American University in Central Asia Week 3 Instructor

American University in Central Asia Week 3: Instructor: Tolkunbek Abdygulov 2011

Chapter 2 Knox 1. discussion of the major dimensions of the contemporary economic landscape. 2. identify and discuss dominant and recurring patterns and note the major exceptions to these patterns. Chapter 3 Knox 1. Sketch the historical development of the world economy 2. Pinpoint the geographical effects of state regulatory and macroeconomic actions 3. Identify the main causes and consequences of the current geographical reorganization of the world economy.

“ Geography is about local variability within a general context” JOHNSTON

It is interaction of the Unique with the general that produces distinctive economic regions.

“If it plays a dominant, active role in world trade/ Usually such a country is a rich, market type economy of the preliminary industrial or agriculturalindustrial variety. Foreign trade revolves around: it is a large exporter and importer, and the international movement of capital occurs from it to other countries” Meier and Baldwin

“If it plays a secondary or passive role in world trade. In terms of their domestic characteristics, peripheral countries may be market type economies or subsistence-type economies. The common feature of peripheral economy is its external dependence on the centre as the source of a large proportion of imports, as the destination for a large proportion of exports, and a lender of capital” Meier and Baldwin

Economic hierarchy of states in the world economy: 1. Core (relatively high wages, advanced technology, a diversified production mix); 2. Semi-periphery (a mix) 3. Periphery (low wages, more rudimentary technology and simple production mix)

Based on: 1) GDP 2)GNI 3)PPP

The terms development and growth are often used interchangeably when referring to international economic activities. There is, however, value in keeping them separate. Narrow economic definition: encompass changes in the amount, composition, rate of growth, distribution, and consumption of recourses, but do not extend to the effects these changes have to peoples lives. See UN’s MDG

1. 2. 3. 4. 5. 6. 7. 8. Eradicate extreme hunger and poverty Achieve universal primary education Promote gender equality and empower women Reduce child mortality Improve material health Combat HIV/AIDS, malaria and other diseases Ensure environment sustainability Develop a global partnership for development

1. Physical well-being, as measured by life expectancy 2. Education, as measured by combination of adult literacy rates (two-thirds weight) and means years of schooling (one-third weight) 3. Standard of living, as measured by GDP per capita, adjusted to PPP.

Key recourses – energy, minerals, cultivated land – unevenly distributed Combination of recourses in particular country and regions makes for a complex mosaic of opportunities and constrains For most countries, the resource base is an important determinant of development

A very high proportion of the world’s key non renewable natural resources are concentrated in Russia, the USA, Canada, South Africa and Australia. USA accounts for worlds : 48% hydrocarbons 38% lignite 21% lead 19% copper 18% bituminous coal 15% zinc.

The inevitable by-products of economic development – garbage, air and water pollution, hazardous wastes and so forth – place enormous demands on the capacity of physical systems to absorb and accommodate them. Humane activity can also change the climate through altering the composition of the atmosphere. (Global warming)

Economic development that seeks to meet the needs and aspiration of the present without compromising the ability to meet those of the future. Means using renewable natural resources in a manner that does not eliminate or degrade them – by making greater use, for example, of solar and geothermal energy and by greater use of recycled materials. all resources – physical and human – are used optimally.

Energy, cultivable land water – three particularly important resources in terms of shaping the world’s economic geography. The major source of commercial energy are oil, natural gas and coal, all of which are very unevenly distributed across the globe.

“Ultimately, human development is about the realization of potential. It is about the freedom they have to exercise real choices in their lives. water pervades all aspects of human development. When people are denied access to clean water at home or when they lack access to water as a productive resource their choices and freedoms are constrained by ill health, poverty and vulnerability. Water gives life to everything, including human development and human freedom” UNDP (2006: 2)

American University in Central Asia Week 3: Instructor: Tolkunbek Abdygulov 2011

Six basic features of the world economy: 1. Single world market 2. State system 3. Three geographical tiers 4. Temporal patterns and hegemony 5. Incorporation, subordination and resistance 6. Alternative adaptations

The modern world economy consists of a single world market. Within this market. Producers exchange what they produce for the best price they can get. The price of products is not fixed but set as a result of competition for markets share among producers.

The modern WE has always had a territorial division between political states. Different states can protect and stimulate infant industries and encourage the development of domestic production through tariffs, trade quotas and financial incentives. The result is a competitive state system in which each state attempts to the best of its ability to insulate its economy from the rigours of the world market while trying to turn the world market to its advantage.

1. 2. 3. Core Semi-periphery Periphery

Kondratiev cycles – a series of cyclical movements in the overall rate of change of prices in the economy. There is evidence that since the late 18 s century the world economy has gone through four complete Kondratiev cycles of (A) growth and (B) stagnation, and we are now in the fifth. Kuznets cycles – this is a cycle of regular changes in the rate of economic growth, as measured by indicators such as per capita gross national income

1. 2. The modern world economy has followed a number of cyclical patterns of growth and stagnation (two Kondratiev cycles). Hegemony is often applied to instances of dominance such as those of Britaine and the USA.

The pace of transition towards strong incorporation depends on the strength of the state engaged in expansion and the nature of the world economy.

Every part of the world has had its own particular relationship to the evolution of the world economy/

Every part of the world has had its own particular relationship to the evolution of the world economy.

Principles: 1. the principle of the sovereignty of states and the fundamental right of political selfdetermination 2. The principle of (legal) equality between states 3. The principles of non-intervention of one state in the internal affairs of anouther state

1. Relative to one another (the hierarchy of states). 2. Relative to their inhabitants – grow incessantly, with respect to regulation, taxation and surveillance. 3. Relative to the ‘globalizing’ world economy.

The erosion of national economies as the basic building block of the world economy (the rise of power of the global firms ). The spatial strategies of transnational corporations are designed to exploit national differences in labor forces, market conditions, regulatory environment and macroeconomic (fiscal and monetary) conditions. Global companies are still strongly attached to their home countries.

Provides the structural framework for trade and investment decisions. Corporate and financial market decisions are made within tight time schedule. Commodity, exchange and stock markets in world cities work around the clock. Declining ability of states to regulate the financial sectors within their economies.

The world economy has entered a phase of flexible production in which business operations around the world are increasingly taking the form of core firms connected by formal and informal alliances to networks of other organizations – firms, governments and communities. Shift in the world economy from big, vertically integrated firms organized with reference to national economies to globe spanning networks of production and finance emphasizes the declining rates of

1. 2. 3. The advantages that accrue to firms abroad because of their technology and market power relative to competitors (ownership advantages). The need to ensure returns on research and development (R&D) and other prior investments by controlling production and marketing rather than licensing to foreign firms (internalizing markets). Favorable foreign location conditions that encourage foreign operations rather than export (market size and needs, production costs, trade barriers) – (location advantages)

Four types of network among firms can be distinguished: 1. Craft-based industries – are themselves organized around projects more than firms per se. 2. Small firm industrial districts – local integrated networks of producers with different firms specializing in different phases of the production process but competing for work with other local firms when new projects come alone

3. Agglomerated big-firm based production systems, such as that of Toyota and its ring of suppliers around Toyota City in Nagoya, Fiat and its suppliers around Turin. 4. Strategic alliances between firms. ‘Each partner brings to the marriage its own specialty – technology, financial power, access to government regulators or procurement officials – and its own constellation of small firm supply’

The TRANSMATIONAL CORPORATIONS: ‘Would tend to produce a hierarchical division of labour between geographical regions corresponding to the vertical division of labour within the firm. It would tend to centralize high-level decision-making occupations to a few key cities in the advanced countries, surrounded by a number of regional sub-capitals, and confine the rest of the world to lower levels of activity and income’ Stephen Hymer (1972: 114)

1. Economic power is no longer a simple attribute of state that have more or less of it. The growth of world trade, global production and regional trading blocs such as the EU and NAFTA points towards an emerging new global world order, to which states must adjust. 2. State and society/economy are no longer mutually defining.