LECTURE TWO

LECTURE TWO: ECONOMIC SPECIALIZATION

Economic specialization is the basis to categorizing production activities on a global, national and local basis. Once we determine the breakdown of the percentage of the workforce which is in each category listed below, then we can determine our comparative advantage, or the strengths we have as a region, state or nation. Using the text, please define the following economic activities.

A. PRIMARY

B. SECONDARY

C. TERITARY

D. QUANTERNARY

E. QUINARY

If you look at some of the maps regarding these activities, the percentage of workforce in agriculture for instance, you will see that this distribution also reflects some regionalization, or in other words a large gap between first and third world countries.

GLOBAL DIVISION OF LABOR
Geographers, historians and economists have utilized the concept of economic specialization to categorize countries on a global basis. This is sometimes called the Global Division of Labor (who is doing what?). As you will see with corresponding maps, the economic activity that you do usually determines their economic and social indicators, such as income, education, life expectancy, total fertility rates (the number of babies a female delivers), etc. Marx called this relationship the "mode of production" and felt that one's economic activity (if there was no choice or fluctuation from the class you were born into) determined all other aspects of one's life, including your political perspective and all the other relationships mentioned above. Do you agree?

Despite your political philosophy, economic activities and the global division of labor is the fundamental structure which determines global distribution. Most Americans have no problem seeing the difference in incomes between a retail clerk (tertiary with no education) and a doctor (tertiary with high amount of education). Or the income variation between a farmer (primary) and a corporate president, like Disney's Michael Isner (who brings home around $4 million per year) in a quinary position. It is acceptable in our society that those individuals who invest more into their own specialization (education) receive a higher income as a whole. There are a few exceptions of inventors who are poorly educated (may hold no degree) who create a significant invention. But this is rare. Economically specialized countries are usually more productive, simply meaning that they can produce more goods and services than less developed societies.

On a global basis, we examine economic specialization to rank the economic development of nations. Economists, historians and geographers can do this using any indicator, such as income (GNP per capita is standard), education, life expectancy, and many other social and economic statistics. You may want to go to the United Nations website to check out this categorization and current statistics at: www.un.org/esa

Since the 1970's most of the world has categorized nations in the following manner;

1st world: industrialized societies, such as the U.S.A., Germany, Japan, Australia, France, the United Kingdom, and all others where the majority of the population (50% +) work in secondary activities or higher (tertiary, quanternary or quinary). Recently, as of the late 1980's many of these countries have been renamed as "post-industrial societies" which implies that most of our populations work in the service sectors (tertiary, quanternary and quinary activities), and our industrial or secondary jobs have been relocated to less developed countries (we call this process De-industrialization). See econgeo links for more related sites.

2nd world: industrializing societies, such as Mexico, Brazil, Singapore, South Korea, Hong Kong, Taiwan, and adding many other Southeast Asia countries. These countries are called NICs, which means "newly industrialized countries," where the largest sector of employment has become secondary activity.

3rd world: non-industrial societies, such as Nigeria, Malawi, Nepal, and many other Asian, Latin American and African societies where the majority of the population is engaged in primary activity. According to the World Bank, Nepal has 93% of their population engaged in agriculture; Malawi, Sudan and even China (considered a second world country) have over 70% of their population in agriculture.

4th world: These are countries that the first world feels have no chance of industrializing due to a lack of resources, political instability or geographical isolation. Such countries would be; Rwanda, Ethiopia, Nicaragua, etc. This categorization may change with changing political climates. For example, Vietnam has become a "NIC" since Nike and many other companies have relocated to Vietnam for cheap labor. This demonstrates that Vietnam is perceived to be economically and politically stable. Would you say the same for Cambodia?

VIEWS REGARDING THE GLOBAL STRUCTURE
DeSousa and Stutz elaborate upon the three perspectives that are debated regarding the current structure of the global economy. You need to be familiar with the following views:

a. Classical Economic Theory

b. Liberal Economic Theory

c. Radical/Marxist Economic Theory

Which do you feel holds the most validity? What is your reasoning for supporting this perspective?

VALUE ADDED TO MANUFACTURE
This is a concept tremendously used by economists and geographers. It can be defined as the value added to a raw material through the process of manufacturing. In the manufacturing process, industrialists take a raw material (such as wheat) and process it into a more useable, and often less perishable item (such as flour). This processing adds value to the product. This added value is justified by the amount of labor and investment necessary to alter the product.

Each economic activity addressed above adds greater value to the product. This is one of the ways first world countries justify the price of our goods relative to the cost of goods from less developed societies. This is also the justification we discussed above concerning income earnings for individuals from each category. A CEO adds more value to the product, let's say of wheat, because he locates markets and buyers for this good across the globe. Therefore, his earnings are higher than the wheat farmer because he adds more value to the product.

The issue lies in the fact that most of the specialized jobs (tertiary, quanternary and quinary) are located in developed, 1st world societies while the less developed societies, the 3rd world, are engaged in primary activities, which do not earn them value added to manufacture. Does this occur due to the control of technology by the first world (Marxist perspective)? Or is it simply (as classical economists would argue) because 3rd world countries have not stimulated the specialization of their workforce through education, population controls and industrialization of their societies? A liberal perspective recognizes the gap occurs (Marxist) and sees the validity of the need for investment in education and specialization (Classical) and seeks to solve this gap through sending aid (technology and capital) to less developed countries.

Yet, the issue of value added to manufacture is a large concern. We will see later in the course as we discuss corporate strategies (least cost location vs. profit-maximizing locations) that the debate about who should receive the Value added profits (economists use the term VAM) as we relocate industrial jobs (which would pay an American worker $5.00/hour) to newly industrializing countries (such as Nike in Vietnam who pays their workers $.90/day). Should all labor be paid the same wage for the same task regardless of location?