11.2 The Economics of Geography

Economic conditions are connected to how countries gain national income, opportunities, and advantages. One way of gaining wealth is simply by taking someone else’s wealth. This method has been common practice throughout human history: a group of armed individuals attacks another group and takes their possessions or resources. This is regularly practiced through warfare. Unfortunately, this pillage-and-plunder type of activity has been a standard way of gaining wealth throughout human history. The taking of resources by force or by war is frowned upon today by the global economic community, though it still occurs.

The concentration of wealth and power in the global economic core, resulting from colonialism and early industrialization, positioned economic actors in these regions at the helm. This led to the rise of increasingly powerful transnational corporations with global influence, capable of shaping development patterns through their investment strategies. Large banana companies such as Chiquita, Del Monte, Dole, and Noboa, for instance, could enter countries like Ecuador, promote the development of extensive banana plantations, and ultimately create economies heavily reliant on a single commodity. This reliance made these economies vulnerable to the fluctuations of the global banana market.

Similarly, manufacturing-oriented transnational corporations influence development through the expansive production networks they establish. Understanding how the production of goods generates wealth in some areas but not in others requires grasping the concept of a commodity chain. A commodity chain consists of a series of interconnected links that connect various places of production and distribution, culminating in the creation of a final product that is bought and sold on the market. Different places occupy distinct roles within commodity chains, and they do not all benefit equally from the production of goods. Wealth generation depends on how production occurs at each step and who captures the majority of economic benefits. Segments of global commodity chains situated in the core are typically associated with sophisticated technology, high skill levels, extensive research and development, and high salaries. In contrast, segments located in the periphery tend to involve lower technology, less education, minimal research and development, and lower wages.

Piracy might just be a more honest way of stealing wealth. The art of piracy, for example, is still practiced on the high seas in various places around the globe, particularly off the coast of Somalia, in the Strait of Malacca, and the Gulf of Guinea in West Africa.

The main methods countries use to gain national income are based on sustainable national income models and value-added principles. The traditional three areas of agriculture, extraction/mining, and manufacturing are a result of primary and secondary economic activities. Natural resources, agriculture, and manufacturing have been traditionally targeted as the means to gain national income. Postindustrial activities in the service sector, including tertiary, quaternary and quinary economic activities, have exploded in the past seventy-five or so years.

Services constitute over 50 percent of income to citizens in low-income nations. The service economy is also key to growth, for instance, it accounted for 47 percent of economic growth in sub-Saharan Africa over the period 2000–2005; industry contributed 37 percent and agriculture 16 percent in the same period. This means that recent economic growth in Africa relies as much on services as on natural resources or textiles, despite many of those countries benefiting from trade preferences in primary and secondary goods. As a result, employment is also adjusting to the changes, and people are leaving the agricultural sector to find work in the service economy. This job creation is particularly useful as often it provides employment for low-skilled labor in the tourism and retail sectors, thus benefiting the poor and representing an overall net increase in employment.

Places around the world have sometimes been named after the methods used to gain wealth. For example, the Gold Coast of western Africa received its label because of the abundance of gold in the region. The term breadbasket often refers to a region with abundant agricultural surpluses. Another example is the Champagne region of France, which has become synonymous with the beverage made from the grapes grown there. The Banana Republic earned their name because their large fruit plantations were the main income source for the large corporations that operated them. Places such as Copper Canyon and Silver City are examples of towns, cities, or regions named after the natural resources found there.

The United States had its Manufacturing Belt, referring to the region from Boston to St. Louis, which was the core industrial region that generated wealth through heavy manufacturing for the greater part of the nineteenth and twentieth centuries. What sectors of the economy does each of these examples refer to?

Countries with few opportunities to gain wealth to support their governments often borrow money to provide services for their people. National debt is a major problem for national governments. National income can be consolidated into the hands of a minority of the population at the top of the socioeconomic strata. These social elites have the ability to dominate the politics of their countries or regions. The elites may hold most of a country’s wealth, while at the same time their government might not always have enough revenues to pay for public services. To pay for public services, the government might need to borrow money, which then increases that country’s national debt.

The government could have a high national debt even when the country is home to many wealthy citizens or a growing economy. Taxes are a standard method for governments to collect revenue. If economic conditions decline, the amount of taxes collected can also decline, which could leave the government with a shortfall. Again, the government might borrow money to continue operating and to provide the same level of services. Political corruption and the mismanagement of funds can also cause a country’s government to lack revenues to pay for the services it needs to provide its citizens. The National debt, defined as the total amount of money a government owes, is a growing concern across the globe.

Many governments have problems paying their national debt or even the interest on their national debt. Governments whose debt has surpassed their ability to pay have often inflated their currency to increase the amount of money in circulation, a practice that can lead to hyperinflation and eventually the collapse of the government’s currency, which could have serious negative effects on the country’s economy. In contrast to the national debt, the term budget deficit refers to the annual cycle of accounting of a government’s excess spending over the amount of revenues it takes enduring a given fiscal year.