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10 13 Lecture Notes - Globalization and Development.docx

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Department
Geography
Course
Geography 3312A/B
Professor
Haroon Akram Lodhi
Semester
Fall

Description
Globalization and Development: Rhetoric or Reality? Globalization For the period of your lives we have been living in a new world order: globalization What is it? Principally, it is economic: the increasing global integration of • production • trade • finance But this new world order is perhaps not so new: 'The need for a constantly expanding market for its products chases the bourgeoisie over the whole surface of the globe', creating 'a world in its own image' – Karl Marx, The Communist Manifesto What is new is its scale, breath and depth In the two graphs we see that from 1950 to 2007, trade increased faster than production Trade is buying and selling If you sell in Canada, its sales for the domestic market If you sell in the US, its trade Production is making things Global Trade Global trade as a share of global production is therefore increasing What kind of trade? World merchandise trade by product group, 1950 - 2004 Manufacturing trade grows faster than fuels and minerals and agriculture Summarizing, between 1950 and 2007 1. positive growth in world production 2. positive growth in world trade 3. growth in world trade is always faster than growth in world production 4. not in the charts: this is a two way street—countries are exporting and importing more than ever before – the world is selling to each other more than it is producing—global markets are emerging 5. growth in world trade is driven by manufactures – cars, computers, cell phones, televisions, appliances, clothes—the day- to-day things that we all use Machinery net exports (exports – imports) come from Europe and Japan Chemical net exports (exports – imports) come from Europe, Japan and North America Medicine net exports (exports – imports) come from Europe Finance and insurance net exports (exports – imports) come from Europe Royalty and license fee net exports (exports – imports) come from the US, Europe and Japan The US makes the most patents – if someone wants to use a patented product, they have to pay a fee or they risk getting a fine. All of these net exports come from three areas In a globalizing world, the Triad dominates global trade: NAFTA, the European Union and Japan 1. developed countries dominate world trade flows 2. the bulk of world manufacturing exports are between developed economies, particularly in higher value finished manufactures (ie automobiles) 3. developing countries - supplement the production of higher value manufactures (ie microelectronics) (Korea, Taiwan, India, China) - produce lower value manufactures (ie textiles, toys, clothing) (China, India, Bangladesh, Indonesia) - produce much lower value primary products (ie fuel, minerals, food) (most of Africa) 4. the value flows of world trade remains highly asymmetrical, with the North dominating and the South subordinate Bangladesh For example: Bangladeshi garments in the cut-throat apparel trade • the industry employs 2.1 million people • it accounts for 5 % of GDP • it accounts for 75 % of exports • it sells to, for example, Hennes & Mauritz on 110 to 120 day lead times H&M places an order and expects it to be filled in less than three months • so: why is your fashionable clothing so cheap? (Female) workers are paid US$24 a month, working on sewing machines so long every day that they collapse • this is how we benefit from globalization Net clothing exports (exports – imports) are dominated by China, South Asia and Europe Net toy exports (exports – imports) are dominated by China Cheaper things come from developing countries and go into big box stores Intra-industry/firm Moreover, trade between rich countries, within the Triad, is increasingly intra-industry and intra-firm trade, which is concentrated in manufacturing • intra-industry: between different parts of an industry (ie Intel and computer assemblers such as Dell) Firms trading internationally operating in the same industry • intra-firm: between different units of a company (ie Delphi and GM) Trade within units of a company – international trade We don’t have a lot of information about it – we can track in the int’l trade of manufactured products or food, but it’s harder to track how companies trade, especially within itself Intra-industry trade in India, 1972 - 1996 * Intra-firm exports and imports in the US, 1982 – 1997 * 35 per cent of developed country trade may in fact reflect intra-firm trade Why has intra-firm trade grown? Manufactured goods (like Dell computers) are increasingly global products Every day 30m tonnes of materials worth US$80billion are shifted around the world in the process of creating 1 billion finished products Firms split up tasks into a number of steps in different countries to take advantage of relative unit labour costs, raw materials, and specialist technical knowledge So global products require global production supply networks, which are intra-firm A typical computer has 1000 processing steps for its 1800 components, which can be done in 10 – 20 countries—and it is a relatively simple product Relative unit labour cost – highest productivity for the lowest wages Intra-firm trade is a key sign of the growing role of transnational corporations (TNCs), like Dell, in world trade TNC & FDI TNCs are companies that conduct a significant share of their business, in terms of assets, sales and employment outside their country of origin In the last decade there has been a marked expansion of intra-industry intra-firm trade between the North and China, as • low-cost components are produced abroad; and • high cost technology, design and marketing remains in the North Apple products are a good example of globalization because the parts in them are cheap – you pay for the design. The other sign of the role of TNCs is the growth of foreign direct investment (FDI): either buying or setting up a production facility that is either owned or controlled in another country When Ford set up a plant in Vietnam – the money that went from the US to Vietnam to build the plant to make the cars was an FDI Total FDI inflows in 2009 were $1 trillion Note that this was a decline—the record was 2007, at $1.82 trillion FDI dwarfs aid, and is far more important than aid to many 'emerging markets' The IMF does not lend to developing countries. Moreover, the economic crisis has led to an important change in FDI: inflows into developing countries like China, India, Brazil and South Africa now exceed inflows into developed economies It’s not just companies are setting up production facilities in Brazil, China and South Africa. Developing countries are becoming more important in FDI because of TNCs In part, this is because, TNCs from developing countries are becoming important in globalization • taking local brands global • Bajaj Auto, India, 2 & 3 wheel vehicles • turning local engineering skill into global innovation • Embraer, Brazil, aerospace If you fly between Toronto, Ottawa and Montreal, more often than not you fly on an Embraer • going for global leadership in a narrow category • BYD, China, batteries • using local natural resources and using industry best practice marketing and distribution • Vale, Brazil, iron ore • develop a better business model • Cemex, Mexico, cement China and India's TNCs are increasingly important drivers of global integration from the developing world TNCs have become important agents of globalization because of technological changes after 1945 1. transportation systems transfer materials, products and other tangible items from place to place • commercial aviation for the purpose of transporting cargo (fruit & flowers) • the rise of super freighters huge, flat ships that transport the flat bed transport truck containers • the introduction of containerization Rotterdam’s port – only about 100 employees because they operate the computer that operates the cranes to move the containers around all have dramatically eased and lowered the cost of transport, making international production more feasible 2. communications systems transmit information from place to place, whether in the form of ideas, instructions, or images The volume of communications flows and the speed of communications flows have increased, while the cost of communications has reduced This has allowed the management of time to take place in real time (i.e. Ford monitors any of its companies in any part of the world all the time. This compresses space-distance between places has become shorter. Time has become compressed too. Instead of getting a fax, you get the information instantly – the allows the world to seem much closer together) An important effect of modern communication and transportation techniques is that they give the appearance that time runs more quickly and the distance between places has been reduced; such a contraction of time and space changes the way in which economic and social relations are constructed and perceived within and between the regions of the world Information and computer technologies have also permitted the vertical disintegration of production to proceed across national frontiers, as coordination problems are greatly reduced, while at the same time more closely matching supply to demand using just-in-time (JIT) supply management systems The TNC in a global industry can therefore operate a multinational factory (i.e. Dell) In the classic example, Ford in Detroit monitors the operation of its pla
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