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Throughout history, space has often been a hindrance to economic growth. But improvements in transport
and communications have been among the main driving forces of economic progress, as Australian economist
Colin Clark pointed out. In medieval Europe and China three-quarters of the population never traveled farther
than five miles from their birthplaces, and before the advent of book printing, most people knew very little
about what happened beyond their narrow horizons. Since then technical and organizational progress has con-
tinually reduced the costs of transporting goods and "transporting" ideas (communication). Transport and com-
munication have also become user-friendly. Now fax machines, satellite TV, and global computer networks are
revolutionizing the world economy yet again.
Businesses locate their plants so as to economize on transport and communication costs (and reduce the
risks of transport disruptions) between the locations of their inputs and the locations of their market demand. In
the past, firms that depended on heavy inputs, such as steel makers, located near the source of major inputs,
such as coal mines. Firms that require intensive and frequent interaction with their customers locate near the
demand. Gasoline stations, for example, locate near busy intersections. Transport and communication costs
normally give firms a degree of local monopoly. But concern about neighboring competitors entering their
market niche tends to keep them from abusing this market power, keeping them in "creative unease" and thus
forcing them to control costs and to remain innovative.
Falling transport and communication costs threaten such market niches. Producers are now often able to
move away from their sources of supply or the neighborhood of their demand. Many firms have become more
"footloose". Thus, we now find steel plants in Japan and Korea, far from the iron and coal mines but near ports,
because the low cost of sea transport made it possible to ship coal and iron ore to locations with a favorable in-
vestment climate. Similarly, the telecommunications revolution has made many service operations footloose.
For example, daily accounting services for a business in Chicago may be done by an office at the end of the fax
line in Singapore.
Businesses combine inputs that are mobile in space, such as know-how and capital, with inputs that cannot
be moved at all or only at great cost, such as land or unskilled labor. One immobile factor that must not be for-
gotten is government. Good government can raise the productivity of the other inputs and make certain loca-
tions attractive. Bad government – a hostile government or a confusing, complex set of regulations; high taxes;
and poor public infrastructures – can lower productivity and induce the flight of mobile production factors.
The nineteenth-century German economist Johann Heinrich, the father of spatial economics, laid out a ba-
sic principle of spatial economics. Producers who are remote from the market can succeed only if they bear the
transport cost to the marketplace. But the mobile production factors have to be paid the same return, wherever
they are used. Otherwise they leave. Therefore, pointed out Johann Heinrich, the owners of immobile produc-
tion factors (like land) must absorb the entire transport-cost disadvantage of remote locations.
This "Johann Heinrich principle" can be demonstrated at various levels of spatial analysis.
1. In a city or region, real estate rents drop as one moves from the center of activity. In the center, enter-
prises use a lot of capital to build high rises, saving on high land costs, and only space-saving offices, not large
production plants, are located there. Cheap land on the periphery is devoted to land-intensive uses, such as for
storage and dumps. If landowners on the periphery were to raise rents, they would soon be out of business.
2. Within a nation, landowners, workers, and the tax collector can reap high "location rents" if they operate
in the central areas of economic activity, like Chicago or Los Angeles. There, mobile factors crowd in, so that
intensive use is made of land, labor, and public administration, and high incomes are earned. High rental prices
for the immobile inputs determine which goods and services are produced and which production methods are
used. If, however, the differentials in land, labor, and tax costs between central regions and more remote loca-
tions exceed the transport costs from the remote locations to the central markets, producers migrate. That is
how industry has spread out from historic centers like New York and Pittsburgh to new industrial regions.
3. On a global scale, as German economist Herbert Giersch recently pointed out, North America, Western
Europe, and Japan are the central locations. World-market prices and product standards are determined there,
and the highest incomes are earned. Both mobile and immobile inputs are most productive in these centers. Fur-
ther away in economic space are the new industrial countries, such as Taiwan, Korea, Malaysia, and Mexico,
where the immobile production factors are earning lower returns. And further still, on the periphery of the
global economic system, are the underdeveloped countries with very low incomes.
The main production factors that tend to be internationally immobile are labor and government, although
some countries have also attracted high legal and illegal labor migration. Because they are internationally im-
mobile, labor and governments in non-central countries that want to join in intensive world trade must absorb
the transport-cost disadvantages. What matters in this context is "economic distance", which cannot necessarily
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