2 WEG The Changing World Economy

CHAPTER 2
THE CHANGING WORLD

ECONOMY
Dr. Nguyen Thi Phuong Chau
Course email: weghcmiu@gmail.com
The Changing World Economy
Aims:
1. Studying Economic Geography
2. Economic Organization and Spatial Change
- Evolution of Capitalism
- Technology and Economic Development
3. Spatial Divisions of labor
- Globalization and changing spatial divisions of labor
- Outsourcing and global commodity chains
• Rapidly increasing interdependence of the world economy → regions and cities

everywhere depends increasingly on complex interactions → economy of global
scale → ‘globalization’.
• World’s 6.2 billion inhabitants now are integrated into global markets for goods
and finance.
• In the late 1970s only a few less developed countries (LDCs) opened their
borders to flows of trade and investment capital.
• Three giant population blocs – China, Russia, and India have been drawn into
the global market.
• Emerging NICs, now BRIC/BRICS, have already become involved in deep
linkages.
• Less developed countries (LDCs): Countries that are not fully industrialized or
do not have sophisticated financial or legal systems. These countries, also called
members of the Third World, typically have low levels of per-capita income, high
inflation and debt, and large trade deficits.
• Newly industrializing countries (NICs): Developing country whose economy is
supported to a greater or lesser degree by exports from internally generated
industrial production, such as Argentina, Brazil, South Korea, Mexico, and
Taiwan, rather than on agricultural products or commodities.
• BRICS: Brazil, Russia, India, China, and South Africa
We are living through a transformation that will rearrange the politics and economics
of the coming century. There will be no national products or technologies, no national
corporations, no national industries. There will no longer be national economies, at
least as we have come to understand that concept … As almost every factor of
production – money, technology, factories, and equipment – moves effortlessly across
borders, the very idea of an American economy is becoming meaningless, as are the
notions of an American corporation, American capital, American products, and
American technology.
Reich (1991:3,8)
• All sorts of people in different places are affected by globalization.

General economic
forces
Socioeconomic
Local variability
relationships
combination
General Unique
-spatial change-
Universally applicable Something distinctive
• The point emphasize at the moment is that all these direct, indirect and
interaction effects are important to an understanding of spatial change.
They are all implicated, in accounting for both the general and the unique.
QUESTION
• Furthermore, how should we approach the local, regional
and national implications of less newsworthy but equally
profound changes in the world economy, such as the
remarkable developments that have taken place in
international finance and banking?
2. Economic organization and spatial change
• ‘Economic organization’ approximates to the concept of mode of
production: the way human organizes their productive activities and
reproduce their socioeconomic life.
• Five major modes of production (or forms of economic organization):
Subsistence Slavery Feudalism Capitalism Socialism
The national Laborer is - Peasant/ - Laborer - Refers to the

economy bought and laborer owns owns no social relation
supplies for sold, along instruments of instruments - Production for
its own with other production, of use is
demands instruments - Feudal lord production coordinated
of owns land & - but is free through
production products to sell his or conscious
- Peasant is tied her labor economic
to a specific power planning
tract of land
• The distinguish of modes of production: differences in the relations

between the factors of production (land and other natural resources,
labor, physical and human capital)
• Subsistence
• Slavery (laborer is bought and sold, along with other instruments of production)
• Feudalism (peasant laborer may own some instruments of production, but land and a
certain amount of product is the property of the feudal lord and the peasant is legally
tied to a specific tract of land)
• Capitalism (laborer owns no instruments of production but is free to sell his or her labor
power)
• Socialism
• Different modes of production are also characterized by different forces
of production (technology, machinery, means of transportation) and by
different social formations (specific proportions of different social classes)
• Evolution of capitalism:
• First phase: Competitive capitalism
• Second phase: Organized capitalism
• Third phase: Globalized capitalism
Evolution of capitalism
• Business services
• Transnational corporations (TNCs)
• Flexible production systems
• Disorganized capitalism
• The most important economic sectors in the informational economy

are:
- High-technology manufacturing
- Design-intensive consumer goods, ranging from high-fashion footwear to
entertainment products. Selling in market niches around the world.
- Financial and business services.
Technology and economic development:

• Geographical path independence
• Creative destruction
• Technology systems
• Initial advantages
• Competitive advantages
• Diminishing returns
• Increasing returns to scale
• Once dominant technologies emerge in a region, they

become progressively more “locked in”. Small initial
advantages in the use the critical new technologies and
subsequent refinements in them bring much larger or increasing
returns to those firms (and places) that have them.
3. Spatial divisions of labor
• In Fordist period, the basic division of labor was organized within the
national economy or within regional parts of the national economy.
• International division of labor
• External economies of scale
• Agglomeration: is a major feature of economic organization across a
large number of manufacturing industries.
• In addition to regional specialization and regional dispersal, four other

spatial divisions of labor can be identified:
• Functional separation with management/research activities in major
metropolitan regions: skilled labor in ‘old’ manufacturing areas, and
unskilled labor in regional peripheries.
• Functional separation with management/research activities in major
metropolitan regions: semi-skilled labor and unskilled labor in regional
peripheries.
• Functional separation with management/research: skilled labor in more
advanced industrial regions, and unskilled labor in the global periphery.
• Division between areas with investment, technical change and job
expansion, and other areas with stagnant and progressively less
competitive production and job loss.
• Components or specific services are ‘sources’ or obtained from

multiple suppliers in different countries (Outsourcing) and assembled in
several.
• Offshoring
• Neoclassical economics
• Captive outsourcing
• Offshore outsourcing
• Economic of scale
• Offshore financial centres
• See more at http://www.sourcingmag.com/content/what_is_outsourcing.asp
Interrelationships Surrounding Economic Organization And
Spatial Change
By dictionary:
Study of both quantitative and qualitative aspects of human population. Quantitative
aspects include composition, density, distribution, growth, movement, size, and structure
of the population. Qualitative aspects are the sociological factors such as education
quality, crime, development, diet and nutrition, race, social, class, wealth, well being.
(http://www.businessdictionary.com/definition/demography.html)
- Discussion -
1. What factors push the changes in the economic organization?
2. How space in geography affects the changes in the economic
organization?
3. How do economic organization and spatial change affect the
changes in Demographic, Political, Cultural, Social, and
Technological?
4. What ‘Comparative Advantages’ can help the host countries call
for foreign investment to develop the economy?
- Discussion -
The factors of geographical space affect the
changes of economic organization:
• Tracing the location of natural resources
• Income inequality between DCs and LDCs
• Comparative advantages
• Natural resources
• Labor
• In-side market
• Good government
• Good institutions and policies

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CHAPTER 2

THE CHANGING WORLD

• Rapidly increasing interdependence of the world economy → regions and cities

• All sorts of people in different places are affected by globalization.

Subsistence Slavery Feudalism Capitalism Socialism

The national Laborer is - Peasant/ - Laborer - Refers to the

• The distinguish of modes of production: differences in the relations

• The most important economic sectors in the informational economy

Technology and economic development:

• Once dominant technologies emerge in a region, they

• In addition to regional specialization and regional dispersal, four other

• Components or specific services are ‘sources’ or obtained from

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