Power, plenty – and Brexit

It seems a good time to take this wonderful book, Power and Plenty: Trade, War and the World Economy by Ronald Findlay Kevin O’Rourke, off the shelf again: “It would be foolish … to simply assume that the remarkable progress achieved by globalization in the last few decades will be sustained into the future.”

Although I agree with this VoxEU column that the gains are well worth defending, the global political context for continuing trade growth is depressing. And yet the UK government seems determined to get as bad a deal as possible in removing the country away from the most successful free trading area there has ever been. A bad move being made ever worse by its incompetent implementation.

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The trade-investment-service-intellectual property nexus

I’ve managed to resist reviewing Richard Baldwin’s new book The Great Convergence: information technology, trade and the new globalization until now, and it has taken serious self-restraint as the book is so relevant to (among other things) the Brexit debate. I would for one thing force every Cabinet member to read it and not allow them to keep their jobs unless they could pass an exam based on it. Anyway, the book’s published on 14th November and now it’s November my self-denying ordinance can end.

The Great Convergence offers a compelling framework for thinking about how trade is organized and why and how it benefits whom. The first part is a historical overview of trade leading up to the first, the Old Globalization or the 19th century. This phenomenon, due to steam power reducing trading costs, industrialization and a context of relative global peace led to the Great Divergence: the major economies of Asia, which had been richer than the West, fell behind, dramatically so over the course of two centuries. The New Globalization, since the 1980s, driven by the new information and communication technologies, has taken the rich countries’ share of global output back to its 1914 level in little over two decades. China is the standout story, going from uncompetitive in 1970 to 2nd biggest in the world by 2010, but other rapidly industrializing nations in the New Globalization are Korea, India, Poland, Indonesia and Thailand (ie. a different group from the notorious BRICs).

However, as the book goes on to document, the New Globalization is a completely different kind. Trade over distance has three costs: the costs of moving goods, ideas and people. When moving goods got cheap, the first explosion of trade occurred, but ideas were costly to move so the innovations of the industrial revolution were not easily exported. The Old Globalization was the result of low shipping costs and high communication costs. ICTs have reduced the latter significantly, so industrial competitiveness is defined in terms of production networks, interlinked supply chains, that cross national borders. Knowledge has been offshored, and the rapid growth in a few previously poorer countries has come about because of their geographical location, close enough to G7 industrial centres that managers can travel there, sharing knowledge within the confines of the production network.

This means the New Globalization happens at the level of stages of production and occupations. This makes it harder to predict who will be affected – which jobs will be offshored, which areas most affected. “Nations are no longer the only natural unit of analysis”. Much of the book describes a new data set making it possible for economists to begin to explore the ‘value added’ pattern of trade created by the switch from trading finished goods toward trading components in global production chains. The picture is going to be utterly different – the famous example being the iPhone which is sourced conventionally as a Chinese export to the US but where the value added is concentrated in the American business and the Chinese import a lot of the components they assemble and re-export with not much value added at that stage.

This is one insight the Brexiteers need to appreciate, although the Nissan letter suggests at least some members of the government realise the signficance. British businesses are woven into supply chains with our near neighbours: we aren’t importing prosecco and salami so much as gear boxes. Brexit threatens to tear apart these links. If the cost appears to be too high, the multinationals at the head of the supply chains will relocate chunks of their production networks, and won’t care if they’re exporting gear boxes to the Czech Republic rather than Britain.

The book adds: “Twenty-first century supply chains involve the whole trade-investment-service-intellectual property nexus, since bringing high quality, competitively priced goods to customers in a timely manner requires international coordination of production facilities via the continuous two-way flow of goods, people, ideas and investments. Threats to any of these flows become barriers to global value chain participation…” Baldwin adds that the movement of people is still a binding constraint on globalization, and face-to-face communication – and so distance – remain important. He argues that the improving quality of telepresence is changing this, but I think that remains to be seen.

Ultimately, trade policy today is not just about trade nor about nations. It involves deploying the nation’s productive resources through overseas connections. This is why 90% of the economics profession thought, and thinks, Brexit so damaging, and the idea that the UK has more economic self-determination outside the EU a delusion. The Great Convergence is not about Brexit – it ranges far wider. I can’t imagine a better and more accessible analysis of trade and globalization in the digital era.

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(20 November: minor typos corrected)

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Cotton, empire and mill workers

I finished reading Sven Beckert’s prize-winning in Cottonopolis, aka Manchester. I grew up in Lancashire in a family many of whose members worked in the cotton mills. The noise and hot greasy, dusty smell of the mills was part of my childhood. At school we were taught that we had been the cradle of the Industrial Revolution: John Kay, Richard Arkwright, Samuel Crompton, created their inventions just down the road. In Lincoln Square in Manchester stands a statue of Abraham Lincoln, a recognition of the support Lancashire mill workers had given to the Union side in the American Civil War, even though the blockade of southern ports created the ‘cotton famine’ that was the source of the great hardship they were experiencing.

[amazon_image id=”0141979984″ link=”true” target=”_blank” size=”medium” ]Empire of Cotton: A New History of Global Capitalism[/amazon_image]

Not surprisingly, I’ve been immensely looking forward to reading , saving it as a treat. And although I enjoyed reading it, it also left me very uneasy. The book wraps a huge amount of fascinating detail and insight around a single unwavering theme: that ‘war capitalism’, the violence of empire and slavery and thus the creation of a global trade with protected markets, made possible industrial capitalism. Now, I’m no imperialist, and there’s no question about the horrors of the slave trade – and the riches it created in the UK. David Olusoga’s recent BBC TV series about the UCL project on the legacy of British slave ownership highlighted the foundational importance of slavery for the UK’s 19th century prosperity, despite abolition. Even so, I distrusted the book. In 441 pages of great detail, was there really no room to mention those Lancashire mill hands? It isn’t an unknown story: Radio 4’s In Our Time had a fabulous episode on it earlier this year. Yet the book’s chapter on the cotton famine speaks only of ‘Manchester’ as a solo voice and its concern about the Union blockade. Life – and history – are more complicated than a -like frame with no room for anything that clouds the simplicity of an argument.

But this is – well, more than a quibble, just not enough to have stopped me enjoying the book. Three points were particularly interesting.

First was the analysis of the interaction between the labour-intensive upstream production and the capital-intensive downstream production, and how the technological practicalities shaped the organisation of processing, manufacture and trade. Although cotton is probably now the lowest profile industry of the industrial revolution, makes a persuasive case that it was the most powerful driver of globalised industrial capitalism – global precisely because of the differing production technologies along the supply chain.

Second is the emphasis on the interaction between private interests and the state, and the prevalence of the same kind of argument we still hear from industrialists who talk about the importance of free trade and yet constantly lobby the government to shape taxation, infrastructure, trade rules etc in their interests. The American Civil War prompted much British investment in Indian infrastructure, for example, as cotton manufacturers successfully lobbied for government assistance to create new sources of their raw material. More generally, the book quite rightly underlines the joint innovation of technologies, the organisation of production and trade, and financial and social institutional innovations.

Minard's infographic on the flows of raw cotton imports showing the effect of the Civil War

Minard’s infographic on the flows of raw cotton imports showing the effect of the Civil War

Third – and this is a truly nerdy point – I found fascinating the role of standardisation (of types and qualities of cotton) as the trade grew. In the early stages of the rise of cotton, the gathering of detailed information was a source of competitive advantage. Over time, places that collected information, and then provided it in standardised form, became central to the business. Liverpool was the centre of both physical and informational trade in the UK; in the US, although the South grew the cotton, New York became the hub. Ultimately, US standards dominated: in 1923 the Cotton Standards Act made it illegal to use anything but American standards in interstate or foreign commerce, so they became global standards. “The state also became an important supplier of statistics that made the market more legible, rendering much less central the sophisticated networks of information gathering and exchange that merchants had forged…. The state, centrally concerned with the reliable flow of inexpensive raw materials into the vortex of manufacturing enterprises, now quite literally made the market.”

So, I agree with some of Beckert’s argument and do recommend reading – but with a large pinch of scepticism.

Joseph Coyle (far right, front, aged 14 with his workmates at the Old Ground Mill in Ramsbottom, Lancashire.

Joseph Coyle (far right, front, aged 14 with his workmates at the Old Ground Mill in Ramsbottom, Lancashire.

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Bringing ideas to the world

Last week I attended the European Advisory Board meeting of Princeton University Press, the theme of the discussion being the role of university presses in the globalized 21st century. A while ago Sam Leith had an interesting article in the Guardian praising university presses for their stewardship of non-fiction publishing at a time when many commercial publishers have become fearful ‘me-too’ merchants. It could seem paradoxical: the university presses’ freedom from short term commercial pressure has created the conditions for longer term success, at least for some. Happily, Princeton University Press is one of those that’s thriving. There is a huge appetite for ideas, and the scholarly presses publishing books that address a wider audience than only academics and their libraries have been there to meet it. The appetite is also global, and again a small group of university presses have addressed the global market (much of PUP’s recent growth has been outside its home market in the US).

The other question is what will the ‘university’ part of ‘global university press’ look like in a decade or two? Higher education is ripe for disruption. It seems clear now this will not take the form of MOOCs, although they will have their market. Yet who knows what shape exactly it will take. One of my advisory board colleagues suggested publishing could be able to provide the true interdisciplinarity modern global issues require, whereas traditional university departmental silos discourage it. My hunch is that keeping a clear focus on the ‘product’ being the provision of ideas and scholarship to readers of all kinds around the world, and being agnostic about the exact means of delivering those ideas, will be the way to ride out disruptive technologies. A ‘freemium’ approach looks a good bet too: for example, the open access Digital Einstein website alongside the Quotable Einstein along with many other of his books for sale. (I note by the way there’s a holiday discount at the moment on purchases via the PUP website!)

My latest three books have been published by Princeton, and I’m delighted to be associated with such a distinguished purveyor of ideas to the world. During the holidays I’ll do my look ahead to forthcoming books in 2016 (publishers – do send me catalogues if you haven’t already) but here’s a trailer for just a few PUP titles for 2016: by William Goetzmann; by Robert Frank; and – just arrived at Enlightenment Towers, due for publicaiton on 27 January, Robert Gordon’s . I’m really looking forward to reading this over the holiday, & spoiling for a fight with Prof Gordon – but who knows, maybe he’ll win me over to his ‘innovation is so over’ thesis.

[amazon_image id=”B017MVYMSA” link=”true” target=”_blank” size=”medium” ]Money Changes Everything: How Finance Made Civilization Possible[/amazon_image]  [amazon_image id=”0691167400″ link=”true” target=”_blank” size=”medium” ]Success and Luck: Good Fortune and the Myth of Meritocracy[/amazon_image]  [amazon_image id=”B0131KW67U” link=”true” target=”_blank” size=”medium” ]The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War (The Princeton Economic History of the Western World)[/amazon_image]

 

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The hamburgerized economy

It’s Saturday, when I try to bring order to my life, and I was just sorting out the teetering pile of books when I unearthed by Louise fresco. It’s a notably handsome book with lovely pictures, so already enticing. Paging through, it looks a fascinating read as well. Although billed as a cultural history, it looks at the dominant role of supermarkets in the way we shop, at genetic modification, at agriculture, poverty and economic development, at the slow food movement and the globalization of food supply.

[amazon_image id=”0691163871″ link=”true” target=”_blank” size=”medium” ]Hamburgers in Paradise: The Stories behind the Food We Eat[/amazon_image]

Now, I love food and prepare most of our meals from scratch, buying few ready-made items. Quality is important to me. Eating as a family, round a table, talking, is essential. Yet the slow food movement makes me uneasy, as it often seems to reject the productivity needed to feed everyone, and to embody an approach few can afford. Agricultural productivity needs to increase again. As it happens, I just spotted this tweet on exactly this subject:

AgBioWorld
Global middle class is booming, so is demand for food. More crop per acre is the only way! https://t.co/LM9PFbRAbi https://t.co/VL09pRxOFv
21/11/2015 14:18

On the other hand, the scandals of industrial food production – horse meat disguised as beef, the treatment of animals including stuffing them with antibiotics, obesity, the high-salt, high-fat, high-margin products etc – are unacceptable and probably unsustainable. We will soon be publishing a terrific book by David Fell on food policy and taxation in our Perspectives series. meanwhile, I’m going to read over the Christmas holiday. Fresco concludes: “Without food there is no evolution and no civilization. We are what we eat, literally. … What it means to be human is concentrated in food and our understanding of it. Inevitably, part of that is the consciousness that many have too little to eat, or cannot choose to have the things tah are associated with a decent meal.”

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