ECONOMIC GEOGRAPHY 
LECTURE 13: GLOBALIZATION

As we begin discussion of the globalization of manufacturing it is imperative to recall activities included in the process of manufacturing.

We may find each one of these activities on a global basis. The separation of such activities began during the age of mercantilism (circa 1500).  Debated heavily by economists and philosophers (such as Smith, Ricardo and Marx), the movement of specific activities on a global scale may prove to exploit areas of least cost location as it increases the profits of corporations based in first world countries.

First of all, we need to identify just what is a multi-national corporation (MNC). As you will find defined by DeSouza and Stutz, the key element which identifies a MNC is the location of a companies production. A MNC has production in more than one country. There are many reasons why this type of production was initiated. Economists such as Smith and Marx, saw MNC developing from the 1500s on for two main reasons: 

a. to locate markets for their finished products - this would stimulate capital accumulation for industrialized countries, who found their own countries had a limited need/desire for such products.

b. to locate inexpensive raw materials for their manufactures - this can be explained using Weber's later theory of least cost location.

The American colonies are a good example of this as tobacco from the American colonies cost roughly 6 pounds sterling in the 1690s, compared to Spanish tobacco which cost approximately 40 pounds sterling (Walton and Rockoff, 1999).  The key requirement to the establishment of MNC's was transportation. The British, Dutch and Portuguese were successful as mercantilists due to their investments in shipping technologies. The same remains true today, as Singapore and other ports remain key industrial centers due to their inexpensive transportation. This allows corporations to locate the least cost labor and raw materials on a global basis, using inexpensive water transport to ship such goods to market locations. Quite often, production centers and market areas are in two separate locations. This is one of the most significant indicators of development. 

Do jobs created in many poor countries, such as Vietnam, Indonesia, Guatemala and Mexico, create new markets for goods from the United States and other first world countries?  

Or, as suggested by Marx, is relocation of manufacturing simply a strategy used by wealthy, capitalist countries to increase their own profits, exploiting naive labor supplies? I'll leave that question for you to decide.

The text lists many excellent examples of Multinational corporations, also called multinational enterprises. See page 450 for a list of major global corporations, and the percentage of their production which is completed abroad. Also, page 373 lists a nice graph demonstrating global companies with over 50% of total sales and assets abroad. You will note, companies who are market oriented, such as Coca-cola, must locate production abroad due to the fragile nature of their business. Also, in order to be competitive other market oriented industries, such as the auto industry and computer assembly industries locate near markets, mostly in the first world. To assess the cause for relocation, question whether computer industries located abroad serve the local population or simply employ cheap labor and ship the goods for export.

Geographers have begun to differentiate these two causes for relocation using the foundations of Weber's theory. Weber explained the least cost location, which located production in areas with the cheapest inputs (labor, materials, and transport) in order to provide the CONSUMER with the least expensive good. MNC's often utilize this mode of thinking to justify their relocation, taking American jobs. Yet, if this were true we would find industries who were near global market saturation relocating abroad to extend the life cycle of their product. Conversely, MNC's locate the least cost location on a global basis (employing Weber's concepts) and yet, retain a HIGH cost to the consumer. Geographers call this the PROFIT MAXIMIZING LOCATION.

How is a company, such as Nike, the Gap...., able to keep Americans and other first world consumers buying at high prices, while taking employment for unskilled labor out of the country? Many great studies explain this through the extension of personal credit (often at 20-22% interest rates), which has perpetuated consumption despite high unemployment. This is where the marketing and retailing element of the manufacturing process becomes central to success. Advertising greatly affects American consumption.  Trademark association creates global demand. Just watch Asian, Hispanic or foreign television stations for a few minutes, and despite the language barrier, you can see how prevalent trademarks have become for MNC's.

DE-INDUSTRIALIZATION - the globalization of manufacturing has severely affected first world populations, especially the unskilled labor in these countries. With the creation of supranational organizations, such as the European Union and NAFTA, corporations have great access to cheap labor close to first world markets. If you were a capitalist, why would you pay $5.75 per hour in the USA when you could acquire the same labor in Mexico for $1.00 per hour? This is similar for European companies who relocate to poorer regions within the EU, such as Spain and Italy, rather than pay high wages for unskilled labor in Germany and France.

Relocation of industrial jobs to peripheral locations (rural areas) or less developed countries has been called DE-INDUSTRIALIZATION. This phenomena began to have a large impact on first world unemployment rates since the 1970s. First world countries who invest large funds into vocational education programs, such as Germany and Japan, have a semi-skilled to highly skilled workforce. Since skilled labor is scarce on a global basis, this strategy seems to limit the impact of de-industrialization in such societies. Also, many Scandinavian countries limit the behavior of MNC's.

Sweden has been known for limiting the type of economic activity their businesses can engage in, mostly due to their stance on neutrality.  Similarly, most Western European countries make it very difficult for MNC's to bring in skilled labor from abroad, creating such legislation after facing devastatingly high unemployment after WW2 (near 40%).

Recent studies (Dept. of Labor) have shown that nearly 85% of American society is considered vocational or unskilled. Only 12.5% of Americans possess a bachelor's degree. You can see by the maps through these chapters that highly skilled jobs remain in the US; examine corporate headquarters, high tech companies, finance corporations. NAFTA has relocated over 250,000 American jobs south of the border. 

What impact will de-industrialization have upon the American market? 

What should we do to limit the movement of industrial jobs abroad? 

These answers will have a large impact upon the social, economic and political structure of American society.