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 Figures, Tables, and Case Studies
Figures
I.1 The Starting Point: An Institutional Perspective for
Economic Geography 7
I.2 Global–Local Dynamics 14
I.3 Value Chains in Aggregate Sectoral
Perspective 15
1.1 The Market as Interaction between Supply and
Demand 24
1.2 Demand Costs over Space for “Central Place”
Goods 25
1.3 Perfect Competition and Hexagonal
Market Areas 26
1.4 Supply Costs over Space: Mines around a
Market 27
1.5 A Market Typology 30
1.6 Idealization of the Fish Value Chain at Tsukiji 35
1.7 Market Governance 38
1.8 Global Distribution of GDP (PPP) Per
Capita, 2012 45
1.9 World Per Capita Total Primary Energy
Consumption, 2011–12 47
1.10 Galbraith’s Landscape of Countervailing
Powers 49
2.1 Virtuous Circular and Cumulative
Urbanization 57
2.2 Economies of Scale for Widgets 58
2.3 Value Chains in Geographical and
Organizational Perspective 77
3.1 Idealized S-Shaped (life-cycle) Model of
Innovation Diffusion 89
3.2 Global Distribution of GERD by
Stage of Development, 2002 and 2009 105
3.3 Network Linkages of Vancouver Medical
Biotechnology Firms 110
3.4 Innovation-Led, Virtuous, Cumulative
Growth 111
3.5 Idealization of Vicious (Cumulating)
Poverty Cycle 112
3.6 Actors and Linkages in the Innovation
System 117
4.1 Classification of Corporate Strategies 126
4.2 The Triad Segmentation Model 129
4.3 Two Models of Subcontracting Organization
around a Core Firm 139
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5.1 Labour-Market Interaction between Supply and
Demand 152
5.2 The Employment Relationship (ER) 153
5.3 Earnings and Unemployment Rates for
Workers Aged 25 and Over by Educational
Attainment, US, 2013 158
6.1 Principles of Government Intervention in
Economic Activities 180
6.2 International Environmental Governance: Vertical
and Horizontal Relations 206
7.1 The Role of Non-profits in the Realization of
Non-market Values 212
8.1 The City’s Global–Local Economy 238
8.2 The Land Market and Other Influences on the
Location of Intra-urban Economic Activity 255
8.3 The Bid-Rent Allocation of Land Use 256
8.4 Canadian Municipal Ecological Footprints from
Vancouver to Halifax 262
9.1 Crude Oil Exports and Imports by Selected World
Region 2012 278
9.2 Gas Exports and Imports by Selected World
Region 2012 280
9.3 Coal Exports and Imports by Selected World
Region 2012 281
9.4 The Organization of Industrialized Resource
Exploitation: Basic Institutional Types 291
9.5 World’s Largest Oil and Gas Companies
by Size of Reserves 2010 296
9.6 A Virtuous Model of Resource Development via
Diversification 298
9.7 Life Cycle of Canadian Resource
Towns 299
10.1 World Agricultural Map 306
10.2 Defining Land Use by Location Rent 308
10.3 Domestic and International Agricultural Market
Interdependence 315
10.4 The Monsanto/Cargill Cluster 317
10.5 Engel’s Law in Canada: Proportion of Household
Income Spent on Food, 2012 322
10.6 Contributions of the Agriculture Value Chain to
GDP and Employment, Canada, 2012 326
11.1 Mass Production versus Flexible
Specialization 337
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11.2 Relationships between Transportation Costs and
Distance 345
11.3 The Weberian Location Triangle 346
11.4 Cheap Labour Sites and Agglomeration Economies
in Relation to the Minimum Transport Cost
Location 347
11.5 E-waste Trade and Recycling in China 357
11.6 Changes in the Organization of the Semiconductor
Industry 361
12.1 Evolution of the Canadian Retail
System 377
12.2 Generalized Life Cycle of the Downtown
Department Store 378
12.3 Tourist Destinations by Arrivals and
Receipts 388
12.4 Expenditures on Schools in the US 387
13.1 Networks 410
13.2 Projection of Transport Energy Consumption by
Mode and Region 425
14.1 NGOs Build the Message and the Brand across the
Globe 441
14.2 The Long Tail Phenomenon 443
14.3 The West Edmonton Mall: Shopping,
Entertainment, Fantasy 450
Tables
I .1 The Evolution of Economic Geography 3
1.1 The Central Place Hierarchy 27
1.2 Hierarchy of Markets and Institutions 39
1.3 Selected Market Failures in Geographic
Perspective 43
1.4 Revenues of Four MNCs Compared to GDP of
Four Countries, 2012 48
2.1 Urbanization in the UK, 1800–2011 56
2.2 Urbanization in Selected Countries,
1950–2011 56
2.3 Global GDP, Inward FDI Flows and Merchandise
Exports, Selected Years 1970–2012 72
3.1 Comparative Advantages of Alternative Forms of
R&D 91
3.2 Selected Technological Characteristics of Techno-
Economic Paradigms 94
3.3 World Per Capita GDP for Selected World Regions
1–2003 AD 96
3.4 Techno-Economic Paradigms and Environmental
Phases 99
3.5 US Patents Granted by Country of Origin 106
3.6 Biggest US Corporate R&D Locations, 2011 107
4.1 Theories of the Firm and Decision-Making
Characteristics 124
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Contents vii
4.2 Business Segmentation: Idealized Characteristics
of Capitalist Firms 129
4.3 Inward and Outward Stocks of Foreign Direct
Investment 1990–2012 137
5.1 Labour Governance: The Principal
Institutions 152
5.2 Ten Major Unions of the Canadian Labour
Congress 153
5.3 Rates of Unionization for Selected Countries c.
1995 and 2012 154
5.4 Comparative Labour Force Statistics among 16
Countries 2012 165
5.5 Labour Market Issues and Policies in Advanced
Market Economies 168
5.6 Permanent Migration to Selected OECD
Countries and the Country of Origin of
Migrants, 2011 171
6.1 Public Goods in Relation to Other Goods 182
6.2 Total Tax Revenue as Percentage of GDP 189
6.3 Canadian Federal Government Revenue
Sources, 2003–4 and 2012–13 190
6.4 Classification of Percentage Tax Revenues by
Level of Government and Social Security
among Selected OECD Countries
2011 (1975) 191
6.5 Canadian Federal Revenue Distribution, 2003–4
and 2012–13 192
7.1 Activity Areas, Income, and Number of Canadian
Non-profits, 2003 and 2007 214
7.2 US Non-profits: Activity Areas, Number, and
Income 2010 215
7.3 Non-profit Social Services 216
7.4 Advocacy NGOs 219
8.1 Canada’s Urban Population Centres by Rank
1971–2011 251
8.2 World Cities Ranking According to
GaWC 2012 253
9.1 Classification of Ecosystem Services 276
9.2 Selected Commodities, Value of Global Exports
and Imports, 2012 277
9.3 Oil’s Dominance among the Fortune 500 World’s
Largest Firms, 2013 279
9.4 World Consumption of Primary Energy
Resources, 1980, 2006, and 2012 281
10.1 World’s Most Traded Agricultural Commodities,
2011 309
10.2 Major Commodity Exporters, 2011 310
10.3 Major Commodity Importers, 2011 313
11.1 Export Value of Manufacturing by Country,
1980–2012 339
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 viii Contents
11.2 Auto Production (000s) in Selected Countries,
1900–2012 340
11.3 Institutional Typology of Location
Conditions 349
12.1 Employment by Broad Sector Groupings, US and
Canada, 1970 and 2012/14 372
12.2 Employment in Services in the US (2012) and
Canada (May 2014) 373
12.3 Evolution of Fast Food: McDonald’s, Kentucky
Fried Chicken, and Starbucks 386
12.4 Value of Global Merchandise and Service Exports,
1980–2012 389
12.5 Leading National Exporters and Importers of
Commercial Services, 2012 391
12.6 Producer Services in Canada, 2012, Operating
Revenues $million (%) 392
14.1 Consumer Behaviour Theories 432
Case Studies
I .1 The G20 London Summit Agreement, 2 April
2009 9
1.1 Tokyo’s Tsukiji Fish Market 22
1.2 Farmers’ Markets 32
1.3 Branding Tuna by the Town and Not by the Tin 36
2.1 Internal Economies of Scale 54
2.2 The Micro-Brewery Explosion in the US 61
2.3 Local Multipliers 66
2.4 The Silk Road 70
2.5 International Trade and Comparative Advantage 74
3.1 Revolution and Evolution 86
3.2 Benjamin Huntsman and the Invention of
Crucible Steel 90
3.3 Ralph Deutsch’s Keystone Patent for Digital
Organs 102
3.4 Aluminum Pot Making in Ghana 114
4.1 Profile of Walmart 121
4.2 Satisficing and Franchising 125
4.3 International Business Machines (IBM):
From the Vertical to the Horizontal 131
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4.4 The Truncated Firm 145
5.1 Turning Points in the Labour Movement:
Different Times, Different Places 150
5.2 Brain Drain 172
6.1 The Berlin Wall 176
6.2 Money and Banks 178
6.3 State-Owned Companies (SOCs) 183
6.4 Rejuvenation of the Lower Don Valley, Sheffield 199
7.1 Sea Shepherd 210
7.2 Fair Trade in Coffee 223
7.3 Forest Conflicts in Tasmania 225
8.1 A Cathedral in the Heart of Mammon 236
8.2 Location Quotients and a Diversification Index 244
8.3 Lux Visual Effects: Creating the Creative City 246
8.4 Council Housing in England 266
9.1 The Athabasca Oil Sands 273
9.2 Green Development and Its Dilemmas 286
9.3 Alcoa’s Global Value Chain 293
10.1 The Green Revolution 316
10.2 Integrating McDonald’s 320
10.3 Feedlots in Lethbridge County, Alberta 321
10.4 Italy’s Chianti Classico Territory 329
11.1 Toyota in North America 334
11.2 The Pearl River Delta 342
11.3 The Canton Fair 355
11.4 Toyota’s Inter-firm Relations and Locations 363
11.5 Porter’s Diamond 365
12.1 Feeding the Knowledge Economy 370
12.2 Christaller’s Model of Service Accessibility 374
12.3 Life Cycles of Two Canadian Retail Icons 386
12.4 Tesco: The Power of a Retail Giant 387
12.5 Growing the GoodLife 384
12.6 The Cultural Heritage Industry 389
13.1 Out of the Box 404
13.2 Simple Measures of Network Form 412
13.3 Urban Congestion Costs 422
14.1 Bass Fishing 430
14.2 The Science and Art of
Geodemographics 436
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 Preface

Institutional concepts and themes have been present in economic geography texts for
decades, but for the most part they have been discussed only as parts of an eclectic
mix, not as the building blocks of a coherent architecture. This book provides such
an architecture and is distinctive, in two main ways; first, by emphasizing markets as
the key institution underlying modern economies and, second, by exploring the main
institutions that influence markets and the nature of global economic geographies. For
the past two centuries markets have driven economic development and increased living
standards but have also led to vast income inequalities and environmental degradation.
This book offers a comprehensive introduction to the interplay of economic, social,
and political institutions that shape local development, global integration, and levels
of living. Students will become critically aware of how markets are organized and
governed by people and their institutions. As an introductory text, this book equips
students with basic principles and concepts of how markets are deemed to organize
space and the institutions of governance necessary both to make efficient organization
of space possible and improve the outcomes for society.

About this Book

This second edition of our book updates, clarifies, and elaborates our argument while
retaining the original overall structure. Thus the book is organized in three main parts.
Part 1 (“Markets in Place, Space, and Time”) lays the foundations, introducing markets
(Chapter 1), the spatial division of labour (Chapter 2), and the role that innovation
plays in the evolution of market economies (Chapter 3). Part 2 (“Institutional Pillars of
Modern Space Economies”) defines the central economic and non-economic institutions
(business, labour, government, non-government organizations) and explores how their
activities shape economic activities in place and space (Chapters 4–7). Finally, Part 3
(“Location Dynamics of Value Chains”) explores how various institutions influence the
location dynamics of value chains beginning with the powerful coordinating role of
cities (Chapter 8) and is further explored in the resource, manufacturing, and service
sectors (Chapters 9–12); examines how transportation and communication networks
function to integrate economies (Chapter 13); and culminates with an assessment of
the nature and impact of consumption (Chapter 14).
The three parts constitute progressive building blocks, and it is important to read
them in sequence (although individual chapters in Parts 2 and 3 may be rearranged
somewhat). The book is designed as an introductory text in economic geography, that
is, for first- or second-year university and college students. We hope that it will provide
a solid foundation for more advanced studies not only in economic geography but in
any discipline with an interest in economic affairs and the roles that institutions play
in shaping them.

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 x Preface

Acknowledgements
The revisions to this book have been greatly helped by a number of people. Indeed, we
most gratefully acknowledge the extensive, constructive comments of our reviewers
noted below, the numerous insightful comments of Ian MacLachlan and Søren
Kerndrup, the many colleagues and friends who prepared exhibits for us (they are
acknowledged in the text), the work of John Ng at Simon Fraser who has provided
wonderfully patient help in drawing all the illustrations while the research provided
by Julia Affolderbach and Klaus Edenhoffer for the first edition continued to be useful.
We also thank the editorial staff at Oxford, especially Meg Patterson, Karri Yano, and
Lisa Ball who provided prompt, friendly, and excellent advice throughout the process.
Similarly Jacquie, Sue, and our families were always understanding, supportive, and
often inspirational! Finally, we dedicate this book to our undergraduate students, not
incidentally recalling our own undergraduate lives, teachers, mentors, and friends.

Our reviewers who provided both terrific help and much encouragement are:

Jeff Boggs
Brock University

David Edgington
University of British Columbia

Brian Lorch
Lakehead University

Heather Nicol
Trent University

Dan Todd
University of Manitoba

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 Introduction

An Institutional Approach to
Economic Geography
Human economic life . . . is the affair of organized groups.
Wagner 1960: 63

Why does economic activity vary so tremendously from place to place around the world?
Why do some places effectively control the global economy while others are integrated into
it through specialized roles and some remain marginalized? What are the consequences
for the well-being of countries, regions, companies, households, and individuals? These
are some of the basic questions that economic geography tries to answer.
The introduction is divided into two parts: The first part introduces the discipline
of economic geography and outlines the basics of institutionalism. The second part
offers a preview of our approach to the subject that focuses on the inter-relationships
among markets, institutions, technology, and places and spaces, and the organization of
economic activities within value chains.

About Economic Geography

Economic geography studies the variations in the location and spatial distribution of
economic activities, the geographic differences in the economic functions and well-
being of places, and the connections among economic activities across space. Economic
geography’s mandate is pursued at different geographic scales—from the local to the
global—and across different time horizons, from instantaneous snapshots to evolu-
tionary changes across historical periods. The theories and tools of the discipline have
implications for government policy and practical applications for private and state-
owned companies, non-governmental organizations, and consumers.
Economic geography has four interrelated objectives:
1. To understand how and why places differ in terms of economic activities. Economic
geographers examine community, regional, and national patterns of economic
growth and decline; why rich and poor nations or regions exist; why standards of
living vary among places and what accounts for disparities within places; and the
use and abuse of the environment.
2. To understand how and why economic activities are connected across space.
Economic geographers examine how the complementarity and competition
among places generates massive flows of money, information, labour, goods, and

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 2 Introduction An Institutional Approach to Economic Geography

services within nations and across national borders. Economic geography is at the
forefront of explanations of global integration and how it works. That understand-
ing provides feedback to understanding the interdependence of spatially uneven
development and what globalization means “on the ground” in particular places.
3. To advise business, government, and other institutions on how best to locate eco-
nomic activities and organize patterns of land and resource use, and make con-
nections in place and across space so as to meet social objectives, however these
objectives may be defined in terms of efficiency, equity and sustainability criteria.
And, finally,
4. To teach skills and develop perspectives that students can apply in a wide variety of
careers and that, ultimately, may help them become better citizens.
Outside academia, “economic geographers” are rarely labelled as such, but demand
for their expertise is widespread in the public and private sectors. For example, location-
analysis skills can be used to determine the best location for a manufacturer to put
together products and still have access to markets, or which piece of real estate is best for
which commercial uses. As real estate agents say, it is all about location, location, loca-
tion. Similarly, a background in economic geography provides a valuable perspective for
anyone seeking to advise business or government on the economic, social, and environ-
mental implications of their decisions to, for example, open a new factory (or close an
old one) or to build a highway. Economic geography addresses a host of issues directly
relevant to local and regional development planning, environment-economy manage-
ment, transportation planning, etc.
As an introductory text, we will study economic geography with the understand-
ing that the foundation of human society is rooted in institutions: formal and informal
structures, routines, conventions, and customs that organize all human relationships. In
terms of economic behaviour, the central organizing institution is the “market.” But the
market is neither an abstract or independent entity and there are many different kinds
of markets. They began as places of exchange and continue as such, for example, as shop-
ping malls where consumers buy goods in person from stores or suppliers. However,
markets increasingly are becoming spaces of exchange such as e-bay, electronically con-
ducted between remotely located buyers and sellers. Within these two basic types, mar-
kets vary widely depending not only on what is bought and sold, but more importantly,
on how products are bought and sold, or how products are organized and regulated
by particular societies. Our key point is: markets are institutions interdependent with
other institutions and influences. We will see how markets vary over space and time
and examine their various manifestations as business, labour, governments, and non-
profit organizations shape and are shaped by them. Together, these institutional forces
determine a place’s economic efficiency, the degree of social equity it enjoys, its ability
to economically and environmentally sustain itself, and its position in a global system.

Historical Thumbnail Sketch of Economic Geography

Economic geography has changed profoundly since its beginnings. Around 1960, economic
geography (and geography as a whole) experienced a “paradigmatic” change in its way of
thinking from descriptive (ideographic) to theoretical (nomothetic) approaches (Table I.1).

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 Introduction An Institutional Approach to Economic Geography 3

Table I.1 The Evolution of Economic Geography

Main Phases Space–Place Focus and Comment Texts

Descriptive (ideographic)

Commercial geography During the age of exploration, emphasis is on describing activities Chisholm 1889 (revised by
(1600–1900) in “distant” places around the globe and their potential for Stamp 1932)
trade. Institutions are not considered, although descriptions are
organized on a national basis and colonial power is implicit.

Environmental determinism
(1900–1930)
Areal differentiation
1930–1960
Theoretical (nomothetic)
Quantitative revolution 1960–
Conceptual pluralism and
fragmentation 1970–
For a more detailed account of these phases see Berry, Conkling, and Ray 1993.
Economic geography emerges as the study of economic activities Huntingdon 1915; Taylor 1937
(especially resource and industrial production) in particular places
and the implications of those activities for trade and national
economic development. Physical environment is seen as the most
important determinant of economic activity in any place.
Human geography emphasizes the uniqueness of places through Jones and Darkenwald 1949;
historical accounts and regional syntheses of interactive social, Zimmerman 1933;
economic, and physical processes. Resource geography is also an Wagner 1960
important expression of economic geography. The influence of
cultural institutions is recognized.
Dramatic shift away from the description of unique places towards Morrill 1974;
the explanation of activities across space in terms of general Lloyd and Dicken 1972;
laws and principles drawn from neoclassical economic theory, Berry et al. 1993
tested by formal quantitative methods. Strong interest in regional See also Isard 1960
development and planning. Greater emphasis on urban–industrial
economies. Markets are recognized, albeit abstractly; otherwise
institutions are marginalized.
Economic geography explores a variety of theoretical approaches Knox and Agnew 1989; de
that include Marxism and institutionalism. Emphasis on global Stouza and Stutz 1994; Coe
perspectives and the roles of place and space (local–global et al. 2007. Also edited texts,
dynamics). Institutions—big business, government, labour— e.g., Daniels and Lever 1996,
become an explicit theme. Barnes and Shepherd 2000

From around 1600, early commercial geographers set out to document the economic
activities of the distant places that European powers were discovering. If descriptive, their
work nevertheless addressed the nature of goods production among countries and pro-
vided heightened awareness of economies and societies around the globe at a time when
international trade was primarily commodity-driven. By the late 1800s, commercial
geography was describing the attributes of different places in an effort to determine their
potential for trade, usually for the benefit of European interests. At that time, (bearing in
mind that the newly discovered lands were largely subsistence agricultural economies)
textbooks related spatial variations in commodity production with variations in physical
factors such as climate, soils, and topography.
In the early twentieth century, variations in development levels were attributed to the
features of climate and landscape, a way of thinking labelled environmental determin-
areal differentiation An
ism. But geographers soon began to recognize that this approach failed to appreciate the
approach to human geography
many ways in which human populations act as agents of change. By the 1930s geograph- that refers to regions as unique
ers began to emphasize the role of human agency to explain how both developed and less places shaped by distinct
evolutionary interactions among
developed areas became different from each other. For economic geography, this areal economic, political, cultural, and
differentiation typically meant an historical approach to describe the characteristics of environmental forces.

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 4 Introduction An Institutional Approach to Economic Geography

economic activities in particular places, tracing the development of unique patterns to

particular combinations of social, political, economic, and environmental factors. Some
geographers focused on resource exploitation and other human–environment inter-
actions. These pioneering textbooks were not simply descriptive, but sought to classify
economic activities and begin to conceptualize human behaviour in institutional terms.
Thus Zimmermann’s (1933) resource geography argued for the cultural interpretation of
resources and Wagner’s (1960) economic geography recognized that “human life . . . is
the affair of organized groups.”
But areal differentiation approaches were swept aside in the 1950s and 1960s as
part of a quantitative revolution. Pioneering economic geographers urged the develop-
ment of explicit theories, conceptual frameworks, data collection and its quantitative
analysis and modelling. This shift in thinking was so profound that it was considered a
change in scientific paradigm.
Economic geography’s embrace of theory and quantitative methods was driven in
part by a desire for scientific respectability, a growing recognition of the potential of
systematic data manipulation, the need to educate students with analytical capabilities,
and new policy challenges that demanded systematic, problem-solving research. Social
problems, such as regional and international income and employment disparities,
urban and regional restructuring, and environmental sustainability, drove the research
and methodological agendas. The spirit and purpose of the discipline were redefined.
Economic geography transformed itself from an “ideographic”/descriptive pursuit
concerned primarily with empirical description and unique places to a “nomothetic”/
theoretical one focused on discovering and testing generalizations about spatial organ-
ization. In practical terms, this transformation was initially driven by the development
of theories of location, land use, and regional development that were closely connected
with the abstractions of neoclassical economics and its emphasis on the universality
of economic behaviour in competitive markets. Explanations in economic geography
became similarly abstract, focused solely on economic factors such as access to markets,
resources, and labour as explanations for the spatial distribution of economic activities.
Neoclassical thinking remains influential in economic geography. But alternative
theoretical perspectives mushroomed after 1970 to the point that at times the discipline
seemed to be on the verge of fragmentation. Marxism, rooted in a different, but no
less universalist view of economic behaviour, became a significant influence, in direct
opposition to neoclassical models. Meanwhile, proponents of various other approaches
to economic geography argued against over-emphasis on universal laws and sought to
develop theories that would give more emphasis to spatial differences both in human
behaviour and organization and in the ways economic and non-economic factors
intertwine with one another. If fragmentation is still evident, overlapping themes in
this conceptual pluralism carry many institutional concepts that have permeated all
approaches to economic geography.

Institutionalism and Economic Geography

The theoretical approach advocated in this book is rooted in the radical or dissenting insti-
tutional economics that developed at the beginning of the twentieth century to provide

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 Introduction An Institutional Approach to Economic Geography 5

alternative explanations of economic behaviour than those offered by neoclassical eco-

nomics or Marxism. Thorstein Veblen (1904) and John R. Commons (1893; 1934) were
the leaders of this movement. They and their followers employed research methods linked
by common emphasis on institutions, the understanding of actual behaviour, and how
they evolve over time in specific contexts. This focus on “real” behaviour contrasted to the
abstract models used by neoclassical and Marxist economists that provide more general
(“universal”) interpretations of economic behaviour and systems. Against the prevailing
orthodoxy, however, institutionalists took particular issue with three central features of
(traditional) neoclassical thought.
First, foundational neoclassical theories start from a number of highly abstract
assumptions about human decision-making. In particular, they assume that producers
and consumers act purely on the basis of economic self-interest; that they are relentlessly
rational, invariably choosing to minimize costs, maximize profits, or otherwise opti-
mize some narrowly defined economic objective; and that they have all the informa-
tion they need to make the correct decision. By contrast, institutional explanations are
based on observations of “real world” behaviour that recognize the diverse abilities and
motives of decision-makers, and the power of large corporations to shape markets and
the nature of economic development.
Second, neoclassical explanations are powerfully rooted in the idea that economic
systems tend to seek a stable equilibrium condition, balancing the forces of supply and
demand. In contrast, institutionalism stresses that capitalist economies are by nature
transformative—continually changing rather than simply moving back and forth
around some equilibrium point.
Third, in neoclassical economics, market choices are made by individual consumers
and producers whose reasoning is entirely economic (or “economistic”), unaffected by
any other considerations. By contrast, the institutionalists argued that economic reason-
ing cannot be divorced from social and political factors.
Like Marxism, institutionalism recognizes the profound social problems cre-
ated by markets, but since its beginnings the focus of institutionalism was not limited
to class relations or the exploitation of labour. Rather, it addresses the tensions and
interdependencies that exist among society’s many different stakeholders with their
multiple motives and interests. Moreover, while recognizing the conflicts of inter-
est inherent in many of these relations, institutionalism appreciates that humans are
extraordinarily creative in building and adapting institutions to address social prob-
lems. The analysis of technological change and innovation, and their diverse socio-
economic consequences, is a central concern of institutionalism, more so than in
Marxist approaches.
During the 1950s and 1960s institutionalists remained outside mainstream
economics but gained a public profile through the iconic works of Gunnar Myrdal
(1944, 1957) and John Kenneth Galbraith (1958, 1967). Myrdal interpreted poverty,
racism, and underdevelopment as deeply engrained “circular and cumulative” prob-
lems. Galbraith drew attention to the power of big business in shaping the modern
industrial state and affluent society, and his arguments made him the most widely
read economist of the twentieth century. The ideas of both these leaders impacted
economic geography.

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 6 Introduction An Institutional Approach to Economic Geography

Recently, institutionalism has become a much stronger force in economics, its spirit
and purpose reflected in the work of Geoffrey Hodgson (2006), and in other disciplines
such as sociology (Granovetter 1985), and economic geography (Martin 1994, Storper
1997; Hayter 2004; Gertler 2010). Indeed, this surging interest has revived appreciation
for the classic works of Schumpeter (1943) on the dynamics of capitalist economies
as “creative destruction” and for Polanyi’s (1944) study of the “great transformation”
of market economies. Further, within mainstream economics, the development of the
“new” institutional economics and behavioural economics have incorporated institu-
tional thinking and questioned narrow assumptions of economic rationality. Notable
economists of these approaches include Coase and Williamson and Simon and
Kahneman respectively. Marxist approaches, such as regulation theory, have similarly
embraced institutions.
In the geographical context, conventional (neoclassical) theories of location and
land use have long recognized the role that markets play in creating global economic
geographies through their influence on the spatial distribution of production. This rec-
ognition remains important in Von Thünen’s agricultural land use theory (Chapter 10),
Christaller’s central place theory (Chapters 1 and 12), Weber’s industrial location theory
(Chapter 11) and urban land theory (Chapter 8). But they take the market itself as
given and rarely examine how a particular market actually works and is organized in a
particular place, according to particular rules, regulations, and habits of thought. The
institutional approach, by contrast, explicitly recognizes the part that non-economic
institutions play in all economic activity, regardless of the nature of the market or the
parties to the transaction (business–consumer, business–business, labour–employer,
government–business). Among those non-economic institutions are not only govern-
ments, unions, and ngos, but also the gamut of formal and informal political relation-
ships and social conventions that determine the rules of the game in a particular place.
An institutional analysis incorporates these multiple perspectives in an integrating
framework.

An Institutional Framework for Economic Geography

In this book, economic geography is understood through a focus on the interaction
of institutions, markets, and technology in place and space (Figure I.1). These inter-
actions are characterized by three basic principles: embeddedness, evolution, and
differentiation.
Economic and non-economic factors and processes are inseparable—so thor-
oughly integrated that they can be understood only in relation to one another or
­symbiotically. This is what we mean by “embeddedness.” Thus individual markets that
set prices for the exchange of goods and services simultaneously involve issues such as
trust, conventions, regulation, control, and social influence. More generally economic,
political, and social (and environmental) institutions continually interact or feed back
on one another.
Market economies are fundamentally transformative, driven by processes of cre-
ative destruction that imply growth and crisis as a result of technological innovation,
competition, population dynamics, and changes in human–environment relations. In
other words, they “evolve” and become qualitatively different over time, sometimes

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 Introduction An Institutional Approach to Economic Geography 7

slowly, sometimes rapidly. In this book, we emphasize evolution

technological innovation because it is an important
stimulus to competition and drives systemic and para-
digmatic transformations throughout economic sys-
tems that occur in periodic cycles or waves, changing TECHNOLOGY INSTITUTIONS
(tacit & (formal &
the nature, location, and organization of economic codified informal)
activities. Cumulative causation and path dependency knowledge)
are two related important concepts that recognize that ECONOMIC
GEOGRAPHY
evolution is deeply engrained and self-reinforcing. (place &
Thus the economic trajectories of individuals, places, space)
firms, and industries are shaped by their accumu-

s
lated assets, income, know-how, and mutual influence.

dif

nes
fer
Broadly stated, economic evolution is constrained by

ed
en

dd
history. The ability of people to think, innovate, and

tia
MARKETS

be
n

ti o

em
compete threatens these constraints. (centripetal &
centrifugal effects)
Finally, (geographic) “differentiation” describes
the unique nature of the places and spaces that evolve
through the distinct interactions of markets, other insti- Figure I.1 The Starting Point: An Institutional
tutions, and technology. It is the recognition that cap- Perspective for Economic Geography
italism appears in many different configurations among See also Storper 1997: 27.
and within countries and at different scales. In geog-
raphy, this differentiation principle is expressed by the use of concepts such as “local
models” (Barnes 1987) and “regional worlds of production” (Storper 1997). In both
cases, geographic variations in economic activity are seen as resulting from the inter-
play of the local or regional with more general global forces or models from the rest of
the world. Areas or regions at varying scales are typically distinguished by shared pol-
itical and administrative boundaries, common activities, shared values and attitudes,
and/or by strong levels of functional integration. Indeed, regions themselves may be
considered as institutions, albeit complex ones, where people co-operate, compete, and
resolve problems within particular boundaries.

Markets
Our approach to economic geography centres on markets, whose importance, we
believe, has been set in the background in our subject—our text books assume markets
are there, but don’t often discuss them directly. Markets are the key institutions organiz-
ing exchanges and flows of goods and services among economic actors, whether within
a particular economy or among multiple economies. In neoclassical economics, supply
and demand, competition, and economies of scale are central to understanding how
market economies function. Economic geography asks why and how markets organize
economic activity in places and across space, why and how exchange becomes concen-
trated in places, and why and how transactions occur over space. These questions are
pertinent whether the transactions are an arm’s-length buying and selling of goods and
services in a store or the more mediated exchange of knowledge, labour, and materials
within a firm’s production process. In all cases, the essence of markets is their ability
to reduce transaction costs. As Chapter 1 explains, these three basic types of exchange

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 8 Introduction An Institutional Approach to Economic Geography

correspond to three basic market types: open markets (numerous competing buyers and
sellers); relational markets (between parties with an established relationship of some
kind); and administered or hierarchical markets (within a single company). In whatever
form, reducing transaction costs provides distinct market geographies that are revealed
by the roles of cities and value chains.
Thus markets, to reduce transaction costs, act as a centripetal force by drawing
firms, labour, and consumers together for competitive and co-operative interaction.
Indeed, cities can be seen as the congregation of marketplaces for diverse industrial
sectors, labour skills, and consumer demand. Within cities, these market places sort
themselves out, in part according to land costs and need for interaction. Simultaneously,
cities act as centrifugal forces, stimulating the creation of transportation and communi-
cation networks to distribute goods and services. Understanding markets helps under-
stand cities, the economies they offer, the products and services produced in the spaces
between cities, and the hierarchies of infrastructure that channel resources, people, and
information into them and out of them. Moreover, the centripetal power of markets
is increasing as the world becomes increasingly urbanized, urbanization focuses on
megalopolises, and expectations grow for the city to function as the engine of economic
development.
The value chain is a linked series of markets. Resources, labour, and capital are
combined in a linked series of production stages that eventually deliver a final prod-
uct that is purchased by a consumer, business, or government. To produce and dis-
tribute a complex good such as an automobile, thousands of transactions may be
required, some of which may span the globe. To accomplish that goal these mar-
kets have to be coordinated by some entity, usually a multinational enterprise, but
many goods and services are exchanged through spatially differentiated markets
based on speculation of further buyers downstream. The global value chain looks at
this coordination from the product perspective, and the global value cycle consid-
ers product coordination all the way through to recovery and recycling, or from an
environmental perspective.
Significantly, as Chapter 1 further clarifies, markets do not always operate efficiently
or fairly, and markets can fail, sometimes with dire consequences. The near collapse of
the global financial system in 2008–9, following the failure of banks in the US and UK,
illustrates the savage implications of market failure. The subsequent meeting of the
G20 leaders of the world’s most powerful countries reflected the need for some form of
global orchestration of the global economy (Case Study I.1). The importance of under-
standing markets as institutions that are socially created and organized by groups of
people was graphically underlined by the source of this failure, which stemmed directly
from the removal of regulations governing the banking system and from contempor-
ary efforts to resolve the problems. Indeed, the institutional perspective recognizes the
importance of regulation and the influential role of institutions other than markets in
shaping the economies of capitalist societies.

Institutions
Sympathetic to the Veblen tradition the sense of institutions in this textbook is captured
by habits of thought, and how conventions, routines, and rules shape social behaviour.

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 Introduction An Institutional Approach to Economic Geography 9

Case Study I.1

The G20 London Summit Agreement, 2 April 2009

For two Nobel Prize-winning economists, George Stiglitz and Paul Krugman, the
root cause of the global financial crisis was the deregulation of the banking system:
specifically, the decision by the institutions responsible for governing the world’s
banks (in particular, the US Federal Reserve and the Bank of England) to relax the
existing restrictions on banks’ ability to engage in risky speculative ventures. Alan
Greenspan, chairman of the US Federal Reserve from 1987 to 2006, had supported
deregulation because he believed that “free markets” and minimum government
intervention (i.e., regulation) were necessary to stimulate competition, efficiency,
and wealth creation. Deciding how to re-regulate the financial system became the
most urgent task of the Obama administration when it took office in 2009, but the
crisis was not limited to the United States. US investment banks had sold their finan-
cial products around the world, and banks in countries such as the UK, Switzerland,
and France had joined the race for paper profits. Finally, in April 2009, the leaders of
the G20 countries met to work out a solution.

Feferberg/AFP/Getty Images
EricGuardian
The

Only 19 of the 20 world leaders who met for the summit were present for this photo; the missing leader
was Canada’s Prime Minister Stephen Harper.

The G20 agreement sought to address the global financial crisis in two ways: by
re-regulating the global financial markets and by stimulating development in hopes
of bringing the global economy out of its deep downturn. With respect to regula-
tion, the agreement proposed to
• regulate (for the first time) hedge funds and derivatives: two relatively new instru-
ments that had come into wide use among financial institutions since the 1980s,
largely uncontrolled by supervisory agencies (and largely unfamiliar to the public);
generally speaking, hedge funds and derivatives are created when financial institu-
tions lend to one another using other loans (rather than real assets) as collateral;
(Continued)

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 10 Introduction An Institutional Approach to Economic Geography

• publish immediately a list of tax havens and impose sanctions on countries that
did meet anti-secrecy regulations;
• tighten regulations on credit agencies to prevent conflicts of interest;
• develop an international body of supervisors to oversee national regulators; and
• reform the International Monetary Fund (imf) to provide a greater role for
recently industrialized countries such as China.
With respect to development the agreement proposed to
• inject a total of $1 trillion into the global economy, including $500 billion for the
imf, $250 billion specifically for loans to developing countries, and $250 billion
for trade assistance;
• provide $50 billion for the world’s poorest countries; and
• renew commitment to global development goals.
Whether the plan was implemented, or to what degree, is hard to tell. The G20
does not seem to evaluate its initiatives. There has been some re-regulation of the
US/UK banking systems, but the reform of the IMF has not occurred (as of mid-2014),
and it is not known if the funds for loans, trade assistance, and help for the world’s
poorest countries have been made.
The G20 agreement is an appropriate reminder that, in general, “human eco-
nomic life . . . is the affair of organized groups.” In this case, the organized group
consisted of the G20 leaders, along with their supporting bureaucracies and advis-
ors. The agreement also underlines the point that markets are institutions that are
socially created in specific places and specific times.

According to Hodgson’s (2006, p. 2) widely cited definition, institutions are “systems of

established and prevalent social rules that structure social interactions.” Even more pith-
ily, North (1990, p. 3) refers to them as “the rules of the game in a society,” while Allen
(2012, p. 4) sees them as “the rules we live by and how life is organized.” The institutional
approach to economic geography is rooted in the idea that groups of people, both at
broad societal and individual organizational levels, are held together by institutions
that coordinate their behaviour to some extent. If coordination is less defined at the
societal level, institutions shape behaviour and attitudes within nation states, regions,
or local communities and have a pervasive and profound impact on the functioning of
markets and on economic development. Social institutions may be informal, such as
customs, traditions, and norms, for trust and reciprocity or formal as in the legal system,
contracts, property rights regimes, work manuals, and committee mandates. Societies
actively try to modify their institutions, from core values to government policies. Many
societies, for example, have adopted the property and legal norms of other nations in
the quest to improve the efficiencies of their markets.
Are organizations also institutions? We think so. Organizations such as businesses,
labour unions, government departments, non-government organizations, and social
clubs, like social institutions, hold people to certain values, beliefs, and behaviours,
and coordinate behaviour to a greater degree. That is especially true of corporations
that have the authority to determine employee behaviour as derived from the power
of ownership and employees’ acceptance of working conditions. Corporations struc-
ture or “institutionalize” behaviour around specified routines and rules, supported by

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 Introduction An Institutional Approach to Economic Geography 11

common (organizational) ways of thinking and committee structures with specified

terms of reference. The rules and routines of corporations are typically legitimized and
constrained by laws (contracts, property rights, labour laws, health and safety regula-
tions). Similar conditions prevail in government, NGOs, and so on. However, member-
ship in NGOs, industry associations, social and sports clubs are voluntary in nature, and
these organizations cannot impose behavioural expectations; rather common values
and reciprocity shape behaviour. As individuals, we are typically governed by multiple
institutions imposed by the legal system, places of work, and the various social and
recreational groups in which we participate.
Big corporations, governments, and labour unions and associations are so powerful
they are able to shape the rules of the game at societal levels. On the other hand, informal
rules of the game may evolve regionally, among clusters of firms, and even in particular
neighbourhoods. The fact that institutions are animated, passed on, and changed by
organizations (and organized groups) makes it virtually impossible to discuss one with-
out the other. Indeed, this book emphasizes the role that organized groups—markets,
business, labour, government, ngos—play in shaping institutions. In general, it is use-
ful to think of institutions as operating at different levels or in different domains, from
society as a whole to segments of society (business, consumers, local cultural groupings)
or movements (environmentalism) to individual organizations (such as businesses that
vary from small logging operations or corner stores to big banks and giant mncs such
as Apple or Toyota). Broad institutional types are also readily classified. In every case,
institutions are defined by habitual, durable, and distinctive behaviour.
A principal social function of institutions is to provide the stability and continu-
ity necessary to allow people to live their daily lives. Stable routines and conventions
are essential for the efficient, orderly functioning of societies because they establish
the regular patterns of behaviour and shared expectations that make it possible for
people to coordinate all the individual activities required to produce the goods and
services they need. Relatedly, institutions potentially impose penalties or constraints
on inappropriate behaviour, whether this behaviour is deemed illegal, opportunistic,
or socially unacceptable. Penalties range from fines and jail sentences to ostracism or
exclusion from groups or loss of trust.
In addition, by representing diverse social interests, institutions help to maintain
social stability and cohesion. At the same time, by interacting with one another—whether
competing for influence and power or working together, co-operatively or resolving
conflicts—they make it possible for societies to evolve. One reason disputes over the use
of land and resources are so hard to resolve is that the competition between rival inter-
ests in society is often driven by different, equally legitimate values.
Market economies are inherently dynamic. They are constantly evolving, driven by
innovation, population dynamics, and changing tastes, and subject to disruption at any
time by economic crises, wars, or natural hazards. From this perspective, institutions serve
two contrasting functions: to constrain behaviour and to facilitate change towards new
routines. In Allen’s (2012) provocative thesis, the transformation from pre-modern (aris-
tocratic) to modern (market) institutions between 1750 and 1850 in England were stimu-
lated by new systems of measurement (of inputs and outputs). In the former, patronage,
trust, and venality underlay aristocratic behaviour (and made sense), but the d ­ evelopment

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 12 Introduction An Institutional Approach to Economic Geography

of abilities to measure (weight, distance, time, levels, position, etc.) stimulated alterna-
tive more efficient institutions that in turn facilitated the productive potentials of the
new technologies of the Industrial Revolution to be realized. In contemporary times, the
“transitional” economies of Eastern Europe and China provide spectacular illustrations
of the power of institutional change. China’s reform and opening up began in 1978 and
has lifted hundreds of millions out of poverty. The policies of perestroika and glasnost
(economic and political liberalization) introduced in the Soviet Union in 1988 heralded
a massive institutional transformation as the countries of Eastern Europe sought to catch
up with the economically advanced Western countries. At the heart of this transforma-
tion was the curtailment of state planning in favour of decision-making by individual
enterprises operating in free markets where prices are determined by demand and sup-
ply. While the transition to free markets was seen as the ultimate institutional change,
the creation of the ancillary institutions required to enable those markets to function has
been no less notable.
In both China and Eastern Europe, for example, the transition required some
legal recognition of the private property rights on which virtually all market activity
depends (the specifics vary from place to place). Similarly, laws restricting inward for-
eign direct investment (fdi) by multi-national corporations (mncs) have been eased,
albeit rather cautiously. Other institutions are also being established. In China, the state
is rushing to put in place social safety nets and environmental regulations required
to deal with the consequences of market liberalization. At the same time, it is slowly
opening up to individual rights, partly because it recognizes that economic freedom by
itself is not enough to drive a sophisticated economy. In fact, in 2008 a un study found
that legal reform—improving access to justice, reducing corruption, and recognizing
private property rights—has created even more new wealth in China than fdi has.
Markets for the exchange of goods and services interact in various ways with other
institutions. The most direct links are with business and labour, the principal economic
institutions of market economies. Less directly, markets are connected with the various
layers of government that regulate them (along with business and labour). In recent
decades, non-government organizations (ngos) such as environmental, human rights,
and consumer groups have also come to play an important role in shaping business
behaviour and market regulations.

Technology
Markets and the institutions that govern them do not drive economic development all
by themselves. The force that powers development is progress in technology, defined by
Galbraith (1967, p. 12) as “the systematic application of scientific or other organized know-
ledge to practical tasks.” The common view of technology is that of hardware and software:
machinery, equipment, infrastructure, operating systems, and applications. But technology
also includes the skills and knowledge required to perform practical tasks. Technological
knowledge takes two forms: the tacit knowledge that is acquired through experience and
the codified knowledge that is written down using standard terms and formulas.
Technological progress drives socio-economic development because it is the key to
the increases in productivity that make it possible for a firm—or an economy—to grow.
Technologically advanced societies encourage continuing innovation by supporting the

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 Introduction An Institutional Approach to Economic Geography 13

necessary institutions, from public schools to universities and research and development
(r&d) organizations. Freeman and Louçã’s (2001) theory of technological–economic
paradigms explains how, since the eighteenth century, scientific and technological innov-
ations have interacted with social and political institutions to shape the evolution of eco-
nomic activity. The theory also emphasizes the importance of institutional innovation
when diverse groups—firms, universities, governments, communities, consumers, each
operating in its own particular context—develop distinctive institutions and mechan-
isms of collaboration and governance. Indeed technological and institutional innovation
co-evolve, each stimulating the other (Chapter 3).

Place and Space

Place and space are two sides of the same coin, inseparably connected and depend-
ent on one another, but representing distinctly different perspectives. For economic
geographers, place is the specific location where economic activities occur—where people
live, work, and consume—while space is the expanse of territory across which connec-
tions are made, whether within a single place or among many places. A place may be
any size, from a village to a nation. Every place has its own mixture of habits, conven-
tions, rules, and routines and therefore its own distinctive economic characteristics. Yet
diverse places are connected across space by flows of goods, services, investment, ideas,
information, and people. These connections are both complementary and competitive.
In this text, the interaction of place and space is reflected in the interaction of local
and global (non-local) institutions (Figure I.2). Connections across space reflect the
importance of general (global or non-local), if not universal, institutions, but their influ-
ence is constantly modified and even resisted by local institutions. As a consequence,
different places retain their unique identities. The distinctions between place and space,
local and global, are also expressed as endogenous and exogenous forces. Thus local endogenous forces In the
context of local development
institutions are endogenous (internal to specific places) while global institutions have
are initiatives driven by local,
space-based exogenous influences acting on them. Geography’s traditional distinction internal, or domestic actors.
between site (absolute location) and situation (relative location) is a related duality. The birth of new locally based
businesses and the local
The span of control by decision-makers is the conventional basis for distinguishing generation of innovations are
local and global institutions or organizations. An organization that is owned, controlled, illustrations.
and operated within a particular jurisdiction, as most small businesses and local gov-
exogenous forces Forces that
ernments are, is clearly local. mncs, national governments, international bodies such drive local development from
as the World Trade Organization or the United Nations, and international NGOs are non-local, external, or global
sources, no matter how the local
global institutions. Their decisions reach across space and influence local development. is defined. Export demands,
This distinction is nevertheless blurred as some local firms internationalize their oper- foreign competition, and foreign-
based MNCs are illustrations.
ations while branch plants of mncs also operate as local institutions, as do agencies of
national governments and international ngos. Establishing a local presence helps MNCs
gain legitimacy and attune themselves to local labour and commercial markets; in some
cases, it may also be a legal requirement if they are to gain access to local markets.
Places and spaces are intimately connected. The viability of any economic activity
depends on both the characteristics of a particular place (e.g., local resource endowments
or labour force skills) and its ability to connect with other places across space to gain
access to distant markets or sources of supply. Over time, economic activities may be
either strengthened or weakened by changes in any number of conditions both at home

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