Module 58: Changes as a Result of the World Economy
Learning Goals
58-1: Explain how economic restructuring has affected industrialization and development.
58-2: Explain how new production practices and technologies have reshaped the world economy.
Overview of Economic Restructuring
The world economy is continually changing.
Recent restructuring includes:
Deindustrialization in core regions.
Manufacturing growth in peripheral regions.
Shifting regional economic power on a global scale.
Deindustrialization in the Core
Overview
Post-WWII, the U.S. was the leading manufacturing power.
Early 1970s marked the beginning of significant economic restructuring.
Decline of Manufacturing Employment
Fordism:
Economic model based on mass production and consumption.
Characterized by high wages, stable employment, and strong labor unions.
Contributed to worker benefits and middle-class expansion.
By the 1970s, challenges arose:
Obsolete infrastructure.
Rising business costs in old manufacturing centers.
Heightened land values and worker wages.
Resulting corporate disinvestment involved:
Stopping investment in manufacturing centers.
Selling off factory assets.
Global Manufacturing Shift
Offshoring and Outsourcing became common practices:
Offshoring: Relocation of manufacturing to countries with lower labor costs.
Outsourcing: Transferring part of operations to third parties.
Manufacturing has declined significantly in the U.S.:
Manufacturing jobs dropped from 32% in 1950 to 8.4% in 2020.
Many communities transitioned to "Rust Belt" cities, marked by abandoned infrastructures.
Rise of Service Sector Employment
Service sector jobs increased, accounting for 71.2% of private-sector employment by 2020.
The service sector also dominated GDP contribution, outpacing manufacturing dramatically:
Services accounted for nearly four times the GDP of the manufacturing sector in the U.S.
Industrialization in the Periphery
Global Economic Shift
The geography of industrialization shifted from core to peripheral regions:
Creation of new international division of labor.
Special Economic Zones (SEZs)
SEZs are areas with distinct business laws to attract foreign investment:
Lower taxes and reduced customs duties.
Example: Thailand’s SEZs for auto manufacturing.
The growth of SEZs from 29 countries in 1975 to 147 in 2019.
Types of SEZs
Export Processing Zones (EPZs):
Industrial zones attracting foreign investment with incentives.
Emphasize processing or assembly of imported materials for re-export.
Free-Trade Zones (FTZs):
Duty-free areas facilitating trade and distribution without customs duties.
Global-Scale Production Systems
Increased SEZs due to competition among firms for lower costs.
Importance of EPZs and FTZs in global trade and interconnected economies.
China's Economic Example
Established SEZs in 1980, facilitating a manufacturing boom.
These zones drove rapid economic growth, making China the world’s largest economy by GDP.
New Production Practices and Technologies
Transition from Fordism to Post-Fordism
Shift to Post-Fordism emphasizes flexibility in production and labor.
Just-In-Time Manufacturing (JIT) focuses on producing based on demand, reducing costs by limiting inventory.
Automation and microelectronics gained importance, changing manufacturing landscapes.
High-Technology Industries
Definition of high-tech industries characterized by high investment in R&D:
Key sectors: Aerospace, Computers, Communications & Electronics, Pharmaceuticals.
Examples of market capitalization shifts from oil and gas in 1980 to high-tech companies by 2020:
Microsoft and Apple emerged as top corporations.
Agglomeration Economies and Silicon Valley
Agglomeration economies denote clusters of firms in the same industry to lower costs through shared resources and labor.
Silicon Valley as a key example with significant concentrations of tech corporations with minimal manufacturing occurring locally.
Multiplier Effects of Industry Clusters
Investment in one industry leads to job creation in other sectors, enhancing regional economic growth.
Example: Economists suggest one high-tech job creates approximately 4.3 additional jobs in supporting sectors.
Growth Poles for Economic Development
Growth poles focus on investing in specific industries to spur broader economic growth.
Success varies based on scale and conditions for growth, like transportation and workforce availability.
Conclusion
The world economy is marked by increasing interdependence.
There is a clear movement away from traditional manufacturing centers towards a flexible, interconnected global production landscape.
58-1: Explain how economic restructuring has affected industrialization and development.
58-2: Explain how new production practices and technologies have reshaped the world economy.
Overview of Economic Restructuring
The world economy is continually changing.
Recent restructuring includes:
Deindustrialization in core regions.
Manufacturing growth in peripheral regions.
Shifting regional economic power on a global scale.
Deindustrialization in the Core
Overview
Post-WWII, the U.S. was the leading manufacturing power. Early 1970s marked the beginning of significant economic restructuring.
Decline of Manufacturing Employment
Fordism: Economic model based on mass production and consumption.
Characterized by high wages, stable employment, and strong labor unions.
Contributed to worker benefits and middle-class expansion.
By the 1970s, challenges arose:
Obsolete infrastructure.
Rising business costs in old manufacturing centers.
Heightened land values and worker wages.
Resulting corporate disinvestment involved:
Stopping investment in manufacturing centers.
Selling off factory assets.
Global Manufacturing Shift
Offshoring: Relocation of manufacturing to countries with lower labor costs.
Outsourcing: Transferring part of operations to third parties.
Manufacturing has declined significantly in the U.S.:
Manufacturing jobs dropped from 32% in 1950 to 8.4% in 2020.
Many communities transitioned to "Rust Belt" cities, marked by abandoned infrastructures.
Rise of Service Sector Employment
Service sector jobs increased, accounting for 71.2% of private-sector employment by 2020.
The service sector also dominated GDP contribution, outpacing manufacturing dramatically:
Services accounted for nearly four times the GDP of the manufacturing sector in the U.S.
Industrialization in the Periphery
Global Economic Shift
The geography of industrialization shifted from core to peripheral regions:
Creation of new international division of labor.
Special Economic Zones (SEZs)
SEZs: Areas with distinct business laws to attract foreign investment:
Lower taxes and reduced customs duties.
Example: Thailand’s SEZs for auto manufacturing.
The growth of SEZs from 29 countries in 1975 to 147 in 2019.
Types of SEZs
Export Processing Zones (EPZs):
Industrial zones attracting foreign investment with incentives.
Emphasize processing or assembly of imported materials for re-export.
Free-Trade Zones (FTZs):
Duty-free areas facilitating trade and distribution without customs duties.
Global-Scale Production Systems
Increased SEZs due to competition among firms for lower costs.
Importance of EPZs and FTZs in global trade and interconnected economies.
China's Economic Example
Established SEZs in 1980, facilitating a manufacturing boom.
These zones drove rapid economic growth, making China the world’s largest economy by GDP.
New Production Practices and Technologies
Transition from Fordism to Post-Fordism
Shift to Post-Fordism emphasizes flexibility in production and labor.
Just-In-Time Manufacturing (JIT) focuses on producing based on demand, reducing costs by limiting inventory.
Automation and microelectronics gained importance, changing manufacturing landscapes.
High-Technology Industries
Definition of high-tech industries characterized by high investment in R&D:
Key sectors: Aerospace, Computers, Communications & Electronics, Pharmaceuticals.
Examples of market capitalization shifts from oil and gas in 1980 to high-tech companies by 2020:
Microsoft and Apple emerged as top corporations.
Agglomeration Economies and Silicon Valley
Agglomeration economies denote clusters of firms in the same industry to lower costs through shared resources and labor.
Silicon Valley as a key example with significant concentrations of tech corporations with minimal manufacturing occurring locally.
Multiplier Effects of Industry Clusters
Investment in one industry leads to job creation in other sectors, enhancing regional economic growth.
Example: Economists suggest one high-tech job creates approximately 4.3 additional jobs in supporting sectors.
Growth Poles for Economic Development
Growth poles focus on investing in specific industries to spur broader economic growth.
Success varies based on scale and conditions for growth, like transportation and workforce availability.
Conclusion
The world economy is marked by increasing interdependence.
There is a clear movement away from traditional manufacturing centers towards a flexible, interconnected global production landscape.