The Informational Economy and the New International Division of Labor

The new economy is characterized by five fundamental interralated features:
1. The sources of productivity and real economic growth are increasingly dependent upon the application of science and technology, as well as upon the quality of information and management;
2. Both in terms of proportion of GNP and population employed, there is a shift, in advanced capitalist societies, from material production to information-processing activities. The quality of information and efficiency in acquiring and processing it is a strategic factor in competitiveness and productivity;
3. Organization of production and economic activity is being transformed from standardized mass production to flexible customized production and from vertically integrated, large-scale organizations to horizontal networks between economic units;
4. The new economy is global – capital, production, management, markets, labor, information, and technology are organized across national boundaries. The national economy now works as a unit at the world level in real time;
5. The revolution in information technologies is the enabling factor for these economic and organizational transformations; for example the enhancement of telecommunications has created the material infrastructure needed for the formation of a global economy. Through these information technologies, production and trade units can be reintegrated functionally through information networks, constituting a new type of economic space, which Castells calls “the space of flows”. (The space of flows is a new type of space, enabling syncronicity and real-time interaction without physical proximity. In 2001, he wrote: “the space of flows...links up distant locales around shared functions and meanings on the basis of electronic circuits and fast transportation corridors, while isolating and subduing the logic of experience embodied in the space of places.” – Wikipedia)
These features form a new type of economy – the informational economy – and its structure and logic define a new international division of labor. Castells examines the recent dynamics of the international economy, especially paying attention to the factors which account for the differential competitiveness of nations. He argues that four such factors explain the transformation of the international economy: 1) technological capacity of the productive structure of a given economy; 2) access to a large, integrated, expanding market; 3) differential between production costs at the production site and prices in the market of destination; 4) political capacity of national and supranational institutions to steer the growth strategy of those countries or areas under their jurisdiction.
Then he goes on to outline the main characteristics of this transformation and examine it empirically, using data limited to the period from 1967 to 1986 (acknowledging that several important transformations, such as the disintegration of the Soviet Union have taken place between 1987 and 1992). 
1) The first major transformation is the growing interdependency of the global economy, despite the preservation of substantial, distinctive cleavages between major economic areas which operate as trading blocs. 
2) North America, Japan and the EEC-EEA constitute the three fundamental economic regions. In the relationship among these three macro regions, the trend is toward multipolarity rather than US hegemony. The contribution of the US economy to world production has decreased, while that of Japan has increased. Greater even than that of Japan is the growth as a share of world production in “Developing Asia”, which includes the Pacific Basin’s newly industrialized countries (NICs) and also China. The “Developing Asia” region represented 17.4 percent of world production in 1986, compared to 7.7 percent for Japan.
3) The informational economy is also affecting North-South economic relations in a fundamental way, to the point that we can speak of the end of the Third World as a relatively homogeneous economic region. This differentiation is due to i) the emergence of  a new international division of labor; ii) the shift to a new model of economic growth; and iii) the varying capacities of countries to engage themselves in this new growth model by linking up with world economic processes.
Evolution of the Third World – Three Development Strategies
 The developing world in the post-World War II period has relied on three basic development strategies, often combined within the same country: a) traditional international trade – classic pattern of unequal exchange of raw materials and agricultural commodities for manufactures and know-how; b) import-substitution industrialization; and c) an outward-oriented development strategy, focusing either on exports from domestic manufacturing firms (e.g. South Korea, Hong Kong, Taiwan, and Brazil) or on exports from offshore manufacturing facilities of multinational corporations (e.g., northern Mexico, Malaysia, and Singapore). Castells argues that the first development model collapsed in the 1960s, the second in the 1970s, and the third in the 1980s. 
Castells goes through the empirical data to show that through the third model of development, Asia, overall, maintained healthy growth during the eighties. East Asia increased from 7.2 percent annual growth to 7.9 percent in the 1980-89 period; and South Asia (mainly India) improved its growth rate from 3.7 percent to 5.1 percent. The main actor of Asian development was China, from a 6.9 percent average annual growth  (1965-80) to 9.7 percent (1980-87). 
Yet, while Asia has been on the road to development,  most of Africa, the non-oil producers in the Middle East, and most of Latin America entered a structural economic crisis in the 1980s – one that could have damaging, lasting consequences for the economies and peoples of those areas, if not for all humankind. Castells makes a strong point that, the current dramatic transformation of the world economy into a dynamic, highly integrated system could bypass entire countries or the majority of their population. With the absolute costs of labor becoming less and less important as a competitive factor, a significant part of the world population is at a risk to be pushed into a “structural position of irrelevance”.  He speaks of the withering of the Thirld World by the ascendance of the newly industrialized countries (mainly in East Asia), by the development process of large continental economies on their way toward integration in the world economy (such as China and India), and by the rise of a Fourth World, made up of marginalized  economies in the retarded rural areas of three continents and in the shantytowns of African, Asian, and Latin American cities. 
This structural crisis, arising from the incapacity of a number of countries to adapt to the new conditions of economic growth, leads to a number of collective reactions, all of them having high destructive potential: i) the criminal economy (drug production and traffiking, illegal arms deals, smuggling, human trafficking,..); ii) widespread violence; and iii) the rise of ideological/religious fundamentalism. “The logic of exclusion embedded in the current dominant system is met with reciprocal appeals for exclusion of the dominants by the excluded.”
The Place of the Transitional Command Economies in the New International Division of Labor
Finally, Castells argues that the fomer command economies will eventually be transformed into market economies and suggests some potential future developments for how they may be fully integrated into the international system:
1. For the first half of the 1990s, the most likely role to be played by the command economies is to be net recipients of Northern (i.e., Western and Japanese) capital and technology and exporters of cheap, semiskilled labor. 
2. The most immediate connection with the world economy will be the export and joint-processing of natural resources, particularly energy resources, rare metals, gold, diamonds, timber and fish. This resource extraction development program will require an influx of capital, technology, machinery  and expertise and could be the first stage of the eventual integration.
3. For some East European countries around the year 2000, mobilization of the underutilized scientific and technical human potential is a third possibility.