Weber’s simplifying assumptions make each country equal and does not take into account any differences between each countries industrial patterns and different stages of economic development.
Weber created a materials index, where it would help the firm choose where to locate depending on the weight and distance of the raw material and the market. This may have been simple but only applicable to primary processing or industries with a very high or low materials index.
Later on in 1999, Dr. L. Crewe claimed that these classical location theories, namely Weber, are becoming less and less transferable to the real world. He did understand that Weber took into account labour costs, where the proximity to cheaper labour bay offset the costs of transport, and that agglomerate economies i.e. where several firms locate near each other to reduce costs of transport, help industries decide locations. But believes that Weber only took this understanding to a lower complexity than is required to actually understand how the real world works. It is also believed that Weber could not have known about the vast technological changes occurring throughout time to allow for.
D. N. Smith (1971) took Weber’s model a stage further saying that there is not just one specific point for location industry to reduce transport costs, but a point of maximum profit and an area of profit, where the margin may be different. He showed this by creating a space-cost curve. This showed the area for which an industry or firm can develop and have profit, but not necessarily maximum profit from Weber’s optimum location (least cost location, LCL). He stated that firms very rarely locate at the maximum profit location due to lack of space or imperfect knowledge, therefore tend to establish at another point where the profit margin is above breaking-even point.
Smith’s theory is also based on rigid guidelines and do not necessarily take into account labour costs or agglomerate economies. His theory will work only if the owners of the firms are homo-economicus, i.e. all knowing and intelligent, but it is not always the case that they are aware of all the facts before deciding where to locate or may have personal reasons for their decision.
People may not decide to locate their firm at the maximum profit location due to a number of factors. Firstly competition is major, in that there is limited labour and space, which may cause bid rent, land values and overall labour prices to rise. The government also comes into use here, because it offers incentives for certain things such as environmentally friendly movements, such as offering subsidies, grants or tax breaks. However, there are also disincentives that limit areas to develop, such as greenbelt legislation from 1944, SSSI’s and AOAB’s etc.
Hoover developed Weber’s model further dividing cost-minimisation two ways:
- Terminal Costs (fixed) e.g. Lorry, carriages, cranes etc.
- Haulage (variable) e.g. fuel, wages (labour) etc.
According to Hoover, the cost per unit varies, often the cost per unit is higher because you have to take into account terminal costs. Whereas costs after this decrease and round off.
The primary industry in the U.K is weakening, for example, the coal industry is diminished. Within the iron and steel industry, many changes have been made recently. The main technological changes include smelting technology such as the blast furnace, which was fuelled by the industrial revolution by 1750 in Great Britain. Steel requires three raw materials, iron ore, coal and limestone. Britain traditionally had three main industrial centres. Firstly at Clydebank, for example ships, secondly the Black Country in the Midlands e.g. The Iron Bridge, and lastly the South of Wales. The market was mainly to cater for the domestic population, but as this would be relatively small, the colonies were key customers, for example buildings and railways for India. Since the war however, de-industrialisation has occurred and ship yards and the coal mining industry in the North had declined.
This has mainly occurred because steel is heavy and bulky, whereas the alternative is aluminium which is lighter. Germany, for example has vast resources and can produce more for cheaper, benefiting from economies of scale. Other countries in this situation include, Norway, Brazil and Australia. Therefore it is cheaper to import the materials from these countries rather than produce them domestically. When the Conservative Party of Margaret Thatcher came into Parliament in the early 80s, the neo-liberal Government offered less subsidy and meant that people lost jobs. Many places closed down in the North and some areas went almost 15% higher in unemployment almost overnight. National companies became privatised, such as Corus in 1999 since. They have massive turnovers of £8 billion, employing over 50,000 people, with their headquarters in London. They should actually locate near Iron Ore, but the resources in U.K. are minimally reduced to 2 sites which are too small to exploit profitably. Therefore they have decided to locate nearer to the coast in order to import from ships. An example is at Port Talbot in South Wales, where Weber’s thinking has slightly come into practice. The government has been involved offering subsidies, such as the Welsh Development Agency.
Although Weber could not have taken into account hi-tech industry (new industry since the last 25 years), in the quaternary sector, they still have certain principles from his theory. They are believed to be footloose industry and do not have to locate in any relation to raw materials. However they do tend to locate near one another, i.e. in clusters known as ‘Agglomerate economies’ by Weber. This is believed by Smith to be due to their specific areas of profit maximisation, such as along the M4 or M11 corridors. They benefit here by exchanging ideas and information and sharing basic amenities such as transport links of the motorways. Transport is varied compared to when Weber made his 1 mode of transport, which may have been horse and cart.
In conclusion, Weber’s theory is reasonably applicable to todays world. This is highlighted by Corus located by their raw material incoming via ships and therefore establishing near the coast. However this type of industry is limited to a few number of firms and therefore cannot be generalised to all firms especially because the primary sector in the U.K. is declining. Weber put forward his agglomerate economies theory, which is also related to the latest trends of hi-tech industries. However, his theory was specifically related to primary industry and not any footloose industry as there were none or very little in his time, therefore his reasons for this may not be equal to the reasons for these current firms. Overall, I believe that some of Weber’s theories are transferable to today’s world, but he has expressed them from the understanding of his time and that the post-modern economy is far more complex and that Smith and Hoover are better at showing realistic theories to apply from. But, is it possible to make a theory applicable to all of time and universally designed for all sectors of industry, remaining simple and taking into account individual complexities?!?!?
