Newly Industrialised Countries


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Newly Industrialised Countries

  1. 1. Newly Industrialised Countries
  2. 2. Key questions <ul><li>What are NICs? </li></ul><ul><li>What are the characteristics of NICs? </li></ul><ul><li>What are the reasons for NICs growth? </li></ul>
  3. 3. What are NICs? <ul><li>country that has in recent decades experienced a breakthrough into manufacturing and rapid export-led economic growth. Good examples are Taiwan, Hong Kong, Singapore, and South Korea. </li></ul>
  4. 4. What are NICs? <ul><li>In the 20th century many countries in east and south east Asia industrialised - including South Korea, Taiwan, Singapore, Japan, Philippines and Thailand. </li></ul><ul><li>These nations are called newly industrialised countries or NICs. They are also sometimes referred to as tiger economies because of their rapid growth rate. </li></ul><ul><li>The governments of these NICs kept close control over industrial development, and encouraged industries to export manufactured products to the more developed and richer countries abroad. </li></ul><ul><li>The profits generated by exports were re-invested in the domestic economy. Domestic businesses grew, wages rose, and workers spent their new wealth on home-produced goods and services - thus stimulating further growth. </li></ul><ul><li>This kind of cycle or knock-on effect, in which money paid out by businesses is re-invested in the economy, is sometimes called the multiplier effect. </li></ul><ul><li>The success of NIC economies has contributed to the decline, over the last 30 years, of manufacturing industries in MEDCs such as the UK. Industries struggled to compete with the cheaper competition from NICs, where production costs and wages were less. </li></ul>
  5. 5. Features of NICs <ul><li>rapid productivity growth </li></ul><ul><li>quick industrialisation </li></ul><ul><li>a high degree of investment and capital formation largely funded from domestic savings, and a high propensity to export, with consumer durables and machinery accounting for a large share of exports. </li></ul><ul><li>These countries have also begun exporting capital in the form of investment and production facilities in other developing countries such as China, India,Vietnam and other countries in South - East Asia. </li></ul>
  6. 7. Reasons for growth <ul><li>The NICs’ key to success was marrying imported technology and cheap labour to an export market. </li></ul><ul><li>Private domestic investment and rapidly growing human capital were the principal engines of economic growth. </li></ul><ul><li>Agriculture, while declining in relative importance, experienced rapid growth and productivity improvement. </li></ul><ul><li>Population growth rates declined more rapidly in the NICs than in other parts of the developing world. </li></ul>
  7. 8. Reasons for growth <ul><li>some of these economies got a head start because they had a better educated labour force </li></ul><ul><li>In most of these economies, in one form or another, the government intervened—systematically and through multiple channels—to foster development, and in some cases the development of specific industries. </li></ul><ul><li>Policy interventions took many forms: targeting and subsidising credit to selected industries, keeping deposit rates low and maintaining ceilings on borrowing rates to increase profits and retained earnings, protecting domestic import substitutes, subsidising declining industries, establishing and supporting government banks, making public investments in applied research, establishing firm- and industry-specific export targets, developing export marketing institutions, and sharing information widely between public and private sectors. </li></ul><ul><li>The NICs also engaged in &quot;financial repression&quot; where interest rates were kept low to cheapen borrowing by firms. Thereby savers, the majority of whom are households, subsidised corporate borrowers. The World Bank also notes that these governments have been &quot;less responsive than other developing economy governments to organised labour’s demands to legislate a minimum wage.&quot; </li></ul>
  8. 9. Constraints on growth <ul><li>In order to reach the next stage of growth, the technology gap between the NICs and the advanced capitalist economies will need to close. </li></ul><ul><li>Many have a structural dependency on Japanese technology, two thirds of Taiwan’s technology transfer agreements are with Japanese firms. Taiwan, South Korea and others all rely on Japan for some 40 per cent of their machinery imports. </li></ul><ul><li>South Korea’s most noted success stories are predominantly dependent on Japanese technology. Japan accounts for 60 per cent of technology licences and 50 per cent of joint ventures in the Korean car sector, with US and Europeans accounting for the rest. </li></ul><ul><li>In other industries there is a high dependence on US and Japanese licensed technology: wafer fabrication in semiconductors, engines and transmission in cars, computer-aided design in textiles and garments, hardware and software design in computers. </li></ul><ul><li>South Korea combines others’ technology with low wages and an efficient manufacturing process, but Korean firms have been low in innovation and new product development. In key exports for example, 85 per cent of the value of a Korean TV and 70–90 per cent of the value of a laptop computer come from Japan and account for 60 per cent of the price. These technological rents result in fat profit margins for Japanese and US firms and very thin margins for their Korean counterparts. </li></ul><ul><li>However, despite these shortcomings NIC growth is still an achievement that most Third World countries cannot attain. The NICs derive this growth from their specific role within a regional division of labourcheap labour advantage is disappearing and export markets are tightening. </li></ul>
  9. 10. New international division of labour (NIDL <ul><li>An emergent form of the division of labour associated with the internationalisation of production and the spread of industrialisation, especially in a number of rapidly growing NICs. Although termed ‘new’, the NIDL is more accurately understood as a manifestation of the perpetual global restructuring of capital at a global scale; an older process dating back since the colonial times. </li></ul><ul><li>The term has been used by Frobel et al (1980) in their account of the deindustrialisation of the old industrial countries. It is associated with the outflow of investment as capital operating on a global scale and taking advantage of transportation and communication technology and the fragmentation and locational separability of the productive process, to tap the global reserves of labour and to seek out cheap production sites in order to better face competitive pressures. </li></ul><ul><li>An alternative interpretation suggests that Multinational Corporations (MNCs) are pushed out of industrialised countries because of falling rates of profit. The implication is that the NIDL is a strategic response to the continuous imperative of accumulation in capitalism. TNCs - the major agents of the NIDL - reorganise the geography of their productive structure in order to enhance profitability and so stimulate the growth of industrial production in the NIC and elsewhere. </li></ul><ul><li>The NIDL is, in this view, the result of multinational restructuring of production. Only incidentally would the interests of an MNC coincide with the build up of an integrated an complex industrial structure in a developing country. The countries remain passive and dependent </li></ul>
  10. 11. Case study India <ul><li>Background to India </li></ul><ul><li>Reasons for recent growth including examples </li></ul>
  11. 12. Case study: India <ul><li> </li></ul>
  12. 13. <ul><li>Write a report on the importance of transnational corporations (TNCs) and newly industrialising countries (NICs) in the changing global economy. </li></ul><ul><li>In your report: </li></ul><ul><li>outline the reasons for the growth of TNCs in the world; </li></ul><ul><li>• describe the social and economic impacts of TNCs on countries in the world, including NICs; </li></ul><ul><li>• discuss the importance of TNCs and NICs in the changing global economy. (25 marks) </li></ul>
  13. 14. <ul><li>Unfavourable </li></ul><ul><li>• Many of the jobs are of low skill </li></ul><ul><li>• Managerial positions tend to be brought in rather than developed locally </li></ul><ul><li>• Most of profits are sent back to home country </li></ul><ul><li>• Corners are often cut in terms of health and safety </li></ul><ul><li>• They exert political muscle </li></ul><ul><li>• Globalisation of decision making sometimes leads to short term investment, and the TNC may </li></ul><ul><li>pull out at short notice. </li></ul><ul><li>Also, there are impacts within the country of origin : </li></ul><ul><li>• The development of managerial and research skills </li></ul><ul><li>• There will be a general rise in income levels – the whole nation will benefit from overseas </li></ul><ul><li>investments; greater desire to invest in overseas operations </li></ul><ul><li>• Wider share ownership – individuals, and corporate groupings more willing to become involved </li></ul><ul><li>in foreign investments. </li></ul><ul><li>NICs are the countries which have seen the most rapid economic growth in recent years. Originally, they </li></ul><ul><li>attracted manufacturing industry due to their low labour costs, expanding domestic markets, available raw </li></ul><ul><li>materials, reduced import and export tariffs, and weaker planning legislation. They began to dominate </li></ul><ul><li>manufacturing in electrical goods, textiles and clothing, shipbuilding, and increasingly have moved into </li></ul><ul><li>car assembly. Many of the industries were of a low skill basis, with low technology but high labour </li></ul><ul><li>input. </li></ul>
  14. 15. <ul><li>The reasons for the growth of TNCs: </li></ul><ul><li>• TNCs are able to control or co-ordinate economic activities in different countries and can develop </li></ul><ul><li>intra-firm trade within and between units of the same corporation in two countries. In this way </li></ul><ul><li>the TNC has control over terms of trade and can reduce the effects of quota restrictions on the </li></ul><ul><li>movement of goods. </li></ul><ul><li>• TNCs have the ability to take advantage of spatial differences in factors of production and </li></ul><ul><li>government policies at the global scale. They can exploit differences in the availability of capital, </li></ul><ul><li>labour costs and land and building costs; they can take advantage of cheaper labour in less </li></ul><ul><li>developed economies. TNCs can also take advantage of different government policies; tax levels, </li></ul><ul><li>subsidies/grants, environmental controls (less strict in some countries) and can get round trade </li></ul><ul><li>barriers by locating in the ‘market’ economy. </li></ul><ul><li>• TNCs have geographical flexibility and can shift resources and production between locations at </li></ul><ul><li>the global scale to maximise profits. </li></ul><ul><li>TNCs may have a variety of impacts on a host country in MEDC and/or LEDC : </li></ul><ul><li>Favourable: </li></ul><ul><li>• They provide employment and thereby raise living standards </li></ul><ul><li>• They improve the level of skills and expertise within a country </li></ul><ul><li>• They cause foreign currency to be brought into a country, improving the balance of payments </li></ul><ul><li>• They cause a multiplier effect, increasing economic activity </li></ul><ul><li>• They encourage a transfer of technology into the country </li></ul>
  15. 16. <ul><li>In more recent years, the NICs have developed into countries of origin of TNCs, and have invested in </li></ul><ul><li>both MEDCs and in other LEDCs. Examples of such companies include the Korean firms Samsung, and </li></ul><ul><li>Daewoo. This is due to increased profits from inward investment by TNCs from MEDCs over the last 30 </li></ul><ul><li>years. To remain profitable they have been forced to invest in areas of cheaper labour costs than </li></ul><ul><li>themselves (Malaysia produces 10% of the world’s TVs), to gain near access to protected markets (e.g. </li></ul><ul><li>Daewoo assembling cars in Romania), and to access virgin markets (S. America). </li></ul><ul><li>NICs/TNCs have also become involved in service industries – e.g. call centre work in India. Candidates </li></ul><ul><li>may also refer to the economic and financial problems that occurred in recent years in the Far East, with </li></ul><ul><li>their knock-on effects elsewhere in the world. </li></ul>