Chapter 4
The Interdependent Global Economy
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Introduction
The Historic Atlantic Alliance
The Pacific Rim
Core and Periphery Relations
The Role of Multinational Corporations
The Changing Geography of Global Finances
Global Communications and World Cities
Gottman’s Quotation
“Modern cities are the pillar’s of the developing global system.
It is a poetic illusion to assume that the world is shrinking
because communication improves. In reality the world of each
of us constantly expands because, as we carry on, we find it
necessary to deal with more and more people, in more places,
with a greater number and diversity of problems. This is so
for individuals and also for cities.”
• Could be seen as another expression of Vance’s mercantilist
model, or of Alonso’s bell-shaped development model
• Historical characterization of European colonial empires
to supply commodities needed in the industrial
revolution
Evolution of Global Trade
• The Historic Atlantic Alliance
- Domination of Atlantic trade in global trade
• Post WW-II Pacific Rim Development
Japan, 4 Tigers (S. Korea, Hong Kong,
Taiwan, Singapore), Indonesia, Malaysia,
China, Thailand (Table 4.2)
• Figure 4.1 (U.S. Exports), Figure 4.2 (Japan
exports), the Changing Position of China
• New big trends: Movement of Mexican
Maquiladora production to China; Outsourcing to
India (English), Africa (French), E. Europe
(German)
Core and Periphery Relations (again)
with more of a geopolitical spin
• Wallerstein’s core-periphery hierarchy
– Figure 4.3
– World Cities as the set of core focal points
– His 4 epochs: (a) transitional period 1450-1640
(b) colonial capitalism (1640-1815)
(c) British hegemony (1815-1917)
(d) U.S. hegemony (1917- present)
Marked by: U.S. Military superiority; socialist
experiments, decolonialization of the periphery,
rise of multinational corporations
Dependency Theory
• Core growth only possible by exploitation
of the periphery
• High levels of competition in primary
producers, w/labor willing to work for low
wages, in industries with depressed product
prices, and a lack of internal investment to
develop other industry in the internal
economy.
The Brain Drain
• International Perspective in the text
– (Japan vs. China)
– The dramatically altered landscape since 9/11
• Could make the same arguments internally
in countries, like the U.S.
• Regional differences in education system
capacity & consequences for income
earning possibilities for residents.
Location Quotients: S&E
Graduate Students
.66
Washington State Employers Import Educated Labor to
a greater extent than expected due to the small local higher ed system
The Role of Multinational
Corporations
• The rise of large corporations and increase
in concentration of power
• Types of market organization
• Evolution of multi-establishment
corporations
• The ICI example in the text
Alternative Models of Competition
Barriers to Entry - High
One Seller
A Few Sellers
Limited Quantity
of Sellers
Many Sellers
One Buyer
Monopsony
A Few Buyers
Oligopsony
Many Buyers
Monopoly
Oligopoly
Monopolistic
Competition
Perfect
Competition
Barriers to Entry - Low
Attributes of Alternative Market
Types
Perfect Competition
Homogeneoous products
Each producer makes a
small share of output
No one seller influences
Prices
Entry to market is easy
Flow of information is
Perfect, eliminating excess
profit
Markets are fluid
Monopoly
Unique Product
One producer makes all of
the product
Prices set to maximize
profit
High Barriers to Entry
Monopolist is able to
control the market
Market is rigid
“Pure” Monopoly
Oligopoly
Similar Products
Several sellers divide the
market
Prices set through pricing
strategies
High Barriers to Entry
Oligopolists engage in
strategic behavior—
competitive or collusive
Market may be unstable,
competitive strategies to
create stability: product
differentiation,
advertising, industry
agreements
Trends in Business Concentration
•“Concentration ratios” as indicators of market
structure
•Rising concentration in manufacturing in U.S.
and U.K. over time
•Similar trend in other sectors
•Most industries are not monopolies, or
perfectly competitive. The tendency is towards
oligopoly AND often are part of
multi-establishment firms, often conglomerates
Size Distribution of Business
Enterprises, U.S., 1997
0.1%
of of
Enterprises
account
foraccount
61% of
0.09%
the businesses
in the U.S.
forReceipts
60% of total receipts
Corporations Over $50 million
Corporations $10-$49.9 million
Corporations $5 - $9.9 million
Net Income
Corporations $1 - $4.9 million
Receipts
Number of Businesses
Corporations less than $1 million
Partnerships
Non-Farm Proprietorships
0
5000
10000
15000
20000
Examples of Concentration Ratios
Share in 1992 of Value Added accounted for by the
largest companies, United States.
50 Largest
100 Largest
150 Largest
200 Largest
24%
32%
38%
42%
Examples of Concentration Ratios
SIC # of Companies
2421
5302
3334
30
3721
151
2011
1296
2013
1128
2015
373
2021
31
2022
418
2023
153
2024
411
2026
525
Value of
Share of value of shipments
Shipments accounted for by the x-largest companies:
($ millions)
4
8
20
50
21065
14
20
31
44
5849
59
82
99+
100
62938
79
93
99
99+
6959
50
66
79
88
5478
25
33
46
62
23845
34
45
66
85
1034
49
78
98
100
18344
42
60
74
86
7541
43
55
76
94
5291
24
40
68
87
21921
22
30
49
68
Evidence of Mergers and Divestitures
United States 1985-1999
#
10000
$
4000
8000
3000
6000
2000
4000
1000
2000
0
1985
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
0
Number of
Actions
Value ($
Billions)
Acquisitions and Divestitures,
U.S., 1985-1999
#
7000
6000
5000
4000
Acquisitions
Divestitures
3000
2000
1000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1985
0
Consequences of Mergers,
Acquisitions & Corporate Expansion
• Most industries exhibit oligopolistic tendencies
• Leading corporations are multiestablishment
• Leading corporations are conglomerates
• Leading corporations are multinationals
• Truly global corporations now dominate
international business: Table 4.4
“We live in a world of oligopolies, a world in which
hundreds of thousands of small firms still exist but a
relatively small number of large enterprises predominate.” P.
262, Lloyd & Dicken
The constant flux in global (and
local) corporations
• Downsizing as a strategy
• Outsourcing
• “Re-engineering”
AND
• Simultaneously development of
new businesses
• Development of new product lines
in existing businesses
• Restructuring production locations
K2 shifts work, cuts half of staff on
Vashon (Seattle Times 11/19)
“K2, a maker of skis and other sporting goods, said it will lay off
half the workers at its Vashon Island plant as it moves half its ski
and snowboard manufacturing to China and California and has
suppliers make its bike products to cut costs.”
“The company expects the changes to save $4 million next year.”
“K2 makes skis, snowboards, inline skates and bikes under the
K2 brand, as well as Olin skis and Shakespeare fishing tackle. It
will move production to plants in Corona CA and China by
year’s end.”
“K2 got the Corona plant as part of its recent acquisition of
Preston-based snowboard-equipment maker Ride. It will house
manufacturing of mid- to high-end snowboards. The rest of the
company’s products will be made in China or outsourced.”
The Segmented Economy
• Dynamics in Firm Populations
• Averitt’s dual economy model
Center firms - large, dominant, complex in
organization, powerful resources and influence
Peripheral firms - small, simple structures,
weak resources, and little influence
David Birch’s Thundercloud
Big
A few grow huge
A small cohort
become global
corporations
Size
Most fall back
after a short period
Small
Most Firms
Many voluntary startups and
stay small forever cessation's each year
Birth Rates: ~ 10-12% of Existing Population
Death Rate: ~ 8-10% of Opening Stock of Businesses
A Model of the Segmented
Economy by Taylor and Thrift
BUSINESS
ORGANIZATIONS
Large
Firms
Smaller
Firms
Multidivisonal
Leaders
Laggards
Intermediates
Craftsman
Subcontractors
Global
Satisfied
Satellites
Franchises
Loyal
Opposition
Supports Laggards Intermediates Leaders
Lindahl & Beyers test in
the producer services
Beyers & Lindahl Test of Segmented
Industry In Producer Services
Leaders
High Fliers
Still Growing, Exporters
Still Growing, Local
Right Industry
Satellites & Spin-Offs
Intermediates
Field Offices
Stabilizing
Craftsman Proprietor
Laggards
Satisfied Small Business
Steady Cruisers
Declining Strugglers