Tag Archives: globalisation

A book that will change your mind

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As an author, I’ve learned that most readers take out of a book what they bring to it. We all have our pre-existing worldview and it is rare for us to alter it. So I was struck by this comment by Ian Bright on a book I reviewed here last month, [amazon_link id=”0691158681″ target=”_blank” ]The Great Rebalancing: Trade, Conflict and the Perilous Road Ahead for the World Economy[/amazon_link] by Michael Pettis. Ian writes: “I have now read Pettis book. It is as good (even better) than you outlined….. the book challenges much of the way I think about things.”

[amazon_image id=”0691158681″ link=”true” target=”_blank” size=”medium” ]The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy[/amazon_image]

As his comment notes, the recent FT review of the book was somewhat unfair. It says the author ignores the importance of history, and gives the impression that this weakens the argument. I don’t agree. Anyway, it addresses the overall pattern of global imbalances so it would be a monster task to embed that in an informative history of the world’s major trading blocs.

If you are interested in the global economy and believe yourself to have an open mind, I urge you to read it. It’s ideal for students too because it sets out so clearly the operation of the accounting identities of the balance of payments.

The multinational criminal economy

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The Observer today features a report on tax avoidance by the ultra-rich, and another on money laundering by the world’s biggest banks, including HSBC. There may be connections, of course: one way to become ultra-rich is to engage in illegal activities such as the drug trade, trafficking, counterfeiting and so on.

I’ve always found the scale of the illegal economy staggering – I wrote about it in [amazon_link id=”1587991829″ target=”_blank” ]Sex, Drugs and Economics[/amazon_link] in 2002. According to the well-known Schneider and Este estimates, the ‘underground’ economy ranges in size from 14% to 44% of ‘official’ GDP, depending on the country. While this includes everyday VAT and income tax avoidance, that’s small beer compared to the sums flowing through the banking system as a result of the business of globalized criminal multinationals.

But although some information on this has been around for years, it is only now that the banks are starting to be called to account for having made these criminal multinationals possible (the accountants and lawyers who serve them also need to be identified). We wait to see whether there will be any punishments. It seems to me, though, that governments need to resolve that the parallel world of criminal states must be closed down. For all the vast effort put into policing the effects of organised crime on the ground, there has been astonishingly little attention paid to the systemic and global nature of this problem, and the scale of the parallel multinational economy, which poses a serious challenge to legitimate states.

The only book I’ve come across myself to describe this systemic criminal economy well is Nicholas Shaxon’s [amazon_link id=”0099541726″ target=”_blank” ]Treasure Islands[/amazon_link], although there are of course others such as Misha Glenny’s [amazon_link id=”0099481251″ target=”_blank” ]McMafia[/amazon_link] and Roberto Saviano’s [amazon_link id=”0330450999″ target=”_blank” ]Gomorrah[/amazon_link] and [amazon_link id=”0857050109″ target=”_blank” ]Beauty & The Inferno[/amazon_link] describing parts of it in horrifying detail. Criminologist Federico Varese has what looks like an interesting book reporting fieldwork on the international expansion of the different groups, [amazon_link id=”0691128553″ target=”_blank” ]Mafias on the Move[/amazon_link]. Lots of evidence available – time for governments to join the dots.

[amazon_image id=”0099541726″ link=”true” target=”_blank” size=”medium” ]Treasure Islands: Tax Havens and the Men who Stole the World[/amazon_image]

Made in everywhere

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Building Boeing’s Dreamliner used 16,000 gigabytes-worth of information, equivalent to a library of 16 million books, according to Peter Marsh’s new book [amazon_link id=”0300117779″ target=”_blank” ]The New Industrial Revolution: Consumers, Globalization and the End of Mass Production[/amazon_link]. He quotes one historian’s comment about the original Industrial Revolution: “About 1760, a wave of gadgets swept over England.” A wave of gadgets is now sweeping over the world. The general purpose technology of the microprocessor and the other innovations it has enabled has launched us into another industrial revolution – indeed, the history of capitalism is one damn technological revolution after another.

The book sets out these successive waves, but its interest lies in the mass of examples Marsh gives to illustrate the thesis of a new revolution. He has been covering manufacturing around the world for many years as a Financial Times journalist, and has a more or less unrivalled range of experience. One of his supplementary arguments is that manufacturing is of vital importance for economic growth because it is the route for innovation to enter everyday life. His description of the specifics of how companies actually innovate is very interesting. The organisation of the manufacturing process is one key, and one chapter looks at the Toyota Production System in some detail. Not only did this famously introduce the concepts of just-in-time and constant improvement, it also enabled huge variety by the switching of standard components – Marsh calculates that out of 8.6 million units made by the company in one year, there are 1.7 million variants.

Another element is specialisation in specific gatekeeper technologies. Industrial clustering is as old as industry, and Marshall famously described the role of know-how in explaining clusters. However, many older clusters are explained by the location of resources or by transport. Knowledge clusters are the new norm. Marsh’s example is Poole in Dorset, which turns out – who knew? – to be the world centre for the manufacture of air spindles. These are small electric motors whose shaft rotates on an air bearing rather than a metal bearing. They are essential for making circuit boards. In 2010, two firms in Poole accounted for 80% of the world’s supply. One has a factory in China as well as Dorset, but the other does not, and both have their R&D in their southern English home. We tend to talk down UK manufacturing and, heaven knows, we need more of it; but this story chimes with my own experience of there being many uniquely innovative and productive specialist manufacturers in the UK. Here, as another example, is a encouraging tale about the revival of the Lancashire cotton industry – my parents and aunties and uncles worked in the old version;  Lancashire Cotton 2.0 is a remarkable story.

Between 2006 and 2010 the UK slipped from 5th to 10th in the world league table of manufacturing nations. It wasn’t alone in this slide – China, S Korea, Brazil and India have also pushed France down the rankings with us. But Italy is hanging on with a slightly larger share of world manufacturing output, and apart from the US, Japan and Germany have substantial shares. What lessons do the success stories hold? Marsh highlights scientific and technical education, R&D spending, the accumulation of specialist knowledge – including practical know-how –  in niche areas (a highly effective barrier to entry by new competitors), added-value activities such as design or customer support surrounding the manufacturing, and strategic thinking about supply chains.

The redrawing of the manufacturing map into complex global supply chains is another interesting part of his account. Indeed, one of the main messages I took away was the massive interdependence of the various countries’ manufacturing industries. You can see its visible expression in the marvellous atlas of economic complexity. Marsh does not go on to consider the implications of this interdependence, which – for all the industrial upheaval and job losses –  has been the source of huge gains in productivity and prosperity over the decades. On the other hand, it is also a vulnerability. China needs those two factories in Poole to continue improving living standards there. We need other factories sited outside Bangkok or in Shenzen just as much. There has been less of a move to protectionism than one might have feared in the aftermath of the Great Financial Crisis, but if we do now see a turning away from globalization, the implosion of living standards around the world will be absolutely catastrophic.

The book does not go in for this kind of analysis, however. It is a book of reportage, stuffed with interesting examples that illustrate the history of manufacturing and its present, globalised state. I love the kinds of facts it offers – in 2010, six out of every 10 large crawler excavators of the kind needed for big construction projects went to Chinese customers (they are made by Komatsu of Japan and Caterpillar of the US but these manufacture them in China). There’s more on every page. This book is a great companion to [amazon_link id=”0349123780″ target=”_blank” ]Made in Britain[/amazon_link] by Evan Davis. Wearing global rather than national spectacles, it offers the same policy lessons for the UK or for any country needing to ensure the long term health of manufacturing industry.

[amazon_image id=”0300117779″ link=”true” target=”_blank” size=”medium” ]The New Industrial Revolution: Consumers, Globalization and the End of Mass Production[/amazon_image]