Coffee and communism

“This project was hugely successful, perhaps one of the most effective aid projects ever conducted.” What would you guess this to be?

The line is from Katja Hoyer’s Beyond The Wall: East Germany 1949-1990. The context was the fact that the GDR ran out of coffee in 1977. “Afternoon coffee had become a daily ritual, not just comforting but essential as a psychological crutch,” Hoyer writes. It signalled stability and material comfort after the deprivations the middle-aged and older generation had experienced as young adults. The commodities crisis and the GDR’s chronic lack of foreign exchange meant the country couldn’t import any more coffee. What to do?

The solution was to come to a fraternal socialist arrangement with Vietnam, desperately poor after its own conflict. “East Germany could help the brother state rebuild itself while solving its own coffee problem.” GDR provided an enormous aid package and helped build massive infrastructure including a hydropower plant, and in return would get half of Vietnam’s coffee output for 20 years.

Vietnam now produces 20 million 60kg bags of coffee a year – almost all exported – in an industry employing 2.6 million people, the book reports. Unfortunately for East Germany, the coffee plants didn’t produce their first beans until 1990, too late to save the Communist regime. The coffee shortage was a striking illustration of the economy’s long-term unsustainability. It was too small and unproductive to continue to provide enough material and consumerist comforts to keep the population satisfied.

For a few years in the late 1980s a small part of my job involved monitoring the Soviet economy during the era of perestroika. The best estimates in the west (the CIA’s) over-estimated the strength of the planned Communist economies in the years running up to 1989. Extensive borrowing – and for the USSR itself, resource exports – was needed to fund enough consumption for political stability, given low productivity. Beyond The Wall is very interesting in its highlighting of the social benefits of the stability and the growing comforts East Germany provided its population; for a (significant) minority life there was intolerable, but for the majority it had some compensations. Until it didn’t.

81VklGm-gqL._AC_UY436_QL65_

 

False lessons from history

Economic crises are clearly all different – they can be triggered by many types of shock, and occur in many different contexts. Yet we hope to bring to bear on each new crisis lessons learned in dealing with earlier ones. Thus Ben Bernanke’s deep study of the Great Depression was generally seen as a plus in his presence as Fed Chair in the 2008 Great Financial Crisis. Similarly, Reinhardt and Rogoff argued, with the ironic choice of title for their book This Time Is Different, that there are in fact commonalities in all debt crises due to the arithmetic of debt dynamics.

A very enjoyable new book by Harold James, Seven Crashes: The Economic Crises That Shaped Globalization, applies the lens of whether each the seven advanced or set back the process of globalization to crises ranging from famines and blights in the 1840s via wars and depressions, commodity price hikes in the 1970s, the GFC and the Covid lockdowns and Russian invasion of Ukraine.

Very broadly speaking, he suggests that supply shocks tended to advance globalization as economic activity reorganised itself around the shocks to find new sources of supply. These shocks always reveal narrow bottlenecks. Never mind Ukrainian sunflower oil and grain; who knew that the country also produced 90% of the neon gas needed to manufacture semi-conductor chips? Demand shocks tended to do the opposite, and lead to a retreat from global markets, tending to be deflationary. This is not a hard and fast rule, not least because demand and supply soon interact.

However, that’s as far as the generalization goes. The author – a very eminent economic historian – sets out a key argument early on: “The turning points of globalization in a world that is industrialized and interconnected do not resemble each other. Each moment of crisis challenges individuals, businesses and governments in new and unprecedented ways, and leads to a redrawing of the mental map.” Each time is different. He argues, furthermore, that it is a mistake to try to learn lessons from the past – new problems need new solutions, rather than policymakers who are focused on fighting the previous (metaphorical) war.

The bulk of the book consists of chapters giving an account of the context and specifics of each of the selected crises. These are masterly concise essays, covering the economic events but also weaving in the influential economic ideas in each case, often through a chosen examplar such as Keynes. The book also resists the temptation of offering a final ten bullet point recommendations for tackling the next crisis. Because it will be different.

71VR5XMj-iL._AC_UY436_QL65_

 

Competent government? Read and weep

As if a downpour on the long holiday weekend (and Coronation Day) were not enough to dampen the spirits, I just read Ian Dunt’s How Westminster Works … and Why It Doesn’t. It’s an excellent book, forensic in its analysis of the operations of the UK’s central government – and that is exactly why it’s so deeply depressing and angry-making. The chapters cover both the political processes – selection of MPs, role of special advisers, the imbalance of power between the Executive and Parliament, lobby journalism – and the official aspects – an amateur-by-design civil service that’s becoming ever-less capable, increasing tensions between ministers and officials, the dire impact of the Treasury. The book is even handed, pointing out that many of the trends that make for ineffective government today started in the 1990s or before, and were accelerated significantly by New Labour, before being turbo-charged by the succession of Conservative governments that have followed.

My takeaways are:

  • It would actually be a bad idea to reform the House of Lords as it’s the only part that semi-functions
  • None of the actors in UK national politics have any incentive to change anything – for instance, proportional representation would be excellent but neither Tories nor Labour want it
  • I already thought more devolution to sub-national levels is desirable, and now think it’s the only hope of introducing any competence into UK government (although many people in Whitehall and Westminster have the cheek to talk about a lack of capacity at local level).

If you really want to get angry about the pervasive incompetence of the government, just read the chapter on Afghanistan. Shameful.

The book ought to go on every reading list for UK politics and government courses, and be read by all interested citizens. Buy it and despair. It complements Paul Johnson‘s excellent and equally angry-making Follow The Money, and my colleague Dennis Grube‘s more equable but still damning Why Governments Get It Wrong and How They Can Get It Right. Perhaps the most depressing thing in the UK is that when Donald Trump started destroying the US government’s efficacy (documented in Michael Lewis’s The Fifth Risk) he intended to do so. Our politicians and officials are destructive by accident. Destroying democracy through incompetence is somehow even more dispriting than doing so through malevolence.

What makes this even more depressing is that the need for effective government is increasing – collective action challenges like climate change, new security concerns, technological transformations all point to an increased need for a strategic economic policy framework. This isn’t going to happen if all the politicians’ and officials’ focus is on strategising for the next minuscule political advantage on social media.

The book does end with some suggestions for reform, but I found this chapter a bit half hearted. It isn’t that they wouldn’t be good ideas, just that it’s hard to see any incentive or ability to implement them. At least today (6 May 2023) we showed the UK can still put on a grand ceremony, even in a downpour.51LR0fJXYAL._AC_UY436_QL65_

 

Re-building Manchester

Manchester Unspun: Pop, Property and Power in the Original Modern City by Andy Spinoza is a fascinating┬á history of the extent to which my home city has changed since I left to go to university in 1978. It is a combination of personal memoir and political history, the latter seen through the lens of popular music – the famous Ha├žienda, Factory, Madchester phenomenon etc. The book describes the enormous changes in the built environment of the city centre, with property development a key vector of regeneration, led for much of the period covered by the due of Sir Howard Bernstein as chief executive and Sir Richard Leese as council leader. As it notes, this was often a controversial approach in its specifics, and for all the improvements in the centre remains contested.

The book was particularly interesting for me as I had a bit part in the first, George Osborne, devolution deal as the co-ordinator of the 2009 Manchester Independent Economic Review. Spinoza is dismissive of this effort but he seems to under-appreciate its role in getting the Treasury on board with the devolution journey. Anyway, I worked with the two Sirs and many others to put the MIER together, and I greatly admired them for their dogged and long-term determination to revive Manchester – a project 40 years in the making since the depths of deindustrialisation. The MIER in any case provided a baseline against which the city could judge its future progress. This hasn’t been overwhelming – as we noted in the follow up Prosperity Review in 2019/2020. Manchester still punches below its weight in terms of productivity, still has problems of housing and homelessness, still has great inequalities between and within its constituent authorities, still needs to improve its skill base, and so on.

Yet it has changed so much for the better since I left as all the mills were closing down but the rivers remained polluted and the buildings blackened. More than half the students graduating there now stay in the city region. Andy Burnham’s mayor-ship has helped create a stronger political identity. It continues to be a cultural dynamo (Mike Emmerich, a Manchester eminence grise, has written compellingly about the role of culture in cities). I really enjoyed reading Manchester Unspun for the history told through music – largely new to me. One for all Mancunians and all keen to see the UK’s cities other than London regain their mojo.

81vTSKYXROL._AC_UY436_QL65_

 

Planning disasters big and small

When teaching cost benefit analysis, I ask my students if they think the Sydney Opera House should not have been built. It’s both an Australian icon and an extreme example of the kind of major project disasters that Bent Flyvbjerg has made his name analysing: massively over budget, massively delayed, destroyed the reputation of its architect, and isn’t well suited to its purpose. When I did the tour, the guide claimed that, due to the narrow footrpint, for ballet there were matresses placed in the wings for the dancers to cannon into as they leapt off stage, and people to catch them so they didn’t bounce back on stage.

In general, the problem with big (and small) infrastructure schemes is that they so often seem to be over-budget and delayed, and yet we need infrasttructure. And as Flyberg’s new book, How Big Things Get Done (written with Dan Gardner), points out, the same is true in everyday life of projects like home extensions and refurbishments. The book has a few examples of successful major projects – like Frank Gehry’s Guggenheim in Bilbao, or the new Terminal 5 at Heathrow Airport. What distinguishes these from the far more numerous disasters?

The advice is easy to write down: be clear about what you want to achieve with the project; plan with as much care and detail as you can; forecast costs on the basis of what similar projects have actually cost on average; make sure you have an experienced project team that can deliver quickly when they get the green light. For big projects – although not your new kitchen – make the activity as modular as possible, for example by manufacturing components offsite. Technology and the use of digital twins and offsite manufacture should help a lot on infrastructure projects – this seems to have been key to Gehry’s consistent success.

This all sounds like common sense, but is obviously harder to achieve in practice. I thought the element missing from this book was the political economy of why it is so hard to do projects well. Peter Hall’s (1980) Great Planning Disasters is still a must read on this front. Having said that, I very much enjoyed How Big Things Get Done. Recommended, and particularly if you’re planning home improvements.

71l4ystQN8L._AC_UY436_QL65_