From the field of economic geography 1

2. Critically evaluate Weber’s model of industrial location and examine the roles of labor, capital, and other “location factors” on industrial location.


The Weber Model
Writing at the turn of the Twentieth Century, Alfred Weber naturally focused on the then-prevalent forms of industry, which at the time were heavy industries such as steel manufacturing. Weber sought to explain the location of such industrial firms through an economic interpretation of space that isolated the transport costs of business for both procuring raw materials and delivering finished products to market. Thus Weber indexed two explanatory variables, weight and distance, into the unit of ton-miles.
Every industry operates in the same general way: raw materials are gathered, processed into a consumer product, and sold in the marketplace. If economic rationality can be assumed, then the successful firms will minimize costs and maximize profits. At Weber’s time, the greatest single cost was transport. Transport costs can be reduced by eliminating unproductive shipping—the goal being to ship as little extra weight as possible.
What “extra” weight? Weber reasoned that some production processes take bulky raw materials and refine them to make a finished product, what is referred to as a weight-losing process. For example, much of the iron ore used in steel production becomes waste material in the production process. By Weber’s logic of “least-cost location,” the steel manufacturing plant would locate near the source of the iron ore, thereby achieving “the minimum transport cost,” because only the finished steel then needs to be shipped to market.
Other products, however, are weight-gaining. Light-weight raw cotton may be shipped to a textile mill and woven into a heavy canvas. As weight is gained during the production process, it is economically logical to locate the mill near the market and ship the canvas as short a distance as possible. In both examples, the heavier item is shipped the shorter distance. The proof of his logic was a weight ratio: weight of the raw material/weight of the finished product, what Weber called the “material index.”
The materials themselves are either “ubiquitous” or “localized.” Weber recognized that certain resources, like the aforementioned ore, are not evenly distributed across the Earth, whereas others are readily available at many locations. So, the consideration of locality or ubiquity also has a push-pull effect: the commonly found ubiquitous materials draw production sites toward the market to avoid extra shipping, while the localized resource draws them toward the point of the material’s extraction.
The localized materials can be divided further as “pure” or “gross,” and assigned a numeric value for the material index. A pure resource has a value of 1 because all of it is consumed in the production process with no waste. Gross materials, however, lose weight during the production process, and therefore have material index values greater than 1.

Figure 1 Source: Joseph H. Butler, Economic Geography
Diagrammatically, then, the problem of location selection “is to find the location of P that minimizes xa + yb + zc.” (Butler, p. 86) Weber’s model clearly has explanatory value, and was subsequently confirmed by observations in Mexico and the United Kingdom (Lloyd, p.62) But Weber did not rest on this laurel, theorizing that labor costs would also influence location selection.
Weber broke with earlier theory by recognizing that labor costs, like natural resources, may be unevenly distributed across space. Therefore, transport costs may be offset by a savings in labor costs. While placing the production site at the location of low-cost labor may increase the transport costs of either the raw materials or finished product—or both—the savings in the cost of labor may be so great that the total cost of production is less than it would be near the point of extraction or the market.

Figure 2 Source: Joseph H. Butler, Economic Geography

Weber called the lines connecting points of equal transport costs “isodapanes,” with the “critical isodapane” being C in the diagram above. The critical isodapane is where total transport costs for materials and products equals the savings in labor costs. If the location of the low-cost labor lies beyond the critical isodapane, there is no savings. Notice in the diagram that L1 is within the critical isodapane, and its selection would lessen the total cost of production, even though P is the point of minimum transport cost.
Later investigators were able to enhance Weber’s isodapane mapping technique into a “space-cost curve” that allowed for a range of possible locations, and this more accurately reflected real-world observations. (Lloyd, 65-66 passim) Though criticized for its simplicity, the Weber model holds great explanatory value, as is illustrated by the very fact that later investigators built upon it rather than dispensing with it.
Weber’s theory also is criticized for its assumption of perfect economic rationality. Of course, no model can tell the whole story where human selection is involved, but such a criticism may be unfair. Weber’s model explains site selection as related to an independent variable—distance. His focus on that variable did not preclude the existence of other variables. Indeed, as Butler points out, Weber glimpsed the benefits of agglomeration, but lacked the tools to investigate its influence.
Though unfair to criticize a model for not doing what it was not intended to do, it is instructive to realize its limits. In that vein, one can say that the Weber model completely neglects spatially differential capital costs such as property values, building costs, utility costs, power supply, taxes, municipal or national regulation—a pack of fardels no one model could bear.
Nor does the Weber model examine locational benefits that might outweigh transport costs. Yet one can easily imagine a scenario where a particular location may offer a relative savings over another. A mill might locate near a river to utilize a water wheel, or with more modern technology, a firm might locate in a desert region to utilize solar power to offset the costs of purchasing electricity. So, too, might a company choose a site less suitable geographically in order to defray costs by moving into a facility that had originally been built for other purposes.
Yet any criticism of these sorts are really reflections of the limited human understanding of the entire problem of location selection. Again it should be noted that Weber’s model is an attempt to define the extent of only one such variable—distance. A comprehensive, dynamic model would require a similar attention to detail for all variables.
Though transport costs have decreased since Weber’s time, the core problem remains, and will persist: raw materials must be processed into a consumable product, the product must reach a market, and ultimately a consumer. The materials and products must travel over distance to be processed and consumed. So long as distance remains, so will the utility of Weber’s model.

4. Critically evaluate the concept of agglomeration economies. Under what circumstances are agglomeration economies likely to operate?
Economies of scale can be enjoyed by many separate firms when they are spatially clustered. The physical proximity of firms to one another helps to create linkages of many kinds such as information and knowledge flows, supply feeds, and financial services. Furthermore, the costs of utilities, worker training, and transport can be reduced as an agglomeration economy forms.
The linkages between firms not only grow and strengthen over time, but foster the development of more linkages. Broadly, the linkages are of three types: production, service, and market, and they allow firms to lower production costs, increase revenues, or both. (Lloyd, 131) These linkages function as a sort of division of labor across companies rather than within them, reducing the individual firm’s cost of doing business, while providing the benefits of a larger operation.
Agglomeration economies are of two kinds, localized and urbanized. Localized agglomeration economies refers to the benefits a firm obtains within a single industry. An example of this form is Silicon Valley, where a single industry dominates the landscape. The economies are due to the output of the industry as a whole, rather than from the dynamism of the locale.
Under the urbanized umbrella, however, companies derive benefits by clustering in a particular location through something like symbiosis. One firm’s waste product is another’s raw material, and transfer costs for both are minimized due to their proximity. Another benefit of proximity is that businesses may “share” pools of services. Because one service provider can accommodate many customers in a single area, it can afford to specialize, offering a unique service that otherwise might not be available. Increased specialization reduces costs, as well. Or, a supplier might be able to lower prices, thereby extending the benefits of volume buying to companies that individually buy smaller amounts.
Also, in the urbanized setting, companies can defray costs to the public sector. For example, wastes may be processed through municipal sewerage, or workers will have received training in universities or trade schools instead of on-the-job. The density of economic activity allows a diverse range of businesses to emerge.
Agglomeration works as a feedback loop. Through its economies, firms can specialize, specialization develops diversity, diversity attracts skilled workers who garner higher pay, and who then pay higher costs for goods and services, meaning greater profits for local businesses, who invest more in the local area. But more, the clustering reduces risk in two important ways.
Though there may be more turnover in particular jobs, workers can more readily find a job in an agglomerated economy. This is not lost on employers, who are more free to engage workers on a temporary basis, as a pool of available and comparably skilled workers is at hand. The company is not obligated to keep unengaged workers on the payroll during periods of low production, and can reduce its costs.
Similarly, businesses need not keep capital “immobilized in inventories.” (Lloyd, p.133) Because of the greater volume of activity with the agglomeration economy, individual firms are more likely to have access to outside vendors who can supply them. The convenience of having the supplies readily available is no longer a capital cost for the individual company, but becomes a fringe benefit of location.
But there is a limit to the advantages of agglomeration. At some point, “net diseconomies should set in as unit production costs begin to rise again.” (Lloyd, ibid.) At this imprecise point, competition within the area increases, counteracting the scale economies. For instance, the pool of skilled workers may shrink as more firms emerge, or rents may increase as demand for real estate increases. Indeed, as Jacobs points out, the very success of an area may be what kills it, if the too much agglomeration leads to too little diversity.
However, cities offer a thick insulation against stagnation. The constancy of change in metropolitan areas coupled with their attractiveness to in-migration mitigates such diseconomies. Cities are places of innovation, where “knowledge spillovers” tend to increase the productivity and versatility of the work force. The linkages between businesses are formed through human interaction.
But that is precisely the criticism of agglomeration. The gathering of empirical evidence is difficult because “the location decisions of firms and workers are interdependent, which makes it difficult to ascribe causal influence to any particular factor.” (Clark, p.490) The dynamism that perpetuates success muddies the waters of investigation.
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Research Materials
Boyce, Ronald R. The Bases of Economic Geography. 1978. Holt, Rinehart and Winston. New York.
Butler, Joseph H. Economic Geography. 1980. John Wiley and Sons. New York.
Clark, Gordon L., Maryann Feldman, and Meric S. Gertler, eds. The Oxford Handbook of Economic Geography. 2000. Oxford University Press. Oxford.
Fik, Timothy J. The Geography of Economic Development. 2000. McGraw-Hill. Boston.
Hayter, Roger. The Dynamics of Industrial Location. 1997. John Wiley and Sons. New York.
Knox, Paul. Ed. The Geography of the World Economy. 2003. Hodder Arnold. London.
Lloyd, Peter E. and Peter Dicken. Location in Space. 1972. Harper & Row. New York.