7.7 Changes as a Result of the World Economy

Outsourcing means a company hires another firm to do part of its work, like manufacturing parts or answering customer calls. Offshoring means moving that work to another country. Together they created an international division of labor: research, design and management often stay in core countries, while assembly and routine service work move to lower-wage countries.

Services move too. Call centers and back-office work have grown in English-speaking places with lower wages, such as India and the Philippines.

Deindustrialization is the decline of manufacturing jobs in a region. Factories closed or moved from the U.S. Rust Belt (around the Great Lakes), northern England and other older industrial regions from the 1970s on, because of automation, foreign competition and offshoring. Detroit's population fell from about 1.85 million in 1950 to about 640,000 in 2020.

Economic restructuring is the shift from manufacturing toward services and knowledge work. Some cities, like Pittsburgh, rebuilt around health care, universities and technology; others still struggle with job loss, vacant buildings and shrinking tax revenue.

A newly industrialized country (NIC) has rapidly grown its manufacturing and exports. The first were the Four Asian Tigers (South Korea, Taiwan, Hong Kong and Singapore) from the 1960s; later China, Mexico, Malaysia, Thailand, Vietnam and others followed. Governments often used special zones to attract investment:

• Special economic zones (SEZs): areas with special tax, trade and investment rules. China created its first SEZs in 1980, including Shenzhen, which grew from a small town into a city of more than 17 million people by 2020.
• Export-processing zones (EPZs): areas where firms import parts duty-free, assemble them and export the products. Mexico's maquiladoras, factories near the U.S. border that began in 1965, are a classic example.
• Free-trade zones: areas where goods can be stored, processed and re-exported without normal customs duties.

Fordism, named for Henry Ford's moving assembly line (1913), meant mass production of standard goods by large numbers of workers doing one repetitive task each. Post-Fordism is flexible production: smaller batches, customized products, outsourcing, and global supply chains. Just-in-time delivery, pioneered by Toyota, means parts arrive exactly when needed instead of being stored. It cuts costs, but disruptions spread fast, as when the container ship Ever Given blocked the Suez Canal for six days in March 2021 and when COVID-19 snarled supply chains in 2020–2022. Since then, some firms have moved production closer to home (nearshoring). In 2023 Mexico passed China as the largest source of U.S. goods imports.

Agglomeration is the clustering of related firms, which share skilled workers, suppliers and ideas, as in Silicon Valley or Bengaluru, India. A multiplier effect occurs when new jobs in a key industry create more jobs in the local economy, as workers spend money at stores, restaurants and services. Economies of scale (5.7) push firms to build large plants that serve whole regions or the world. In core countries, growth has shifted to service sectors and high-technology industries such as software, biotech and chip design. A growth pole is a place where a cluster of industries drives growth for the surrounding region.