APHUG UNIT #5

Industrial Revolution: 

Between 1760 and 1840.

• A set of changes in technology that dramatically increased manufacturing productivity 

  Began in Great Britain (England) 

Manufacturing

The process of turning raw material into a good 

Start of the Industrial Revolution: 

1. Availability of natural resources 

2. New technology 

1. Availability of natural resources 

Especially coal and Iron 

2. New technology 

- Ex: Flying shuttle and spinning Jenny, Steam engine 

Changes during the Industrial Revolution 

1. Working location 

2. Increase in food production 

3. Urbanization

4. Social Class Structure 

1. Working location 

Before the Industrial Revolution, people worked at home 

- called "Cottage industry." 

- During the Industrial Revolution, people worked in factories 

- Called "Factory system." 

2. Increase in food production 

With a stable food supply, the death rate was lowered, and populations increased 

- Stage 2 of the DTM

3. Urbanization

Shift of people from the country to the city 

- New factory jobs were located in the cities

4. Social Class Structure

Upper class, middle class, working class 

- Middle class begins to form, composed by businessman such as shop, factory owners, doctors, and lawyers 

- Working class also a new class, poorest class. Made up of people who could not make enough money in farming so they had to work at factories 

Impact of Industrial Revolution

A) Rise of Unions 

B) Demand for voting rights

C) Colonialism and Imperialism

A) Rise of Unions 

 Lower class began to demand better working conditions 

B) Demand for voting rights

- Middle class began to demand to get involved in politics

(would lead to more democracy)

C) Colonialism and Imperialsim

Factory owners needed

• raw materials for factories

• new market to sell their finished goods

Economic Sectors

Economic activities can be divided into 5 sectors

1. Primary

Extraction of raw materials and resources

2. Secondary

Processing raw materials into finished goods (manufacturing)

3. Tertiary

Exchanging of goods and services

4. Quaternary

higher-level and knowledge services

5. Quinary

Decision makers in society

Theories on Industrial Location

• Focus on secondary sector

• Many factors can influence where to locate a factory for manufacturing

Least Cost Theory

Designed by german economist Alfred Weber that predicts the location of manufacturing

1. Cost of Transportation

Goal: keep low

• both moving raw materials to factories and finished goods to consumers

• weight of raw material + finished good plays role here

Weight losing

 if the goods weigh less than the materials, the factories will be located close to the raw material 

- Easier to transport goods than raw materials 

- Example: processed meat (finished goods) is lighter than animal (raw material) 

Weight gaining

 If the goods weigh more than the raw materials, the factories will be located close to the market for the goods 

- Easier to transport raw material than finished goods 

- Example: textiles (finished goods) are heavier than cotton (raw material) 

break of bulk points

Locations where one mode of transportation meets another 

Another method of reducing transportation costs = placing factories near break of bulk points 

- Example: strategically placing airports, ports, and railway stations 

2) Cost of labor

Goal: keep low 

- Wagers/salaries of employees 

- Example: US companies moving to Mexico and China, where workers get paid less 

3) Agglomeration

Goal: Maximize 

- Factories should be located close to other factories where they can share labor, transportation, and resources 

Other factories 

- Some factories (outside Weber's model) might influence where factories are located 

- supply of power/energy 

- level of taxes

- availability of skilled labor (not just cheapest labor) 

- availability of land 

- See the textbook 

Measure of Development:

Development = Both economic and social development 

- Can use metrics to determine both 

Economic Development: 

Gross domestic product

Gross national income

Gross national product

GDP

Measures all the goods and services produced in a country 

Equation: Consumption + investment + government spending +(exports - imports) 

Can be expressed in either 

- Whole number OR 

- Per capita (per person) (Whole number/per person)

GNI

 Measures the amount of income and wealth of residents and businesses in a country

 

- As opposed to GDP, which measures the amount of production

Can also be expressed as: 

- Whole number OR 

- Per capita

GNP

- Very similar to GNI 

- Measures the amount of income and wealth of residents and businesses in a country 

2 exceptions

- Excludes foreigners living in country 

- Includes all income earned abroad 

Can also be expressed as 

- Whole number OR 

- Per capita 

Gini Coefficient

 measures the amount of income or wealth inequality in a country 

-Gap between the richest and poorest residents in a country 

Expressed in a decimal from 0 to 1 

- Closer to 1 = more unequal 

- Closer to 0 = more equal

Human Development Index (HDI)

composite measure of 3 components

Expressed from 0-1

closer to 1 = higher human development 

closer to 0 = lower human development 

1. Life expectancy

How long people live

2. Education

Mean years of schooling

3. Income

Uses GNI per capita

Gender inequality Index

• measures gender disparity between men and women

• composite measure of 3 components

• Expressed from 0-1

  closer to 1 = more unequal 

  closer to 0 = more equal 

  
  

1. reproductive health

• includes maternal mortality rates

2. empowerment

education levels and political power of women

3. Labor market participation

How many women are in the workforce

• what types of jobs do they have

• what they get paid

Other social development measures 

a. fertility rates

b. Infant mortality rates

c. access to health care

d. use of fossil fuels vs renewable energy

e. literacy rates

A. Fertility rates

more developed = lower fertility rate

B. Infant mortality rate

more developed = lower infant mortality rate

C. Access to health care

more developed = better access to health care

D. Use of fossil fuels vs. renewable energy

more developed = transition to renewable energy

E. Literacy rates

more developed = higher percentage of population that can read and write

Women and Economic Development 

As countries develop, the roles of women change 

Countries with low economic and social development

- more traditional roles

- Usually stay at home and raise kids 

- likely work in agriculture 

- high fertility rates for assistance in agriculture 

- limited opportunities for income and career advancement

Countries with medium economic (and social) development

still mainly traditional roles 

some opportunities for career advancement 

- common method: microloans 

microloans: very small loans that can be used to start one's own business (usually very low interest rates)

- Example: women making and selling basic clothing items made at home

Countries with high economic (and social) development

Most opportunities for career and education for women 

- more gender parity between men and women 

However, women lack equity in terms of pay 

- women get paid less, even for people with similar titles 

- Discrimination in employment exists as well 

- still hard for women to obtain higher-level jobs

Levels of Development

Based on the different measures of development, countries can be divided into 3 levels of development 

More developed countries (MDCs)

countries that score best on many measures of development

- sometimes called "highly developed countries" (HDCs) 

Less developed countries (LDCs)

Countries that score worst on many measures of development

Newly Industrialized Countries (NICs)

- countries that score in the middle on many measures of development

Rostow's Stages of Economic Growth

Idea that with the right conditions, all countries can achieve economic growth and development 

- Theory that describes how countries shift from traditional to modern economies 

Based on "modernization theory." 

Stage 1

- "Traditional society"

- Focus on the primary sector 

- Some countries in Stage 1 haven't even made it to organized agriculture, fishing, and mining yet 

- Limited technologies 

- Local trading 

Countries today: Probably none 

 - Maybe some societies in Sub-Saharan Africa

Stage 2

- "Preconditions for Takeoff" 

Still focused on the primary sector, with the beginnings of the secondary sector 

- Investments in infrastructure made 

- Technology begins to spread

Countries today: Ethiopia; Democratic Republic of Congo, and Niger

Stage 3

- "Takeoff" 

- Focus on developing the secondary sector 

- Widespread industrialization 

- Beginnings of urbanization 

Countries today: Bangladesh; Egypt; Philippines; Vietnam

Stage 4

- "drive to Maturity." 

- Split between the secondary and tertiary sectors

- Middle class forming 

- Large improvements in energy, transportation, and communication 

Countries today: China; Mexico; Turkey; India

Stage 5

- "Age of mass consumption." 

- Emphasis on tertiary sector (or higher) 

- Consumption of nonessential goods 

- "Nicer" goods become common 

Countries today: United States; Japan; France; Germany

Criticism of Rostow's Stages of Economic Growth

1) Based on American and European Culture 

- Some countries may not desire all of these stages 

- Non-Western and non-capitalist societies have different priorities 

2) Assumes that all counties can progress through the stages 

- would be challenged by supporters of dependence theory 

Dependence theory

instead some people believe that countries in early stages of Rostow's model are dependent upon the countries in the late stages of Rostow's model 

result: get stuck at early stages

- some people with Rostow that all countries can simply move from stage to stage 

2 Reasons…

1) Commodity Dependence 

countries in early stages depend on exporting raw materials to earn money 

- commodity = raw material 

- however both price of raw materials and demand for raw materials could drop 

result: country is unable to develop 

1) Loans

countries in early stages must receive loans to begin manufacturing 

- however, if improper investments re made with first round of loans, they can struggle to pay them back 

- any further gains from economic development goes to paying back loans instead of further development 

World Systems Theory 

- Theory that places all countries into 3 categories 

1) Core 

2) Semi Periphery 

3) Periphery 

developed by American sociologist Immanuel Wallerstein

Based on support for dependency theory 

Will always been a combination of core, semi periphery, and periphery countries 

- however, countries can chage their status (including going backwards)

1) Core

Most industrialized and developed countries 

- focus on tertiary quaternary, and quinary sectors 

- Import manufactured goods from semi-periphery 

examples: United states; France; Germany; Australia

2) Semi-periphery

countries that are industrializing and developing 

- heavy focus on secondary sector and manufacturing 

- export finished goods to the core, and import raw materials from the periphery 

examples: india; brazil; mexico 

3) Periphery

least industrialized and developed countries 

- heavily dependent on primary sector 

- export raw materials to semi-periphery (and core, to an extent) 

Examples: democratic republic of congo; tanzania; bolivia 

Critiscims: World Systems Theory

1) Outdated 

2) Lacks detail about change 

1) Outdated

- Countries are moving out of what Wallerstein considered periphery and semi-periphery towards core without much replacement 

- maybe hierarchy will remain, but have to update what periphery/semi-periphery/core looks like

2) Lacks detail about change 

- does not explain how countries move from periphery/semi-periphery/core 

Trade and the World Economy

Key feature of global economy = trade 

- both exporting (sending goods/services) and importing (bringing in goods/services) 

Trade revolves around 2 main concepts:

1) Comparative advantage

2) Complementarity

1) Comparative Advantage

The ability for a country to produce a good or product more efficiently than another country 

example: Colombia and Mexico both make cloth and coffee 

- Colombia can make 50 pounds of coffee for 1 yard of cloth

- Mexico can make 10 pounds of coffee for 1 yard of cloth 

(can reverse ex: 1/50 and 1/10) 

- Result: Colombia should make coffee, and Mexico should make cloth 

- Then they can trade with each other!

2) Complementarity

the ability for countries that hold comparative advantages in certain areas to link together to satisfy each other's wants 

Neoliberalism

Economic ideology that promotes: 

- Power in the hands of private companies 

- lower taxes

- less government spending

- free trade 

- Since World War 2, there has been a global trend towards neoliberalism

Free trade

trade between countries that is not subject to taxes or limitations 

- However, not everyone supports free trade 

- Some people support trade barriers 

Trade barriers

taxation of limitation on trade imposed by governments 

Most common trade barrier = tariff 

Tariff

 tax on imports and exports 

A) Global Financial Crisis

Because markets are so interlinked, economic problems in one country impact economies around the world

B) International Monetary Fund

An organization that allows countries experiencing financial problems to borrow money 

- Often loans have political, economic, or social "conditions" (requirements) attached 

 New International Division of Labor

The shift in global employment patterns that has resulted from neoliberalism 

NIDL in LDCs 

- Largest concentration of jobs in LDCs = Primary sector 

- LDCs then focus on exporting raw materials to NICs and to some degree, MDCs 

Example: Tanzania 

Top exports include: 

- Gold + silver 

- coffee

- Tobacco 

- Cotton

NIDL in NICs 

- Largest concentration of jobs in NICs = secondary sector 

- NICs focus on manufacturing finished goods for MDCs 

Often receives raw materials from LDCs 

- NICs want manufacturing companies to move parts of their business from HDCs to them 

- Foreign direct investment: control of a business in one country by an entity based in another country 

 NICs try to attract these businesses through several means

1) Lowering pay standards for workers

2) Lower environmental standards

3) Tax breaks

4) Establishing special economic zones

1) Lowering pay standards for workers 

Companies will move if they can pay workers less 

2) Lower environmental standards 

Companies will move if they can pollute without consequence 

3) Tax Breaks 

Companies will move if they pay less in taxes 

4) Establishing special economic zones (SEZ) 

- Usually lower taxation and fewer regulations 

- Can include free trade zones (FTZ)

SEZ where raw materials and goods can be transferred without taxation or limits

If SEZ  is specifically set up for manufacturing goods that will be exported (which many are) = Export Processing Zone (EPZ) 

special economic zones (SEZ) 

an area of a country where the economic laws differ from the rest of the country 

NIDL in MDCs 

- One common development: growth of high technology corridors (technopoles) 

- can be in different fields: information technology (IT), energy, healthcare, communication 

- Often time these high technology corridors can turn into growth poles 

example; cluster of information technology companies in Silicon Valley leads to: 

- opening of new restaurants and shops 

- rising property values 

- Jobs inthe  secondary sector have largely been moved to NICs 

result in MDCs: deindustrialization 

result: 

- unemployment 

- presence of  amabndoned factories (brownfields) 

- health concerns for former workers 

- need to transition to tertiary sector 

example: Rust Belt in USA 

deindustrialization

process of social and economic change caused by the removal of manufacturing 

growth poles 

the concentration of high value economic development tht attracts even more economic development 

Fordist Method of production

Nearly all stages of the production process took place in one location 

- Named for Henry Ford, the founder of ford motor company 

Historically the dominant method of production

• Now shift away from this model

• Reason: can manufacture more goods (and therefore have more consumption) through other means

multiplier effect 

 idea that increase in spending (for example, by starting a factory or investing in manufacturing) leads to an increase in consumption that is multiple times the original spending 

Current methods of production

1) Flexible production

2) Just-in-time delivery

3) Outsourcing

1) Flexible production

different components of production of a good occur in different places simultaneously 

- Some places might be more advantageous than others for certain parts of the good 

example: Nike 

- HQ: Oregon, Beaverton 

- Manufacturing: China, vietnam, Indonesia, Mexico, etc