The Changing Economic Geography of Globalization

Giovanna Vertova

• Publisher: Routledge
• Year: 2006
• eBook ISBN: 9781134259311
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

The process of globalization has had profound, often destabilizing, effects on space, at all levels (i.e. local, regional, national, international). This revealing book analyzes, both theoretically and empirically, the effects of globalization over space. It considers, through a dialogue among different paradigms, the ways in which space has become more important in the global economy.

Globalization has been advocated as a way of shrinking time and space which will lead to a homogenized global market; a suggestion challenged in differing ways and with a variety of approaches by all the contributors to this volume. Leading authorities from a range of disciplines are represented amongst this impressive list of contributors, including Eric Sheppard, Bjørn Asheim, Richard Walker and Peter Swann.

The chapters demonstrate persuasively the continuing, and even increasing, role of space in the global economy, and throughout, the book covers viewpoints from the fields of:

• international political economy
• economic geography
• regional and local economics.

This impressive volume, which contains a selection of the best in contemporary scholarship, will be of interest to the international arena of academicians, policy makers and professionals in these or related fields.

Part I
Theoretical perspectives

1
Lost in space?
The geographical and political dimension of uneven
capitalist development

Riccardo Bellofiore and Giovanna Vertova

Introduction

The recent debate about globalisation has been marked by a contraposition of the continuity and discontinuity points of view. Those favouring the former think that the globalisation at the end of the 1900s is nothing but the resumption of the long-standing well-known ‘internationalisation’ of the capitalist economy (Hirst and Thompson 1999). Those favouring the latter viewpoint believe, instead, in the radical novelty of the current phase, so that the term ‘globalisation’ pertains only to this new reality (Ohmae 1995). Such a polarity recurs in respect of the relevance of territories and space in the global economy.

In fact, two opposing positions reappear also for those accepting the globalisation paradigm. On the one hand, mainstream neoliberal theories argue that globalisation leads to a general tendency towards a homogenisation of firms, sectors and geographical areas that tends to cancel the role of ‘place’. On the other hand, we find many authors stressing that, in the new context, local and regional dimension acquires a fresh role, leading to a differentiation of territories and thus to a renewed importance of the geographical embedding of the economy. These two positions are not to be considered as fixed or mutually exclusive, since it is possible to find many intermediate positions. This debate has also crossed arguments for or against the ‘end of the nation-state’ (Reich 1991, Weiss 1998) as well as for or against the ‘end of work’ (Rifkin 1995, Bellofiore 1999), which are supposed to be distinctive features of the new capitalism for the hyperglobalisation views. The discussion has also affected the ‘radical’ left interpretation of contemporary capitalism. Here, of course, we find again those asserting the tendency towards homogenisation or the tendency towards differentiation. What is interesting, however, is that for both groups labour seems to be ‘lost in space’—so to speak. In other words, both those who stress the loss of ‘local’ advantages or its more intensive exploitation see a quantitative and/or qualitative ‘collapse’ of wage labour as being typical of the globalisation phase. Workers are no longer the ‘central’ subject of social progressive change within capitalism (Walker 1999).

This chapter starts with a discussion of the different basic paradigms in economic theory, in order to test how they are able to deal with the differentiation of the ‘qualities’ of productive resources, techniques, means of production and labour power as something structural and essential in capitalist accumulation. This internal drive to a differentiation of the methods of production is inevitably rooted in ‘space’ and deeply affects the ‘local’ dimension and its history, with the ascent and decline of entire economic regions. The second section illustrates how the two main neoclassical currents, stemming from Walras and Marshall, deal with (or elude) this topic. The third section describes the alternative Marxian approach, through a dialogue with David Harvey’s re-reading and developments. The fourth section embarks on a more positive proposal on the terrain of economic theory, highlighting some problems in the Marxian system and suggesting the need for a confrontation of this tradition with the monetary heterodoxy of Schumpeter and Keynes. The fifth section applies this framework to the interpretation of contemporary capitalism. The final section shows how labour conditions are transformed in the new global economy. The concluding section clarifies in what sense these changes mark a historical watershed.

The dead ends of the neoclassical tradition

Since the beginning, neoclassical mainstream theory has been divided along two main lines: the general economic equilibrium (GEE), originating with Walras (1988 [1874]), and the partial economic equilibrium (PEE), originating with Marshall (1990 [1890]). At no time have these two paths converged although it is possible to discern a tendency of both theoretical and applied economics to oscillate between the two, with movement in one or the other direction at different times. This oscillation is based on the impossibility of making either one or the other of these two approaches a coherent and convincing framework for the inquiry of an intrinsically dynamic and monetary economy such as capitalism.

Sraffa’s criticisms of marginalism

The internal logical soundness of marginalism in both its incarnations has been criticised on several occasions and with some justification. Piero Sraffa is the crucial actor in this story. In 1925–26, he attacked the Marshallian theory of perfect competition and the idea that limits to the size of output come from costs and the prevalence, after a certain point, of decreasing returns (Sraffa 1925, 1926). This critique challenges the idea that the competitive firm, necessarily small, works in a homogeneous market, in which it is indifferent whether to purchase from one firm rather than another. By contrast, there are many ‘particular’ markets and it is impossible to neglect market imperfections or product differentiation. In 1960, Sraffa destroyed the notion of ‘capital’ as a homogeneous factor of production and opened the way to the rebuttal of the aggregate production function. The view of profit as the remuneration of the marginal contributions to production of ‘capital’ as a factor of production was mortally wounded (Sraffa 1960). Sraffa denies the existence of a unique equilibrium distribution, and opens the economic system to conflicts in the distribution of the surplus. Social and political determinants may affect the ‘productive configuration’ and the methods of production of the system.

However, neither the Walrasian nor the Marshallian neoclassical traditions came out lethally injured by the attack against the laws of returns, or by the capital controversy, or by the revival of a Ricardian conflictual view of distribution. The way out from Sraffa’s 1925–26 criticism was the Robinson-Chamberlin ‘imperfect competition’ literature. And the way out from Sraffa’s 1960 critique of neoclassical GEE was along the lines of disaggregated intertemporal general equilibrium models without capital as an aggregate notion. But it is a paradoxical situation when economics fluctuates between a list of particular cases and the abolition of capital itself from economic discourse, since the object of analysis is precisely the study of a capitalist system.

This paradox is an indication of an unsettled situation, which deserves to be investigated more accurately, especially by looking at the way in which temporal and spatial dimensions can be integrated fully within neoclassical economics.

The general equilibrium and the theory of location

Walras’s original general equilibrium model presents the relations of a one-point economy and the conditions for its equilibrium. The underlying assumptions—i.e. zero transport costs, perfect mobility of capital and labour, uniform technical conditions, neglect of local differences in supply and demand and the principle of ‘pure’ competition—are meaningful only when the economy is considered abstracting from space as well as time. The same is true for the later intertemporal version of general economic equilibrium (Debreu 1959). Here Walras’s model is extended to a sequence of periods by assuming the existence of complete markets and perfect forecasting, thus introducing a false conception of ‘time’. Commodities can be distinguished not only according to their product characteristics and the moment they are available, but also by the place where they are available and the states of nature. In this way, both time and space are considered but ‘neutralised’. The same happens to money, which is inessential too. Not only, as in Walras, is there a central coordination mechanism, the ‘auctioneer’, but the model is also framed so that present and future coordination is guaranteed, and there is no uncertainty. In fact, in the initial period the destiny of the system is defined once and for all.

Neoclassical location analysis managed to introduce space in the general equilibrium framework, by considering the distance factor in terms of transport costs. Alfred Weber (1971 [1929]) was the first economist to undertake a systematic analysis of location in a neoclassical framework. Weber’s main aim was to find the economic reason for the rapid urbanisation of the German economy by isolating three important explanatory forces: transport costs, labour costs and agglomeration forces. By taking into account these three determinants, an optimum location becomes the point of overall minimum transport costs, although both labour costs and agglomeration economies can shift the optimal location towards other points. Weber’s work was indeed within the neoclassical tradition but limited to a partial equilibrium analysis. By contrast, Lösch (1954) developed a true general equilibrium analysis based on the definition of ‘economic region’ and its determinants. His main aim was to elaborate a model of location valid for independent producers and consumers, for agriculture as well as industry, hence a universal model. Each producer (or consumer) is represented by a set of coordinates and its boundaries are described in equation form. In this way, the regional economy is given by a system of mathematical equations, whose solution gives the optimum location for a firm.

Lösch shared with Christaller (1966 [1933]) the idea that a hexagon is the shape which the market takes by the expansion of producers (or consumers). The hexagon market principle enables both authors to define equations for the general equilibrium model for location. Predöhl (1928) believed that the location problem is a price problem, and that the principle of substitution enables firms to move from one location to another, according to the relative prices of the factors of production. Finally, Isard (1949, 1956), the post-war founder of the regional school, attempted to make the Weberian approach more dynamic, by introducing internal and external scale economies, and urbanisation economies. His equilibrium model of an idealised capitalist system was the result of the application of game theory to abstractly defined regions.

These theories of location all shared the same unrealistic assumptions, which were necessary to make the models work and give the equations a solution: a uniform-plain region with a uniform distribution of raw materials, a uniform transport surface, a uniform distribution of population, uniform tastes and preferences, uniform technical knowledge and uniform production opportunities. Almost all these authors were aware of the lack of realism of these assumptions. Weber breaks through the limitations of such artificial assumptions in a section entitled ‘Reproducing the Realities’ (Weber 1971 [1929]: chapter V, section III). Lösch did the same in a small section entitled ‘Economic Regions in Reality’ (Lösch 1954: chapter II, section B15). Isard, commenting on his diagrams and figures, remarks that they ‘pertain to a situation which abstracts from interest conflicts, undercutting and retaliation, advertising strategies, collusive action, market encroachment, and similar phenomena characteristic of firm behaviour’ (Isard 1956:264–5). Despite the acknowledgement of the unreality of their assumptions, the theory of location was the first attempt to include space in economic analysis.

Within the general equilibrium framework, geographical dimension can be related only to the choice of the optimum localisation of productive activities, and space can be considered only in terms of geographical distance (i.e. transport costs). Taking the technology as exogenous as well as the demand determined by voluntary households’ choices, the problem is to identify the ‘best’ distribution of productive activities across space and the ‘right’ settlement to minimise costs. ‘Consumer sovereignty’ and exogeneity of techniques rule. The economic process is understood as a one-way avenue from resources to consumption. The only problem is, therefore, the ‘efficient’ and ‘rational’ allocation of resources, relative to the ‘natural’ aim of the satisfaction of needs.

All these neoclassical approaches to space are challenged by the same critiques to general equilibrium. First, asymmetric information and bounded rationality are not considered in the model, money is irrelevant, capital and labour are perfectly mobile and the production function is uniform throughout. Moreover, the conceptualisation of space, explicitly considered only in terms of transport costs, is inconsistent with the idea of perfect competition and, consequently, with the original neoclassical approach (Sheppard 2000). Indeed, if different places can be treated as single different markets, the necessary conditions of a large number of buyers and sellers for each commodity and for each factor of production cannot be fulfilled and there is no uniform price paid by everyone. Least but not last, supply, demand and price adjustments—the typical neoclassical tools—cannot explain the location of industries because they cannot be considered independent of space. On the contrary, they are produced by industries themselves over time through an ongoing interaction between the production system and the location behaviour of industry (Storper and Walker 1989).

The neoclassical general equilibrium approach to location is compatible with the neoliberal argument that a firm is free to choose any location, depending only upon production and transport costs. Capital is seen as ‘footloose’ with the power to move fre...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Figures
• Tables
• Contributors
• Acknowledgements
• Introduction: “Reinventing Space”
• Part I: Theoretical Perspectives
• Part II: Empirical Evidence