Economic Restructuring Research Paper

1. Economic Restructuring: Common Underlying Themes Of Geographic Studies

Geographical studies of economic restructuring seek to explain geographical variations in economic development. The approach taken in most such studies differs from the neoclassical approach within economics, which attempts to discover universal principles or ‘laws’ of economic behavior that are relevant in all places at all times. In addition, the neoclassical approach places faith in the ability of market mechanisms within a capitalist economy to produce the most efficient allocation of resources in a way that is beneficial for all concerned. In marked contrast, the restructuring approach within geography sees economic behavior as highly dependent upon the social customs, cultural norms, institutional practices, and wider forces of capitalist development in operation at the time, and in the place, in which that behavior takes place. Furthermore, rather than a consensual outcome which is to the benefit of all concerned, the process of restructuring under capitalism typically is seen as a struggle between competing interest groups, leading to winners and losers. Geographical studies have therefore focused upon both the creative and destructive outcomes prompted by the continuous need for capitalist firms to generate profits (Storper and Walker 1989).

The restructuring approach has generated a vast body of literature undertaken by geographers and other social scientists interested in geographical issues, including regional economists and urban sociologists. These studies have been prompted by recognition of the fact that geography is a central element in the restructuring process. Not only does restructuring vary from one place to another but, in addition, the differences between areas are used by various agents—governments, corporations, entrepreneurs, trade unions, and workers—to affect the outcome of the restructuring process itself. Geography—some- times referred to as place or space—is, therefore, not just a reflection of these processes, it is a constituent part of the restructuring process itself. A good example of the role of space is when a corporation moves employment from an area in which labor costs are high to a low labor cost region, or from an area in which workers are resistant to new working practices to one in which they are more compliant.

Restructuring studies focus upon the processes leading to restructuring; the mechanisms through which this restructuring is achieved; and the social consequences of these processes in terms of factors such as: income distribution, occupational structures, the prevalence of unemployment, and the incidence of two-career households. Nevertheless, it is possible to group restructuring studies by a number of empirical foci and theoretical approaches spatial divisions of labor; new industrial spaces; globalization; services; feminization; the public sector; and knowledge economies.

2. Spatial Divisions Of Labor

The first geographical approach to focus explicitly upon economic restructuring was spatial divisions of labor (Massey and Meegan 1982, Massey 1995). This concept highlights the fact that throughout the first part of the twentieth century there was a shift in regional economic structures away from sectors towards functions. Within regional sectoral specialization, regions tended to specialize in all aspects of the production process of particular products, such as ships, cars, or textiles. Classic examples of regional sectoral specialization are the car manufacturing complex of Detroit or the once world-leading shipbuilding region of the Clyde in Scotland. However, following a shift towards regional functional specialization, in the second half of the twentieth century regions tended to specialize in particular stages in the production process of a wide range of products. The spatial divisions of labor approach therefore implies that there is a tendency for different types of work to be undertaken in different places. Thus, corporate headquarters tend to be concentrated in large cities, design centers may be concentrated in high-technology clusters, whilst the routine assembly of products may be based in regions with low labor costs.

Spatial divisions of labor are manifest at other scales in addition to the region. At the city-wide scale areas of manufacturing specialization are often termed ‘industrial districts.’ However, decentralization in the latter half of the twentieth century promoted functional specialization as new forms of work—and especially services—were introduced into suburban areas following the outmigration of people from inner cities. Spatial divisions of labor can also be seen at the international level, leading to the new international division of labor thesis. Hence, the advanced capitalist regions of North America, Europe, and Japan may be seen as global centers of corporate control, finance, product design, and innovation, whilst routine assembly jobs are undertaken in developing countries. However, research soon made it clear that there were few, if any, clear-cut geographical patterns, and the shift from sectors to functions was a tendency or trend rather than a specific outcome. Hence, different industrial sectors produced complex spatial divisions of labor, some of which overlapped and some of which did not.

The spatial division of labor approach attributed this geographical restructuring to the continual need of capitalist firms to enhance their profitability. There is much debate about the processes that led to low productivity and declining profitability in many industries in the second half of the twentieth century. One important influence was growing international competition from low-cost locations outside the Western world. Other factors were a lack of investment in new machinery and boring repetitive work (often associated with labor unrest). Another factor prompting the desire for economic restructuring in the early part of the 1980s was the influence of corporate raiders who issued junk bonds to gain control of major corporations. They then enhanced share values by asset-stripping: putting new management into particular corporate divisions to enhance productivity through reductions in manpower and the introduction of new working practices, and then selling-off the revitalized units. Prosecutions for insider dealing led to a progressive decline in the influence of the raiders but gradually pensions funds and major financial institutions began to exert similar pressures on corporations to enhance productivity and profitability.

Geographical studies drew attention to processes that were particularly important in the late 1970s and early 1980s as companies began to respond to declining profitability at that time (Massey and Meegan 1982). First, there was rationalization, a euphemism for the reduction of industrial capacity through factory closure or massive workforce cutbacks. This process was especially prominent in the UK in the 1980s under the Thatcher governments. Thus the first nation to experience the Industrial Revolution became the first nation to experience a massive process of deindustrialization. Job losses and factory closures were especially pronounced in the older industrial areas of the UK, a pattern which was replicated in the US, Europe, and Australia. Rationalization frequently was associated with spatial relocation as routine production functions were transferred to areas with low labor costs in developing countries. Not only were shop-floor workers made redundant, intermediate level white-collar workers were also laid off as corporations stripped out their elaborate managerial and administrative hierarchies (a process sometimes termed ‘delayering’ or ‘downsizing’). Second, there was the process of investment and technical change. This involved capital investment in new machinery and equipment in an effort to increase productivity and the quality of products. This frequently was also associated with losses of employment. Third, there was the process of intensification: increases in labor productivity through managerial and/organizational change.

Many of these changes were made to increase flexibility. Rather like restructuring, this is a word with a wide range of meanings but in the context of economic restructuring it has taken on two further important associations. First, there is functional flexibility, the capacity of firms to extend the range of skills of their employees. This has often involved breaking down the barriers between different types of occupation. Second, there is numerical flexibility, the capacity of employers to alter the numbers of workers employed at any given time. This has involved a wide range of strategies including the increased use of temporary workers, part-time staff, casual employees, job-sharing, shift working, flexi-time, annualized hours, and a wide range of innovative forms of job contract.

Two important factors underpin the need for flexibility. First, there is the ever increasing pace of technological change, both of products and the means by which they are produced. Increased use of computerization has tended to break down some of the divisions between mechanical-based and electronic-based occupations. The other factor is increasing market volatility. Markets for certain mass- produced goods have become saturated while niche markets for specialized goods change rapidly. Producers therefore need to be able to adjust quickly and efficiently to variations in demand.

As with other aspects of industrial restructuring, the capacity to introduce flexibility shows complex geo- graphical patterns and wide variations among regions. For example, in an attempt to escape from labor hostility to flexible working practices in older industrialized areas with a tradition of trade unionism, many companies have established new factories in areas that are free of such traditions. The location of new US car plants by Nissan in Smyrna, Tennessee, and Toyota in Georgetown, Kentucky, illustrate this trend. Restructuring has greatly affected the economic fortunes of different places, favoring some and devastating others. This led to a series of studies— especially in the UK—that became known as the localities approach, focusing upon the collective impact of restructuring upon the life-chances of people in different places (Cooke 1989).

One of the most quoted and influential aspects of the spatial divisions of labor approach was Massey’s use of the geological metaphor. The economic geography of an area was likened to various phases or ‘rounds’ of investment in factories, plant, machinery, and labor. Each round leaves an imprint in the form of a layer or strata of development. Some of these layers become eroded over the years by subsequent rounds of the restructuring process but collectively they serve to shape the economic landscape.

2.1 Japanization

Concepts of flexibility were initially imported into the US and Europe from Japan in the 1980s. During their period of reconstruction after the second world war Japanese manufacturers became eminently successful at combining high productivity with high quality products. Initially they did this to overcome the disadvantages faced by Japanese companies compared with western producers but in so doing made a virtue of necessity. Shortages of capital meant that Japanese firms had smaller amounts of machinery than their Western counterparts and had to learn ways of using existing machines more flexibility (for example, by changing the dies of dedicated machines more rapidly so they could be used for more than one purpose).

Limited capital also meant that they were forced into making contracting arrangements with numerous small producers to deliver components just at the time they were needed in the final assembly plant. Not only did this cut down on expensive stocks of components (since these larger firms were initially short of capital) but it enabled closer relationships to develop between firms. A process of collective learning thus ensured the delivery of high quality components. This process, known as contracting-out, distancing, or outsourcing, is another important form of economic restructuring. These processes have been copied widely by Western manufacturers as part of the restructuring process. This is sometimes termed Japanization (Elger and Smith 1994) or the development of lean production (Harrison 1994).

Japanese manufacturing practices drew attention to a rather different structure to regional functional specialization. Because of the need for close links with suppliers, large Japanese firms began to perpetuate and enhance regional sectoral specialization. Indeed, there has emerged a second strand to the restructuring approach that argues that clustering of firms making the same products (known as regional agglomeration) was once again an important feature of the advanced economies.

3. New Industrial Spaces

The second approach in restructuring studies, focusing on new industrial spaces, has been prompted by the fact that some regions lead the world in the design and production of particular products (Castells and Hall 1994). The classic case is Silicon Valley in California that leads the world in semiconductors (Saxanien 1994). Other examples include racing car production in southern England, textiles in northern Italy, and machine tools from the Baden-Wurttemberg region of Germany. Rather than regional functional specialization, these examples suggest we are witnessing the resurgence of the industrial districts of an earlier age and there are various schools of thought that have attempted to explain their existence.

Scott (1988) explained these clusters as the outcome of transaction costs. Transaction costs are the costs of transforming inputs into products and services. Companies are faced with three choices in minimizing transaction costs. They can undertake activities internally (in-house) through some form of hierarchy; subcontract activities to external suppliers and contractors through the market; or adopt a halfway house and engage in collaborative activities with other companies through networks. Scott argued that changing economies of scale and scope were affecting transaction costs and leading to firms clustering together geographically in collaborative networks.

Regulation theory has also been called upon to explain industrial agglomeration. This theory, originally developed by a group of French Marxian economists in the 1970s, attempts to relate developments in particular nations to broader trends in the evolution of capitalism (Amin 1994). Regulation theory holds that over time broad sets of conditions will emerge that enable production and consumption in capitalist societies to be brought together in a stable state, known as a regime of accumulation. For example, in the early part of the twentieth century, increases in productivity were brought about by increasing the efficiency with which inputs were used (known as the intensive regime of accumulation). This gave rise to the system of large factories based on internal economies of scale.

Economies of scale are factors that cause the average cost of a commodity to fall as the amount of output of the commodity increases. Internal economies of scale are those factors that apply to individual firms (irrespective of the size of the industry to which they belong). These internal economies usually ensure that the optimal scale of output is large in order to recoup the high costs of research, development, and specialized capital equipment. It is these factors that led in the past to the growth of large factories. This system has been termed Fordism after the system of mass production pioneered by Henry Ford in Detroit for the production of cars.

External economies of scale, in contrast, apply when the industry to which the firm belongs to (rather than the firm itself) is large. External economies include the development of specialized ancillary services, pools of skilled labor, and specialist component suppliers. If the output of the latter is large, this can reduce costs, thus potentially benefiting the industry as a whole. Economies of scope are factors that make it cheaper to produce a range of commodities (rather than to produce individual types of commodity in isolation) and again these economies of scope can be internal or external.

Regulation theorists argue that since the 1980s we have witnessed the emergence of a new regime of accumulation based on flexibility. Increasing market volatility and technological change have meant that internal economies of scale have been breaking down, leading to horizontal disintegration: the tendency for producers to become smaller and more numerous. In addition, there have been declining internal economies of scope, leading to vertical disintegration: the creation of specialist subcontractors (Scott 1988). Smaller firms have been able to take advantage of external economies of scale and scope, often by clustering together to reduce the costs of interacting with the numerous specialist suppliers upon which they are dependent.

The regulation theorists argued that whereas the regime of accumulation was a very broad abstract concept, the ways in which the problems of capitalist systems were resolved depended upon a mode of regulation that differs in some respects from nation to nation. This latter concept involves the norms, regulations, and institutional practices that govern issues such as trade and competitiveness policy, finance, and labor law. These issues will depend upon the particular historical development of the nation state concerned. Critics point out, however, that the transaction-cost approach is based on an economic logic which ignores these historical factors (Sayer 1989). This critique has led to an approach in restructuring studies that recognizes the social embeddedness of economic activities.

3.1 The Social Embeddedness Of Economic Activity

The concept of social embeddedness recognizes that all economic activity depends upon the social context in which it takes place (Granovetter 1985). Economic systems are seen as the product of conventions applied by highly ‘reflexive’ (i.e., thinking and aware) human agents. All economic systems depend upon systems of meaning that are usually specific to particular places. In the context of regional development this has led to a focus upon the institutional structures that encourage or inhibit economic activity. Work has therefore focused upon the cultural factors that generate a strong sense of common purpose, trust, and skill development amongst geographically clustered firms. This has led to the concept of the learning economy (Lundvall and Johnson 1992) and the learning region (Morgan 1997). In addition, it has also led to a focus upon the local work cultures—such as that in Silicon Valley—that facilitate factors such as high rates of technological innovation (Saxanien 1994).

4. Globalization

Those who are sceptical about the importance of these ‘new industrial spaces’ have pointed to the over-whelming power of the forces of globalization, and this forms another major focus within studies of economic restructuring (Dicken 1998). Globalization is—like most aspects of restructuring—a highly controversial and much disputed concept. The term is usually associated with the growing importance of multinational (or transnational) companies that operate in more than one country. However, large corporations such as Ford have long manufactured outside of their parent nation, producing goods for consumption in distant markets. Globalization there- fore refers to a more recent process in which the operations of transnationals, both in the spheres of production and distribution, are increasingly integrated on a global scale. Thus, products typically incorporate components made in diverse locations throughout the world. Furthermore, whilst the appearance of products such as cars may be tailored to meet the demands of particular local market conditions, this diversity is underpinned by many common elements (such as the floorpans and engines in the example of automobiles) to reduce production costs. Globalization is also associated with the global spread of Western values of materialism and consumerism.

Globalization has had a crucial effect upon economic restructuring. In particular it has led to the emergence of so-called ‘world cities’ (or ‘global cities’); command centers of the new world economy which house the headquarters of the major corporations and the financial system (Sassen 1994). Examples include New York, Los Angeles, London, Paris, and Tokyo. The occupational structures of global industries are such that these cities tend to be characterized by extremes of affluence and poverty. While few cities can claim true global status, there is a sense in which all urban centres are now global, for they are all affected by events outside their boundaries and they are all engaged in a fierce competition to attract mobile capital investment into their districts. Those who are sceptical of the new industrial spaces thesis argue that it is the elaborate structures of global corporate hierarchies that shape economies rather than industrial clusters in specific regions.

One approach to reconciling the conflict between the globalization and ‘new industrial spaces’ schools of thought is through the concept of neo-Marshallian nodes (Amin and Thrift 1992). This concept is named after Alfred Marshall, one of the first economists to draw attention to the positive advantages that firms can derive by locating closely together in a geographical cluster, such as common pools of knowledge and skill. This concept draws attention to the importance of geographical clusters of small firms but at the same time recognizes that they are frequently dependent upon the activities of major corporations.

5. Services

Geographic studies of economic restructuring also focus upon the growth of services (Daniels 1993). Although services are notoriously difficult to define, a common theme is economic activity that does not involve the material transformation of a physical product. However, services are defined, there is little doubt that service activity is dominant in terms of total employment and is on the increase in Western societies. Growth has been especially pronounced in financial and business services, retailing, leisure, and entertainment industries. Growth in services has tended to concentrate outside the traditional manufacturing centres of the Western economies (for example, in the ‘Sunbelt’ of the US and in the South East of the UK). However, new telecommunications systems are enabling back-office activity (i.e., relatively routine service activity) to be decentralized away from areas of rapid service growth into older industrial areas.

The restructuring of services has had profound effects upon the social structure of economies. In particular, it has led to social polarization with increases in both the affluent and the less well off. Whereas the declining traditional heavy manufacturing industries had substantial proportions of bluecollar, relatively well-paid, middle-income jobs, services tend to be associated with both relatively high-paying and low-paying jobs. Closely connected with the growth of services has been the increasing numbers of women in the workforce. Whereas men were employed in most of the relatively well-paid jobs in manufacturing, many of the new relatively low-paid service jobs (but also some of the well-paid service jobs) are held by women.

6. Feminization

Although the spatial divisions of labor and the new industrial spaces approaches to economic restructuring recognized that women were often employed in routine assembly work, feminist perspectives have highlighted the neglect of gender issues in many of these earlier studies. Early regulation theory, for example, focused upon work dominated by men— most notably the assembly of cars or high technology research and design work—even though women frequently were engaged in routine ‘Fordist’ assembly work. Regulation theory tended to adopt the reserve army of labor theory to explain the position of women in the labor market (i.e., it assumed that they were a variable pool of workers taken on in times of high demand but rapidly laid off in times of recession). A number of flaws were soon apparent in this theory. First, it simply did not fit the facts; in the last quarter of the twentieth century women were an ever increasing proportion of the workforce rather than a reserve army. Second, previous studies frequently ignored the socially embedded character of women’s employment. The issue of skill illustrates this point well. For example, rather than being an innate attribute, women’s so-called ‘nimble-fingers,’ which supposedly make them suitable for low-paid routine assembly work in light industry, are now seen as socially ascribed. Subsequent work has shown how the combination of workplace, household, and community arrangements structure the job opportunities available to women (Hanson and Pratt 1995). Gender issues are therefore a crucial element in processes of economic restructuring, as are many other socially ascribed human characteristics related to factors such as family status, ethnicity, disability, and age.

7. Economic Restructuring And The Public Sector

Although initially applied to the private sector, concepts of restructuring have also been used to analyze the extensive changes in public sector organizations in recent years. In a public sector context the flexible firm model involves a core of public sector managers who draw up contracts for work to be subcontracted to various private sector organizations, a structure which is already utilized in many US and European local governments. As with the restructuring of private sector organizations, the geography of public sector restructuring shows complex overlapping patterns, but some generalizations are possible. In the UK, for example, the contracting-out of services tends to be greater in districts in which local management is in favor of change, where there are fewer logistical problems for private sector contractors, and where there are relatively compliant trade unions (Pinch 1997).

8. Knowledge Economies

The most recent strand of economic restructuring work by geographers has focused around knowledge economies. Various terms have been used to draw attention to the increasing importance of knowledge in contemporary societies including: knowledge-based capitalism (Florida 1995), the network society (Castells 1996) and reflexive accumulation (Lash and Urry 1994). This role of knowledge is reflected in the ever-increasing pace of technological change and the rapidity of changes in consumer fashions and styles. This means that rather than compete by providing goods and services at the least cost, many firms increasingly compete on the basis of factors such as quality, performance, style, and design. Rapid developments in the sphere of telecommunications— teleconferencing, faxes, email, the Internet, and various types of specialist computer networks—mean that knowledge can be disseminated much more quickly throughout corporate hierarchies or networks of collaborating firms. The term telematics is used to indicate services that link computer and digital media equipment over these telecommunications links. Central to these developments are new communications channels based around satellites and fiber optics that permit the exchange of greater and more complex amounts of information much more quickly over longer distances.

So far there has been relatively little restructuring research on the impact of telematics and the information economy (Graham and Marvin 1996). Certainly telematics facilitate globalization and ever increasing distances between the various elements in the production chain. In addition, they facilitate telecommuting: linking people into global information networks and enabling them to work in their own homes. While some claim new technologies will result in the dissolution of city life, paradoxically there has been a recent resurgence of interest in cities as sites of innovation and creativity. The reason for this is that creativity in knowledge-based industries is fostered by having dense networks of people in close physical contact in places where trust and reciprocity can facilitate learning. Furthermore, much of the expensive infrastructure for telematics is heavily concentrated in urban areas.

9. Overview

Rather than a single integrated approach, geographical studies of ‘economic restructuring’ represent a series of foci: on spatial divisions of labor, new industrial spaces, globalization, services, feminization, and knowledge economies. Nevertheless, these studies share a common desire to understand the many complexities of economic restructuring without recourse to simple ‘laws’ of economics that are assumed to work in all places at all times. In addition, they are all committed to unraveling the crucial role of geography as a constitutive element of restructuring processes. Although many generalizations have been possible, the geographical manifestation of economic restructuring shows many complex, ever changing, and cross-cutting patterns. This has led to a dynamic field that has become known as the ‘new’ regional geography (for example, Bryson et al. 1999). Although somewhat distinct from the approaches typically utilised by economists, it has attracted considerable interest from a wide range of scholars in related disciplines such as urban studies, planning, sociology and cultural theory.

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