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The future of the factory

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I read my colleague Jostein Hauge’sThe Future of the Factory in proof and never got round to the finished book until now. It’s a very nice synthesis of the impact of four ‘megatrends’ on manufacturing. These four are the rise of the service sector as a share of output, digital automation, globalization and ecological crisis.

After an introductory chapter introducing industrial policy in historical perspective – opening with Alexander Hamilton in life as well as on stage – each trend gets a chapter on how it is shaping industrial activity. One conclusion is that the phenomenon of ‘servitisation’ in manufacturing –  including outsourcing associated high value services – is significant and can lead people to underestimate the importance of manufacturing. The book also argues that the impact of digital automation is exaggerated – it will displace some activities and tasks but there is a lot of hype. It also argues that the retreat from globalisation is similarly over-stated, and the debate disguises power asymmetries between western multinationals and firms in their low or middle income supply chain countries. And the environmental crisis is a further source of this economic and political asymmetry.

The conclusion is that, “in a world of technological change and disruptions, industrialization and factory-based production remains a cornerstone of economic prgoress. Jostein welcomes the recent revival of industrial policies but calls for a focus now on the global South and the place these countries have in the network of production. The book ends with a call for a fairer kind of capitalism than the current model.

All of this is packed into a compact and very readable book. And I’m glad I’m not the only person who saw Hamilton The Musical and wished there had been more economic policy in the show…Screenshot 2024-01-23 at 16.03.49

Perspectives on China

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The New China Playbook: Beyond Socialism and Capitalism by Keyu Jin is quite an interesting read. As I’m not at all a China expert it’s hard for me to evaluate its claims, but the framing is persuasive. This is that the combination of political centralization and economic decentralization is not widely understood and makes China unique. Local officials have strong incentives to encourage local entrepreneurship or ‘inward’ investment from other parts of China. “The link between local growth and political promotion is what makes China’s case unique.” (I like the joke the book recounts: ‘GDP figures roduce officials and officials produce the GDP figures’.) This close public-private relationship is also cemented by the weak public but non-party institutions, meaning businesses have to overcome many barriers through such relationships. She writes: “China has strong state capacity and weak institutions,” which she contrasts to the strong formal instituions but weakening capacity in the US.

The book has some fascinating early chapters on the new phase of state mobilization and also the political/cultural/economic implications of so many Chinese people being only children. On the latter, she argues that it is a psychological burden being ‘only’ because of the expectation that they are the only people able to look after elderly parents. Later chapters go into more familiar territory such as the economy’s debt levels, and the financial system – the book is far more sanguine about the implications for stability than are other commentators. And the final chapter looks at innovation, the country’s impressive ability to adopt, manufacture and diffuse new technologies (“the Chinese are particularly good at making existing technology both better and cheaper”), and its focus on attaining the technology frontier in some areas.

All in all, the book is an optimistic take on China’s economic (and political) model, albeit expressing some reservations. For what it’s worth, the book has stellar back cover praise from Tony Blair, Ken Rogoff and Kai-Fu Lee. It’s well worth a read as a counterbalance to more pessimistic takes, even if one emerges as more sceptical than the author about the strengths or otherwise of the Chinese model.

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A taste of economics

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Ha-Joon Chang’s Edible Economics: The World in 17 Dishes is an entertaining read, and a nice introduction to some economic questions. Regular readers of his will not be surprised by the economic analysis – heavy on infant industry protection as the path to development for low income countries. But I did very much enjoy the food links – each chapter is an ingredient (rather than a dish), garlic, anchovy, strawberry and so on. There were nice nuggets from food history – the corporate history of Oxo and corned beef for instance, or that Koreans used to snack on fried silkworm pupae as a cheap source of protein as it was a byproduct of the silk export industry.

On the economics, the world has moved significantly towards Ha-Joon’s emphasis on active industrial policy, so he can feel vindicated in that respect. He also acknowledges here that it can go wrong, which I hadn’t spotted stated so clearly in his previous books. I’m not sure his perception of the economics profession as a monoculture with a few brave heterodox souls, set out again in the intro here, is as correct as it used to be; my perception is that it is broadening considerably and has been for a while, certainly outside the US.

The fact in the book that really surprised me is its claim that Switzerland and Singapore are the most manufacturing-intensive economies in the world – the World Bank data suggest this is a bit of an overstatement but they do have higher manufacturing sectors relative to GDP than one might imagine and are in the Germany?Japan clud (Our World in Data figure below.) As my colleague Jostein Hauge – cited here – has written about in his book The Future of the Factory, the economy no longer divides cleanly into manufacturing vs services, as many high value services serve the manufacturing sector. I think we’d do well to get away from that as a key distinction but do believe – as Ha-Joon doesn’t seem to – that there has been an important shift in the structure of the advanced economies. Manufacturing is central as it’s one of the highest value activities, but the way in which it is central has changed.

Anyway, it’s a good debate and the book is a good read, super-accessible for non-economists. I prefer it to some of his earlier popular books because there are far fewer sideswipes at other economists, and I learned a lot about the history and culture of some of the selected foods too. All that’s missing are recipes.

manufacturing-value-added-to-gdp

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Defeated by this book

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The blurb on the back should have been a warning: “A stimulating book that perhaps leaves the reader with more questions than answers. That, in case you are wondering, is intended as praise.”

Well, I should have done more wondering. The Mathematics of the Gods and the Algorithms of Men: A Cultural History by Paolo Zellini looked promising. I found it in the Tate Modern bookshop when Christmas shopping; it’s a wonderful shop with an intriguing book selection. This is the joy of in-person shopping, isn’t it – the serendipity? I’m very interested in algorithms. The book’s published as a Penguin paperback so intended for a wide audience.

But no. No idea what it’s about. I turned over most of the pages. There is a lot about the ancient Greeks. Even when you get to Russell, Frege and the like toward the end – no idea. It also seemed rather too literal a translation from the original Italian. Perhaps a mathemician reader has read it and can explain. Not recommending this one though!

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Saving and spending time

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My first read of the New Year has been an eccentric book, Jam Tomorrow: Why Time Really Matters in Economics by Charles Crowson. I bought it because of a very positive although short FT review that called it: “an important exposition of why economists ought to think deeper about how we value time — past, present and future.” I’m about four fifths of the way through writing my next book, which is all about my research on economic measurement over the past decade or so. (BTW I need ideas for a title – current working title is ‘The Measure of Progress’.)

Most of this is concerned with measuring the digital economy (we don’t). But one of my preoccupations is a paper I wrote with my friend Leonard Nakamura about whether time use would be a useful accounting framework. Productivity is about saving time. On the consumption side, what wellbeing (or utility) we get from how we spend time is surely what matters to people. The paper is open access.

Anyway, there are relatively few books on this subject so I thought Jam Tomorrow might be interesting. It is quite interesting but not what I thought. It’s about money, assets and interest rates – the price of time. The central point is that ‘we’ in general (in the high income west) have been too short-termist and borrowed to consume, at great environmental cost, and also leading to a malfunctioning housing market in the UK, where housing is seen mainly as an asset. I don’t disagree at all. But reading the book was a bit like sitting at dinner next to someone with lots of strong opinions who is speaking a slightly different language (and there’s an obligatory but irritating chapter about why all economics is rubbish … sigh). There are long chunks of text I either found obvious or alternatively hard to understand – and not a few cliches – but with some really thought-provoking formulations popping up.

For example: “If the price of bread or milk rose sharply in a given week we would instinctively cal it inflation. Yet of the Dow Jones stock index were to rise by 2% on a given day, we don’t say, ‘The Dow inflated by 2% today.” One could rationalise the difference but the point about language is really interesting (and there’s a whole chapter about language and analytic philosophy).

So it’s a sort of mixed review from me; interesting but could have done with quite a hands-on edit. The core argument is summed up nicely: “The central idea in this book is that economic decisions are fundamentally decisions about time, reflecting a basic choice between consumption in the present or delaying that consumption by saving for the future.” Yes indeed. But economists have in fact thought quite deeply about this choice. I’m thinking of a different time margin, how we use – ‘spend’ – our time in the present, the 24 hours a day we cannot save to carry over for tomorrow.

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