Unit 7.7 KBAR

In the years after WW2, the United States was the world’s largest manufacturing powerhouse. After the 1970s though, a series of events led towards the restructuring of the world economy and the deindustrialization of the United States and other core countries.

The period of time after WW2 is often known as Fordism. Some principles of Post-Fordism include- mass production of standarized goods, high rates of labour union membership, stable and full time employment and high wages. This was named after Henry Ford, whose invention of the assembly line completely changed the production of automobiles, allowing for middle-class families to own and car and raise their standards of living.

After the 1970s, conditions began to change. Many industrialized facilities became outdated and the costs of performing work in the old manufacturing centers was starting to increase. Because of this, worker wages, land, and taxes were very high. The aging infrastructure was prone to traffic delays, which were costly.

The resulting period was known as the corporate disinvestment, a time when companies stopped investing in factory construction, equipment, and improvement and begining selling off assets, such as machinery, buildings, and land. As companies began disinvesting in the old manufacturing centers, they shifted their investments to emerging manufacturing centers in the periphery and semi-periphery. This contributed to the international division of labor, where production processes became increasingly globalized, with industrial activities concentrated in regions that offered more favorable conditions for investment and lower operational costs.

Relocating manufacturing centers from one country to another is known as offshoring. Offshoring often reduces costs because wages in the semi-periphery and periphery countries aren’t as high. Another cost-saving method is known as outsourcing, which occurs when a firm transfers part of its operations to a 3rd party provider. For example, a computer community might sell its touchscreen facility to a third party and buy the screens from that party. Most tasks given are very mundial and repetitive, and outsourcing them allows the company to focus on achieving more goals and allocating more time for the most important tasks.

These factors lead towards a push from Fordism, known as deindustrialization, the decline or sometimes disapperance of manufacturing industries and sectors. This hit the United States particularly hard, such as Ohio, Pennslyvania, and Michigan, states known as the Rust Belt. Auto and steel manufacturing businesses were closed, and the supporting bussineses also closed because there wasn’t any customers. These cities often suffered as people lost jobs and the lack of the factories led to a decrease in tax funds, which further perpetuated the rustyiness and decay of urban infrastructure. As a result, revitalization efforts have been initiated in many of these areas to attract new industries and stimulate economic growth. Such as Pittsburgh, which has reinvented itself as a high-tech city, with proximity to colleges like Carnegie Mellon, UPEN, and the University of Pittsburgh.

Deindustrialization is a misleading term, because even though manufacturing decreases, that doesn’t automatically mean in the future that labour productivity decreases. In fact, deindustrialization often occurs because of greater labor productivity. You see, manufacturing output in the US since the 1970s has actually doubled, even though deindustrialization occured.

New sectors began to emerge, such as the expansion into the tertiary, quaternary, and quinary sectors. However, in developed countries, many new service jobs pay less than manafacturing jobs. The tertiary sector is the dominant sector in many core countries and regions. The GDP growth from the tertiary sector has expanded, often at the cost of the manufacturing sector.

The periphery and semi-periphery tell another story. Since the 1970s, governments of these countries have boosted foreign investment by using Special Economic Zones. These are zones that have different laws regarding business and trade than the rest of the country, often favorable towards these foreign investors. For example, governments might lower taxes to convince TNCS to set up a factory there. Thailand is an example, the country offers no corporate tax for eight years and tax exceptions on raw materials and machinery, which is why it now ranks on the list of the top 20 automobile-exporting countries.

SEZs began to skyrocket, by 2019 most of them were found in newly industrialized countries.

There are two different types of SEZS- EPZs and free trade zones. EPZs are zones that allow for products shipped from the zone to be free of tarrifs and taxes. TNCs invest in EPZs in developing countries because production costs in the periphery are significantly lower than in the core, and wages in developing countries are a small fraction of those in developed countries. Also, government oversight of EPZs in many developing countries is often minimal, which further reduces production costs. Labor unions are rare in EPZs, which keeps wages low. However, without the protection of labor unions, workers can be fired more easily, and companies can make employees work in unsafe or dangerous working conditions. An example of this is Dhaka, Bangladesh where a garment-producing factory collapsed in 2013, killing around 1227 workers.

Free-trade zones are a second type of SEZ. Free-trade zones (FTZs) are specially designated duty-free areas that provide warehousing, storage, and distribution facilities for goods intended for trade and re-export. They are typically located where international trade is focused, such as near seaports, international airports, or land border crossings.

Due to the international division of labour, developing countries are starting to grow their GDP at a rapid pace. China adopted SEZs and FTZs in the 1970s, proving successful. Due to the EPZs’ relatively low wages, a favorable regulatory environment, and proximity to the world’s largest consumer market, foreign investment flooded into China’s EPZs. They became the foundation of China’s transformation into a manufacturing economy and fueled three decades of massive economic growth. By 2020, China accounted for nearly two-thirds of the world’s total EPZ employment.

In fact, China has surpassed the United States as the world’s manufacturing leader. It also has the largest economy just measured by GDP though. Many economists predict that in the upcoming years, the developing countries will contribute the most to the growth of the world’s total GDP.

A key point- In general, low-wage developing economies are increasingly the sites for the labor-intensive manufacture of goods. This trend reflects the globalization of supply chains, where multinational corporations seek to minimize production costs by outsourcing labor-intensive processes to countries with lower wage standards.

The new geographic designations in the world economy have led to Post-Fordism- the shifts from manufacturing centers to spatially dispersed production sites, from standardized mass production to specialized batch production, and from a permanent workforce to temporary employees and contract workers. Above all, post-Fordism is characterized by flexibility: flexibility in production sites, markets, workforce, and goods produced.

Under Post Fordism, the importance of economies of scale decreases, )the average per-unit cost decreases as output increases). This is because of JIT (just in time manufacturing),is the production of small batches of goods as needed by customer demand. JIT manufacturing (also called JIT delivery) reduces warehousing costs while shortening delivery times between suppliers and manufactures. It also decreases a company’s dependence on a large, permanent factory workforce in favor of temporary employees and contract workers. That is, the company can flexibly expand the workforce during peak-demand periods, then reduce the workforce in low-demand periods. Under post-Fordism, cost reductions are achieved through demand-driven JIT production, which avoids the costs of maintaining large inventories of unsold finished goods.

High tech industries are central in shaping post-fordism, such as robotics and automation.

High-tech industries are those that use the most advanced technologies and invest heavily in research and development. The main high-tech industries are aerospace, computers, communications/electronics, and pharmaceuticals. These industries are part of the quaternary sector and require a highly skilled, highly paid workforce.

Since 1980, high-tech companies have replaced oil and gas companies among the world's most valuable corporations, showing a major shift in the global economy. High-tech firms also reflect post-Fordism, where production is more flexible, and the economy relies more on skilled labor than mass production.

Agglomeration economies happen when companies cluster in certain areas (like Silicon Valley) to benefit from shared resources, skilled workers, and easy collaboration. Even though Silicon Valley focuses mainly on design and software (not manufacturing), it has a huge impact on the economy through multiplier effects, where one high-tech job can create around 4–5 jobs in other industries.

Governments try to boost regional economies by creating growth poles—centralized hubs of economic activity around industries like high tech. These hubs work best when investment is focused in one strong, well-connected area.