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GGR221 Lec 3

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Deborah Leslie

Lec 3 Evolution of Industrial Regions January-20-14 1:03 PM Reminder: Tutorial on March 3 - In preparation for the assignment/ paper The Evolution of Industrial Regions: Technology, Long Waves, Spatial Divisions of Labor and Path - Dependence - How can we explain the evolution of industries over time? - How can we explain where industries are located? - Capitalism is a dynamic and unstable system, with periods of rapid growth followed by periods of decline Kondratieff / Long wave (theory) - Named after the Russian economist N.D. Kondratieff who in the 1920s studied long term fluctuations in economic activity - N. D. Kondratieff ○ Observed that if you look at the history of the economy, countries often go through history of cycles ○ Each wave of economic development approx 40-60 years ○ Each wave is characterized by a period of growth of upswing (Approx 25 years), followed by a period of stagnation and decline or downswing (approx 25 years) ○ Boom periods occur every 25 years ○ Argued that these were major qualitative transformations ○ Fundamental qualitative transformations rather than mere quantitative fluctuations ○ Argued that there were long wave, and smaller term cycles ○ Shorter oscillations in the level of business activity superimposed in long waves ○ Related to smaller waves in the economy - Freeman and Perez: each wave associated with : ○ Dominant set of industries - main carrier branches ○ There will always be dominant industries we can see new industries (i.e. Sun rise industries) ○ New technologies and techniques of production ○ Each wave is associated with Key entrepreneurs - 5 long waves  See handout ○ First: 1785-1842 The Industrial Revolution ○ Second: 1842-1897 Victorian Boom ○ Third: 1897-1940. Imperialist Boom ○ Fourth: 1945-1995. Post-war Boom / Golden Age of Fordism ○ Fifth: 1995 - ?. Information and communication boom / Post-Fordism - (see lecture slide for diagram) - Role of technology ○ Kondratieff: technology is triggering mechanism - Mensch and Schumpeter: each new wave created by a bunching or clustering of innovations ○ Innovations cluster in a country Lectures Page 1 ○ Innovations cluster in a country - Schumpeter: bunching stimulated by leadership of pioneering entrepreneurs searching for ways of resuscitating rates of profit ○ Consequence of leadership of entrepreneurs ○ 'daring spirits' ○ Process of liquidation, equipment and firms get sold off ○ In depths of depression, people are desperate in making money - Out of destruction comes creativity - A process of Creative destruction: new technologies and products emerge, rendering existing industries obsolete - Product innovation (focus on making the product better - e.g. functionality, style, ..) - Process innovation (focus on how to make product Cheaper - e.g. putting technology into it, to reduce labor costs, and reduce materials going into it) - Declining demand for product ○ Saving on labor (put people out of work) ○ Excess capacity - Mensch: early focus on market expanding innovations - As markets become saturated, investment shifts to process technology - Excess capacity and decreasing demand- crisis- 'technological stalemate' ○ Search for new products/ innovations - Fall in profit stimulates search for new opportunities - These things tend to happen in regular cycles - Freeman and Perez\; different levels of technological change: a) Incremental innovations - e.g. improving cell phone design - small ongoing changes to product itself or process b) Radical innovations - several industries - may not be tinker, but also innovating a new product within itself c) New techno-economic paradigms: associated with Kondratieff cycles - massive, wide spread shifts - affects and impacts everywhere - no sector was left untouched with the invention of the internet (fueled 5th wave) - not confined, affect whole economy - Kondratieff cycle is a good example of this shift (affecting a whole economy) - Freeman and perez, but also Gordon: Stress social and institutional circumstances in which technologies emerge ○ Technologies are part of a society ○ They emerge out of a social and institutional context, out of imperatives ○ Socially produced, a reflection of what people want them to do, ways to solve problems - Technology is a social process in which individuals and organizations deploy technologies for particular ends ○ Society changes based on particular problems that is driven by needs that give birth to technology - Economy has gone through long waves of development The Geography of Long Waves - Places are endowed with diff possibilities for the development and growth of new technology and industry ○ Some places are more suitable (for manufacturing) than others ○ e.g. location of coal fields and industry - (see lecture slides for map of distribution of industry in Europe - Figure 3.5) - - Once established, centers of innovation offer advantages in terms of further industrial growth - Law of cumulative causation (Myrdal) - see handout ○ Industry -> suppliers -> employment -> infrastructure -> industry ○ Cumulative, growth feeds growth - Reinforces certain industrial centers - Uneven development: a systematic process of economic and social development that is uneven in time and space  Growth = uneven in space and some times - Neil Smith Lectures Page 2 - Neil Smith ○ Political economy ○ Capital is constantly moving around the world in search of investment opportunities and of profits ○ And when they have found the place they will settle there and growth ○ Paradox - the rich regions (attracted industrial), will have high wages and unions and high costs (price of land in that place will go up), but will drive wages up and high unemployment … which causes it to be unattractive ○ See sawing ○ Never permanent, geographical movement shift - Wages and costs have gone up, shift of manufacturing to other places (where wages are high and labor costs are low) - Waves associated with the rise and fall of nations and regions - China is projected to overtake USA (in economic power) in the next 20 year ○ They will be leading in university scientific research ○ Demonstrates a shift in the geography of growth Spatial divisions of labor and waves of Investment - Each Kondratieff wave produces a new pattern of uneven development - New layer of investment: the successive cycles of economic development in particular places and regions (Massey , 1978) - Places that were once site of investment and growth, down the road .. Will/can be less attractive over time - Waves of disinvestment - where capital withdrawn from a particular part of the economy, often through rationalization - reduction in total capacity ○ e.g. Waves of disinvestment in Detroit - Film
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