A way of looking at the world!

"A theory is what separates description from explanation. A theory allows us to establish causality, to test hypotheses, to justify arguments and make claims to truth. Theories are simplifications about the world that allow us to gain understanding."

"Theory without experience is fantasy; experience without theory is blind"

Alternative theoretical approaches:

-neoclassical

-behavioral

-political economy or structural

-postmodernistic

(these apply to all categories of industry, not just manufacturing)

Inputs include:

-Labor (L)

-Land (A)

-Capital (C)

-Managerial and Technical Skills (T)

Basic Problem: How to combine factors, at what scale of output, at what location, and serving what geographic markets?

-Availabiliy, productivity, and skill of labor make labor an important determinant of location!

Labor is required in all types of economic activity, but significant variation exists in labor cost and use

-Cost of labor is low in primary sector

Long-run substitution of capital for labor

-especially when production volume is high

Labor may be mobile (less so with skilled workers) due to labor supply and demand relationship

-higher supply -> lower wage

-regional variation in labor costs -> migration

-immigration policies affect the wage rate and labor cost

Samuelson Model- Equilibrium exists when wage rate differential equals travel difference between regions.

Importance of labor productivity

-Real cost of labor is based no is productivity (ratio of inputs to outputs)

-Productivity is largely a function of the skills present in the local labor force (human capital)

---formal, informal educations systems, on-the-job training, years of experience

Skill level and size of labor market

-larger geographic area of labor market for occupations requiring skilled labor: extensive geographic coverage.

.."the labor process is saturated with politics."

-labor is the only factor input that is sentient, can resist conditions of exploitation, unionize, strike, engage in slodowns or sabotage.

At the local level, availability and cost of land are the most important factors in siting decisions

-this is because within a commuting zone labor cost is relatively constant

Land cost is mainly determined by its accessibility (nearness to CBD)

-accessibility is often measured by transport cost

-land cost declines with distance from CBD because of lessened accessibility and increased transport costs. Trade-offs are needed.

Intra-metropolitan location of firms

-not all firms seeking lowest cost of land in siting

-All firms seek to maximize expected profit by comparing revenues (access to customers) and cost of land and labor.

-Manufacturing firms

---suburban areas

-Service firms

---high accessibility land

Transportation development and intra-metropolitan location

-location drift: highway and beltway increase the accessibility of suburbs and traditional firm location pattern

Dominant in structuring the production process

Fixed capital: machinery, equipment, buildings

-a key reason for industrial inertia

-must be purchased before business can open its doors

-age of capital stock reflects the productivity level

Liquid Capital "Finance": intangible revenues, corporate profits, savings loans, stocks, bonds, etc.

-most mobile factor of production

-can be transferred instantaneously, with almost no cost

-finance sources

---personal funds, family, friends, banks, lending institutions, sale of stocks/bonds

Spatial supply/demand conditions for capital

-great variations

capital-labor substitution: The process of capital intensification is a long-term capitalist trend. When labor costs are low or jobs are hard to automate, this is less likely to occur.

All businesses require these managerial skills

-Allocates resources, raises capital, monitors competition, gov't regulations, investmenst, personnel decisions, marketing, etc.

Their deployment and formality varies significantly by firm size

-concentrations of the largest corporate headquarters in largest metro areas but deconcentration has occurred

Technical Skills

-innovation, research and development (R&D)

Clusters of industry-specific headquarters (ie. Silicon Valley)

Developed in the early 20th Century in southern Germany (Alfred Weber, 1929)

Given market prices, producers would seek to minimize production costs to maximize profits

This leads to a taxonomy of production cost situations, considering:

-factor costs

-transport costs on factors

-transport costs on finished goods

*R&D as % of GDP by country ranges from around 1.4 (China) to 4.5 (Israel)

Alfred Weber (German economist)

-emphasizing the role of transportation cost in industrial location decision of firms

Input factors are not ubiquitous

-physical resources are not found everywhere

-human labor is differentiated by skill and availability

-capital availability varies

-other inputs are also differentiated

Given market prices, producers would sek to minimize costs in order to maximize profits

-Minimize 1)sum of factor costs + 2)transportation costs on factor inputs + 3)transport cost on shipment of product to the market

If factor costs are "given", then the problem becomes how to minimize transport costs.

Assumptions of the model:

1)Transportation costs are a linear function of distance

2)Producers hoose optimal locations (least cost, maximum profits)

3)Implies that demand for a product is infinite at a given price

Elemens:

-assembling raw materials (RM) and distributing finished products/goods (FP)

-total trasnportation costs (TTC) among location (site of raw material, market)

Raw Materials

-ubiquitous (found almost anywhere... water)

-localized (at a few specific locations... diamonds)

-pure (lose no weight in processing - auto parts)

-gross (lose weight in processing - iron ore)

Material Index: ratio of localized raw-material weight to finished-product weight

-pure materials have a material index of 1

-gross materials have more than one

If M.I. is less than 1, locate at market

-Minimize weight-losing localized total transportation cost by locating near material site.

-In weight gaining (ie. soft drinks), locate near market. (weight gaining with ubiquities)

Example: 2 tonnes local materials and 3 tonnes ubiquities

M.I. = 2/(2+3) = 0.4 LOCATE AT MARKET

Alternative Situations

1)Ubiquities only, M.I. =0, locate at market

2)Pure materials only

a)1 pure material, M.I. = 1

b)1 pure material + ubiquities

-M.I. <1, locate at market

c)several pure materials only

-M.I. = 1, locate at market

d)several pure materials + ubiquities

-M.I. <1, locate at market

3)Weight losing materials

a)1 weight losing material

M.I.>1, locate at material location

b)1 weight losing material + ubiquities

-could be less than one or more

-if exactly 1, probably locate at market

c)Several weight losing materials

-locate away from market

d)several weight-losing materials and pure materials

-anything could happen

e)several weight-losing materials and pure materials and ubiquities

-anything could happen

upshot: most situations are like c,d,e

Three classic locational outcomes:

1)market

2)resource

3)intermediate ("footloose")

Isotims: contours of transport costs from a given point

isodapanes: contours of total transport costs

-critical isodapanes overlapping (between market regions) creats agglomeration

-Seperate markets (A,B,andC) can get agglomeration savings in areas where their isodapanes overlap

*Bottled and soft drink manufacturing exemplifies market-oriented production. Most are located on the periphery of a metro area.

WEBER TODAY

-transportation costs are declining

-Brainpower is displacing muscle and machines, and transforming natural resource

-real-world patterns are evolving (industrial inertia plays a role)

CRITIQUE OF WEBER

-conception of market demand limited

-Transportation costs not defined realistically

-labor is typically movile, not fixed in space

-many manufacturing plants produce complex sets of products with complex sets of inputs

-treatment of agglomeration is rigid

-Losch: location baed on max profit, not min cost

scale - the size of the total output

technique - the particular combination of inputs that are used to produce an output

-firms can substitute among inputs to minimize their costs (ie. machinery for labor)

-limits to substitution vary by industry

-substiitution is fxedin the short run by technological constraints and cost of inputs

economic scale: level of output

Principles of scale economies..

-Division of labor

---speeds up production

---allows use of relatively unskilled labor

---requires larger scale and larger labor pool

-Increasing # of shifts uses capital more efficiently

-Large firms usually pay less of material inputs than small ones

Generic Problem in manufacturing: How large of a market to serve?

-it depends in part on the existence of opportunities to exploit economies of scale

-scale economies have a decrease in cost per unit as quantities increase

-scale diseconomies have an increase in cost as quantities increase

LRAC - long-run average cost

*Organizational and technical constraints make the optimal level of output variable on the characteristics of the industry and the firm as it tries to achieve economies of scale and avoid diseconomies of scale.

Average Productivity = (Total Output + Marginal Output)/2

Average Productivity = (Total Output + Marginal Output)/2

-Total output increases almost linearly as # of laborers does, though marginal output increases at first and tapers off.

-therefore, average productivity increases at first, then comes down after awhile

***the peak is the optimal # of laborers

Most large firms operate at the maximum cale possible

-Effects of growth strategies and methods on scale:

---make or buy decision, processing method change

Vertical Integration: firm controls more "up and down" in the total production process

-Vertincal disinteration..(?)

Horizontal Integration: Firm controls an increasingly large market share of a given niche in a particular industry

Diversification: firm enters a different product market from the one in which it has traditionally ben engaged: spreading risks

Agglomeration Economies: benefits that firms gain by clustering near other firms in the same field

production linkages: purchase and scales of tangible inputs and outputs by firms (rather than intangibles, like specialized services and information)

service linkages: purchase and sales of intangible inputs and outputs by firms such as information and expertise (rather than tangibles)

Marketing linkages: form of agglomeration economy in which a cluster of firms in an industry attract specialized services such as advertising or distribution that would be difficult to obtain alone (ie. garment and fashion in NYC)

urbanization or industrial-complex economies: a combination of production, service, and marketing linkages concentrated at a particular location.

Advertising firms in Manhattan cluster near Madison Avenue to achieve the agglomeration economies so essential to labor-intensive, information-intensive, white-collar, high-value-added functions

Optimal Size for Agglomerations? (Optimal Size of Cities?)

Comparison of optimal patterns to the real world reveals decisions not always optimal

-firms may have more than one critical site or situation factor, each favoring a different location

-even with just one critical factor, more than one critical location may emerge

-incomplete information makes it difficult for firm to calculate and compare costs of competing locations

-firms may make decisions based on history and inertia

-government loans, grants, regulations, etc. influence decisions

-non-economic factors play a role, especially for "footloose" industries

Firms expand for two reasons: Survival and Growth

Today, small firms have less chance of becoming MNCs than they did 100 yrs ago

-financial barriers

Growth strategies are either integration of diversification

-horizontal integration predominated from 1890s-early1900s

-diversification predominates since 1950s

-removal of competition through absorption leads to oligopoly (control of a market by a small # firms/producers)

Methods to grow are internal (firm chooses) or external (legacy situation)

-often involve additional factories and a change in geography

-backward integration: firm takes over responsibilities that previously belonged to suppliers

-forward integration: firm begins to take control of outlets for its products

-firms usually expand nearby or in otherwise familiar geographic areas

Firms are usually hierarchically organized

Several basic formats/organizational structures:

1)functional

2)product orientation

3)Geographic

4)customer orientation

Administrative Hierarchy

-Even in manufacturing, a large proportion of employees are involved in non-production activities; this occurs because of...

---substitution of capital for labor

---growth of activities associated with administration, management, research, advertising, finance, legal services, etc.

---strategic HQ functions tend to cluster in a relatively small number of metropolitan areas (access to other firms/clients/supplies/advertisers/etc)

The production of goods is a social (not purely individual) process

-crucial social relation of production is b/w owners of the means of production and the owrkers employed to operate these means

Relations among owners

-competition is the source of capitalism's success as a mode of production

-competition requires producers to apply a minimum of resources to achieve higher outputs

Capitalist Mode:

1)capitalists own forces of production

2)life is configured around goods production and exchange

3)object of production is accumulation of surplus by capitalists

Are there alternative modes?

Relations b/w Capital and Labor

-cooperative and/or confrontational

-surplus value (the value produced by workers that exceed their wages) is the basis for profit

-machines or low-wage labor can replace higher-wage workers

Competitiong and survival (geographically)

-relocation, mobility of capital

-colonization created global georaphic division of labor

Capitalism is a society and economy that is notorious for its instability (booms and busts)

-remember Kontratiev longwaves of activity

-Schumpeter suggests the longwaves reflect diffusion of technologies. Kuznets dscribes cycles of recovery, prosperity, recession, depression; new technology spurs recoery.

Information Technology : the fifth wave??

-some scholar suggest that a Kondratiev fifth wave began in 1980s /w IT

Business Cycles and Spatial Division of Labor

-Given the fluidity of capitalism, there is no reason to expect that any region will experience production advantages forever

-As firms located in regions, in different eras, they shape the landscape

-when obsolescence occurs, firms leave

-comparative advantages shift from era to era and from place to place

There are no absolutely "free markets"

-The extent of state involvement varies historically and geographically

-legal system shapes economies

-Governments also set fiscal and monetary policies

fiscal policy: determine how governments spend money (including "pork barrel" projects"

monetary policies: determine the money supply (including setting interest rates)

-Regulations, subsidies

-International relations

US FedGov Taxes, 2002

-46% Individual Income Tax

-34% Social Insurance Payroll Tax

-11% Corporate income tax

1)Neolithic Revolution

-stimulated by a rising population # and density

-also, changing climate

-originated in fertile crescent

-extension of food-gathering

-small surplus

-spreak slowly (6k yrs from F.crescent to England)

-caused permanent settlements; open-field systems

-hunter gatherer to agrarian

-**domestication of plants and animals

-weakened the forces that scattered populations and strengthened the forces that concentrated them

-development of first permanent settlements/refined division of labor/development of new technologies

-development of art/culture/religion

2)Market-oriented agriculture

-stimulated by transition to capitalism, eclosure (privitization of property), and mechanization (seed drill, heavy plough, thresher)

-land use changed to crops that generated the highest levels of profit

-crop rotation rather than fallowing

-increased machinery on family-farms

-checkerboard pattern of farms and fields due to Township and Range system, large agricultural facilities near seacoasts

Results:

-displacement of rural populations/laborers

-urbanization

-industrial revolution

3)Industrial agriculture

-stimulated by expanding population, technological advances, and profit

Characteristics

-drastic reduction in proportion of labor force engaged in agriculture (in dev countries)

-extreme capital intensity

-high-energy use

-concentration of economic power

-quest for lower units costs of production

Results

**proportion of labor force engaged in agriculture is a measure of economic development

-trend towards less farmers/larger farms

-genetically modified organisms

-factory farms

Ester Boserup's Model of Agricultural Systems

Stage1: Forest-Fallow cultivation (2-3 yrs of farming, then 20-25yrs fallow)

Stage 2: Bush-Fallow (2-8/6-10)

Stage 3: Short-Fallow (fallow period only 1-2yrs)

Stage 4: Annual cropping (months of fallow time)

Stage 5: Multi-cropping (even less)

Environmental alteration increases with increasing industrialization of agriculture.

Site Characteristics

-soil type and fertility, slope, drainage, exposure to sun and wind, amount of rainfall, average annual temperature

Cultural Preferences and Perceptions

-food preferences and taboos (pork, milk, meat)

-land use differences due to perceptions

Factos influencing general production

-Weberian Model (ch 5)

Factors of Production

-land, labor, capital, entrepreneurship, technology

Subsistence (Peasant) Agriculture

-farmers grow crops for direct personal consumption

Commercial Agriculture

-farmers grow crops to sell on the market

-relatively labr intensive; most peopel farm

-minimal use of mechanization/chemicals

-small-scale production

-farmers eat most of what they grow

-can be sustainable at low levels of population

SHIFTING CULTIVATION/SWIDDEN AGRICULTURE

Practiced in tropical rainforest areas (heavy rainfall/poor soil)

-South American/Amazon region

-central Africa

-SE Asia

-slash and burn method

-field is used for 3-4 yrs then reclaimed by forest (6-12yrs)

-low agricultural productivity/low pop. pressure

-5% of world's population; 25% of world's surface area

-struggles as governments deem shifting cultivation economically unimportant, selling and leading land to commercial interests

PASTORAL NOMADISM

Practiced  in dry climates (less than 10" of rain per year)

-N Africa/M.East/Plateaus of China/etc

-depends on animal herds for sustenance

-follow cyclical migration patterns to find/follow moisture

-strong territoriality

-less than .5% of world's population, 20% of world's surface area

-struggles to adapt to territorial imperatives of the nation-state

INTENSTIVE SUBSISTENCE AGRICULTURE
-Practiced in moist, fertile areas (river valleys and irrigated fields)

-E/S/SE Asia, C.America, S.America

-physiological density (# of people per acre of farmland) is very high

-plots of land are extremely small

-most work is done by hand (due to lack of capital and small plot size)

PROBLEMS FACED BY SUBSISTENCE AGRICULTURE
-variations is soil quality; availability of rain

-env conditions that harm crop production also endanger life

-lack of advanced tools, implements, hybrid seeds, fertilizer, mechanization

-yields have not increased substantially for generations

-cash crops sold for revenue, rather thanto feed people

-non-food crops: sugar, hemp, jute, rubber, tea, tobacco, etc

Farm products grown for sale, rather than for direct consumption by the farmer

Feed urban non-farm populations

Farming population tends to shrink; farm size tends to grow

Common in the U.S,Canada,Argentina, parts of Brazil/Chile/Europe/Russia/Central Asia/S Africa/Australia/New Zealand/parts of China

US COMMERCIAL AGRICULTURE
The epitome of contemporary capitalist system of food production

Developed in 19th century

-Associated with expansion of European frontier in N America

-Railroads, steamships lowered transport costs, decreased transport times

-by 1900, US was major wheat exporter

Dominated by a few Agribusiness firms

-Nabisco, Dole, General Mills, etc. (production, processing, distribution, price, marketing)

-Extremely capital and energy intensive (machinery/fertilizers/high-yield seed)

-Corporate growth in market farming/livestock

Verticaly Integrated (forward and backward linkages)

The # of US farms has decreased steadily since 1950

Spatial Effects

-Rural-to-urban migration

---push factors (high cost equipment, high interest rates) drive people from farms

---pull factors draw people to cities

-Suburban sprawl competes for prime farmland

-increasingly larger farms

Technological Advances

-Increased reliance on machinery

-Transportation improvements

---rail, trucks, refrigerated vehicles

---decrease spoilage

-Hybrid and genetically engineered crops

-Pesticides, herbicides, fertilizers

Europe, Russia, Ukraine, N America, S Africa, Argentina, Australia, N Zealand

Livestock are the main source of revenue (esp beef and hogs)

Crop rotation helps maintain soil fertility

-4-field system (cereal, root crop, clover/forage, fallow)

Most cropping in US relies on corn

-fattens cattle efficiently; most corn fed to cattle and hogs

-People use it too

-energy is another growing use

-corn was domesticated in C. America 5000 yrs ago

Soybeans rank second

-20% of total output (by value) of commercial agriculture

-highly labor-intensive form of agriculture

-most milk consumed locally because of weight and perishability (dairy farms further from markets produce cheese, butter)

Usually in drier areas

Most grain produced for direct sale to consumers

Leading international agricultural commodity transported b/w countries

Wheat storage affects prices

-US, Aus, Can huge source of wheat

*World's output of major food crops has risen steadily since 1970. Every world region has increased its production levels. Increased yields not increased croplads, are the cause of this rise in output

*World population growth and grain production increase together. Despite Malthus's dire predictions, grain production has kept pace with population increases.

Located in areas where aridity and lack of rainfall make crop farming inappropriate

-Argentina

-Uruguay

-Brazil

-Australia

-New Zealand

Ranching is vertically integrated

-High land requirements! (several acres per cow)

-in the US, 60% of cattle graze on leased federal lands

Concentrated in areas with dry, hot summers ad moist warm winters

-Med Sea

-S Cali

-C Chile

-S Africa

-S Aus

Faces competition from tourism and real estate

Demand in US East Coast for fruit

-Atlantic fruit an Veg belt

-Cali

Migrant workers

Horticulture includes decorative plants (indoor and outdoor)

Historically farms have

-been family owned

-served local markets

-enjoyed stable prices

Farmers face ecnomic difficulties:

-high operating costs

-low revenues

-changing international markets

*Demand for agricultural products is price inelastic

In the last 100 years, supply has increased dramatically; demand has increased modestly, and agricultural prices have fallen

PROTECTING PRODUCERS
Subsidies

-price support.

---government buys surplus production at parity price

-target price

---gov pays difference b/w market price and target price

PRICE SUPPORT

Agricultural Adjustment Act (1933)

-Effects of price supports on economic system:

1)Market can't set equilibrium price through normal mechanism

2)Farmers grow more than consumers buy

3)Buyers pay higher prices

4)Farmers' incomes articifially raised by subsidies, consumers' incomes lowered

Most US farms are small and produce small proportions of total farm sales

Most gov support payments go to large farms. Small farmers are losing out.

SUPPLY MANAGMENT
-Soil band program/Conservation Reserve Program

---gov rents agricultural land to curtail production

-Quotas

---supply managemnt marketing boards limit supply to meet demand at target prices.

Transportation costs and along will lead to differentiated land uses.

Diminishing Returns and Economic Rent

-economic rent: the difference in net profits b/w two units of land

---causes: variance in productivity or distance from market

The Isolated State

-large city is the only market

-surrounded by an isotropic plain

Differential rents because of transport costs

-Net profits of farmers closer to market are higher because of lower transport costs

Wheat... According to von Thunen, transport costs eat into net income for wheat farmers. Farming wheat becomes unprofitable beyond 12 kilometers from market.

Location-Rent Gradient

R=E(p-a)-Efk

R=location rent per unit land

E=output per unit of land

k=distance to market

p=market price per unit of output

a=production cost per unit of product (includes labor)

f=transport rate per unit of distance per unit of output

Farmers choose the higherst-profit crop at each distance from the market

-usually, veg is closest(to 10km), then dairy(10-20), then beef (30-50)

The real world is more complicated than this model

Elements of the manufacturing process:

selection: deciding what is to be produced (product design)

assembly: gathering raw materials at a plant (where it will be manufactured)

production: reworking and recombining the raw materials to produce a finished product (how)

distribution: marketing the finished product (for or to whom)

Location decision- Weber model again

Value added by manufacturing occurs at each phase.

Support activities:

1)Firm infrastructure

2)Human Resource management

3)Technology Development

4)Procurement

Support Primary Activities:

1)Inbound Logistics

2)Operations

3)Outbound Logistics

4)Marketing and Sales

5)Service

*1-5 range from upstream value activities to downstream value activities

80% of Global Output in Three Regions

-data not current... China much bigger role now

US & Canadian Manufacturing Belt (ON NY/Detroit area) accounts for 2/3 of total manufacturing employment in the US and Canada

European manufacturing regions have skilled workers and raw materials (esp coal and iron ore). Good river transportation is also important.

Japan has limited raw materials, but a large, well-educated population. It has a collaborative partnership b/w the Ministry of Trade and Industry (MITI) and private firms. Japan has off-shored many plants, including to the US.

New International division of labor began in 1970s and 1980s

-What is old international division of labor?

-Precipitated by oil shock of 1970s

-Industrialized countries lost manufacturing jobs

---Releases workers for more sophisticated employment

-Manufacturing increasing in lower-wage periphery countries

---spread from Japan to S.Korea, Hong Kong, Singapore

---and then to even lower cost regions

-Anatomies of Job-Loss: disinvestment (read about this)

Impacts on Manufacturing Jobs in US, Europe, Japan

-Job losses in manufacturing in all of these regions

-Replacement has primarily been in services

-Occupations created in the services are frequently very different from occupations lost in manufacturing, leading to high unemployment rates and income deterioration

In 1973, NA produced 90% of the world's steel. By 2002, production shifted to developing counries in Latin America and East Asia, while overall production held steady. Pittsburgh was hard hit by this and produces no steel today.

Minimills producin steel from scrap metal are more numerous than big steel mills in the US. They are located near markets to be near their main input.

In 1960, the US made half of the world's automobiles, but only 21% in 2005.

EU and then Japan leads in motor vehicle production.

ELECTRONICS

Radio (1941); Transistor (1948)

Integrated circuit (1960); microprocessor (1970)

-New applications

-Consumer Electronics

-Increased productivity

US dominated in 1960s and 70s; Japan began dominance in 1990s.

In2004, Japan produced 40% of electronics components, US 21%, Europe 11%. Growth is greatest in SK, Malaysia, Taiwan, Thailand, Hong Kong

East asia has become the leading area in the manufacturing of television receivers.

BIOTECHNOLOGY

def: application of molecular and cellular processes to solve problems, develop products and services, or modify living organisms to carry specific desired traits.

Applications in health care, energy, environmental sciences, pharmaceuticals.

Venture capital makes basic research commercially viable

-high R&D costs, state involvement helps.

Biotech firms tend to cluster in distinct areas, usually places with excellent universities and medical schools (specialized expertise and knowledge)

There is a tendency for biotechnology industry to cluster in major metro areas, for access toniveristies and agglomeration economies.

Old centers are having their power eroded

New centers are rising, based on redistribution or the rise of "new industrial spaces".

The rural renaissance- retirement, footloose entrepreneurs, recreation, rich people, niche mfg., IT, commuter air and courier services.

Manufacture in NE and Great Lakes (1870-1970)

-Water sources for textiles; later coal important

-Factories near cities

---labor pools; rail and water transport; near suppliers; near markets

---move to suburban locations in early 1900s

-Shift to Sunbelt began in 1980s

---lower labor costs (but Cali is an exception: amenities and state defence are important)

*rise in Sunbelt reflects shift to less unionized regions. Electronics and IT give firms greater locational flexibility

Rise of FDI

Shifting locations of FDI

-1945-1960 Canada and Latin America

-1950s Westrn Europe

-1960s onward- a global reach: Japan, ME, S&E Asia

Cumulative employment abroad of500 largest US corporations equalled domestic employment.

Most investment in advanced economies

-western Europe and Japan became competitors by 1960s

From 1989-2003, more than 4.7 million US jobs were cut

-wages stagnant; employer-employee loyalty reduced; inflation in check.

Most MNCs invest in other developed countries. US based MNCs invested most heavily in Canada, Europe, Brazil, Mexico... what about China?

Large overseas markets pull US manufacturers into them

The growth of nontariff barriers are forcing localization of production abroad

Regional trading blocs push investment strategies and pull firms into these organizations to get benefits

Shifting exchange rates are pushing firms to be flexible as to where they have capacity

New manufacturing methods are reshaping the distribution of manufacturing capacity

Large factories in low-skill labor regions are not sustainable

The historic development of manufacturing moving from fragmented small-scale facilities to vertically integrated corporations - The Fordist Paradigm

Fordism: Named after Henry Ford, pioneer of mass production of automobiles (also called standardized economy)

-Hired Frederick W. Taylor ("Scientific Management" Time and Motion studies)

-Complex tasks broken into simple components, suitable for unskilled workers

-Social contract b/w capital and labor

---labor unions tolerated

-Backbone of economic boom after WWII, based on consumerism, middle class

Post-Fordism/Flexible Production

-Flexible manufacturing: goods manufactured cheaply, in small or large quantities

---"just in time" manufacturing

---shift to more machinery, which can be stopped more easily than (unionized) labor can be eliminated

---subcontracting, outsourcing increase

-Customization and flexibility are important

-Shift occurred b/w 1960-1990

END OF FORDISM? THE FLEXIBILITY DEBATE

-Are we not only entering a new long-wave, where IT is the driving force, but also a new long-wave in which the basic structure of productive relations is in a massive shift?

-The Fordism paradigm- implicit in the oligoplistic model- but also linked to consumption and the regulation of society/consumption

-Limits to the flexibility argument - can all industry move in this direction? NO!

A NEW REGIME OF ACUMULATION?

1)The emergence of clusters of small firms, including co=ops

2)Flexibility related to new machines

3)Labor's new position

-functional flexibility (multiskilling)

-numeric flexibility

-financial flexibility

-more part-time, flex time, telecommuting

4)Changes in market place conditions

-mass markets break down

-rise of niche (craft) markets

Low technological innovation//Accelerated innovation

Fixed product lines, long runs//High variety of product, short runs

Mass marketing//Market diversification and niching

Steep hierarchy, vertical chains of command//Flat hierarchy, more lateral communication

Mechanistic organization//Organismic organization

Vertical and horizontal integration//Autonomous profic centers; network

Central planning//Systems; internal markets within form; outsourcing

Bureaucracy//professionalism, entrepreneurialism

Mass unions, centralized wage-bargaining//Localized bargaining, core and peripher workforce divided; no corporatism

Unified class formations, dualistic political systems//Pluralistic class formations; multi-party systems

Institutionalized forms of welfare//consumer choice in welfare

Prescribed courses in education//Credit trasfer, modularity, self guided instruction, independent study

Standardized assessment( O level)// Teacher-based assessment (GCSE) or self-assessment

Class parties, nationwide//Social movements; multi-parties; regional diversification

Fragmentation of the Fordist firm - vertical disintegration (shedding non-central functions; outsourcing) and Market fragmentation (niche)

Adoption of new technologies, especially those dependent upon computers and telecommunications (CAD/CAM/FMS)

Labor force adjustments

-functional flexibility (multiskilling)

-numeric flexibility (adjusting quantities by task)

-financial flexibility (wage rate adjustment)

-more part time, short-term, temporary work

The Post-Fordist System is also more efficient!! (increased productivity as role of IT within abd b/w firms increases)

-logistics revolution

Rising productivity compared to recent years

The growing importance of IT producing industries

The growing productivity in IT using industries

Finally, investment in IT appears to be having an economy-wide impact

PRODUCT LIFE CYCLE

Stage 1: Innovation (monopoly)

Stage 2: Standardization, mass production, maturity (competitors)

Stage 3: New products take the stage, sales decrease in product 1

The location of manufacturing often changes as the product cycle continues, usually moving from developed regions in the R&D stage to LDCs for mass production and beyond

Dynamism in firm activities: their size, number, function, and geographic configuration.

Inherent flexibility of multiplant firms - either in-situ change or locational shift

IN SITU change

-Expansion of existing capital stock

-replacement of existing capital stock

-reduction of existing capital stock - partial divestiture

LOCATIONAL SHIFTS

-investment at new location(s) opening of branch plant(s)

-acquisition of plant(s) owned by another firm

-divestment of existing plant(s) closure or disosal

-relocation of entire plant and equipment

Global concentrations of manufacturing, but they are not static

Capital moves from place to place in the search for profit

Multinational corporations and processes of FDI have reshaped the geography of manufacturing

Today Schumpeter's process of "creative destruction" is fueled by IT, logistics, and the rise of new production regimes built around more flexible manufacturing systems