The Economics of Geography

The economy is a system of redistributing goods and services from where they are found to where people want to use them. The components of production in the economy are labor, land (natural resources), and capital. You need to mix those three ingredients to get your product. There’s not an infinite supply of everything. Someone will want something they don’t yet have, and are willing to give up something they do have. Methods for getting those desired goods and services include barter, the exchange of goods and services of perceived equal value; and purchasing with cash or cash equivalent; and use of force. In economic geography, the questions include where are the components of the economy located, how do they vary from place to place, and how do they move? Fundamentally, the economy assumes a scarcity of goods and services. 

We often talk about four, sometimes five sectors of the economy.  The simple direct use or extraction of natural goods such as farming, mining, fishing form the primary sector. There’s minimal skill and technology required for these activities in their basic form. Once products from the primary are combined into new goods through manufacturing processes, you are into the secondary economic sector. Controlling, using, and combining natural resources, agriculture, and manufacturing is the traditional method to increase national income. Many manufacturers are good at making things, but aren’t focused on selling them to the end consumer. That retail sales job falls in the tertiary sector. As the economy becomes more complicated and interconnected it’s sometimes difficult to determine the best options for wealth creation. In this case you use the service sector, the quaternary, and quinary economic activities, to get and interpret information.

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 Republics in Central America earned their name because their large fruit plantations were the primary income source for the large corporations that operated them.

Countries with few opportunities to gain wealth to support their governments often borrow money to provide services for their people. The national debt is a significant problem for national governments. National income can be consolidated into the hands of a small group of powerful people at the top of the socioeconomic strata. These social elites can 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 adverse 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 number of revenues it takes enduring a given fiscal year.

The Geography of Economics

The Industrial Revolution, which prompted the shift in population from rural to urban, also encouraged market economies, which have evolved into modern consumer societies. Various theories and models have been developed over the years to help explain these changes. For example, in 1929, the American demographer Warren Thompson developed the demographic transition model (DTM) to explain population growth based on an interpretation of demographic history.

In the 1960s, economist Walt Rostow adapted Warren Thompson’s demographic transition model (see chapter on population) to outline a pattern of economic development that has become one model for growth in a global economy. Rostow’s model described the five stages of growth in the economic modernization of a country:

The human development index (HDI) was developed in 1990 and is used by the United Nations Development Program to measure a standard of human development, which refers to the widening opportunities available to individuals for education, health care, income, and employment. The HDI incorporates variables such as standards of living, literacy rate, and life expectancy to indicate a measure of well-being or the quality of life for a specific country.

The human development approach, developed by the economist Mahbub Ul Haq, is anchored in the Nobel laureate Amartya Sen’s work on human capabilities, often framed regarding whether people can “be” and “do” desirable things in life.

Examples include:

• Beings: well-fed, sheltered, healthy
• Doings: work, education, voting, participating in community life.

Freedom of choice is central to the approach: someone choosing to be hungry (during a religious fast say) is quite different to someone hungry because they cannot afford to buy food.

Ideas on the links between economic growth and development during the second half of the 20th Century also had a formative influence. Gross Domestic Product (GDP) and economic growth emerged as leading indicators of national progress in many countries, yet GDP was never intended to be used as a measure of wellbeing. In the 1970s and 80s, development debate considered using alternative focuses on going beyond GDP, including putting greater emphasis on employment, followed by redistribution with growth, and then whether people had their basic needs met. These ideas helped pave the way for human development (both the approach and its measurement).

One of the more notable achievements of the human development approach has been to ensure a growing acceptance of the fact that monetary measures, such as GDP per capita, are inadequate representations of development. This measure of human development remains a simple unweighted average of a nation’s longevity, education, and income and is widely accepted in development discourse. Over the years, however, some modifications and refinements have been made to the index. Indeed, the critics of the HDI and their concerns have stimulated, and continue to stimulate, adjustments to the index and the development of companion indices, which help paint a broader picture of global human development.

The HDI emphasizes that people and their capabilities should be the ultimate criteria for assessing the development of a country, not economic growth alone. The HDI can also be used to question national policy choices, asking how two countries with the same level of GNI per capita can end up with different human development outcomes. These contrasts can stimulate debate about government policy priorities.

Jobs can be classified into three major types of sectors, which greatly influence the economics, standards of living, trade, and even social classes within a society. The first is called the primary sector, which are jobs directly related to the extraction of the Earth’s natural resources (e.g., forestry, raw materials, or agriculture). In the secondary sector, jobs are focused on manufacturing raw materials from the primary sector to usable products. The tertiary sector provides goods and services to people in exchange for payment. These types of jobs include lawyers, doctors, educators, banking, retail, athletes, and others.

It is probably apparent that the majority of the jobs in more developed countries (MDCs) are tertiary. There are primary and secondary sector jobs in countries like the United States, but the driving economic force is in the tertiary sector. MDCs are also more productive than LDCs, not because they work harder, but because of access and use of technology. In economics, productivity is the value of a product compared to the amount of labor.

MDCs also can invest more money and resources because of their economies. Thus their people tend to be more educated and healthier; children are more likely to survive, and adults tend to live longer than those in LDCs. Probably the two most important or essential components to have a nation’s developmental status begin to rise is through education and health care. There is a direct correlation to development and education: the more developed a nation, the more educated the population. One of the best indicators of a nation’s level of development is its literacy rate, the percent of people who can read or write.

In most developed countries, the literacy rate is usually around 98 percent, whereas, in emerging countries, the literacy rate is roughly 60 percent. The impact of this is that books are written for people in MDCs, and scientific advances tend to occur in these countries. Regarding percentage, least developed countries spend more of their GDP on education than most developed countries need to. In LDCs, the children going to school often have outdated books and not written in their primary language. Often in LDCs, more schools are private than public because the government cannot fund them. Outside religious groups and nonprofit organizations fund many of these schools.

Access to health care mirrors literacy statistics globally. However, geographers always want to look at these issues from different scales to understand if the patterns at a global scale hold at a regional or national level.

Other measures of development can be utilized to help geographers understand patterns of social and economic differences at a variety of scales. For example, looking at Gross Domestic Income (GDI) per capita gives a global view of the economic status of nations. North America, Northern Europe, Australia, and Japan have relatively stable economies and tend to be political world leaders. Interestingly, Saudi Arabia has a high GDI but is surrounded by countries with weaker economies. What confluence of factors might account for this phenomenon?

At this scale, a geographer might think that a country like Spain, with a strong GDI, also has a healthy economy. However, Spain has struggled to recover from the worldwide recession of 2008 and continues to have large pockets of the population who are chronically unemployed.

At this regional level, we can make some conclusions about the location of the unemployed, which create other questions that can be answered from a geographical spatial perspective, such as:

• Are unemployed people who are living in cities also in poverty?
• What kinds of education levels exist among people in those areas?
• What kinds of social services, if any, are needed in those areas?

As you can see, this type of questioning can help us understand different patterns of social and economic development, as well as influence public policy.

Source:

Largely based on the chapter “Economic Geography” in Human Geography by Dastrup at Pressbooks.

Some editing and revision by Cameron McCormick