3.4.2  The Geography of Wealth Creation and its Globalisation

 (The latest version of this page is at Pattern Descriptions.  An archived copy of this page is held at https://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