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Geography 216 Reading Notes
Reading 3:
Four Major Questions of the World Economy


Scarcity
o
Economic geography often focuses on this ‘central problem’
o
The goal is to find a way to fairly distribute resources so that scarcity can be overcome
Four basic questions of economic geography- Questions are mean for each individual country and
economic system- in hopes to eliminate scarcity

1.
2.
3.
4.

Types of economies include: capitalist, traditional, hybrid form
What Will Be Produced?

In this case, focus on limited resources available

What should be produced, and to what ‘scale of production’

What kinds of things are ‘outputs’ are produced with the particular ‘imputs’
How Will It Be Produced?

What type of techniques, labour and capital inputs

What determines the investments, number of workers and ‘productivity growth
Where Will It Be Produced?

Why is the production located there

Why is some economic activity more concentrated while others are greatly
dispersed
For Whom Will It Be Produced?

Who should/will receive these goods/services

Output divided by class, gender, age, ethnicity and regions
The answers to these questions are very mixed components (no two societies answer the same way),
including:

The society’s historical background

Culturally formed ideas of fairness, efficiency, and equality


Position in the world system

Levels of productivity growth

Policies placed on the government
What should be produced?
o
Problems with all economies/societies: scarcity, limited amounts of resources, and trade-offs
 Trade-offs: when one good is produced, less of another good is available within a fixed
set of resources
 Opportunity cost: amount of a resource we must give up to produce a unit of another
product

Answering the “How” Question
o
Capitalism: wants to maximize profits =
o
Measuring increased benefits requires a “for whom” answer to see the benefits in social groups
production and consumption
 Factors to determine how it is produced and for whom depends on the economy
(capitalism, command economy, mixed, or traditional)

Political Economies
o
Political economy- term applied to the capitalist, command and traditional economies because
they are more than ‘simple economic systems
 Political economies include ‘political relations of power’ and class
o
Capitalism- it is the most important and widespread
 By studying capitalism and how it interacts with other political economic systems- you
gain a better understanding of the globe’s economic geography

Capitalist Economies
o
Mainly characterized by the ‘private ownership of the economic means of production’
o
Includes social, political, economic and geographic elements
o
15th-16th Centuries: capitalism (in the form of colonialism) is introduced in Western Europe
o
Fundamental institution of capitalism: where buyers and sellers interact through supply and
demand using prices
o
Profit- the difference between revenues a firm receives and its production costs
 Market demand and price determines what will be profitable
 Price- reflect utility and value of a good- based on consumer ‘maximizing their
interests’ often advertising affects the demand
o
How and where goods are produced?
 Based on labour, technology efficiency, and spatial distribution of production costs
o
Two Major groups of decision makers: private households and corporations
 Resource markets and product markets bring these two together
o

Resources markets- organize capital, land, and labour together to produce
goods and services

Product markets- consist of buyers and sellers of those outputs

The markets are ‘tied together’ by (see figure on pg. 29 in coursepack)
a.
Flows of capital between businesses and resource markets
b.
Labour and wages between households and resource markets
c.
Consumption expenditures for goods and services between product
markets and households
d.
Sales revenues and profits between product markets and businesses
Capitalism is often seen as laissez-faire or a ‘free market’ but there is government intervention,
such as:
 Provision of infrastructure, protecting property rights, providing public services (e.g.
education), protecting producers from foreign competition (e.g. immigrant labour)
 Governments are very important decision makers on items including,


Transportation, education, health care

Governments vs. Market (balance between them) vary within countries and
over time  some have high levels of government (e.g. Scandinavia) and some
have little (e.g. USA).
The Command Economy
o
Sometimes known as communism- great contrast to capitalism
o
It is a form of totalitarianism- production and property and resources are owned and controlled
by a central government
 Some things that are controlled include: prices, levels of production, plant location and
size, and distribution of output
 Manufacturing plants and agricultural facilities are mostly owned by government,
although some command economies do allow for private sectors- e.g. agriculture in
Poland
 Government quota directives determine production quotas, not supply and demand
 Emphasis is placed on heavy industry, military, and collectivized farming on state run
farms (capital goods like these are primary to consumer goods)

o
How, What, Where and For Whom are all answered by the state and not by the market
o
Examples of command economies include: Former Soviet Union and the People’s Republic of
China- some smaller ones include: Vietnam, North Korea, Cuba, Nicaragua and many African
countries
o
There is no pure example of capitalism or command economies today
o
Since the fall of the Soviet Union, the command economy as a political economic form practically
went ‘extinct’
o
Cuba and North Korea practice this system but ‘its future is uncertain’
The Traditional economyo
Examples include: New Guinea, parts of Africa, part of Arab area, and regions India, Burma, and
South America
o
This involves many social forms predating capitalism such as feudalism, some nomadism,
tribalism, and even slavery
o
This form of economy has existed for thousands of years and are in some areas of the world
today
o
Most are rural and very poor
o
Social class is determined by ownership of land
o
Most people are peasant or farmers- except the nomadic societies with hunters and gatherers
o
Questions of Who, What, Where, and For Whom: answered by, culture custom, habit
 Price, exchange, distribution, and income: regulated by social convention, kinship, and
custom (no market force)
o
Deep traditional societies: stong fatalism- where economic conditions are locked and will not
improve; one’s individual position in society cannot change
o
Religion and cultural values dictate societal norms and their economy
o
Urban areas do involve some aspects of capitalism
Reading 6:
Schools Brief: The Miracle of Trade

Absolute advantageo For example: One country is really good at making hats and another country is really good at
making shoes. Total output is increased by having the first country concentrating on making hats
while the other country focuses on shoes. They trade with one another, allowing more to be
consumed by both.

Comparative advantageo When a country makes a particular good, even if it worse at making that product, and it can have
the advantage.
o Comparative advantage occurs when a country’s margin of superiority is greater or margin of
inferiority is smaller
o This is where gains from trade occur- not absolute advantage
o In trade- comparative advantage is never absent
o Basically is shows that even in countries that are bad a making everything can gain from
economic competition- this is especially true if these countries specialize to their comparative
advantage

Bread and Wine Example
o Givens:
 2 countries: North and South
 Each make 2 goods
 Each has 100 workers
 No imput but labor is required
 Market economies/closed to foreign trade
o North (rate equals 1:1)
 Can make 100 loaves a day if devoted all man power to bread
 Can make 100 bottle a day if devoted all man power to wine
 Or can make intermediate combinations 50:50, etc.
 These production choice are shown by a line called the: production possibility frontier
 The amount of goods to be produced depends on the relative demand in the North for
bread and wine.
o South (rate equals 1:3)
 Less efficient at making both goods
 Could make 30 loaves a day or on the other end of the spectrum: 90 bottle of wine.
o
North and South Trade
 North will offer South some bread in exchange for wine
 North: 1 loaf costs 1 bottle
 North can trade with south and get 3 bottles of wine with one loaf



South will be happy to sell wine
 South 1/3 loaf costs one bottle of wine
 South trading with North: one bottle sells for full loaf
o Comparative Advantage in example:
 North: bread is cheap in relation to wine
 South: bread is dear in relation to wine
 Difference between these slopes of the lines
 Gives North its comparative advantage in bread
 Gives South its comparative advantage in wine.
 This allows both sides to be better off
Other items (see page 64 of book)
o Price settling: free trade price will lie between the initial prices in the North and South
o Any price above 1:1, the north will specialise in only the production of bread
o Consumption-possibility
 Say the price is now in North is 1:2 forming a new price line
 It includes many points that are above and to the right of the 1:1 line
 North would consume more of both goods- be better off than it was in the middle of the
old line
o By looking at the chart you can see that the North consumes 5 more loaves and 20 more bottles
of wine than before
o Also see that the South consumes 5 more loaves and 10 more bottles of wine
Free and fair Trade
o Look at wages in this example
 South: 100 workers = 90 bottles  wage is 9/10 of a bottle
 North: 100 worker = 100 loaves  wage is 1 loaf a day
 Let’s say the after trade price is 1:2

So the north’s 1 loaf a day then equals 2 bottles of wine
 Wages in the South are less than ½ of wages in the north
 The low productivity of wine is offset by the wages therefore = competitive supplier but
not enough to offset the low productivity of bread therefore: North has comparative
advantage in bread while south has it in wine.
o Are wages a just way to look at this?
 North complain = workers are being undercut by “sweatshop labor”
 South complain = workers are being exploited
 But fair or not= trade raises incomes in both countries
Reading #9
Falling Commodity Prices
-commodity prices have fallen dramatically in the last 20 years
-This is a problem for people who grow sugar, mine copper, pump oil in Africa, Asia, Latin America, and the Middle
East. These falling prices have reduced incomes for the workers, businesses, and government that produce
commodities: food & agricultural products, raw materials and minerals (around the world)
-Falling prices: make it difficult for people in the south to repay debt or develop economically- made poor people
poorer
-In the last 20 years, manufacturing industries in many countries have collapsed + these jobs disappear, causing
reduced incomes for urban workers (usually men)
-Maquiladoras (named after zones in mexico): free-trade enclaves—these have seen some expansion on exporting
manufacturing during this time
-There has also been growth in the service areas (especially tourism)- although these allow more women and girls
to work, it does not offset the losses of income due to the collapse of old manufacturing industries (tourism has
linked to the sex industry—but has not helped the women and girls it employs)
-Commodity prices fell because supplies from the South increased and because technologies developed int eh
North reduced the demand for many raw materials.
-The more ‘prosaic’, nonelectronic technologies, changed consumer behaviour, Not the Computer, that
contributed to the falling prices
-Many industries that produced goods for domestic markets collapsed because the structural adjustment programs
introduced by the IMF during the debt crisis exposed these industries to foreign competition with powerful TNCs
from the North.
-As domestic markets were opened to foreign trade, many manufacturers inthe South were unable to compete
with TNCs based int he North= failure led to deindustrialization in the south.
Collapsing Commodity Prices, 1980-2000
Reading #10
Nonrenewable Mineral Resources
-We can increase food output, but we cannot increase mineral supply
-Mineral: refers to a naturally occurring inorganic substance in the earth’s crust.
-e.g. silicon = mineral, petroleum is not a mineral (has organic origin)
-Minerals are abound in nature and many are insufficiently concentrated to be economically recoverable
-The richest deposits are unevenly distributed and are being depeleted
-Nonmetallic elements are consumed at higher rates than metallic ones (except for iron).
-Industrial societies don’t worry about supply of most non-metallic minerals (they are plentiful and widespread)
-e.g. nitrogen, phosphorous, potash, sulphur (for chemical fertilizer), sand, gravel and clay (for building)
-Industrial and industrializing countries are worrying about metals
Location and Projected Reserves of Key Minerals
-There are 5 countries that are significant producers of at least 6 strategic minerals vital to defense and modern
technology
-These countries are: Australia, Canada, S. Africa, U.S., and Russia
-The U.S. and Russia are also major processors and consumers
-Japan and W. Europe are other major processors, but deficient in strategic minerals
-Most key minerals will be exhausted within 100 years.
-If the current rates of consumption are maintained, some of these minerals will be depleted within a few years
(assuming no reserves).
-Since 1950, the U.S. has shown an increase in dependence on imports.
-Before 1950, the country only depended on imports of 4 strategic minerals
-In terms of percentage: U.S. dependency increase from 50% in 1960 to over 82% in 2003
-Certain minerals are projected to be future needs of the U.S. and they are unevenly distributed around the world
-e.g. manganese, nickel, bauxite, copper, and tin – concentrated in Russia, Canada and in
developing countries
-U.S. consumption of those listed above will most likely depend on the national tensions and foreign
policy objectives (not so much on economic scarcity)
Solutions to the Mineral Supply Problem
-The Oceans:
-it covers 71% of the earth, contain large quantities of dissolved minerals
-salt, magnesium, sulphur, calcium, and potassium are the most abundant minerals (they amount to over
99% of the dissolved materials)
-With cheap electricity, it might be possible to extract and process these materials from the ocean
-Some valuable minerals in the ocean include: copper, zinc, tin, and silver
-At the moment, bromine and magnesium are being obtained electrolytically from the oceans
-Improving mining technology-Reducing waste inthe extraction and processing of minerals.
-Utilize technologies that allow minerals to be used more efficiently in manufacturing
-Changing social attitudes by encouraging lower per capita levels of resource use
-We could then produce more durable products
-This would save large amounts of energy and large quantities of minerals.
-Reusing minerals
-Urban ores- materials that can be recovered and used again.
-For years, developed countries recycle scarce and valuable metals such as iron, lead, copper, silver, gold
and platinum, but lots of scrap metal is still being wasted
-Much scrap could be recovered, but it is unlikely when prices are low and virgin materials are cheaper
than recycled ones
Figure 4.10:
-Transmineralization: the process whereby natural materials from the environment are systematically replaced by
higher quality or technologically more advanced materials linked to new industries- glass fibers, composites,
ceramics, epoxies, and smart metals
Environmental Impact of Mineral Extraction
-The impact depends on mining procedures, local hydrological conditions and the size of operation.
-The impact also depends on the stage of development of the mineral
-e.g. exploration activities usually have less of an impact than mining and processing mineral resources
-The demand for minerals continues to grow and ever-poorer grades of ore are mined
-e.g. 1900- the average grade of copper ore mined was 4% copper
1973- ores containing as little as 0.5% copper were mined
-Each year, more and more rock has to be excavated, crushed and processed to extract copper
-The mines in Montana, Utah and Arizona are no longer being used because foreign sources in developing
countries are cheaper
-Demand increases = lower quality minerals = environmental degradation
Energy
-Commercial energy is the ‘lifeblood’ of modern economies
-Oil = 25% of the volume (no value) of world trade
-The U.S. consumes vast amounts of energy, overwhelmingly of fossil fuels
-Petroleum (see figure 4.11)- primary uses are transportation and industrial purposes.
-Coal – electrical power generation
-Until 1970s (energy shocks)- commercial energy demands were thought to be unproblematic (always there to
generate rising affluence)
-Higher prices brought energy demands to a virtual standstill, generating inflation, unemployment, and
accelerating deindustrialization (Figure 4.13)
-Thousands of factories were shut, >3 million workers laid off
-In 1980s and 1990s- oil prices deceased form $30 in 1981 to $14 in 1999
-OPEC (once considered an invincible cartel)- saw its share of world oil output drops as non-OPEC countries
expanded production
-These developing countries- deep in energy debts were happy with the falling prices
-Oil exporting developing countries which depended on oil revenues were hurt the worst, including Mexico,
Venezuela, and Nigeria
-2006, world spot oil prices rose again to a normal price of $60 per barrel
Figure 4.11
-The US economy contains 5% of the world’s population but uses 1/3 of its energy
-Main sources of fuels = coal, natural gas and petroleum
-1850: nation’s energy supply = wood burning
-1900: wood was supplanted by coal
-After WWII: petroleum and natural gas surpasses coal as chief source of energy in US. Hydro and nuclear have
also increased recently
Energy Production and Consumption
-Most commercial energy produced is from non-renewable resources
-Most renewable energy resources (mainly wood and charcoal) are used directly by producers, mostly poor people
in the developing countries
-Only a few countries produce more commercial energy than they consume
-e.g. Petroleum production and consumption
-the main energy surplus countries: Saudi Arabia, Iraq, Mexico, Iran, Venesuela, Indonesia, Algeria, Kuwait,
Libya, Qatar, Nigeria, and the United Arab Emirates
-Saudi Arabia is the largest exporter of petroleum and it has the largest proven resources
-Several of the world’s leading industrial powers (Japan, many W. European countries, and the US) consume more
energy than they produce = heavily reliant on imported oil (usually from the Middle East)
-The US is in lead for total energy use: leaders per capita include Canada, Norway, Sweden, Japan, Australia, and
New Zealand
-As already stated. The US has 5% of the world’s population, it consumes 25% of the world’s energy. It is mainly for
transportation, which consumes about 40% of American energy inputs.
-Developing countries- consume about 30% of the world’s energy but have about 80% of the world’s population.
Oil Dependency
-1973 and 1979 Arab oil embargos: Americans were seriously affected because imported oil as a proportion of
total demand increased from 11% in the late 1960s to 50% in the 1970s to about 58% today.
-As a result, the US have repeatedly called for a national policy of oil self-sufficiency to reduce US dependency on
foreign supplies of petroleum---but without much success
-Air and water pollutions regulations have been relaxed and tax credits for home energy conservation
expenditures were ended,due to heavy political pressure form corporations and campaign donors
-The US congress has ‘toyed’ at times with the idea of imposing stricter fuel standards on new cars but this also
was relaxed after 2000 under pressure from automobile producers
-The conflicting policies worked against federal efforts to encourage American households and companies to
conserve fossil fuels
-Japan, Italy, and France are much more dependent on Persian Gulf Oil
-US is more energy efficient: manufacturing consumption went from 40% to 36% and the service economy
consumed relatively little energy
-conservation efforts: the US lags behind Japan and W. Europe (where energy is more expensive). Gasoline taxes in
Europe help to fund more energy efficient public transporation
Production of Fossil Fuels
-The OPEC oil embargo stimulated fossil fuel production in the US and throughout the world and made it aware of
its dependence on the imported oil.
-The US is richly endowed with coal but only has modest reserves of oil and natural gas.
-Over 65% of the world’s oil reserves are found in the Middle East.
-Other large reserves are located in Latin America, Mexico, Venezuela, Russia and Nigeria.
-Natural gas is often a substitute for oil (nearly 40% of natural gas is in Russia and central Asia—34% in the Middle
East)
-Petroleum is exported from the Middle East to Europe, East Asia, and North America (although the US imports
considerable quantities from South America and Nigeria)
Adequacy of Fossil Fuels
-Due to the growing industrialization of developing countries, energy consumption is expected to rise significantly
-Most of the needed future energy will come from fossil energy resources- oil, natural gas, and coal
-In the short term- there is little concern over the amount of supplies (estimates of energy reserves have
increased)---energy prices are low
-If energy consumption were to remain more or less at current levels, the proved reserves would supply world
petroleum for 40 years, natural gas needs for 60 years and coal for at least 300 years
-The size of the world’s total fossil fuel resources is unknown (they are finite) production will peak and then
decline
-Reserves increase by 170% between 1978 and 2003 becasue of new discoveries in the Middle East
-Regionally, reserves have been declining in important consuming countries.
-e.g. Reserves in Russia declined by 9% between 1991 and 2004
-Also declined by 9% in the US in the same period
-Europe’s reserves are likely to be depleted by 2050
-By 2050, exports of oil from Africa and Latin America will probably end
-the Middle East will then be the only major exporter of oil- causing interruptions in oil supplies due to political
turmoil, wars and revolutions = problematic for import-dependent countries
Natural Gas
-Natural gas production is increasing rapidly, and are also the estimates of proven gas reserves
-There have been major finds in Russia, mainly Siberia (as well as in China, S. Africa and Australia and even in W.
Europe, Latin America and N. America) = increasing estimates of natural gas reserves
-Gas production will eventually peak (probably in the first 2-3 decades in the 21st century)
-Gas supplies will probably last a bit longer than oil supplies
-Gas is more abundant in the former Soviet Union, W. Europe and N. America and less abundant than oil in the
Middle East, Latin America and Africa.
-Natural gas differs from oil in its pattern of production and consumption
-The high cost of transportating natural gas by sea, the pattern production is similar to that of consumption
Coal
-Coal: the most abundant fossil fuel, and most of it is consumed in the country in which it is produced
-Use of this resource has been ‘hampered’ by inefficient management of the international coal industry, the
inconvienance of storing and shipping, and the environmental consequences of large-scale coal burning
-China is the world’s largest consumer of coal
-In North America, it is the principal fossil fuel
-Except Russia, the US has the largest proven coal reserves; Coal = 67% of the country’s fossil fuel resources, but
only a small fraction of its energy consumption
-It could be the relief of dependence to oil and natural gas but it could pose problems that oil and gas do not.
-The problems make it less desirable; issues include1)- Coal burning releases more pollution than other fossil fuels, especially sulphur
-low-grade has large amounts of sulphur and when combined with moisture = acid rain
2) Coal is not easily mined like oil or gas.
-underground mining is costly and dangerous
-open-pit mining leaves scars difficult to rehabilitate back to the environmental standards
3)Coal is bulky, expensive to transport and coal slurry pipelines are less efficient than oil/natural gas
pipelines
4) Coal is not a good fuel for mobile energy units (trains, automobiles).
-Coal can be adapted through gasification techniques to the automobile = expensive conversion, and it is
not adapted, overall to motor vehicles.
Reading 11:
Industrialization in the Developing World
-In 2004, 40 countries accounted for 70% of manufacturing exports from developing countries
-The top 15% alone accounted for about 60%
-1/3 of all exports from the LDCs came from four Southeast Asian countries: Hong Kong, Singapore, South Korea,
and Taiwan (the original ‘tigers’ of the East Asian miracle)
-East Asian countries are the most rapidly growing countries in the world since WWII (they have made a growing
belt of manufacturing- that may soon be the largest in the world)
-Manufacturing is slowest to take hold in the poorest countries of the periphery- most are in Africa; but
manufacturing did grow fastest in newly industrialized countries (NICs)
-These NICs made a transition from an industrial strategy based on import substitution to one based on exports
-Two different types of exporters:
1) Largely domestic industrial base and established infrastructure
-primarily exporters of traditional goods such as furniture, textiles, leather, and footwear.
-Mexico, Brazil, Argentina, India
2) Have few natural resources and relatively small domestic markets
-Successful exporters to developed countries because they base items on world economic needs
-Exports in clothing, engineering, metal products, and light manufactures
-Their success encouraged other LDCs to adopt a similar program of export-led industrialization
-Hong Kong, Taiwan, South Korea, and Singapore
Import-Substitution Industrialization
-In post WWII, newly independent developing countries wanted to break away from their dominiation from
developed countries.
-They planned to initiate self-capitalist development through “import-substitution industrialization
-This involved the production of deomestic manufactured goods to replace imports
-Only the middle classes could support a domestic market, therefore industrialization coused on luxuries and
consumer durables
-The “infant industries” developed behind tariff walls in order to reduce imports from developed countries.
-Local entrepreneurs had neither the capital nor the technology to begin domestic industrialization
-Foreign multinational corporations came to the rescue
-The “independent” development became dependent development under control of foreign capital
-Many countries had an initial burst in manufacturing growth and a reduction in imports, but after a while they
needed to buy raw materials and capital goods and the heavy repatriation of profits to the home countries = no
more foreign exchange savings
Export-Led Industrialization
-1960s: notices that the import-substitution failed to generate economic growth
-Export-led industrialization- countries that made it to this type vs the other were able to sustain their rates of
industrial growth (e.g. Asian NICs)
-LDC development became linked to the external market.
-Export-oriented development was to based on the production and export of manufactured goods instead of
primary commodities to developed countries
-1970s and 80s = international economic crisis: growth of export-led industrialization coincided with this
-This happened at a time when demand for imports in advanced industrial countries was growing despite onset of
a decline in their industrial bases.
-Export-oriented industrialization tends to concentrate in export-processing zones (which have 4 conditions)
1) import provisions are made for goods used in the production of items for duty-free export, and export
duties are waived. There is no foreign exchange control, and there is freedom to repatriate profits
2) Infrastructure, utilities, factory space, and warehousing are usually provided at subsidized rates.
3) Tax holidays, usually of 5 years, are offered.
4) Abundant, disciplined labor is provided at low wages
-1958 (Shannon, Ireland)- the first export-processing zone (notice how it’s not in the developing world)- it had the
local international airport at its core
-By 1960s, East Asia began to develop export-processing zones- the 1st = Taiwan’s Kaohsiung Export-Processing
Zone in 1965
-By 1975, 31 zones existed in 18 countries
-By 2001, 96 sones were established in developing countries (mostly in the Carribean, Central and Latin America
and East Asia)
-International subcontracting- (offshore assembly and offscoring)- MNCs established operating systems between
locally owned companies and foreign-owned companies
-Developing country exports to developed countries are pat of a unified production process controlled by firms int
eh advanced industrial countries (e.g. Sears Roebuch Co. Might contract with an independent firms in Hong Kong
or Taiwan to produce shirts, yet Sears retains control over design specifications, advertising and marketing)
Consequences of Export-Led Industrialization for Women
-Export-led industrialization moves work to workers instead of workers to the work. (long postwar boom)
-In some countries this has led to much employment, but only modestly in terms of world wide employment
-Much of the employment in export processing zones is in electronics and electrical assembly or textiles
-Young women make up a majority of this work force (90% in Sri Lanka, 85% in Malayzia and Taiwan, and 75% in
the Philippines)
-Often sexual stereotyping: docility, patience and manual dexterity and visual acuity of female labor are
presupposed
-Women are often paid much less than men for the same job
-Cheap labor is essential to the labor-intensive industries of the global assembly line
-Often people produce things that are of no use to them (these labor systems often violate their traditional
customs and codes)
-These women have traditional roles and when they adopt independence, Westernized dress and changed
lifestyles, they may be rejected by their clan and cannot easily reassimilate if they loose their job on the assembly
line
-Export oriented industrialization leads to growth in production and employment, increase foreign exchange but
does not create indigenous, self-expanding capitalist economy
-Links between export platforms and local economies are minimal
- South Korea = successful in transition
-Industrial expansion has not taken place because of domestic demand. Instead, it has occurred because Koreans
wanted to increase exports and international competitiveness
-Economic stagnation in developed countries is a concern for developing countries (due to their success with the
export-led industrialization)- Developed countries = purchasing power is lost/ this will increase poverty and
suffering for workers and peasant n LDC
Sweatshops
-In an era of global economy, it is impossible for consumers to avoid products made under less than ideal labor
conditions
-In some countries, the horrific working conditions to us are seen as attractive to others overseas.
-Examples with Disney and Sears
-In many ways, what Americans buy is their most direct and intimate connection with the global economy
-US consumer spending can be an important tool in extending American values. If Americans respoind to even
some of these concerns, they could enjoy their shopping and improve the conditions.
The East Asian Economic Miracle
-19th century- when East Asia: S. Korea, Taiwan, Singapore, and Hong Kong (followed the path pioneered by nearby
Japan)
-1980s and 1990s- Malaysia, Thailand, Indonesia and the Pacific coast of China headed down the same road
-After WWII, Japan’s economy was in ruins- Today Japan’s economy is 2nd largest in the world and 2/3 the size of
the US economy (Japan’s population is only half as large)
-Mid-1960s: S. Korea was a land of traditional rice farmers who made up over 70% of the country’s workforce
-Its GDP per capita- $230 was the same as Ghana: Today S. Korea’s GDP per capital is 20x larger and over 70% of tis
people lived and worked in urban areas rather than on farms
-S. Korea’s ecnomy i snow the 11th most powerful in the world (ahead of Sweden, the Netherlands, and Australia).
-S. Korea = world’s 5th largest auto manufacturer and world’s largest shipbuilding nation
-It has the largest # of phDs in the world = good competitor in research and development of semiconductors,
information processing and telecommunications and civilian nuclear energy.
-Characteristics that have allowed East Asia to have sustained economic growth
-enormous commitment to education (Confucian respect for learning and scholarship)
-High level of national savings (gov’ts restricted the movement of capital abroad = low tax rates while
keeping intrest rates above the rate of inflation, and limiting the imporatation of foreign luxury goods
-This means they have large amounts of low-interest capital that allow Asian countries to finance
education, infrastructure, manufacturing, and commerce. Many of these countries save 1/3 or more of their GDP
(in America- domestic savings rate is between zero and 3% of GDP)
-only recently East Asian govt loosened financial policies to allow increased consumption and
capital investment in consumer durable (e.g. homes) these purchases will finance Asian prosperity- it is possible
that their saving rates will decline and imports may increase
-Strong political framework within which economic growth is fostered.
- industries targeted for growth were given export subsidies, training grants and tariff protection
-Business sector = low taxes and energy susidies
-Trade unions were restricted and democracy was constrained
-In Japan, govts controeld industrial expansion with little regard for the Japanese consumers
-Military govts in S. Korea and Taiwan dealth harshly with industrial unrest and political
dissidents
-Authoritarian regimes long ruled Singapore
-Asian gov’ts did not follow a laissez-faire model
-1950s- NICs engaged in widespread land reform: through turmoil of hte Japanese occupation and the
Korean war (dislodged the rural aristocracies that owned much of the arable land)
-rural land ownership in these nations is relatively egalitarian: high rates of productivity
-The NICs have benefited from comparatively low rates of rural-to-urban migration: this helps
prevent the urban areas from being overflooed by desperate peasants seeking to escape poverty
-Sustained commitment to exports (export-led industrialization)
-Import-subsitution: in India, Africa, Latin America decided to protect their economies rather
than open them to international competition through protective tarffs, govt subsidies and tax breaks. Products
then become less competitive abroad. – these countries depend on imported manufactured goods vs exporters
relying on raw materials (e.g. oil, coffee, and soybeans)
-“Terms of trade” was poor in these countries
-Ex. Africa ( and Latin America): Governments put money into state-owned enterprises, large
burearcracies, and oversized armed forces, paying for them by printing momney and raising loans fromt eh
Western banks and international agencies. Public spending soared, price inflation accelerated, domestic capital
took flight to safe deposits in American and European banks and indebtedness skyrocketed.
By 1990s- payments on loans consumed about half of Africa’s export earnings.
By 1989- Argentina owed developed country banks and govts $1800 per person
-1990s: poverty in developing counries outside East Asia had increased dramtically. This caused
forests to be logged, mineral deposits to be carelessly mined, fragile lands to the plow and fisheries over exploited.
-1898-1945: Japan initated the steel, chemicals, and textiles industries in Korea and Taiwan and
in Manchuria. Japanese built much of the industrial infrastructure in the NICs (roads, bridges, tunnels, ports,
airports—mostly designed to maximize the extraction of raw materials such as coal) and these became important
after the war.
-Many NICs (S. Korea) established imitations of the Japanese corporate zaibatsu closely linked to
banks and obtained easy credit. Japanese foreign investment in East Asia (exceeds US) also has acceleratedthe
industrialization of these countries
-US (as well as Japan) has helped the NICs grow.
-1945-1991 (cold war), the US provided economic and military aid, freeing resources that could be harnessed for
economic development.
-Containment Doctrine (Truman Doctrine): positioned Japan, S. Korea, Taiwan, and some other countries as
frontline states in the war against communism.
-The US gave them grants and subsidies to the NICs and awarded them preferential tarade status- exemptions
from tariffs = easy access to American market and significant export earnings.
-1990s- the Four Tigers (S. Korea, Taiwan, Hong Kong, Singapore) were joined by a new group including Thailand,
Malaysia, and Indonesia.
-Thailand- close economic and military ties to the US – they had investment in textiiels, cars, toys, and
tourism.
-Malaysia- authoritarian govt- launched its “Plan 2020”- to become a fully industrialized country by the
year 2020. (has succeeded in the western half of the country). ---world’s largest exporter of refridgerators and
semiconductors (close ties to banks and firms in Singapore too)
-1970s- China began to open itself to the world economy under leadership of Deng Xiaoping.
-The policies implemented encouraged growth of private property and markets.
-Communists shunned contacts with the West, in the last 20 years have welcomed it—this has made it the
country the single largest recipient of foreign direct investment in the developing world (govt targeted coastal
areas in particular)
-The coastal area are special economic zones where investors were showered with subsides and tax
breaks.- Guangdong province (near and benefiting from Hong Kong); Fujian province across the straits from Taiwan;
and Pudong (financial center near Shanghai).
-China’s economy has grown an average of 8% annually for the last 2 decades (one of the highest rates in
the world)
-China has large trade surpluses with most of the developed world = geographic unevenness meaning
more people coming to these areas from poorer areas of China
-India lags far behind China, although it’s economic growth has recently increased. The western half of the
Indian Penninsula (including Mumbai and the famous software complex in Bangalore—India’s silicon valley). India
is the world’s largest producer of software and films.