Topic 7.7 Changes as a Result of the World Economy

Topic 7.7 Changes as a Result of the World Economy

1. Overview of Economic Transformation

  • Outsourcing and Economic Restructuring:

    • Decline of jobs in core regions (developed countries) and rise of jobs in newly industrialized countries (NICs).

    • Recent economic changes include increased international trade, deindustrialization, and growing interdependence in the global economy.

2. Key Concepts

A. Economic Restructuring

  • Definition:

    • Urban areas transition from secondary (manufacturing) to tertiary (services) economic bases.

  • Outsourcing:

    • Contracting work to non-company employees, often overseas, to reduce costs.

    • Examples of outsourced work include:

      • Call centers in India or Mexico; manufacturing in Malaysia, Thailand, Indonesia, and Vietnam.

B. Deindustrialization

  • Definition:

    • Movement of industrial jobs to regions with cheaper labor, leading to a shift to service economies in deindustrialized areas.

  • Social Effects:

    • High unemployment in areas losing manufacturing jobs.

    • Need for retraining for employment in tertiary and quaternary sectors.

3. Employment Changes

  • Statistics (1999-2008):

    • Manufacturing jobs lost: -1,938,000 in U.S.

    • Increase in foreign-based U.S. employees: +2,358,000

  • Impact by Economic Levels:

    • MDCs (More Developed Countries): Unemployment, job losses, urban decay.

    • LDCs (Less Developed Countries): Job creation, rural-to-urban migration, increased middle class.

4. Comparison: Rust Belt vs. New Industrial Regions

A. Rust Belt

  • Characteristics:

    • Regions known for manufacturing decline, such as Detroit, with abandoned homes and vacant lots due to job losses.

    • Emergence of urban decay as manufacturing relocates.

B. New Industrial Regions

  • Example:

    • Sun Belt: Low land costs, warm climate, new manufacturing zones, and tech industries. Countries with "Right to Work" laws favoring employers.

5. Evolution of International Division of Labor

  • New manufacturing zones in developing countries include:

    • Special Economic Zones (SEZs): Tax and investment incentives to attract businesses (e.g., Shenzhen, China).

    • Free Trade Zones: Areas where goods can be handled and re-exported without tariffs (e.g., Colón Free Trade Zone).

    • Export Processing Zones (EPZs): Attract foreign investment, create jobs, enhance technology access.

6. The Role of Multinational Corporations

A. Maquiladoras

  • Definition:

    • Manufacturing plants in Mexico near the U.S. border benefiting from tax breaks for exporting products back to the U.S.

    • Impact: Over 1 million jobs, creating a dependence on cheap labor and weak regulations.

7. Contemporary Economic Landscape

A. Production Methods

  • Post-Fordist: Emphasis on automation and machinery, replacing human labor in some sectors.

  • Ford Method: Assembly line production employing numerous human workers.

B. Economic Concepts

  • Multiplier Effects:

    • For every basic sector job created, approximately two non-basic sector jobs are generated.

  • Economies of Scale:

    • Large retailers like Walmart can lower prices by purchasing in bulk.

  • Just-In-Time Delivery:

    • Minimization of storage needs by aligning delivery with production schedules.

8. Economic Growth Zones

  • Agglomeration: Areas that concentrate high-tech and service industries, like Silicon Valley and Research Triangle, due to infrastructure investment, skilled workforce access, and government support.