Economic Geography

An older latina woman is seen at an angle from above as she sits at a sewing machine, working on a piece of blue flower-print fabric.

A woman sews clothing at a factory in Tijuana, Mexico. The constant search of capitalism for new and cheaper locations has shifted the garment industry from the USA to Mexico. Women make up the majority of workers in these factories because employers stereotype them as more docile and more willing to accept low pay.
photo from Flickr/andy_wallis

Defined broadly, economics is that sphere of life concerned with matching up desires with things that can satisfy them. Classically, the study of economics has emphasized the production and consumption of goods and services such as sandwiches, TVs, pedicures, and college educations. But a full understanding of an economy requires also examining such things as cultural forces that shape demand for one product or another, and human reproduction that creates the next generation of workers and consumers.

Economic geography today is largely the geography of capitalism (Harvey 1996). Around the world, capitalism is the prevailing economic system, and even non-capitalist economic practices have to position themselves in relationship to it. Several features are comonly held to define a capitalist economy:

Private ownership of commodities and capital,
Exchange of commodities and money in the market based on formally uncoerced deals between buyers and sellers,
Competition between different buyers and different sellers of the same commodity, and
The investment of money in enterprises in order to earn a larger amount of money in return (profit).

Capitalism gets its name from the central role of capital in the economy. Capital is anything that can be used in carrying out economic production -- that is, any input to a production process that is not directly consumed or used up. Capital is combined with labor and raw materials in the production process. Classically, capital was divided into fixed capital (factory buildings, machinery, etc.) and financial capital (money). Economic geographers often speak of other forms of capital which are used in the same way by enterprises (Bourdieu 1986). These include human capital (workers' skills and knowledge), natural capital (environmental services), and social capital (networks of relationships of reciprocity and trust with others that a person can call on to get things done). A successful enterprise needs access to various types of capital. It is common to alter production processes by replacing one type of capital with another -- for example, automation can allow the replacement of human capital (workers' skills) with fixed capital (high-tech machinery).

Capitalism is a highly dynamic system. Capitalism puts a high priority on the search for new opportunities to secure profit, in the process reorganizing old ways of making a living. Capitalist entrepreneurs are constantly looking for new products, new production processes, and new marketing strategies. The dynamism of capitalism is in constant tension with its need to settle down in physical space (Smith 1984). So on one hand, in order to produce cars (for example), it's necessary to build a car factory in a particular place, and establish roads bringing in raw materials and workers and taking finished cars away to customers. But the money spent on this is now stuck in this one place. The investors who built this car factory are unable to take their money and invest it elsewhere if a better opportunity comes along. The tension between fixity and fluidity is one of the driving forces of economic geography.

Figure 1: Local currencies in the USA.
This map shows the locations of some communities that have adopted local currencies, which may be spent on goods and services within the local area. Local currencies differ in how they are earned, how widely they may be spent, and whether they can be exchanged for the national currency (dollars). It is impossible to compile a comprehensive list of every local currency in use, so this map shows only those that use one popular website for tracking users' accounts.
data from Community Exchange System

Capitalism is also growth-oriented. The drive for profit means that a capitalist economy must always be growing. The size of a capitalist economy is measured by the flow of money through the economy. The more quickly money can turn a profit and be reinvested or re-spent, the larger the economy. Some of this growth is intensive growth -- making existing enterprises more efficient and expanding their production and sales. But this growth also has an extensive dimension, in which the capitalist economy absorbs more and more spheres of life, organizing them on capitalist lines and thereby making them potential sources of profit. For example, dating has become increasingly absorbed by capitalism with the rise of profit-seeking matchmaking services (whether ad-supported like OKCupid.com or paid for by members like eHarmony.com).

Extensive growth can also occur by drawing new geographical areas into capitalism's orbit. This process, which has drawn much interest from economic geographers, is referred to as the "spatial fix" (Harvey 1982). A variety of strategies can be used to accomplish this spatial fix. Sometimes governments and companies engage in direct coercion, such as enslaving people, taking away their land, or demanding taxes in cash that must be earned through capitalist activity. Other times the pressure is more subtle. The material prosperity promised by images of fully capitalist societies can have a powerful persuasive influence on people, especially young people. And competition from enterprises organized on capitalist lines can make providing goods and services in non-capitalist ways a less viable way of life.

Yet despite the dominance of capitalism, there are various non-capitalist economic systems in existence. Some of these systems are "traditional" economies rooted in the econonmic systems that existed before the encroachment of capitalism. Though traditional economies varied widely in their organization, some typical features include the use of the commons as a resource management system, patronage systems in which clients are taken under the wing of wealthy and powerful patrons, and kinship obligations that govern the distribution of goods and services. For much of the twentieth century, communism -- sometimes referred to as "state socialism" or "actually existing socialism" -- promised a major alternative to capitalism in which political institutions would control all capital and make decisions about production and distribution for the (alleged) collective good. Today there are various alternative economic systems growing up. Some, like specialized local currencies (Figure 1), retain many features of the free market but aim to link economic activity more closely to the needs of a local community. Others, such as "freecycling" and "couchsurfing" networks aim to replace market activities like buying appliances and paying for lodging with gift-based exchanges.

Non-capitalist economic systems exist alongside and entangled with capitalism all around the world. In many cases, capitalism depends on non-capitalist systems to do things that can't be done within the capitalist system. For example, the labor of human reproduction is necessary for capitalism to continue. This work is foisted off on families, and in particular on women, to do outside of the market (Merchant 1990). Bearing and raising children is an essential activity, but the capitalist market does not recognize it, compensate it, or directly control it.

An important concern for many economic geographers is the question of industrial location -- explaining why certain economic activities are located where they are. The classic model of industrial location holds that industries are located so as to minimize transport costs for the various inputs needed (e.g. raw materials and labor) and for taking the finished goods to market. This is commonly visualized as a triangle in which the market and input sources form the corners, each "pulling" the industry toward itself until a balance is achieved. For example, zinc smelting requires three main inputs -- zinc ore, coal to run the smelter, and labor. The New Jersey Zinc Company located a pair of smelters in Palmerton, Pennsylvania because Palmerton was close to the coal mines in the Pocono Mountains, and coal was the most costly of the three inputs to transport. Palmerton was also not too far from the zinc mines in New Jersey. Labor was brought all the way from Eastern Europe, because it was cheaper to bring in Polish and Hungarian immigrants than to transport the raw materials all the way across the Atlantic.

The production of any one commodity may require a variety of different activities, each with its own optimal location. Economic geographers thus often trace commodity chains that show how raw materials and capital are brought together over space to result in a final product (Cook 2004).

Figure 2: Commodity chain for a Subaru Impreza.
Rubber from Southeast Asia (1) and iron from China (2), among other raw materials, are brought together to be manufactured into a car in Japan (3). The car is then sent to a dealer in Pennsylvania (4), and marketed by the company's American division based in New Jersey (5). Loan payments are sent to a processing center in Arizona (6). See text for a fuller description of this commodity chain.

Consider, for example, the 2012 Subaru Impreza that I currently drive (Figure 2). It was purchased from a dealer in Warren, PA, one of many located throughout the United States for easy access to customers who would like to test drive a car in person. To bring those customers in, Subaru of America employs its own marketing team (based in Cherry Hill, NJ -- a suburban location appealing to white collar workers while still being close to the corporate and financial hubs of the northeast), with help from consulting firms in culture industry agglomerations such as New York City and southern California. The car itself was manufactured in Japan, though Subaru produces other models (such as the Outback) in Lafayette, IN. Manufacturing facilities are located to balance the need for a cheap workforce, easy access to suppliers of parts like tires and radios, and transport costs to get cars to dealers. The raw materials that went into this car came from a variety of places on Earth where each material can be produced -- rubber from Southeast Asia, steel likely made in Japan from iron ore mined in China or Australia. Further, in addition to producing a car, Subaru had to produce a financial good -- a car loan -- to offer with it. Every month I send a payment to Subaru Motors Finance, a division of Chase Bank. Chase is headquartered in Chicago's financial district in order to access the agglomeration of finance businesses there. Actual processing of my loan payments takes place in Phoenix, AZ, where the bank was able to find cheap labor for opening envelopes and entering payment data into the computer. This sort of globe-spanning commodity chain is common today.

Economic geographers note that certain industries tend to cluster in one place -- automobile manufacturing in southeastern Michigan, computers in Silicon Valley, etc. These clusters are known as "agglomerations." An agglomeration forms as a result of positive externalities (Saxenian 2000). In economics, an externality is any effect that one person or enterprise has on another, without either party entering into any sort of payment. A negative externality would be a cost that one enterprise imposes on another without offering any compensation, such as if one company pollutes a river that someone else is using. A positive externality is a benefit that one enterprise gives to others without getting paid for it. A company can produce a variety of positive externalities for similar companies located nearby. If infrastructure such as roads and power lines is put in place for one company, other companies can easily take advantage of it. If one company has trained its workers in a particular field, other companies can tap into this pool of trained workers without having to do so much training themselves. If one company lobbies the local government for special consideration (tax breaks, regulatory changes) for the industry, other companies in that industry will benefit as well. For reasons like these, it is often advantageous for companies in the same line of work to agglomerate in the same place. Governments wishing to boost economic development often try to spark the formation of an agglomeration, such as by building a university whose trained graduates will attract employers. For example, the famous agglomeration of computer companies in Silicon Valley is sustained to a significant degree by the presence of Stanford University.

Any agglomeration has limits. Eventually, negative externalities will start to prevail over the positive ones. Useful land for production will be all used up. The local workforce will be in high demand, causing wages to rise as each company has to out-bid their competitors for good workers. Pollution may start to accumulate. These negative externalities will put an upper limit on the growth of the agglomeration.

Agglomerations have a tendency to get "stuck." The attractiveness of the location for a particular industry and its related businesses leads to large investments of capital in the building of infrastructure, training workers, etc. This is highly advantageous as long as this infrastructure is well-adapted to the existing market. But as market conditions change, new forms of capital and business organization are needed to stay competitive. The more entrenched the old ways of doing things are, the less flexible the agglomeration is likely to be. Eventually the costs of dealing with an outdated physical and human infrastructure will outweigh the benefits of the agglomeration's positive externalities, and the industry will shift elsewhere (Smith 1984).

Workers are not all the same. Different sorts of people (men vs. women, old vs. young, one race vs. another, etc.) end up disrproportionately represented in different industries, and in different occupations within the same industry. This division of labor -- the assigning of different tasks to different people -- can take on a variety of geographical expressions. The division of labor is the outcome of choices made by both employers and workers. The following section will focus on gender, as feminist geographers have been among the most interested in this issue, but similar examples could be found with respect to age, race, and other axes of inequality.

In some cases, the industry that dominates a particular region will favor a certain type of person as a worker. For example, many of the manufacturing jobs that have shifted to poorer countries favor women as workers (Wright 1997). Factory owners believe that women's smaller fingers are better for fine assembly work, and that women are more docile and cooperative. And if the local culture sees men as the primary breadwinners while women's income is supplementary, employers can justify paying women workers less. The result may be a situation where women are drawn into the workplace and gain economic power while men who lack such job opportunities find themselves without a clear social role. This is the case in many parts of northern Mexico, where maquiladoras -- factories producing goods for export to the USA -- employ women but job opportunities for men are scarce.

Other features of an axis of inequality can heavily shape the geography of the division of labor. For example, in the USA women typically bear the greatest share of the responsibility for childcare and household maintenance. This means that women seeking paid work must find jobs closer to home (cutting commute times) and with more flexible hours, in order to balance work and home responsibilities. Such constraints force women to accept lower-status and lower-paying jobs than their male counterparts (Hanson and Pratt 1995).

The division of labor is also visible within the workplace, as different occupations are centered in different parts of the factory, farm, etc. Consider, for example, the small newspaper where I worked before becoming a professor. The front office area, where clerical work such as processing subscription payments was carried out, employed almost exclusively women. Companies find such arrangements advantageous because women are stereotyped as being better at handling interactions with people, such as the customers and sales representatives who would stop in or call. The clerical workplace is thus one of frequent engagement with the broader community. On the other hand, in the far back of the building was the press that actually printed the papers. The press was staffed entirely by men (mostly Latino men, to be specific), because it is the most dangerous and physically demanding job in the company. Press workers rarely interacted with other employees or outsiders, both due to the physical location of their workspace and because the paper was printed overnight in order to be delivered in the morning. In between was the newsroom, where reporters and editors shared an environment that was deliberately connected to goings-on beyond the workplace (via the police scanner, the Associated Press news wire, and reporters coming and going from assignments). Though both men and women worked in the newsroom, it is notable that the more powerful jobs -- copydesk chief, managing editor, editor-in-chief, and publisher -- were all held by men.

Figure 3: Selected free trade areas.
Numerous free trade zones and economic cooperation organizations exist today. This map shows a selection of notable ones, including the Andean Community, the Association of South East Asian Nations, Commonwealth of Independent States Free Trade Agreement, the Common Market for Eastern and Southern Africa, the European Union, the Greater Arab Free Trade Agreement, the Southern Common Market (MERCOSUR), the North American Free Trade Agreement, and the South Asian Free Trade Agreement.
data from Andean Community, ASEAN, CISFTA, COMESA, EU, GAFTA, MERCOSUR, NAFTA, SAFTA

As we saw from the example of the Subaru commodity chain above, international trade is a common feature of the modern capitalist economy. Huge amounts of goods and capital flow across international borders. Great advances in transportation technology have greatly reduced physical and logistical barriers to importing and exporting goods and capital. What remains are political barriers deliberately put in place to restrain trade, such as tariffs (taxes on imports), import quotas (caps on how much of a product can be imported), subsidies to domestic producers (which make their products cheaper than imports), and restrictions on foreign investment. Whether putting up barriers to international trade is a good thing is a subject of dispute. The two major philosophies with respect to trade are neoliberalism and dependency theory (Peet and Hartwick 2009). (Note that these philosophies underly the contrasting development approaches of structural adjustment and import substitution.)

Neoliberalism is a philosophy of the free market that is generally positive toward international trade. Neoliberalism holds that countries will be enriched by reducing barriers to trade. Successful companies will be able to market the best and cheapest products to consumers anywhere in the world. A country or region can specialize in producing the things it is best at making and import the rest from other places. Competition between companies in different countries will ensure that companies are using the best and most efficient techniques to produce the best and cheapest goods, lest they lose customers to their rivals. Neoliberalism has been the dominant philosophy of trade for several decades, as reflected by the rise of free trade agreements. Many such agreements are bilateral, with two countries both agreeing to lower barriers to trade with the other. Others, such as those shown in Figure 3, are regional. The World Trade Organization (WTO), which is made up of most of the countries on Earth, aims to create a global free trade system. Countries that impose high barriers to trade without adequate justification face sanctions from the WTO.

Dependency theory argues that trade between rich and poor countries is inherently exploitative. Rich countries are able to use their economic and political power to buy raw materials, goods, and services from poor countries at cheap rates, then force poor countries to pay high prices for the things they buy from rich countries. These unequal terms of trade allow rich countries to profit while poor countries are left dependent on their rich partners for bare scraps. Proponents of dependency theory propose raising barriers to trade, in order to protect underdeveloped domestic industries and give them room to grow without being wiped out by cheap imports.

A region or country may sometimes become very focused on a single industry. This can be extremely lucrative when that industry is doing well. There is a great incentive to put massive investment into that industry in order to gain more profits. However, if and when that industry falters, the region's economy is hit very hard. This is the reason that mining and timber communities go through boom-bust cycles -- the economy ramps up when production begins, but once all of the minerals are mined or all of the trees are cut, the mining or timber companies move on to new areas and the once-prosperous communities are left without a source of revenue. For this reason, economic policy commonly aims to diversify a region's economic base, so that even if one industry declines, others may still be doing well.

On the national scale, dependence on a single industry can result in the phenomenon known as the "resource curse," a paradoxical downside to abundant natural resources (Auty 1994). A resource curse occurs when a poor country with underdeveloped industries discovers one very lucrative natural resource (such as oil). The country throws all of its effort into developing this one resource, bringing in a large stream of money. This money is not invested in diversifying the country's economy. Instead, a patronage system develops in which profits from this one resource are diverted to enrich the country's leaders. These leaders now become more dependent for their prosperity on continued exploitation of the resource and good relations with the foreign companies that bring the technical expertise to extract it, rather than being dependent on the good will and votes of their own citizens. With other industries underdeveloped, it is difficult for rivals to build a base of support -- everyone is dependent on the patronage of those who control the one lucrative resource. Corruption and political repression can follow, as long as the resource supply holds out.

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