This chapter will look at the geographic elements of industrialization and economic development, including the past and present patterns of industrialization, types of economic sectors, and the acquisition of comparative advantage and complementarity. We will analyze how models of economic development (e.g., Rostow’s stages of economic growth and Wallerstein’s world-systems theory) help to explain why the world is divided into a more developed economic core and a less-developed periphery with, in some cases, a semiperiphery between them.
The analysis of contemporary patterns of industrialization and their impact on development is another important focus. We will use measurements of development (e.g., gross domestic product per capita and the Human Development Index) as tools to understand patterns of economic differences. Additional
topics studied included Weber’s industrial location theory and accounts of economic globalization, which accent time-space compression and the new international division of labor.
Finally, we will examine the ways in which countries, regions, and communities must confront new patterns of economic inequality that are linked to the geographies of interdependence in the world economy. Relevant topics included the global financial crisis, the shift in manufacturing to newly industrialized countries, imbalances in consumption patterns, the role of women in the labor force, energy use, the conservation of resources, and the impact of pollution on the environment and quality of life.
Before you begin the module, examine and explore the resources below. These sites and links will help give you context to the materials covered in this module.
5.1 The Industrial Revolution
The Industrial Revolution began in England, which was by 1750, one of the wealthiest nations in the world and controlled an empire that covered one-quarter of the world’s landmass. It started with England’s textile industry, which was struggling to produce goods cheaper and faster for growing consumer markets. Making cloth, by hand, for pants, shirts, socks, bedspreads, and other domestic items had always required lots of skill and time.
As the population grew in England, more people needed textile goods. In the late 18th century, a series of innovations created by savvy businessmen and factory workers solved many of the difficulties in textile production. As the scale of production grew, the factory emerged as a centralized location where wage laborers could work on machines and raw material provided by capitalist entrepreneurs. Moreover, cotton led the way. In the 1700s, cotton textiles had many production advantages over other types of cloth. The first textile factory in Great Britain was actually for making silk, but since only wealthy people could afford the product, production remained very low. Cotton, on the other hand, was far less expensive. It was also stronger and more easily colored and washed than wool or linen.
By the late 18th century, steam power was adapted to power factory machinery, sparking an even more significant surge in the size, speed, and productivity of industrial machines. Heavy industries like ironworking were also revolutionized by new ideas, and new transportation technologies were developed to move products further and faster. Growing businesses soon outstripped the financial abilities of individuals and their families, leading to legal reforms that allowed corporations to own and operate businesses.
There were several factors that allowed England to lead the Industrial Revolution. Scholars may disagree, which was the most important. However, they agree that the confluence – a coming together – of many factors gave England an enormous commercial and technological head start over the rest of the world.
Nineteenth-century industrialization was closely associated with the rapid growth of European cities during the same period. Cities grew because of the influx of people desiring to take advantage of the factory jobs available in urban areas. Urbanization extended industrialization as factories were built to take advantage of urban workforces and markets.
Industrialization changed the relationship that existed between cities and their surrounding rural areas. In preindustrial times, cities consumed foodstuffs produced in rural areas but produced little that rural areas needed in return. As a result, some historians describe preindustrial cities as “economically parasitic.” Following the Industrial Revolution, cities became urgent centers of production and were able to offer a wide variety of manufactured goods to rural areas, becoming vital centers of production as well as consumption. Europe experienced the development of the major cities of its realm during this period. In England, for example, in 1800 only 9 percent of the population lived in urban areas. By 1900, some 62 percent were urban dwellers.
Factors Leading to the Industrial Revolution in England
- Increased food production to support an increasing population.
- More people from the countryside being freed up to work for wages in the new cities.
- Increased demand for textile products.
- Such as central banks, stock markets, and joint-stock companies – encouraged people, especially in Northern Europe, to take risks with investments, trade, and new technologies.
Enlightenment and the Scientific Revolution
- Encouraged scholars and craftspeople to apply new scientific thinking to mechanical and technological challenges.
Navigable Rivers and Canals
- Quickened the pace and cheapened the cost of transportation of raw materials and finished products.
- Plentiful in England and Western Europe.
- Used in enormous quantities as a source of power – particularly for the steam-powered machinery in textile factories and locomotives.
- When Englishman Henry Cort created a way to make iron cheaper and stronger, England no longer needed to import iron ore from other countries.
- Essential to the development of new machines in factories and transportation.
- Legal reforms that allowed corporations to own and operate businesses.
- Patent laws allowed inventors to benefit financially from the “intellectual property” of their inventions.
- Expanded the Navy to protect global trade.
- Granting monopolies – exclusive rights – to companies who agreed to explore the world and find resources.
While industrialization alone cannot account for the rapid growth of the European population during the nineteenth century (this growth was underway before industrialization), it is believed to have been responsible for changing patterns of population density on the continent. Between 1750 and 1914, most industrialized nations (England, Belgium, France, Germany) also acquired the highest population densities. This correlation reflects not only the rapid urbanization of these countries but also the high population densities of their urban areas and the improved standards of living associated with industrializing economies.
Working in new industrial cities influenced people’s lives outside of the factories as well. As workers migrated from the country to the city, their lives and the lives of their families were utterly and permanently transformed. For many skilled workers, the quality of life decreased a great deal in the first 60 years of the Industrial Revolution. Skilled weavers, for example, lived well in pre-industrial society as a kind of middle class. They tended their gardens, worked on textiles in their homes or small shops, and raised farm animals. They were their bosses. However, after the Industrial Revolution, the living conditions for skilled weavers significantly deteriorated. They could no longer live at their own pace or supplement their income with gardening, spinning, or communal harvesting.
In the first sixty years or so of the Industrial Revolution, working-class people had little time or opportunity for recreation. Workers spent all the light of day at work and came home with little energy, space, or light to play sports or games. The new industrial pace and factory system were at odds with the old traditional festivals which dotted the village holiday calendar. Plus, local governments actively sought to ban traditional festivals in the cities. In the new working-class neighborhoods, people did not share the same traditional sense of a village community. Owners fined workers who left their jobs to return to their villages for festivals because they interrupted the efficient flow of work at the factories. After the 1850s, however, recreation improved along with the rise of an emerging middle class. Music-halls sprouted up in big cities. Sports such as rugby, cricket, and football became popular. Cities had become the places with opportunities for sport and entertainment that they are today.
There was a necessary trade-off in the Industrial Revolution for the working-class. Material standards of living were in some ways, improving more material goods were produced, so they were available at lower costs, and factories provided a variety of employment opportunities not previously available. At the same time, working conditions were often horrible, and the pay was terrible, and it was often difficult for unskilled workers to move to higher skill levels and escape the working class. The traditional protections of the medieval and early modern eras, such as guilds and mandated wage-and-price standards, were disappearing.
Gradually, very gradually, middle class, or “middling sort,” did emerge in industrial cities, mostly toward the end of the 19th century. Until then, there had been only two major classes in society: aristocrats born into their lives of wealth and privilege, and low-income commoners born in the working classes. However new urban industries gradually required more of what we call today “white collar” jobs, such as business people, shopkeepers, bank clerks, insurance agents, merchants, accountants, managers, doctors, lawyers, and teachers. One piece of evidence of this emerging middle class was the rise of retail shops in England that increased from 300 in 1875 to 2,600 by 1890. Another mark of distinction of the middle class was their ability to hire servants to cook and clean the house from time to time. Not surprisingly, from 1851 to 1871, the number of domestic servants increased from 900,000 to 1.4 million. This small but rising middle class prided themselves on taking responsibility for themselves and their families. They viewed professional success as a result of a person’s energy, perseverance, and hard work.
In this new middle class, families became a sanctuary from stressful industrial life. The home remained separate from work and took on the role of emotional support, where women of the house created a moral and spiritual safe harbor away from the rough-and-tumble industrial world outside. Most middle-class adult women were discouraged from working outside the home. They could afford to send their children to school. As children became more of an economic burden, and better health care decreased infant mortality, middle-class women gave birth to fewer children.
Ironically, life in the middle class still had its downside. Stuck in a new position in the middle of society, the new middle class was hostile both to the aristocracy and to the lower classes. They were angered by their political exclusion from power in a system that still favored aristocrats they felt they had the wealth and education to deserve a political voice. They also had contempt for the lower classes, particularly the growing mass of urban poor. In their lifestyles and political positions, they tried to separate themselves from this uneducated and politically powerless herd, with whom they had less and less culturally in common (and who often worked for them in their factories).
By the early twentieth century additional countries, usually culturally associated with Europe, began to industrialize, including Russia, Japan, other nations in Eastern and Southern Europe, Australia, and New Zealand. Britain and the other previously industrialized countries became highly urbanized. The last craft industries, such as shoemaking and glassmaking, became industrialized. The most developed countries, such as the United States, mass-produced consumer goods – such as dishwashers, furniture, and even houses – for the growing middle classes. The service sector grew and matured with jobs for teachers, waiters, accountants, lawyers, police, and clerks. Essential inventions included the assembly line, the automobile, and the airplane. Western countries and businesses typically controlled world trade and took direct or indirect control of critical industries in less developed countries, enriching themselves in the process.
The Industrial Revolution, an era that began in England at the end of the 18th century, has yet to end. Since the 1950s the so-called “Asian Tigers” (Hong Kong, Singapore, Taiwan, South Korea) rapidly industrialized by taking advantage of their educated and cheap labor to export inexpensive manufactured goods to the West. Other countries in Asia and the Americas, such as China, India, Brazil, Chile, and Argentina, began to develop key economic sectors for export in the global economy.
The world moved gradually toward global free trade. Western countries in Europe and North America turned increasingly to service and high technology economies as manufacturing moved to the cheap labor markets of developing countries. The important new inventions of this phase were the computer and the Internet. This era is now referred to as the “Post-Industrial age,” since the most developed countries focus on service jobs rather than manufacturing, called the “Information Age.” With only a few exceptions, most impoverished nations have not become wealthy in the fiercely competitive global market. There is an increasing wealth gap between more developed and less developed countries in the world.
Explaining the Industrial Landscape
Have you ever wondered why Detroit became the “Motor City,” known for automobile manufacturing in the United States? Why Pittsburg is known for steel production, and why Hollywood became the entertainment capital of the world? In the early years of the twentieth century, when cars were assembled by hand, and when many of their components were made of wood, automobile manufacturers were located in many different places. One brand of car was made in San Francisco, another was made in Massachusetts, and yet another was made in Indiana. By the end of World War I, Detroit was becoming the center of automobile production in America. In the early days of silent films, Flagstaff, Arizona, was the site for the production of several movies, because many of the early films were about life in the West. Within a few years, however, the film industry had abandoned Flagstaff in favor of the Los Angeles Basin of California. In colonial times, the steel production center of North America was in Massachusetts. During the last half of the 19th century, Pittsburg, Pennsylvania replaced Massachusetts as the steel center of America. Why did these changes take place? Of course, there are many variables that determine whether an industry will prosper; however, location is one of the most important. Over the years, geographers have focused on several fundamental industrial location theories to explain why businesses and industries are located in particular locations and predict which locations help a business succeed. Von Thünen made the first efforts to identify the factors that account for the locations of industries. His ideas gave rise to the subsequent work of German geographers such as William Lanyard and Alfred Weber who were instrumental in the development of Least Cost Theory.
Alfred Weber’s first significant work on industrial location theory was published in 1909 in where he predicted that industries would locate based on the places that would be the lowest cost to them. He took for granted that industries are naturally competitive and aim to minimize their costs and maximize their profits. Much like Von Thünen, Weber did not try to explain actual real-world locations, but instead concentrated on identifying those factors that influence all industrial-location patterns. According to Weber, three main factors influence industrial location: transport costs, labor costs, and agglomeration economies.
Weber felt that transportation was the most substantial factor in determining the location and that industries wanting to locate where transportation costs are minimized must consider two issues: the distance of transportation to the market and the weight of the goods being transported. Regardless of the method (ship, rail, truck, air), transportation cost is determined by the weight of the goods being shipped and the distance they are being shipped. The heavier the goods and the farther the distance, the more expensive it is to ship.
In one scenario, the weight of the final product is less than the weight of the raw material going into making the product, the weight-losing industry. For example, in the copper industry, it would be costly to haul raw materials to the market for processing, so manufacturing occurs near the raw materials. Besides mining, other primary activities (or extractive industries) are considered material-oriented: timber mills, furniture manufacture, most agricultural activities, etc. Often located in rural areas, these businesses may employ most of the local population. As they leave, the locale area loses its economic base.
On the other, the final product is equally as heavy as the raw materials that require transport. Usually, this is a case of some ubiquitous raw material, such as water, being incorporated into the product. This is called the weight-gaining industry. This type of industry tends to build up near a market or raw material source and is sometimes called foot-loose industry. In some industries, like the heavy chemical industry, the weight of the raw material is less than the weight of finished product. These industries always grow up near a market.
Because labor costs vary from place to place, and because these differing labor costs are the product of variances in wage rates and worker efficiencies, Weber thought of labor as a distortion of the original transportation pattern that was driven by transportation costs. Accordingly, after finding the best location relative to transportation costs, he considered how labor costs influenced the location of factories and plants. To do this, Weber plotted the spatial variances of transportation costs to create a transport cost surface. He then contrasted regional labor costs with regional the pattern of transportation costs.
Weber noted that as transportation systems became more efficient, and hence less expensive to use, labor costs came to more heavily influence industrial locations. He also found that industries dominantly affected by labor costs tend to concentrate in a few places. Therefore, lower transportation costs tend to intensify the natural tendency of like industries to agglomerate in one location.
Weber also employed a classification system based on local and regional factors. Local factors included the influences of agglomeration and deglomeration. Similar businesses typically gain an advantage when the cluster or agglomerate (centralize) in a specific location. Deglomeration is the tendency of industries to decentralize or disperse from a given location when rent becomes too expensive and impacts profits.
Weber argued that there are two significant ways in which firms benefit from agglomeration. In the first place, it could bring about the enlargement of a factory, thereby leading to more significant economies of scale. Additionally, agglomeration allows similar industries to benefit from being near one another. This is because they can share specialized facilities, services, and equipment. In his analyses, Weber considered only “pure” or “technical” agglomeration. He did not examine the impacts of “accidental” agglomeration (concentrations that occur for other than reasons associated with spatial economics).
In Weber’s basic industrial location model, there is only one specific market location, and one of the assumptions of this model is that all transactions take place on this site. Moreover, Weber assumed that there would be no limit to the quantity of the product that would be purchased at the specified price (in other words, in Weber’s model, the price of a good did not affect demand. Of course, Weber knew this did not reflect real-world conditions, but he made these assumptions in order to simplify the model. Other scholars, however, were convinced that, in making this assumption, Weber greatly limited the accuracy of his model. After all, demand is not confined to one single site but is instead scattered unevenly throughout a region.
Moreover, it is seldom true that buyers are confined to only one retail merchant. Instead, they usually have several choices and, if all else is equal, they will choose the closest establishment from which to make a purchase. Even so, better prices and services may offset the costs of distance. This is in keeping with the common advertisement slogan of automobile dealers located outside the boundaries of a city, “drive a little, save a lot!”
During the last years of the 20th century, developments in transportation diminished the relevance of Weber’s theory. In the first place, freight rates have increased at a faster rate than having the costs of raw materials, but relative transportation costs are declining. This means that the impacts of transportation costs on industrial location and market analysis are relatively less significant than they were at the beginning of the 20th century when Weber first articulated his theory. Third, natural resources are now less critical because smaller, lighter, and smarter products have replaced the more substantial products of the past. In particular, plastics and lighter materials made from soybeans, petroleum, and other fibers have replaced the use of steel and wood. As a result, furniture and appliances are lighter (and sometimes stronger). Even automobiles now use a great deal of plastic and other fibrous materials as a substitute for steel. It is far less costly to move petroleum through pipelines, or to ship plastics than it is to ship wood, iron ore, and steel.
Currently, labor tends to be the most important determinant of industrial location. This is particularly true for firms that produce expensive, high-tech goods. For most of these firms, transportation costs are of minor importance. In part, this is because high-tech goods are usually relatively light and small. This is nothing new, however. Long ago, the Swiss figured out that as a land-locked mountainous nation, they could not competitively ship their dairy products to foreign markets. Therefore, they processed liquid milk into far less bulky cheese and chocolate. They also realized that anything they manufactured should have a high value relative to its bulk and weight. Thus, instead of making automobiles or steam trains, they made timepieces. Even the Dutch, with access to excellent ports and water transportation, realized the benefits of shipping high-value, low-bulk products. Thus, they processed diamonds and focused on flower bulbs, cheese, and chocolate. In recent years, firms have developed many new and innovative ways in which to avoid transportation costs. For example, soft drink manufacturers do not ship full bottles of their products all over the world. Instead, they ship containers of syrup to local bottling plants where water is added to the syrup.
Core-Periphery Spatial Relationships
One key to understanding industrialization from a geographer’s perspective is thinking about core-periphery spatial relationships at both a local and global scale. On a local scale, there is generally a core area, sometimes known as the central business district and a hinterland, a German term meaning “the land behind.”
The hinterland is more sparsely populated than the core and is often where goods sold in the core are manufactured. It might include rural farmland, for example. The core, on the other hand, is the commercial focus for the area where most goods and services are exchanged. The hinterland relies on the central city to sell its goods, but similarly, the city relies on the hinterland to produce raw materials. Consider where the hinterland is located around your closest city; the hinterland is characteristically rural, while the core is urban.
The city of Walla Walla in southeastern Washington is an excellent example of this. Walla Walla has a population of about thirty thousand people and is the only significant town in its county. Walla Walla, with a prestigious college, a community college, the state prison, a regional hospital, and retail services, serves as a core hub for the surrounding periphery. The hinterland of Walla Walla has an agricultural economy based on the production of onions, wine grapes, asparagus, and ranching are typical of a peripheral region. The city of Walla Walla has the political, economic, and educational power that serves the people of its local area.
Globally, we can apply the hinterland-city model to an understanding of a global core and a global periphery. The core areas are places of dominance, and these areas exert control over the surrounding periphery. Core areas are typically more developed and industrialized, whereas the periphery is more rural and generally less developed. Unlike the interactions between the city and the hinterland, the economic exchange between the core and periphery is characteristically one-sided, creating wealth for the core and patterns of uneven development.
Brain drain also happens on an international level – that is, students from periphery countries might go to college in core countries, such as the United States or countries in Europe. Many international college graduates do not return to their poorer countries of origin but instead, choose to stay in the core country because of the employment opportunities. This is especially true in the medical field. There is little political power in the periphery; centers of political power are almost always located in the core areas or at least dominated by the core cities. The core areas pull in people, skills, and wealth from the periphery. Lack of opportunities in the periphery pushes people to relocate to the core.
However, these interactions do sometimes contribute to economic stability in the periphery. Some argue that it benefits the core countries to keep the periphery peripheral; in other words, if the periphery can remain underdeveloped, they are more likely to sell cheap goods to the core. This generates more wealth for core areas and contributes to their continued influence and economic strength.
The periphery countries and the core countries each have unique characteristics. Peripheral locations are providers of raw materials and agricultural products. In the periphery, more people earn their living in occupations related to securing resources: farming, mining, or harvesting forest products. For the workers in these occupations, the profits tend to be marginal, with fewer opportunities to advance. In the periphery, there is a condition known as brain drain, which describes a loss of educated or professional individuals. Young people leave the peripheral areas for the cities to earn an education or to find more advantageous employment. Few of these individuals share their knowledge or success with their former community.
5.2 Economic Geography
The Economics of Geography
It is easier to understand why people move from rural to urban, from the periphery to core, from Mexico to the United States when one begins to understand the global economy. Economic conditions are connected to how countries gain national income, opportunities, and advantages. One way of acquiring wealth is simply by taking someone else’s wealth. This method has been common practice throughout human history: a group of armed individuals attacks another group and takes their possessions or resources. This is regularly practiced through warfare. Unfortunately, this pillage-and-plunder type of activity has been a standard way of gaining wealth throughout human history.
The taking of resources by force or by war is frowned upon today by the global economic community, though it still occurs. The art of piracy, for example, is still practiced on the high seas in various places around the globe, particularly off the coast of Somalia.
The main methods countries use to gain national income are based on sustainable domestic income models and value-added principles. The traditional three areas of agriculture, extraction/mining, and manufacturing are a result of primary and secondary economic activities. Natural resources, agriculture, and manufacturing have been traditionally targeted as the means to gain national income. Postindustrial activities in the service sector, including tertiary, quaternary, and quinary economic activities, have exploded in the past seventy-five or so years.
Services constitute over 50 percent of income to citizens in low-income nations. The service economy is also crucial to growth, for instance, it accounted for 47 percent of economic growth in sub-Saharan Africa over the period 2000 – 2005; industry contributed 37 percent and agriculture 16 percent in the same period. This means that recent economic growth in Africa relies as much on services as on natural resources or textiles, despite many of those countries benefiting from trade preferences in primary and secondary goods. As a result, employment is also adjusting to the changes, and people are leaving the agricultural sector to find work in the service economy. This job creation is particularly useful as often it employs low-skilled labor in the tourism and retail sectors, thus benefiting the poor and representing an overall net increase in employment.
Places around the world have sometimes been named after the methods used to gain wealth. For example, the Gold Coast of western Africa received its label because of the abundance of gold in the region. The term breadbasket often refers to a region with abundant agricultural surpluses. Another example is the Champagne region of France, which has become synonymous with the beverage made from the grapes grown there. The Banana Republic earned their name because their large fruit plantations were the primary income source for the large corporations that operated them. Places such as Copper Canyon and Silver City are examples of towns, cities, or regions named after the natural resources found there.
The United States had its Manufacturing Belt, referring to the region from Boston to St. Louis, which was the core industrial region that generated wealth through heavy manufacturing for the more significant part of the nineteenth and twentieth centuries.
Countries with few opportunities to gain wealth to support their governments often borrow money to provide services for their people. The national debt is a significant problem for national governments. National income can be consolidated into the hands of a minority of the population at the top of the socioeconomic strata. These social elites can dominate the politics of their countries or regions. The elites may hold most of a country’s wealth, while at the same time, their government might not always have enough revenues to pay for public services. To pay for public services, the government might need to borrow money, which then increases that country’s national debt. The government could have a high national debt even when the country is home to many wealthy citizens or a growing economy. Taxes are a standard method for governments to collect revenue. If economic conditions decline, the amount of taxes collected can also decline, which could leave the government with a shortfall. Again, the government might borrow money to continue operating and to provide the same level of services. Political corruption and the mismanagement of funds can also cause a country’s government to lack revenues to pay for the services it needs to provide its citizens. The National debt, defined as the total amount of money a government owes, is a growing concern across the globe.
Many governments have problems paying their national debt or even the interest on their national debt. Governments whose debt has surpassed their ability to pay have often inflated their currency to increase the amount of money in circulation, a practice that can lead to hyperinflation and, eventually, the collapse of the government’s currency, which could have serious adverse effects on the country’s economy. In contrast to the national debt, the term budget deficit refers to the annual cycle of accounting of a government’s excess spending over the number of revenues it takes enduring a given fiscal year.
The Geography of Economics
The Industrial Revolution, which prompted the shift in population from rural to urban, also encouraged market economies, which have evolved into modern consumer societies. Various theories and models have been developed over the years to help explain these changes. For example, in 1929, the American demographer Warren Thompson developed the demographic transition model (DTM) to explain population growth based on an interpretation of demographic history.
In the 1960s, economist Walt Rostow adapted Warren Thompson’s demographic transition model to outline a pattern of economic development that has become one model for growth in a global economy. Rostow’s model described the five stages of growth in the economic modernization of a country:
The human development index (HDI) was developed in 1990 and is used by the United Nations Development Program to measure a standard of human development, which refers to the widening opportunities available to individuals for education, health care, income, and employment. The HDI incorporates variables such as standards of living, literacy rate, and life expectancy to indicate a measure of well-being or the quality of life for a specific country.
The human development approach, developed by the economist Mahbub Ul Haq, is anchored in the Nobel laureate Amartya Sen’s work on human capabilities, often framed regarding whether people can “be” and “do” desirable things in life.
- Beings: well-fed, sheltered, healthy
- Doings: work, education, voting, participating in community life.
Freedom of choice is central to the approach: someone choosing to be hungry (during a religious fast say) is quite different to someone hungry because they cannot afford to buy food.
Ideas on the links between economic growth and development during the second half of the 20th Century also had a formative influence. Gross Domestic Product (GDP) and economic growth emerged as leading indicators of national progress in many countries, yet GDP was never intended to be used as a measure of wellbeing. In the 1970s and 80s, development debate considered using alternative focuses on going beyond GDP, including putting greater emphasis on employment, followed by redistribution with growth, and then whether people had their basic needs met. These ideas helped pave the way for human development (both the approach and its measurement).
One of the more notable achievements of the human development approach has been to ensure a growing acceptance of the fact that monetary measures, such as GDP per capita, are inadequate representations of development. This measure of human development remains a simple unweighted average of a nation’s longevity, education, and income and is widely accepted in development discourse. Over the years, however, some modifications and refinements have been made to the index. Indeed, the critics of the HDI and their concerns have stimulated, and continue to stimulate, adjustments to the index and the development of companion indices, which help paint a broader picture of global human development.
The HDI emphasizes that people and their capabilities should be the ultimate criteria for assessing the development of a country, not economic growth alone. The HDI can also be used to question national policy choices, asking how two countries with the same level of GNI per capita can end up with different human development outcomes. These contrasts can stimulate debate about government policy priorities.
Jobs can be classified into three major types of sectors, which greatly influence the economics, standards of living, trade, and even social classes within a society. The first is called the primary sector, which are jobs directly related to the extraction of the Earth’s natural resources (e.g., forestry, raw materials, or agriculture). In the secondary sector, jobs are focused on manufacturing raw materials from the primary sector to usable products. The tertiary sector provides goods and services to people in exchange for payment. These types of jobs include lawyers, doctors, educators, banking, retail, athletes, and others.
It is probably apparent that the majority of the jobs in more developed countries (MDCs) are tertiary. There are primary and secondary sector jobs in countries like the United States, but the driving economic force is in the tertiary sector. MDCs are also more productive than LDCs, not because they work harder, but because of access and use of technology. In economics, productivity is the value of a product compared to the amount of labor.
MDCs also can invest more money and resources because of their economies. Thus their people tend to be more educated and healthier; children are more likely to survive, and adults tend to live longer than those in LDCs. Probably the two most important or essential components to have a nation’s developmental status begin to rise is through education and health care. There is a direct correlation to development and education: the more developed a nation, the more educated the population. One of the best indicators of a nation’s level of development is its literacy rate, the percent of people who can read or write.
In most developed countries, the literacy rate is usually around 98 percent, whereas, in emerging countries, the literacy rate is roughly 60 percent. The impact of this is that books are written for people in MDCs, and scientific advances tend to occur in these countries. Regarding percentage, least developed countries spend more of their GDP on education than most developed countries need to. In LDCs, the children going to school often have outdated books and not written in their primary language. Often in LDCs, more schools are private than public because the government cannot fund them. Outside religious groups and nonprofit organizations fund many of these schools.
Access to health care mirrors literacy statistics globally. However, geographers always want to look at these issues from different scales to understand if the patterns at a global scale hold at a regional or national level.
Other measures of development can be utilized to help geographers understand patterns of social and economic differences at a variety of scales. For example, looking at Gross Domestic Income (GDI) per capita gives a global view of the economic status of nations. North America, Northern Europe, Australia, and Japan have relatively stable economies and tend to be political world leaders. Interestingly, Saudi Arabia has a high GDI but is surrounded by countries with weaker economies. What confluence of factors might account for this phenomenon?
At this scale, a geographer might think that a country like Spain, with a strong GDI, also has a healthy economy. However, Spain has struggled to recover from the worldwide recession of 2008 and continues to have large pockets of the population who are chronically unemployed.
At this regional level, we can make some conclusions about the location of the unemployed, which create other questions that can be answered from a geographical spatial perspective, such as:
- Are unemployed people who are living in cities also in poverty?
- What kinds of education levels exist among people in those areas?
- What kinds of social services, if any, are needed in those areas?
As you can see, this type of questioning can help us understand different patterns of social and economic development, as well as influence public policy.
5.3 Human Development Index
Defining Human Development
As a geographically literate scholar and citizen, you should be following current events around the world. If you do this, you will undoubtedly hear many discussions about development. You might listen to conversations of some countries that are “developing” and other countries that are “developed.” You might also understand terms like “First World” and “Third World.” You will also hear about how well development in the United States or other countries is going at any given time. Finally, you may listen to discussions about specific types of development, such as sustainable development. However, what does all this mean?
It turns out that “development” does not have one single, simple definition. There are multiple definitions and multiple facets to any one definition. There are also numerous, competing opinions on the various understandings of what “development” is. Often, “development” is viewed as being a good thing, and it is easy to see why. People in “developed” countries tend to have longer lives, more comfortable housing, more options for careers and entertainment, and much more. However, whether or not “development” is proper is ultimately a question of ethics. Just as there are multiple views on ethics, there are various views on whether or not “development” is proper. Later in this module, we will see some cases in which “development” might not be considered to be good.
The simplest and most common measures for development are those based on monetary statistics like income or gross domestic product (GDP, which measures in monetary terms how much an economy is producing). These monetary statistics are readily available for countries and other types of places across the world and are very convenient to work with. Likewise, it is easy to find a good map of these statistics, such as this one of GDP.
However, statistics like income and GDP are controversial. One can have a high income or GDP and low quality of life. Put, there is more to life than money. Furthermore, monetary statistics often overlook essential activities that do not involve money, such as cooking, cleaning, raising children, and even subsistence farming. These activities are usually performed by women, so a focus on monetary statistics often brings significant underestimates of the contributions of women to society. Finally, high incomes and GDPs are often associated with sizeable environmental degradation. From an ecocentric ethical view, that is a problem.
Another way of looking at development is one based on health statistics such as life expectancy or child mortality. These statistics show another facet of development. In many cases, those with much money also have better health. However, this trend does not always hold. Take a look at this life expectancy map:
A third way of looking at development is one based on end uses. End-uses are the ultimate purposes of whatever our economies are producing. For example, the end uses of agriculture are proper nutrition, tasty eating experiences, and maybe a few other things like the socializing that occurs during meals. The end applications of the construction of buildings involve things like having places for us to be in that comfortable, productive, and beautiful. For transportation, end users are in the areas they want to be.
Take a look at the following undernourishment map: How does this map compare to the GDP and Life Expectancy map? What patterns are similar? Is there anything different? While most of the world’s undernourished live in low-income countries, is there an exception?
A focus on end uses us a different perspective on development than a focus on money. One can have much money, but little of end uses. For example, a poorly designed city can force us to spend a lot of money on transportation, and we will still be stuck in traffic a lot. Alternatively, major environmental catastrophes often lead us to conduct much economic activity to clean things up, which can increase GDP. Meanwhile, one can have many ends uses without much money. For example, people can grow their food and have a delicious, nutritious diet without being affluent at all.
At the core of this discussion of development is one very fundamental question: What is it that we ultimately care about as a society? If we ultimately care about money, then the monetary statistics are good representations of development, and we should be willing to make sacrifices for other things to get more money. Alternatively, if end users are what we ultimately care about, then it is essential to look beyond monetary statistics and consider the systems of development that bring us the end uses that we want.
What is Development Today?
Hans Rosling is a Swedish demographer and teacher who has gained global fame through lively videos about global demographics, in particular at the TED conferences. If you are not already familiar, TED is an excellent resource of entertaining and informative talks from a great variety of people. Here is a TED talk from Rosling (20:35):
Rosling makes several essential points in this video:
- Many of us have misperceptions about global demographic data, such as child mortality.
- The variation within regions (such as sub-Saharan Africa) and within countries can be more significant than the variation between different regions or countries.
- The divide between the more-developed and less-developed countries no longer exists. Instead, there is a continuum of development around the world with no gap in the middle.
- Quality visualization is essential for understanding and communicating demographic data.
Now, let us take a look at the map of GDP per capita, of course, bearing in mind the limitations of the GDP statistic.
A few points are worth making about this map. First, the map shows GDP per capita, i.e., per person. Per capita statistics are usually more helpful for showing what is going on in a place. Recall the map of world GDP from the previous page. That map would show, for example, that China has a much larger GDP than, say, Switzerland. However, that is because China has a much larger population than Switzerland, not because China has reached a more advanced level of development. Most people would consider Switzerland to be more developed than China.
Second, the wealthier areas are North America, Western Europe, Australia, New Zealand, Japan, South Korea, and a few countries in the Middle East. These are the countries that are commonly considered to be “developed.” The rest of the countries are frequently considered to be “developing.” However, there is no clear divide between “developed” and “developing” visible on this map. Instead, there are countries at all points along the continuum from “developed” to “developing.”
Third, there are a few places on the map that are colored gray. These are places where no data is available. Usually, there is a compelling reason for data as essential as GDP to be unavailable. The map here uses data from the International Monetary Fund (IMF), so the gray represents places that the IMF has no data for. Here are probable reasons why some data and information is unavailable for this map: Greenland is not an independent country but is a territory of Denmark. French Guiana (in northern South America) is also not an independent country but is a territory of France. Western Sahara is a disputed territory fighting for independence from Morocco. Somalia and Zimbabwe have dysfunctional governments and probably did not report data to the IMF. Finally, Cuba and North Korea are not part of the IMF. GDP statistics are available for most of these regions from sources other than the IMF.
World Development Throughout History
There is one more point to consider about the GDP map shown earlier: It only shows one point in time. The map tells us something about development around the world today, but it does not explain how we got here. Even the Rosling video, which shows an animation over time, does not offer much in the way of explanation. This leaves out the critical question: Why is it that some countries are more developed, or at least have more money, than others?
Understanding the patterns of development we see today requires understanding the history of development around the world. Historical geography is the study of the historical dimensions of our world and is very important here. It turns out that certain aspects of the environment have played essential roles in the history of development on Earth. This is an ancient story, and it is worth starting at the beginning: at the origin of agriculture. Agriculture is an important starting point for development because the increased food supplies enable larger populations and enable some people to devote their time to tasks other than producing food. This labor specialization is necessary for the diverse other human activities required for development.
Agriculture originated independently in several regions around the world. In the map below, the green areas are regions where agriculture originated, and the arrows show directions that agriculture spread from its areas of origin.
However, all agriculture is not equal. Some agriculture is more productive than others. Likewise, some of these regions where agriculture originated are likely to develop more successfully than others. Key factors include the region’s growing conditions (including temperature, precipitation, latitude, and soils) and the types of plants and animals available for planting and domestication. Many regions had good growing conditions, but of all the regions in the world, one had abundant plants and animals to use. That region is the Fertile Crescent, which is located in the Middle East, as seen on the map above.
The idea that the outcomes of civilization were determined entirely by environmental factors is known as environmental determinism. This hypothesis states that the physical environment for a particular region of the world predetermines the economic and social development trajectory of societies and nation-states.
This idea has been heavily critiqued. Even though ecological factors like plants and animals for agriculture can help explain some significant patterns in development, such as why advanced civilization developed in Eurasia but not in Papua New Guinea, it cannot explain everything. For example, it cannot explain the significant differences in development found today between adjacent countries such as the Dominican Republic (more prosperous) and Haiti (poorer) or South Korea (more affluent) and North Korea (more deprived). The distinction between the Dominican Republic and Haiti is even visible from space. Environmental determinism assumes that the environment determines all development and difference. Still, some patterns, like what we observe between the Dominican Republic and Haiti, are not explainable by environmental factors alone.
In this image, Haiti is on the left, and the Dominican Republic is on the right. This part of Haiti is almost completely deforested, as is much of the rest of the country, but the deforestation ends abruptly at the political border. From our systems perspective, this is humanity impacting the environment, not the environment affecting humankind. What is essential to understand is that the patterns of development that we see have both environmental and social causes. The environment can explain some of why advanced civilization emerged in Eurasia instead of elsewhere. Still, only social factors can explain why, for example, the Dominican Republic is richer than Haiti or South Korea is richer than North Korea. In other words, environmental resources can contribute to development trajectories, just like many other geographic factors such as culture, climate, topography, and proximity to major waterways. However, no single one of those components is ever the determining factor.
Environmental determinism came to prominence in the early twentieth century, but its popularity declined over time. This is partly due to its shortcomings, and also a recognition that it was often used as a justification for colonial conquest and slavery. In contrast to the unidirectional conceptualization of human-environment relationships, environmental possibilism arose as a mild notion where the environmental constraints are still recognized. Still, the freedom and capability of humans to change and structure the environment are highlighted. Environmental determinism and possibilism represented geographers’ first attempts at generalizing what accounts for the pattern of human occupation of the Earth’s surface in modern times.
Thus far, in the module, we have seen several examples in which development has increased health and quality of life. However, development can also reduce the health and quality of life. Often, when development has these downsides, it is for reasons related to the environment. When development impacts the environment in ways that harm certain groups of people, it raises issues of environmental justice.
First, let us consider some connections between economic development, human health, and justice by completing the following reading assignment:
The fact that poor, and often minority, populations are more likely to live within proximity to facilities that have adverse health effects has helped establish the environmental justice movement. Research on environmental justice has shown that political and economic systems structure the conditions that contribute to poor health and help explain variations within societies in the rates of non-communicable chronic diseases such as diabetes or cancer.
Within the United States, the environmental justice movement has worked to show how the byproducts of development, such as chemical factories, waste facilities, and toxic chemicals, create hazardous conditions for people living near them. Here is one example of environmental justice in the United States; watch this video about Camden in New Jersey (4.5 minutes):
However, environmental justice is not just a domestic American issue. It is also a global issue. The globalized nature of our economy and our environment causes pollutions and other environmental indignities to become concentrated in particular world regions. Quite often, those regions are the regions of the poorest and least powerful of the world’s people. This can be seen in the following video on e-waste (or electronic waste) in Accra, Ghana’s capital city (6 minutes):
When you no longer want an electronic device that you own, what do you do with it? Where does it end up? Does it end up causing harm to other people? Who are these people? Do they deserve to be harmed by your e-waste?
Moreover, what can you do about it? These are all difficult questions raised by our ownership of electronic devices. Furthermore, similar questions are raised by other items that we own and the activities that we pursue.
Finally, it is noteworthy that environmental justice is not only about which populations suffer from the burdens of economic development (also known as environmental bads), but also about who has access to environmental goods: that contribute to human health. For example, poor communities and populations of color are often denied access to parks, open space, full-service grocery stores, and hospitals. The environmental justice movement, therefore, has expanded to ask critical questions about which human populations suffer the burdens of economic development, and which benefit the most from it.
Human Development Index
To analyze the world based on various levels of development, the term development must be defined. Development is the process of improving the material conditions of people through the diffusion of knowledge and technology. All nations lie somewhere in the range of more developed countries (MDC) to less developed countries (LDC).
A nation’s development level is based on the United Nation’s Human Development Index (HDI), which focuses on economic, social, and demographic development. More specifically, the HDI focuses on a nation’s gross domestic product (GDP) for economics, literacy rates and education for social factors, and life expectancy for demographics. A country’s gross domestic product is the total market value of all officially recognized final goods and services produced within a country in a year. GDP per capita is often considered an indicator of a country’s standard of living.
Standard of Living
Standard of living refers to the level of wealth, happiness, comfort, and material goods, necessities available to a specific socioeconomic class in a particular geographic area. The standard of living includes factors such as income, quality and availability of employment, class disparity, poverty rate, quality and affordability of housing, hours of work required to purchase necessities, GDP, inflation rates, affordability to quality health care, quality and availability of education, life expectancy, incidence of disease, cost of goods and services, infrastructure, national economic growth, economic and political stability, political and religious freedom, environmental quality, to name a few. It is interesting to note that the United States is not the highest on the HDI. The U.S. ranks 3rd because it is lower in education standards and life expectancy than most developed nations.
Jobs can be classified into three major types of sectors, which greatly influence the economics, standards of living, trade, and even social classes within a society. The first is called the primary sector, which are jobs directly related to the extraction of the Earth’s natural resources (e.g., forestry, raw materials, or agriculture). In the secondary sector, jobs are focused on manufacturing raw materials from the primary sector to usable products. The tertiary sector provides goods and services to people in exchange for payment. These types of jobs include lawyers, doctors, educators, banking, retail, athletes, and others.
It is probably apparent that the majority of the jobs in developed countries (MDCs) are tertiary. There are primary and secondary sector jobs in countries like the United States, but the driving economic force is in the tertiary sector. MDCs are also more productive than LDCs, not because they work harder, but because of access and use of technology. In economics, productivity is the value of a particular product compared to the amount of labor needed to make it. Value added is the gross value of the product minus the cost of raw materials and energy.
Access to Quality Education
MDCs can invest more money and resources because of their economies. Thus their people tend to be more educated, healthier, children are more likely to survive, and adults tend to live longer than those in LDCs. Probably the two most important or essential components to have a nation’s developmental status to begin to rise is through education and health care. There is a direct correlation to development and education. The more developed a nation, the more educated the population. One of the best indicators of a nation’s level of development is its literacy rate, the percent of people who can read or write. In MDCs, the literacy rate is usually around 98 percent, whereas, in LDCs, the literacy rate is about 60 percent. Its impact on this is that books are written for people in MDCs, and scientific advances tend to occur in these countries. Compared to LDCs, MDCs spend less of their GDP on education because their GDP’s are so high. A small amount of a developed nation’s GDP can have a higher monetary value than large amounts coming from the GDP of a less developed nation. In terms of percentage, LDCs spend more of their GDP on education than MDCs need to. In LDCs, the children going to school often have outdated books and not written in their primary language. Often in LDCs, more schools are private than public because the government cannot fund them. Outside religious groups and nonprofit organizations support many of these schools.
Access to Health Care
People are often healthier in MDCs than LDCs because of diet and healthcare. Regarding food, people in MDCs tend to have more access to calories, nutrients, and protein. However, there is a dark side to this as well. Many developed countries are now experiencing major obesity issues. More people in the world are obese than are hungry. It is not just about consuming too much food; many nutrition experts would also question the quality of the protein and nutrients from this food that more and more is in the form of trans fats.
With access to healthcare, MDCs tend to invest more in public health than possible in LDCs. This is done at the governmental, private, business, and individual levels. In MDCs, there is a much lower ratio of nurses or doctors to patients than in LDCs. Because of this investment in health, the life expectancy in MDCs is much higher. Men tend to live ten years longer than those compared to LDCs; women can expect to live 13 years longer in MDCs than in LDCs. There is a gender issue related to this too. In MDCs, men tend to live ten years longer than women LDCs. However, higher life expectancy comes with a price too. People tend to work longer into their life, preventing the advancement of younger generations. The longer life expectancy through retirement also means that social programs must support an aging population.
Children also tend to have a higher survival rate, called infant mortality rates, in MDCs than in LDCs. In MDCs, the survival rate of children is near 99 percent, whereas in LDCs, the rate is around 94 percent. Children tend to have higher mortality rates in LDCs because of malnutrition, starvation, dehydration, disease, and lack of access to health services and professionals.
5.4 Social and Economic Inequality
The population pyramid provided shows that there are slightly more women than men on the planet. In the world of work, there continue to be pronounced imbalances across genders, reflecting local values, social traditions, and historical gender roles. Unpaid care work includes housework, such as preparing meals for the family, cleaning the house and gathering water and fuel, as well as work caring for children, older people and family members who are sick—over both the short and long term. Across most countries in all regions, women work more than men. Women are estimated to contribute 52 percent of global work, men 48 percent.
Of the 59 percent of work that is paid, mostly outside the home, men’s share is nearly twice that of women – 38 percent versus 21 percent. The picture is reversed for unpaid work, mainly within the home and encompassing a range of care responsibilities: of the 41 percent of work that is unpaid, women perform three times more than men – 31 percent versus 10 percent. Hence the imbalance—men dominate the world of paid work, women that of unpaid work. Unpaid work in the home is indispensable to the functioning of society and human well-being: yet when it falls primarily to women, it limits their choices and opportunities for other activities that could be more fulfilling to them.
Occupational segregation has been pervasive over time and across levels of economic prosperity. In advanced and developing countries, men are over-represented in crafts, trades, plant and machine operations, and managerial and legislative occupations. Women tend to be over-represented in mid-skill occupations such as clerks, service workers, and shop and sales workers.
Even when doing similar work, women can earn less – with the wage gaps generally most significant for the highest-paid professionals. Globally, women earn 2 – percent less than men. In Latin America, top female managers earn, on average, only 53 percent of top male managers’ salaries. Across most regions, women are also more likely to be in “vulnerable employment,” working for themselves or others in informal contexts where earnings are fragile, and protections and social security are minimal or absent.
As a method to measure development progress around the world, the United Nations has created the Millennium Development Goals. The Millennium Development Goals (MDGs) are the world’s time-bound and quantified targets for addressing extreme poverty in its many dimensions-income poverty, hunger, disease, lack of adequate shelter, and exclusion while promoting gender equality, education, and environmental sustainability. They are also fundamental human rights regarding health, education, shelter, and security.
To measure Goal 3, Gender equity and empowering women, the United Nations uses a Gender Inequality Index (GII). The index uses a variety of methods to determine the inequality of females compared to males, including labor, reproductive health, and empowerment. The higher the number that a region receives demonstrates, the greater the inequality in that region. Some nations have severe gender inequalities, meaning that women have nearly no legal, social, or economic rights even when they are head of their household. Many argue that if the world focused on gender equality of females, most of our social, economic, and environmental problems would be significantly minimized.
Many societies are experiencing a generational shift, particularly in the educated middle-class households, towards greater sharing of care work between men and women. Legislation and targeted policies can increase women’s access to paid employment. Access to quality higher education in all fields and proactive recruitment efforts can reduce barriers, particularly in fields where women are either underrepresented or where wage gaps persist.
Policies can also remove barriers to women’s advancement in the workplace. Measures such as those related to workplace harassment and equal pay, mandatory parental leave, equitable opportunities to expand knowledge and expertise, and measures to eliminate the attrition of human capital and expertise can help improve women’s outcomes at work.
Paid parental leave is crucial. More equal and encouraged parental leave can help ensure high rates of female labor force participation, wage gap reductions, and better work-life balance for women and men. Many countries now offer parental leave to be split between mothers and fathers.
Gender Equality Index
Currently, no social scientist or governmental agency like the United Nations has found a country where women are treated equally to men. To determine the equality, or inequality, of women in nations, the Gender Inequality Index (GII) is used. The index uses a variety of measures to determine the inequality of females compared to males, including labor, reproductive health, and empowerment. The higher the number that a region receives demonstrates, the greater the inequality in that region.
Some nations have severe gender inequalities, meaning that women have nearly no legal, social, or economic rights even when they are head of their household. Many argue that if the world focused on gender equality of females, most of our social, economic, and environmental problems would be significantly minimized. Here are some statistics about women:
In the 21st Century, gender inequity, as Sheryl WuDunn states in her TED Talk “Our Century’s Greatest Injustice?” is the moral and ethical issue of our time. Why have so many females disappeared out of the human population? Watch the video on the right to find out.
In terms of reproductive health, maternal mortality ratio and adolescent fertility rates are determined. The maternal mortality ratio is a measure of the number of women who die giving birth per 100,000 births. The adolescent fertility rate is a measurement of the number of births per 1,000 women between the ages of 15 through 19. In LDCs, women are more likely to die during labor and have children during their adolescent years. Reproductive health is an essential indicator of gender inequality because women tend to have fewer rights, including access to health care, where the gender-related development index is high.
Several organizations around the world are working on empowering females from young to old through a range of social and economic policies. The ultimate goal of these organizations like Half the Sky, CARE, and The Girl Effect, to name a few, is to empower women so that they might have legal, economic, social, and health rights. Empowerment is something that can be tracked and monitored because it focuses on two critical indicators of gender inequality. One is to measure the percentage of seats held by women in a nation’s federal government. This is a measurement of political and economic power women have or do not have in a country.
Just take, for example, the United States Congress in 2019. Currently, women make up 25 percent of the Senate and 23 percent of the House of Representatives. Contrast that to the face that women make up 51 percent of the United States population. This direct influence policies towards women, about women, and for women in the United States. Also, as of 2019, no woman has ever served as President or Vice President, and the only one has served as the Speaker of the House, which is the third most powerful position in our federal government.
There is also a darker side to international trade, and that exists in the black market. On the poaching side, animals ranging from mountain gorillas, rhinoceroses, and African elephants are being slaughtered for parts to be sold.
There are also natural resources such as diamonds, gold, stonery, textiles, and more that are either mined or assembled using mass slavery. The products are sold to MDCs to fund local and regional civil wars like in Uganda, Angola, Sierra Leon, and the Democratic Republic of Congo. Many times, people of all age groups who try to escape slavery are often raped, have body parts amputated alive and with no medicine, or killed all to fear, power, and control. The TED Talk “Photos that Bear Witness to Modern Slavery” and the two videos on mining cobalt are powerful, but disturbing witnesses of how slavery is used all around the world to fund political conflicts and wars. To learn more about how “how many slaves work for you,” check out your slavery footprint.
Ending Global Poverty
It can be said that issues such as literacy rates, life expectancy, natural increase, and infant mortality rates have improved in LDC. However, the gap between development and income is only getting wider. Only one-fifth of the world’s population lives in MDC, but those same nations consume five-sixths of the world’s resources. If all 7 billion people on the planet lived the lifestyle of the average American, it would require three planets! Currently, there are over 1 billion people on the earth living in what is called extreme poverty.
In the book by James Rubenstein, Cultural Landscape: An Introduction to Human Geography (2010), “The United Nations recently placed the contrast in spending between MDCs and LDCs in picturesque terms: Americans spend more per year on cosmetics ($8 billion) than the cost of providing schools for the 2 billion in the world in need of them ($6 billion), and Europeans spend more on ice cream ($11 billion) than the cost of providing a working toilet to the 2 billion people currently without one at home ($9 billion).” To put U.S. consumer spending in context with the cost of providing basic needs for those in the developing world, Americans spent $20 billion in 2007 on Black Friday–the day after Thanksgiving and the biggest shopping day of the year in the United States. Consider how redirecting the funds used for one day of shopping in the U.S. could do much to eradicate extreme poverty.
Currently, over $1 billion people live in extreme poverty, a term used to define people who live on less than $1.25 a day for food, water, and shelter. For LDCs to develop, they first need to improve their gross national product (GNP) dramatically. Once income starts flowing, that money needs to be invested in other HDI factors such as social and other economic factors. The goal of the self-sufficiency model is to focus on reducing poverty than increasing wealth and creating wealth classes. Investment in a state’s infrastructure and economic structure is spread equally so that all benefit. The idea of “local first” outweighs globalization. The problem with this model is that it can quickly become inefficient because the government protects local industries from outside forces. Also, it requires a sizeable governmental fingerprint to administer the controls and conditions to distribute the wealth equally.
5.5 Globalization and International Trade
Before we begin a discussion about why nations trade, it would be helpful to take a moment to consider the character and evolution of trade. It is important to keep in mind, first, that although we frequently talk about trade “between nations,” the vast majority of international transactions today take place between private individuals and private enterprises based in different countries. Governments sometimes sell things to each other, or individuals or corporations in other countries, but these comprise only a small percentage of world trade.
Trade is not a modern invention. International trade today is not qualitatively different from the exchange of goods and services that people have been conducting for thousands of years. Before the widespread adoption of currency, people exchanged goods and some services through bartering—trading a certain quantity of one good or service for another good or service with the same estimated value. With the emergence of money, the exchange of goods and services became more efficient.
Developments in transportation and communication revolutionized economic exchange, not only increasing its volume but also widening its geographical range. As trade expanded in geographic scope, diversity, and quantity, the channels of trade also became more complex. Individuals conducted the earliest transactions in face-to-face encounters. Many domestic transactions, and some international ones, still follow that pattern. However, over time, the producers and the buyers of goods and services became more remote from each other.
A wide variety of market actors, individuals and firms, emerged to play supportive roles in commercial transactions. These “middlemen,” wholesalers, providers of transportation services, providers of market information, and others, facilitate transactions that would be too complex, distant, time-consuming, or broad for individuals to conduct face-to-face efficiently.
International trade today differs from economic exchange conducted centuries ago in its speed, volume, geographic reach, complexity, and diversity. However, it has been going on for centuries, and its fundamental character, the exchange of goods and services for other goods and services or money, remains unchanged.
That brings us to the question of why nations trade. Nations trade a lot, but it is not quite as obvious why they do so. Put differently, why do private individuals and firms take the trouble of conducting business with people who live far away, speak different languages, and operate under different legal and economic systems, when they can trade with fellow citizens without having to overcome any of those obstacles?
It seems evident that if one country is better at producing one good and another country is better at producing a different good (assuming both countries demand both goods) that they should trade. What happens if one country is better at producing both goods? Should the two countries still trade? This question brings into play the theory of comparative advantage and opportunity costs.
The everyday choices that we make are, without exception, made at the expense of pursuing one or several other choices. When you decide what to wear, what to eat for dinner, or what to do on Saturday night, you are making a choice that denies you the opportunity to explore other options.
The same holds for individuals or companies producing goods and services. In economic terms, the amount of the good or service that is sacrificed to produce another good or service is known as opportunity cost. For example, suppose Switzerland can produce either one pound of cheese or two pounds of chocolate in an hour. If it chooses to produce a pound of cheese in a given hour, it forgoes the opportunity to produce two pounds of chocolate. The two pounds of chocolate, therefore, is the opportunity cost of producing the pound of cheese. They sacrificed two pounds of chocolate to make one pound of cheese.
A country is said to have a comparative advantage in whichever good has the lowest opportunity cost. That is, it has a comparative advantage in whichever good it sacrifices the least to produce. In the example above, Switzerland has a comparative advantage in the production of chocolate. By spending one hour producing two pounds of chocolate, it gives up producing one pound of cheese, whereas, if it spends that hour producing cheese, it gives up two pounds of chocolate.
Thus, the good in which comparative advantage is held is the good that the country produces most efficiently (for Switzerland, it is chocolate). Therefore, if given a choice between producing two goods (or services), a country will make the most efficient use of its resources by producing the good with the lowest opportunity cost, the good for which it holds the comparative advantage. The country can trade with other countries to get the goods it did not produce (Switzerland can buy cheese from someone else).
The concepts of opportunity cost and comparative advantage are tricky and best studied by example: consider a world in which only two countries exist (Italy and China) and only two goods exist (shirts and bicycles). The Chinese are very efficient in producing both goods. They can produce a shirt in one hour and a bicycle in two hours. The Italians, on the other hand, are not very productive at manufacturing either good. It takes three hours to produce one shirt and five hours to produce one bicycle.
The Chinese have a comparative advantage in shirt manufacturing, as they have the lowest opportunity cost (1/2 bicycle) in that good. Likewise, the Italians have a comparative advantage in bicycle manufacturing as they have the lowest opportunity cost (5/3 shirts) in that good. It follows, then, that the Chinese should specialize in the production of shirts and the Italians should specialize in the production of bicycles, as these are the goods that both are most efficient at producing. The two countries should then trade their surplus products for goods that they cannot produce as efficiently.
A comparative advantage not only affects the production decisions of trading nations, but it also affects the prices of the goods involved. After the trade, the world market price (the price an international consumer must pay to purchase a good) of both goods will fall between the opportunity costs of both countries. For example, the world price of a bicycle will be between 5/3 shirt and two shirts, thereby decreasing the price the Italians pay for a shirt while allowing the Italians to profit. The Chinese will pay less for a bicycle and the Italians less for a shirt than they would pay if the two countries were manufacturing both goods for themselves.
In reality, of course, trade specialization does not work precisely the way the theory of comparative advantage might suggest, for several reasons:
- No country specializes exclusively in the production and export of a single product or service.
- All countries produce at least some goods and services that other countries can produce more efficiently.
- A lower income country might, in theory, be able to produce a particular product more efficiently than the United States can but still not be able to identify American buyers or transport the item cheaply to the United States. As a result, U.S. firms continue to manufacture the product.
Generally, countries with a relative abundance of low-skilled labor will tend to specialize in the production and export of items for which low-skilled labor is the predominant cost component. Countries with a relative abundance of capital will tend to specialize in the production and export of items for which capital is the predominant component of cost.
Many American citizens do not fully support specialization and trade. They contend that imports inevitably replace domestically produced goods and services, thereby threatening the jobs of those involved in their production.
Imports can indeed undermine the employment of domestic workers. We will return to this subject a little later. From what you have just read, you can see that imports supply products that are either 1) unavailable in the domestic economy or 2) that domestic enterprises and workers would be better off not making so that they can focus on the specialization of another good or service.
Finally, international trade brings several other benefits to the average consumer. Competition from imports can enhance the efficiency and quality of domestically produced goods and services. Also, competition from imports has historically tended to restrain increases in domestic prices.
- Name a product/business where labor would be the comparative advantage for a developing country.
- Name a product/business where capital would be the comparative advantage for a rich country.
- Name a product/business where natural resources would be a comparative advantage.
The tremendous growth of international trade over the past several decades has been both a primary cause and effect of globalization. The volume of world trade increased twenty-seven-fold from $296 billion in 1950 to $8 trillion in 2005. Although international trade experienced a contraction of 12.2 percent in 2009, the steepest decline since World War II, trade is again on the upswing.
As a result of international trade, consumers around the world enjoy a broader selection of products than they would if they only had access to domestically made products. Also, in response to the ever-growing flow of goods, services, and capital, a whole host of U.S. government agencies and international institutions have been established to help manage these rapidly developing trends.
Although increased international trade has spurred tremendous economic growth across the globe, raising incomes, creating jobs, reducing prices, and increasing workers’ earning power, trade can also bring about economic, political, and social disruption.
Since the global economy is so interconnected, when large economies suffer recessions, the effects are felt around the world. One of the hallmark characteristics of the global economy is the concept of interdependence. When trade decreases, jobs, and businesses are lost. In the same way that globalization can be a boon for international trade; it can also have devastating effects. Activities such as the choice of clothes you buy have a direct impact on the lives of people working in the nations that produce
There are several elements that are responsible for the expansion of the global economy during the past several decades: new information technologies, reduction of transportation costs, the formation of economic blocs such as the North American Free Trade Association (NAFTA), and the reforms implemented by states and financial organizations in the 1980s aimed at liberalizing the world economy.
Trade liberalization, or deregulation, has become a ‘hot button’ issue in world affairs. Many countries have seen great prosperity thanks to the disintegration of trade regulations that had otherwise been considered a harbinger of free trade in the recent past. The controversy surrounding the issue, however, stems from enormous inequality and social injustices that sometimes comes with reducing trade regulations in the name of a bustling global economy.
Given the dislocations and controversies, some people question the importance of efforts to liberalize trade and wonder whether the economic benefits are outweighed by other unquantifiable negative factors such as labor exploitation.
With globalization, competition occurs between nations having different standards for worker pay, health insurance, and labor regulations. Corporations benefit from lower labor costs found in developing regions, thanks to free-trade agreements and a new international division of labor. A worker in a high-wage country is thus increasingly struggling in the face of competition from workers in low-wage countries. Entire sectors of employment in developed countries are now subject to this growing international competition, and unemployment has crippled many localities.
The outcome has been an international division of labor in all sectors of the economy. In particular, manufacturing is increasingly being contracted out to lower- cost locations, which are often found in developing countries with no minimum wage and few environmental regulations.
In excellent example of international division of labor can be found in the clothes-making industry. What was once a staple industry in most developed Western economies has now been relocated to developing countries in Central America, Eastern Europe, North Africa, Asia, and elsewhere.
International Development Models
Self-Efficiency Model of Development
There are two models of economic development that play off each other as a way to. The first model is called the Self-Efficiency Model of Development, which encourages domestic development of goods and resources and discourages foreign influence and investment. Between 1990 to 2000, this was the primary form of economic development until globalization became the dominant force. What makes this model of development competitive to international trade models is that governments create barriers through the form of tariffs on imports, which makes them more expensive and less economically competitive with their local businesses. New businesses are nurtured until they and economically sustainable and competitive enough to compete with businesses abroad.
This model of development prides itself in an equal distribution of resources to a nation’s people and businesses over foreign entities and investments. But there are several critics of this form of development because they argue that this model protects inefficient businesses and does not reward competitive and highly efficient ones, requires a sizeable bureaucratic government to administer this model of development and limit abuse and corruption, and does not receive the benefits of rewarding foreign corporations that could provide goods and services to countries with limited resources.
Modernization Model of Development
The other model for economic development is through international trade. W.W. Rostow proposed in the 1950s the idea of a five-stage model of development that competes with the self-sufficiency model. In a report by Peter Kasanda, Rostow’s Modernization Theory of Development implies that nations should use local resources and industries to sell scarce or needed resources globally through international trade. The money that comes back to the country would increase the nation’s GDP, which could then be used to improve the development of infrastructure, invest in education and healthcare, and ultimately improve a country’s standard of living. The following is the 5-stage model of how progress and development might occur for a country:
Traditional Society – This primary sector is determined for societies that have little economic development and a high percentage of people active in family-scale subsistence agriculture. Most of the money for development goes toward religious or military activities.
Economic Growth – Key investments in core structures of an existing economy to expand its development. Structured invests in mining and large-scale agriculture and with technology to enhance the efficiency of existing infrastructure. The goal is to invest in the overall structure of the nation’s economy, so the production of goods can begin to occur.
Economic Takeoff – Investment and development lead to expanded, but limited activity in mining, textile, and food production along with continued improvements and investment in modern technology. A key indicator of the “takeoff” stage is when the people in the country become more driven by economic development rather than traditional activities. Is should also be noted that this is often when concerning issues of slavery and sweatshops begin to surface if not appropriately handled.
Drive to Economic Maturity – During this period, society is driven by modern technological advances over most other areas of the economy. Technology drives production and efficiency throughout all parts of the economy. It is at this time when a local economy becomes an international economic player. This stage is often said to be an extension of the “takeoff” stage, but more expansive than limited in scope.
Age of Mass Consumption – This final stage of economic development occurs when an economy shifts from a secondary sector of manufacturing toward the tertiary sector of services. The economic status of the nation’s society also becomes driven by mass consumption of disposable goods.
The theory of international trade has become the preferred way to improve economic development. The reason is that most nations cannot produce all the goods and resources they require. So if nations can focus on specific goods and services to export, they can return the purchase of the goods and services they need.
In 1995, the World Trade Organization (WTO) was created to represent 97 percent of the world-trading establishment. It is through the WTO that nations can negotiate with each other international trade restrictions, governmental subsidies, and tariffs on exports. The WTO also has the power to act as an international court to enforce international agreements.
Liberals and conservatives have highly attacked the WTO. Liberals believe that too many actions or rulings are done undemocratically and behind closed doors. They also believe the organization focuses more on the rights of corporations rather than poorer nations. Conservatives believe that no international organization has the right to dictate the choices of sovereign nations. Learn more about the World Trade Organization.
5.6 Sustainable Development
Transforming the Economic Landscape
In nearly every corner of the world, from Mumbai to Madrid, one cannot enter a café or walk down the street without seeing someone talking, texting, or surfing the Internet on their cell phones, laptops or tablet PCs. Information Technology (IT) has become ubiquitous and is changing every aspect of how people live their lives.
IT is a driving factor in the process of globalization. Improvements in the early 1990s in computer hardware, software, and telecommunications significantly increased people’s ability to access information and economic potential. These developments have facilitated efficiency gains in all sectors of the economy. IT drives the innovative use of resources to promote new products and ideas across nations and cultures, regardless of geographic location. Creating efficient and effective channels to exchange information, IT has been the catalyst for global integration.
Globalization accelerates the change in technology. Every day it seems that new technological innovation is being created. The pace of change occurs so rapidly many people are always playing catch up, trying to purchase or update their new devices. Technology is now the forefront of the modern world, creating new jobs, innovations, and networking sites to allow individuals to connect globally.
The First Industrial Revolution used water and steam power to mechanize production. The Second used electric power to create mass production. The Third used electronics and information technology to automate production. Now a Fourth Industrial Revolution is building on the Third, the digital revolution that has been occurring since the middle of the last century. It is characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres.
Many argue that the Fourth Industrial Revolution has the potential to raise global income levels and improve the quality of life for populations around the world. To date, those who have gained the most from it have been consumers able to afford and access the digital world; technology has made possible new products and services that increase the efficiency and pleasure of our personal lives. Ordering a cab, booking a flight, buying a product, making a payment, listening to music, watching a film, or playing a game – any of these can now be done remotely.
The digital economy permeates all aspects of society, including the way people interact, the economic landscape, the skills needed to get a good job, and even political decision-making. Our emerging digital economy has the potential to generate new scientific research and breakthroughs, fueling job opportunities, economic growth, and improving how people live their lives.
These changes are happening all around us. In Kenya, mobile data is being used to identify malaria infection patterns and identify hotspots that guide government eradication efforts. Vehicle sensor data from delivery trucks, combined from mapping data analytics, has enabled companies to save millions of gallons of fuel and reduce emissions by the equivalent of taking thousands of cars off the road for a year. Farmers from Iowa to India are using data from seeds, satellites, and sensors to make better decisions about what to grow and how to adapt to changing climates.
How people connect with others, with information, and with the world is being transformed through a combination of technologies. These technologies will help us solve increasingly sophisticated problems, while big data will assist us in complex decision-making.
The sharing economy is a model in which people and organizations connect online to share goods and services. It is also known as collaborative consumption or peer-to-peer exchange. Two of the best-known examples of the sharing economy are Uber (transportation) and Airbnb (housing).
The blockchain is a digital “ledger” technology that allows for keeping track of transactions in a distributed and trusted fashion. It replaces the need for third-party institutions to provide trust for financial, contract, and voting activities. Bitcoin and other digital currencies are some of the most well-known examples of applications of blockchain technology.
In the future, technological innovation could lead to long-term gains in efficiency and productivity. Transportation and communication costs are predicted to drop, with logistics and global supply chains becoming more effective, the cost of trade will diminish, which should open new markets and drive economic growth. At the same time, as the economists Erik Brynjolfsson and Andrew McAfee have pointed out, the revolution could yield greater inequality, particularly in its potential to disrupt labor markets. As automation substitutes for labor across the entire economy, the net displacement of workers by machines might exacerbate the gap between returns on capital and returns to labor. We cannot foresee at this point, which scenario is likely to emerge, and history suggests that the outcome is likely to be some combination of the two.
In addition to being a key economic concern, inequality represents the most significant societal concern associated with the Fourth Industrial Revolution. The largest beneficiaries of innovation tend to be the providers of intellectual and physical capital – the innovators, shareholders, and investors – which explains the rising gap in wealth between those dependent on capital versus labor. Technology is, therefore, one of the main reasons why incomes have stagnated, or even decreased, for a majority of the population in high-income countries: the demand for highly skilled workers has increased while the demand for workers with less education and lower skills has decreased. The result is a job market with a strong demand at the high and low ends, but a hollowing out of the middle.
It is also important to remember that development is not evenly distributed over time and space. There are still many people around the world who have not yet realized the benefits delivered by previous industrial revolutions. Around 1.2 billion people do not have reliable access to energy. Another 2.3 billion do not have clean water and sanitation. More than 4 billion do not have access to the internet. Here, the Fourth Industrial Revolution could serve as a formidable accelerator of social and economic inclusion, particularly for the developing world. Recently the World Economic Forum identified five innovations which have the potential to impact the lives of smallholder farmers positively:
Improved access to electricity to increase efficiency and reduce food loss
Electricity is hardly an innovation, but there are still many people – almost two-thirds of sub-Saharan Africa, for example – who lack access. Even where energy infrastructure exists, the cost can often be a barrier. Access to affordable, reliable, and sustainable energy enables smallholders to improve efficiencies in land preparation, planting, irrigation, and harvesting. It also allows using specific methods for storing, cooling, and preserving goods. The ability of smallholder farmers to participate in global food systems depends on their access to electricity.
Increased internet connectivity to access information and knowledge to improve productivity on their farms
For many of us, the internet is a fundamental part of everyday life. However, over 4 billion people – more than 55 percent of the world’s population – remain unconnected to the web.
The vast majority of smallholder farmers live in remote areas, where good, fast internet connectivity reaches less than 30 percent of the population. Women constitute almost half of the agricultural labor force in developing countries, yet they are less likely to access the internet than men in the same communities.
If this “digital divide” were closed, smallholder farmers could access information and knowledge related to weather, rainfall, or market demand, allowing them to grow and harvest food more efficiently. Timing has increasingly become a key source of competitiveness, and access to real-time information is crucial. To be genuinely transformational, internet access must be reliable, affordable, and secure.
Mobile devices and platforms connect smallholder farmers to markets
Connectivity is not only about access to information – it is also about access to services. For example, mobile banking can give smallholder farmers access to formal financial services such as banking and loans, which they all too often lack. Take the example of Trringo: this smartphone app is being hailed as the Uber for tractors thanks to how it has disrupted India’s farm equipment renting process.
Investing in a mobile phone as an agricultural tool has perhaps become the single most strategic decision by a smallholder farmer, and we need to make sure we are doing everything we can to facilitate such smart investments.
Unique identifiers improve data about farmers, for farmers
Unique identifiers are commonly used in the developed world. When you log on to Amazon or Netflix, the site knows who you are and makes personalized recommendations based on what you have purchased or viewed before. However, data about smallholder farmers in developing economies are primarily based on samples and extrapolations and is thus unreliable or incomplete.
With unique identifiers, businesses could offer tailored services, policy-makers could make more informed decisions, and knowledge institutions could make better assessments of farmers’ circumstances.
For example, the eWallet system in Nigeria has allowed the government to identify and deliver input subsidies directly to farmers based on personal and biometric information provided by smallholder farmers. As with all innovations, this technology is not a silver bullet. For unique identifiers to improve farmers’ lives, data systems must be able to guarantee that data remains anonymous for the privacy and security of individuals.
Geospatial analysis to help farmers make informed decisions
Geospatial technologies can help both policy-makers, and individual farmers assess, monitor, and plan the use of their natural resources. If smallholder farmers had access to foundational technologies – like electricity, the internet, and mobile phones – then they too could use geospatial analysis to make decisions about the management of their farms and other assets. In this realm, FAO and Google are partnering to make geospatial tracking and mapping products more accessible.
If geospatial technologies were easy to download and use, a smallholder in Colombia could discover the distance to the nearest river, or a farmer in Malawi could use sensors to more efficiently manage their farm.
Some of the technologies we have discussed here are hardly new, so it might seem odd to see them on a list of innovations that could transform the lives of smallholders. However, for these farmers, access and adoption of technology are not automatic.
It is, therefore, our duty to ensure smallholder farmers are not left behind in the Fourth Industrial Revolution. A robust digital infrastructure is crucial for smallholders to access and create tools that empower them to make decisions about their farms and businesses. As innovation evolves, let us continue to question how the benefits of technology are being shared and how these benefits can nurture the smallholder farmers who feed the world.
United Nations Millennium Development Goals
There is broad global support for addressing extreme poverty because of its implications in regards to global and local economics, environmental protection, geopolitical stability of governments, and humanitarian efforts. In 2002, the United Nations created the Millennium Development Goals (MDGs) to reduce extreme poverty in half by 2015 proactively. The MDGs are broken down into eight smaller goals, each with a specific target or mission to accomplish.
- Goal 1: Eradicate Extreme Poverty and Hunger
- Goal 2: Achieve Universal Primary Education
- Goal 3: Promote Gender Equality and Empower Women
- Goal 4: Reduce Child Mortality
- Goal 5: Improve Maternal Health
- Goal 6: Combat HIV/AIDS, Malaria, and Other Diseases
- Goal 7: Ensure Environmental Sustainability
- Goal 8: Global Partnership for Development
The following is the TED Talk abstract for Bono’s TED Talk on global poverty. “Human beings have been campaigning against inequality and poverty for 3,000 years, but this journey is accelerating. Bono ’embraces his inner nerd’ and shares inspiring data that shows the end of poverty is in sight … if we can harness the momentum. Bono, the lead singer of U2, uses his celebrity to fight for social justice worldwide: to end hunger, poverty, and disease, especially in Africa. His nonprofit ONE raises awareness via media, policy, and calls to action.” Some may ask, why Bono? He is just a millionaire “rock star” who does not know a thing about poverty issues. It turns out that Bono is extremely active in humanitarian issues and one of the most significant philanthropists in the world. He started the ONE Campaign to help inform, educate, and advocate about extreme poverty. He has also studied under one of the economic leaders on global poverty, Dr. Jeffrey Sachs, the Director of the Earth Institute at Columbia University and one of the original leaders of the MDGs.
Sustainable Development Goals
The ideas behind sustainable development can be traced back to early works of scholars such as Rachel Carson’s Silent Spring (1962), Garret Hardin’s Tragedy of the Commons (1968), and Paul Ehrlich’s Population Bomb (1971). Despite different focuses of these classic works related to population and environment, all raised public concerns over environmental problems from human activities and highlighted the importance of systems thinking.
Some tremendous efforts and notable achievements have been made towards sustainable development, but human civilization is currently unsustainable. The basic idea of unsustainable development is that there are some lifestyles and human activities we are doing today that are not sustainable long-term. Much of our development depends on natural resources that either cannot be replaced or that are not being replaced as fast as we are depleting them. Some major examples are:
- Fossil fuels (oil, coal, and natural gas) used for energy
- Freshwater supplies used for irrigation and drinking
- Minerals used for manufacturing
- Trees used for construction and fuel
- Fish used for food
Each of these resources is becoming increasingly scarce. We cannot continue using them as we do today. Either we will need to shift away from them on our own, or shortages will force us to change our ways.
There are other reasons why some aspects of contemporary development may be considered unsustainable. Development is changing the global climate system and affecting biodiversity in ways that could have very perilous consequences. We will learn about these topics towards the end of the course, but, for now, just note that if we try to continue with development as we have been, then the ensuing changes to climate and biodiversity could eventually prevent us from maintaining our state of development. Finally, as we saw on the previous page, development even today is not necessarily something to be desired. On the other hand, development involves much of what is important to us and thus is not something we can easily walk away from. Achieving development that is both desirable and sustainable is an important goal for our lives and our society.