Table of contents
- Globalisation
- NIC’s
- The impact of new markets and technologies
- Social and Economic groupings
- TNC’s
- Development
- Issues facing countries at low levels of economic development
- Development continuum
- Development Issues
- Trade v aid
- Economic v environmental sustainability
- Sustainable tourism
- Case study: South Korea
Globalisation
- What is it
Globalisation is the process by which ‘everything’ is becoming more integrated and generalised as a result of the increased prevalence of trade, movement of people and integration of political systems in society.
- What drives it
Globalisation is driven by numerous factors such as social and economic grouping which increase the integration economically, culturally and socially of countries by eliminating barriers to trade and movement of people. As well as developing transport links to enable this movement, such as 75,200km of road and 78000km of rail network which has been built by 2010 in the EU as well as the cross channel tunnel. Multiculturalism is rising, especially within the UK and 8% of British people now identify themselves as ‘European’. The WTO (world trade organisation) also increases the potential for globalisation as a development of GATT (General agreement on tariffs and trade) it has changed with the development of technology to include protection of not only goods and services, but intellectual property and designs creating a new market available for trade. It also acts as a lobbying body preventing powerful cartels form emerging and can be seen to ‘liberalise’ trade leading to further expansion worldwide and integration.
New markets also drive globalisation as they give companies an opportunity to expand into cheaper markets and to grow. Evident in the ‘Asian Tiger’ economies and further development of second and third generation NICs (newly industrialised countries). They arguably create the incentives that invite TNCs to locate within their markets, for example China has 5 special economic zones, 15 ‘open cities’ and 30+ special industrial development areas with particular tax incentives of reduced rents and fast processing of permits. This creates a multiplier effect of more TNCs moving to these markets to take advantage and also to supply other TNCs and industry developing such as the car industry which requires many suppliers for its vast components industry. China also has a vast market potential with a growing middle class the average Chinese salary is $1000 and rising it is currently the fastest growing motor car market in the world. So much so that despite costs being more expensive in China manufacturers such as Honda and Nissan still choose to locate here because of this reason.
TNCs or transnational companies can be seen to ‘drive’ globalisation as they create the ‘bridge’ between manufacturing base and market output. They arguably create the flow of capital connecting countries and also contribute to ‘westernisation’ as seen through brand association with Coca Cola and McDonalds, which some believe to be a symbol of western imperialism spreading throughout the world.
Other driving factors are technology itself as there are no physical barriers to trade and products can be bought and sold in seconds, people can connect with on-and-other from opposite sides of the world. [French film quote- it is impossible to ban American films in France when they can be watched over the internet]
- Impacts
Global, national, local/social, economic, environmental
Impacts of globalisation come in many forms the most obvious being to the economy as well as environmental. Industry in general of any form requires natural resources at its base the largest income-generation activity, carried out by the largest of transnational’s as a result lies in exploitation of these resources including oil extraction and extraction of natural materials of metal ores and deforestation for timber. This has an impact of ecosystems at a fast scale as many of the world’s most needed natural resources are located in the most fragile ecosystems such as the Amazon rainforest where there is the 3rd largest iron ore mine. On a more general scale global warming is a result of industrialisation and growing to a global scale as globalisation has taken place.
The manufacture and processing of these materials by secondary industry also requires energy from fossil fuels which are running out, Brazil is an example of the development of new technology in the form of HEP in order to fuel this. However, there are many negative impacts to this on a local. Furthermore exponential growth in industrial activity in recent years will only fuel these needs and worsen their impact e.g. China uses 70% fossil fuels and has become a net importer of oil (it was a net exporter 10 years ago).
Globalisation has however, allowed for the vast expansion of economic output, rise in GDP and overall development which has benefited for example NICs seen though the growth in China and India economy and the increase in development of their middle class sector as a result of high spending power in the purchase of consumer goods, In Brazil growth has resulted in poverty falling by half of its 192 million population to one quarter.
However, through this the most vulnerable in Brazil’s society have not benefited and its remains one of the most polarised societies. In China there is now a definite geographical divide between the developed coastal region of eastern China and the rural west as well as energy distribution issues between the north and south. Some regions such as Sichuan have barely been touched by Chinas ‘economic boom’ and suffer greatly due to lack of infrastructure for example following the 7.0 magnitude earthquake in Ya’an China on the 14th of April 2013. Many links used to transport rescue equipment were blocked by landslides caused by heavy rain and flooding and much aid had to be delivered on foot as a result.
There is a polarisation created between those who can globalise/ globalise at a faster rate and those who can't, as well as exploitation of developing nations to achieve this.
There is an Increase in the dependency of economies on each other e.g. if china’s economy crashes the world’s economy would crash as well, illustrated by the Asian economic crisis of 1997 caused somewhat by over-rapid development of the Asian tigers which led to a worldwide recession. This also puts firms at risk e.g. 2011 Japan tsunami HP lost $700 million as couldn’t produce products as parts sourced from Japan.
The risks posed to global supply chains of TNCs and GPN (global production networks) are also a result of globalisation as they have grown along with it. For example The American TNC Chrysler faced production issues following the 2011 Japanese tsunami as the red and black pigments for their cars was not available (manufactured in Japan), other issues similar to this caused many US and transnational globally to re-assess their GPNs and many US TNCs stated they would switch back to domestic suppliers as a result. Japan manufactured 70% of the world silicon chips and 40% of the world flash drive memory cards for phones and other devices, HP saw a $700 million loss as a result of not being able to manufacture its products. This event also had positive impacts for the TNC Hyundai, as Japanese high tech manufacturing temporarily shut down including car manufacturing. As a result Hyundai saw a 30% rise in sales as it took advantage of the temporary gap in the market.
- [Inter-connectedness quote]
- Examples
That increase globalisation include social and economic groupings of nations, they eliminate trade barriers and increase accessibility physically with other members, leading to increased trade and revenue. They also can be seen to increase globalisation through competition between itself e.g. the EU as its single market with high tariffs on imports deters outside trading leading to ‘outsiders’ forming alliances of their own such as new emerging economies of the BRICS may well do to challenge their power. In this way they can be seen as a catalyst for growth of other economies.
They can also be seen to decrease globalisation by reducing the necessity to trade outside of the grouping decreasing integration. It can be seen through the increase in GDP through the development of NAFTA and other such free trade areas, of which NAFTA is the largest in the world.
The generalisation as a result of globalisation can be seen when looking as the EU in the creation of a single market and introduction of the Euro over a vast area of previously separate national identities.
Globalisation can be seen through the integration of culture as we live in a much more multicultural society, thanks to the enabled movement of people through transport and technology another possible result of social and economic grouping but also as we embark on better transport through aviation and cross nation rail and road networks. Many Europeans are dropping their national identity for a ‘European’ one – 8% of Britain’s identify as this.
As well as ‘westernisation’ as culture becomes similar world over, for example Coca Cola is a worldwide brand viewed by some to be a symbol of US imperialism spreading throughout the world as well as McDonalds.
Economic, cultural
NICs
Impact of NICs on global economy
- Asian Tigers – Were the first generation of NICs they followed an export driven model of development by focusing on developing their manufacturing industry which was criticised. They include the economies of Taiwan, South Korea, Hong Kong and Singapore.
- Their growth was a result or common factors within each such as a high ethnic Chinese population which was very ‘business orientated’ Hong Kong 98%, Taiwan 75%, Singapore 85%. They has fairly authoritarian governmental systems allowing the government to drive plans though easily they were also favourable locations for TNCs during their formative years. The government focused on education making primary and secondary education compulsory and heavily invested in universities to allow foreign universities accessible to them creating an educated work force. The government also implemented security of land ownership to farm owners and job security though a ‘family’ like unit. Farmers were also encouraged to invest and expand and enabled the freeing up of rural workers for further industrialisation. Purchase of consumer goods was discouraged as the traditional import substitution model was still enforced encouraging high savings rates and investment.
- The impacts of this have been that many western transnational felt the need to compete with the competitive prices and as a result moved to markets where labour was cheaper in this respect they initially found export trade difficult (more so now with China being the new ‘workshop of the world’ competition is fierce).
-All 4 ‘Tigers’ reached a developed status by any standards during the late 90’s as growth rates began to fall from double figures which has been maintained for years to averaging 8%. World GDP ranking were Hong Kong 22nd, South Korea 27th, Taiwan 32nd and Singapore 44th. The rapid development however, did not come without consequences as they had developed too fast, housing prices and stock became over-valued and somewhat contributed to the Asian economic crises caused by the stock market crash this in fold contributed to the global financial crisis in 1997. As development slowed living standards rose and cheap abundant labour was reduced as wages rose - -- TNC’s found other more comparative markets Mattel for example originally located its toy manufacturing in Taiwan from Japan in 1959 however by 1968 it had relocated again to Chinas arguably the most competitive market in terms of cheap labour today.
China
Growth: China is the new ‘workshop of the world’ and a 3rd generation NIC. Its growth is a result of massive manufacturing investment and as a result has the largest number employed in both its secondary and tertiary sector in the world (not surprising given its 1 billion population+). Governmental social reforms of the 70’s and liberalisation of industry in the early 90’s opened China up to foreign investors and it became a valuable location for TNC’s due to its large labour force (costs 1/10th of Japan) especially skilled nearer to the coast due to the vast investment here and high productivity, as well as growing market potential as the average Chinese earns over $1000 annually (allot in China) and growing. Car manufacturers choose to locate here for this reason despite costs in the US being cheaper and now 1/10 Chinese owns a car compared with ½ Americans.
Asia is the best example that exists today of the ‘filter down theory’ as it can be seen to have highly developed nations such as Japan, first generation NICs second generation NICs which include Malaysia, the Philippines and Indonesia as well as 3rd generation NICs and the current ‘economic powerhouses’ of the global economy China and India.
Key industries in China have focused on development of important sectors of the economy such as consumer goods chemical productions and petroleum. China is now the number one exporter of nitrogen based fertilisers in the world. The motor car industry is another ‘key development industry’ as it has the potential to draw many TNCs to China to supply components (components based industry). Exporters grew from 150,000 in 1975 to 9 million+ in 2007, with revenues increasing along with growth. Many partnerships have been made with foreign companies which help to boost domestic industry such as Hyundai which has taken a majority share in a factory in southern China for export, and Nissan which released its first ‘China car’ in 2003. China relies heavily on the research and development of these transnational’s therefore domestic partnerships is all the more important.
Along with investment in specific industries there has developed regional concentrations of development zones such as the special economic nuclei at Zonguncan north east of Beijing. Here TNC giant such as Nokia, IMB and Motorola are based as well as large Chinese companies such as SIAC. There were 23000 Japanese companies located in China in 2003 the number of which has inevitably risen since. As well as 5 special economic zones there exist 15 open cities and 32 centres for regional development predominantly in the eastern coastal areas however some have branched into the central west. With government incentives.
Along with this development comes the need to for improved infrastructure and resources. Between 1995 and 2002 the amount of expressway in China has increased from 3000km to 20000km (and larger now), a new link from Beijing to Shanghai was constructed in the same year cutting journey time from 20 to 12 hours.
China is a huge user of natural resources in the 1990’s it was an exporter of oil and now looks to be a net importer on both oil and coal to fuel 70% of its manufacturing industry (majority of the rest is fuelled by Hep).
As a result of this in 2003 China became the world largest receiver of FDI taking over the USA at 52.3 billion dollars (2002), growth rates have also remained strong at around 9% and previously up to double figures in the 90’s. Chinas economy has also expanded 9 fold over the past 25 years and indicator of the exponential growth of the country.
Economic potential and GDP increase, 2002 accounted for <5% of global trade but ¼ of trade expansion.
5th largest global trader (higher now) and took over USA and Japan in exports to each other.
China manufactures 50% world shoes, 55% world’s computers and 60 worlds’ bicycles.
Chinas position in world trade was signified when in 2001 it was granted membership to the WTO, as a result tariffs on imported cars dropped to around 25%
By 2006 $63illion in investments had been received – the highest of any LEDC.
2 Goldman Sachs economists predict that the BRIC economies will overtake those of the G8 by 240 and be equal with them by 2025.
Impact
Chinas exponential growth has not come without consequences for example it has vastly increased global competition making it hard for western markets to export goods without locating their labour in cheap markets to make costs effective (23000 Japanese TNCs in China, Matsushita has invested $558 million in 3 joint ventures in China, received $63 billion in investment total largest of any LEDC)) However for poorer nations the cheaper exports benefit as they can afford to invest in cheaper products such as machinery to undergo industrialisation such as mechanisation of farming. The demand for raw materials from NICs in general including China creates a market for poor producers enabling them to increase their exports to foreign markets, and their economy to expand as a result. However it has caused negative effects as for example many US and Mexican TNCs located in Mexico have moved to China in search of cheaper labour. This has caused a decline in GDP and investment in Mexico with workers particularly the secondary industry becoming jobless. Therefore Chinas growth has allowed poor consumers to benefit but had negative impacts on those employed in teh secondary industry. - Drives globalisation.
China’s growth also requires vast amounts of resources and energy. In 2003 it used 55% of the world cement and relies heavily on fossil fuels to supply 70% of its manufacturing industry. As a result it has created an imbalance in energy distribution throughout the country. The north east for example has more natural resources at its disposal but much less industrial activity compared to teh south east of teh country. There is also a water shortage in teh south which is combated by the construction of teh world largest water transport system which transports water solely by decreasing the gradient of the immense concrete pipes that carry it. World’s 2nd largest consumer of copper and steel after the USA.2003 the supply f electricity was 5% slower than demand – electricity shortages in teh south. Increased pollution from traffic with investment in infrastructure and improved personal mobility.
The concentration of industry in the coastal regions, particularly the south east has created a development gap. Almost 90% of Chinas exports travel though it sea ports and as a result some areas have received very little as a result of Chinas ‘economic boom’ such as Sichuan which was devastated by an earthquake in 2008 in the Ya’an region. China still has a vast rural population who have comparatively less than those in the cities which is why it is still classified as an LEDC.
However Chinas growth has increased the power it hold in the global economy, as many TNCs are based in China say if Chinas market were to crash the markets of western countries would undoubtedly suffer alongside it. China (as well as other NICs such as India) have challenged the power they hold in the negotiating rounds of teh WTO and have lobbied for better voting rights.
Barrier to development
Population growth not set to decline till 2040 despite one child policy (comparison to India’s large young population, as well s energy issues and future emergence of new markets.
India growth:
India’s growth has been the result of massive investment in its tertiary industry sector and growing quaternary sector. Its investment sector although 8 times smaller than China contributes to mainly its service sector in comparison with China which has many sectors of development. India has focused on services including outsourcing and off shoring (carrying out a service business function in a country other than where it is produced). This includes call centres and financial services which for example is used by American express and British airways as well as Royal and Sun alliance which moved call centre jobs to India in 2004.
India has many beneficial factors which draw TNCs to its shores such as a stable democratic governmental system for 50 years, investment friendly government policies, the world’s 3rd largest English speaking human resource and 2nd largest ‘brain bank as well as a growing market potential shown by the increase in purchase of consumer goods in recent years. Unlike China its population still hold potential a large sector of it demographic is young people.
Bangalore is India’s technology nuclei and a centre for off shoring and outsourcing services. Bangalore technology park is 140000km^2 with a further 6 in the larger surrounding area. It has the most advanced telecommunication infrastructure in the world.
Similar to Chinas India’s power is growing, any TNC wishing to locate must form a joint venture with a local Indian company such as McDonalds which partnered with local restaurant chain in northern India producing an Indian burger which catered for teh local market – glocalisation. India has also demanded that western countries take a fair share of responsibilities regarding climate change.
Impacts:
The movement of finical services overseas has seen a loss in jobs in services and manufacturing for which India is also known. This has caused a loss of jobs in western nationals and well as more recently the location of research and development in India whose quaternary sector is growing, although this may not impact MEDCs till much further down the line as many companies choose to locate in MEDCs because of the security they offer.
Impacts of NICs -/+
The Asian tigers were the first catalyst to competition and arguably an initial driving force of globalisation. These increased competition with western TNCs and made it harder for these markets to export goods. As a result many had located manufacturing in lower wage economies such as the Asian tigers accelerating their growth. However the tigers developed too fast and by the 90’s stock and housing became over valued and their growth caused the Asian financial crisis of 1997, which had implants worldwide.
China – economic, social, environmental
India – Dominate service sector
Brazil – Environmental and social
Impacts of NICs on the Global economy
New markets
Drive globalisation
(-) Asian financial crisis 1997
BRICs projected growth against the G8
China benefits poor consumers and producers but negatives to poor workers.
Growth in power –WTO, enviro demands
Drive globalisation
Catalyst for competition – filter down theory
Export orientated market – China car (components industry)
India – services
Economic, social and environmental impacts of NICs
- Economy:
Drives globalisation (TNC location competition leading to...)
Transfers of capital (increase in GDP – glocalisation India)
Investment
Development of high tech nuclei and industry (China, India, Brazil)
Power (China India WTO negotiation and reliance on economy)
- Environment:
Exploitation of resources (Brazil HEP and Agribusiness, China)
Creating a market for LEDCs to exploit their natural resources to supply growth of NICs
- Social
Improved quality of life though rise in purchasing power (China and India)
Development gap (China)
Polarisation of wealth and quality of life both intra and inter nations respectively (China, Brazil)
Job loss (other markets e.g. Mexico)
Impact of new markets and technologies
Brazil is a third generation NIC and one of the BRICS (economies of Brazil, Russia, India China and more recently South Africa). It has been predicted by two Goldman Sachs analysts that teh BRICs will overtake teh G8 in GDP by 2040 and be level with them in 2025. It has a huge wealth of natural resources – the world largest fresh water supplies and as well as mineral and hydrocarbon wealth and huge potential in HEP development. There is a saying in Brazil “- Brazil is the country of the future, and always will be”. From 1995-2007 Brazils growth was only 2.9%, compared with other 3rd generation NICs such as China and India which have done much better. From 2004 to 2008 those living in poverty (half of Brazils 192 million population) fell by half however the poorest have not benefited and Brazil remains one of the world most polarised societies. In order to tackle the social inequalities that exist in Brazil’s society, and assist with development Brazil has created new technologies and created new markets.
It has invested heavily in developing HEP of which it has huge potential, and which fuels 40% of its industry. It also uses much more renewable energy that other BRIC economies due to a lack of its own resources. However this sets the country in a good position for future development as fossil fuels become in short supply.
The development of the Belo Monte dam however has not come without consequences. Plane for the Amazon region is was completed in 2010 it is the 3rd largest of its scheme in the world. It is able to generate 11000mv (2nd largest) of electricity powering 23000 homes (1st is the HEP scheme on the river Parana a joint venture of Brazil and Paraguay).However the scheme attracted international attention and caused conflict with environmentalists dues to it location in a fragile ecosystem. The dam is not as environmentally friend as first seems as it traps vast amounts of rotting plant matter in the reservoir behind, which releases methane gas (23 times the heat trapping capacity of c02). As well as this local communities suffer as teh scheme destroys local habitat and disrupts river flow downstream. There is also the issue of providing renewable energy on such a large scale and whether or not it will really benefit Brazil’s society long term. However even taking into account the environmental impacts Brazils HEP potential currently developed s only 1/3 of what it could be, leaving more room in the market for the future.
Another suggested way forward is agriculture. Brazil is the world’s number one exporter of orange juice, coffee, beef, ethanol, sugar cane and tobacco. It has stated it achieved this through efficiency grains and opening up land for farming (leading t destruction of vast amounts of rainforest). Agribusiness focused in the Baha region of eastern Brazil is a centre for agriculture development. Farmers use the latest technologies such as mechanised combine harvesters accurate to the nearest 3cm, and farms that are vast in size (100’s km across) this has resulted in grain productivity per hectare doubling since 1990. This scheme has also been beneficial to locals as farmers receive appropriate wages, training and education as well as conservation laws are being upheld by developers and investors. On the other hand this development has but enormous pressure on the Western Baha region due to intensive agriculture.
Brazil has also become self sufficient in oil due to discovering new oil fields off the coast near San Jose. However there are potentially devastating environmental impacts as there is a large layer of absorbent salt between the oil and sea bed, which could lead to a similar disaster seen in the BP oil disaster in 2010.
Issues facing countries at low levels of development
- Issues example: Ethiopia, Guyana, Zaire
- Countries at low levels of economic development face many problems on the road to development which prevent economic growth. For example Ethiopia is a country whose development has been hindered by numerous factors which are common to many developing countries.
- Population growth is at the core of most of its issues, it has a growth rate of 200 million people per year and its population is estimated to reach 200 million in 10 years. There have been attempts to reduce this through a population policy implemented in the late 1990’s however this has been unsuccessful due to lack of resources. Other ways have included increase family planning, reduce harmful traditional practices such as early marriage and increase the number of women in education. Currently % of women are estimated to be illiterate, 16% with some primary education and 45% with secondary education. This s important as educated women is more likely to out off having children at a young age and would also contribute to the country’s economy. However, this method would not be effective until the population reaches critical levels. Population distribution.
- Another factor is the economy; Ethiopia’s economy is open market agriculture which makes it vulnerable to the climate and to being undercut by MEDCs. The country could effectively trade its way out of poverty if it were simply allowed to however falling global prices on coffee and high import tariff to MEDCs saw a loss of $900 million from1999-2005, despite the industry being the 3rd largest in Africa. Ethiopia also has a wealth of natural resources such as sugar cane and cotton however; there is again the same issue of barred trade.
- (Agriculture) Its primary industry is vulnerable as a source of economic gain as 90% of it is watered by nature, despite large scale developments in water irrigation. 80% of the country’s workforce is employed in its primary sector which accounts for 45% of revenues.
- Education is another issue as it is key in building a skilled workforce. There were improvements between 1997 and 2009 the percentage of children in education rose from 27% to over 90%. However distribution of secondary schools is not correlated with population and although university enrolment increased from 3000-32000 between the same time these are also concentrated within a small area.
- Lastly an issue which is similar in many developing countries is that of debt. Ethiopia owes $10 billion in debt from aid grants and development assistance however; this is 13 times its revenues from foreign exports. It also spends 4 times as much paying off this debt than is spent on services in its own country such as health and d education. The situation is similar for other countries such as Guyana, which the IMF pressured into selling off its natural resources to pay off loans, putting the country in a precarious position in terms of future development. When it struggled to repay the interest on the loans (which is all that was required) the IMF pressured the country to borrow more in order to do this leaving it with an even larger sum to pay off. This has devastating effects on the countries services as teachers and doctors were vastly underpaid. As a result many emigrated and left the country with less than 250 qualified doctors and many school being taught by untrained teachers. As a result 45% of the country’s spending goes on debt repayment compared to 15% on national services.
Other issues that are shared by many include conflict such as that between north and south Sudan, and corruption. In Zaire, president Mobutu is reported to have a fortune of up to $5 billion, most of which has been siphoned off of world bank loans designated for teh social economic development of the country.
- Why these issues exist - (why development continuum exists)
- Measuring development
- Development can be measured in many ways and in different terms such as economic, social or political. One of the most recent measures of development is the ‘big Mac’ indicator, which is essentially how many hours it takes for someone to afford a big Mac.
- The most common indicator is GDP if this is high it can indicator a large amount of production industries and a well developed service industry as would be true for countries such as the UK and USA and also NICs including China and India, China for example has the largest no employed in the secondary and tertiary sector (and a large population) therefore large GDP. In comparison with for example Ethiopia which has 85% employed in its primary industry sector mainly agriculture. Therefore, it is a good indicator of the productivity of an economy and is also easy to rank. However this doesn’t account for informal activities within the economy and also doesn’t show the distribution of wealth in the country where there may be inequalities (such as China which has a vast development gap between the urbanised east and rural west).
- Another indicator is that of infant mortality and death rate. These are useful in showing the level of healthcare, provision of food, sanitation etc. This is an easy indicator to understand how it can be very difficult to get accurate results from e.g. LEDCs where numbers aren’t reported or noted. It also gives to indication to the cause of death which could be a result of a pandemic or natural disaster.
- HSI human suffering index and HDI are also useful indicators as HSI focuses on 10 factors including daily calorie intake and civil rights and marks out of 10 (10 being bad). HDI has less factors and measures wealth, health and education these are again easy to understand and rank and give a more proportionate view of the state of the whole country, taking into account each sector.
S/E groupings
- Reasons for growth/Role
- Economic growth
- Promote peace
- Promote development
- Regulatory bodies
- Impacts
- Globalisation – EU it could be argued that the EU reduced globalisation as countries within the grouping are more likely to trade with each other than venture out of the grouping – decreasing integration with outside economies. However on the other hand it could e argued that its integration with EU neighbours within the grouping is an increase in globalisation, both in terms of economic integration and generalisation of services and language. English is widely taught as a second language and people are dropping their national identity for ‘EUROPEAN’ one (8% of Up). Although this could lead to a loss of culture. WTO
- Economy –EU (Integration, CAP and development).
- NAFTA – North American free trade agreement is the largest free trade area in teh world. It is made up of teh economies of Mexico, the US and Canada. Estimates are that the grouping increases Us GDP by as much as 5% per year (as well as other members).In 1993 exports from the US to Canada and Mexico grew by $142 billion due to increased opportunities in trade.
- NAFTA policies provided the ability for forms to vote on governmental policies resulting in increased farm exports as high Mexican tariffs were eliminated. The percentage of US agricultural exports to Canada and Mexico has grown for 22% to 30% in 2007, and Mexico is the top export destination for apples, soybean, and corn sweeteners.
- NAFTA eliminated trade barriers in many service sectors important as it has a surplus of services. As well as reducing the reliance on foreign oil reducing costs by sourcing within the grouping.
- US FDI in Canada more than tripled to $348 and Mexican FDI grew by $219 million – reduced risk as foreign investors have the same rights as domestic investors.
- Development –EU (development EU), WB,IMF,UN
- Power- EU – The EU holds a vast amount of power in the scale of global trade, however many nations with in teh grouping are superior leading to an imbalance of power and teh creating of #majority voting’ after the reform treaty – treaty of Lisbon was created in 2007. It also requires a ‘double majority’ whereby more powerful nations have to agree on a policy before it can be implemented.
- The European central bank also gained oficial status as an EU institution suggesting the eventual switch to a central European bank leading to the loss of financial control (bail outs). However a referendum on whether teh EU should have a European priminister was rejected in 2007, therefore a decentralised government although possible will not taka e affect anytime soon. This would have repercussions as it would cause the loss of sovereign and culture.
- There are also disagreements within the EU as to teh control of power, the Euro is used in all but two nations (teh Uk and Denmark) which to some extent could suggest a alternate motive or interest which are not for the sole befit o the EU- exemplified by the threat of the UK leaving the Euro zone earlier this year.
- WTO and IMF – power over developing countries (Guyana example and Ethiopia), G8 – 8 of the most powerful nations.
- Polarisation –EU (areas that are not in teh grouping),IMF (Guyana, Ethiopia)
- Environment- EU (Environment)
- Promote peace -EU,UN
- Disagreements –EU (Euro not used by all manners, voting rights – double majority and majority voting treaty of Lisbon, European central bank official EU status, European priminister)
Example: (EU, NAFTA, ASEAN, IMF, WB, G8)
EU (developed for the European Economic Community and European steel and coal community in 1993)
- Integration – The EU has helped to integrate the economies of other member nations by creation of a single market. This enables the economy to develop as it implies the free circulation of goods (no tariffs or quotas) and movement of people to fill labour shortages (such as in Germany in the 90’s). This has been aided by the introduction of the Euro in January 1999 which has eased the transition of new member states when they joined and eliminated the hassle of exchange rates. The Euro is also a political symbol of integration used in all but two of its member states, new members are also bound to implement it once their economy reaches the standard required. A common tariff on external trade means members are more likely to trade with each other than century outside the grouping.
- Infrastructure- The development of infrastructure has also aided integration as it links the main central ‘hub’ of the key members of the UK, France and Germany to it eastern EU neighbours in particular. The European Trans rail network covers 75000km and road network 78000km as well as projects such as the cross channel tunnel.
- Development – The grouping has helped the development of nations both within its grouping and outside. Trade is enhanced by the development the grouping brings to its new member states. Poland for example has benefited from a move toward equalising development through infrastructure. The EU has helped Poland conform to EU standards, it has benefited by moving towards a market-orientated economy as previously was a state controlled. The EU development fund EUDF also allocated aid to less developing countries in 2007 it donated 10 billion Euros of aid.
- Agriculture – The EU has also worked towards ensuring for security in Europe through the development of the common agricultural policy (one of its original aims). It worked towards increase production whilst ensuring customers a reasonable prices as well as farmers a fair share. However this was taken too far with x=vast over production creating the so-called ‘grain mountains’ and ‘wine lakes’ although this is not set to change following the 07-08 surge in food prices.
- Environment – The EU has also taken steps towards protecting the environment by reducing the harmful practices encouraged by CAP such as over cultivation and use of harsh chemical fertilisers. The is also an environment policy which addresses issues such as acid rain and, ozone thinning, pollution and water pollution.
Group aims were met in 2007 when all me ambers agreed to reduce their carbon emmisions 20% compared to 1990 – levels (criticism from respected scientists). There has also been success in forestry expansion which has inceased10% in the west and 15% in the east, absorbing 126 million tonnes of c02 –11% of that produced by human activities by the EU.
NAFTA
- Economy
IMF
- Guyana
Development continuum/ N-S divide
- Concept
The development continuum is the more recent description of the differences in development of countries around the globe. Previously known as the north south divide it has become outdated as patterns of development no longer fit this model. This is especially indicated by the growth of NICs or newly industrialised countries in teh past 25 years. Which have developed as a result of the ‘filter down’ industry from MEDW through the Asian tigers, second generation NIC and the third generation of NICs including China and India. The development continuum is more appropriate term as recently these NICs have threatened the power of the MEDW for economic and political power indicated by the demand for greater voting rights at negotiating rounds of the WTO and a fair share of responsibilities taken for emissions resulting in climate change (India). The BRIC nations have also been predicted to overtake the economies of the G8 by 2040 and be level with them in 2025 in terms of GDP (2 Goldman Sachs analysts). Many countries also show development in vastly different ways for example GDP is not the only measure of development as there also exists cultural and political development.
- Reasons for it
- The development continuum exists for many reasons one of the main being the need for a polarity between the MEDW and LEDW for use of primary industries for resources and the need for economies to be in a hierarchy.
- Social and economic grouping of nations can be partly to blame as they arguably reduce outside trading with other nations by creating a single market ~(EU) or vastly superior free trade areas (NAFTA) which reduce the need for outside trade. These also undercut producers in the developing world by putting tariffs on imports such as the US on their steel industry and for example the Common Agricultural policy where vast amounts of over production were caused due to food security worries. Ethiopia as another example could effectively trade its way out of poverty, however due to tariffs on imports to teh MEDW and falling world prices is still owes a debt of $10 billion from aid loans which is 13 times higher than its revenues from foreign exports.
- Regulatory bodies including the WTO and G8 are often dominated by MEDCs. One of teh roles of the G8 is to promote growth the less developed countries; however it does not represent a single developing country within the group.
- Trade itself is also dominated my MEDCs which account for 75% of trade and 80% of manufactured exports.
- As well as this the increase in technology and therefore productivity is no longer attributed to the increase in wages. For example Chinas development in recent years has resulted in a heavily industrials secondary sector with particularly high productivity of labour in the coastal areas where industry is situated. Although there has been a rise in wealth as a result of industrialisation wages throughout the country are comparatively low compared with equally developed industries in western markets of the UK and US.
- Debt leading to aid dependency and inability to develop
TNCs
Reasons for growth (relocate to become TNCs)
Growth follows rate of globalisation. Why many NIC emerged recently. TNCs grow as a result of many factors these include the search for cheaper labour such as Slazenger moving its manufacturing base from Yorkshire to the Philippines and Mattel form Japan in 1959 to Taiwan and then to China in 1969 (NICs).
Locate within groupings
Search for new markets (exhausted home)
Search for resources
Search for skilled labour and a shift quaternary sector development
Economies of scale
Growth of TNCs is a result of:
Cheaper labour markets – emerging Asia and NICs keep competition high and therefore product must be produced at teh lowest price possible.
Technology – The internet has revolutionised trade as it can now be done in seconds (French quote) it has also created a new market for high tech and mini-transnational Amazon (doesn’t require vast amount of staff as it is based online)
Fill gaps in market – such as McDonalds, which is also in competition with more health conscious brands emerging,
Trade blocs – GATT to WTO created new market for trade of designs and intellectual property as well as it can be seen to liberalise trade.
Acquisition – one of India’s largest TNCs is Tata based on a series of acquisitions it has over 180 companies across 6 continents. It is teh UK’s biggest industrial employer at 45000 in the Tata steel and Jaguar land rover plant. It is a giant family owned business – like 4% of Indian economic development. It takes advantage of producing low cost goods for low income consumers – frugal innovation. Conglomerate – take over another business, it has $64 billion revenues in 2010. It aims to meet the needs of India’s lowest income earning groups and is one o the most globally minded companies in the world.
Competition
Search for resources, skilled labour, r and d location
Stages of growth of TNC
Reason for existence of TNCs
Economies of scale – many industries can only be tapped into by the largest firms e.g. the motor car industry and oil.
Knowledge and innovation – TNCs have year of accumulated knowledge needed to run certain industries which a small company would not possess.
Branding and marketing – many TNCs such as Coca Cola rely heavily on branding which causes a company to become global overnight.
Market and political power some TNCs exploit markets in individual nations to gain political and market power.
Spatial organisation
- Most operate in medcs where shareholders and headquarters are, their organisation is hierarchical in this way. However many TNCs are choosing to locate in countries where for example the quaternary sector is rowing such as India, or where there is a growing market potential such as China, India and Brazil (which 150 million population half ear 160000+) although the majority still locate in MEDCs where risks are lower.
- Some TNCs have two headquarters such as Cadbury which go taken over by teh American food giant Kraft in 2011. Corporation tax is pain to both the UK and US government (via a Swiss subsidiary company) however, most profit goes back to the US to Mondelez international a subsidiary company of KRAFT.
- Risk TNCs also choose to locate where risk is low such as after the Japanese earthquake in 2011 many US companies said they would be moving manufacturing industry back to the us (Chrysler ran out of black and red pigment, Hp lost $700 million)
- Other reasons include corporate identity, Brand authentication, protection and support (Canadian mining venture in Argentina 60% of company hand over), human resources (BBC senior staff) and reputational risk.
- Tesco
- Impacts: Host and home.
Global
|
Home
|
Impact
|
Host
|
Impact
|
Social
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Development gap
Exploitation
Out-compete local stores
Corruption
Loss of national identity
Development
Consumer choice
|
China
Wall mart healthcare
Wall mart (500 retail)
Tata 06 – 12 tribe died
McDonalds in India
Tata, Wall mart
Wall mart, McDonalds
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Child labour
Long working hours
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Apple
Wall Mart
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Economic
Direct government spending away
Dependency Promote world growth – China (NICs)
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Footloose capitalism
Risk
Lose local business
Producer get paid low price
Employment
Get most profit
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Mattel, Mexico
Chrysler, HP
Slazenger, India etc
Wall Mart Canada
Wall mart (4000 new jobs $314 bill investment)
Mattel
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Exploitation focus on exports not integrated to economy
Corporation tax
FDI
Multiplier effect
Catalyst for further growth
Transfer of knowledge
Employment
glocalisation
|
Mattel sales
Toward healthcare/avoid
China
Embracer
Tata
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Environmental
|
Extraction industries
Recognised need to reduce
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BP
Wall mart
|
Natural resources
|
- Examples
- Wall mart – Largest retail brand in the world turnover of $60 billion + annually.
- Tesco- stores in 12 countries outside the UK many different types of branches
- Slazenger – relocated to Philippines form Yorkshire (located England 1940-2002)
- McDonald’s global brand, joint venture with Indian company (by law) in the North – Connaught Plaza GLOCALISATION. Produced and Indian style burger to cater for the local market.
- Mattel – moved manufacturing base from Japan 1959 to Taiwan and then to China in 1969.
- Role in the global economy
Increase globalisation – integration as TNCs bridge between manufacturing base and market (Mattel sell 70% of their products back to teh US market) as well as generalisation – westernisation e.g. Coca cola symbol for Us imperialism by some extremists. Development of China brought about by huge influx of TNC (SEZ, highly developed coastal regions) as a result it is now one of the most competitive export markets, a competitor and in some cases inhibitor for other export markets, has reduced manufacturing elsewhere and now has a large dependency on it.
- GPN – Apple 3rd tier outsourcing to China poisoning.
Development Issues - Trade V Aid
(Benefits of Trade and Aid, Negatives of Trade and Aid, Examples)
What is trade v aid, types, aid criticisms (debt, corruption, inappropriate – top down Akosombo), trade criticisms (primary industry not competitive, MEDC restrict trade, other underlying issues), successes (Millennium goals met? top down Farm Africa, Bangladesh)
- Trade and aid have been suggested as ways towards achieving development however there are questions as to which is more effective and if either viable paths to development are. Aid has been given for years to developing countries in an effort to resolve social problems and improve the economy to make way for trade.
- There are different types such as bilateral, multilateral, and given by NGO, as well as different categories of aid such as long term development aid, short term aid (e.g. after a natural disaster) and ‘bottom up’ and ‘top down schemes’ .
- For the western world trade has been a key to economic development. Countries and organisations such as the UK, US, IMF and World back hold a neoliberals view that free trade is essential for economic growth, exemplified by the formation of trade blocs such as NAFTA which vastly increased the GDP of its member nations. Increased trade leads to increased GDP and promotes the multiplier effects, so effects are felt across society. Development inevitably follows as industrialisation leads to goods for export and increased wealth. It also allows LEDCs to take advantage of developed markets and eventually reduce the dependency on them.
- However, there are criticisms that aid can never achieve economic sustainability as it can create a dependency and become part of national income. It can also lead to the cycle of debt for example IMF suggested that as a way of developing Guyana should sell its natural recourses such as gold, however this put the country in a precarious position for future development. It also owed allot of debt from aid it had received which the IMF pressure to pay off with borrowing yet more loans. This led to the country using 45% of earning to pay off debt and only 15% towards services within the country. As a result there are now less than 250 trained doctors due to many migrating and school staffed by untrained teachers.
- Corruption is another issue that often prevents aid reaching the ones in need most for example president Mobutu (Zaire) has an estimated fortune of $5 billion siphoned off from loans from the World Bank.
- Aid also may be inappropriate such as ‘top down’ schemes which often do more harm than good. The Akosombo dam in Ghana for example was built in teh hope of generating income through exporting water from the lake behind to Benin and Tongo as well as generating electricity for local industry to grow. However 80,000 people had to leave their homes and river transport and local industry were slow to develop. As a result of drought in 1999 exports never got underway; although there was more success in the fishing industry only 10% of the country’s fish is sourced from the lake.
- There are also criticisms to trade – neoliberals view will only succeed if applied properly such as the Asian tigers (export orientated, market led to economic growth) but for many LEDCs it is an unrealistic pathway to development. Many depend on their primary industry for profit, with is not viable in a market where prices are decreasing and other factors such as grouping (EU) restrict the capacity to trade. Wealth doesn’t always trickle down, as aid is used increase economic potential leading to trade but even with this MEDCs prevent LEDCs from accessing their market (such as Ethiopia). There may be underlying issues that inhibit this growth such as HIV, conflict and drought which must be dealt with first. Lack of infrastructure means mass production on a large-enough scale cannot happen.
- The provision of aid worldwide was its highest in 2006 at $24 billion, although so was the proportion of aid given to improving healthcare, sanitation and education which could suggest some progress in meeting millennium goals.
- There have also been successful schemes such as ‘Bottom up schemes’ Farm Africa and bilateral aid to Bangladesh through trade and aid. Farm Africa is a scheme in Tanzania that promotes sustainable farming by teaching skills that can be passed down as well as forest management and generating income though traditional activities (honey production and basket weaving).
- In Bangladesh the UK has given £114 of bilateral aid that has helped lift half a million people out of poverty, as well as building 1400 classrooms providing basic education for 4.5 million children (educated workforce. NGOs have been successful in the health sector by reducing infant mortality by providing immunisations and improving sanitation, contraception use is also higher than in India.
Microfinance schemes have help develop Bangladesh’s textile industry which is now the number one export industry accounting for 75% and generating $10.53billion form 2003-05. It is also sustainable and 90% of borrowers in the scheme are women promoting social equality. An export processing zone has been developed however; the USA has refused exports from Bangladesh as it is not allowed to operate in the EPZ. However, the scheme has given many access to work and a sustainable future though trade.
Environmental v Economic sustainability
Definition of sustainability, why there is one or the other, how environment suffers when the economy develops: Sarawak, Globally how the economy suffers: China ad NIC growth in general, alternate view – way forward sustainable tourism GBR. Small scale works, large scale doesn’t indicated by the amount that we have done to combat global warming (little so far) and the need for a sustainable future (fossil fuels running out)
Sustainable tourism
Aims- No lasting impacts on the environment or culture, including the need for tourists to take responsibility and respect the local culture e.g. dressing appropriately.
Sustainable tourism is tourism that does not damage the environment and so keeps the future potential for using the resource available – sustainability meeting needs of today without affecting future to use it. It has long been discussed as a way of achieving economic development whilst upholding environmental sustainability. Such as in the Serengeti national park, which faces threats to teh ecosystem by large scale development aimed at reducing poverty and so the impact of that factor on the park. This includes the road linking Amsha and Musama cutting through a narrow section of migratory corridor for wilderbeasts. The suggested way forward instead is to develop the local economy involving harnessing traditional techniques including basket weaving and honey production to use an income generating activity aimed at the tourist industry. Local villages have even become ‘tourist hotspots’ as a result.
However the development of ecotourism is only 5% of the current market, although it is growing. Sustainable tourism is in theory mutually beneficial as the profit generated goes back into funding conservation, however there have been criticisms about the cost and benefit of conservation. As management is expensive and so will always com second to profits. As well as this there are also questions of about how sustainable it really is, and its potential to be implemented as a large scale project. For example in Cuba the US embargo on tourist somewhat restricts the potential of the tourist industry. However if this were to be lifted tourist numbers would dramatically increase. In 2003 Cuba received 1.5 million tourists and by 2010 this was estimated to have risen to 10 million. So far damage to the pristine beaches and marine environments has been little, however this will change with increasing numbers and more planned developments such as resorts. Although the wwf is working on conservation measure such as zones, the ecosystem is under threat and requires a great deal of management in order to protect it.
This management can be seen in other conservation=on areas such as the Great Barrier Reef. It is the largest coral reef system in the world home to some rare and endangered species. Located on teh NE coats of Australia the scheme covers a comparatively large area and has been successful in protecting the reef through strict government and local schemes.
During the 80’s and 90’s there was a huge influx in tourist number as visitor numbers increased 80%/year. Tourism is now a major part of the local and national economy generating $5bil AUS per year, tourism accounts for 85% of teh reefs economic output. Tourist can however damage the reef system as the coral is very sensitive to slight changes in temperature and pollution (global warming can have a major impact on fragile ecosystems). Damage by boat anchors can potentially kill coral as if one part breaks off the whole organism can die. Development along the coast affecting mangrove trees and estuaries can have repercussions down the coast, as the reef id fed by nutrients from these. Meeting locals need is a part of sustainable tourism aims and tourist can also affect the indigenous people as it affects where they can fish.
These issue cause concern for the future of sustainable tourism however there have been management strategies which address the state of the reef system, the needs of locals and the tourists. A zoning system is in place and conservation implemented by the GBRMPA which restricts where tourism and development can take place. There are also restrictions on fishing with permits needed and caps on numbers.
Sustainable tourism is a reality if strict measures are taken to ensure the state of the ecosystem comes before profits (contrast Cuba and GBR). Conservation may not be no.1 priority for countries exploiting ecosystem in order to develop.
South Korea
South Korea was one of the first generations of NICs and part of the ‘Asian Tigers’. Per capita GNP went from $100 in 1963 to $10,000+ in 2003 as well as dramatic rises in life expectancy and a fall in infant mortality as well as a less polarised income throughout the population. It has since become a mature NIC with the 11th largest economy in the world (according to the World Bank). Since the end of the Korean War South Korea has attained rapid economic growth, this is based on factors including;
Massive economic aid from the USA which assisted its recovery from the war, due to the US’s desire to establish a capitalist alternative to the communist North; It has a well educated workforce with cheap wages with Koreans on average being paid one tenth of their Japanese counterparts in 1965; Protective tariff barriers sheltered South Koreas industries from foreign competition.; It also had a strong government which strongly prevented trade unions from taking strike action; as well as strong control by the government of foreign exchange, planning and ownership of financial institutions through policies.
From 1963-83 the GNP grew by 8.4% per annum reaching 12% by late 1980’s. Growth then slowed due to the Asian economic crisis of 1997 its recovery was not helped (and somewhat caused) by the fast track development of South Korea and many other NICs. As its export driven market allowed the economy to grow, development continued and house prices and living costs increased and cheap labour depleted (Wages went from 2.87 to 5.73/hour from 1990-2002), hindering the markets ability to expand at the previous rate. However, growth rates did pick up towards the end of the 1990’s to 10% but fell sharply to 5% since 2001.
Since the 1960’s industry has changed dramatically, with services and manufacturing increasing to over 50% and 40% respectively with Primary industries such as agriculture, forestry and fishing falling to below 10%. Manufacturing has been at the core of South Koreas rapid growth. Initially it was labour intensive consumer goods but changed to capital intensive goods such as electronics, machinery and ship building in the early 70’s. Just 10 years later it changed again to high-tech industries which suited South Korea due to the skilled workforce and its efficiency in both energy and resources.
A key feature is its giant family owned companies including Hyundai, Samsung, Daewoo and LG and the strong economic management of the state. Daewoo grew from a $10,000 investment and 5 employees to an annual turnover of $7 billion and employing over 300,000 workers. However it was overturned by the economic crisis of 1997 and in 2000 declared bankruptcy. The Daewoo heavy industries and machinery co. Has been revived by new ownership, and in 2004 was the 5th biggest shipbuilder worldwide. However tens of thousands of jobs were lost as a result of the collapse, both in South Korea and overseas.
Textiles are one of the largest industries in South Korea and it is the worlds third largest exporter. It is South Koreas second largest industry with 16% of the workforce and producing 14% of the nations exports. Due to the completion of other low wage companies the industry is highly supported by the government which recently invested in a $318 million ‘Milano project’ to create a new fashion centre in Taegu with plans to invest a further $600 by 2006.
Shipbuilding was set up in the 70’s in order to move away from low-wage light industries. By 1990 it produced 10% of the world’s ships. South Korea has 5 giant ship yards with the Hyundai group including Hyindai Samho and Hyundai Mipo, being the largest in the world. In 2003 South Korea overtook Japan in the world leading shipbuilding nation. However South Korea have now lost their price advantage over the Japanese as well as being in competition with China and Brazil for low wage costs. China is developing a new shipyard in Chnaxing Island near Shanghai increasing the capacity of Shanghai from 8 to 12 million tonnes by 2015.
South Koreas motor vehicle industry has also grown to become the worlds 5th largest producer at over 2.5 million units. Hyundai targeted cheap reliable end of the car market which Japan occupied in the 1970’s but had lost though its development of expensive more technical units. Hyundai opened factories in 11 countries including the USA and China. However since the 1997 crisis it has had a growing foreign presence in the company as overseas investors took over and invested such as Renault (France) bailing out Samsung motor and General motors (US) bought Daewoo motors.
The electronics industry has developed since the government introduced the Electronics Industry promotion Law designating electronics as a key development industry. Exports have risen from $1 billion in 2003 to $5 billion in 2002. TriGem was an electric company that produce South Koreas first personal computers in ths 1980’s, within 10 years sales reached $300 million. TriGem now employs over 4000 employees and 450 engineers (10 in its early days) to concentrate on R+D allowing competition to remain high with its competitors and factories opening in China, Australia and France and Mexico.
South Koreas rate of economic growth has been sustained by its expansion of exports growing from $40 million in 1950’s to $195 billion in 2003. The USA, China and Japan are destinations for over half of South Koreas exports and over 90% of exports are manufactured goods.
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