Lecture 9 - Geographic Industrialization and Creative Destruction - SYLLABUS ERROR ALERT FOR FRIDAY READ PAGES 108-136 OF HARVEY WE READ PAGES 87-108

Lecture 9 - Geographic Industrialization and Creative Destruction

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Unformatted text preview: SYLLABUS ERROR ALERT FOR FRIDAY, READ PAGES 108-­‐136 OF HARVEY WE READ PAGES 87-­‐108 NEXT FRIDAY The only equa=ons in Geography 110 •  r > g –  In the long run, the rate of return on capital (r) is greater than the rate of growth (g) (popula=on + produc=vity) •  α = r x β –  The share of total income going to capital (α) is equal to the rate of return (r) mul=plied by the propor=on of total accumulated capital to total income (β) •  β = s ÷ g –  In the long run, the propor=on of total accumulated capital to total income (β) is determined by the propor=on of savings (s) to growth (g) What they mean in prac=ce •  Capital invested tends to accumulate as concentrated wealth faster than wages distributed •  The share of na=onal income going to capital holders depends on the amount of accumulated capital, which also effects the rate of return in a manner dependent on available applica=ons (marginal produc?vity) •  Slow growth increases the propor=on of accumulated capital to total income, because it encourages subs?tu?on of capital for labor PikeYy vs. Marx •  excess capital has a low •  overaccumula=on of marginal produc=vity leads to falling rate of à low rate of return profit •  expanding available •  profitability can be uses of capital à rise in restored by devaluing elas=city of subs=tu=on some investments and offsets fall in return opening up new ones •  “external shocks” •  “crea=ve destruc=on” is required to reduce necessary to restart capital stock and ini=ate accumula=on growth (Schumpeter) One vision of elas=city of subs=tu=on hYp:// Con=nuing capital intensity “This is perhaps the most important lesson of this study thus far: modern technology s=ll uses a great deal of capital, and even more important, because capital has many uses, one can accumulate enormous amounts of it without reducing its return to zero. Under these condi=ons, there is no reason why capital's share must decrease over the very long run, even if technology changes in a way that is rela=vely favorable to labor.” -­‐ PikeYy, Capital in the Twenty-­‐First Century, p. 224 “Human capital” and its “return on investment”? hYps:// -­‐Capital-­‐Graphic-­‐Design-­‐Studies/3479533 Forces of convergence & divergence “The crucial fact is that no maYer how potent a force the diffusion of knowledge and skills may be, especially in promo=ng convergence between countries, it can nevertheless be thwarted and overwhelmed by powerful forces pushing in the opposite direc?on, toward greater inequality… [T]he principal force for convergence—the diffusion of knowledge—is only partly natural and spontaneous. It also depends in large part on educa=onal policies, access to training and to the acquisi=on of appropriate skills, and associated ins?tu?ons.” -­‐ PikeYy, Capital in the Twenty-­‐First Century, p. 22 Points to remember •  Not all wealth is capital! –  only accumulated wealth that is thrown into the produc=on process should be seen as capital •  Capital is composed of previously expended labor –  reflects the results of total social produc=vity increases controlled by a small class of owners •  Capital is more than just money –  in reality, a large amount of capital is locked up in fixed investments and has an elas=city of subs=tu=on of zero Summary •  Capital is a rela4onship –  between the owners of accumulated wealth and owners of labor-­‐power •  and a process –  self-­‐valoriza=on of money in which capital owners accumulate the surplus produced •  Marx: the firm level –  impetus to increase produc=vity à rising capital intensity, overaccumula=on, and falling profits •  PikeYy: the level of the na=onal economy –  rising aggregate accumula=on increases capital share of income as long as available technology keeps up Lecture 15 Geographic Industrializa=on & Crea=ve Destruc=on Agenda I.  Schumpeter’s theory of crea=ve destruc=on II.  Geographic industrializa=on a.  Capital investment b.  Forms of compe==on c.  Technological change Key terms/concepts •  equilibrium vs. disequilibrium •  growth paths •  weak compe==on vs. strong compe==on •  Joseph Schumpeter •  crea=ve destruc=on •  diminishing returns vs. increasing returns •  lock-­‐in/path dependency •  innova=on •  “price-­‐making” vs. “price-­‐taking” I. Crea=ve destruc=on Crea=ve destruc=on: Baron Haussmann’s crea=on of the Paris boulevards hYp://pages.uoregon.edu/klio/im/idea-­‐images/ Joseph Schumpeter (1883 – 1950) Restless capital “The fundamental impulse that sets and keeps the capitalist engine in mo=on comes from the new consumers’ goods, the new methods of produc=on or transporta=on, the new markets, the new forms of industrial organiza=on that capitalist enterprise creates.” -­‐ Joseph Schumpeter, Capitalism, Socialism and Democracy (1942), Crea=ve destruc=on “But in capitalist reality as dis=nguished from its textbook picture, it is not that kind of compe==on [price] which counts but the compe==on from the new commodity, the new technology, the new source of supply, the new type of organiza=on (the largest-­‐scale unit of control for instance)—compe==on which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the exis=ng firms but at their founda=ons and their very lives.” -­‐ Schumpeter, Capitalism, Socialism and Democracy, p. 84 Cases of pure price compe==on “are fringe-­‐end cases to be found mainly in the sectors furthest removed from all that is most characteris=c of capitalist ac=vity. Moreover, they are transient by nature. In the case of retail trade the compe==on that maYers arises not from addi=onal shops of the same type, but from the department store, the chain store, the mail-­‐order house and the supermarket which are bound to destroy those pyramids sooner or later.” -­‐ Schumpeter, Capitalism, Socialism and Democracy, p. 85 Gales of crea=ve destruc=on: Kodak factory demolished, Rochester, NY, July 2015 hYp:// -­‐Kodak-­‐factory-­‐imploded-­‐in-­‐controlled-­‐demoli=on.html II. Geographic industrializa=on Geographic industrializa=on •  Emphasizes the cumula=ve effects of agglomera=on (clustering) and the increasing returns to scale through technological change •  Growth not just through crisis but inherent to technological development •  Fusion of classical poli=cal economy, Marx & Schumpeter, and neoclassical economics Michael Storper & Richard Walker Neoclassical theory 1.  Core economic ac=vity is exchange 2.  The purpose of exchange is to allocate scarce resources to beneficial uses 3.  The economic system’s natural state is in equilibrium -­‐ Michael Storper & Richard Walker, The Capitalist Impera4ve (1989), p. 36 Storper & Walker 1.  Core economic ac=vity is produc=on 2.  The purpose of produc=on is to generate surplus & profit 3.  System of produc=on in a constant disequilibrium state of non-­‐linear growth -­‐ Storper & Walker, The Capitalist Impera4ve, p. 36 IIa. Capital investment Construc=on of a combined cycle natural gas plant, Denver, Colorado hYp://news.agu.org/press-­‐release/new-­‐findings-­‐show-­‐u-­‐s-­‐power-­‐plant-­‐emissions-­‐down/ Capital investment •  Star=ng point of a round of growth –  M – C – ∆M •  Inherently specula=ve –  in the sense of being based on an uncertain future •  Shaped by the rate of profit –  very imperfect signal, not a known quan=ty “Investment is… the principal means by which individual capitalists compete and explore the possibili=es for growth in a situa=on fraught with uncertainty. Investors face two problems: alloca=ng capital to the best use across a finite range of possible industries and probing the possibili=es for growth within the industry(ies) where they already operate. In short, they must invest in a dynamic se}ng…” -­‐ Storper and Walker, The Capitalist Impera4ve, p. 42 IIb. Compe==on •  Weak compe==on à temporary adjustments –  Occurs in the sphere of circula=on (markets) •  under-­‐pricing, searching for cheaper inputs, etc. •  tends toward rough equilibrium –  Shi~s labor, capital from ineffec=ve firms to more effec=ve firms –  Prompts more “efficient” use of inputs •  Strong compe??on à reshapes system itself –  Fundamental disequilibrium transforma=ons •  produc=on, organiza=on, technology… Profit rates “[P]rofit rate inequali=es are inherent to capitalist produc=on because capital is not perfectly mobile in any of its forms. Certainly money capital moves with great swi~ness and to great distances in search of amore advantageous combina=ons of inputs and markets, labor forces and technology. Yet in order to produce surplus (value), firms must build up a produc=ve apparatus consis=ng of fixed capital, workers, land, poli=cal alliances, and so forth—all with a local base.” -­‐ Storper & Walker, The Capitalist Impera4ve, p. 47 “This process renders capital temporarily immobile, making it subject to some leverage by workers, communi=es and governments, and crea=ng ‘localized’ profit rates. Capital cannot adjust perfectly to the field of profit opportuni=es—especially as strong compe==on is constantly shi~ing the terms of produc=on through the rise of new sectors, technological and organiza=onal change, and the opening of new product and factor markets.” -­‐ Storper & Walker, The Capitalist Impera4ve, p. 47 Strong compe==on “In [its] strong sense, compe==on drives capitalists to revolu=onize produc=on in order to gain an edge on compe=tors, thereby con=nually disrup=ng established condi=ons, pushing the economy to grow and keeping it from ever seYling into equilibrium. Firms do not merely adjust to market condi=ons and keep to compe==ve standards; they struggle with one another in a fierce sort of economic warfare… Capitalists, therefore, ac=vely search for ways to transform business prac=ces, to do what has never been done.” Storper & Walker, The Capitalist Impera4ve, p. 48 IIc. Technology The “cloud”: a server farm hYps://deptlightsound.wordpress.com/2014/11/11/the-­‐an=lapsarian-­‐age-­‐and-­‐the-­‐immortality-­‐of-­‐the-­‐mind/ Technological dynamism “Increasing returns are not strictly limited to a par=cular firm or workplace because products, machines, and labor processes are always developed in the dynamic context of the economy as a whole… Industrializa=on is a process of unevenly developing roundaboutness in produc=on, over which no single agent has control and whose very interdependence (and thus the external nature of increasing efficiencies) precludes the possibility of developing equilibrium alloca=ons of resources.” -­‐ Storper & Walker, The Capitalist Impera4ve, p. 54 “The essence of technological change is increasing returns. The choice is not between roughly equivalent techniques with different factor ra=os, the choice is between present and future techniques as industrializa=on moves forward. New techniques outperform exis=ng ones in significant ways, and o~en across the board—i.e., they are not just ‘labor-­‐saving’ or ‘capital-­‐saving,’ but save on all inputs at the same =me.” -­‐ Storper & Walker, The Capitalist Impera4ve, p. 55 Machine factory in the age of steam power hYp:// Manual machining hYp:// -­‐services.com/machining.htm Computer numeric controlled (CNC) machining hYp:// fionline.com/product-­‐view/machining/ The search for new techniques “Adop=on of any one such technique is preferable to staying put, even if the one chosen is not op=mal… The uncertainty of the search is amplified by the impossibility of knowing either the full range of available techniques or the future course of technological change. Moreover, firms, industries and even na=ons can be locked into par=cular paths of development by past choices.” -­‐ Storper & Walker, The Capitalist Impera4ve, pp. 56-­‐7 Technical change •  Technical change is lumpy –  Leaps over current calculus (based on socially necessary labor =me) –  Technical change changes prices –  More than prices change technology •  Virtuous feedbacks –  Cost-­‐cu}ng mostly in declining industry –  New products, new markets –  Problem-­‐solving in produc=on –  New labor, new ideas –  High profits, high reinvestment rates Cyclical accumula=on crises “As an investment boom proceeds, so do the dangers of overinvestment: too much fixed capital (overcapacity), excess inventories (both outputs and input overstocks), too much debt on firms and throughout the system. Marx calls this situa=on ‘overaccumula=on’: too much capital in the systme rela=ve to the prospects for earning sufficient profits… Profits fall, investment slackens, and the economy turns down.” -­‐ Storper & Walker, The Capitalist Impera4ve, p. 68 Summary •  Capital accumula=on driven by investment in the context of compe==ve uncertainty •  Strong compe==on moves beyond simple factor subs=tu=on to revolu=onize processes –  Marginal produc=vity of capital cannot be known in advance in true strong compe==on •  Technological change leads to divergent growth paths, en=re new sectors/processes •  In dynamic growth, prices set by “price-­‐makers” based on produc=on costs rather than “price-­‐ takers” based on subs=tu=on costs For Friday… •  Read David Harvey, The New Imperialism •  REMEMBER IT IS OUT OF ORDER IN THE READER, READ PAGES 108-­‐136 •  Key issues –  In Harvey’s argument, what are the roots of crisis? –  How do they manifest geographically? ...
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