Category Archives: industry

An Economist’s Take on Jared Diamond’s Collapse

Alaska-based econoblogger Ben Muse cites fellow economist Partha Dasgupta’s review of Jared Diamond’s Collapse in the London Review of Books. Seems Diamond fails to understand the relationship between pricing and scarcity in modern economies. Of course, if the government controls pricing, then it effectively slaughters that bellwether.

Forests loom large in Diamond’s case studies. As deforestation was the proximate cause of the Easter Islanders’ demise, he offers an extended, contrasting account of the way a deforested Japan succeeded, in the early 18th century, in averting total disaster by regenerating its forests. Now consider another island: England. Deforestation here began under the Romans, and by Elizabethan times the price of timber had begun to rise ominously. In the mid-18th century what people saw across the landscape in England wasn’t trees, but stone rows separating agricultural fields. The noted economic historian Brinley Thomas argued that it was because timber had become so scarce that a lengthy search began among inventors and tinkerers for an effective coal-based energy source. By Thomas’s reckoning, the defining moment of the Industrial Revolution should be located in 1784, when Henry Cort’s process for manufacturing iron was first successfully deployed. His analysis would suggest that England became the centre of the Industrial Revolution not because it had abundant energy but because it was running out of energy. France, in contrast, didn’t need to find a substitute energy source: it was covered in forests and therefore lost out. I’m not able to judge the plausibility of Thomas’s thesis – there would appear to be almost as many views about the origins, timing and location of the Industrial Revolution (granting there was one) as there are economic historians – but the point remains that scarcities lead individuals and societies to search for ways out, which often means discovering alternatives. Diamond is dismissive of the possibility of our finding such alternatives in the future because, as he would have it, we are about to come up against natural bottlenecks…

via Regions of Mind

Here’s a link to an interview with Diamond about that same book.

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Nissan vs. Mitsubishi Management Style

The BBC reports on Remodelling Japan Inc.

Nissan and Mitsubishi, two of the world’s most famous car companies, have both stared into the economic abyss in the last five years.

But while one has recovered to become Japan’s most profitable automaker, the other remains in deep trouble.

Their crises expose weaknesses in Japan’s traditional corporate model – weaknesses that were hidden until the economic downturn exposed them….

Just five years ago, Nissan had debts of $22bn and was close to bankruptcy.

The company had been complacent about its place in the market and its designs were felt to lack imagination, analysts say.

Toshiyuki Shiga, head of Nissan’s General Overseas Markets, explained that although Nissan’s problems were widely reported by the media at the time, the company’s own employees would not believe there was a crisis. They were tunnel-visioned and ostrich-necked, he said….

This was one of the first issues tackled by maverick French national Carlos Ghosn. He took over as Nissan’s CEO when French car-maker Renault announced it was taking a 37% share in Nissan in 1999. That stake has since been increased to 44%.

Mr Ghosn introduced something called “cross-functional team working”. This encourages dialogue across departments and divisions, engendering what Nissan’s Toshiyuki Shiga terms “healthy conflict”. It also enables the ideas of younger employees to get heard.

Mr Ghosn also tackled bloated management – cutting 22,900 jobs, some 15% of the total workforce, and halved the company’s suppliers.

As a result, it is now Japan’s most profitable car company, posting a $7.29bn profit in year end of March 2004.

Like Nissan, Mitsubishi Motors forged an alliance with a foreign car maker, in 2000. Daimler-Chrysler initially took a 37% stake, although that has since been reduced to 20%.

But unlike Nissan, its foreign marriage has not ended happily. When Mitsubishi asked Daimler to bail it out financially, Daimler refused.

Mitsubishi has responded with an aggressive restructuring plan. It has declared it will cut 11,000 jobs in the next three years, and has reduced its departments from 230 to 157.

via Tanuki Ramble

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Tobago Tobacco Trinidado

Naipaul’s last chapter of A Turn in the South–entitled “Smoke”–is about eastern North Carolina. Now and then he draws parallels between aspects of the American South and his native Trinidad and Tobago. Here’s one such digression.

THE WORD “tobacco” is thought to have come from Tobago [doubtful!], the dependency or sister island of Trinidad. And before “Virginia” became the word in England for tobacco [huh?], tobacco was sometimes called “Trinidado,” after the island of Trinidad, part of the Spanish Empire since its discovery by Columbus in 1498. Tobacco was a native Indian crop. But after the discovery and plunder of Mexico in 1519-20 and Peru fifteen years later, the Spaniards were interested only in gold and silver; they were not interested in tobacco. It was the English and the Dutch and the French who went to Trinidad to load up with tobacco. ‘there were hardly ever more than fifty Spaniards at a time in Trinidad in the sixteenth and seventeenth centuries.

The Gulf of Paria, between Trinidad and Venezuela, a vast safe harbor, was nearly always full of foreign ships. An English explorer and diplomatist, Sir Thomas Roe (who later went to the Mogul court at Agra in India as the representative of King James), came to the Gulf of Paria one year and saw fifteen English, French, and Dutch ships “freighting smoke.” Another English official reported that the tobacco trade might in time be worth more than all the Spanish gold and silver from the Americas.

The trade was illegal, however–even though crops were grown in Trinidad with the complicity of the Spanish governor. Under Spanish law only Spain could trade with a Spanish colony. Occasional sweeps were made by the Spanish navy against foreign interlopers in the Gulf of Paria; and foreign sea captains and sailors who were caught could be hanged on the spot. And the Indian tobacco fields–tobacco a crop requiring such great care, as I was to see in North Carolina–were flattened: part of the process by which in three hundred years both the native Indian population and tobacco were to be rooted out from Trinidad.

The island that the British captured (without a shot) in 1797 was a sugarcane slave colony. And it was to work in the sugarcane estates that, thirty years or so after the abolition of slavery in the British Empire in 1834, Indians were brought over from India on indenture. It was sugarcane that gave a rhythm to the life of rural Indian communities. Tobacco was no longer a local crop.

I would have been disbelieving, and delighted, to be told as a child that Trinidad had once been known for its tobacco. To me tobacco was glamorous, remote, from England (in absurdly luxurious airtight tins), or American (in soft, aromatic, cellophane-wrapped packets), something from an advertisement in Life.

SOURCE: A Turn in the South, by V.S. Naipaul (Vintage, 1989), pp. 278-279.

Here are a few additional tidbits from the Webster’s Dictionary Online entry for tobacco.

The Foolish Dictionary (1904) defines tobacco thus: “A nauseating plant that is consumed by but two creatures; a large, green worm and–man. The worm doesn’t know any better.

A “Special Definition” adds more history about the plant, including this bit.

Bright Tobacco

Prior to the American Civil War, the tobacco grown in the US was almost entirely fire-cured dark-leaf. This was planted in fertile lowlands, used a robust variety of leaf, and was fire cured or air cured.

Sometime after the War of 1812, demand for a milder, lighter, more aromatic tobacco arose. Ohio and Maryland both innovated quite a bit with milder varieties of the tobacco plant. Farmers around the country experimented with different curing processes. But the breakthrough didn’t come until 1854.

It had been noticed for centuries that sandy, highland soil produced thinner, weaker plants. Abisha Slade, of Caswell County, North Carolina had a good deal of infertile, sandy soil, and planted the new “gold-leaf” varieties on it. When Stephen, Abisha’s slave, used charcoal instead of wood to cure the crop, the first real “bright” tobacco was produced.

News spread through the area pretty quickly. The worthless sandy soil of the Appalachian piedmont was suddenly profitable, and people rapidly developed flue-curing techniques, a more efficient way of smoke-free curing. By the outbreak of the War, the town of Danville, Virginia actually had developed a bright-leaf market for the surrounding area in Caswell County, North Carolina and Pittsylvania County, Virginia.

Danville was also the main railway head for Confederate soldiers going to the front. These brought bright tobacco with them from Danville to the lines, traded it with each other and Union soldiers, and developed quite a taste for it. At the end of the war, the soldiers went home and suddenly there was a national market for the local crop. Caswell and Pittsylvania counties were the only two counties in the South that experienced an increase in total wealth after the war.

So “bright” tobacco is God’s gift to Piedmont farmers with bad soil, just as moonshine is God’s gift to mountaineers who don’t have the roads to get bulkier products of their corn to market. And then, of course, there’s the opium poppy, the coca leaf, etc.

Well, this topic could go on and on, so I’ll just close with a few startling items from Gene Borio’s fascinating tobacco timeline.

  • 1633: TURKEY: Sultan Murad IV orders tobacco users executed as infidels. As many as 18 a day were executed. Some historians consider the ban an anti-plague measure, some a fire-prevention measure.
  • 1634: RUSSIA: Czar Alexis creates penalties for smoking: 1st offense is whipping, a slit nose, and transportation to Siberia. 2nd offense is execution.

Those New World tobacco plantations were the Afghan or Burmese poppy plantations of their day. Three centuries later, however, Turkish tobacco was king.

By 1911, even though Duke’s American Tobacco Co. (ATC) controlled 92% of the world’s tobacco business, most popular American brands were Turkish blends, with names like Fatima (L&M), Omar (ATC), and Zubelda (Lorillard), to be followed in 1913 by Camel (RJR), which by 1923 had captured 43% of the US market.

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1932 Aso Coal Strike: Korean-Japanese Relations

The 20-day-long Korean strike against the Aso coal mines in 1932 was the only sustained strike by a large number of Korean miners in prewar Japan and the largest strike of the year in Chikuho, Japan’s most important coal field. The 400 strikers demonstrated courage and cohesion but won at best a partial victory that left most of them without jobs. This article draws on union documents and a contemporary report by the Kyochokai, a semiprivate organization devoted to labor-capital harmony, to explore the background of the strike, the tactics employed by the male strikers and their wives, and the many obstacles they faced in their fight for better wages and working conditions. The author argues that there was little the workers could do to overcome the harsh antiunion environment of prewar Japan or the surpluses in both coal and labor brought on by the Great Depression, but that the strike might have been more successful if rank-and-file Japanese miners had shown even a hint of solidarity. While a Japanese mining union provided organizational support, the failure of even one Japanese miner to join the strike suggests that Japanese working-class racism severely limited the potential for joint Korean-Japanese action.

SOURCE: W. Donald Smith, “The 1932 Aso Coal Strike: Korean-Japanese Solidarity and Conflict,” Korean Studies 20 (1996): 94-122

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Burma, TotalFinaElf, and Bernard Kouchner

A blog I only recently discovered via Belmont Club, the Last of the Famous International Playboys, posted back in January a long, detailed, and nuanced report on a scandal involving Kouchner, Total & Burma:

Good people make mistakes, too. Someone I very much admire, founder of Médecins sans frontiéres Bernard Kouchner, has drawn the wrath of right-thinking people down on his head.In his long career, the popular Kouchner (click on “afficher ma sélection” to plot his rising and falling poll numbers) has been a champion of human rights and was one of the only public figures in France to express support for the removal of Saddam Hussein.

But according to a few articles, France’s illustrious former socialist Minister of Health, Kouchner, has been accused of whitewashing the matter of the complicity of French oil giant Total (which recently merged with its highly corrupt and rapacious competitor Elf, forming the fourth largest oil company in the world) in alleged human rights abuses as part of the construction of a pipeline in the Yadana region of Myanmar.

On 7 April, the “tenth anniversary of the first full day of slaughter in the Rwandan genocide,” Last of the Famous posted another long, detailed, and nuanced retrospective on Rwanda, with a follow-up on 11 April. Both fascinating, but grim reading.

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19th-Century IT Improvements and Noncorporate Whaling

Alaska-based econoblogger Ben Muse posted a couple of interesting historical observations recently, one on the 19th-century IT revolution and another on why whaling ventures didn’t adopt corporate structures.

The first post summarizes data from the book, The New Financial Order: Risk in the 21st Century, by Robert Shiller.

  • The cost of paper for record storage drops as a paper making machine is invented in 1800, and the use of wood pulp for making paper is introduced in 1865.
  • The cost of data transmission drops when standardized envelopes are introduced in 1849, and as “street addresses proliferated in the late nineteenth century …”
  • The cost of making copies drops with the invention of the letter press in 1780 (“Letters … were placed before the ink was fully dry between the tissue-paper pages of a blank book, and the book closed and placed in a letter press, which pressed the pages tightly together. The special ink used to write the letter left a mark on the blank page, thereby generating a copy, which, although backward on the tissue paper, could be read normally from the other side.”), of carbon paper in 1806, and photographic document copying in 1900.
  • “The invention of the typewriter in 1868 was significant not only for the increased speed of data entry but also for the increased reliability of typewritten records …”
  • Industry for producing forms emerges in the 19th Century; carbon forms available by the 1880s.
  • Document sizes become standardized.
  • In the 1880s and 1890s development of mechanical calculators “sped the operation of the addition of numbers by about six …”
  • Filing systems improved (Dewey Decimal system introduced in 1876).

And then, there is the vertical file: “The vertical file with the associated cardboard file folders appeared at the 1893 world’s fair, the Columbian Exposition in Chicago, where it won a gold medal …”

The second post summarizes data from a working paper by Eric Hilts, “Incentives in Corporations: Evidence from the American Whaling Industry,” NBER w10403, March 2004.

U.S. whaling began in the 17th Century as small groups of colonists set out from shore after targets of opportunity. Gradually the business shifted to whaling ships with crews of 30 taking world wide trips lasting years at a time. Despite the 19th Century IT revolution, management of an enterprise like this would pose big challenges.

In the typical whaling enterprise a small group owned shares in the vessel. These persons delegated most management decisions to agents, who themselves had significant shares in the operations. [The agents and owners also tended to know each other very well, both personally and professionally.] …

In the 1830s some whaling firms incorporated in an apparent effort to become more attractive to large numbers of small investors. But look at what happened to management’s incentives. To a great extent oversight responsibility shifted from the investors to a board of directors. These, in turn, delegated management responsibility to an agent….

The corporate structure never became very important in the whaling business. The whaling industry survived into the later 19th Century, but “Of the whaling corporations that were chartered in the 1830s and early 1840s, none survived past the 1840s.” [Hilts, p. 12] …

Hilts thinks the reason is the different incentives faced by agents under the alternative forms of organization. He sought confirmation in a data set on 874 whaling voyages from 1830 to 1849; the data set covered almost 20% of the voyages during that time. For each voyage he calculated a productivity index. Hilts thinks the reason is the different incentives faced by agents under the alternative forms of organization. He sought confirmation in a data set on 874 whaling voyages from 1830 to 1849; the data set covered almost 20% of the voyages during that time. For each voyage he calculated a productivity index. Statistical analysis of the relation between the index and voyage characteristics found that, both statistically, and practically, corporate voyages were less productive that non-corporate voyages. (As a practical matter, organization as a corporation had a greater adverse impact on productivity than the death of the captain on the voyage. [Hilts, p. 23])

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Cultural vs. Situational Factors in East Asian Industrialization

In 1991, Ezra Vogel published a slim volume that attempted to analyze for lay audiences some of the reasons why certain East Asian nations achieved notable success in industrializing. He compared Taiwan, South Korea, Hong Kong, and Singapore, which he labelled the “Four Little Dragons.” Here are some highlights, from a book review published in 1994.

British and American advocates of minimal government interference in the marketplace will be countered not just by how different the role of Hong Kong’s government has been from the other little dragons, but by the historical perspective offered in the introductory chapter, where Vogel notes that only the earliest wave of industrialization, in England and later the United States, had the luxury of a rather leisurely pace of industrialization with relatively little government direction. The later waves in continental Europe and then East Asia had to rely much more heavily on government to secure the ever larger amounts of capital, complex technology, and skilled labor needed to leap the ever-widening gap between preindustrial and industrial society. Each new entrant in the race to industrialize had a clearer view of the finish line and ran down a better-trodden path to get there.

East Asian nationalists who, like European and American imperialists before them, tend to credit their success primarily to their own harder work and superior cultural heritage, will be forced to consider Vogel’s lists of the many situational factors that aided their efforts. And anti-American nationalists will object to the prominent position of U.S. aid on those lists. Vogel enumerates new global opportunities offered by the postwar world: (1) The United States, supremely self-confident and fervently anticommunist, was willing to open its markets and universities and share industrial technology with its allies to an unprecedented degree. (2) Thanks to the demise of colonialism and to bitter lessons learned during the prewar depression, international trade was far less restricted than before. (3) The growth of mass consumption enabled smaller countries to achieve manufacturing economies of scale that their domestic markets could not have supported. (4) Large Western corporations acquired a multinational outlook that placed loyalty to profits above loyalty to country of origin, making them willing, for profit, “to buy, sell, and lend anywhere in the world” (p. 11).

Vogel also lists more particular situational advantages East Asia enjoyed during the postwar period: (1) The U.S. poured in massive amounts of aid to build a bulwark against communism. Just as the Japanese economy benefited from U.S. procurement during the Korean War, the other regional economies benefited during the Vietnam War. (2) Confucian conservatives were discredited and large landowners were dispossessed. The postwar governments were not beholden to the traditional elite, so they were free to concentrate on production of new goods, not control of existing assets. (3) A keen awareness of external military threats and of inadequate land and natural resources lent an urgency that made leaders more willing to cooperate and citizens more willing to sacrifice for the common good. (4) Each country had large numbers of refugees and displaced people who comprised an “eager and plentiful labor force” (p. 88) dependent on their labor, not their land, for income. (5) Japan’s pioneering effort provided the little dragons with a goal, a way to get there, and the confidence that they could succeed in their drive to industrialize. As wages rose in Japan, corporations there were willing to transfer limited technology and manufacturing capacity to the other East Asian countries. However, some of those countries, most notably South Korea, succeeded in transferring more technology than Japan intended.

Did particular cultural traditions shared by East Asian societies confer any advantages? Vogel begins his chapter on explanations by downplaying the role of Confucianism in the spread of industrialization. He asks whether the ongoing industrial transformations of Islamic Malaysia and Turkey, Buddhist Thailand, and Roman Catholic Brazil and Mexico will not utterly invalidate cultural tradition as an explanatory factor. He further notes that Confucianism was blamed just as frequently during the 1940s and 1950s for retarding modernization, and asks why China, the heartland of Confucianism, has been slower to industrialize than the periphery, even before the socialist era. In answer, Vogel offers a tantalizing suggestion:

“If anything, just as Max Weber found that the greatest drive to industrialize in his time came in areas located far from Catholic orthodoxy, so in East Asia industrialization prospered in areas far from the centers of traditional Confucian orthodoxy, where trade and commerce were most highly developed. And successes occurred not under the old Confucian-style governments but in societies that had cast them aside for new governments, with very different political systems.” (p. 84) …

It is long past time to lay aside such vague, chauvinist notions as the Protestant ethic, the Confucian ethic, or the samurai spirit, and examine instead the more specific cultural traditions that aided industrialization. Vogel identifies four such traditions shared by Japan and the little dragons: (1) a “meritocratically selected bureaucracy” (p. 93) that not only implemented policy decisions, but formulated them; (2) an entrance examination system that afforded the means to overcome feudal favoritism and channel the most talented people into key leadership positions; (3) an emphasis on group loyalty and subordination of individual to group demands that well suited the level of centralized coordination needed to effect a modern industrial transformation; and (4) a tradition of lifelong self-cultivation.

Of course, the challenge today is not just to find a way for all nations to climb onto an industrial plateau, but to find ways to keep scaling new heights of innovation and growth in a postindustrial world. Orthodoxies of all kinds still seem to be among the primary obstacles.

SOURCE: Review of The Four Little Dragons: The Spread of Industrialization in East Asia, by Ezra F. Vogel (Harvard U. Press, 1991).

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