Geofusion (eBook)

Chapter 1

Why is Geography Important
in a Globalizing World?

Globalization is not only a feature of our time, but also a trend that is unfolding over a longer historical horizon. The ancient Roman Empire can already be regarded as an undeniably globalized arrangement, unifying a major part of the world as it was known at the time. Major milestones paving the way to globalization have included the great geographic discoveries, from the discovery of America to Magellan’s first voyage around the world, and much later, the expeditions to discover the unknown internal territories of various continents up until the 19th century. The unquestionable milestones of globalization were the colonial empires of the 19th century spanning most of the world, among which the largest, the British Empire, covered 22% of the world’s territory and constituted 20% of its population. It was held together in a unified administrative and economic framework when it was at its peak in 1922. Although the large empires disintegrated, with the USA and Russia being the only exceptions, unification picked up speed and spread at a pace that was unfathomable in the past.

Today, human society and the economy along with it have been radically transformed in the wake of globalization. The integration and the rise of networks within the global economy is unfolding at an accelerating pace from one decade to the next. The elimination of the barriers within the economy, the global unification of standards and the global homogenization of consumption habits have given rise to a global economy that is increasingly becoming a unified whole and behaving like a single unit. This unification is also apparent in the global networks maintained by major financial institutions, spanning global hubs from Hong Kong to New York, and from London to Buenos Aires, allowing capital to flow freely between the different regions of the world. Therefore it is no surprise that the role of geographic space has also been radically transformed in this new economic and social structure. The significance of geographic location and physical distance seems to be disappearing completely. In the wake of falling transportation costs and technologies spanning physical space, distances are shortening and space is becoming “denser”.

The End of Geography? – O’Brien was Wrong

In the early 1990’s, British economist Richard O’Brien published his book, Global Financial Integration: The End of Geography,[1] which provided an analysis of the global financial system, and instantly made him the central figure of the debate on the role of space within our globalized world. O’Brien argued that even at the time of writing his book, tens of billions of dollars were trading hands on international money markets, and likewise, tens of billions of dollars could be transferred from one point of the world to another in a matter of mere seconds thanks to modern information technology. O’Brien predicted that “a state of economic development where geographical location no longer matters” was not far away.

Today, we can ascertain beyond any doubt that O’Brien (who later became a futurist before trying his hand at a career in music) was wrong. Experience has shown that the past decade has seen territorial location gain significance within professional, scientific and economic policy discourse in the midst of global restructuring. Several of the most influential thinkers addressing the world’s global socioeconomic questions have dealt with the rising role of spatiality and places, specifically the growing significance of cities. In Richard Florida’s model, the role of places in general and cities in particular is deemed essential for the rise of the creative class, considered the driver of economic prosperity. Edward L. Glaeser, professor of economics at Harvard University, actually wrote about the (economic) triumph of the city in one of his most important books.[2] At the same time, we must also take into account that geopolitical guru Robert D. Kaplan identifies the recognition of the pivotal role of territoriality within global processes as the key tenet of his book, The Revenge of Geography, which can be seen as a response to O’Brien.

Today, researching the geography of the world and of its smaller regions is gaining significance in various domains of social sciences. The new economic geography described by Paul Krugman, who was awarded the Nobel Prize for economics in 2008, set up a spatial equilibrium model of growth, and reincorporated geographic thinking into the mainstream of economic discourse.

What is in Fact Happening within the Global Economic Space?

Globalization has slashed transportation costs, brought distant locations closer to each other and seen the spatial networks of global production grow into a global web. In the knowledge-based economy, information may appear to disregard physical space and to be capable of being transmitted to any point of the world thanks to the steady rise in digital technologies. It is nevertheless apparent that strongly territorial trends of concentration also prevail within the economy: the role of cities has become more important than ever, alongside the so-called agglomeration effect. However, while the majority of product markets have taken on global dimensions, what are known as input markets – primarily labor and technology – remain very much linked to location.

Globalization not only unifies the world, but also divides it. The networks of production span the entire world, while the central zones of the economy are typically engaged in very different types of activities compared to the less developed peripheries. The key difference lies in the value added that they create. The high wage costs of advanced economies can only be guaranteed by continuous invention and innovation, i.e. the monopoly of new products, while mass production can be relocated to less developed regions offering lower production and wage costs (Figure 1).

Figure 1   Location of the Most Significant Ports and Metropolises in the World

Source:Nicholas Rapps, upplychainbeyond.com, http://supplychainbeyond.com/6-maps-explain-global-supply-chain/

The main consequences of globalization on the spatial aspect of the economy can be summarized as follows: the main globalization processes, i.e. the spread of information and communication technologies and growing deregulation, have created a dual spatial process, the geographic spread of economic activities coupled with stronger local trends. To put it differently, spatial concentration has gained economic significance, while long-term relationships between distant business partners may also be strengthened. The firms of global industries plan their product markets and sales in terms of country groups, and with respect to input markets and production, they think in terms of subnational regions, generally cities and their agglomerations. Globally competing companies have recognized that the sources of their competitive advantages are spatially concentrated, so they must take local action to bolster these advantages.

In the wake of this industrial competition, the economic role of regions and territorial units is appreciating, apparent in the rivalry among regions and among cities – the latter of which has special attributes – on the one hand, and in the greater business exploitation of agglomeration advantages stemming from spatial concentration (essentially external spatial economies of scale) on the other hand. As a result of these processes, several of the initial hypotheses used in economics warrant a reassessment, including the phenomenon of regional competition and the closely related interpretation of economic growth and development, alongside the economic policy and development concepts crafted in response to new challenges.