gross Domestic Product
GDP – total value of goods and services produced in a country (US$)
Gross National Product
GNP – GDP that also Includes income from investments abroad (US$)
GDP/GNP per capita
Total value divided by the total population (per person)
National Income – Problems with using GDP/GNP
Black market/informal economy
• Some economic activity not recorded –
subsistence farming and barter activity, for
example
• Some economic activity is carried out illegally –
building work ‘cash in hand’, drug dealing, etc.
• Work of the non-paid may not be considered but
may contribute to welfare – charity work,
housework, etc.
• A small proportion of the population can own a
large amount of the wealth in a country.
Development Diamonds
Development Diamonds
illustrate relationships for
4 socio-economic
indicators relative to
averages of the countries
in the same income group
Strengths of using the Development Diamond as a
method of showing level of development
• Development diamonds make it possible to
assess a country’s achievements in both
economic development and human
development
• You can compare countries and their
development using 4 indicators, not just 1
Weaknesses of using the Development Diamond
as a method of showing level of development
• It only shows where a country stands in
comparison to “low income” groups, not
middle or high income
• It’s hard to determine development only with
these 4 indicators
• It cannot be used to compare countries of
different income groups
1.4 billion people struggle to survive on less than $1.25 a day
(World Bank 2005). How can they be helped?
Purpose
• The Goals were agreed to in 2001
• The Goals were devised by the UN in 2000 and
adopted by nations in 2001
• The idea of course is to create a better world
• Many nations are already falling short
• But there are success stories
ECONOMIC ACTIVITIES
Primary Economic Activities
• Definition
– Extraction of natural
resources
• Examples:
– Farming, mining, forestry
Secondary Economic Activities
• Definition
– Processing of raw
materials into finished
goods by manufacturing
• Examples:
– Steel manufacturing,
furniture production,
food processing
Tertiary Economic Activities
• Definition:
– Provision of services
• Examples:
– Retail, restaurants,
tourism, police and fire
provision, sanitation,
advertising
Quaternary Economic Activities
• Definition:
– Information and
knowledge processing
• Examples:
– Education, data
processing, research and
development, banking
and finance, medical
Quinary Economic Activities
• Definition:
– Highest level decision
making
• Examples:
– Top-level government
officials, business
executives, financial
consultants
The Theories Used to Explain
the Global Development Gap
Rostow - Stages of Growth
1.
•
Traditional Society
Characterised by
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Village in Lesotho. 86% of the resident workforce in
Lesotho is engaged in subsistence agriculture.
Copyright: Tracy Wade, http://www.sxc.hu/
subsistence economy –
output not traded or
recorded
existence of barter
high levels of agriculture
and labour intensive
agriculture
Rostow - Stages of Growth
2. Transitional Stage
The use of some capital equipment can help increase
productivity and generate small surpluses which can be
traded.
Copyright: Tim & Annette, http://www.sxc.hu
– Development of mining
industries
– Increase in capital use in
agriculture
– Necessity of external
funding
– Some growth in savings
and investment
Rostow - Stages of Growth
3. Take off:
– Increasing
industrialization
– Further growth in
savings and investment
– Some regional growth
– Number employed in
agriculture declines
At this stage, industrial growth may be linked to
primary industries. The level of technology required
will be low.
Copyright: Ramon Venne, http://www.sxc.hu
Rostow - Stages of Growth
4. Drive to Maturity:
– Growth becomes selfsustaining – wealth
generation enables further
investment in value adding
industry and development
– Industry more diversified
– Increase in levels of
technology utilised
As the economy matures, technology plays an
increasing role in developing high value added
products.
Copyright: Joao de Freitas, http://www.sxc.hu
Rostow - Stages of Growth
5. High mass consumption
– High output levels
– Mass consumption of
consumer durables
– High proportion of
employment in service
sector
Service industry dominates the economy – banking,
insurance, finance, marketing, entertainment, leisure
and so on.
Copyright: Elliott Tompkins, http://www.sxc.hu
Assumptions Made by Rostow’s Model
• all countries have similar development
trajectories
• intrinsic factors like culture and natural resources
don’t impact development
• countries that undergo development at different
times in history will undergo the same processes
• all countries have the same access to
development
• the goal and purpose of all economies is to
increase productivity and material consumption.
Developmentalism
• The notion that every country and region will
eventually make economic progress toward a
high level of mass consumption if they only
compete to the best of their ability within
the world economy.
• Rostow’s Model keeps this myth alive.
Limitations of Rostow’s Model
• The weakness is that it’s not fair to compare
today’s poorer countries to those that were
the first to take off. Those that took off first
didn’t have to compete in a global market.
• it is difficult to say whether all countries will
eventually conform to Rostow’s Model.
• It is unlikely that Rostow’s model will be
universally applicable.
Dependency Theory
• This theory blames the underdevelopment of
the developing world on exploitation by the
developed world (Andre Frank, Chicago, 1966)
• Frank argued that:
– Poverty in the developing world arose through the spread
of capitalism (countries were wealthy before Europeans
colonized)
– The development of the rich was achieved by exploitation
of the raw materials in the developing world.
– Developing countries became dependent on rich countries
Neocolonialism
• the geopolitical
practice of using
capitalism, business
globalization, and
cultural imperialism to
influence a country,
instead of direct
military or political
control.
World Systems (core/periphery)
theory
• This theory is based on the history of the
capitalist world economy. Countries fall into
three economic levels, and can move from
one level to another if their contribution to
the world economy changes.
The CORE
North America
Western Europe
East Asia
Main trade flows are between these three
areas.
Countries in this core have diversified
economies, with high output, high purchasing
power and large domestic markets. These are
the manufacturers.
SEMI PERIPHERY
A wide range of countries.
First waves of NICs – South Korea, Taiwan, Hong
Kong, Singapore
2nd Waves: Malaysia, Mexico, South Africa
BRICs – Brazil, Russia, India, China.
THE PERIPHERY
LEDCs. Mainly Africa.
Small domestic markets, lack of
infrastructure, population increase, low
economic output, low levels of economic
diversification, high agricultural
population.
Outside this core, the global periphery is a
location of cheap raw materials or cheap
manufacturing or a market for the core to
“dump” their surplus products.
Raw material Producers
Industrial Revolution
• Began in the late 1700s in England and led to
the huge growth of the world population for
the next two centuries as industrialization
diffused outwards.
The Industrial Revolution
B. Why did it begin in the Great
Britain?
– capitalist system
• people free to form businesses
• education
• patent system encouraged
development
– labor:
• Jethro Tull’s seed drill (1701) and
other developments > improved
productivity in farming > people
can leave farms and work
elsewhere
The Industrial Revolution (cont)
B. Why did it begin in the Great
Britain?
3. raw materials (iron ore, coal)
4. rivers, canals, harbors (ease in
trade)
5. small, compact size (iron and
coal near rivers and harbors)
6. existing banking system
(borrow $ to buy machinery)
7. stable political system
8. colonies (guaranteed
markets, additional raw
materials)
The Industrial Revolution (cont)
C.Key developments
– James Watt patents the
steam engine (1769)
• wood replaces running
water as source of energy
• changes location of
machinery
– was located by running
water (streams, rivers)
– now can be located
wherever wood exists (more
flexibility)
The Industrial Revolution (cont)
D. Effects
– economic: more goods at
lower prices
– social: available labor
leaves farms and clusters
in cities
– political: surplus labor >
mistreated workers >
liberalism and communism
The Industrial Revolution (cont)
D. Effects
4. technological: >
railroad, steamship
5. agricultural: > 2d
Agricultural Revolution
• increased
productivity
• use of machinery >
larger farms >
enclosures
OUTSOURCING
Globalization
• Globalization refers to how the world is
increasingly inter-connected.
• It is most closely associated with the
transnational activities of huge corporations,
which operate sometimes in alliance with
and sometimes against states.
Fordism
• The process of using
assembly line
techniques in
manufacturing and is
attributed to Henry
Ford
Commodity Chain
• A chain of activities from the manufacturing to
the distribution of a product.
• Example: The clothing Industry
– Growing of cotton
– Textile mills to create cloth
– Garment factories where stiching occurs
– Firms for design
– Retailing and selling to the consumer
Transnational Corporations
• Companies that have
facilities and processes
spread among several
countries.
• Found at the highprofit end of the
commodity chain and
specialize in brand
names, high
technology and design
and marketing.
Theory of Comparative Advantage
– countries should specialize in producing those
goods of which they are relatively more efficient
producers
• these countries should then trade with the rest of the
world to obtain needed commodities
– if countries do specialize this way, total world
production will be greater
Outsourcing
• The practice of shifting
production of a product
to a third party either in
the country in which you
are based or in an other
country.
• (part of comparative
advantage)
• Taking advantage of less
expensive labor
New International Division of Labor
• Transfer of some types of jobs, especially
those requiring low-paid, less-skilled workers,
from more developed to less developed
countries.
Maquiladoras
• Foreign-owned assembly companies located in
the United States/Mexico border region.
• These companies are able to take advantage
of cheaper labor, tax breaks, lax
environmental regulations while operating
close the the markets for the products.
Consequences of Maquiladoras
Economic
• Wages don’t match inflation
• Large dependence on companies from local communities
• Low wages perpetuate poverty
Environmental
• Air pollution from factories
• Water contamination from raw sewage
Social
• 60% of workers are women
• High risk of sexual harassment (pregnancy policy)
• Lack of money to send kids to school (low education rates)
Reasons why companies outsource
business…
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Low wage structure
Low tax structure, tax incentives
Low land (site) costs or rent
Low building costs/buildings available
Large labor pool
Negative impacts of outsourcing on
local communities
• Low wages  adds little to local economy through
disposable income
• Short term/unstable employer  not a long term
contributor to local economic development
• Amount of labor required is minimal  small addition
of capital to local economy (highly automated)
• Skill level requirements are minimal  limited
improvements on education system, limited
employment benefits
• Global corporation  low investment requirements;
longevity in place depends on corporate success;
succession of owners
FRQ PRACTICE