Module 5
Economic Geography
A. The Classification of Economic Activity and Economies
Understanding livelihood patterns is made more difficult by the complex
environmental and cultural realities controlling the economic activities of humans. Many
production patterns are rooted in the spatially variable circumstances of the physical
environment. The staple crops of the humid tropics, for example, are not part of the
agricultural systems of the midlatitudes; livestock types that thrive in American feedlots
or on Western ranges are not adapted to the Arctic tundra or to the margins of the
Saharan desert. The unequal distribution of useful petroleum and mineral deposits make
some regions wealthy and others dependent. Forestry and fishing depend on still other
natural resources that are unequal in occurrence, type, and value.
Within the bounds of what is environmentally possible, cultural considerations
may shape economic decisions. For example, culturally based food preferences rather
than environmental limitations may dictate the choice of crops or livestock. Corn (maize)
is a preferred grain in Africa and the Americas; wheat in North America, Australia,
Argentina, southern Europe, and Ukraine; and rice in much of Asia. Pigs are not raised in
Muslim areas, where religious belief prohibits pork consumption. Level of technological
development of a culture will affect its recognition of resources or its ability to exploit
them. Technology refers to the totality of tools and methods available to and used by a
culture group in producing items essential to its subsistence and comfort. Preindustrial
societies have no knowledge of or need for the iron ore, coal, petroleum, or uranium
underlying their hunting, gathering, or gardening grounds. Political decisions may
encourage or discourage—through subsidies, protective tariffs, or production restrictions
—patterns of economic activity. And, ultimately, production is controlled by economic
factors of demand, whether that demand is expressed through a free-market mechanism,
government controls, or the consumption requirements of a single family producing for
its own needs.
One approach to categorize the world’s productive work is to view economic
activity as ranged along a continuum of both increasing complexity of product or service
and increasing distance from the natural environment. Seen from that perspective, four
distinctive stages of economic activities may be distinguished: primary, secondary,
tertiary, and quaternary (Figure 8.2). Primary activities are those that harvest or extract
something from the Earth. They are at the beginning of the production cycle, where
humans are in closest contact with the resources of the environment. Such activities
involve basic food and raw material production. Hunting and gathering, grazing,
agriculture, fishing, forestry, and mining and quarrying are examples. Secondary
activities are those that add value to materials by changing their form or combining them
into more useful—therefore more valuable—commodities. That processing of raw
materials into finished products may range from simple handicraft pottery to the
assembly of electronic goods or space vehicles (Figure 8.3). Copper smelting, steel
making, metalworking, automobile production, food processing, textile and chemical
industries—indeed, the full array of manufacturing and processing industries—are
included in this phase of the production process. Also included are the production of
energy and the construction industry.
Tertiary activities provide services to the primary and secondary sectors and
goods and services to businesses and to individuals. The service sector includes
wholesale and retail trade, which constitute the vital link between producers and
consumers. Business services include accounting, advertising, financial services,
insurance, legal services, and real estate. Consumers may use some of these same
services, although often from different providers. Examples of consumer service
providers include health care, eating and drinking establishments, repair and maintenance
providers, and personal service establishments such as hair salons. Quaternary activities
are a specialized subset of service activities involving research, information, and
administration. In advanced economies, competitiveness and productivity are closely tied
to the gathering, analysis, and dissemination of information. Generally, economic
development brings a dramatic shift in the distribution of economic activity across the
categories of economic activity (Table 8.1). Industrialization leads to an increase in the
secondary sector at the expense of agriculture. Further economic development tends to
shift the economic structure toward services such that the world’s most advanced
economies are now largely post-industrial information economies. The United States
demonstrates this shift, with just 1 percent of its gross domestic product (GDP) derived
from agriculture and more than three-fourths from service activities. Still, primary
activities are essential to all human life and are dominant globally on a land area basis.
The term industry—in addition to its common meaning as a branch of
manufacturing activity—is frequently employed as a substitute, identical in meaning to
activity, as a designation of these categories of economic enterprise. That is, we can
speak of the steel, or automobile, or textile “industry,” with all the impressions of
factories, mills, raw materials, and products each type of enterprise implies. But with
equal logic, we can refer in a more generalized way to the “entertainment” or the “travel”
industry or, in the present context, to “primary,” “secondary,” and “service” industries.
These categories of production and service activities help us see an underlying structure
to the nearly infinite variety of things people do to earn a living and to sustain
themselves. But by themselves, they tell us little about the organization of the larger
economy of which the individual worker or establishment is a part. For that broader
organizational understanding, we look to systems rather than components of economies.
Broadly viewed, economies fall into one of three major types of systems:
subsistence, commercial, or planned. None of these economic systems is “pure.” That is,
none exists in isolation in an increasingly interdependent world. Each, however, displays
certain underlying characteristics based on its distinctive forms of resource management
and economic control. In a subsistence economy, goods and services are created for the
use of the producers and their kinship groups. Therefore, there is little exchange of goods
and only limited need for markets. In the market (commercial) economies that have
become dominant in nearly all parts of the world, producers or their agents, in theory,
freely market their goods and services, the laws of supply and demand determine price
and quantity, and market competition is the primary force that shapes production
decisions and distributions. In the extreme form of planned economies associated with
communist societies, producers or their agents disposed of goods and services through
government agencies that controlled both supply and price. The quantities produced and
the locational patterns of production were strictly programmed by central planning
departments.
Inevitably, spatial patterns of economic activities and systems are subject to
change. For example, the commercial economies of Western European countries are
being restructured by both increased free market competition and supranational
regulation under the World Trade Organization (WTO) and the European Union (EU; see
Chapter 12 for more on this topic). The countries of Latin America, Africa, Asia, and the
Middle East that traditionally were dominated by subsistence economies are now
benefiting from technology transfer and integration into expanding global production and
exchange patterns. For example, the phenomenal growth of the Chinese economy is
rewriting the map of economic activity and shifting the global balance of economic
power. Economic globalization increases linkages among distant regions and spreads
wealth more widely, but also undermines the stability of established production locations.
In short, the creative destruction of capitalism produces results that vary widely from
place to place.
B. Agriculture
Humankind’s basic economic concern is producing or securing sufficient food
resources to meet daily energy requirements and normal nutritional needs. Those supplies
may be acquired directly, through hunting, gathering, farming, or fishing, or indirectly,
through performance of other primary, secondary, or service sector endeavors that yield
sufficient income to obtain needed daily sustenance. Statistics from the Food and
Agriculture Organization (FAO) at the United Nations show that in 2010, 2.6 billion
people or 38 percent of the world’s population depended on agriculture, hunting, fishing,
and forestry for their livelihoods.
Since the 1960s, neo-Malthusians (see Chapter 4) have revived Thomas Robert
Malthus’s fears that the world’s steadily increasing population would exceed food
supplies. Instead, although global population has tripled since 1950, the total number of
undernourished people has dropped since 1990. The FAO has set the minimum daily
requirement for caloric intake at 2,350 per person. By that measure, annual food supplies
are more than sufficient to meet world needs. That is, if total food resources were evenly
distributed, everyone would have access to amounts sufficient for adequate daily
nourishment. In reality, however, about 800 million people or 11 percent of the world’s
population are inadequately supplied with food and nutrients. This stark contradiction
between sufficient worldwide food supplies and widespread malnutrition reflects, among
other reasons, inequalities in national and personal incomes; lack of access to fertile soils,
credit, and education; local climatic conditions or catastrophes; and lack of transportation
and storage facilities.
Before there was farming, hunting and gathering were the universal forms of
primary production. These preagricultural pursuits are now practiced by at most a few
thousand people worldwide, primarily in isolated and remote pockets within the low
latitudes and among the sparse populations of very high latitudes. The interior of New
Guinea, rugged areas of interior Southeast Asia, diminishing segments of the Amazon
rain forest, and a few districts of tropical Africa and northern Australia still contain such
preagricultural people. Much of the Arctic region, of course, is ill suited for any form of
food crop production. Hunter-gatherer numbers are few and declining, and wherever they
are brought into contact with technologically more advanced cultures, their way of life is
eroded or lost.
Agriculture, defined as the growing of crops and the tending of livestock, has
replaced hunting and gathering as the most significant of the primary activities. It is
spatially the most widespread, found in all world regions where environmental
circumstances—including adequate moisture, good growing season length, and
productive soils—permit (Figure 8.5). The United Nations (UN) estimates that more than
one-third of the world’s land area (excluding Greenland and Antarctica) is in some form
of agricultural use, including permanent pastureland. Crop farming alone covers some 15
million square kilometers (5.8 million square miles) worldwide, about 12 percent of the
Earth’s total land area. In many developing economies, at least two-thirds of the labor
force is directly involved in farming and herding. In some, such as Burundi in Africa, the
figure is more than 90 percent. Overall, however, employment in agriculture is steadily
declining in developing economies, echoing but trailing the trend in commercial
economies, in which direct employment in agriculture involves only a small fraction of
the labor force (Figure 8.6). Globally, in 2017, 26 percent of the world’s economically
active population worked in agriculture. In the United States, just 2 percent of workers
were in agriculture and in the United Kingdom, it was just 1 percent. Indeed, a declining
number or proportion of farm workers, along with farm consolidation and increasing
output, are typical in all highly developed commercial agricultural systems. On the other
hand, agriculture remains a major component in the economies of many of the world’s
developing countries, producing for domestic markets and providing a major source of
national income through exports.
By definition, a subsistence economic system involves nearly total self-
sufficiency on the part of its members. Production for exchange is minimal, and any
exchange is noncommercial; each family or close-knit social group relies on itself for its
food and other most essential requirements. Farming for the immediate needs of the
family is, even today, the predominant occupation of humankind. In most of Africa,
South and East Asia, and much of Latin America, a large percentage of people are
primarily concerned with feeding themselves from their own land and livestock.
Of the several types of extensive subsistence agriculture, two are of particular
interest: nomadic herding and shifting cultivation. Nomadic herding, the wandering yet
controlled movement of livestock solely dependent on natural forage, is the most
extensive type of land-use system (Figure 8.8). That is, it requires the greatest amount of
land area per person sustained. Over large portions of semiarid and desert areas of Asia,
in certain highland zones, and on the fringes of and within the Sahara, a relatively small
number of people graze animals for consumption by the herder group, not for market
sale. Sheep, goats, and camels are most common, while cattle, horses, and yaks are
locally important. The reindeer of Lapland were formerly part of the same system.
A much differently based and distributed form of extensive subsistence
agriculture is found in all the warm, moist, tropical areas of the world. There, many
people engage in a kind of nomadic farming. Once put into agricultural use, the soils of
those areas rapidly lose many of their nutrients (in hot, wet climates, organic matter
rapidly decomposes and heavy rains and groundwater dissolve and leach the nutrients
from the soil). After several harvests, the soils are depleted and the farmers move on. In a
sense, the farmers rotate fields rather than crops to maintain soil productivity. This type
of shifting cultivation has a number of names, the most common of which are swidden
(an English localism for “burned clearing”) and slash-and-burn. Each region of its
practice has its own name—for example, milpa in Middle and South America, chitemene
in Africa, and ladang in Southeast Asia.
It may be argued that shifting cultivation is an ingenious, highly efficient cultural
adaptation where land is abundant in relation to population. Shifting cultivation generally
involves polyculture, the production of many different types of crops in a single field.
Polyculture reduces vulnerability to pests and diseases and spreads the harvests through
the year to provide food security. Polyculture keeps the soil covered by vegetation,
reducing the potential for soil erosion. Traditional shifting cultivation has many
advantages over commercial agriculture: no chemical fertilizers, herbicides, or pesticides
are used and energy is provided by humans or draft animals rather than fossil fuels.
Nonetheless, as population densities increase, the system becomes less viable. The basic
change, as noted in Chapter 4, is that land is no longer abundant in relation to population
in many of the less-developed wet, tropical countries. Their growing populations have
cleared and settled the forestlands formerly only intermittently used in swidden
cultivation. The Boserup thesis, proposed by the economist Ester Boserup, is based on the
observation that population increases necessitate increased inputs of labor and technology
to compensate for reductions in the natural yields of swidden farming. It holds that
population growth forces an increased use of technology in farming and—in a reversal of
the Malthusian idea that the supply of food is fixed or only slowly expandable—triggers
the switch from extensive to intensive subsistence agriculture, which sharply increases
food production.
Intensive subsistence agriculture is particularly important in the densely populated
areas of Asia as shown in Figure 8.8. As a descriptive term, intensive subsistence is no
longer fully applicable to changing practices in which subsistence and commercial
agriculture are increasingly combined. Although families may still be fed primarily with
the produce of their individual plots, the exchange of farm commodities within the
system is considerable. Production of food for sale in rapidly growing urban markets is
increasingly vital for the rural economies of subsistence farming areas and for the
sustenance of the growing proportion of national and regional populations no longer
themselves engaged in farming. Nevertheless, hundreds of millions of Indians, Chinese,
Pakistanis, Bangladeshis, and Indonesians plus further millions in other Asian, African,
and Latin American countries remain small-plot, mainly subsistence producers of rice,
wheat, corn, millet, or pulses (peas, beans, and other legumes). Most live in monsoon
Asia, and we will devote our attention to that area.
Not all of the world’s subsistence farming is based in rural areas. Urban
agriculture is a rapidly growing activity, with some 800 million city farmers worldwide.
Occurring in all regions of the world but most prevalent in Asia, urban agricultural
activities range from small garden plots, to backyard livestock breeding, to fish raised in
ponds and streams. Using the garbage dumps of Jakarta, the rooftops of Mexico City, and
meager dirt strips along roadways in Kolkata (Calcutta) or Kinshasa, millions of people
are feeding their own families and supplying local markets with vegetables, fruit, fish,
and even meat—all produced within the cities themselves and all without the expense and
spoilage of storage or long-distance transportation. In all parts of the developing world,
urban food production has reduced the incidence of adult and child malnutrition in
rapidly expanding cities. City farming is, as well, a significant outlet for underemployed
residents. In some cities in the developing world, one-fifth to two-thirds of all families
are engaged in agriculture.
Continuing population pressures on existing resources are a constant spur for
ways to increase the available food supply. Two paths to promoting increased food
production are apparent: (1) expand the land area under cultivation and (2) increase crop
yields from existing farmlands. The first approach—increasing cropland area—is not a
promising strategy. Approximately 70 percent of the world’s land area is agriculturally
unsuitable, being too cold, too dry, too steep, or totally infertile. Of the remaining 30
percent, most of the area well suited for farming is already under cultivation, and of that
area, millions of hectares annually are being lost through soil erosion, salinization,
desertification, and the conversion of farmland to urban, industrial, and transportation
uses. Only the rain forests of Africa and the Amazon Basin of South America retain
sizable areas of potentially farmable land. The soils of those regions, however, are
fragile, are low in nutrients, have poor water retention, and are easily eroded or destroyed
following deforestation.
Increased productivity of existing cropland rather than expansion of cultivated
area has been the key to agricultural production over the past few decades. Between 1960
and 2009, world grain yields rose nearly 140 percent. Crop output, however, varies
considerably from year to year, adversely or favorably affected by weather, insect
damage, plant diseases, and other growing season conditions. Overall, despite dramatic
population growth, grain production per capita today is higher than it was in the 1970s.
The vast majority of that production growth was due to increases in yields rather than
expansions in cropland. The largest increases were in Asia, primarily China and India,
and South America. Unfortunately, grain yields have been nearly stagnant in sub-Saharan
Africa.
Another means of increasing production is biotechnology— through the use of
genetically modified (GM) crops. Crops are genetically modified by moving desired
genes from one organism to another or from one species to another in ways that do not
occur naturally. Despite resistance, the production of engineered crops is spreading
rapidly. In 1996, the first year that GM crops were commercially available, about 1.7
million hectares (4.3 million acres) were placed in biotechnology cultivation. By 2016,
the area planted to GM crops had increased to 457 million hectares (1,130 million acres).
Initially the acreage devoted to GM crops grew faster in the developed countries.
However, because of European concerns about the health of GM foods and the potential
for genetically modified crops to cross-pollinate with wild plants, producing
“superweeds,” GM crop adoption is now proceeding faster in the developing countries.
The bulk of GM crop use is in Argentina, Brazil, Canada, China, India, and the United
States. Globally, the principal GM crops have been GM soybeans, GM corn (including
white corn for food in South Africa), transgenic cotton, and GM canola. Herbicide
resistance (Roundup Ready soybeans) and insect resistance (Bt corn and cotton) have
been the most important of the genetic crop modifications introduced, as well as the ones
responsible for the significant increase in productivity and reduction in costs of the crops
involved.
Few people or areas still retain the isolation and self-sufficiency that are
characteristic of subsistence economies. Nearly all have been touched by a modern world
of trade and exchange and have adjusted their traditional economies in response.
Modifications of subsistence agricultural systems have inevitably made them more
complex by some of the diversity and linkages that mark the advanced economic systems
of the more developed world. Farmers in those systems produce not for their own
subsistence, but primarily for a market off the farm itself. They are part of integrated
exchange economies in which agriculture is but one element in a complex structure that
includes mining, manufacturing, processing, and the service activities of the economy. In
those economies, farm production responds to market demand, as expressed through
price signals, and is related to the consumption requirements of the larger society rather
than to the immediate needs of farmers themselves.
Modern agriculture is characterized by specialization—by enterprise (farm), by
area, and even by country; by off-farm sale rather than subsistence production; and by
interdependence of producers and buyers linked through markets. Farmers in a free
market economy supposedly produce those crops that their estimates of market price and
production cost indicate will yield the greatest return. Theoretically, farm products for
which demand at a given price increases will command an increased market price. That,
in turn, should induce increased production to meet the demand. In some developing
countries, that market equilibrium is broken and the farm economy distorted when
government policy requires uneconomically low food prices for urban workers. It may
also suffer material distortion under governmental programs protecting local producers
by inhibiting farm product imports or subsidizing production by guaranteeing prices for
selected commodities.
Contract farming is spreading as well to developing countries, though it is often
criticized as another adverse expression of globalization subjecting small farmers to
exploitation by powerful Western agribusiness. The FAO, however, argues that well-
managed contract arrangements are effective in linking the small farmers of emerging
economies with both foreign and local sources of advanced advice, seeds, fertilizers,
machinery, and profitable markets at stable prices. The agency cites successful examples
of contract farming in northern India, Sri Lanka, Nepal, Indonesia, Thailand, and the
Philippines and sees in the arrangements a most promising approach to market-oriented
production in areas still dominated by subsistence agriculture.
Early in the 19th century, before such governmental influences were the norm,
Johann Heinrich von Thünen (1783–1850) observed that uniformly fertile areas of
farmland were used differently. Around each major urban market center, he noted, there
developed a set of concentric land-use rings of different farm products (Figure 8.14). The
ring closest to the market featured intensive agriculture producing heavy, bulky, or
perishable commodities that were both expensive to ship and in high demand. The high
prices that they could command in the urban market made their production an appropriate
use of high-value land near the city. Surrounding rings of farmlands farther away from
the city were used for less perishable commodities with lower transport costs, reduced
demand, and lower market prices. Less intensive farming such as grain farming replaced
the market gardening of the inner ring. At the outer margins of profitable agriculture,
farthest from the single central market, livestock ranching and similar extensive land uses
were found. After all, transport costs were low for livestock in von Thünen’s day because
cattle could walk to market.
The goal, of course, was to increase off-farm sales as American agriculture
increasingly shifted from an objective of partial self-sufficiency to a total commitment to
the commercial, exchange economy. Prior to 1950, most U.S. farms had a significant
subsistence orientation; they were general farms growing a variety of crops, some for sale
and some for feed for farmstead livestock—a milk cow or two, chickens for the pot and
for household eggs, and a few hogs and steers, partly for farm slaughter and use. Their
extensive kitchen gardens supplied vegetables and fruits for farm family seasonal
consumption and home canning. In 1949, the average American farm sold only $4,100
worth of products. By 2012, however, most farms had a full commitment to the market,
average off-farm sales rose to $187,000, and farm families—like other Americans—
shopped at supermarkets for their food needs. With the increases in capital investment
and the need for larger farms to maximize return on that investment, many inefficient
small farms have been abandoned. Consolidation has reduced the number and enlarged
the size of farms still in production. To stay in business, many operations have had to
expand by factors of 10 or 100, whether measured in crop acreage of number of
livestock. From a high of 6.8 million in 1934, the number of U.S. farms dropped to 5.7
million in 1949 and to 2.1 million by 2012, with many of the smallest units counting as
“farms” only because of a generous Department of Agriculture definition.
Feed grain and livestock farming involves the growing of grain on a producing
farm to be fed to livestock, which constitute the farm’s cash product. In Western Europe,
three-fourths of cropland is devoted to production for animal consumption; in Denmark,
90 percent of all grains are fed to livestock for conversion not only into meat but also into
butter, cheese, and milk. Although livestock-grain farmers work their land intensively,
the value of their product per unit of land is usually less than that of the truck farm.
Consequently, in North America at least, feed grains and livestock farms are centered in
the Midwest, farther from the main markets than are horticultural and dairy farms.
Farther from the market, on less expensive land, there is less need to use the land
intensively. Cheaper land and lower profits per unit of land leads to larger farm units.
Extensive commercial agriculture is typified by large wheat farms and livestock ranching.
There are, of course, limits to the land-use explanations attributable to von Thünen’s
model. Although it is true that farmland values decline westward with increasing distance
from the northeastern market of the United States, they show no corresponding increase
with increasing proximity to the massive West Coast market region until the specialty
agricultural areas of the coastal states themselves are reached. The western states are
characterized by extensive agriculture, but as a consequence of environmental, not
distance, considerations. Climatic conditions obviously affect the productivity and the
potential agricultural use of an area, as do soils and topography. In North America, of
course, increasing distance westward from eastern markets happens to be associated with
increasing aridity and the beginning of mountainous terrain. In general, rough terrain and
dry climates, rather than simple distance from market, underlie the widespread
occurrence of extensive agriculture.
Under special circumstances, usually related to unique physical geography, some
places far from markets may become intensively developed agricultural areas. Two
special cases are Mediterranean agriculture and plantation agriculture (Figure 8.21). Most
of the arable land in the Mediterranean basin itself is planted to grains, and much of the
agricultural area is used for grazing. Mediterranean agriculture as a specialized farming
economy, however, is known for grapes, olives, oranges, figs, vegetables, and similar
commodities. These crops need warm temperatures year round and a great deal of
sunshine in the summer. The Mediterranean agricultural lands indicated in Figure 8.21
are among the most productive in the world. Farmers benefit from a predictable climate
with few storms or severe weather problems. Also, the precipitation pattern of
Mediterranean climates—winter rains and dry summers—lends itself to the controlled
use of water. Of course, much capital must be spent for the irrigation systems. This is
another reason for the intensive use of the land for high-value crops that are, for the most
part, destined for export to industrialized countries or areas outside the Mediterranean
climatic zone and even, in the case of Southern Hemisphere locations, to markets north of
the equator.
Climate is also considered the vital element in the production of what are
commonly known as plantation crops. Plantation agriculture involves the introduction of
foreign investment, management, and marketing into an indigenous culture and economy,
often employing a nonnative labor force to produce an introduced crop for foreign
markets. The plantation itself is an estate whose resident workers produce one or two
specialized export crops. Those crops, although native to the tropics, were frequently
foreign to the areas of plantation establishment: African coffee and Asian sugar in the
Western Hemisphere and American cacao, tobacco, and rubber in Southeast Asia and
Africa are examples (Figure 8.22). Plantation developers from Western countries such as
Britain, France, the Netherlands, and the United States became interested in the tropics
partly because the climate allowed them to produce agricultural commodities that could
not be grown at home. Custom and convenience usually retain the term plantation even
where native producers of local crops dominate, as they do in cola nut production in
Guinea, spice growing in India or Sri Lanka, or sisal production in the Yucatán.
The adoption of large-scale, highly industrialized commercial agriculture has
increased overall agricultural productivity and benefited successful farmers and
agribusinesses. But it has not come without significant costs. The negative effects of
industrialized agriculture on the health of rural communities, ecosystems, and food
systems have convinced many of the need for a more sustainable mode of agriculture. As
farms have grown larger and replaced human labor with machinery, the population
involved in farming has dramatically declined. This has led to depopulation of rural areas
and struggles to maintain the institutions and basic services necessary for a high quality
of life. Industrialized agriculture relies upon heavy inputs of fertilizers, pesticides, and
herbicides, each of which has had a negative effect on rural populations, wildlife, surface
waterways, and coastal systems that receive agricultural runoff (for more, see Chapter
13). Industrialized agriculture relies on large quantities of fossil fuels to fuel the
machinery, manufacture petrochemical-based fertilizers, and distribute the food around
the world. Heavy reliance on nonrenewable fossil fuels to produce food is obviously
unsustainable over the longer term. Finally, there are serious concerns about the quality
of the food supply and its relationship to human health, the obesity epidemic, and diet-
related diseases such as cancer and diabetes. Concerns range from the relative lack of
fresh fruits and vegetables in the diets of rich countries, the safety of foods with pesticide
and hormone residues, to the growth of antibiotic resistance due to the overuse of
antibiotics in livestock feed.
C. Resource Exploitation
In addition to agriculture, primary economic activities include fishing, forestry,
and the mining and quarrying of minerals. These industries involve the direct exploitation
of natural resources that are unequally distributed in the environment. Fishing, forestry,
and fur trapping are gathering industries based on harvesting the natural bounty of
renewable resources that can easily be depleted through overexploitation. Livelihoods
based on these resources are areally widespread and involve both subsistence and market-
oriented components. Mining and quarrying are extractive industries, removing
nonrenewable metallic and nonmetallic minerals, including the mineral fuels, from the
Earth’s crust. They are the initial raw material phase of modern industrial economies.
Resources or natural resources are the naturally occurring materials that a society
perceives to be useful to its economic and material well-being. Their occurrence and
spatial distribution are the result of physical processes over which people have little or no
direct control. The fact that things exist, however, does not mean that they are resources.
To be considered such, a given substance must be understood to be a resource—and this
is a cultural, not purely a physical, circumstance. Native Americans may have viewed the
resource base of Pennsylvania, West Virginia, or Kentucky as composed of forests for
shelter and fuel and as the habitat of the game animals (another resource) on which they
depended for food. European settlers viewed the forests as the unwanted covering of the
resource that they perceived to be of value: soil for agriculture. Still later, industrialists
appraised the underlying coal deposits, ignored or unrecognized as a resource by earlier
occupants, as the item of value for exploitation.
Resources may be classified as renewable or nonrenewable. Renewable resources
are materials or energy sources that are replenished by natural processes. The sun’s
energy, wind, water, food crops, soils, forests, fish, and animals are renewable resources.
Even renewable resources can be exhausted if exploited to extinction or destruction. Soil
can be eroded or its fertility destroyed, and an animal species may be driven to extinction.
That is, some resources are renewable only if carefully managed. The maximum
sustainable yield of a resource is the maximum rate of use that will not impair its ability
to be renewed or to maintain the same future productivity. For fishing and forestry, for
example, that level is marked by a catch or harvest equal to the net growth of the
replacement stock. If that maximum exploitation level is exceeded, the renewable
resource becomes a nonrenewable one—an outcome increasingly likely in the case of
Atlantic cod and some other food fish species. Nonrenewable resources exist in finite
amounts or are generated in nature so slowly that for all practical purposes, their supply is
finite.
Although fish and shellfish account for just 17 percent of all human consumption
of animal protein, an estimated 1 billion people—primarily in developing countries of
eastern and southeastern Asia, Africa, and parts of Latin America—depend on fish as
their primary source of protein. Fish are also very important in the diets of most advanced
states, both those with and those without major domestic fishing fleets. Globally, the
average person consumes 20 kg (44 pounds) of fish per year. Although most of the world
annual fish harvest is consumed by humans, up to one-fifth is processed into fish meal to
be fed to livestock or used as fertilizer. Those two quite different markets have increased
both the demand for and the annual harvest of fish. Indeed, so rapidly have demand
pressures on the world’s fish stocks expanded that evidence is unmistakable that at least
locally, their maximum sustainable yield is being exceeded.
One approach to increasing the fish supply is through fish farming or aquaculture,
the breeding of fish in freshwater ponds, lakes, and canals or in fenced-off coastal bays
and estuaries or enclosures (Figure 8.26). Aquaculture production has provided nearly
half of the total fish harvest in recent years; its contribution to the human food supply is
even greater than raw production figures suggest. Whereas one-third of the conventional
fish catch is used to make fish meal and fish oil, virtually all farmed fish are used as
human food. Fish farming has long been practiced in Asia, where fish are a major source
of protein, but now takes place on every continent. Marine aquaculture can create serious
problems, including water pollution from fish wastes, transfer of disease to wild fish, and
genetic damage to wild fish from escaped alien or genetically altered farmed fish. Despite
concerns about its potential negative consequences, aquaculture is the fastest-growing
sector of the world food economy.
Before the rise of agriculture, the world’s forests and woodlands probably covered
some 45 percent of the Earth’s land area, not counting Antarctica and Greenland. They
were a sheltered and productive environment for earlier societies that subsisted on
gathered fruits, nuts, berries, leaves, roots, and fibers collected from trees and woody
plants. Few such cultures still exist, although the gathering of forest products remain an
important supplemental activity, particularly among subsistence agricultural societies.
Even after millennia of land clearance for agriculture and, more recently, commercial
lumbering, cattle ranching, and fuel-wood gathering, forests still cover roughly 30
percent of the world’s land area, not counting Greenland and Antarctica. As an industrial
raw material source, however, forests are more restricted in area. Although forests of
some type reach discontinuously from the equator northward to beyond the Arctic Circle
and southward to the tips of the southern continents, commercial forests are restricted to
two very large global belts. One, nearly continuous, is found in upper-middle latitudes of
the Northern Hemisphere; the other is located in the equatorial zones of South and
Central America, Central Africa, and Southeast Asia.
Societies at all stages of economic development can and do engage in agriculture,
fishing, and forestry. The extractive industries—mining and drilling for nonrenewable
mineral wealth—emerged only when technological development and economic necessity
turned coal, iron ore, and various minerals into valuable resources. Now those industries
provide the raw material and energy for the world’s advanced economies. Metals such as
iron, copper, and rare earths are the basis for industrial products ranging from
automobiles to smart phones. Nonmetallic minerals such as gravel and building stone are
widely used in construction, and fossil fuels have provided the energy riches that have
made possible the high standards of living in developing countries. The geographic
distribution of mineral resources and fossil fuels is highly uneven, and thus, these raw
materials are a major part of the international trade connecting the developed and
developing countries of the world.
Because usable mineral deposits are the result of geological processes, it follows
that the larger the country, the more probable it is that such past processes will have
occurred within their national territory. And in fact, Russia, Canada, China, the United
States, Brazil, and Australia possess abundant and diverse mineral resources. It is also
true, however, that many smaller, developing countries are major sources of one or more
critical raw materials and therefore become important participants in the growing
international trade in minerals.
From the standpoint of volume and weight of material removed, the extraction of
nonmetallic materials is the most important branch of the extractive industries. The
minerals mined are usually classified by their end use. Of widest distribution, greatest
use, and least long-distance movement are those used for construction: sand and gravel,
building stone, and the gypsum and limestone that are the ingredients of cement.
Transportation costs play a large role in determining where low-value minerals will be
mined. Minerals such as gravel, limestone for cement, and aggregate are found in such
abundance that they have value only when they are near the site where they are to be
used. For example, gravel for road building has value if it is at or near the road-building
project, not otherwise. Transporting gravel hundreds of miles is an unprofitable activity.
The advanced economies have gotten the way they are through their control and
use of energy. By using external energy sources, humans can perform tasks beyond the
wildest dreams of our human ancestors. This is largely because fossil fuels are incredibly
energy-dense. One 42-gallon (166 liter) barrel of oil contains the energy equivalent of
50,000 person-hours of labor. Compare how far $10 of gasoline will take you in an
automobile versus how far you could get paying your friends to push that automobile
down the road. While slavery made a few rich by harnessing the forced labor of many,
fossil fuels can make many “rich” by harnessing fossil fuel energy—at least while prices
stay low. Energy consumption goes hand in hand with industrial production and with
increases in personal wealth. In general, the greater the level of energy consumption, the
higher the gross national income per capita. Further, the application of energy can allow
us to transform low-value raw materials into valuable commodities. High-quality iron ore
may be depleted, but by massive applications of energy, the iron contained in rocks of
very low iron content, such as taconite, can be concentrated for industrial uses.
D. Trade in Primary Products
International trade has expanded rapidly since the end of World War II, increasing
more than eightfold since 1980. Primary commodities—agricultural goods and fuels—
contribute significantly to the total dollar value of those international flows. During much
of the first half of the 20th century, the world distribution of supply and demand for those
items in general resulted in a colonial pattern of commodity flow: from rawmaterial
producers located within less-developed countries to processors, manufacturers, and
consumers of the more developed ones (Figure 8.34). The reverse flow carried
manufactured goods from the industrialized states for sale to the developing countries.
That two-way trade benefited the developed states by providing access to a continuing
supply of industrial raw materials and foods not available domestically, as well as
markets for their manufactured goods. While the two-way exchange gave less-developed
countries some capital to invest in their own development and to purchase imports, they
lagged behind in industrialization.
Commodity prices are volatile; they may rise sharply in periods of product
shortage or international economic growth. During much of the 1980s and 1990s,
however, commodity price movements were downward, to the great detriment of
material-exporting economies. Prices for agricultural raw materials, for example, dropped
by 30 percent between 1975 and 2000, and those for metals and minerals decreased by
almost 40 percent. Such price declines cut deeply into the export earnings of many
emerging economies. Of the 141 developing countries, 91 rely on commodities for more
than 60 percent of their export earnings and thus are vulnerable to commodity price
volatility. Sub-Saharan African countries are particularly dependent on export earnings
from a small number of mineral or agricultural commodities. For example, Burundi
earned almost half of its export income through tea and coffee exports in 2015.
In 1964, in reaction to the whole range of perceived trade inequities, developing
states promoted the establishment of the United Nations Conference on Trade and
Development (UNCTAD). Its central constituency—the “Group of 77,” which later
expanded to 130 developing states—continues to press for a new world economic order
based in part on an increase in the prices and values of exports from developing
countries, a system of import preferences for their manufactured goods, and a
restructuring of international cooperation to stress trade promotion and recognition of the
special needs of poor countries. The WTO, established in 1995 (and discussed in detail in
Chapter 12) was designed in part to reduce trade barriers and inequities. It has, however,
been judged by its detractors as ineffective on issues of importance to developing
countries. Chief among the complaints is the continuing failure of the high-income
countries to eliminate generous protections for their own agricultural and mineral
industries.
E. Components of the Space Economy
All human activity creates observable spatial patterns. In the economic sphere, we
recognize regions of industrial concentration, areas of employment and functional
specialization, and specific factory sites, store locations, and tourist destinations. As
geographers, we seek to understand and explain the underlying logic behind those spatial
patterns of economic activity. Primary industries are tied to the location of natural
resources. Location is therefore predetermined by the distribution of minerals, fuels,
forests, fisheries, or natural conditions suitable for agriculture and herding. The
secondary, tertiary, and quaternary stages of economic activity, however, are increasingly
divorced from the conditions of the physical environment. Processing, distribution,
communication, and management work can be located in response to cultural and
economic considerations rather than physical influences. They are movable, rather than
spatially fixed activities. Locational decisions and economic patterns differ with the type
of economic activity in question. Secondary industries involved in material processing
and goods production have different spatial constraints than the retailing activities, tourist
attractions, research parks, or office complexes of the service sector. Global competition
and new distance-shrinking technologies regularly upset established economic patterns,
creating new centers of activity and a new international division of the world’s work.
Principles of human spatial behavior apply to economic behavior as well. We
already explored some of those principles in Chapter 3. We noted, for example, that the
intensity of spatial interaction decreases with increasing separation of places—distance
decay. We observed the importance of complementarity and transferability in the
assessment of resource value and trade potential. Johann Heinrich von Thünen’s model of
agricultural land use, you will recall, was rooted in the relationship between
transportation costs and land values. Conventional economic thinking is based on a set of
simplifying assumptions about the motivations guiding human economic behavior.
Economists assume, for example, that people are economically rational; that is, given all
of the information relevant to a particular economic decision, they make locational,
production, or purchasing decisions in light of their perception of what is most cost-
effective and advantageous. From the standpoint of producers or sellers of goods or
services, it is assumed each is intent on maximizing profit (from the standpoint of
consumers, it is assumed each is intent on maximizing value). To reach that objective,
each may consider a host of production and marketing costs and political, competitive,
and other limiting factors— and, perhaps, respond to individual behavioral quirks—but
the ultimate goal of profit-seeking remains clear. Finally, most economists assume that in
commercial economies the best measure of the efficiency of economic decisions is
afforded by the market mechanism.
At root, that market control mechanism is measured by price—the price of land
(rent), of labor (wages), of a college course (tuition), or of goods at the store. In turn,
price is seen as a function of supply and demand. In large, complex economies where
there are many producers, sellers, and buyers, and many alternative products competing
in the marketplace, price is the neutral measure of comparative value and profitability. If
demand for a good or service exceeds its available supply, scarcity will drive up the price
that it can command in the marketplace. That increased price will enhance the
profitability of the sale, which will encourage existing producers to increase output or
induce new producers or sellers to enter the market (Figure 9.2a). That is, the higher the
price of a commodity, the more of it will be offered in the market. Of course, this does
not imply that more expensive commodities will be offered in greater quantities than less
expensive commodities, only that more of a given commodity will be offered if more can
be charged for it.
When the price is very high, however, relatively few people are inclined to buy.
To dispose of their increased output, old and new producers of the commodity are forced
to reduce prices to enlarge the market by making the commodity affordable to a larger
number of potential customers. That is, at lower prices, more of a commodity will be
purchased (Figure 9.2b). If the price falls too low, production or sale becomes
unprofitable and inefficient suppliers are forced out of business, reducing supply. Market
equilibrium is marked by the price at which supply equals demand, satisfying the needs
of consumers and the profit motivation of suppliers.
Other economic geographers question the economist’s assumptions of economic
rationality. They point to a wide range of human motivations and behaviors that aren’t
the result of purely rational economic calculations—some examples might include
impulsiveness; envy; altruism; attachments to people, places, and things; nostalgia for the
past; optimism for the future; or a willingness to settle for less than the optimum result.
Despite being an oversimplification, the assumption of economic rationality is important
to economic thinking.
F. Manufacturing
Secondary activities involve transforming raw materials into usable products,
from pouring iron and steel to stamping out plastic toys, assembling computer
components, or sewing jeans. In every case, the common characteristics are the
application of power and specialized labor to the production of finished products in
factory settings: in short, industrialization. Unlike the gathering or extraction of primary
commodities, manufacturing involves assembling and processing multiple inputs and
distributing the output to markets in diverse locations. It therefore presents the question
of where the processing should take place. If we assume free markets, rational producers,
and informed consumers, then the decision where to locate a manufacturing facility
should be based on costs and opportunities that vary from place to place. In the case of
primary industries—those tied to the environment—possible locations are fixed by the
locations of natural resources. The decision is only whether or not to exploit known
resources. In the instance of secondaryquaternary economic activity, however, there are
many possible locations and the locational decision is more complex. It involves the
weighing of the locational “pulls” of a number of cost and market considerations.
On the demand side, the distribution of population and purchasing power defines
general areas of marketing opportunities. Manufacturers must consider costs of raw
materials, distance to markets, wage costs, fuel costs, capital availability, and a host of
other inputs to the production and distribution process. It is assumed that the spatial
variability of those costs is known, and that rational location decisions leading to profit
maximization are based on that knowledge.
Locational decisions for manufacturing may require multiple spatial scales of
analysis. The first scale is international. The second scale is regional and examines the
attractiveness of different sections of a country. Later decision stages become more
focused, localized, and specific to an individual enterprise. They involve assessment of
the special production and marketing requirements of particular industries and the degree
to which those requirements can or will be met at different subregional scales—at the
state (in the United States), community, and individual site levels. That is, we can ask at
one level why the northeastern United States–southeastern Canada exerted an earlier pull
on industry in general and, at other decision stages, why specific sites along the
Monongahela Valley to the south of Pittsburgh in Pennsylvania were chosen by the U.S.
Steel Corporation for its mills.
The principles of industrial location are simply stated. Certain input costs of
manufacturing are spatially fixed costs; that is, they are relatively unaffected no matter
where the industry is located within a regional or national setting. Wage rates set by
national or areawide labor contracts are an example. Fixed costs do not give any location
an advantage over others. Other input costs of manufacturing are spatially variable costs;
that is, they show significant differences from place to place (Figure 9.3). These will
influence locational choices. All manufactured goods have their origins in the processing
of raw materials, but only a few industries at the early stages of the production cycle use
raw materials directly from farms or mines. Most manufacturing is based on the further
processing and shaping of materials already processed by an earlier stage of
manufacturing. In general, the more advanced the industrial economy of a nation, the
smaller the role played by truly raw materials in its economic structure.
For some industries, power supplies with low transferability may serve to attract
energy-intensive activities. Such was the case early in the Industrial Revolution, when
water power sites attracted textile mills and fuel (initially charcoal, later coking coal)
drew the iron and steel industry. Metallurgical industries became concentrated in such
coal-rich regions as the Midlands of England, the Ruhr district of Germany, and the
Donets Basin of Ukraine. Massive amounts of electricity are required to extract
aluminum from its processed raw material, alumina (aluminum oxide). Electrical power
accounts for between 30 percent and 40 percent of the cost of producing aluminum and is
the major variable cost influencing plant location. The Kitimat plant on the northwest
coast of Canada and the Bratsk plant near Lake Baikal in eastern Siberia are examples of
industry placed far from raw material sources or market but close to vast supplies of
cheap power—in these instances, hydroelectricity.
Labor costs are highly variable across space, increasingly affecting location
decisions and industrial development. Traditionally, three different considerations—
price, skill, and amount—of labor were considered important. For many manufacturers
today, an increasingly important consideration is labor flexibility, implying more highly
educated workers able to apply themselves to a wide variety of tasks and functions. For
some activities, a cheap labor supply is a necessity. For others, labor skills may constitute
the locational attraction and regional advantage. Machine tools in Sweden, precision
instruments in Switzerland, and optical and electronic goods in Japan are examples of
industries that have created and depend on localized labor skills. In an increasingly high-
tech world of automation, electronics, and industrial robots, labor skills—even at high
unit costs—are often more in demand than an unskilled, uneducated workforce.
Manufacturing of lower-cost clothing is an example of an industry that requires a large,
low-cost labor supply to be competitive.
Goods are produced to supply a market demand. Therefore, the size, nature, and
distribution of markets may be as important in industrial location decisions as raw
material, energy, labor, or other inputs. When the transportation charges for sending
finished goods to market are a relatively high proportion of the total value of the good,
then the attraction of location near to the consumer is obvious and market orientation
results. The consumer may be another firm or the general public. When a factory is but
one stage in a larger manufacturing process—firms making wheels, tires, windshields,
bumpers, and the like in the assembly of automobiles, for example—location near the
next stage of production is an obvious advantage. This advantage is increased if that final
stage of production is also near the ultimate consumer market. Thus, automobile part
plants have been scattered throughout the North American realm in response to the
existence of large regional markets and the cost of distribution of the finished automobile.
This market orientation is further reflected by the location in North America of auto
manufacturing or assembly plants of Asian and European motor vehicle companies,
although both foreign and domestic firms again appear to be reconcentrating the industry
in the southeastern part of the United States.
Transportation is such an essential factor of industrial location that it is difficult to
isolate its separate role. Earlier observations about manufacturing plant orientations can
be restated in purely transportation cost terms. For example, copper smelting or iron ore
beneficiation—already described as examples of raw material orientation—may also be
seen as industries engaged in weight reduction designed to minimize transportation costs.
Some market orientation is of the opposite nature, reflecting weight-gaining production.
Soft drink bottlers, for example, add large amounts of water to small amounts of
concentrated syrup to produce a bulky product of relatively low value. All transport costs
are reduced if only the concentrate is shipped to local bottlers, who add the water that is
available everywhere and distribute only to local dealers. The frequency of this practice
suggests the inclusion of soft drink bottlers among the ubiquitous industries.
Freight rates are composed of terminal costs, the charges for paperwork, loading,
packing, and unloading of a shipment; and line-haul or over-the-road costs, the expenses
for the actual movement of commodities once they have been loaded. Total transport
costs represent the sum of all pertinent charges and are curvilinear rather than linear
functions of distance. That is, carrier costs tend to decline as the length of haul increases
because scale economies for long-haul movement permit the averaging of total costs over
a greater distance. Two exceptions to this locational generalization are of practical
interest. Break-of-bulk points are sites where goods have to be transferred or transshipped
from one carrier to another— at ports, for example, where barge or ocean vessel must be
unloaded and cargo reloaded to railcar or truck, or between railroad and truck line. When
such transfer occurs, an additional fixed or terminal cost is levied against the shipment,
perhaps significantly increasing its total transport costs (use of cargo containers reduces,
but does not eliminate, those handling charges). There is a tendency for manufacturing to
concentrate at such points to avoid the additional charges. Many of the world’s important
industrial cities developed at break-of-bulk locations.
The classical model of industrial location theory, the least-cost theory, is based on
the work of Alfred Weber (1868–1958) and sometimes called Weberian analysis. It
explains the optimum location of a manufacturing establishment based on minimizing
three basic expenses: transport costs, labor costs, and agglomeration costs.
Agglomeration refers to the clustering of productive activities and people for mutual
advantage. Such clustering can produce “agglomeration economies” through shared
facilities and services. Diseconomies such as higher rents or wage levels resulting from
competition for these resources also may occur. Weber concluded that transport costs are
the major consideration determining location. That is, the optimum location will be found
where the costs of transporting raw materials to the factory and finished goods to the
market are at their lowest. He noted, however, if variations in labor or agglomeration
costs are sufficiently great, a location determined solely on the basis of transportation
costs may not in fact be the optimum one.
For many theorists, the assumptions and simplicities of leastcost theory are
unrealistically restrictive. They agree that the correct location of a production facility is
where the net profit is greatest. However, they propose employing a substitution principle
that recognizes that in many industrial processes it is possible to replace a declining
amount of one input (e.g., labor) with an increase in another (e.g., capital for automated
equipment) or to increase transportation costs while simultaneously reducing land rent.
With substitution, a number of different points may be appropriate manufacturing
locations. Further, they suggest, a whole series of points may exist where total revenue of
an enterprise just equals its total cost of producing a given output. These points,
connected, mark the spatial margin of profitability and define the larger area within
which profitable operation is possible.
Weber’s classic industrial location theory was based on a highly simplified
version of the world. Through assumptions such as the isotropic plan, it tried to explain
the behavior of individual firms seeking production sites under competitive market
conditions. But such theory no longer fully explains world or regional patterns of
industrial localization or specialization. Moreover, it does not account for locational
behavior that is uncontrolled by objective “factors,” directed by national or regional
economic development planning goals, or influenced by new production technologies and
corporate structures.
Location theories dictate that in a pure, competitive economy, the costs of
material, transportation, labor, and plant should control locational decisions. However,
just as the world is not an isotropic plain, a pure market economy does not exist, even in
the United States. Political factors and constraints also affect, perhaps decisively, the
location decision process. Least-cost locations rely upon governments to build the
highways and regulate the interstate commerce that connects the raw materials,
production facilities, and markets, Land use and zoning controls, as well as
environmental regulations, also influence where industries locate.
Geographical concentration of economic activities is the norm. We take it for
granted that certain places are associated with certain products. Hollywood makes films;
Silicon Valley makes computer software; Detroit makes automobiles; and Pittsburgh used
to make steel. Weber’s least-cost theory made provision for agglomeration, the spatial
concentration of people and activities for mutual benefit. That is, clustering of industrial
activities may produce benefits for individual firms that they could not experience in
isolation. Those agglomeration economies are a form of external economies; that is,
benefits that firms enjoy due to factors outside the firm. The benefits of agglomeration
economies come from linkages among firms and savings from shared transport facilities,
worker training programs, social services, public utilities, communication facilities, and
forms of industrial infrastructure.
Traditional theories sought to explain location decisions for plants engaged in
mass production for mass markets where transportation lines were fixed and transport
costs relatively high. Both conditions began to change significantly during the late 20th
century. Assembly-line work that breaks the production process into many repetitive,
low-skill tasks in order to produce large quantities of identical commodities for mass
markets efficiently is known as “Fordism,” in honor of Henry Ford’s pioneering role in
implementing this idea. Increasingly, Fordist production processes have been moved to
low-wage countries, and in advanced economies, Fordism was replaced by post-Fordist
flexible manufacturing processes based on smaller production runs of a greater variety of
goods aimed at smaller, niche markets. Agglomeration economies are encouraged by
newer manufacturing approaches practiced by both older, established industries and by
newer, post-Fordist plants. Traditional Fordist industries required the on-site storage of
large lots of materials and supplies ordered and delivered well in advance of their actual
need in production. That practice permitted cost savings through infrequent ordering and
reduced transportation charges and made allowances for delayed deliveries and for
inspection of received goods and components. The assurance of supplies on hand for long
production runs of standardized outputs was achieved at high inventory and storage costs.
The principle of comparative advantage extends the capitalist division of labor
from individual workers to the economies of entire regions and countries. The principle
of comparative advantage asserts that areas and countries can best improve their
economies and living standards through specialization and trade. Each area or country
should concentrate on the production of those items for which it has the greatest relative
advantage over other areas and imports all other goods. This principle is one of the most
important justifications for free trade between countries. The logic of comparative
advantage was recognized by economists in the 19th century when specialization and
exchange involved shipments of grain, coal, or manufactured goods whose relative costs
of production in different areas were clearly evident. Today, when other countries’
comparative advantages may reflect lower costs for labor, land, and capital, the
application of the principle is questioned by some critics. They observe that
manufacturing activities may relocate from higher-cost developed country locations to
lower-cost foreign production sites, taking jobs and income away from the developed
country. The temptation is obvious when looking at the wide variation in hourly
compensation costs (wages plus benefits) for manufacturing work. According to the U.S.
Bureau of Labor Statistics, costs vary from $58 per hour in Norway and $35 per hour in
the United States to just $6 per hour in Mexico and $1.90 per hour in the Philippines.
Defenders of outsourcing, however, argue that the increased efficiencies due to such
voluntary outsourcing increases overall prosperity.
Offshoring is the practice of either hiring foreign workers or, commonly,
contracting with a foreign third-party service provider to take over and run particular
business processes or operations, such as call centers or accounting, billing, and similar
nonproduction “back-office” aspects of manufacturing. Offshoring has become an
increasingly standard cost-containment strategy, due to the steep decline in
communication costs, faster Internet bandwidth, and the growing technical skills of
foreign workers. With an ever-increasing portion of the developing world acquiring the
education and experience to provide skilled professional services of almost every kind at
a level comparable to that formerly available only in advanced countries, traditional
notions of comparative advantage are disappearing in the face of a new era of
hypercompetition, at least in business and professional services. India in particular has
emerged as the dominant competitor and beneficiary of services offshoring, echoing
China’s position as the preferred destination of production outsourcing.
Outsourcing is just one small expression of the growing international structure of
today’s manufacturing and service enterprises. Businesses are increasingly stateless and
economies borderless as giant transnational corporations (TNCs) become ever more
important in the globalizing world economy. TNCs (also known as multinational
companies) are private firms that have established branch operations in foreign nations.
The total annual revenue of the world’s largest TNCs rivals the gross domestic product
(GDP) of entire countries. For example, Wal-Mart Stores in 2010 had $408 billion in
revenues which, if it were a country, would have placed it 24th in the world, just behind
Norway and ahead of Venezuela. The largest TNCs, with the exception of Wal-Mart, are
engaged in petroleum exploration, refining and distribution, automobiles, or electrical
and electronic equipment. TNCs are increasingly international in origin and
administrative home, based primarily in a growing number of both economically
advanced and newly industrializing countries. In 2008, 91 of the world’s 100 largest
nonfinancial TNCs had home offices in Europe, the United States, or Japan. However,
cash-rich multinationals of such developing world states as China, Korea, Mexico,
Malaysia, Taiwan, India, and Brazil were moving up the list. Through their own surging
growth and through mergers and acquisitions, formerly developing world regional
players have emerged as major global forces.
G. High-Technology Manufacturing
Classic location theories are less effective in explaining the location of high-
technology (or high-tech) research, development, and manufacturing activities. For these
firms, new and different patterns of locational orientation have emerged based more on
human talent than the traditional factors of raw materials and transportation costs. High
technology is more a concept than a precise definition. It probably is best understood as
the application of intensive scientific and engineering research and development to the
creation and manufacture of new, technologically advanced products. Professional
—“white collar”—workers make up a large share of the total workforce. They include
research scientists, engineers, and skilled technicians. When these highly skilled
specialists are added to administrative, supervisory, marketing, and other professional
staffs, they may greatly outnumber the actual production workers in a firm.
The impact of high-tech industries on patterns of economic geography is
expressed in at least three ways. First, high-tech activities are major factors in
employment growth, manufacturing output, and the total gross value added (GVA)1 for
many individual countries. Relatively high wages in hightech occupations reflect the
level of training and specialization they require. Second, high-tech industries have tended
to become regionally concentrated in centers of innovation, frequently forming self-
sustaining, highly specialized agglomerations (Figure 9.17). Third, the offshoring of less-
skilled production and assembly tasks has spurred the economic development of newly
industrializing countries.
Concentrations of high-tech employment include California, the Pacific
Northwest (including British Columbia), New England, New Jersey, Texas, and
Colorado. And within these and other states or regions of high-tech concentration,
specific locales have achieved prominence: “Silicon Valley” of Santa Clara County near
San Francisco; Irvine and Orange County south of Los Angeles; the “Silicon Forest” near
Seattle; North Carolina’s Research Triangle; Utah’s “Software Valley”; Routes 128 and
495 around Boston; “Silicon Swamp” of the Washington, D.C., area; “Silicon Alley” in
Manhattan; Ottawa, Canada’s “Silicon Valley North”; and the Canadian Technology
Triangle, west of Toronto.
The map of high-tech industries shows that they respond to different factors than
heavy manufacturing industries. At least five locational tendencies have been recognized:
(1) Proximity to major research universities or government research laboratories that
create a large pool of scientific and technical labor skills; (2) avoidance of areas with
strong labor unionization, where rigid contracts slow innovation and workforce
flexibility; (3) locally available venture capital and entrepreneurial skills; (4) a reputation
for a good “quality of life”—climate, scenery, recreation, cultural activities, good schools
and neighborhoods, and job opportunities for professionally trained spouses; and (5)
availability of first-rate communication and transportation facilities to unite research,
development, and manufacturing operations and to connect the firm with suppliers,
markets, finances, and government agencies. Most major high-tech agglomerations have
developed on the suburban edges of metropolitan areas, far from inner-city problems and
disadvantages.
Through such outsourcing and technology transfers, hightech activities are spread
to newly industrializing countries—from the center to the periphery. This globalization
through geographic transfer and diffusion represents an important impact of high-tech
activities on world economic geographic patterns. For example, by 2005, China had
surpassed the United States in exporting information-technology goods, such as laptop
computers, mobile phones, and digital cameras. With rising education levels, countries
such as China, India, Singapore, and South Korea are producing large numbers of highly
trained scientists and engineers capable of doing much more than assembly work. Thus,
computer software companies have begun taking advantage of India’s strengths in
engineering and computer science, making Bangalore and Hyderabad major world
players in software development.
H. World Manufacturing Patterns and Trends
Growth and change have produced a distinctive world pattern of manufacturing.
While Figure 9.20 suggests a large number of industrial concentrations, in fact four
regions are commonly recognized as most significant: Eastern North America, Western
and Central Europe, Eastern Europe, and Eastern Asia. Together, the industrial plants
within these established regional clusters account for an estimated three-fifths of the
world’s manufacturing output by volume and value. Their continuing dominance is by no
means assured. The first three—those of North America and Europe—were the
beneficiaries of an earlier phase in the development and spread of manufacturing
following the Industrial Revolution of the 18th and 19th centuries and lasting until after
World War II. The countries within them now are increasingly postindustrial, and
traditional manufacturing and processing are declining in relative importance.
The fourth—the East Asian district—is part of the wider, newer pattern of world
industrialization that has emerged in recent years, the result of massive international
cultural convergence and technology transfers in the latter half of the 20th century and
early in the 21st. The older, rigid economic split between the developed and developing
worlds has rapidly weakened as the full range of industrial activities from primary metal
processing (e.g., the iron and steel industries) through advanced electronic assembly has
been established within an ever-expanding list of countries.
Deindustrialization—the declining relative share of manufacturing in a nation’s
economy—has picked up pace in the past two decades. Outsourcing and the new
international division have shifted the spatial patterns of industrial production. While the
map of production is dynamic, communities are fixed in space and can be devastated by
the closure of large manufacturing plants. Cities that lose major employers can enter a
downward cycle of falling incomes, declining tax revenues, and higher social services
costs. High unemployment, closed factories, closed stores, abandoned houses, and less
money for roads and schools become the norm. Between 1998 and 2008, the United
States lost about one-fourth of its manufacturing jobs, many of them high-wage jobs. The
decline in manufacturing employment was due to a combination of replacing labor with
capital (equipment) and overseas competition. Particularly hard hit were the industrial
cities of the manufacturing belt and the Southeast, where unemployment rates have been
among the highest in the country.
The Industrial Revolution that began in England in the late 1700s and spread to
the continent during the 19th century established Western and Central Europe as the
world’s premier manufacturing regions and the source areas for the diffusion of
industrialization across the globe. Europe accounted for 80 percent of the world’s
industrial output by 1900, although, of course, its relative position has since eroded,
particularly after World War II. Water-powered textile mills in England began the
Industrial Revolution, but it was coal that fueled the full industrialization of Europe.
Consequently, coal fields were the sites of new manufacturing districts in England,
northern France, Belgium, central Germany, the northern Czech Republic, southern
Poland, and eastward to southern Ukraine.
I. Tertiary Activities
Primary activities are connected directly to the Earth through gathering,
extracting, or growing raw materials. Secondary industries, we have seen in this chapter,
turn the raw materials of primary industry into useful products through manufacturing or
processing. A major and growing segment of both domestic and international economic
activity, however, involves services rather than the production of commodities. These
tertiary activities consist of business and labor specialties that provide services to the
primary and secondary sectors, to the general community, and to individuals.2 They
provide intangible products ranging from education to haircuts, rather than tangible
commodities such as finished goods.
As we have seen, regional and national economies undergo fundamental changes
in emphasis in the course of their development. Subsistence societies exclusively
dependent on primary industries may progress to secondary stage processing and
manufacturing activities. In that progression, the importance of agriculture as an
employer of labor or a contributor to national income declines as manufacturing expands.
Many parts of the formerly underdeveloped world have made or are making that
developmental transition, as we shall review in Chapter 10. In contrast, many of the
economically advanced countries that originally dominated the world manufacturing
scene experienced deindustrialization in the late 20th and early 21st centuries. Rising
labor costs in advanced economies, spaceshrinking technologies for communications and
transportation, the growth of transnational corporations, technology transfer to
developing countries, and outsourcing of processing or assembly work have produced a
new international division of labor. The earlier competitive manufacturing advantages of
the developed countries could no longer be maintained and were replaced by a new focus
on service activities. Based on the contribution of each sector to their GDPs, it is the
advanced economies that have most completely made that transition and are often
referred to as postindustrial.
Tertiary and service are broad, imprecise terms that cover a range of activities,
from neighborhood barber to college professor to World Bank president. The category
includes both traditional low-order consumer and retail activities and higherorder,
knowledge-based professional services performed primarily for other businesses, not for
individual consumption. Based on who purchases the services, we distinguish between
consumer services and producer services. Consumer services are performed for
individuals and include entertainment, tourism, restaurants, hotels, bars, maintenance
services, education, health care, and the vast array of personal services. Producer services
are performed for corporations and include finance, insurance, real estate, legal services,
accounting, architecture, and engineering consulting services. Wholesale and retail trade
are categories of services that link producers and consumers. Transportation and
communication services also serve both producers and consumers. In addition,
government and nonprofit service providers are important components of the service
economy.
Growth in the tertiary sector has numerous explanations. It reflects the
development of ever more complex social, economic, and administrative structures, the
effects of rising personal incomes and changes in family structure and individual
lifestyles. For example, in subsistence economies, families care for their own children,
produce and prepare their own food, and build and repair their own houses. In
postindustrial societies, people hire childcare workers to care for the children, send their
children to formal schools and universities, purchase prepared meals in restaurants, and
hire contractors to build and/or repair their houses. Similar needs are met, but with very
different employment structures.
The locational controls for tertiary enterprises are simpler than those for the
manufacturing sector. Service activities are by definition market-oriented. Those dealing
with transportation and communication are concerned with the location of people and
commodities to be connected or moved; their locational determinants are, therefore, the
patterns of population distribution and the spatial structure of production and
consumption. Just as Weber offered a classic location theory for manufacturing
enterprises, economist Harold Hotelling (1895–1973) used simplifying assumptions to
create the locational interdependence model for retail services. In the locational
interdependence model, the location decisions of firms are influenced by those of its
competitors. Firms choose locations that give them a measure of spatial monopoly so that
they maximize revenues, rather than minimizing costs as in Weber’s model.
The supply of consumer services must match the spatial distribution of effective
demand—that is, wants made effective through purchasing power. Retailers, restaurants,
and personal service providers are savvy about locating close to their customers and the
most successful chains use geodemographic analysis to find optimal locations within
cities. Prior to the 1960s, shopping for clothes, furniture, or housewares meant a trip
downtown, where nearly all the stores were clustered. However, as middle-class residents
left central cities for the suburbs, the department stores quickly chased their customers
into newly developed suburban shopping malls.
Special note should be made of tourism—travel undertaken for purposes of
recreation rather than business. It has become the most important single tertiary sector
activity, and the world’s largest private industry in jobs and total value generated. On a
worldwide basis, travel and tourism in 2016 accounted for almost 300 million jobs and
about 10 percent of the world’s GDP. Domestic tourism leads to spending on
transportation, roadside services, lodging, meals, entertainment, theme parks, and
national parks. International tourism, on the other hand, generates new income and jobs
in developing states as they are “discovered” as tourist destinations, whether for their
climate, unspoiled character, or unique culture and cultural landscapes. For half of the
world’s 50 poorest countries, tourism has become the leading service export sector.
Gambling is a fast-growing industry that draws large numbers of tourists and in
the process remakes places and local economies. In the United States, the gambling
industry attracts almost 15 percent of all entertainment or recreation spending and
generates more revenue than professional sports, museums, performing arts, fitness
centers, golf courses, or amusement parks. The geography of gambling is determined by
legal structures, political boundaries, and proximity to consumers. Gambling was once
concentrated in a few select locations where it was permitted: Las Vegas, Nevada;
Atlantic City, New Jersey; cruise ships (some of which never left shore); Monte Carlo,
Monaco; and Macau, the only Chinese territory where gambling is permitted. The
dominance of those gambling centers is being challenged by the rise of lotteries and
Internet gambling. The Indian Gaming Regulatory Act of 1988 allowed states to permit
casino gambling on Indian reservations, and today there are more than 450 Indian casinos
in the United States (Figure 9.25). Indian reservations located near major population
centers or interstate highways are major beneficiaries, and have often funneled their
substantial profits into improving conditions on the reservation. Reservations in Florida,
California, and Connecticut are among the most profitable, although many of the jobs go
to outsiders. Unfortunately, reservations in remote locations have usually not benefited
from casinos.
Producer services are specialized activities performed for other businesses. They
allow producers to realize cost savings by outsourcing specialized tasks when they are
needed, without the expense of adding to their own labor force. One difference between
consumer services and producer services is that knowledge and skill-based producer
service establishments can be spatially divorced from their clients; they are not tied to
resources, affected by the environment, or necessarily localized by market. Of course,
when high-level personal, faceto-face contacts are required, service firms will often
locate close to their clients, the primary, secondary, tertiary, or quaternary industries they
serve. But the transportability of producer services also means that many of them can be
spatially isolated from their client base.
J. Services in World Trade
Just as service activities have been major engines of national economic growth, so
too have they become an increasing factor in international trade flows and economic
interdependence. Between 1980 and 2010, services increased from 15 percent of total
world trade to 20 percent. Rapid advances and reduced costs in information and
communications technology have been central elements in the internationalization of
services, as wired and wireless communication and data transmission costs have dropped
to negligible levels. Many services considered nontradable, even late in the 1990s, are
now actively exchanged at long distance, as the growth of services offshoring clearly
shows.
That global integration has shifted to higher level economic and professional
services. There are clear cost advantages to outsourcing skilled functions such as
paralegal and legal services, accountancy, medical analysis and technical services,
architectural and engineering design, and research and development. Wired and wireless
transmission of data, documents, medical and technical records, charts, and X-rays make
distant consumer and producer services immediately and efficiently accessible. Further,
many higher-level services are easily subdivided and performable either in sequence or
simultaneously in multiple locations. The well-known “follow the sun” practices of
software developers who finish a day’s tasks only to pass the work to colleagues
elsewhere in the world, who then pass it back to them when their workday is over, are
now increasingly used by professionals in many other fields. As transnational
corporations use computers around the clock for data processing, they can exploit or
eliminate time zone differences between home office countries and host countries of their
affiliates. Such cross-border intra-firm service transactions are not usually recorded in
trade statistics but are part of the growing volume of international services flows. When
the practice involves highly educated and talented specialists receiving developing world
compensation levels, the cost attractions for developed country companies are irresistible.
Increasing volumes of back-office work for Western insurance, finance, accounting, and
legal services firms are being performed overseas.
With its large population of well-educated English speakers, India has been
particularly successful in attracting outsourced service sector jobs. Customer interaction
services (“call centers”) formerly based in the United States are now increasingly
relocated to India, employing workers trained to use an American nickname and speak in
perfect American English (Figure 9.26). Claims processing for life and health insurance
firms formerly were concentrated in English-speaking Caribbean states though
increasingly such business process outsourcing (BPO) has shifted to India, Eastern
Europe, and China. In all such cases, the result is accelerated technology transfer in such
key areas as information and telecommunications services. Despite the increasing share
of global services trade held by developing countries, world trade—imports plus exports
—in services is still overwhelmingly dominated by a very few of the most advanced
states (Table 9.2). The country and category contrasts are great, as a comparison of the
“high-income” and “lowincome” group documents. At a different level, the single small
island state of Singapore has a larger share of world services trade than all of sub-Saharan
Africa.
