Geoscience Reference
In-Depth Information
18.5
Rise of “Tradable” and “Non-tradable” Sectors and Rising
Income Inequalities in the Megalopolis
Globalization, made possible in recent decades by lowered international trade
barriers and technical improvements in transport and information technologies,
has restructured the functional and spatial organization of the economy in the
Megalopolis and the US. The production and delivery of goods and services are
decomposed into increasing number of value-adding components and the relevant
supply chains and value-adding components of economic activities have been
increasingly organized on a global basis. At the same time, innovations in Infor-
mation technologies applied in service sectors have created many Knowledge-
intensive Business Services (KIBS). KIBS (comprising financial, legal, accounting,
information and other professional services) enable global corporations, as noted
earlier, to develop and support management innovations that make possible the
smooth operation of global supply chains and the integration of global corporate
operations. Further, KIBS also have become tradable.
In the early stages of globalization, global corporations in the Megalopolis
moved the lower wage, lower value-adding components of production to low
income industrializing countries, while retaining the more knowledge-intensive
components domestically. Thus the upstream knowledge-intensive activities
(e.g. R&D, Product design) and downstream knowledge-intensive activities
(e.g. Marketing, Brand exploitation) are retained in the Megalopolis, while tasks
of fabrication of many components (except the more knowledge-intensive
components) are out sourced to the newly industrializing countries. At this stage,
there is a decline in low to medium wage jobs and a growth in higher wage
knowledge-intensive jobs in the manufacturing and other tradable sectors in the
Megalopolis. The twofold result of a loss of jobs in manufacturing and other
tradable sectors and a rise in value added per job in the more knowledge-intensive
value chains of production which remain in the Megalopolis in turn yields
rising
income inequality
in the Megalopolis.
Over time, however, the nature of global supply chains evolves in response to the
pace of economic development in the rapidly industrializing economies of the
world—the recipients of the low value-adding components of industrial production
outsourced from the Megalopolis. Rapidly industrializing countries (such as China)
are accumulating in recent years significant levels of physical, human, and organ-
izational capital, which permit an increasing incorporation of higher value-adding
components of global chains into their manufacturing and other tradable sectors,
thereby displacing such components of manufacturing and other tradable sectors in
the Megalopolis. In this context of globally-linked production, the corresponding
production chains disappear in the Megalopolis, which increasingly plays host
largely to the high value-adding components such as R&D, design, fabrication of
some knowledge-intensive components, marketing, and a few post-sales services in
such sectors. While overall value added per employee rises in these sectors retained
in the Megalopolis, two adverse consequences follow. Powerful market forces
operate directly on the tradable sector. More medium wage jobs in these sectors
