GEOG 240: Day 4

1. GEOG 240: Day 4 Chapter 3: The Capitalist Economy

2. Housekeeping Items • Any questions about the assignment?? • If there’s time, I may show part of a video today. • Anyone not volunteer yet? (Reena?) • I’ll pass around the attendance sheet and the folder of articles. • Introduction to topic: capitalism is one of a number of modes of production that have existed throughout history. In an article I co-authored back in the early ‘90s, I distinguished six categories for analyzing such modes: •mechanism for distributing goods and services •relations of production (ownership, management, & labour relations) •mechanism for allocating resources •valuation of nature •valuation of the ‘autonomous’ sector •relationship of economy to society

3. Understanding Capitalism • In contrast with the assumption of classical economics, people are not perfectly rational decision-makers, nor do they have a perfect knowledge of external conditions and alternatives. Moreover, how they respond to specific challenges and opportunity costs depending on physical and cultural conditions which vary at thespatial level. • Nonetheless, they do seek to advance their interests. “At a general level…capital seeks to generate profits; labour seeks to maximize its wages and living conditions; consumers seek to further their interests and aspirations by purchasing goods and services; and the state aims to promote economic growth within its territory.”

4. Understanding Capitalism • In 352 we take a much broader view of the term capital, but the text defines it “as money invested in production or financial markets.” Capitalists are those whose possession of capital enables them to own the means of production: “land, materials, factories, offices and machines.” In investing this capital, capital accumulates and is enlarged through a process the Marxists call the circuit of capital. This makes capitalism more dynamic than other systems. How? • This involves the purchase of means of production (MP) and labour power (LP), and the supervision of the process by owners or managers. The net result is the production of a commodity (good or service) which is then sold for money, a portion of which goes to the workers and managerial staff in the form of wages and salaries, and the balance of which is reinvested in the process. • How much of the resulting surplus goes to the workers or to the government as taxes is a highly political issue.

5. Understanding Capitalism • In a competitive environment – though not all sectors are particularly competitive – how well a firm performs depends a lot on its core competencies and on its internal organizational culture. • The textbook gives the example of Dell; what about some other firms? What makes them successful or stand out from the crowd? • When Adam Smith and the founders of classical economics were writing their texts, most firms were small and centred around individual entrepreneurs. Nowadays, while small businesses still supply a majority of the jobs (see the article that Pam and I wrote in the summer issue of Plan Canada, also available on my web site), the important players are seen as multinational corporations. For such companies, equity capital is available to be purchased on stock market (see Table 3.1), rather than being held exclusively by the private owner or owner’s family.

6. Understanding Capitalism • As multinationals have centralized production and markets, so have financial institutions, with small community banks and credit unions giving way to giant financial institutions. Pension funds have also become important players in the investment arena. • In addition to equity capital, other firms specialize in investing venture capital in up and coming promising firms. Can you think of examples of companies that probably relied on such funds in their start-up phase? • Of all the classical ‘factors of production,’ capital is the most mobile, and it tends to gravitate to areas where the greatest return on money invested can be made, whereas natural resources are static (though capable of being removed and moved) and labour will move to find greater opportunities, but labourers and other personnel often have a strong sense of attachment to place.

7. Understanding Capitalism • Locational factors often determine where industries originally develop, but over time conditions change and the original capitalists disinvest and move elsewhere (see the case study cited in Box 3.1 on p. 46). The impact on communities can be devastating and furthers the process of uneven development. • Joseph Schrumpeter, an Austrian economist described capitalism’s processes of creative destruction fuelled by cycles of investment and disinvestment and technological innovation. Source: Blogspot

8. Understanding Capitalism • Key to understanding the constant upheaval in the economy and the changing patterns of investment is the notion of Kondratiev cycles (or waves) first identified by an early Soviet economist. Source: Bing Images

9. Understanding Capitalism • One of the consequences of constant technological innovation is that generations of workers are made redundant, such as the demand for handloom weavers who were replaced to a large degree by power looms. This led to a ‘Luddite revolt’ against the new technology.

10. Understanding Capitalism • It’s often the case that with new cycles, or even sub-cycles, other nations take the lead away from the previous front-runners. • In addition to the technological changes, the shift of labour within the four basic sectors of economy – primary (resources), secondary (manufacturing), tertiary (service), and quaternary (knowledge-based) – has changed enormously over the last half century, though with variations from country to country (see Table 3.2). What is your knowledge and personal experience around these shifts? This often has implications for wages and bargaining power. • The labour process is a key thing distinguishing capitalism from other modes of production. In the past – under slavery or feudalism – workers were either owned outright or bound to the land. Under capitalism, workers are ‘free’ but their choices are often quite limited.

11. Slavery and Feudalism Sources: Bing