Industry Tale of Two Cities Write these on your article! 1. Connect to Agriculture, how does NAFTA put Mexican corn farmers out of business? 2. Why does Juarez virtually transform overnight as opposed to a more populated Mexico City? 3. What type of boundary dispute has been avoided because of NAFTA? 4. How has NAFTA influence Mexico s position on the DTM? 5. More of a perspective: Wade made approx. $70,000/ Berta makes 2011 Pearson approx. Education, Inc. $2,000 Origin of Industry The Industrial Revolution Industry = manufacturing of goods in a factory Shift from cottage industries to factories hand-made to machine-made dispersed (cottage industry) to clustered (factories) Impact greatest on certain industries iron, railroads, food processing/canning, chemicals textiles Led to increased productivity and over time an increase in the standard of living Origin hearth northern England/southern Scotland = Late 1700s 1
Diffusion of Industry The Industrial Revolution northern England/southern Scotland = Late 1700s Later continental Europe/N. Amer (1800s) generally followed pattern of proximity to coal and iron Later with transportation improvements = RRs clusters in larger cities (London, Paris) Why? Large markets Labor force Access to transportation Access to capital (money) other regions (East Europe, East Asia) in the 20 th c. Industrial Areas in Europe 2
Diffusion of Industry Diffused from a few MDCs to many LDCs What is the state of American manufacturing? 1/3 of manufacturing jobs lost over last decade now in jeopardy, deindustrialization similar situation in EU and Japan even Mexico is losing manufacturing jobs early 21 st century Maquiladoras in decline Driven by globalization, mechanization and free trade Industrial Location Theory Location theory: Predicting where business will or should be located Assumes: Desire to maximize advantage over competitors Maximize profit Considers Variable costs Energy, transport expenses, labor costs, etc. Friction of distance Incr. in time and cost w/ distance 3
Quick Check If you have companies that have no problem moving halfway across the world, what can it imply about the variable costs? How are Situation Factors Important? Proximity to inputs Examples: Copper, Steel Paper Bulk-reducing industries End product is lighter/less bulky and therefore easier and cheaper to transport than inputs. Locates closer to inputs How Are Situation Factors Important? Proximity to markets Bulk-gaining industries End product is heavy/larger/more fragile than inputs Examples: Fabricated metals (cars, appliances, etc.) Beverage production Single-market manufacturers Industry suppliers Just-in-time delivery Perishable products 4
Location Models Weber s Model Manufacturing plants will locate where costs of transportation, labor are the least and agglomeration is beneficial Theory: Least Cost Theory Agglomeration: a process involving the clustering or concentrating of people or activities. Often refers to manufacturing plants and business that benefit from being in close proximity because they share skilled-labor pools and technological and financial services Weber (Least Cost Theory) Beer Bottling and Breweries 5
Modes of Transportation Ship, rail, truck, or air? Consider line costs, terminal costs and route flexibility Truck = most often for short-distance travel Train = used to ship longer distances (1 day +) Ship = slow, but very low costs per km/mile Air = most expensive, but very fast Locate at break-of-bulk point Place where transfer between modes takes place Minimize cost by locating processing nearby Oil refineries Less important now due to containerization Entrepot???? entrepôts A seaport where goods are exchanged/stored until they are shipped. The goods face no import/export duties upon shipment use of entrepôts dates back to long distance sea trade routes. The benefit was that it removed the need for ships to travel the whole distance of the shipping route. The ships would sell their goods to the entrepôt and the entrepôt would in turn sell them to another ship, removing the large risks associated with long distance travel. For example, if a ship was carrying spices from China is could sell the spices to an entrepôt in Singapore and the entrepôt could sell the spices to a ship heading to England. Singapore and Hong Kong serve as modern day examples. Site Factors Are Important Capital = loans for investment, machinery, inventory Labor (most important site factor) Labor-intensive industries vs. capital-intensive Examples: textiles vs. autos 6
Site Factors Are Important Capital Labor Land bid-rent theory What is the common assumption in bid-rent theory? environmental factors = utilities How does the architecture and location of early factories within cities reflect the site (bid-rent theory) and situation costs? inner ring close to city center multistory construction 7
How are site and situation factors affecting/changing the traditional distribution of industry? Factors Changing Location (w/in country) Changing industrial distribution within MDCs Intraregional shift (cities suburban/rural) Development of road transport = trucking Interstate highway system (1950s) allows location away from urban railway hubs shifting situation costs Land is cheaper (shifting site costs) Rural electrification (shifting site costs) Why Are Site Factors Important? 8
Factors Changing Location (w/in country) Changing industrial distribution within MDCs Intraregional shift (cities suburban/rural) Trucking Interstate highway system (1950s) allows location away from urban railway hubs shifting situation costs Land is cheaper (shifting site costs) Rural electrification (shifting site costs) Interregional shift within the United States Northeast/Midwest (Rustbelt) South/West (Sunbelt) Right-to-work laws/non-union = lower site costs Climate = less utilities = lower site costs Plus city to rural advantages above Changing U.S. Manufacturing 9
Factors Changing Location Changing industrial distribution within MDCs Interregional shifts in European Union Encouraged by government policy Convergence shifts toward poorer regions Competitive and employment regions receives assistance to offset job losses What type of reaction might these policies produce? Anti-EU, anti-globalization Examples? Brexit Marine Le Pen (Populism, Economic nationalism) EU Structural Funds International shifts in industry MDCs to LDCs (changing distributions) Attraction of new industrial regions East Asia, South Asia, Latin America BRIC Countries Site factors: Cheap labor, lax environmental regulations Situation factors: free trade, easy transportation, telecommunications, etc. Outsourcing shift responsibility for production of components to independent suppliers 10
Industrial Areas in East Asia Global Production (Steel) 11
Global Production (Steel) New International Division of Labor process by which companies move industrial jobs to other regions with cheap labor while retaining highskilled tertiary jobs MDCs = highly skilled vs. LDCs = unskilled, laborintensive Leads to high unemployment in deindustrialized region (i.e. Rust Belt) affects unskilled workers in MDCs negatively But skilled workers (quaternary, quinary) in MDCs benefit Leads to Interregional differences in LDCs areas connected to core developing more rapidly develop a growing middle-class (consumerism, pop culture, fast food) isolated, interior regions see little benefit/change Interior of China, Papua New Guinea, Sub-saharan Africa 12
Effects of the New International Division of Labor on LDCs Added job opportunities Positive addition to personal and national income that raises societal status, family income, etc. Gender opportunity Entry of women into work force means added inc. household support, which improves the standard of living and lowers population growth rate. Child labor abuse and exploitation use of child labor discourages further education which might hinder development in long-run. 13
Effects of the New International Division of Labor on LDCs Migration Migration to specialized manufacturing areas improves personal economic positions but weakens family and traditional cultural Environmental Relaxation/lax enforcement invites new health ailments/pollution problems. Effects of the New International Division of Labor on LDCs Regional growth Location of new jobs fosters regional growth and concentration of wealth, pollution, etc. Uneven nature of growth creates a spatial gap between have and have not areas. Cultural change Westernization of production, management, etc., changes the social and cultural relationships (e.g., women in the workplace, language, cultural disruption) Renewed attraction of traditional industrial regions Capital-intensive, bulk-gaining industries Proximity to market Availability of investment Proximity to skilled labor Technology corridor: area designated by local or state govt to benefit from lower taxes and high-tech infrastructure with goal of providing high-tech jobs to the local population Technopole: An area planned for high tech with agglomeration built on a synergy among tech companies 14
Electronic Computing Manufacturing 15
Footloose industries industry not tied to other factors Cost of product does not change based on where it is produced. Both raw materials and end product are light and easy to transport. Use highly skilled labor but not labor-intensive Can use basic energy from the grid Diamonds and computer chips are often cited as examples 16