Chapter 8

1. Manufacturing involves 4 distinct phases. These phases are selection, assembly, production, and distribution. These phases correspond to the 4 primary questions of economic geography: 1) what will be produced, 2)how it will be produced, 3)where it will be produced, and 4) form whome it will be produced.

2. Changing the form of a raw material increases its use or value. For example, flour milled from wheat is more valuable than the raw grain. The increase in labor power is termed value added by manufacturing.

3. Raw materials are classified into two categories: 1) ubiquitous and 2) local. Ubiquitous materials are universally distributed. Local materials are found only at specific locations. Only localized raw materials attract production. Products comprised of ubiquitous materials will usually be produced near market locations to reduce transporation costs.

4. Classical industrial location theory is founded on the work of Alfred Weber. Weber’s system is often called the least cost approach because he assumed that such locations are optimal. Weber considered 1) the cost of assembling raw materials, 2) the cost of distributing the finished product, and 3) the total transportation costs. In normal cases, he assumed the existence of a single marked point. The best location for a manufacturing plant is the point at which the total transportation costs are minimized.

5. The weight and weight-losing properties of raw materials are critical factors influencing industrial location. The Varignon frame is a mechanical device of weights, strings, and pulleys formerly used to identify the best location for a plant. Today, high speed computers assess numerous variables to find the best location.

6. Locational decisions are influenced by prior developoment patterns. This is called industrial inertia. Plants may be located at nonoptimal sites in order to utilize existing infrastructure.

7. Three primary factors influence the method and cost of production after the materials have been assembled at a point. These are land, labor, and capital. Spatial variability in the cost of land and the availability of skilled or unskilled labor impact the location of production processes.

8. There are two forms of capital: 1) fixed capital and 2) liquid or variable capital. Fixed capital includes equipment and plant buildings. Liquid capital is used to pay wages and other operating costs. Liquid capital is more mobile than fixed capital. Fixed capital is a primary reason for industrial inertia.

9. Technological change has greatly impacted production processes. The time required to transport materials and transmit information has decreased substantially in the past 50 years. Flexible manufacturing processes, such as Just-in-time manufacturing are adaptations to technological change. Companies that can adjust to the speed and flexibility of economic relations are in a superior competitive position.

10. The scale of production indicates the volume of a firm’s total output. The optimal scale may determine whether a business expands existing facilities or builds branch plants. Finding the optimal scale of production is an attempt to eliminate or reduce diseconomies of scale (diminishing returns). The division of labor is a critical component of mass production. Division of labor not only speeds up production, but also facilitates the use of relatively unskilled labor. The emergence of agglomeration economies, such production linkages, service linkages, and marketing linkages, may also be related to the development of scale economies.

11. Verticle integration occurs when a firm controls more of the elements in the production process. This includes the purchase of raw materials or distribution facilities. Horizontal integration occurs whan a firm gains an increasing market share of a given niche of a particular industry. Mergers between similar firms is an example of this process.

12. The role a multinational corporation (MNC) symbolizes is that of an effective agent for transferring capital, managerial skills, technology, product design, and commodities among countries. Advantages which MNC’s possess include superior knowledge, and larger size and scope of operations.

13. Growth takes place through integration and diversification. Backward integration occurs when a firm takes over operations previously the responsibility of its suppliers. Forward integration occurs when a firm begins to control the outlets for it products.

14. Companies organize themselves hierarchically in a variety of ways to administer and coordinate their activities. The bacis formats are 1) functional orientation, 2) product orientation, 3) geographic orientation, and 4) customer orientation. The combination of at least two of these formats is called a matrix structure.

15. Business process reengineering refers to a major innovation in the manner in which organizations conduct their business. These innovations include downsizing, real time information systems, and strategic information systems. Downsizing reduces the number of employees. Real time information systems reduce bureaucracy by using self-managed teams. Strategic information systems use technology to improve a firm’s competitive ability.

16. The product life cycle, which begins with a product’s development and ends when it is replaced with something better, is important geographically because products at different stages of production tend to be manufactured at different places within corporate systems.

17. Corporate production systems undergo continuous locational adjustment. Shifts may be inspired by technical and organizational developments internal to the industry or changes in the external environment, such as the oil-price hikes of 1973. Particularly significant are adjustments made in response to major shocks or stresses placed on an enterprise.

18. Industries tend to pass through several stages. These stages include an initial period of experimentation, a period of rapid growth, a period of diminished growth, and a period of stability or decline.

19. Kondratiev hypothesized that industrial countries experience successive waves of growth and decline. These are called Kondratiev cycles. Each cycle lasts for approximately 50-60 years.

Chapter 9

1. The basic elements of society are the forces of production and the social relations of production. Forces of production include laborers, natural resources, and capital equipment. The crucial social relation of production is between the owners of the means of production and the workers employed to operate these means. Relations among owners is another key social relation. The relations among owners and between owners and laborers are sources of change in the geography of production.

2. The four major manufacturing regions are the Northeastern United States andSouthern Great Lakes Region, Northwestern Europe, Western Russia and the Ukraine, and Japan.

3. In North America, the primary manufacturing districts include New England, New York and the Mid-Atlantic, Central New York, Pittsburgh/Cleveland, Western Great Lakes, St. Lawrence Valley, Ohio and Eastern Indiana, Kanawha and middle Ohio Valley, and St. Louis. Four other districts, which occur outside the Anglo-American Manufacturing region, are located in the United States: the Southeastern region, Gulf Coast, Central Florida, and the West Coast.

4. Europe’s industrial regions are located in a north-south linear pattern extending from Scotland to Northern Italy. Major manufacturing regions in Europe include the United Kingdom, Rhine-Ruhr River Valley, Upper Rhine - Alsace - Lorraine region, and the Po Valley in Italy.

5. There are five major industrial regions in Russia and the Ukraine. These are located in Moscow, the Ukraine region, the Volga region, the Urals regions, and the Kuznetsh Basin Region.

6. As a result of globalization and the new international division of labor, the geography of manufacturing has changed significantly in the postwar period. For example, textile manufaturing has shifted dramatically from developed nations to the developing nations of Eastern Europe and Asia.

7. The automobile industry is perhaps the most important industry in the entire world. If we add the number of employees engaged in manufacture, sales and service, we find the total world employment of 25 million equal to the entire population of Canada. No other industry in the world can so few companies dominate the world scene as can the automobile industry. The world’s ten leading automobile manufacturers, led by General Motors and Ford, produce nearly 80% of the world’s automobiles. In 1960, the United States produced half of the world’s automobiles, but by 1991, that proportion had dropped to 19%. Japan’s proportion during the same period went from 1.3% to 28%.

8. World production of electronic components additionally has moved from Europe and North America towards East Asia, and includes semi-conductors, integrated circuits and micrco-processors. In 1995, Japan produced 42% of the world’s electronic components, followed by the United States with 25% and Europe with 13%. Although the United States, Japan, and Western Europe account for 80% of total world production in the semiconductor industry, they account for only 44% of the consumer electronics industry. Consumer electronics include items such as televisions. Third World countries are more involved in the consumer electronics industry.

9. There have been several changes in American manufacturing. From approximately 1850-1900, manufacturing was centered in large cities. Beginning in 1900, manufacturing began to move out of center cities to the suburbs. Eventually, a large shift in the location of manufacturing occurred when firms moved from the Midwest and Northeast to the South and West. Labor relations and transportation costs were partly responsible for these changes. Also, the United States experienced industrial devolution in the 1970’s and 1980’s, a period during which its share of world manufacturing output decreased.

10. The manufacturing of many U. S. products now takes place in other countries. By 1980, the 500 largest U. S.-based corporations employed an international labor force almost equivalent to the size of its national labor force.

11. Until recently, Japan’s record of economic growth had no equal. Between 1970 and 1984, Japan’s industrial output increased by 162%. Japan’s economic growth has been impeded by conflictual international relations, a dual economy, environmental pollution, and a regional imbalance among nations.

12. In 1990, 40 countries accounted for 70% of manufacturing exports from developing countries. The top 15 of these countries accounted for approximately 60% of this total. Primary manufaturing regions in developing countries include Mexico, Brazil, Argentina, India, Hong Kong, Taiwan, South Korea, and Singapore. Developing countries have also attempted to reduce their dependence on develooped nations by producing domestic manufactured goods to replace imports. This process was called import-substitution industrialization. This economic plan has largely failed. Only countries that have focused on export-led industrialization have been able to sustain their rate of industrial growth. In this policy, the economy is based on the production and export of manufactures. In export-led production, women make-up the largest part of the workforce. Export-led production may result in disorganic development, which occurs when an economic system is at odds with the cultural and political institutions of the people it exploits.

13. World industrial problems center on the fact that worldwide demand is stagnant or declining for industrial products, but capacity has increased. Each developing country wants its own industrial base, and this has drained demand away from the developed countries who cannot produce products as cheaply as developing countries. Basic levels of technology from manufacturing have diffused from developed nations to less developed nations in such principle areas as textile, iron and steel, tools, motors and clothing. Increased output capacity by developed nations as a result of technological innovation, robotics and flexible manufacturing systems has added to the glut.

14. Industrial problems affect both developed and developing countries. Developed countries must contend with competition from market blocs, multinational corporations, and disparities between rich and poor regions. Developing countries face problems related to accessibility to world markets, lack of capital and labor training, and inadequate infrastructure.

Chapter 10

1. International trade has increased significantly in the past two decades. In 1980, annual world trade was $2 trillion. Today, annual world trade totals $4 billion. This increase in trade may be the result of national efforts to offset disparities with regard to the availability of productive resources.

2. Several factors affect the ability of domestic producers to compete in world trade markets. Production factors, such as land, labor, capital, technology, and entrepeneurship are critical. Facets of the economic environment, including inflation, exchange rates, labor conditions, governmental attitudes, and laws may greatly effect domestic production and exports. The opportunity, ability, and effort of the producer to trade, as well as the competitiveness of other producers, are also important factors.

3. The theory of comparative advantage or the theory of comparative cost states that all countries have comparative advantages and that countries will export the goods that they can produce at the lowest relative cost. Countries enjoy a higher level of consumption with trade using comparative advantage than without trade. Moreover, trade enlarges world output by allowing countries to specialize.

4. Modern trade theory embodies the Hecksher-Ohlin theory. It states that a country should specialize in producing those goods that demand the least from its scarce production factors and that it should export its specialties in order to obtain the goods that it is ill-equiped to make. Again, free trade is best from a global standpoint; when specialization is fostered, world output is maximized. This theory argues that, not only will trade result in gains, but also that wage rates will tend to equalize as the trade pattern develops. The reasoning behind this is factor price equalization.

5. The most important shortcoming of trade theories is their failure to incorporate the role of firms, especially that of multinational corporations. Individual firms possess unique competitive advantage, control mobile assetts, and coordinate their economic functions among various branches according to the distribution of the firm’s assets.

6. Free trade is best from the standpoihnt of efficiency, but is it fair given the relationship of unequal exchange between developed and underdeveloped countries? The argument is that an artificial division of labor has made earning a good income from free trade difficult for most Third World countries. The British were instrumental in creating an unfair division of labor in the 18th and 19th centuries, for example. By in large, the growth of manufacturing in the Third World under multi-national corporate asupices is not a portent of its emancipation from an artificial division of labor. Vulnerable single commodity dependent countries have at least 40% of exports hinging on a single product. Certain Latin American countries, Africa, and the Middle East countries bordering on the Persian Gulf, are the most vulnerable. Another half dozen such countries exist in East Asia. A deterioration in the terms of trade means the prices received for exports relative to prices paid for imports exemplifies the problem of unequal exchange for Third World countries. Engel’s law accounts for a deterioration in the terms of trade: as income rises beyond a certain point, the proportion of disposable income spent on food declines. As consumption of manufactured ggods increases, agriculture forms a proportions of total trade and income elasticity of demand increases for manufactures goods. The economy of many underdeveloped countries are characterized by such structural rigidity. They cannot alter the composition of exports rapidly and respond to relative changes in prices.

7. Capital movement takes two forms. The first type involves lending and borrowing of money. The second type of capital movement involves investments in the equity of a country. If the long-term investment does not involve managerial control of a foreign company, it is called portfolio investment. If the investment is sufficient to obtain managerial control it is called direct investment. Multi-national corporations are the epitome of direct investors.

8. The global expansion of financial systems has three components. They are the internationalization of 1) domestic currency, 2)banking, and 3) capital markets. International currency markets are developed with the establishment of floating exchange rates and with the growth in private international liquidity, mostly in the form of Eurocurrencies. The city of London is a major center of Eurocurrencies, international banking, and capital markets.

9. The external debt of developing countries grew substantially between 1970 and 1992. It consists of two parts: the public debt, which is owed to foreign governments, and the private debt, which is owed to private banks. The most indebted less developed countries occurs in a cluster in Latin America, with Brazil and Mexico leading the list. They each ahve a total debt of approximately $100 billion. If the value of a currency fluctuates according to changes in supply and demand for the currency on the international market, a floating exchange rate is in effect.

10. Exchange rates fluctuate for five reasons. First, a country increases its real output and efficiency compared to other countries. Second, the inflation rate of a country affects the exchange rate. Third, a currency depreciates when domestic demand for foreign products increases. Interest rates and currency speculation are the other factors impacting exchange rates.

11. The international value of the dollar changed substantially between 1973 and 1994. Up to 1986, the value of the dollar was relatively high compared to other major currencies. Since foreign goods were cheap, the U. S. imports increased and their exports decreased. The dollar fell abruptly from 1986 to 1994 and has remained relatively weak on the international currency exchange, but the trade deficits continue. In 1991 exports of goods and services amounted to over $620 billion -- by far, the highest levels of either exports or imports in the world. Until 1970, U.S. export value exceeded the value of imorted goods. Since that time, the value of imports have exceeded exports, creating a trade imbalance. The greatest level of trade imbalance occurred between 1984 and 1988, mirroring the strong international value of the dollar.

12. There are three motivations for foreign investment. Resource seekers look for raw materials and low cost labor that is also sufficiently productive. Market seekers try to penetrate new markets that have been relatively protected from world trade. Efficiency seekers look for the most economic sources of production to serve a worldwide standardized market.

13. Multi-national foreign direct investment originates for the most part in the United States, Japan, United Kingdom, Germany, and France. These transnational corporations have invested most of their resources in other developed countries of the world. United States multi-national corporations are more likely than the Japanese or Europeans to invest in Latin America, while European multi-national corporations are more likely to invest in Eastern Europe and the Middle East. Japanese transnationals are more likely to invest in the Far East.

14. Until 1980, foreign direct investment (FDI) in the United States by foreign multinationals was a fraction of the investment abroad by U.S. multinationals. That positive balance has been steadily eroded as percentage of FDI in the United States has steadily increased at a more rapid rate than U.S. FDI abroad. In 1988, they both stood at approximately $330 billion per year.

15. The transnational corporation is probably the most efficient social economic and political institution ever devised to accomplish the following tasks for the least developed nations: 1) raising, investing and reallocating capital, 2) creating and managing organizations, 3) innovating, adopting, perfecting, and transferring technology, 4) educating and upgrading both blue collar and white collar labor, 5) and providing both a market and mechanism for satellite services and industries that can stimulate local development much more effectively than most official aide programs.

16. International trade and factor flow would occur more commonly if barriers to international trade did not exist. The main barriers relate to 1) management, 2) distance, and 3) government barriers to trade (cost of protection, tariff, and nontariff barriers and quotas).

17. Stimulants to trade include regional integration, which is the international grouping of sovereign nations to form a single economic region. It is a form of selected discrimination in which both free trade and protectionist policies are operative: free trade among members and restrictions on trade with nonmembers. Two examples of regional integration include the European community or common market, and the North American Free Trade Agreement (NAFTA) between Canada, United States, and Mexico.

18. A cartel is an agreement among producers that seeks to artificially increase prices by arbitrarily raising them, by reducing supplies, or by allocating markets. The most successful commodity cartel is the Organization of Petroleum Exporting Countries (OPEC). In the 1970’s, it forced acceptance of authoritative rather than market-oriented principles. The success of OPEC at raising oil prices encouraged other underdeveloped countries to create new regimes.

19. Globalization of the economy may smooth the fluctuations of business cycles. Technology, efficient management of inventories, and global competition may mitigate boom and bust cycles. Today, the multinational corporation follows a triad corporate strategy, where each firm attempts to maintain a substantial corporate presence within each of the three major world regions, or trade blocs (EU, NAFTA, and Asia), as a way of hedging its market share against loss to its competitors.

Chapter 11

1. Major changes in the volume and composition of world trade occurred during the 1970’s and 1980’s. While world trade reached $2 trillion dollars in 1986, rates of trade growth declined after 1973. The changing structure of trade has affected different types of countries differently. For example, North America, Western Europe, and Asia experienced a drop in export earnings in export earnings after the oil crisis. Yet, as a group, they have since recovered and now account for 80% of the value of world trade. Less developed countries have, in general, fared badly.

2. Giant Emerging Markets (GEMs) hold significant promise for large increases in world exports by percentage. These countries include Argentina, Brazil, Mexico, China, Hong Kong, Taiwan, Indonesia, Singapore, South Korea, India, Poland, South Africa, and Turkey. GEMs share important attributes in that they are physically large and contain massive markets offering a vast array of products to serve their huge population.

3. The usual measure of a country’s economy and strength is its Gross Domestic Product (GDP) - that is, the value of all goods and services produced. When the GDP of a country is divided by its population, the result is the GDP per person. Purchasing power parity is the GDP per person adjusted for the cost of living by the United Nations. Purchase power parity indicates, for example, that China’s output is nearly equal to Japan’s.

3. The United States is the world’s largest trading nation, accounting for more than $1.3 trillion worth of exports and imports in 1995. During the 1950’s, the United States accounted for 25% of total world trade, but now accounts for only approximately 10%. Manchines and transportation equipment account for the largest single proportion of exports. Manufacturing goods also account for approximately 80% of the traded goods flowing to the United States from foreign countries. Canada is the single largest trading partner of the United States. During the past 30 years, United States trade has shifted away from Western Europe and toward the Asian and Pacific regions. Trade with Mexico has also increased.

4. Critical export sectors for the U.S. economy are medical equipment, motor vehicles, automotive parts, computer equipment, computer software, information services, and various other services. The importance of services is expected to increase dramatically in the coming decades. Services may be defined as "soft power", which is the ability to achieve desired outcomes in international affairs through attraction rather than coercion. Examples include Microsoft programs and Hollywood movies.

5. The United States is Canada’s most significant trading partner and accounts for 75% of Canadian exports and 65% of Canadian imports. Canada’s second most important trading partner is the Asian region. Canadian exports include automobile and transportation equipment, industrial supplies, and industrial plant and machinery parts. Canada also exports vast supplies of natural resources including forest products, iron ores, metals, oil, natural gas, and coal. Canadian imports from the U.S. are industrial and machinery parts, and agricultural products among others.

6. Western Europe’s trade is disproportionately large compared with its population. Reasons for this discrepancy include 1) the strength of the European Union, 2) short distances among countries, 3) good river canal and motorway transportation, and 4) relatively small countries that need trade flows in order to flourish. Germany is the third leading country in the world in terms of international trade, and is the dominant economy in Europe. France is the fourth largest trader in the world. Great Britain and Italy also have a significant presence in world trade.

7. In 1994, for Latin America as a whole, 85% of the region’s exports went to the United States. These exports were mainly food, minerals, and fuels. Political troubles and high inflation has created significant turmoil in several Latin American countries. Despite these conditions, economic growth has occurred in Argentina, Brazil, and Mexico in recent years. In Mexico, substantial increases in the export of key economic sectors have occurred since the ratification of the North American Free Trade Agreement.

8. The fastest-growing world trade region is East Asia and the Pacific. After Western Europe, this region has the largest amount of onternal world trade. From 1970 to 1990, the percentage of total world trade originating from this region increased from 10% to 25%. The dominant economies in this region include Japan, Taiwan, South Korea, Singapore, and Hong Kong. Emerging countries in this region are the Philippines, Thailand, Malaysia, Indonesia, and the People’s Republic of China.

9. Japan is the second leading international trading nation. Unlike most of Western Europe and North America, Japan has a huge export trade surplus. Although the United States is its principal trading partner, both for its exports and imports, Japan has a tremendously diversified trading base, with almost 50% of exports and imports going to countries each composing less than 4% individually. Motor vehicles are Japan’s primary export. Japan imports large amounts of energy, food products, chemicals, textiles, and metals.

10. Australia is a nation that exports primary products, such as ores and minerals, wool, and cereals. China has a favorable trade balance, but its per capita exports are one-hundedth of the German level. Chinese manufactured goods lead export growth, while agricultural and primary products lead import growth. India is self-sufficient in terms of food production, exports gems, textiles, and engineering products, and imports industrial equipment and machinery, and crude oil. India’s world trade, however, is miniscule. South Africa is the most productive economy in Africa. It accounts for almost 50% of the entire continent’s output. Manufacturing and financial services account for a significant percentage of South Africa’s GDP. Before the breakup of the Soviet Union in 1991 and the return to market economies by the Eastern European nations, beginnig in 1989, this communistic, centrally planned region accounted for only 8% of world trade. The process of reorienting Russia’s economy to market-driven enterprises through the privatization process is not yet complete. Russia is one of the GEMs, and constitutes one of the 10 fastest-growing world markets for manufactured goods. The Middle East contains approximately 60% of the world’s oil reserves, with Saudi Arabia containing more than one-third of the world’s total. The region’s second most important activity is agriculture.

11. Patterns of trade-flows exist in selected economic sectors. Japan and the Far East account for the predominant flow of microelectronics in the world. Global trade within the European Union accounts for the largest single flow of automobiles. Japan and the United States also have a significant role in automobile exports. Western Europe leads the world in steel production and in steel trade. The single largest flow of steel is from Japan to developing countries. American steel production has decreased substantially in the last 20 years. Textile and clothing manufacture has shifted dramatically to developing countries. However, Germany and Italy lead the world in textile exports. The United States is the world leader for exports of feed and grains. Canada is also a major exporter of feed and grain. The developing countries of the world lead in the export of nonoil commodities, such as copper, aluminum, zinc, crude rubber, and cotton fiber.

Chapter 12

1. The goals of development include: 1) a balanced, healthful diet, 2) adequate medical care, 3) environmental sanitation and disease control, 4) labor opportunities, 5) sufficient educational opportunities, 6) individual freedom of conscience and freedom from fear 7) decent housing, 8) economic activities and harmony with the natural environment, and 9) social and political processes promoting equality. Development and economic growth are not identical to one another. Economic growth may occur without achieving the goals of development.

2. Characteristics of less developed countries include 1) rapid population growth, 2) employment and underemployment, 3) low labor productivity, 4) adverse climate and natural lack of resources, 5) lack of capital and investment, 6) lack of technology, 7) certain cultural factors, 8) certain political factors, and 9) a viscious cycle of poverty.

3. The foreign debt of LDC’s has grown significantly during the last two decades. The debt is owed to foreign governments and to private banks. The total debt of nations in trouble as of 1993 exceeds $900 billion and most LDC’s that are heavily in debt are experiencing difficulties in repaying their debts. Causes of this debt include slow economic growth resulting in an inability to pay off loans, appreciation of the U.S. dollar, and the rewriting of loans to avoid bankruptcy.

4. How is economic development measured? Economic development is measured by 1) per capita income, 2) the economic structure of the labor force, 3) consumer goods purchased and produced, 4) education and literacy of the population, 5) health and welfare of the population, 6) transitions in the cause of illness and death, 7) demographic characteristics of the populations, and 8) total human development, including the United Nations Human Development Index.

5. The first and most widely accepted theories of development are modernization theories. These theories concentrate on the national scale and define development in terms of economic growth and Westernization. Their underlying assumption is that modernization influences are projected to peripheral regions from Western Europe and North America; hence, the path to progress from traditional to modern is unidirectional.

6. World political economy theories focus on the structure of political and economic relationships between dominant and dominated countries. These theories pay special attention to the global history of economic growth that brought poor countries to their present position.

7. Ecopolitical economy theories concentrate on the ecological and cultural consequences of economic growth. Proponents of these theories are disenchanted with research that 1) neglects diverse value systems within societies, 2) equates development with economic growth, 3) advocates trickle-down theory of benefits to the poor, and 4) attributes no merit whatsoever to the contributions of indigenous systems to the development process.

8. In modern history, there have been two waves of colonialism. The first wave began in 1415 and ended soon after 1800. This initial wave of colonialism involved conquest, plunder, slavery, and the annihilation of indigenous people. The second wave of colonialism began in 1825 and ended in 1969. There was less destruction and disruption of local societies than in the first wave, and conditions varied from colony to colony. Imperialist countries saw the developing regions as immense supply depots for the cheap production of raw materials from which their economies could profit.

9. World-system theory suggests that the key to understanding waves of colonialism is the changing structure of core regions: periods of instability and stability in the core coincide, respectively, with periods of colonial expansion and contraction in the periphery. Hegemony exists when one core power enjoys supremacy in production, commerce, and finance, and occupies a position of political leadership. Competition exists when power in the center of the world system is dispersed among several countries. Competition forces increasingly more formal core-periphery relationships.

10. The Center-Periphery conceptual model argues that the center appropriates to itself the surplus of the periphery for its own development. At the world level, the global center (rich industrial countries) drains the global periphery (most of the underdeveloped countries). A center may also be a single urban area. The Center-Dominant model hypothesizes that inequalities between the center and periphery are only temporary. Regional develoment inequalities that occur at first will be corrected by the mobility of factors under pure competition. Both Myrdal and Hirschman developed models of polarized development patterns. In their theories, spread effects and trickle-down effects are necessary to mitigate unequal development.

11. The Soviet Union was based on the labor theory of capital. It viewed capitalism as a way for the few elite in the capitalist system to gather extra value from the laborers. Communism, on the other hand, was to extract the extra value of labor, which was the value of production minus wages, and redirect it to the society as a whole in the form of subsidized food, subsidized housing and education, and subsidized medical attention. Soviet-style communism failed in the 1990’s after 70 years of struggle. Reasons for this failure are 1) the inability to meet consumer demand, 2) lack of incentives and motivation, 3) mismanagement and central-planning problems, 4) agricultural failure, and 5) military waste. The transition to a market-economy includes privatization, the introduction of competition, a reduced role for government, and the deregulation of prices. Other factors affecting the success or failure of this transition include direct foreign aid and private investment

12. International policies designed to aid Less Developed Countries (LDCs) include the expansion of trade with LDCs, investment of private capital in LDCs, and the provision of foreign aid to LDCs. These policies, however, so not take several issues into consideration. For example, many LDCs do not posses abundant resources for trade. Private loans are predicated on LDC guarantees of political and economic stability. Many countries cannot meet this requirement. Additionally, much aid from developed countries has stipulations, such as purchase requirements that make LDCs patronize specific products and services. The World Bank is an institution that works to further the development of nations, supplying funds when no other sources are available.