Nathan Gallo
INTS 2370
Professor Archer
10/30/12
Extractive Industries and Advanced Business Services: Foundations of our Economy
The study of economic globalization is a vastly diverse field, ranging from wage
inequality to transnational corporations. Within the economic sectors, though, there lies a
general push towards complexity and integration, specifically through the production
circuit. A common trend can be seen throughout all areas with state intervention,
although the focus of this discussion will be between advanced business services (ABS)
and extractive industries. Both sectors are unlike each other on the superficial level, but
they each rely on technological changes and central state involvement for innovative
advancement.
Advanced business services, although quite varied in form and function, provide
the backbone to the economy, particularly relating to production circuits. They allow
transactions to occur between producer and consumer in a viable method that has
dominated the economy as modernization has progressed. This method, commonly
known as money, plays an important role in all stages of production and consumption,
which allows ABS to be the driver of the economy. They are instrumental in maintaining
financial security and stability, although they are often overlooked.
Extractive industries, on the other hand, form the mainstay of the material world
because of their high use in the production of goods and wares. They form the very fabric
of our material existence, and in essence, literally “everything we use to communicate,
move, stay warm, stay cool, sit, sleep, cook, and refrigerate comes from the…raw
material that humans extract from the earth…(Dicken 243).” Oil and copper, specifically,
have perpetuated modernity to an irreversible extent, and their power combined is
unfathomable to the human mind in regards to the existence of contemporary society.
The geography of ABS is one of centralization in cities and of expansion across
an ever-evolving global landscape. Because the primary product of ABS is information, a
certain fluidity exists within the transfer of such information across geographical and
political borders. Many economists and geographers have heralded an “end of
geography” because of the relaxation of national boundaries to financial flows, but
geography has become even more important (Dicken 390). These services tend to be
centralized within cities, particularly large, global cities such as New York, London, and
Bejing. They are active within all sectors of the economy, even though they might not be
transparent to the untrained eye. Face-to-face contact is the primary reason for this
centralization because of the increasing risk and complexity within the financial industry.
Many ABS firms have followed their customers overseas, with a broad base localized
within cities, to minimize risk and loss of profit. Geographical proximity is a must.
Conversely, ABS firms have started offshoring some of their functions to other
countries for various reasons, with the most popular location being India. Many services
like IT, payroll, and transaction processing are strategically located in foreign areas to
evade heavy taxation and regulations, especially out of reach of domestic jurisdiction.
Functions that are offshored also have the capability to run 24 hours a day, depending on
the time zone in which the firm is placed (Dicken 396). This has produced a stark
contrast to the concentration of ABS within urban areas, although both dynamically take
place within the global economy.
Extractive industries, due to their bulky magnitude, have a much different
geography than ABS. They are grounded to the regions in which they exist, and the
transfer of these materials can be extensive and exhaustive. Thus, there is centralization
of geography, defined by the presence of the specific material within the Earth. Even
though many minerals and materials make up the extractive industries, the discussion of
geography, technology, and state intervention will be focused on oil, with notable
mention of copper. Oil production, as a whole, has risen dramatically over the past 40
years, and it is spread across the globe. The quantity produced is still relatively small, and
between 12 out of the 192 countries, they produce 68 percent of the world total of oil. In
effect, “the geography of global oil production has…undergone a quite radical change.
The new emphasis is on supply diversity, security of supply arrangements and…the
development of indigenous or regional availabilities (Dicken 247).” This is
fundamentally different than the extraction of “easy” oil across the globe in selective few
regions with comparatively large quantities.
Copper has also seen similar shifts in production, including mass production of
copper in various countries. China’s thirst for copper has produced a much large demand
market, thereby driving the need for copper to increase. Chile is overwhelmingly the
largest producer of copper, but new sources have been extracted in parts of Africa like
Zambia and the Democratic Republic of Congo, as well as in China (Dicken 250). These
are all places that hadn’t been previously explored for their wealth of minerals and
deposits.
Technology has undoubtedly played a large role in the development in both of
these industries, as an essential part of globalization. Within the ABS sector, the Internet
has allowed the flow of information and money to increase dramatically, because they
can be transferred at a very high speed with a low cost. This makes financial services
available worldwide, 24 hours a day, without a need of physical contact of persons or
entities. Efficiency has been the main reason for the success of the Internet, or rather, the
efficiency that has been bestowed upon the financial system. Transactions can take place
with greater accuracy and directness, “even though the participants may be separated by
thousands of miles and by several time zones (Dicken 370). Many new financial products
have appeared as well with the ever-changing technology. These products allow the
bypassing of the intermediary need for commercial banking by being replaced with
electronic communications that allow greater securitizations. Examples of these products
include asset-backed securities, credit default swaps, and constant proportion debt
obligations, all of which place the responsibility in the hands of the consumer.
Electronic technology has not been at the core of extractive industries, but
nonetheless, major technological shifts have taken place to improve extractive efficiency
and locational detection. Many sophisticated techniques have been developed by oil
industries in particular through “geochemical, geophysical and satellite remote sensing
(Dicken 254),” which can turn out unsuccessfully, but with the need to discover new
sources of oil, these risks must be taken. During periods of high oil prices, explorative
activity and the growth of explorative technology remained high, but after the 2008 crisis
when prices significantly dropped, exploration came to halt because of the lack of
funding. Thus, technology can only develop for extractive industries when the relative
prices remain high.
The other common trend between ABS and extractive industries is the critical role
of the state within each sector. ABS, after the 1980s, went through a period of
deregulation with the coinciding internationalization that allowed the entry of foreign
banks in domestic markets and the expansion of domestic banks overseas. This was to let
financial services flow freely and to be established wherever the market lay at the current
time. The 2008 crisis, though, questioned the necessity for such extreme deregulation,
and in the aftermath, the state has warranted a larger amount of control in the financial
industry. Governments have stepped in economic markets with massive financial support,
especially after the collapse, to maintain the stability of credit and the financial system as
a whole. “In the short run the need is to stabilize the financial system, but in the longer
run the need, clearly, is for a new financial architecture for the global economy (Dicken
379).”
The state is an even more important entity in extractive industries than in ABS.
The reason is because the resources needed for these industries are located within
territorial boundaries, and access to these resources is controlled by the state. Both the
political landscape and the power of the state affect the production of this industry, and
with oil, this has become the more common trend. “States [come] into sharp
confrontation with private companies, especially TNC’s as well as with other states
(Dicken 256).”
Globalization is an extremely dynamic process, and within the ABS and
extractive industries, the geography of production has shifted dramatically, but a push for
technology and control by the state remain key motivators for the advancement of each
industry.
Dicken, Peter. Global Shift: Mapping the Changing Contours of the World Economy.
New York: Guilford, 2010. Print.