IPE Theme 5:

Readings:

 Balaam, D. N. & Dillman, B. (2019). Introduction to International

Political Economy (7th edition). New York: Routledge, Taylor & Francis
Group. Chapter 6

 Werner, M. (2021). Geographies of Production II: Thinking Through

the State. Progress in Human Geography, 45(1): 178-189.
 Key Questions:
 What role does the state play in global production?

 How does state power intersect with corporate influence?

 What are the implications of state action for labour, trade, and development?
 Defining Global Production:
The process by which goods and services are produced, distributed, and consumed
on a worldwide scale. Includes the creation of physical goods (manufacturing) and
services.

Involves the coordination of resources, labour, and capital across different

countries to create products that can be sold in various markets around the world.

Current Trends:
 Middle-income countries are attracting more production from the Global
North.
 Global Value Chains (GVCs) are increasingly complex and dominated by
Transnational Corporations (TNCs).
 TNCs rely on states for benefits but also undermine their authority through
tax avoidance and regulatory arbitrage.
 Changes in global production weaken labour power, increasing inequality
and social vulnerability.
 Evolution of Production:

Pre-industrial era:
In the pre-industrial era, global production was predominantly localized, small-
scale, and labour-intensive, relying heavily on human and animal power rather
than machinery. Most economies were agrarian, with each nation largely
consuming what it produced—mainly agricultural goods—as poor transportation
technology forced production and consumption to remain closely tied. Artisans
and craftsmen, such as blacksmiths, weavers, and potters, created specialized
goods using simple tools in small workshops, but these goods were often expensive
and in short supply because they were individually handcrafted. Trade, limited to
regional networks or long-distance routes like the Silk Road, exchanged
commodities like spices, textiles, and precious metals, yet production remained
constrained by natural resources, seasonal cycles, and rudimentary technology,
resulting in low output and minimal surplus compared to the industrialized world
that followed.

First Industrial Revolution:

During the First Industrial Revolution in the 19th century, global production
underwent a transformative shift, driven by the emergence of the steam engine,
which fuelled the growth of industries such as coal, iron, railroads, and textiles.
This technological breakthrough enabled a dramatic move from manual labour to
mechanized processes, boosting productivity and laying the foundation for
modern manufacturing. Railroads and steamships revolutionized transportation,
separating production and consumption by facilitating trade with other nations,
as goods could now be efficiently transported over long distances. This unbundling
of production and consumption was further amplified by economies of scale and
comparative advantage, making it profitable for regions to specialize in specific
industries—like Britain with textiles or coal—and export surplus goods, while
importing what they did not produce, marking the beginning of an interconnected
global economy.
 Evolution of Global Production (Late 19th–Early 20th Century):
The Expansion of Electricity, Petroleum, and Steel Enhanced
Production: In the late 19th and early 20th centuries, global production
evolved significantly with the widespread adoption of electricity, petroleum, and
steel, which revolutionized industrial capabilities. Electricity powered factories
and machinery, extending working hours and boosting efficiency beyond the
limitations of steam. Petroleum emerged as a versatile energy source, fueling
engines and enabling the rise of the automobile and shipping industries. Steel,
stronger and more durable than iron, became the backbone of infrastructure,
from skyscrapers to bridges, and supported the construction of larger, more
robust machinery. Together, these advancements enhanced production capacity,
allowing industries to scale up and meet growing global demand, while further
integrating economies through expanded trade networks.

Development of the Moving Assembly Line (1913): The introduction

of the moving assembly line in 1913, pioneered by Henry Ford, marked a pivotal
leap in manufacturing efficiency. This system used conveyor belts to transport
component parts across different assembly stations, streamlining the production
process and drastically increasing the pace of manufacturing. Factories in other
industries quickly adopted this technology, recognizing its potential to boost
output. The assembly line made products, like the Ford Model T, cheaper for
consumers by reducing production costs, but it also transformed working
conditions by increasing the demand for cheap, unskilled labour to perform
repetitive tasks. As a result, the number of factories multiplied, driving
urbanization as more people relocated to cities for factory jobs, reshaping societal
structures and accelerating industrial growth worldwide.
 Global production in the post-1945 era:
USA Emergence as the Dominant Production/Manufacturing Economy:
After 1945, the United States emerged as the world’s leading production and
manufacturing economy, capitalizing on its industrial capacity, which had been
bolstered during World War II. With much of Europe and Asia rebuilding from
wartime devastation, the U.S. filled the global demand for goods, producing
everything from consumer products to heavy machinery. Its economic dominance
was reinforced by a stable political environment, access to vast resources, and a
robust domestic market, positioning it as the epicentre of post-war industrial
output and a key driver of global trade.

Advances in Technology: Technological progress significantly shaped global

production in this era, particularly through the mechanization and automation of
certain production processes. These innovations increased production efficiency,
allowing factories to churn out goods faster and with less human labour than ever
before. Automated machinery, such as robotic arms and computerized systems,
began to replace manual tasks, reducing errors and costs while boosting output.
This technological leap not only enhanced the capacity of industrialized nations
like the U.S. but also set the stage for a more interconnected and productive global
economy.

Improved Transportation: The post-1945 period saw dramatic improvements in

transportation, enabling goods to move more easily across borders and continents.
The expansion of air freight, container shipping, and modernized rail and road
networks reduced transit times and costs, further separating production from
consumption. This facilitated the rapid growth of international trade, as
manufacturers could source materials from one region, produce goods in another,
and sell them worldwide, strengthening global supply chains and amplifying the
reach of dominant economies like the U.S.

Emergence of Offshoring (1950s-1960s): The 1950s and 1960s marked the rise
of offshoring, where companies began producing goods in foreign locations to be
sold in their home markets and beyond. This shift was driven by the emergence of
Transnational Corporations (TNCs), particularly in oil and mining, which sought
to exploit cheaper labour and resources abroad. The increasing significance of
Foreign Direct Investment (FDI) fuelled this trend, as firms invested heavily in
overseas facilities to maximize profits. Offshoring not only lowered production
costs but also reshaped global economic dynamics, spreading industrial activity to
developing nations and cementing the influence of TNCs in the world economy.
 Global Production from the 1980s to Present:
Europe and Japan Had Reemerged as Economic Powerhouses (Late 1970s):
By the late 1970s, Europe and Japan had fully reemerged as economic
powerhouses, challenging the United States’ post-war dominance in global
production. Rebuilt from the ashes of World War II, Western European nations
like Germany and France excelled in manufacturing high-quality goods, such as
automobiles and machinery, while Japan became a leader in electronics and
automotive industries, epitomized by brands like Toyota and Sony. Their
resurgence diversified the global production landscape, fostering competition and
innovation, and reestablishing a multipolar economic order that drove
technological and industrial advancements worldwide.

Rapid Industrialisation: The period from the 1980s onward witnessed rapid
industrialization in South Korea, China, and other emerging economies, reshaping
global production dynamics. South Korea transformed into a manufacturing hub
for electronics and ships, while China, particularly after its economic reforms in
1978, became the "world’s factory," producing everything from textiles to tech
gadgets at an unprecedented scale. These emerging economies leveraged low labor
costs, government support, and export-oriented strategies to integrate into global
markets, shifting production away from traditional Western powerhouses and
accelerating the rise of a more distributed industrial network.

Proliferation of Standardised Shipping Containers: The widespread adoption

of standardized shipping containers revolutionized global production by
streamlining logistics and enabling the growth and expansion of Transnational
Corporations (TNCs). This innovation made offshoring and outsourcing viable
options, as goods could be transported efficiently and cost-effectively across vast
distances. TNCs capitalized on this to relocate production to regions with cheaper
labor, like Southeast Asia, while maintaining seamless supply chains. The
containerization boom fueled global trade, reduced shipping times, and supported
the expansion of consumer markets, cementing the interconnectedness of modern
production systems.
FDI Increasingly Serves as Driver of Global Production: Foreign Direct
Investment (FDI) became a critical driver of global production, as TNCs sought
competitive advantages through strategic investments. Companies used FDI to
establish operations closer to customers, bypass trade barriers, mitigate currency
risks, and tap into special production environments, such as tax incentives or
skilled labour pools. For instance, Western firms invested heavily in China to
access its growing market and low-cost workforce, while emerging economies
welcomed FDI to fuel their industrial growth. This trend amplified the global reach
of TNCs, deepened economic integration, and shaped a production landscape
defined by flexibility and cross-border collaboration.

Globalisation:
The increasing interconnectedness of economies, markets, and production
networks.

Key Features: Trade liberalisation, Expansion of Transnational corporations

(TNCs), Technological advancements in communication and transportation
 The role of technology in global production:
Technology has revolutionized global production by introducing automation and
robotics, fundamentally transforming manufacturing processes. The use of
robotics and advanced manufacturing technologies has increased efficiency,
reduced labour costs, and improved product quality, enabling faster and more
precise output than traditional methods. Real-time coordination of global supply
chains, facilitated by digital communication and tracking systems, ensures
seamless integration across continents, optimizing resource use and delivery.
Innovations in product design, customization, and smart products—such as IoT-
enabled devices—cater to diverse consumer demands while enhancing
functionality. However, this shift reduces the demand for low-skilled labour, as
machines increasingly handle repetitive tasks, reshaping workforce needs and
economic structures worldwide.
 The Mercantilist Perspective on Global Production:
From a mercantilist perspective, global production raises significant concerns
about the loss of national industrial capabilities, as countries prioritize self-
sufficiency to maintain economic power and autonomy. This viewpoint highlights
national security threats stemming from reliance on foreign production,
particularly for critical goods like steel or semiconductors, which could leave a
nation vulnerable in times of conflict. Economic dependence on rival states is
another worry, as it risks weakening a country’s leverage and prosperity if supply
chains are disrupted. For example, Trump’s tariffs on steel and semiconductors
aimed to protect domestic industries and jobs, reflecting mercantilist principles by
curbing imports to bolster U.S. manufacturing and reduce reliance on foreign
powers like China, prioritizing national interest over global interdependence.
 Impact of Globalisation and Automation on Workers

Key Trends:
 Globalisation and automation reduce demand for low-skilled labour in
industrialised nations.
 New technologies (robotics, AI, and automation) replace repetitive jobs.
 Middle-skilled workers (clerical, retail, warehouse jobs) are increasingly
displaced (David Autor).

Key Concerns:
 Rising unemployment in both developed and developing countries.
 Income inequality increases as high-skilled workers benefit while low-skilled
workers struggle.
 Minimum wage increases may push firms toward greater automation.

Labor Rights and Income Inequality:

Developed Countries:
 Automation & outsourcing lead to wage stagnation and declining union
membership.
 Growing wealth concentration among capital owners.
 Social impacts: Rising household debt, declining personal savings, and
political unrest.

Developing Countries:
 TNCs create job opportunities but pressure suppliers to cut costs, limiting
wage growth.
 Weak labor rights and union suppression in subcontracting firms.

Scholars’ Views:
 Nicola Phillips & Fabiola Mieres: Precarious and exploitative work is
expanding globally.
 Kate Macdonald: TNC-led supply chain improvements do not significantly
raise workers’ wages.

The Rise of the "Precariat":

A growing class of workers with insecure, temporary, and part-time jobs.
Key Features:
 No stable occupational identity.
 Lack of employer-provided benefits (pensions, healthcare).
 Often excluded from unemployment benefits and labor protections.

Scholarly Perspectives:
 Guy Standing: The precariat faces alienation, anxiety, and rejection of
mainstream politics.
 OECD: One-third of all jobs in advanced economies are now nonstandard
employment.
 Outsourcing and Offshoring:
Offshoring:
 Involves relocating a third party to perform specific tasks or services that
were traditionally done in-house.
 Can include manufacturing, customer service, and other types of services.

Outsourcing:
 involves contracting a third party to perform specific tasks or services that
were traditionally done in-house
 can include manufacturing, customer service, and other types of services
 Benefits and Challenges of Outsourcing and Offshoring:

Benefits:
Risk Diversification: Reduce the risk of disruptions due to factors such as
natural disasters, political instability, or economic downturns in a single country.

Cost Reduction: Significantly reduce production costs for companies, leading to

lower prices for end users.

Accessibility: Reduce production costs for companies, leading to lower prices

for end users.

Access to Skills: Allows companies to access specialised skills and talent that
may not be available locally, can lead to increased innovation and efficiency in
production.

Enhanced Competitiveness: Companies become more competitive by focusing

on their core competencies and responding more quickly to market changes.

Challenges:
Political and Regulatory Risks: Operations can expose companies to political
and regulatory risks in foreign countries, such as changes in government policies
or trade agreements.

Quality Control: Varying regulations and practices in different countries create

a challenge for maintaining quality standards.

Ethical Issues: Offshoring or outsourcing to countries that have lower labour

standards and poor working conditions pose a challenge to respecting human
rights and labour protection.
 Global Supply Chains (GSCs) and Global Value Chains
(GVCs)/Global Production Networks (GPNs):

Global Supply Chains (GSCs):

networks of interconnected organisations, resources, activities, and technologies
involved in the creation and delivery of goods and services to customers around
the world.

Global Value Chains (GVC):

The full range of activities in production, from raw materials to final consumer
products.

Characteristics:
 Fragmented across multiple countries.
 Lead firms (TNCs) control branding, design, and high-value functions.
 Lower-value manufacturing concentrated in developing economies.
 Buyer at the end of the GVC orchestrates the chain and has a decisive
influence.

Downside:
 Rising inequality: concentrates benefits in large TNCs.
 How Power is Structured in GVCs:
Bargaining Power (Dyadic & Direct): Exerted in firm-to-firm relationships
within GVCs. Based on negotiation leverage, supplier dependency, and switching
costs.

Demonstrative Power (Dyadic & Diffuse): Exerted through demonstration

effects and imitation. Firms, industries, and countries model behaviours after
dominant players.

Institutional Power (Collective & Direct): Embedded in formal organisations,

standards, and regulations. Policies, industry standards, and trade agreements.

Constitutive Power (Collective & Diffuse): Embedded in social norms,

conventions, and collective worldviews. Beliefs, behaviours, and expectations.
 TNCs:
Firms operating across national borders with production, distribution, and
marketing networks.

Key Features:
 Operate in multiple countries.
 Control vast resources and supply chains.
 Influence global trade and investment policies.
 Benefiting from tax loopholes and weak regulations

Governance of TNCs: Investment Agreements:

International Institutions:
 World Trade Organization (WTO) - trade rules.
 International Monetary Fund (IMF) - economic stability.
 Bilateral Investment Treaties (BITs) - regulate FDI.

Challenges:
 Weak enforcement mechanisms.
 Corporate lobbying weakens regulatory oversight.

TNCs and States: TNCs as Tools of National Power:

Context:
 TNCs and Foreign Direct Investment (FDI) were key elements of early
globalisation.
 Lenin’s Imperialism: The Highest Stage of Capitalism (1917) argued that
economic imperialism replaced colonial imperialism.
 Foreign investors and corporations could achieve the same outcomes as
military occupation—economic dependency and exploitation.

Examples:
 U.S. TNCs expanded aggressively after World War II, supporting U.S.
hegemony during the Cold War.
 U.S.-based IT companies (Facebook, Google, YouTube) shape global
narratives, promoting U.S. soft power.
 TNCs Gaining Leverage Over States?
TNCs and states rely on each other, but TNCs often hold the upper hand. States
need investment, technology, and jobs from TNCs. TNCs seek tax incentives,
infrastructure support, and regulatory advantages. Weaker states struggle to
negotiate favourable terms, especially when competing for Foreign Direct
Investment (FDI).

The “Footloose” Advantage:

TNCs can move operations easily, while states are territorially bound.

TNCs Bypassing State Regulations:

Tax Avoidance: TNCs can use their global operations to minimise tax
obligations, leading to tax avoidance or evasion. This can deprive states of much-
needed revenue and create inequality in the tax burden.

Corporate Wrongdoing: Governments reduce some forms of regulation and

economic oversight. E.g., Rand manipulation by SA banks.
 How TNCs Evade State Control:
Corporate Tax Avoidance Strategies:
 Tax Havens: Countries with low corporate tax rates and lax financial
regulations. E.g., U.S. Fortune 500 firms use Delaware as a tax haven.
 Transfer Pricing: Shifting profits between subsidiaries in different tax
jurisdictions. E.g., Google rerouting royalties through Bermuda.
 Tax Inversions: A company relocates its headquarters to a lower-tax
country while keeping operations unchanged. E.g., Pfizer’s attempted
inversion with Irish firm Allergan in 2016.
 Corporate Wrongdoing and Accountability: Manipulation of
markets and instances of outright criminality by some of the world’s
leading corporations (including environmental violations; bribery and
corruption).
 The Role of the State in Global Production:
Traditional View: The state primarily facilitates corporate expansion and
trade liberalisation.

The state also acts as a:

 Regulator: Restricting or shaping market activities.

 Producer: Directly engaging in economic activity (e.g., state-owned
enterprises).
 Buyer: Using procurement policies to influence industries.

The State Creates Favourable Conditions for Firms to Thrive in Global

Production Networks:
Key Features:
 Trade agreements and deregulation.
 Tax incentives and investment promotions.
 Labor law flexibility to attract FDI.
 State as Regulator:
The state imposes restrictions and rules to manage corporate power and protect
national interests.

Key Features:
 Trade barriers and tariffs (e.g., U.S.-China trade war).
 Labor and environmental regulations.
 Industrial policies favouring domestic firms.

State as Producer:
The state directly engages in economic activity through state-owned enterprises
(SOEs).

Key Features:
 SOEs control strategic industries (e.g., energy, defence, infrastructure).
 Expanding influence of state capitalism in China, Russia, and Latin
America.

State as Buyer:
The state influences markets through procurement policies and purchasing
power.

Key Features:
 Public contracts shape industries (e.g., renewable energy, defense, IT).
 Procurement rules promote domestic production.