Unit 8: Development and Industrialization

Development Development is the process of improving the material conditions of people through diffusion of knowledge and technology. Every place has some level of development, from pastoral to post-industrialized. Two principle tiers of development: MDC- More Developed Country LDC – Less Developed Country While it is clear were most countries fall – there are many that have characteristics of both.

Human Development Index A country’s level of development is determined by three factors: Economic Key indicator GDP – Gross Domestic Product Higher the GDP the more developed the nation. Social Key indicator is education and literacy rate. More educated the nation the more developed the nation. Demographic Key indicator is life expectancy Longer the life expectancy the more developed the nation. The UN organizes countries on level of development on the Human Development Index.

Human Development Index

Economic indicators Gross Domestic Product (GDP) is the value of the total output of goods and services produced in a country over the course of a year. GDP per capita is the number divided over the population. MDCs GDPPC usually exceeds $30K LDCs GDPPC is usually less than $10K Types of jobs Primary Sector – agriculture, fishing and raw resource extraction Secondary Sector - manufacturing Tertiary Sector – services and distribution MDCs tend to have economies that have diverse distribution of economic opportunity across all three sectors. LDCs tend to have economies that concentrate in the primary sector,

Economic indicators Workers in MDCs tend to be more productive because of access to technology and automation. The cost of manufacturing tends to be lower in LDCs because the value added per capita is higher in MDCs. Value added is the value of a product less the costs of raw material and energy. People in MDCs have higher incomes, therefore purchase more consumer goods.

Social Indicators Literacy rate- % of a country’s people who can read and write. In MDCs – average is 98% In LDCs – average is 60% Less to spend on public schools (less resources, larger student to teacher ratios), cultural constraints, and ease of access are all factors in less education opportunities in LDCs People are healthier in MDCs. Why? Produce more food. Education on healthy lifestyle choices. Health care is more sophisticated and costs less. Most people in MDCs pay very little for health care (less than 30%) due to nationalized health care that is subsidized by government tax revenues. Exception is the US, where out of pocket is comparable to that of LDCs, 55% of costs to the individual.

Education

Demographic indicators Life expectancy In MDCs average life expectancy is 82 years of age In LDCs average life expectancy is 64 years of age Why? Political stability Health care Standard of living Infant Mortality Rate - MDC .5%. LDC 6% No prenatal care Malnutrition Natural Increase Rate is higher in LDCs (1.5% as opposed to .2% Rapid population growth Crude Birth Rates are higher in LDCs than MDCs (23/12) High infant mortality rates Cultural expectations

Where are MDCs and LDC MDCs are overwhelmingly found in North America and Europe, and Australia and Japan are only MDCs in the Pacific. LDCs are found in Latin America, Asia, and Africa Many have colonial histories

Why Does Development Vary by Gender? UN created the Gender Inequality Index (GII) that is based on multiple metrics. Empowerment Defined: Ability of women to achieve improvements in status. Percentage of seats held by women in the national legislature. Percentage of women who have completed high school. Labor Force Female labor force participation rate defined as percentage of women holding full-time jobs outside the home. Highest in developed countries. Reproductive Health Maternal mortality ratio Adolescent fertility rate All low in MDCs The UN has not found a single country in the world where the women are treated as well as the men. At best, women have achieved near-equality with men in some countries. UN argues that inequality among men and women is a major factor that keeps a country from achieving a higher level of development. Both maternal mortality ratio and adolescent fertility rates are lowest in developed countries. GII scores range from 0 (equality) to 1 (inequality).

FIGURE 9-17 GENDER INEQUALITY INDEX (GII) The lowest GII numbers and therefore the least inequality are in Europe, and the highest numbers are in sub-Saharan Africa.

Gender Inequality Trends UN asserts gender inequality has declined in nearly every country since the 1990s. Greatest improvements in Southwest Asia and North Africa. U.S. is one of few developed countries where the GII has increased. Reproductive rights much lower in U.S. compared to other very high HDI countries. Percentage of women in the national legislature is relatively lower than other high HDI countries.

Two Paths to Development Developing countries chose of two models to promote development: Self-sufficiency Countries encourage domestic production of goods, discourage foreign ownership of businesses and resources, and protect their businesses form international competition. Most popular for most of 20th century International trade Countries open themselves to foreign investment and international markets. Became more popular beginning in the late 20th century In order to shrink the gap between developed and developing countries, developing countries must increase per capita GNI more rapidly and use the additional funds to make more rapid improvements in social and economic conditions.

Self-Sufficiency Barriers limit the import of goods from other places. Businesses are not forced to compete with international corporations. Investment spread almost equally across all economic sectors and in all regions of a country. Minimalized discrepancies in wages among urban and rural dwellers with the intent to reduce poverty.

Self-Sufficiency Challenges Protection of inefficient businesses Guaranteed high prices made possible by isolation from international competition creates little incentive for business to improve quality of product or become more efficient. Companies protected from international competition aren’t compelled to keep up with rapid technological changes. Need for large bureaucracy A complex administrative systems needed to administer the controls encourages inefficiency, abuse, and corruption.

ROSTOW and THE International Trade PATH W.W. Rostow – 5 Stages of Development, 1950s Traditional Society Marked by a very high percentage of people engaged in agriculture and a high percentage of national wealth allocated to “nonproductive” activities. e.g. military Preconditions for Takeoff Elite group initiates innovative economic activities that ultimately stimulate an increase in productivity. Takeoff Rapid growth is generated in a limited number of economic activities. e.g. textiles Drive to Maturity Modern technology pervades from the few takeoff industries to other economic sectors, thus sparking rapid growth. Age of Mass Consumption Marked by a shift from heavy industry, such as steel, to consumer goods. W.W. Rostow proposed a five-stage model of development in the 1950s. Several countries adopted this approach during the 1960s.

International Trade Challenges Uneven resource distribution Commodity prices are not guaranteed to to rise faster than the cost of products a developing country needs to purchase. Increased dependence on developed countries Developing countries may allocate all resources to few take off industries instead of spreading resources among the other companies that provide food, clothing, and other necessities for local residents. Market decline Developing countries have found increased difficulty selling their manufactured goods in a world market that has recently declined for many products. Uneven resource distribution Over time, commodity prices can decrease, such as the case of copper reserves in Zambia where world prices for copper have declined.

International Trade Approach Triumphs ? Most countries have embraced the international trade approach since the late 20th century. Trade has increased more rapidly than wealth as measured by GDP. Optimism about the benefits of this development model based on three observations: If existing developed countries used this approach, then why couldn’t others find similar success? Sales of raw materials could generate funds for developing countries that could promote development. A country that concentrates on international trade benefits from exposure to the demands, needs, and preferences of consumers in other countries.

FIGURE 9-51 WORLD TRADE AS A PERCENTAGE OF INCOME Trade as a percentage of GDP increased rapidly in developing countries, beginning in the 1990s. The severe recession that began in 2008 caused a sharp decline in trade.

Financing Development Finance comes from two primary sources: Foreign Direct Investment (FDI) Defined: Investment made by a foreign company in the economy of another country. FDI grew from $130 billion in 1990s to $1.5 in 2000 and 2010. In 2010, only 2/5 went from developed to developing Major source of FDI are transnational corporation Loans Two major lenders to developing countries: World Bank Includes the International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA). IBRD provides loans to countries to reform public administration and legal institutions, develop and strengthen financial institutions, and implement transportation and social service projects. IDA provides support to countries considered too risky to receive loans from IBRD. International Monetary Fund (IMF) IMF provides loans to countries experiencing balance-of-payments problems that threaten expansion of international trade. IMF assistance designed to help a country rebuild international reserves, stabilize currency exchange rates, and pay for imports without the imposition of harsh trade restrictions or capital controls that could hamper the growth of world trade.

Financing Challenges in Developing and Developed Countries LDCs: IMF, World Bank, and developed countries fear that granting, canceling, or refinancing debts without strings attached will perpetuate bad habits in developing countries. Developing countries required to prepare a Policy Framework Paper outlining a structural adjust program, which includes economic goals, strategies for achieving the objectives, and external financing requirements. MDCs: Heart of the global economic crisis in developed countries was the poor condition of many banks and other financial institutions. Bad loans were especially widespread in housing, which led to the housing bubble- a rapid increase in the value of houses following by a sharp decline in their value. Bubble burst because of relaxation of long-standing restrictions on the ability of individuals to purchase houses and higher-income people took advantage of low-interest loans to buy additional houses.

Making Progress in Development Immanuel Wallerstein, a U.S. social scientist, posited a world-systems analysis that unified the world economy with developed countries forming an inner core area, whereas developing countries occupy peripheral locations. Developing countries in the periphery have less access to the world center of consumption, communications, wealth, and power, which are clustered in the core. When the bubble burst, many people found themselves are way more on their mortgages than their house is one hour.

Fair Trade Defined: Commerce in which products are made and traded according to standards that protect workers and small businesses in developing countries. Ex. In North America, Ten Thousand Villages is the largest fair trade organization in North America. Because fair trade organizations bypass distributors, a greater percentage of the retail price makes it way back directly to the producers. Fair Trade requires employers to pay workers fair wages, permit union organizing, and comply with minimum environmental and safety standards.

The Industrial Revolution Before 1750, most economic development was within the family unit Farms Cottage industries The mechanization of the textile industry in Britain was the beginning of systematic manufacturing, or the Industrial Revolution. Productivity increased Supply increased Prices dropped Goods were more in demand

The Industrial Revolution The first Industrial Revolution Industries were: Iron Coal Transportation Textiles Chemicals Food Processing England was the first nation to industrialize, because they kept these technological innovations secret.

The Spread of Industrialization Industrial Regions Industry is concentrated in three regions Europe North America East Asia - 20th century Each regions accounts for roughly ¼ of the world’s total industrial output. Brazil and India account for most of industrial output outside of the aforementioned regions.

FIGURE 11-3 Europe’s Industrial Areas Europe was the first region to industrialize during the nineteenth century. Numerous industrial centers emerged in Europe as countries competed with each other for supremacy.

FIGURE 11-4 North America’s Industrial Areas Industry arrived a bit later in North America than in Europe, but it grew much faster in the nineteenth century. North America’s manufacturing was traditionally highly concentrated in the northeastern United States and southeastern Canada. In recent years, manufacturing has relocated to the South, lured by lower wages and legislation that has made it difficult for unions to organize factory workers.

FIGURE 11-5 East Asia’s Industrial Areas East Asia became an important industrial region in the second half of the twentieth century, beginning with Japan. Into the twenty-first century, China has emerged as the world’s leading manufacturing country by most measures.

Why Are Situation and Site Factors Important? Geographers attempt to explain why one location may prove more profitable for a factory than others. Companies ordinarily face two geographic costs. Situation factors – costs associated with the established transportation networks accessible from a specific place. Site factors – costs resulting from the unique characteristics of a location.

Situation Factors Proximity to Inputs is the critical factor for 3 types of industries: Bulk-Gaining Industries Production of a product that gains volume or weight during its production. Plants typically located near market to reduce the costs of transportation. Example: Fabrication of parts and machinery from steel and other metals. Single-Market Manufacturers Specialized manufacturers with only one or two customers. Optimal location for factories is often in close proximity to the customers. Example: Makers of parts for motor vehicles. Perishable Products Companies specializing in perishable products must be located in close enough proximity to their markets that the product does not spoil or become dated during transportation. Example: Food Products e.g. bakers and milk bottlers

Ship, Rail, Truck, or Air? Firms seek the lowest-cost mode of transport. The cost per km/mi decreases at different rates for each of the four modes, because loading and unloading expenses differ by mode of transportation. Trucks – best for short distance Trains –best for long distance Ships – most cost effective for intercontinental trade Air- most expensive Many companies that use multiple transport modes locate at a break-of-bulk point, which is a location where transfer among transportation modes is possible. The mode(s) of transportation used is a function of speed and cost of delivery.

Site FaCtors Also called four factors of production. Labor Most important factor on a global scale. Minimizing labor costs, which vary around the world, is extremely important to some industries. A labor-intensive industry is an industry in which wages and other compensation paid to employees constitute a higher percentage of expenses. Capital Manufacturers typically borrow the funds needed to establish new factories or expand existing ones. Ability to borrow money has greatly influenced the distribution of industry in developing countries.

Site Factors Land Lots must be large enough to accommodate efficient, contemporary one-story buildings. Mostly available in suburban and rural locations and tends to be relatively cheaper than land in the city. Entrepreneurs Invest capital Drive innovation Create economic opportunities

Why Are Situation and Site Factors Changing? Shifts within the U.S. Industrialization during the late 19th and early 20th centuries largely bypassed the South, because they lacked the needed infrastructure. e.g. transportation network and electricity. More recently, manufacturers have been lured by right-to-work laws- legislation that requires a factory to prohibit workers from being forced to join a union. Essentially, industry in the U.S. over time has shifted from the Northeast toward the South and West. In a “closed shop” a company and the union agree that everyone must join the union to work in the factory. In an “open shop” a union and a company may not negotiate a contract that requires workers to join a union as a condition of employment. Right-to-work laws send a powerful signal that antiunion attitudes will be tolerated and perhaps even actively supported

Emerging Industrial regions? Some manufacturers are locating in places where prevailing wage rates are lower than in traditional industrial regions. South East Asia Latin America Transnational corporations have embraced using low-cost labor in developing countries. New international division of labor refers to selective transfer of production operations requiring highly skilled workers to factories located in developed countries and those requiring little skill to factories located in developing countries. Outsourcing is turning over the responsibility for production to independent suppliers. Outsourcing has had a major impact on the distribution of manufacturing, because each step in the production process is now scrutinized closely in order to determine the optimal location.

Mexico and NAFTA The North Atlantic Free Trade Agreement (NAFTA) eliminated most barriers to moving goods among Mexico, the U.S., and Canada since 1994. Mexico attracts labor-intensive industries because of its relatively low-cost labor and its proximity to the U.S. Plants in Mexico near the U.S. border are known as maquiladoras.