GLOBALIZATION, GLOBAL COMMODITY CHAINS, AND INTERNATIONAL DIVISION OF LABOR GEOREGNET summer school, Olomouc, 2010

Josef Novotný [email protected], http://natur.cuni.cz/~pepino

Charles University in Prague Dept. of Social Geography and Regional Development

PLAN

1. Globalization – a brief introduction 2. Mapping commodity chains (including presentations of your sourcemaps) 3. International division of labor

GLOBALIZATION

1. Try to describe one concrete situation when you became aware of globalization – situation when you came to realize that something like globalization really exists 2. Note down three items (things, processes …) that symbolize globalization to you

DEFINITION OF GLOBALIZATION • Many definitions have appeared in academic literature • In general, globalization can be defined as increasing interconnectedness of the world at higher geographical scales • Hardly possible (and perhaps worthless) to attempt for more specific definition … • Discussion of issues directly or indirectly related to different dimensions and aspects of globalization

DIMENSIONS OF GLOBALIZATION GLOBALIZATION OF INFORMATION AND TECHNOLOGIES – determines all other dimensions of globalization ECONOMIC GLOBALIZATION – integration of markets, increasing mobility of capital, expansion of MNCs, deepening of global division of labor Political globalization lags behind economic globalisation POLITICAL GLOBALIZATION – international integration, partial losses of national sovereignty, increasing importance of supranational governmental organizations and international NGOs SOCIAL AND CULTURAL GLOBALIZATION – intercultural contacts (tourism, migration, internet…), universal models of consumerism, globalization of social movements ENVIRONMENTAL DIMENSION OF GLOBALIZATION – increasingly apparent need for supranational action in environmental protection, responce to un-sustainability of present forms of globalization

GLOBALIZATION AND GEOGRAPHY • Geographers largelly missed out the ‘big globalization debate’ (Dicken, P. (2004): Geographers and ‘globalization’: (yet) another missed boat? Transactions of the IBG, 29, 1, 5-26.)

• Globalization is inherently geographical phenomenon – issue of changing relations between spatial scales • Globalization is about how social processes take place through continuously re-constructed spatial scales … “Spatial scales are never fixed, but are perpetually redefined, contested and restructured in terms of their extent, content, relative importance and interrelations. The continuous reshuffling and reorganisation of spatial scales are integral to social strategies and serve as the arena where struggles for control and empowerment are fought.“ … (Swyngedouw 2004)

WHAT IS GLOBALIZATION 1.Condition - inherent state of the modernity… 2.Process - set of objective processes … some of them positive effects and some of them negative effects and interpretations 3.Project and discourse – ideological aspects; globalization both political and economic doctrine (e.g. neoliberal globalization)

EFFECTS GLOBALIZATION Two views: • Globalization as diffusion (of cultural patterns and similar models of consumption behaviour, technologies and ideas, people, investments and production networks, organizational forms …) • Globalization as concentration (of power and wealth on the one hand and poverty and new forms of oppression on the other hand…)

GLOBALIZATION AS DIFFUSION…

GLOBALIZATION AS DIFFUSION…

GLOBALIZATION AS CONCENTRATION… “The central issue [of globalization], directly or indirectly, is inequality …” (Amartya Sen 2001 A World of Extremes: Ten Theses on Globalization) Mumbai 2004

Different forms of inequalities are more sensitively perceived because of globalization GLOBAL INEQUALITIES ARE GETTING "LOCALIZED" AND LOCAL INEQUALITIES ARE GETTIG "GLOBALIZED"

TRADITIONAL MYTHS ABOUT GLOBALIZATION •Globalization leads to convergence to an identical model of societal organization (e.g. westernalization) •Globalization shapes equally all parts of the world •Globalization leads to cultural homogenization •Globalization means the end of individual states •Globalization is ungovernable (it is something like a natural-law which cannot be substantially regulated)

INTERPRETATION OF GLOBALIZATION International survey of public opinion on globalization: „Voice of the People 2006 (Gallup Int.), GlobalScan 2004: Basic general questions: 1. Is globalization good for your country? Overall (64 countries):

Africa: Asia & Pacific: … Europe:

38% good and useful 15% bad and harmful 31% neutral 71% good and useful 19% bad and harmful approximately half by half 76 % bad and harmful

2. Do rich people benefit more from globalization than poor people? Overall, 60% report that globalization benefits disproportionately the rich

INTERPRETATION OF GLOBALIZATION

INTERPRETATION OF GLOBALIZATION

"Globalization" Josephine Hayden

INTERPRETATION OF GLOBALIZATION

"Globalization" Mark Vallen

INTERPRETATION OF GLOBALIZATION

"The Wrong Side Of Capitalism" Angela Brennan

"Every Morning I Wake up On The Wrong Side Of Capitalism" P. Maguerez

INTERPRETATION OF GLOBALIZATION

"Globalization" Shelby Horton

INTERPRETATION OF GLOBALIZATION

"Globalization" Malaquias Montoya

ECONOMIC GLOBALIZATION AND CHANGING SPATIAL DIVISION OF ECONOMIC ACTIVITY 1. Mapping commodity chains and networks 2. International spatial division of labor – trends and implications

YOUR EXAMPLES OF COMMODITY CHAINS (/ SUPPLY CHAIN / FOOD CHAINS etc.) Video – Introducing Sourcemap http://www.youtube.com/watch?v=17Z5nA0iCxI

YOUR EXAMPLES OF COMMODITY CHAINS (/ SUPPLY CHAIN / FOOD CHAINS 10 selected sourcemaps: Leonarda Švec – „Homemade walnut liquer“ Klára Šustrová – „Cosmetic products in our households“ Michal Plaza – „Potential carbon footprint of players traveling to Krakow“ Lenka Čermáková – „Kia Sportage“ Filip Polonský – „CUBE AMS 100 Race PRO MTB“ Tomasz Chaberko – „Steel made in Krakow“ Leila Tolja – „My breakfast“ Christoph Neger – „100g Milk Chocolate“ Zoran Kodba – ADIDAS Jabulani“ Valentina Valjak – „My Sunday Lunch“

Select 3 presentations which you find most interesting (informative, original, well created and presented…). Assign ranks to these selected presentations (from 1 to 3 where 1 means the best one)

MODEL OF SIMPLE PRODUCTION CHAIN

bare input–output chain

+ associated non-production services

+ associated institutional and regulation framework

Source: Dicken (2003)

COMMODITY AND PRODUCTION CHAINS AND NETWORKS •

Describe links between particular segments of production, distribution, and consumption process; connect places of production and consumption

•

Increasingly complex with globalization

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Individual segments of production as well as places of production and consumption are getting separated

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Lost of responsibility and accountability due to anonymization of production and consumption process

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Environmental and social problems associated with fragmentation of production chains – often transfer of responsibility to subcontractors

COMMODITY CHAINS AND NETWORKS • Value chain – share of final product value attributable to particular segments (steps) of production process • Expansion and fragmentation of production chain is enabled by the process of commodification (the value of almost anything – products, services, natural resources, people … - becomes reduced to the equivalent of its market value)

Source: http://openlearn.open.ac.uk adapted from Oxfam (based on interviews with workers in factories), 2004

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Today, well-known brand companies care about their reputation

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But still practices such as subcontracting „bad“ work to no-name subcontractors when keeping the margin down and profit up

Line workers fix and shape shoe mouldings in a footwear factory in Vietnam – source: http://openlearn.open.ac .uk

ARE BAD JOBS BETTER THAN NO JOBS? „The only reason developing countries have been able to compete with the [developed world] is their ability to offer employers cheap labor. Deny them that ability, and you might well deny them the prospect of continuing industrial growth, even reverse the growth that has been achieved. And since exportorientated growth, for all its injustice, has been a huge boon for all workers in those nations, anything that curtails that growth is very much against their interests. A policy of good jobs in principle, but no jobs in practice, might assuage our consciences, but it is no favor to its alleged beneficiaries.“ (Krugman, P. In praise of cheap labor: bad jobs at bad wages are better than no jobs at all, 1997, p. 4) • Highly controversial logic of thinking • Reflects simple market logic and ignores core principles of human development… • The question is to find appropriate regulations that would allow to utilize new opportunities for human development

MONITORING AND REGULATING COMMODITY AND PRODUCTION CHAINS

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Regulated vs. liberalized production chains (much depends on the nature of the product in question)

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Some regulations are usually required (mostly with respect to technical quality, health and environmental effects od the product, labor standards and social impacts of production, ethical issues…)

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Liberalization of production chains with their globalization (international regulations far less effective than those applied by national governments)

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Consumers should not only want to know from where the products they consume come from, but they should have a legal right to know it

Example of coffee industry:

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1962-89 international trade in coffee regulated by several agreements under International Coffee Organization (price regulations, export quotas)

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Most coffee producing countries had their coffee market boards

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After 1990 substantial liberalization of coffee trade (increase of production and export, competitive pressures from non-ICO countries)

Coffee value chain

Liberalization in the 1990s resulted in: •

Fall of coffee prices and increase of price volatility

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Transfer of substantial part of decisive power to distributors and big retailers

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Redistribution of profits – income of distributors and retailers increased from 55% to 75% of final coffee price at the expense of producers

MONITORING AND REGULATING COMMODITY AND PRODUCTION CHAINS •

Regulations "from above" – formal and semi-formal mechanisms of tracking and regulating production process

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Relatively effective nationally but not very effective internationally

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Technical quality standards (ISO system) better institutionalized than for example ethical or environmental codes of conduct)

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The UN Global Compact is a strategic policy initiative for businesses that are committed to aligning their operations and strategies with 10 universally accepted principles in the areas of human rights, labor standards, environment, anticorruption practices

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Lack of monitoring and effective enforcement measures

MONITORING AND REGULATING COMMODITY AND PRODUCTION CHAINS -

Tracking geographical structure of production chains is an important aspect of PRODUCT LIFE CYCLE ASSESSMENT - investigation and evaluation of the environmental impacts of a given product or service caused or necessitated by its existence

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http://www.youtube.com/watch?v=_gO8RJPwJHo&feature=related

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Primarily directed towards environmental sustainability

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UNEP Life Cycle Initiative

MONITORING AND REGULATING COMMODITY AND PRODUCTION CHAINS • Regulation "from below“ • Informed consumers and their behaviour can make a difference! (ethical consumerism) • Grassroots initiatives, social movements, campaigning • Firms pushed to „voluntarily“ align with certain codes of conduct • Corporate Social Responsibility reporting

GLOBALIZATION AND SPATIAL DIVISION OF LABOR

GLOBALIZATION AND SPATIAL DIVISION OF LABOR o Globalized world economy is - as a dynamic system - subject to continuous restructuralization that reflects changing progressivity of particular economic activities o Geographical structure of this system can be characterized by the concept of global spatial division of labor o Spatial division of labor is a spatial reflection of the technical fragmentation of production and of the division of economic functions in society o Specialization of different regions/countries to different economic activities relates to differences in socio-economic positions of these areas as well as to power differentials

1925

Connections between global and local Seemingly anonymous global processes have always their visible local impacts see for example Liverpool docks during centuries … 1983 2008

DIFFERENT INTERPRETATIONS OF LOCAL EXPRESSIONS OF GLOBAL ECONOMIC RESTRUCTURALIZATION: •

Creative destruction according to optimistic liberal interpretation

•

Dictate of neoliberal globalization ideology…

GLOBAL SHIFT(s) IN THE WORLD ECONOMY (P. Dicken) • Economic globalisation arises from the dynamic interplay between MNCs as prime actors and states as regulators, facilitated by processes of technological change … results in new forms of global spatial division of labor Key factors: •

Technology and organizational innovations (fall of transport and communication costs, unification of technical standards …)

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Abundant sources of cheap labor force – spatial differences in production costs

Possible explanations: •

Expansion of MNCs and their new strategies?

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New international division of labor (NIDL)?

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The principle of comparative advantage in action?

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New economic strategies of governments (such as investment incentives, special economic zones etc.)?

NATIONAL STATES AS MOST IMPORTANT REGULATORS

MNCs AS PRIME ACTORS IN GLOBAL SHIFT (2004-2006) o MNCs accounts for 10% of global GDP o MNCs accounts for ½ of global R&D (2/3 of global private R&D) o MNCs employ 73 millions of people (3% of world labor force) o Overall, it is registered around 78000 MNCs (growth 10-20 thousand annualy), 780000 foreign subsidiaries o 500 biggest MNCs accounts for 94% of FDI and 50% of international trade (1/2 is intra-firm trade)

NEW INTERNATIONAL DIVISION OF LABOR (NIDL) (Frobel et al. 1980) New industralized countries have gained new roles in international division of labor

Largely through subcontracting to external suppliers

Distribution of industrial production between developed and developing countries (1953-1997)

Zdroj: Dicken (2003)

NEW INTERNATIONAL DIVISION OF LABOR (NIDL) •

Localization of segments of production processes (demanding for semi-qualified and unskilled labor) to semi-peripheral countries

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Capital-intensive production demanding for skilled labor remains in the developed countries

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Competition about FDI (special production and export zones, various investment incentives …)

• However, schematic concept of NIDL (stressing the relocation of industrial activities) only partially corresponds to much more complex reality of contemporary spatial division of labor… • International relocation (off-shoring) of not only industrial activities but also of services and R&D…

India 2002-2003 accounted for: 12% of global investments into call-centers 31% of global back-office investments 19% of global IT služeb

GLOBAL SPATIAL DIVISION OF LABOR AND (GLOBAL) PRODUCTION CHAINS Geographical position becomes a core determinant of firm organization and chosen production strategies → associates with spatial distribution of activities with different added value

Spatial division of labor closely related to spatial division of expertise

Model of typical US-based MNC Source: Sydor (2007)

Zdroj: Bardhan, Kroll (2003): The New Wave of Outsourcing

THE KEY CHALLENGE FOR INDIVIDUAL STATE AND REGIONAL ECONOMIES IS THE PROCESS OF THEIR INDUSTRIAL UPGRADING o Shift to production of higher value-added activities - moving up in the production chain o Flexibility and ability to inovate is the key perequieste o For example, shift from OEM → ODM → OBM products OEM - Original Equipment Manufacturing (production of components for product pertaining to another brand) ODM - Original Design Manufacturing (own design but still components for another brand) OBM - Original Brand Manufacturing (own brand manufacturing)

Product upgrading, process upgrading, functional upgrading