3.4.2  The Geography of Wealth Creation and its Globalisation

 (This is a current extract from the Patterns of Power Repository.  An archived copy of this page is held at http://www.patternsofpower.org/edition02/342.htm)

Many products are the result of activities by more than one company, in multiple layers of wealth creation; a car, for example, involves mining industries, steelmakers, component manufacturers, carmakers and distributors.  People are acquiring wealth in each of these activities, which may be distributed across the world – increasingly using the Internet.  The geography of wealth creation is determined by resources, costs and markets:

·      Food production depends on the availability of agricultural land and the supply of water.  These are not necessarily located close to the people who consume them – and selling food to city-dwellers is a significant part of global trade.  Some countries are now leasing their farmland to other countries, as an alternative to producing and selling food.[1]

·      Geographic imperatives also affect other activities.  Tata Steel has a major plant located in Jamshedpur in Southern India, for example, which was chosen for its proximity to iron ore, coal and water.  A new city was needed to house the employees, because the chosen site was in the jungle.[2]  Other industries might locate themselves close to suitable sources of labour, or close to customers.

·      Whilst settlements may have developed in a particular area for historical reasons associated with the need for labour, or for the availability of land to feed people, there are many cases where the economic situation has changed.  And it continues to change.  The endless search for lower costs and the emergence of new technologies lead to a movement of wealth creation activity.

·      Many types of wealth creation activity can be carried out anywhere, so the work may move to a low-cost area – taking a holistic view of cost:

      The cost of labour is determined by wage levels and productivity (3.2.5).

      Taxes have to be taken into account.  Multinational companies can (legally) choose where to pay tax, depriving some countries of tax revenue (and giving those companies a competitive advantage over their smaller local rivals).  This became a political issue in Britain,[3] for example. 

      Compliance with government regulations forms part of a business's costs (3.3.1).

      Tariffs and subsidies may affect costs (3.3.7.1).

      Cost of delivery to the customer has to be taken into account.

·      Proximity to customers may be important.  It is absolutely essential for some services, like window cleaning for example, and it is helpful for any business where face-to-face contact can play a part. 

·      Cities become natural magnets for wealth creation; they attract people who are looking for jobs and those people then become customers, attracting more wealth creation in a spiral of urban growth – and the worldwide increase in the size of cities has been striking.[4] 

The geography of wealth creation does not wholly align with the geography of political control or economic regulation.  Wealth is generated by businesses, not governments and, although some are predominantly small and local, bigger businesses often transcend national borders.  The dominant international economic relations are therefore between wealth creators – who are increasingly mobile. 

© PatternsofPower.org, 2014



[1] The leasing of farmland, as a growing economic trend, was described in an Economist article on 23 May 2009, entitled Outsourcing’s third wave, and was available in April 2014 at http://www.economist.com/node/13692889.

[2] The history of Tata Steel and the Jamshedpur site is summarised on the Funding Universe website at http://www.fundinguniverse.com/company-histories/Tata-Iron-amp;-Steel-Co-Ltd-Company-History.html and was available in April 2014.

[3] On 12 November 2012, the BBC published a report on the proceedings of Parliament’s Public Accounts Committee, entitled Starbucks, Google and Amazon grilled over tax avoidance, which described how these companies were (legally) paying very little British corporation tax.  This report was available at http://www.bbc.co.uk/news/business-20288077 in April 2014.  

[4] On 6 November 2008, The Economist published an article entitled Cities and growth.  It showed that the average size of the world’s largest 100 cities has been growing exponentially, from 2m in 1950 to over 6m in the year 2000, and that this has brought both problems and benefits.  In April 2014, the article was available at http://www.economist.com/node/12552404.