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Ch. 4: Understanding Globalization

#186: Jan. - March 2023 (Non-Fiction)
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Chris OConnor

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Ch. 4: Understanding Globalization

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Ch. 4: Understanding Globalization

Please use this thread to discuss the above referenced chapter of How the World Really Works: The Science Behind How We Got Here and Where We're Going by Vaclav Smil.
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Re: Ch. 4: Understanding Globalization

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This chapter on Globalization held a special interest for me as it brought back memories of months of political action in the 1980’s against the Canadian Conservative government of the day following the USA and Britain on their road to greater globalization

As I recall, the activists of the day were concerned that factories were being relocated to countries with lower hourly wages resulting in the loss of jobs for Canadian workers.
Smil assures us that there were factors other than lower wages involved. If lower wages was the only consideration then India or sub-Saharan Africa would have been better choices. As it turns out China was the main country of choice because it could provide, “above all, centralized one-party government that could guarantee political stability and acceptable investment conditions; a large, highly homogeneous and literate population; and an enormous domestic market”.

We are further informed that globalization could not have advanced at the rate it did without these four fundamental technical advances: diesel engines which power the ships that carry oil and grain, gas turbines used for airplanes, container ships and microprocessors creating a quantum leap in computing and information processing.

In the remainder of the chapter we get a detailed history of globalization from Egypt of 5000 years ago to the present.
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Re: Ch. 4: Understanding Globalization

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As it turns out China was the main country of choice because it could provide, “above all, centralized one-party government that could guarantee political stability and acceptable investment conditions; a large, highly homogeneous and literate population; and an enormous domestic market”.
OK, but without a gigantic cost reduction, those factors would not be nearly as important.
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Re: Ch. 4: Understanding Globalization

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LanDroid wrote: Sat Mar 11, 2023 7:25 pm
As it turns out China was the main country of choice because it could provide, “above all, centralized one-party government that could guarantee political stability and acceptable investment conditions; a large, highly homogeneous and literate population; and an enormous domestic market”.
OK, but without a gigantic cost reduction, those factors would not be nearly as important.
Granted, those cost reductions created huge profits for CEO’s and shareholders. But, the costs were often heavy for the country. Smil cites examples from the the tragedies of high midlife deaths of despair of American males as a result of the loss of millions of well-paying manufacturing jobs to the grotesque of Canada, with its immense forests, importing toothpicks and toilet paper from China.

Perhaps brought on by the COVID-19 pandemic where people in the US were forced to depend on a small number of suppliers in China for essential protective equipment and common medications ,questioning and criticizing globalization has become common place. In fact: “ a 2020 survey showed that 64 percent of American manufacturers said that reshoring is likely to follow the pandemic”.
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Re: Ch. 4: Understanding Globalization

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It is interesting, and maybe refreshing, to see globalization explained in terms of technical capacity. It's a good way of cutting into the data, and the historical perspective helps to recognize that trade volumes have tracked the changes in time and expense to ship goods, because as shipping became more affordable, trade became more worthwhile.

At the same time, Smil's emphasis on constraint (supply) obscures the role of demand and the dynamics that follow. There had to be goods worth shipping, for the caravans and clipper ships to evolve. That situation depends on goods that are cheap in one area but still valuable in areas where they are expensive. We all know the classic examples: spices, precious metals, ivory, amber. As the example of Prince Henry the Navigator of Portugal illustrates, methods and efficiencies improve as the value of shipping is proven.

And at least one classic story illustrates the vital part of the story that Smil seems to miss (I haven't finished the chapter, so I hope I am not premature). Silk was a major export from China, but following the opening of the Silk Road the techniques and trees began to be duplicated elsewhere, among the Byzantines and Arabs. Chinese exports began to be limited to high-end luxury textiles, especially when the Crusades brought sericulture to Italy.

Not all agricultural practices can be transplanted. I have seen trees for cinnamon and nutmeg in West Africa, but no industry replacing the exports of Southeast Asia grew up there. On the other hand, avocados and pineapples are doing very well, not to mention rubber (which is still tapped from plantations, despite the artificial rubber industry that dominates). Manufactured goods are a different story.

In general, if you show that a manufacturing process is profitable, it makes more sense to duplicate the process than to import at large scale. Porcelain manufacture was brought to Europe to make Limoges, Dresden, Wedgwood and Delft china, as well as many, many more, before 1700 in some cases.

A pattern was noticed in manufacturing in the 1960s which economists call the "product cycle" (business courses use the term for something else.) Products would first be made in a high-innovation area, but the accumulation of such manufactures would make labor expensive, which would then cause processes that were less innovation-driven to move to lower wage areas. Shoes from New England were followed by furniture, and eventually by auto manufacturing moving from Detroit. Note that either high rates of innovation continue in the metropolitan areas, or the wages catch up in the destination areas. We are seeing a convergence of wages in China, the world's workshop, with those of richer, more established areas. But well short of equality, at least outside the rich coastal areas.

Today it is direct foreign investment, (which provides "headquarters services",) and more broadly, business services exports, that keep demand high for labor in the rich countries. Some re-shoring is already underway, and it will gain with the turmoil in manufacturing brought about by the climate change issue.

Meanwhile China still has considerable momentum in "agglomeration economies", meaning things that make busy production hubs attractive to other producers. And China no longer depends on foreign investment to direct its companies and to provide finance. Its entrepreneurial base is approaching world class and serving as an engine to further production and, as in Korea, to advances in methods and consumer satisfaction.

As a result we will see less and less location of manufacturing in China for labor cost advantages, and more and more location there in order to benefit from tight connections to flexible companies. China's share of world exports may still grow for a while, but the rate of growth will slow, and not mainly because of Xi's belligerence or US defensiveness. The beginning of the end of China's expansion as an export base has passed.

One passing note: Smil is a bit sloppy with his statistics. I was taken aback by his claim that global trade's share of global output was 59 percent in 2018, since even for the EU, where trade between European countries is counted, that percentage would be high. I found his number on the internet, but it was from a company providing shoddy data packaging, and when I looked at the raw data, courtesy of the World Bank the share is actually about half that. Undoubtedly some coder just out of college added world exports to world imports to get the volume of "trade", but the double counting is obvious: exports from any one country are imports of other countries.
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Re: Ch. 4: Understanding Globalization

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I would like to post a big thanks to Harry for that last post, but I don't see how that can be done with the new display.
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Re: Ch. 4: Understanding Globalization

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LevV,

If you are on a mobile device you will see three dots in the upper right hand corner of each post. Click that and it will produce a drop-down box of available options. One such option is to thank the post.

Or are you not able to do that?
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Re: Ch. 4: Understanding Globalization

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Hopefully, LevV and Robert Tulip, You both received my private message saying that Ardhitya seems to have solved the issue where the thanks button was missing on some posts. Please let me know if you ever see that problem arise again.
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