Impacts of Cyclical Change Key Idea 3.b: Processes of economic change can create opportunities for some while creating and exacerbating social inequality for others. Learning Objectives: To assess how booms and recessions (cyclical economic change) impact on people and places.

What is the difference between the two? Economic change = structural economic change OR cyclical economic change. What is the difference between the two?

Economic Change – Booms & Recessions The economic status of a place is rarely static. Times of growth (booms) and decline (recessions) result in changes to the opportunities people have and in levels of inequality. Boom = inward investment; technological innovation; employment; new employment opportunities; new infrastructure; household incomes and business profits rise. Recession = period of decline; technology no longer new: unemployment rises; little investment; slow down in economic activities; household incomes fall; business profits decline; inflation falls

Economic Change – Booms & Recessions It has been claimed that the capitalist system goes through a series of interconnected cycles of economic change called the Kondratieff Cycles and represent a roughly 50-year sequence of booms and recessions. Periods of booms are associated with technological innovation and new industries and opportunities exist for people who have the skills which the new technology requires. The geography of this pattern is that technological innovation is not found everywhere. Some places attract investment and develop as centres of economic growth and rising standards of living e.g. Silicon Valley, California; SE England. In times of recession (when the technology is no longer new and fewer opportunities exist) different people and places are impacted in different ways. The more educated generally cope more successfully than those with basic qualifications. Places with a diversifies economic base tend to retain a good level of wealth creation so that standards of living remain relatively high.

India and the Globalisation of Services Since the 1990s, India’s economy has grown by an average of 6% per year and is now one of the world’s emerging superpowers. But how has it achieved this growth? What are its comparative advantages over other countries?

India – A 3rd Generation NIC The recent transformation of the Indian economy is based on the service sector rather than the manufacturing sector as in China. It has been the main engine of economic growth. Services accounted for 50% of India’s GDP at the start of the 21st century and earn India $25 billion a year.

India’s Comparative Advantages India has a large youthful population – so what? … … this means it has a huge labour force and as supply of labour is big, labour costs can be lower - so what? … … TNCs take advantage of India’s lower wages to outsource work to this country. 2. India produces 2 million English-speaking graduates a year – so what?... … so the workforce is well educated and TNCs keen to capitalise on the huge English speaking, middle class population. India has become the world leader in “back-office functions” i.e. those services operated by Indian firms for companies in MEDCs e.g. call centres for customer enquiries for BA; Lloyds; HSBC; British Gas or those dealing with accounts such as American Express.

What is outsourcing? It is the employment of people overseas to do jobs previously done by people in an HIC. Outsourcing is usually associated with IT software companies, banks and service companies such as call centres. Outsourcing is an example of the globalisation of services.

Comparative advantages … cont’d 3. There has been a gradual movement away from the state to a market economy – so what? … … India can compete with the rest of the world. 4. India made good use of its vast labour force potential and were able to offer global companies a supply of cheap , trainable labour using more productive technologies – the internet has been at the root of India’s rapid economic rise. 5. Many skilled Indian workers migrated to the USA and UK and gained valuable experience which they then used to set up companies on their return – so what? … … this allowed a number of home grown ICT companies to increase. The internet has been at the root of India’s rapid economic rise.

What does Bangalore have to do with this? Bangalore is a city in the south of India. Unlike most Indian cities which grew at industrial ports, Bangalore is the centre of new technology, banking, finance and the knowledge economy. 40% of India’s 1.3 million workers in the IT industry are based in Bangalore. Companies located there are BT Broadband (people offering technical support); Deutsche Bank ( one of London’s largest investment banks) has set up teams of software developers there.

Motorola, Hewlett-Packard, Cisco Systems and other high-tech giants rely on teams in places like Bangalore and Hyderabad to devise software platforms and multimedia features for next generation devices. One of Google’s principal scientists is setting up a Bangalore lab to work on core search-engine technology. Indian engineering houses use 3-D computer simulations to tweak designs of everything from car engines, to aircraft wings for clients such as General Motors and Boeing.

What and where is Electronics City? In the 1990s, Bangalore set up designated areas such as ‘Electronics City’ to become “hubs” for high-tech firms ( Silicon Valley in USA; Silicon Glen in Scotland; M4 & M11 corridor in England). These high-tech firms were attracted by reduced tax levels and the cheap labour.

Advantages of this Economic Growth? an increase in the standard of living and quality of life of the people who work in these industries – so what? … … the positive multiplier effect or ripple effect. “ … Software professionals are earning money their parents never dreamed of, driving Mercedes and partying all night. I am making more money than my parents could imagine and for an Indian woman that is totally liberating. I don’t need to depend on my parents; I don’t need a husband …”

But – is it all good news? There is evidence of the development continuum in Bangalore despite it being India’s fastest growing city and has India’s highest paid workers. The gap between rich and poor is evident in roadside tents, overcrowding and squalor which sit alongside the “bright lights of the city”. Shanty towns have developed and 60% of the population of Mumbai live in poverty – not for them the benefits of globalisation; the Mercedes; the high wages; the partying – but the daily harsh reality of life in the slums.

Challenges facing India Reducing poverty is a major issue. This will only be achieved by rural development projects which would raise the incomes of the poor – it is estimated that 1 million people leave agriculture per year and so creating non-farm employment is critical. Major improvements in the transport infrastructure are needed to sustain economic growth. There are sever bottlenecks in water, power and transport which impede India’s competiveness. Basic services such as improved health and education need to reach ALL citizens. Environmental sustainability needs to be ensured and this requires a long term vision.

Bangalore Read the information sheets on Bangalore and the PPT slides. Now create a mind map of Bangalore using the prompts below. Where is Bangalore located? What is meant by the term ‘new economy’ and ‘knowledge economy’? What evidence is there that Bangalore is the centre of the ‘new’ and ‘knowledge economy’? What comparative advantages does Bangalore have that have allowed it to grow and develop in this way? What indicators is Bangalore displaying of its increased wealth and affluence? More growth is inevitable – where will this be and what will be the impacts of it? Has everyone benefitted form the economic growth in Bangalore? Give an example of social inequality in Bangalore.

How Booms and Recessions impact on People and Places Exam Question: Outline the reasons why some places benefit from booms while others suffer from recessions. (15 marks) Basically because economic activities are not distributed evenly over space. New industries provide the basis for a boom so these areas see “booms” – they are called “core” areas/regions where the positive multiplier is strong; investment spending is high; employment opportunities, household incomes, business profits all rise etc. leading to a higher SoL. These core areas benefit because education, government and social organisations have all encouraged and embraced enterprise and economic change and so are able to support technological innovation while other areas do not Support with named examples – Birmingham Research Park; Silicon Valley; Bangalore (India). These places have exploited the “comparative advantages” on offer.

How Booms and Recessions impact on People and Places Exam Question: Outline the reasons why some places benefit from booms while others suffer from recessions. On the other hand, some “peripheral” areas do not experience the same benefits e.g. Toxteth has not benefited from the “knowledge economy”. Furthermore, some areas are more likely to suffer in a recession – these would be the “peripheral” areas where the main issue was recruitment in the new “knowledge economy”. This is because many applicants for these type of jobs lack the necessary technical or job-specific skills. Many of the residents of Toxteth still today do not possess the skills and qualifications which would allow them to access the service and knowledge economy of Liverpool. Hence, old industrial areas like Toxteth are more likely to suffer during a recession where people are less skilled and comparative advantages are absent.