Changing economies

The four sectors of an economy

Every job can be sorted into one of four sectors, depending on what the work does to the material it handles. Primary industry takes raw materials directly from the land or the sea: farming, fishing, forestry, mining and quarrying. Secondary industry processes those raw materials into a product: flour milling, fish canning, car assembly, steel making, textiles and furniture, and also construction and the supply of energy and water.

Tertiary industry provides a service rather than a product. Retail, transport, banking, insurance, teaching, nursing, tourism, hairdressing and call centres are all tertiary, and this is the sector that employs most people in a high-income country. Quaternary industry is the knowledge sector: research and development, software and data, design, consultancy, higher education, finance and the media. Quaternary work is not just office work - its output is information, ideas or expertise, and it usually needs a highly qualified workforce and good communications.

The classification is about what the work does, not how modern it looks or where it happens. Growing tomatoes under glass with artificial light is still primary industry, because the output is a raw material; a designer working from a laptop is still quaternary, because the output is a design. The test to apply is: does this job extract, make, serve or think?

• Primary: extracts raw materials from the land or the sea - farming, fishing, forestry, mining, quarrying.
• Secondary: processes raw materials into products - manufacturing, food processing, textiles, car assembly, construction, energy and water supply.
• Tertiary: provides services - retail, transport, banking, education, health care, tourism, personal services.
• Quaternary: works with knowledge and information - research and development, software, design, consultancy, finance, media.

How employment structure changes with development

The employment structure of a country is the share of its workforce in each sector. As an economy develops the balance shifts in a recognisable way, and that pattern is one of the most reliable marks on Paper 2.

In a low-income country (LIC) the great majority of workers are in primary industry, usually small-scale subsistence farming, and secondary and quaternary work is limited. In a middle-income country (MIC) the primary share falls as farming is mechanised, the secondary sector grows as factories are built and investment comes in, and the tertiary sector grows with it as cities expand and households have more to spend. In a high-income country (HIC) the tertiary sector employs the great majority of workers, primary industry is tiny and highly mechanised, and the quaternary sector is large and still growing. Manufacturing employment in many HICs has fallen - a change called deindustrialisation - as production moved to lower-cost countries or was replaced by automation.

Explain the shift rather than just describing it. Mechanisation on farms replaces labourers with machines, so fewer people work the land and many migrate to the cities -> the primary share falls. Industrialisation creates factory jobs that absorb those migrants -> the secondary share rises. Rising incomes then create demand for services such as shops, schools, health care, transport and tourism, and factories themselves need banks, insurers, designers and software -> the tertiary and quaternary shares rise.

Two cautions. The pattern is general and the detail differs: some MICs industrialised early, some economies depend on tourism or oil rather than manufacturing, and a country can have a large quaternary sector while most of its workforce is still on the land. And in many LICs a large part of the workforce is in the informal sector - street traders, market sellers, casual labourers, home-based workshops - which is not registered, not taxed and often not counted in official statistics, so official figures can understate tertiary work and overstate farming.

What decides where industry locates

A factory or office is placed where running costs are lowest and profit is highest, so location is a balance of pulls. The syllabus lists ten factors: land, labour, raw materials, energy, transportation, markets, political policies, technology, communications and containerisation.

Raw materials pull heavy, weight-losing industries - those where the finished product weighs much less than the inputs - close to the source. Iron and steel, cement, sugar refining and ore smelting all lose weight in processing, so they sit beside the mine, the quarry or the cane field. Weight-gaining industries such as bottling plants sit close to their market instead, and makers of perishable goods need to be near the customers who buy them.

Energy matters most to industries that use great quantities of electricity: aluminium smelting is placed beside cheap hydro-electric power, because it takes a very large amount of electricity to extract aluminium from its ore. Land must be flat, large enough, well drained and affordable, with planning permission. Labour is about cost, skills and availability together: a clothing factory wants large numbers of workers at low wages, a software company wants a smaller number of highly qualified graduates, and both need reliable staff.

Transportation decides how easily inputs and finished products move. A site beside a motorway junction, a freight terminal, an airport or a deep-water port cuts cost and time, which is why industry clusters along freight corridors and at ports. Containerisation - the standard steel container that is lifted from ship to train to lorry without the goods being unpacked - cut the cost of moving goods so far that a factory can buy parts on one continent, assemble them on another and sell the product worldwide. Communications do the same job for information: fast broadband and reliable data links allow quaternary work such as software, design, customer service and financial dealing to be located almost anywhere, which makes that industry footloose.

Political policies change the balance by design. Governments offer tax breaks, cheap land, grants, relaxed planning rules or a special economic zone to attract employers, and they may add tariffs on imports, quotas, subsidies for domestic producers or strict environmental rules that push polluting industry elsewhere. Technology now works in two directions: automation reduces the importance of cheap labour, which can pull manufacturing back to HICs, while better machinery and refrigeration allow processing to happen in new places.

• Weight-losing industry sits near its raw material; weight-gaining industry sits near its market.
• Energy-hungry industry such as aluminium smelting follows cheap electricity.
• Containerisation and cheap freight created global supply chains and clusters of industry at container ports.
• Fast communications make quaternary industry footloose - it locates wherever skilled staff want to live.
• Government policy can override the physical factors: tax breaks, grants, tariffs and special economic zones all move the decision.

Globalisation and its impacts

Globalisation is the process by which the economies, societies and cultures of the world become more closely connected, so that goods, money, people, information and ideas move between countries more easily and more quickly than before. Its key features include the growth of international trade, the rise of transnational corporations, global supply chains in which one product is made in several countries, the spread of global brands and media, large flows of foreign investment and labour migration, and the international rules and agreements that make trade easier.

Globalisation is not new, but it accelerated sharply from the later twentieth century because of four changes. Transport became far cheaper and faster, with container shipping and air freight carrying goods that were once impossible to move in bulk. Communications became instant, so a company can manage a factory on the other side of the world, take orders online and move money in seconds. Technology allowed production to be split into separate tasks, so the labour-intensive stages could be sent to wherever wages are lowest. Political change opened borders to trade and investment: trade agreements lowered tariffs, and countries that had closed their economies opened them to foreign firms.

The impacts on trade are more exports, more imports and much more competition: consumers gain lower prices and greater choice, while producers in HICs face competition from lower-wage countries and some industries close. The impacts on transport are enormous growth in shipping, freight and aviation, which creates jobs and connects markets but also adds greenhouse gases, local air pollution and congestion, and creates pressure for new ports and airports.

The impacts on culture work in both directions. Global brands, films, music and social media spread a shared culture, which some see as a loss of local identity and others as an exchange that keeps cultures changing. On communications and technology, globalisation has spread mobile phones and the internet into places with no landline network, allowed call centres and online work to be located in MICs, and moved technology between countries through TNCs and joint ventures - but it has also widened a digital divide between connected and unconnected communities, and created a fast-growing stream of electronic waste.

Transnational corporations and their impacts

A transnational corporation (TNC) is a company that operates in more than one country. Its global organisation usually follows the same shape: the head office and the most important research and design work stay in the home country, production is placed wherever costs, skills and government incentives are most favourable, and sales, marketing and distribution are organised across many markets at once. Parts, components and services are bought from suppliers in several countries, so a single product can contain work done in five or more.

TNCs locate production in MICs and LICs to cut costs and reach new markets. Wages are lower, labour is often available in large numbers, environmental and safety regulations may be weaker, and the host government may offer tax holidays, free land or a special economic zone to attract the investment. Being close to a growing market also saves on transport and import duties. For the host country the gains can be real: paid employment, training and new skills, technology transfer, tax revenue, better roads and ports, exports that earn foreign currency, and a multiplier effect as workers spend their wages in local shops and services.

The costs are just as real. Much of the work is low-skilled and repetitive, wages can be low for long hours in poor conditions, and the best-paid jobs and the profits stay in the home country. A TNC is large enough to bargain hard with a small government, so it may win tax concessions that leave the host country with little revenue, and profits can be moved between countries to reduce tax. A plant can be closed and moved to a cheaper country at short notice, leaving a town without its main employer. Environmental damage from a large plant can be serious where enforcement is weak, local firms may be squeezed out, and the host economy can become dependent on one industry.

• Head office and research in the home country; production, assembly and some services in lower-cost countries; sales worldwide.
• Pull factors for the host country: cheap labour, weaker regulation, government incentives, access to a growing market, good transport links.
• Benefits: jobs, wages, skills and training, technology transfer, tax revenue, infrastructure, exports and a multiplier effect.
• Costs: low pay and poor conditions, profits leaving the country, tax avoidance, sudden closure, environmental damage, pressure on local firms and dependence on one industry.

Tourism: a growing industry and the Butler model

Tourism is travel away from home for leisure, and it has grown into one of the largest industries in the world. Five changes explain most of that growth. Income and leisure time have risen, so more households can afford a holiday and more workers have paid leave. Transport has become cheaper and more frequent: package holidays, budget airlines, high-speed trains and larger cruise ships put a foreign holiday within reach of ordinary families. Booking and information have been transformed by the internet, so travellers compare prices and arrange trips without an agent, and photographs and reviews on social media advertise destinations for free. Politics and visas have helped, with visa-free travel and open borders between groups of countries. Population change has added retired people with savings and free time, and younger travellers looking for adventure, city breaks or events.

The Butler model describes how a tourist area changes over time. It begins at exploration, when a few adventurous visitors find an unspoilt place with no tourist facilities. In involvement, local people provide some accommodation and services and the destination becomes known. Development brings outside investment, large hotels and resorts, organised tours and rapidly rising visitor numbers. In consolidation, tourism dominates the local economy, visitor numbers grow more slowly, and the resort depends on repeat visitors and marketing. Stagnation follows: the resort is no longer fashionable, facilities are ageing and carrying capacity is being reached. From there a resort either enters decline, losing visitors to newer destinations and facing empty hotels and unemployment, or achieves rejuvenation by finding new markets, new attractions or new types of visitor.

The model is useful because it is simple, it shows that destinations change rather than staying the same, and it warns planners what to expect, so a resort can aim for rejuvenation before decline sets in. Its limitations matter just as much. The stages are not precisely defined or easily measured, so different people can place the same resort at different stages. It assumes every destination follows one pathway, when some never develop, some grow very quickly and some recover without stagnating. It says nothing about timescale, and it underplays the role of governments, planners, TNC hotel chains and outside shocks such as disease, terrorism or a change in exchange rates. It was also developed from European resorts, so it fits some destinations far better than others.

Tourism: benefits, problems and sustainable management

Tourism brings money into a place at several scales. Nationally it earns foreign currency, adds to national income and brings in tax revenue, and some countries depend on it heavily. Regionally and locally it creates jobs in hotels, restaurants, transport, guiding, shops and construction, and it creates a multiplier effect, because the wages earned are spent again in the local economy. It also pays for infrastructure that residents use too - roads, airports, water supply, waste collection and health care - and it can fund the conservation of the landscapes and buildings visitors come to see, and give local people a reason to value their own culture.

The problems are equally wide-ranging. Much tourist work is seasonal and low-paid, so income is unreliable and many jobs are part-time. Economic leakage drains the benefit away: where hotels, airlines and tour operators are foreign-owned, a large share of what visitors spend leaves the country. Rapid development takes farmland and natural land, pushes up land and house prices so local people cannot afford to live in the resort, and puts pressure on water supply, sewage and waste collection that were designed for a much smaller population. Culturally, local traditions can be turned into performances for visitors, and residents can come to resent the crowds.

Environmentally, tourism can damage the very things it depends on. Heavy foot traffic erodes footpaths and compacts soil, litter and sewage pollute, coral reefs are damaged by divers, anchors and warm water, wildlife is disturbed by vehicles and boats, and long-haul flights add greenhouse gases. The other side of the argument matters just as much: well-managed tourism pays for national parks, protected areas and the repair of historic buildings, and it can be a reason for a government to protect a habitat rather than clear it.

Sustainable tourism means managing tourism so that it meets the needs of visitors and the industry today without damaging the place for the future. The techniques work best in combination. Carrying capacity can be set and enforced with visitor quotas, timed entry tickets and permits, which is how fragile archaeological and mountain sites limit numbers. Zoning keeps visitors on marked routes, boardwalks and viewing platforms and closes sensitive areas altogether. Fees and taxes - entry charges, tourist taxes, higher landing fees - raise money for conservation and reduce demand. Spreading the load means promoting the low season, encouraging domestic visitors and developing attractions away from the busiest site. Education and regulation cover codes of conduct for visitors, guides who explain the rules, and licensing of hotels and tour operators. Community-based tourism and ecotourism put local people in charge of small-scale, low-impact accommodation and guiding, so more of the money stays local and residents have a reason to protect the environment.

• Benefits: foreign currency, jobs, multiplier effect, better infrastructure, conservation funding, cultural pride.
• Problems: seasonality and low pay, leakage of profits, land and house prices, pressure on water and waste, cultural change, footpath erosion, litter, damage to reefs and wildlife.
• Management: carrying capacity, quotas and timed entry, zoning and boardwalks, fees and tourist taxes, spreading demand into the low season, education, community-based tourism.
• Evaluate rather than list: say who the measure protects, what it costs, and whether it can be enforced.