I'm reading the book The Divide at the moment. It makes the argument that it takes time and the right conditions to build up an industry - infrastructure needs to be built, education and a skilled labor pool with the necessary know-how as well. To begin with, a fledgling industry in a developing country cannot compete with those of already industrialized countries - these are already so effective that they can undercut newcomers before they have time to become competitive. So the book argues that when developing countries are pressured into free trade agreements (for example by making aid dependent on this), these countries are also forced into a position where they get stuck at the low end of the production value chain, selling raw materials, while buying processed goods from others (often the same role they were forcibly assigned when they were colonies). So much like we allow children time to learn in school before we expect them to compete in the job market, we should allow developing countries to employ protectionistic policies like tariffs, in order to protect and build up their fledgling industries nationally, before fully entering the world market in a couple decades when they are ready.
> So the book argues that when developing countries are pressured into free trade agreements
This should have been obvious since the Opium Wars and the Opening of Japan (see Commodore Matthew Perry).
All developed countries are pro free trade for markets where they are strong and fiercely protectionist where they are not (or they consider those markets strategic priorities).
I'm from Romania. Romania joined the EU in 2007, so we had to liberalize everything. It has generally been good for us (higher wages, economic growth, overall development), but I know all the German, French, Belgian supermarket chains.
Do you know why I know them? Because there are 0 (zero!) local supermarket chains left. They've all been bought by foreign companies.
Similar story for banks, car companies, whatever.
During the 2008 economic crisis Erste, Austrian banking group, repatriated all the local profits (from BCR, former major Romanian bank) to Austria so that the local banks would not be impacted. Similar story for OMV, Austrian oil and gas group (from Petrom, former major Romanian oil and gas company).
It's a mixed bag, really. You need some foreign investment to kickstart things, but if you don't start blocking stuff off, you'll never go over the middle income barrier, at best. At worst you practically become someone else's colony, or in the olden days, you actually were their colony (and what happened in Bengal in 1941 and Ireland in the 1800s comes to mind).
That's where China was smart I guess. They didn't sign any treaty which forced them into free trade or IP protection, but instead slowly allowed their industries to build up via IP theft and strong protectionism. Now they have giant companies on par with the West's. Whereas everyone who joined the EU in the decade of 2000 (and the Washington Consensus before that in the nineties) is now a pawn of the Western capital with no clear path of escaping the trap of mediocrity.
So far, the standard of living in post-Soviet EU countries is still higher than in China, but that's because of the much better starting point and also because it's just hard to provide wealth for over a billion people in a modern, heavily automated economy. However, even with their gargantuan population size, I see China potentially overtaking Poland or Czech Republic in terms of quality of living in the next 50-100 years.
I really think China is making a huge mistake actually. See how TSMC (Taiwan) and Samsung are free to buy ASMLs EUV machines, while China is blocked. Part of that is due to their rampant IP theft. Why sell machines to China if they're just going to copy them?
China also messed up big time by enforcing their 1 child policy, and taking so long to open up and industrialize. They're far behind economically compared to where other countries were with their demographic. Now they're on the verge of the biggest wave of senior citizens reaching retirement the world has ever seen, with crumbling infrastructure and housing, relatively low GDP/capita and no clear path to manufacturing/export of truly high value goods and services. They're screwed.
China really wants to get out of low-value manufacturing, and in some ways they're encouraging pushing that out to south-east asia and africa. But at the same time they don't have the positive image and reputation needed to be a big exporter of high-value goods. Who is going to trust Chinese companies with things like 5G infrastructure and CPS, when they're all basically an extension of the CCP when it comes to security? Who wants to live and work in China now, when you have no real justice for foreign citizens and the CCP can arrest you at a whim? If anything even close to Shenzhen is replicated elsewhere in the world, I think companies and individuals will gladly develop their products elsewhere. Will a giant Chinese company ever gain the reputation of Samsung or Sony? DJI I guess? But that's a bit niche.
Poland is growing healthily last I checked. The proof is in immigration numbers in other European countries. It seems to be reversing. In Norway there's a clear downward trend in immigration from Poland.
The 1 child policy is probably a big issue but IP theft is partly how the US industrialized. The textile mills of the North that kicked off industrialization in the US was based off of IP stolen from Britain. In fact, many of the practices that the Chinese are using were also used by the Americans: smuggling plans, hiring key employees, tariffs, etc.
Even domestically, the reason Hollywood is the center of the film industry is because California was too far from the East coast for patents on moving picture cameras to be effectively enforced.
It was a bit of both. I think I first read about this in Lessig's Free Culture [1], but even Wikipedia mentions some of this: somewhat ironically because of the MPAA's current heavy-handed tactics, Hollywood was founded on piracy and patents infringement. Some moviemakers moved West to explore new territories and climates (Wikipedia mentions D.W. Griffith) but others soon followed suit in order to avoid Edison's patents. It can be argued that Hollywood was made possible by people who broke the law [2]
So Hollywood and the MPAA, who so aggressively pursue what they deem "IP infringement", have more than one skeleton in their closets.
Bear this in mind whenever someone tells you -- as often witnessed here on HN -- "but without copyright there will be no writers" or "art isn't possible without IP laws".
Just recently had a bit of a good laugh about this. I decided to read Caesar's notes on Gallic wars, and downloaded some random .fb2
It turned out to be a preview fragment, which ended with a stern warning that it is illegal to break copyright laws and that this book can be legally purchased via provided link. I'm sure Gaius Julius is very happy with how these guys protect his interests.
That's ostensibly for the translator (of course it's more for the publisher). You can get (typically Edwardian-era or earlier) public domain translations, or the original Latin, for free in lots of places.
Well, without copyright, writers would find it hard to live off their work, but contemporary copyright has outgrown its usefulness and it wasn't writers who pushed for extensions.
Let us get back to the original 14+14 model, but how, against a determined resistance of entrenched interests?
Isn't the underlying problem here the idea of Intellectual Property doesn't really correspond to real property? If I have an ax I use to provide lumber to our town and you steal it physically from me, that's theft. But if you see my ax, understand how it works, and make your own to also cut lumber, is that really theft? Or is it net beneficial to the town, as now people have more cut lumber to choose from and perhaps lower prices? However, if I lobby to get an IP law, how does that serve the community? It only protects me from competition.
The theory is that nobody will invest in e.g. researching how to build a complicated lumber cutting machine if they don't have protections against their competitor copying the results.
Let's say this research costs 1 million dollars, and the company bankrolls this via a loan. They build it and are successful, and begin paying it off.
Their competitor copies their idea, and exploits the fact that they have more capital and less debt to buy up more of the market, and end up the winner.
So, under a zero protection scheme it is optimal to wait until your competitor invests in research, and then just steal it. Which is what happens on a geopolitical level where there is no feasible enforcement possible.
So, under a zero protection scheme it is optimal to wait until your competitor invests in research, and then just steal it. Which is what happens on a geopolitical level where there is no feasible enforcement possible.
Is it such a bad thing? The United States did it in order to industrialize and I would say that's a good thing.
Certainly depends on your utility function and the degree to which the ends justify the means. Is it good to steal from an apothecary to treat your ill wife? etc.
The underlying issue with Pareto optimal scenarios like this is that we end up trapped in a local minima.
I think in a particular case it's important to look at the context. For this, it likely depends on the scale, so in small town Georgiaville it would prevent innovation, but across the world scope its better* for ideas to be free.
*given most mainstream progressive utility functions and non-zero-sum philosophies
Some protection is good but there is this sort of hedonic drive to keep extending protection even though only a certain amount is needed to keep industries alive. At that point it is purely a wealth transfer.
One might argue that the us did it in a time where markets weren't really developed on a global scale like they are today, so that comparison is only valid to a certain degree.
It depends on how much the invention cost in the first place.
Some inventions are pretty expensive, like mRNA vaccines. If there is no way to profit from them, no one will spend crazy money on the research.
(Notably, mRNA was originally researched by the academic sector, but it did not recognize the importance of the topic and Katalin Karikó had to move to the private sector to finish her work.)
> See how TSMC (Taiwan) and Samsung are free to buy ASMLs EUV machines, while China is blocked. Part of that is due to their rampant IP theft. Why sell machines to China if they're just going to copy them?
ASML's machines aren't something you can just copy by buying one of them. (You'd do better by hiring ex-ASML engineers to teach you how to do it.) And ASML would've sold their EUV equipment (just as they continue to sell previous-generation machines) if their export license had been extended by the Dutch government, but the US applied pressure to make sure that didn't happen.
You say China took too long to open up and industrialize. Well, they are open to buy from ASML and industrialize with their help, but others are closing that door...
I think people who think China can be contained are being naive. As an academic, I am extremely impressed with the improvement in scientific publications in CS out of China of late. In 10 years, they are now killing it on a consistent basis (personal anecdote: a paper from Tsinghua or Shanghai Jiao Tong on average is as good as one from Berkeley, Stanford or MIT). I have a feeling it has to do with the reality that Chinese nationals (or people with some ethnic/language connection) are an integral part of cutting edge science globally. It is extremely do-able to entice these individuals back. Western countries have severely under invested in research .. even back when I got my PhD (like a decade ago), my job packages were far superior in Asia (not just China) than in the West.
I think in 5G, some top level planners in the West have realized the error of their ways, and are investing heavily in basic research. I think it is too late.
Also, only one of them has anything to do with theft. The other two are simply unrelated news stories about people with links to China - one was a US researcher who may have lied to get a visa, the other simply a "policy breach".
To cite them here is firstly to lie, as they aren't relevant, but secondly to show some pretty xenophobic tendencies, equating any news story connected to anyone Chinese as being proof of some other anti-Chinese theory.
>> See how TSMC (Taiwan) and Samsung are free to buy ASMLs EUV machines, while China is blocked. Part of that is due to their rampant IP theft. Why sell machines to China if they're just going to copy them?
> You say China took too long to open up and industrialize. Well, they are open to buy from ASML and industrialize with their help, but others are closing that door...
There's also the elephant in the room: China is controlled by the Communist party, which holds values that are antithetical to those of many of its trading partners (https://www.nytimes.com/2013/08/20/world/asia/chinas-new-lea...). Neither Taiwan nor South Korea have that kind of incompatibility. It was kind of naive and arrogant for Western trade policy to focus on stuff like IP theft and market access while ignoring that elephant.
> See how TSMC (Taiwan) and Samsung are free to buy ASMLs EUV machines, while China is blocked. Part of that is due to their rampant IP theft. Why sell machines to China if they're just going to copy them?
You seem a bit misinformed. ASML CEO has repeatedly showed extreme desire to sell in china (it already comprises the fastest growing DUV market)[1]. It's the american pressure, indirectly or directly exerted which is causing issues. If it were upto ASML SMIC would already be establishing it's EUV fabs.
Who is going to trust Chinese companies with things like 5G infrastructure and CPS, when they're all basically an extension of the CCP when it comes to security?
They're going to try to compete on price and quality. If customers think that the Xiaomi phone is good and cheap, the governments will have a hard time banning it. Customers don't really care about turning over huge amounts of information to Tiktok as well as to Facebook. That puts the western governments in a bind, to either ban wholesale or piecemeal, and it looks bad for them either way.
That's not a guaranteed win for China. It's hard to compete on both price and quality, and they're going to have to work hard to win a reputation for the latter. It's possible: both Japan and South Korea have done it. But they did so with a friendly US, not a hostile one.
They have the advantage of an enormous internal market, but it's not a wealthy one. They're going to look to Africa, which is also not wealthy, but there is money there, with less focus on privacy and more on price. Perhaps India and Latin America as well.
I think it's also fair to note that "Africa" is a huge place with huge income distributions. I can see South Africa and North Africa aligning more with the West, and East Africa going more to China.
> I really think China is making a huge mistake actually. See how TSMC (Taiwan) and Samsung are free to buy ASMLs EUV machines, while China is blocked. Part of that is due to their rampant IP theft. Why sell machines to China if they're just going to copy them?
Because China can waggle a huge target market to tempt people into repeating well documented mistakes
I think it's healthy to have a diverse set of mid and upper market companies. Chinese companies will ultimately buy their way into up market businesses. One antidote that I can readily think of is the acquisition of the street wear company Bape buy a the Chinese/Hong Kong manufacturer I.T Group. Forbes magazine is another company that was acquired by a Chinese company.
Furthermore, Hong Kong has some international appeal and most people think of it as a nation separate from China. In reality, companies from China incorporate in HK to escape the aurora of being a Chinese compnay
I’m not sure the whole swallowing of Hong Kong (and ignoring the two systems one country thing decades before it was set to lapse) is helping with brand reputation.
>"...Part of that is due to their rampant IP theft..."
IP is artificial construct supported and ultimately enforced by governments when it suits their purpose. For developing countries this IP just locks them forever into servitude as they can not afford to pay for IP. Never mind that. Even if they invent something themselves they'd still be breaking some patent. Personally I completely support a position where until country reaches certain GDP per capita they should be free from any IPO enforcements.
By the way the largest IP holder on this planet is also the largest thief of IP. This is how they've started.
probably legaly i am wrong. but apple cables and figdet spinners.. not much intelectual property there. there should be separate term for brand infrigment.
The one child policy is an example of a highly organized authoritarian society making a big, potentially fatal mistake, because no real debate with genuine dissent could be had.
That said, it is possible that China will reverse this self-made problem by developing and mandating use of artificial wombs or something similar. Authoritarian societies do not have many ethical scruples when it comes to problem solving.
Indeed. My 4 year old Oneplus phone taught me that China can make a phone just as good as anyone else. It's a quality product and was at a great price.
With that said, my next phone will be an iPhone. I am trying to de-china whenever I can when it comes to buying stuff.
well, it's still better than buying stuff from Chinese company if you are trying to "de-chinaze". Also, I don't think you have any other option. ah, aren't samsung phones made in South Korea? so you do have alternatives.
Funny you say that because exactly the opposite thing happened to China. They were completely taken advantage of in the 19th century and didn't fully recover from that until a 100 years later when Nixon and Kissinger in one of their "4D chess" moves restarted diplomatic relations as a way to limit the Soviets.
From that point on they had a pretty clever long view policy but it would have been surprising if they hadn't. They spent the previous century getting fucked by foreign invaders, if they hadn't learned how to resist it by the 1970's then Chinese culture as we know it would have been doomed to collapse by the 90's.
And truth be told they almost did in 1989. If the CCP was a little less organized, if the military was a little less loyal and if the protesters had their shit together a bit more it could have turned into a full popular revolution.
How can you compare China (population ~1.4bn) to any EU country (population average ~10mn - several orders of magnitude less, even in the case of the largest country)? Size is an advantage, not a disadvantage!
Pretty much none of the tactics would have worked for a small country that China played successfully. If you are small you can choose to be independent and protectionist - and remain very poor, or join the party, but be pushed into the corner, hoping that with time the playing field will level out somewhat.
Unfortunately for us the US will first need to learn that it’s better to keep US citizens out of prison, being productive in the workforce than locked up.
Broken window fallacy rules US economic thinking. Just that the broken windows are the lives of the prisoners and their families while the profits go to privatized prisons and their investors.
A WTO member can either comply with their treaty obligations (e.g. reducing barriers to trade) or have other members apply their own remedies (e.g. punitive tariffs.)
If the effect of compliance is worse than the punishment (e.g. underdeveloped industry eliminated by foreign competitors vs. continuing to operate despite high tariffs) they'll not comply.
If the punishment is worse (e.g. industry is basically competitive, but tariffs would make products hard to sell in foreign countries) they'll choose compliance.
At the bilateral level, there's not much difference to the pre-WTO situation, which might make you wonder whether it's all pointless. The advantage of the WTO is that it provides a shared target for compliance: if a country follows WTO rules, pretty much every other member will be happy with that. Which is a bigger incentive than having to please every trading partner individually.
> Whereas everyone who joined the EU in the decade of 2000 (and the Washington Consensus before that in the nineties) is now a pawn of the Western capital with no clear path of escaping the trap of mediocrity.
Not true. I hope you are joking. Most countries that joined the EU in the 2000s and 2010s become pretty westernized within 5 years of joining. Have you ever spent significant time in these countries, pre-EU or post-EU? Also, the countries that benefit the most from being EU members are the new members.
> So far, the standard of living in post-Soviet EU countries is still higher than in China, but that's because of the much better starting point and also because it's just hard to provide wealth for over a billion people in a modern, heavily automated economy.
The standard of living is pretty high in a lot of those countries, and not all of them are post-Soviet. Look at Malta or the ex-Yugoslav countries (Slovenia, Croatia) for example. I do not understand why westerners (particularly Americans) like to talk trash about the EU. I hope the Americans doing this realize where they are going, as in the wrong way, or on the wrong trend line. Of course America can wake up from being on some trend line, but to win the battles they are up against, profound societal changes will need to occur.
Also, according to that article, American women's life expectancy is soon to mirror Croatia. You know, that war-torn, ex-Yugoslav country that had a nasty war in the 90s and displaced a lot of people. Americans should be embarrassed.
Life in the Czech Republic is fine, as far as I am concerned. No violent places like Chiapas in Mexico.
What isn't fine is the worldwide trend toward morbid obesity and metabolic disease. Americans, as usual, are the trend setters, but we are following them. That is what reduces life expectancy and especially life quality in nations that can afford to gorge on 100 pounds of sugar per person and year.
Yeah, I agree. I did not mean for someone from Czechia to take it personally. I am sorry about that and I will do better and be more considerate.
I am a dual US| EU (Croatian) citizen, who is culturally American. I live in Croatia. So, I hope you understand where I am coming from, even though I was wrong.
I also have type 1 diabetes (autoimmune and insulin dependent) which is a “metabolic disease”. It is more appropriate to say “type 2 diabetes” or “diabetes type 2” or “insulin-resistance”, rather than a metabolic disease.
The issue with America is we have a lot of unnecessary death. It is not just obesity and type 2 diabetes, although that is a huge part of it. Our healthcare system is designed to create as much profit as possible, without having to improve the health of the people using it. We have no adequate public health infrastructure because of this huge profit seeking and we suffer because of a lack of regulation. This all causes unnecessary death.
Sooner than that I’d even say. Even a China with GDP per capita 1/4 of the US would pass that bar I think. 1/2 the US would make quality of living comparable to the US, given how relatively bad the US is in QoL, if you assume an urbanized priority vs suburban
Also a Romanian here. My take is similar to yours, but I would go even further in saying that the 90s were even more catastrophic in terms of privatization and liberalization. Remember the 'shock therapy' years? Prices doubling every few months? Entire industries collapsing, prized factories being sold for scrap metal? Millions losing their jobs etc. - a lot of that stuff didn't have to happen that way. A lot of it was forced via Washington Consensus type reforms.
To my mind the EU was our salvation not so much because of its economic nature, but because of its political one. The free market was the price we had to pay in order to be able to travel, work, study abroad, earn real wages that we could use to invest back into our own country etc. The EU also insured a decent degree of geo-political, strategic stability. Without the EU we may have ended up like our neighbors to the North/East.
In Poland some share similar sentiment, but it was better to get rid of of all these inflexible, low quality companies than providing them with life support. Problem was with management and technology. You would need to get rid of whole management hierarchy, and at that time there was nobody who could replace it. Some relicts from communism still lingers here and there, for 30 years after fall of communism unable to turn profit. Or corrupted managers moving ideas or technologies to “friendly” companies outside. If you allowed these companies to exist there would be a more chance for forming oligarchies like in Ukraine, instead of that we have more robust middle class.
I don't know the situation in Poland very well, but I think in general in Romania you (assuming you're Polish) are perceived as a success story.
In Romania it's actually quite hard to buy products and services that are not provided by some foreign company. Most banks, all big shopping chains (as GP noted), lots of the food and clothes, agri-business, almost all the telcoms are foreign. As a matter of fact, even though we have our own currency, a lot of products are pretty much directly priced in euros: cars, home appliances, electronics, apartments, land, rents, utility bills. All of these go up when the euro goes up (they don't go down when the euro goes down - and the euro never goes down).
That's a story told by the neoliberals. Meanwhile, a some of the communist-era companies survived and are thriving: PKO BP, Orlen, LOTOS, KGHM, PGNiG etc. The post-communist management and culture didn't prevent them from transforming into basically modern companies that aren't different from their foreign competitors.
I've been in Massachusetts for a while, which is a small American state. And guess what? 20 years ago there used to be many more local supermarket chains, that over time were increasingly absorbed or destroyed by massive national chains. I feel like this same story plays out all over the world, except that when you have countries like in Europe it feels like a more personal type of event e.g. "those foreign superchains are out to get our local wholesome stuff." But in reality maybe it's mostly just business.
Romania still has at least one local supermarket chain I can think of: Oncos. I’m not sure how many locations they have outside of Transylvania, though.
Sadly, Romania’s competitiveness in building its own businesses in Europe is weakened by being left out of Schengen. Considering that Mark Rutte’s party just won reelection in the Dutch elections, sadly nothing is likely to change on that front for years – he is the biggest force vetoing Romanian accession to Schengen.
We should just start vetoing some of those important treaties or other big agreements. We need to start pressuring the other EU members into pressuring the Netherlands for us.
Fellow Romanian here, a person very close to me died of heart-failure in the middle of the street in downtown Bucharest 10+ years ago, not a block away from her employer's HQs at the time. She was in her early 40s, her employer was BCR (the bank that had just been acquired by Erste), and said close person had had a few fights with the new Austrian rulers to be, she was part of the bank's trade-union body, she didn't want her colleagues' jobs to go away after the purchase. The jobs did go away after the purchase, in droves.
A person even closer to me used to work for OMV immediately after they had purchased Petrom (our former State-run oil company). The stories I could hear back then could fill many pages, I still remember seeing the papers with hundreds of people's names on them, people who were supposed to be laid off the following days. And that was just from one company division. To say nothing of the fact that the Austrians had no oil drilling operations, no oil drilling specialists, nothing of the sorts, while Petrom had been in the oil drilling business for decades. Or how OMV had (I think it still has) as its major shareholder the Austrian State, so in fact we managed to sell our oil state company to basically another state.
My far relatives (but still the same last name) drilled oil in Romania before you could even call it really drilling, it was more like bucketing from what I was told. Maybe it was a bit exaggerated though the job was probably quite dangerous anyway as my relative almost burned to death. He was really lucky to survive with the burns he had - almost his whole skin was gone. The positive thing was, he grew a continuous layer of new skin and until his death looked very young.
It doesn't seem Romania is drilling much these days, more like refining imported crude oil before exporting the products. Judging from what was left of a different communist regime the last 30 years haven't been easy but most people seem to be much, much better off now than before the fall of the iron curtain probably also compared to the general QoL development in the world, I haven't looked up any statistics but it definitely seems like it. The quality standards now are much higher in every respect, the work in a factory is much safer for the workers. You are usually looking at many years of retirement even when you generally retire later where I hear stories about people from factories dying quite early probably because of the working conditions, many small injuries over the lifetime, fumes, dirt, smoking everywhere and all the time etc. If you get injured at work in Germany and haven't done anything against the protocols, it is a big problem for the company - you will be compensated usually very well for your trouble. Companies try to avoid injuries as well as they can in my experience on seeing the shop floors of a steel foundry, where safety really matters, else you are likely to get hurt fatally.
That said, no corporation is always doing the smart thing from the business or management perspective. There is usually internal politics, management strategies and more involved. There are also more and less competent people at every position. Maybe OMV should have kept some of the specialists and maybe educate them about the modern technology and methods. Generally the previous regimes were not very efficient with personnel and other resources so it is really hard to say what OMV should have really done.
I'm from a country where there are several locally owned supermarkets. They're all very nice but eye wateringly expensive. I'd love if Aldi/Carrefour/Costco moved in.
This is the counter argument. By protecting an inefficient sector you make it harder for every other sector to operate. If Ghana moves to protect their Chocolate manufacturing that will likely come at the expense of their Cocoa growers.
The best way seems to start with low level work and move up the chain.
> that will likely come at the expense of their Cocoa growers.
It'll be interesting to see. Making good chocolate certainly isn't easy. Nor is compliance with food quality standards..
But if they control enough of the chocolate production, I guess foreign manufacturers may choose to setup a processing factory in Ghana.
Of course, it's not without risk. Foreign manufacturers could perhaps invest into farming equipment to make neighboring Ivory Coast more productive at farming cocoa..
But doing this certainly creates uncertainty and instability, which is rarely good.
I think the quality of beans in Ghana is improving but they are still significantly behind Central and South America. As someone who worked making high quality chocolate in the US, people are less likely to invest in exploitative cacoa production just as much as low quality beans.
If you are buying an $9 chocolate bar, in addition to quality, consumers are also looking to support fair business models. So improving the labor conditions, something many European companies seem to show little interest in, is as much a part of finding better partners as increasing quality. And more and more, these issues are just as important as quantity.
>I'm from Romania. Romania joined the EU in 2007, so we had to liberalize everything. It has generally been good for us (higher wages, economic growth, overall development), but I know all the German, French, Belgian supermarket chains.
That's already known factor though. The reason of the free movement of labour to make up for capital movements like these.
> Do you know why I know them? Because there are 0 (zero!) local supermarket chains left. They've all been bought by foreign companies.
It depends on your perspective really. When I lived in Oregon, there were Fred Meyers all over the place, but they're all owned by Kroger (HQ in Ohio) now. Are they 'foreign' because they're from another state inside the USA?
AFAIK, Kroger keeps the local brands, so IDK why none of the local Romanian brands were kept. If it's anything like China or USSR, probably not a lot of faith in the local brands I guess?
Sort of yes. While a lot of the benefits of the development that comes with the growth of the grocery industry in Oregon will stay local, the surplus will not. It ends up in Ohio or inside pensions or investor pockets.
But this isn't a great analogy because the U.S. federal government keeps interstate trade much more homogeneous than the EU.
> the U.S. federal government keeps interstate trade
That's part of it, but there's actually also a set of interstate compacts (that still have to be "allowed" by Congress constitutionally) and also Uniform Codes (which don't). Particularly the uniform commercial code https://en.wikipedia.org/wiki/Uniform_Commercial_Code
Basically, a think tank from the 50's decided to convince all the states to pass laws which just all happened to look alike because they copied from the same source. No interstate agreement required, they just all did it, no congressional thumbs up required. I... don't think the EU is quite on that level of unity yet =)
The specific ownership and the details are irrelevant, what matters is that a large chunk of their profits is extracted out of the country and doesn't get reinvested.
Thats not how the economy works. Walmart profits don't get "invested" in the States. They get invested into Walmart. The wages and taxes those wages fuel always gets applied locally. Nothing is being "extracted". Thats just nationalist bullshit used to fuel protectionism.
If the very well paid jobs stay in the home country, how do you call that?
If the interesting work all stays in the home country, how do you call that?
We like to kid ourselves that multinational companies are truly multinational, companies of the world. What's the percentage of non-American top managers, for example, working for American based multinationals? It's probably in the low 1-digit percentages.
There is a definite advantage to bejng an early investor. For these companies the risk is comparatively small and the rewards they reap are huge and on very long time horizons.
It's not super clear cut that it's all nationalist BS.
AFAIU, neither wages nor investments count as profits - those are paid to owners / shareholders.
As far as returning the earnings to workers and local economy via taxes - yes there are expenses, you can't take 100% of income as profits, but there is a lot of leeway to direct the funds pretty much wherever the company chooses. Corporate headquarters in tax friendly countries are popular for a reason.
So if wallmart buys a chain that wasn't competitive because they didn't decided to have wages so low their employees require foodstamps do you think that helps the local economy?
When the company buys in Romania and lays of the local marketing, sales departments, etc to make things more efficient, uniform and streamlined that doesn't help the local economy. That makes things more efficient tho but as a Romanian you're left holding the bag.
Now everything is foreign owned and the streamlining and competition has played out in such a fashion that there's potentially less competition and consequently less benefits off competition. (see all the modern industries that have turned into duopolies, monopsonies or the like that can easily keep new competition from coming in but also don't compete enough to drive consumer prices down.
Is that really true? The international supermarkets may chose to invest by open new stores....secondly, they had to buy the local supermarkets in the first place...that went somewhere...maybe that was reinvested locally. It is not clear cut.
> they had to buy the local supermarkets in the first place
When foreign owners extract profits to recover their investment or pay whomever, wealth is in fact leaving the country - because they still own the capital (stores) yet get money back.
It's not clear cut based on this. They could have invested beyond price, brought knowledge, improved efficiency ...
It's also possible they are in effect extracting wealth colonialist style, which is something to beware of - at scale it can have severe consequences for local economies.
Yep. The story about large corporations being totally nationeless is a pure fantasy. For example, just a couple years ago Fiat-Chrystler decided to move production from one of its best factories in Poland to one of its worst (in terms of quality and costs per unit), located in Italy. It made zero sense for the business and was only made as a favor to Italian politicians.
In more general sense, all global companies have some originating country and most of them keep the HQ and most of the high-paying jobs there. They expand to other countries mostly as a cost-saving measure and they have zero loyalty to them, while they have a lot of loyalty to the mothership.
No, it makes perfect sense when you factor in that FIAT/FCA/Stellantis was and is the receiver of massive subsidies, in various guises, from the Italian state. Losing those would be more harmful to the business than losing any foreign factory (with the exception of US ones, which were also beneficiaries of massive state support). FCA stopped being a "national champion" ages ago, they are just a hardened global business now; they just know which side their bread is buttered.
> They expand to other countries mostly as a cost-saving measure and they have zero loyalty to them
Believe me, they have zero loyalty to "the motherland" too. Many of them have long relocated their HQ too, for fiscal reasons. FCA/Stellantis, for example, is now based in Amsterdam. The chance that they'll ever expand again their manufacturing bases in Italy or France is minimal.
Honestly, the issue is that national champions don't exist anymore. Greed-is-good is all that matters.
Aldi the 3rd (or 4th) biggest supermarket chain is still owned essentially by the Aldi families (there are in fact 2 Aldi chains, because the brothers could stand each other.
Considering that at the end of WWII, large swathes of global population were subject to colonial rule, particularly in Africa and Asia, I wonder how the current situation you describe compares.
Soft power and economics have been used as weapons for centuries
Do you really think that their current or recent use is enough to warrant the moniker “WW3”?
I hear quite a lot of complaints from all sorts of people about their economic victimhood. I've got complaints myself about what global economics are doing for our prospects as a species.
To the point that when I traveled around a couple of years ago along the coast, most people I met along the way seemed to be more confortable speaking German than English.
Serbian/Croatian/Bosnian/Kosovar familiarity with German is something that dates from the era of Yugoslavia, it has little to do with corporate sway in the modern EU.
Yugoslavia 1) allowed its people to freely work in the West, and many people chose to go to West Germany, and 2) Yugoslavia built up extensive tourist infrastructure in Croatia and Montenegro that drew predominantly German-speaking holidaymakers (and not so many English-speaking ones -- UK holidaymakers went for e.g. Spain or Greece during this era). All this made German seem like the language for communicating with foreigners, though among younger generations it is already giving way to English.
In Hapsburg times, only a fairly small elite outside of Austria knew German. Most people in the Empire knew only their own language (or sometimes e.g. their own language and some degree of Hungarian). It wasn’t until after the fall of the Austro-Hungarian Empire that the average person – due to modern state-schooling curricula, business contacts with German speakers, or going to work in Germany – began to know German.
There is quite a body of scholarship on the sociolinguistics of the Austro-Hungarian Empire, if you are curious.
Public/state workers had to know German, military personnel had to know German and as the education system was building in Habsburg Monarchy and Austro-Hungarian Empire children and university students were learning German. There are more than 2000 German words in Croatian language today dating back from Habsburg Monarchy and Austro-Hungarian Empire.
You don't build a bond with some nation and culture over the course of one century it takes more than that. For example like you probably know Ottoman Empire was ruling and controlling south-east Europe for 500 years and impact of that is very much visible and present today.
Speaking of the Ottoman empire, when I watched a Turkish show recently I was surprised to hear a number of words I had no idea were Turkish origin. (Well, could be the other way around too I guess. But they sounded Turkish.) Sanduk, čizma, budala, paramparčad, kapija, sandžak, inat, kutija, ajde just off the top of my head.
The German connection is definitely there. There was even a transliterated word used for people working abroad: "gastarbajter," from German Gastarbeiter. And it was used for anyone working abroad, no matter where :-)
Public/state workers and university students were a small elite until the 20th century, as were schoolchildren until a fairly late date. Also, the demographics you speak of were males, meaning that you are leaving out a half of the population.
Certainly German words in Croatian testify to contacts at some level of the population. Romanian, too, abounds in German words in some domains, for example, but this doesn’t mean the average Romanian would have been able to speak any German. But in Croatia knowledge of German varied greatly from the country’s northwest to its south. Again, the sociolinguistics of the Austro-Hungarian Empire are well-described.
When I visited Croatia I got the impression that many older locals liked me and Germany in general. I came to realize that this does not have to be a good thing when people started to speak positively about Hitler :( Apparently, many Croatians are Nazi sympathizers and in the same vein dislike England. At least that's what my croatian friend told me.
The starting point for the US states is/was much closer than that of random countries around the world, to each other.
US states, despite what Americans tell themselves, are culturally/socially/economically a lot more homogeneous than random countries around the world are to each other.
And US states are all protected by the same federal government. None of them can really be abused by outside forces with little/no repercussion.
They really can't be compared (US states vs countries around the world).
The original 13 colonies were pretty diverse. For example, some of them had slave economies and some didn't. That's a huge difference. Even today, some states are much larger than others, some are very populous compared to others, some are resource intensive others are manufacturing intensive, different ethnicity populations, etc. Their economies are diverse.
> They really can't be compared
Sure they can. They show that a diverse set of "countries" with no trade barriers results in mutual prosperity. It's one of the great ideas of the United States.
Plenty of nations around the world are bullied. The US and the banana republics (which sounds a lot like arrogant victim blaming from the Americans!), Eastern Europe and Russia/the Soviets, Afghanistan and everyone, etc.
US states don't have that problem. When was the last time Idaho had to defend itself from foreign interference, invasion, trade embargoes, etc?
Free trade rarely is as free as in theory, was my point.
Regarding US states, and though I absolutely abhor playing devil's advocate on this one, the Northern states did force the Southern ones to give up their economic model at gun point.
Similarly to how Vietnams economy is hampered if it gets exposed to more mature parts and electronics industries from let's say Germany leaving only it's mature low skill industries sustainable trough low wages I can see the same in the west
I live in a western country and i enjoy relatively free trade with the US but I don't expect my country or surrounding ones to produce a software giant because I expect them to be stomped in the ground by existing duopolies or simply bought out.
I don't expect something to join the competition between intel amd anywhere in a free trading world and potentially drive consumer prices down more because they'll perpetuate their copyrights and IP with well timed adjustments till the sun goes dark, etc
It seems to me too early to predict a lot about Eastern Europe. < 20 years is not a long time. 2007 means that the first children born after Romania joined the EU are 8 years away from leaving university.
You could very well be correct, but I'd want to see some countries that tried this a lot longer ago.
Almost all the cases of countries going from underdeveloped/developing to developed did it through various forms of protectionism: Japan, Singapore, Taiwan, South Korea, China, Hong Kong.
I'm trying super hard to think of a country that did it by liberalizing fully. Eastern European countries might be the examples you're looking for, but it's too early to say.
If you think about any sport, or any activity in general, it makes sense. You never expose the hard parts, you only expose what you can easily defend or what can defend itself. Or if you're China, you fake exposing the soft parts and then you catch everyone in your tar pit :-))
Neither Hong Kong or Singapore are or were particularly protectionist and largely utilized their location to be entrepôt economies and port cities. They both lack a domestic industrial base and heavily rely on being attractive location for multinationals.
In 2002-2005 I worked with all the supermarket and hypermarket chains in Romania, I still have a couple of friends in CxO positions in the top 5 companies; you are missing the full picture on what happened there, but the story is too long for a comment here; the 2007 change had zero impact of what already happened in the early 2000s.
I wanted to keep it simple for non-Romanians. The process started as Romania was implementing the EU acquis, after 1999.
I'd be interested in the story, if you have time, but my only comment for everyone else reading this, these are technicalities, regarding the gist of my comment. They only change the timeline, but the main idea is the same.
That is the point, the main idea is wrong. The 2 major factors were lack of experience of the Romanian owners (I had very close friends that worked at the failed Univers'all chain, it was total chaos) and capital to build the right format at the right quality.
The Korean economist Ha-Joon Chang makes similar arguments in his book Bad samaritans. He argues that this model was successfully followed by Korea (Samsung, Hyundai, etc), Japan, and even Henry VII in 15th century England - well worth a read.
Not to pick on you, but I often hear this frasing in the 'first world' and surely you dont 'allow' or 'disallow' internal policies to an sovereign nation?
It sounds like a Freudianslip or something, the reality is that its easy to bully or bribe officials in developing nations.
I get where you're coming from, but in this case they are completely right to use this phrasing, with exactly the connotation you are talking about: the status quo is that the first world is NOT allowing these countries to run their affairs as they want internally.
That is, any developing country is presented with 2 options by the developed world: either accept 'free trade' (allow foreign investors to buy up the local industry, commit to IP laws, don't apply tariffs) or no one will be allowed to trade with you or send you aid.
In the meantime, powerful countries are taking numerous protectionist measures in their key industries, since that is the only way to actually be prosperous.
> either accept 'free trade' (allow foreign investors to buy up the local industry, commit to IP laws, don't apply tariffs) or no one will be allowed to trade with you or send you aid.
Do multi-national trade agreements (which I believe are the core mechanism for this) actually penalize signatories for trading with non-signatories? Or is it more that trade between signatories is so advantaged that no company within a signatory state would be competitive were it to trade with a counterpart in a non-signatory state?
> Not to pick on you, but I often hear this frasing in the 'first world' and surely you dont 'allow' or 'disallow' internal policies to an sovereign nation?
Not exactly. Between forcing their hand on disadvantageous trade deals, lodging complaints and enforcing restrictions with the WTO, and outright installing dictators and funding militias - allowing or disallowing is all what the first world ever does.
> the USA is not-allowing Germany the right to build a pipeline with Russia!
The USA is threatening trade sanctions if Germany builds the pipeline. I would not call that "not-allowing".
That seems to be OP's whole point. The US is responding as a sovereign nation to actions of other sovereign nations. Phraseology like "allow" and "disallow" are not accurate. If Germany does the cost-benefit analysis and decides to cancel the pipeline because they don't want trade sanctions, that was their decision as an independent nation. It is not as if we are threatening war.
The US is exploiting its centrality in the international financial system, though. No other country uses secondary sanctions so extensively to dictate to other countries who they may and may not trade with.
When the US pulled out of the Iran nuclear deal, for example, it essentially ordered European companies not to trade with Iran. Even European companies that have no business in the US are afraid to do business with Iran, because American secondary sanctions will still hit them. No European bank will lend to a European company that does business with Iran, out of fear of American sanctions.
These sorts of actions will eventually provoke a reaction: either the establishment of alternate financial systems or retaliatory sanctions.
There is no right to trade with the US, or with anyone else.
If the US wants to impose a tariff to nations that do X, that does not mean that the US is forcing these nations to do anything. They can pay the tarrif, change their behavior, or sell their goods elsewhere. Or they can charge a counter-tarrif -- oops, not if they are an export-dependent economy they can't. That's the crux of the issue.
Germany needs to pay their own workers enough so the German economy is not dependent on exporting a 1/3 of their GDP each year just to maintain domestic employment.
Obviously when you create an economy that crashes the moment others stop letting you run massive trade surpluses, then you are effectively handing your sovereignty over to your trading partners.
Whining about that and blaming your trading partners for using the power Germany has given them seems a bit naive.
Germany will never be sovereign as long as it is an export-dependent economy.
stop dating this girl or i will raise the rent x10. my english is not that good, but 'forcing' does not seem far.. maybe 'coercing' fits better, but the idea is very similar, make somebody do stuff against their will.
> You are allowed to live in your apartment if you pay the demanded rent.
ding ding ding. Germany is allowed to build whatever pipelines they want, they just also might have to pay US trade sanctions. Without a threat of force, we are not forcing them to do anything.
The US built those industries only in the same sense that they built Germany's.
Japan's industrial base was built before the 40s, with an extensive domestic supply of machine tools and industrial equipment, rail infrastructure, and finished manufactured goods. Or else who do you think was building the planes, ships, and submarines that the allies were fighting on the Pacific front? Their industries were temporarily damaged by the war but it's no surprise that they'd be back to building cars within a couple decades.
They, rather than the US, were the ones who built up much of the initial industrial base of Taiwan and Korea, as part of their own colonization efforts. Not out of so much benevolence, of course.
They weren't building walkmans or cars for export.
Their skill base was intact but their industry was razed by WW2.
Either way they needed raw materials and markets to develop their industrial base and that required favorable American trade policy, $$$ and military support.
I'm curious about this argument. Haven't heard the "tiger states" growth attributed solely to US policies. Any links/pointers to those advantages that were granted these states but not other developing countries at the time?
I don't know about solely developed, but South Korea, Taiwan, and Japan did receive substantial amounts of foreign aid in the post-war period. In addition, some of this aid financed land reforms that forced large land owners to break up large holdings and sell to the tenant farmers who previously rented the land. The notoriously small farms in Japan are not a natural free market development.
> Not to pick on you, but I often hear this frasing in the 'first world' and surely you dont 'allow' or 'disallow' internal policies to an sovereign nation?
Oh, it's much simpler than that. If an undeveloped (or developing) country doesn't place nice with the "Developed" rules, the IMF will just bankrupt their currency and send them back to the dark ages.
Why do you think Switzerland is the world's 3rd biggest exporter of Coffee [1], while not growing a single bean ? .. and Germany is number 5.
The IMF doesn't let coffee growing countries like Ethiopia or the Ivory Coast export processed beans, because they want the immense profits going to developed countries. Also the WTO plays a role and just doesn't tax unprocessed raw coffee beans coming out of those poor countries, but taxes processed coffee (and chocolate) goods at astronomical rates.
Blackmail poor countries into selling all of their assets to foreign capital, just to gain access to foreign credit.
See what's happening in Cuba. See what Vietnam had to do after the war with the US, see Greece with Europe recently, see countless more.
The WTO, IMF and the World Bank are the colonizing arm of capitalism.
It's a relatively new form of supernational economic warfare that turned out to be very effective, especially when combined with embargoes and economic sanctions. It's the famous "offer one can't refuse".
The way you phrase it, makes it sound like theft...surely, they have to buy the assets and that goes to the owner...the owner then can chose to re-invest locally if they choose to...the capital doesnt just disappear...
> the owner then can chose to re-invest locally if they choose to
Only at the conditions imposed by the IMF. Usually that means the state has to steer away from anything that could be profitable and focus only on what is not palatable to foreign capital.
It also means states can't apply import taxes, thus making their industries instantly obsolete. It's pretty much a huge transfer of wealth from inside to outside.
> Only at the conditions imposed by the IMF. Usually that means the state has to steer away from anything that could be profitable and focus only on what is not palatable to foreign capital.
Just check the IMF page on "Conditionality"[0].
Check the "Prior actions" sections and see "Elimination of price controls" there.
Also see this video[1] about Vietnam, around halfway through it explains pretty well how it works.
Edit: I realize now you asked about the "forced privatization of industries" sentence. That's thoroughly stressed accross all IMF literature, and you can see it happen in pretty much every country that takes IMF "aid".
I just want to note nationalized industries have an incredibly unfair advantage over private industry. Since nationalized industries have no real need to make money at all. Widget A cost $65 to make? Nah, let's sell it at $5. Most of the fund comes from capitalist states. It wouldn't make much of sense for them to fund an economic system that is often antagonistic to capitalism.
so are you mainly refering to state-owned assets rather than privately owned assets? State-owned companies are notorious for being badly run...no wonder they are overrun by foreign competition. Would it not be possible for a state to IPO these assets or give shares directly to the population rather than sell?
Okay, but if local goods can't be produced at a price that is commensurately low, then the fledgingly country's wage earners have their purchasing power reduced, with less discretionary income to further their own educational and business pursuits. I think this thesis you are referring to takes for granted that the tariffs are going to be responsibly used by the governing class setting them to invest in the long term prospects of their people and not siphoned off into corrupt ends. That's a pretty tall assumption.
>if local goods can't be produced at a price that is commensurately low, then the fledgingly country's wage earners have their purchasing power reduced
If the industry they work in can't compete their entire income is reduced to zero.
That can knock out related industries as well and ultimately leave the country exposed to currency collapse and hyperinflation as the exporting countries decide that this country has nothing it really wants any more while they still desperately need imports.
This happened to Venezuela (after local industrialists declared war on Chavez in 2002 he effectively set out to destroy them) and Zimbabwe (when Muagabe dispossessed farmers from their land, rendering it unproductive).
The US is also exposed to this risk. It's steadily but very slowly losing hi tech manufacturing capabilities - something that takes decades to get back once lost (due to the network effect and loss of skills).
They still have a very important cocoa industry that employs people. If they cease trade and the chocolate industry does not grow quickly enough then some of those farmers will quit.
Correct, the lower priced international goods help give the population of developing countries more purchasing power with their low wages, but at the cost of those wages never going up significantly. They get stuck in a local optimum - and unfortunately, yes, in order to escape from one of those, the first steps will always be toward something less optimal.
This isn't exactly the issue with the cacao production industry.
Like coffee, I believe the industries that are able to produce higher quality beans with more equitable and fair labor practices are doing better than the countries that continue producing cheap cacao. Something that I am under the impression is less supported by European chocolate producers.
My source is my time as a chocolate maker in the US.
This is called the "infant industry" argument, and it has been made since at least the 16th Century, most famously by Antonio Serra, a proto-mercantilist.
This idea of raising tarrifs on imports and then using the money to protect domestic industries has been tried in Latin America in the 60s and 70s, in Africa, and in many places.
The results are mixed.
The problem with infant industry is that you get a group of local monopolies protected by the government who sell expensive low quality goods to the public, people get sick of it, they want the lower priced better foreign goods as it will increase their quality of life, and at some point there is sufficient political pressure to force a regime change.
Another way of saying this is that the infant industries often fail to grow up, they remain protected infants forever.
On the other hand, if you don't protect your infant industries, then you have no chance against mature foreign competitors, as you point out.
Then there is a third aspect to this, which is that foreign governments, especially East Asian governments (not only China, but China is the biggest offender) massively subsidize domestic industries and so you have to subsidize and protect your industries in return, or they will be destroyed by competitors who never need to turn a profit, or repay a loan, or meet any environmental regulations, or deal with unions, etc.
So it's a tough call. All these theories have valid points, but they all have fatal flaws. For the last few years, I've come around to the following mantra, which is my own development philosophy:
* every country should have a long run balance of payments. That means all trade should be balanced.
* countries should make investments in local productive capacity, but not subsidize industries per se
* countries should not allow foreign companies to set up factories or purchase capital or land. Each nation's assets should be owned by their own citizens only.
* With the above caveats, there should be free trade and no industry protection.
What this means, in practice, is banning foreign capital inflows. Have your own currency, borrow only in your own currency from your own people, and don't allow foreigners to purchase your bonds, stocks, land, private debt, or productive capital.
But trade all you want with them. As long as you do that, your currency will depreciate sufficiently to prevent any flood of cheap imports, and your domestic industries will have a chance.
Even if we assume that protectionism is good in this case, there is actually a flaw in how they enact that protectionism. Ceasing trade with Switzerland can hurt farmers if the domestic industry doesn't grow fast enough. At the same time the entire idea behind ceasing trade with Switzerland is being based on the idea that your are cutting off supply to a competitor. Similar to cutting off oil exports to a nation you are at war with. If Switzerland can find a different country to import cocoa from, this could backfire spectacularly. The real answer would have been to ban imports of processed goods like chocolate. That way you won't get into this weird situation where your country is flooded with cocoa and chocolate that fails to compete against Swiss chocolate.
I tend to agree. The issue with capital or land is that you are taking another country's tender that may be debased in exchange for capital/land that your own citizens are priced out of (due to other countries running the printing press).
This is why it is prudent to lock up certain assets (land / long lived assets) to citizens of the country.
This is where china succeeded. You go in, you give up IP and share %, and they get a piece of the action.
Free trade benefits everyone for pennies. However, the makers / artisans (shoemakers, etc) always lose out big. So free trade is a net winner but creates very unbalanced losers. Ultimately there is an argument for compassion against free trade, which fits squarely with your arguments.
Yup. 40% of US corporate equity is owned by the foreign sector. We have sold off almost half our capital stock to foreigners in exchange for short run corporate profits and cheap foreign goods.
And any attempts to adopt a more nationalistic trade policy that promotes sovereignty are met with pretty brutal suppression from our internationalized corporate sector and their various handmaidens in the press and progressive politics -- which now has no loyalty to America at all.
And this is happening all over the world, but most prominently in the US as well as Southern Europe. Domestic political forces that hate the native population are collaborating with the domestic corporate sector to sell every piece of capital that isn't bolted down to overseas investors with cheap printing presses and a longer time horizon.
> Curious, why? Countries vary in size, so this seems like an arbitrary restriction.
It is not an arbitrary restriction at all, it is the only possible way to have balanced trade in a hostile environment. You have the balance of trade identity:
change in current_account + change in capital_account = 0
That means in order for nation A to be a net importer of goods, it must sell off its capital to the foreign sector.
So instead of thinking "Lazy Americans love cheap foreign goods, so they import too much and that makes them poorer so they have to sell off their capital to "borrow" from abroad"
Think like this: Nation B prints up money, uses it to buy bonds/factories/etc in nation A, which forces the currencies to adjust so that Nation A's products are more expensive to nation B and Nation B's products are cheaper to Nation A so that enough is imported to balance the current and capital account, and in this way Nation B's intervention makes Nation A poorer.
Then the question becomes, why should Nation A allow this type of intervention?
Indeed, the impoverishment of Ireland was due mostly to British landlords who owned a huge portion of Irish land, and British firms that owned a huge portion of Irish industry, making the Irish mere renters of their own country's capital.
> Also: how is it undesirable to have a foreign company build a factory that hires workers?
You do not need foreigners to do that. For a foreigner to build a factory in nation A, they have to first export some good to nation A, and instead of using the proceeds to importing an equivalent amount of goods, they use the proceeds to buy some land or a factory, etc. That land or factory could have been bought by someone in nation A if they would not have been deprived of the export income.
In other words, in a floating currency regime, it is impossible for the foreign sector to "bring money in" to another country and fund investment - trade is not funded with specie flows - it is only possible for the foreign sector to drain income from nation A's current account, and then re-invest the income that was drained via the capital account. Thus all foreign investments are merely efforts to recycle trade surpluses, and they are required for the trade surpluses to occur in the first place.
That is what is wrong with foreign capital inflows, and why all nations from South Korea to China that follow export-led growth plans always heavily restrict or outright ban foreign capital inflows, much to the consternation of economists who think foreign capital inflows help rather than hurt. Asia knows that these inflows hurt, and it's time we realized that, too.
> So much like we allow children time to learn in school before we expect them to compete in the job market, we should allow developing countries to employ protectionistic policies
This sounds a bit paternalistic and condescending. I guess that first and foremost the "first world" should stop financing horrible dictatorships and wars in the ex-colonies. That would be a good, honest start.
When you do that and even take down the dictator (Gadafi), you end up with a worse government, or no government at all. We can all agree Saddam Hussein was a horrible dictator supported by the US, look at Iraq now, is it better off without Saddam?
There is no clear cut, and it seems like whatever the west is doing or abstaining from doing it's going to attract hate. We all hate that the Saudis are free to be horrible, but what is the alternative? A new Iraq?
What if you just let them be, you might say? Then you end up with 8 year long wars like Iran-Iraq. Or with genocide like in Yugoslavia in the 90s.
I think we can all agree China is a horrible dictatorship, how exactly can we stop financing it, since we rely so much on their factories?
> We all hate that the Saudis are free to be horrible, but what is the alternative? A new Iraq?
That's a false dichotomy. I think that many people who oppose the war in Yemen would settle for an end to military support and arms sales to Saudi Arabia, and possibly other economic sanctions.
Whether that would lead to a positive outcome for Yemen, though, is another question, and highlights your point about the problems of abstaining.
When I was younger tariffs were popular in developing countries but they seldom seemed to produce much prosperity - quite the contrary really.
Maybe if you apply the tariffs very intelligently but most developing countries are not blessed with great non corrupt governments.
The
>pressured into free trade agreements (for example by making aid dependent on this)
is kind of telling. A lot of the long time free trading countries like HK and Singapore don't need aid. It's often the tarrifs that make places poor enough to need that.
Which is the kind of thing that hobbles the economy - it's not like those counties are building their own Intels and Apples as a result of the tariffs.
Yeah exactly. I think the idea of protectionism to kick start the economy probably worked a lot better in the 20th century. In a reasonable space of time you could clone a lot of the products you need and then start exporting.
Take cloning a 1970s car vs an electric one from 2021. While not trivial, I feel if you can make, stamp and weld steel you are half way there for the 1970s. For an electric car you need an enormous supply chain of batteries, microelectronics and all kinds of safety features, etc etc. It's so complicated that big car makers now basically just have one platform of car they base dozens of models off.
However, it's not all bad. China's one child policy is really going to start biting them over the next 10-20 years (and even though they've reduced it now it's hard to see the mindset ever changing) and there will be an enormous demand for cheap labour, which I expect Africa to provide.
It can work for things with high capital costs where the tariffs are used to keep the plant at full utilisation which is kind of what S Korea did and the US might do with a chip fab partly for strategic reasons.
Things are even more problematic than tariffs keeping the people poor.
Developing countries do not have hugely diverse domestic industries with top of the line offerings. How can one create a successful business if every niche or high quality product you have around costs a lot more for you than for your compettitiors in developed countries?
Is the difference between developing and developed countries really the lack of tariffs or is it due to poor governance? I feel like the reason why countries are always so pro-tariff is because the benefits of tariffs go towards a small group of people, whereas the cost of tariffs are diffused. But small costs add-up and if you start applying the tariffs to other industries then you start seeing the impacts in the cost of goods.
What are the examples where protecting a country from exports for a few decades then opening it up to competition actually produced a world-class industry? Singapore is an example of a country that has been pro free-trade and has benefited as a result.
Singapore has one of the largest petrochemical refineries in Asia by throughput. It also has a very large pharmaceutical manufacturing base. No doubt there are other industries I don’t know about.
Developing countries lack proper legal system where laws are based on property rights and market economy. That's why mentality of African people for example can not change and can not embrace capitalism.
I would suggest you to read Hernando De Soto - The Mystery Of Capital: Why Capitalism Triumphs In The West And Fails Everywhere Else
The book argues "it actually has everything to do with the legal structure of property and property rights. Every developed nation in the world at one time went through the transformation from predominantly informal, extralegal ownership to a formal, unified legal property system. In the West we've forgotten that creating this system is also what allowed people everywhere to leverage property into wealth." [1]
Once the China for instance embraced capitalism and changed their legal system to allow private property ownership and allow market economy they thrived. Plus allowing American companies to come and exploit cheap work force they acquired "know-how" by now widely known and familiar stealing of intellectual property and copying literally everything they put their hands on.
Theory is not trustworthy. Here in Iran, we have had extreme protectionist policies for decades in, e.g., cars, and all it has done is made the car factory owners rich while car quality stagnates and regresses, and prices keep rising.
I think GP argues that poor countries should be allow to have protectionism while being able export goods without tariffs.
I doubt that's the situation Iran is in.. it more like isolation. Because Iranian car manufacturers have no ability to import machines, or try to and export cars. I would imagine they aren't pushed to compete with foreign competitors.. and once sanctions disappear they will disappear with them.
If Iran wasn't sanctioned, could import machinery, and was allowed to export cars without cribbling tariffs, while it could forbid import of cars.
Then maybe car manufacturers would get good enough to compete internally. Or at least that's the theory GP is arguing, as I understand it.
Maybe, it holds up, being able to do protectionism without retaliation might be beneficial. Or maybe it would just lead to a inefficiet car industry that never manages to export anything, and is only continues to exist due to protectionism..
I don't know -- but protectionism might not be the way to create efficient industries. Or maybe it can be?
Perhaps, but Asia does pretty well. Korea, China, Taiwan, Vietnam, etc. all did amazing development in the last 30-60 years. The reality is that some cultures are better at it than others. Compare China to India for example.
They followed the policies the OP is talking about though. That's their point: you need to protect your exporting industries early on so they can develop and become efficient. Then you can protect them less as they become higher quality/more productive. All of the countries you listed did this. India has a bunch of economic problems, many of which are self inflicted.
> The reality is that some cultures are better at it than others
That's extremely lazy reductionism. You're talking about countries of wildly different sizes (Taiwan is tiny, Japan is medium-sized, China is gargantuan), starting from wildly different levels of development (Japan was developed pre-WW2, India and China were in abject poverty), with wildly different levels of homogeneity and diversity (Japan is highly homogenous, China less so, India not at all), diplomatic alignments (Japan with the US, China with the Soviets, India in the third world), resources (Japan with zero, India with quite a fair bit), availability of capital (Japan, Taiwan and South Korea with quite a fair bit, India with very little, don't know about China), political systems (government-managed free market in Japan, autocracy transitioning to a democracy in Taiwan and S Korea, socialism in India, full communism until 1980s-1990s in China).
So Saudi Arabia, UAE, Canada and Saudi Arabia are 'stuck' selling natural resources?
I think it's probably a much better plant to extract a good deal of wealth from the natural resource and invest it in other areas of higher value creation, even in the same vertical.
There's a good chance that Ghana's policies are needlessly constrained.
More obviously there are 100 things Ghana could do to improve living conditions in more obvious areas i.e. corruption etc..
Consider the immediate situation:
Ghana's exporters have just been banned from exporting. They are going to go out of business very soon.
Ghana doesn't have all of the layers of industry necessary to support development and export of products i.e. there are no market buyers at any reasonable price.
Result: collapse of the industry - unless somehow the Government of Ghana can artificially inflate prices and keep them alive for a very long time while domestic partners somehow magically are able to get off their feet.
Other points are already addressed in different comments, but to address this one:
> Ghana doesn't have all of the layers of industry necessary to support development and export of products i.e. there are no market buyers at any reasonable price.
Per the article, they literally control half of the world's cocoa. This means they get to define what "a reasonable price" is, as long as the rest of the world wants to keep its chocolate plentiful.
I'm not a politician or economist - but to me, it seems obvious the plan here is to bootstrap domestic cocoa processing industries, get the current exporters to sell cocoa to domestic producers, and export processed products (like chocolate). They're not going to just stop cultivating cocoa - being in control of half of the supply of raw materials for a highly prized product is their one big leverage on the international market.
As to not having the necessary industry base to pull it off - the question is, how fast can they build one? I'd guess a couple of years, if no foreign powers try to make it hard for them.
The last time Ghana blocked cocoa sales, the European powers responded by creating plantations in other countries to break Ghanas monopoly of the supply. Then they went a step further in researching and marketing low cocoa chocolate so their domestic population would be less reliant on cocoa.
Agricultural luxury goods are one area where it’s hard to continually push a monopoly advantage.
That said, I think that if Ghana can take the short term repercussions, then the country will come out ahead. It can become to chocolate, what France is to wine. But that would require heavy marketing in order to change people’s perception about what kind of chocolate is most delicious.
Like coffee, this seems to be the better business model. Higher quality rather than quantity.
There is a great demand for high quality cacao and high end chocolate makers have been organizing for a while to develop quality cacao production in the producing companies. While it has largely been occurring in Central and South America, I have no doubt that people are looking to reproduce this success in Africa and elsewhere, which is good for both the workers and the chocolate makers.
The sooner exploitative makers of low quality chocolate are pushed out of the industry, the better. Europe's reputation as a maker of high quality chocolate may still endure, but it is far less the case now. The state of the art has rapidly been eclipsed by smaller producers in the 21st century.
> European powers responded by creating plantations
So European companies setup plantations?
But yes, Swiss chocolate manufacturers have some options:
a) setup a processing plant in Ghana,
b) increase production somewhere else,
c) reduce usage..
The first question is: where are the main markets for chocolate? If Ghana loses access to a large percentage of the global chocolate market, controlling half the supply is as much a liability.
The second question is: Is there any reason cocoa can't be grown elsewhere, or the second biggest producer can't increase production?
There is a location/clima reason. Cocoa grows (well) only in a certain part of the world around the equator line as it requires tropical weather with regular rains and small dry seasons.
It may be possible to use artificial techniques to grow it elsewhere, but I'm assuming it's not economically viable or you get a product with worst quality in the end
Yeah, I already see other tropical-zone countries cutting down even more rain forest to make space for cocoa plantations (in addition to the rain forest they are already cutting down or burning for e.g. palm oil plantations). That's not really the desirable outcome here I think...
> Saudi Arabia, UAE, Canada and Saudi Arabia are 'stuck' selling natural resources?
Actually yes. The trend happening there is reminiscent of the spice trade. The UAE will stay afloat because of its massive externally invested wealth fund and Canada's liberal policy will keep the talent coming (although imo destroying the local population's affordability). But Saudi Arabia has a huge problem right now, since they squandered a lot of their oil wealth and are in no position to rely on immigrant growth - especially when native Saudis are not employable at all. I know for a fact that the UAE actually monitors intelligence in Saudi Arabia to make sure that a revolt or an insurgency doesn't happen there. OPEC annual meetings are literally a mercantilist exercise.
It's called the Dutch disease for a reason. When Holland discovered large natural gas deposits the entire rest of their economy became less competitive. High wages from natural resources (and oil is the worst for this because it is so valuable) raise wages in the rest of the economy. This makes your exports less competitive. It also shifts employment into the natural resources sector (due to high wages), when many of those people would maybe be better allocated elsewhere.
They only country that has been able to do what you're talking about successfully is Norway and maybe the US and Canada, which have much better institutions than anywhere in Africa and the Middle East.
> So Saudi Arabia, UAE, Canada and Saudi Arabia are 'stuck' selling natural resources?
Canada maybe not so much, but Saudi Arabia and the UAE? Yeah, and I think they understand that as well. If we have a fusion breakthrough next year, what will Saudi Arabia export besides Wahhabism?
The Saudi royal family is busy buying as much of Silicon Valley as they can, to ensure they can still live atop a mountain of cash once the oil runs out. As for the rest of the country - yeah, they are royally fucked (pun intended) since no other industry than oil was ever developed.
Or more likely, what happens when the oil wells eventually run dry? Or even, what happens in the years before, when those wells start producing less and less oil?
Maybe the government is trying to pressure Swiss companies up the value chain to move processing operations to Ghana? That seems like a reasonable way to increase income to Ghanaians and build local human capital, without having to start industry from scratch.
I don't know the fine details of how chocolate is made, but a chocolate bar seems like a fairly straightforward industrial product. Why should it be made in somewhere as high-cost as Switzerland, if not just because of operational and brand-value momentum?
>Ghana's exporters have just been banned from exporting. They are going to go out of business very soon.
I do. It isn't, necessarily. Quality is becoming much more important now and makers of high quality chocolate are growing in market share. Like coffee, there is more demand for higher quality and less exploitative business models.
There is a significant demand for high quality cacao such that producers of chocolate are helping to develop the cacao industry in producing countries to move to a higher quality,less exploitative model.
I don't know for certain, but Ghana, and other African countries, may be staking their future on this model, which has been successful in Central and South America, rather than continuing to use egregiously exploitative labor to produce low quality of cacao to sell large quantities to companies like Nestle. More and more, the money is elsewhere.
Why would the Ghanaian government be any better at economic planning than the Argentinian or Indian ones? Sometimes industrial policy “works”, as in South Korea or Japan. But we have no strong reason to believe either would have failed to develop without government help. Hong Kong didn’t need it. People talk about the successes of industrial planning a lot but Argentina and India aren’t the only countries to piss away enormous resources propping up domestic industries that vanished in a puff of smoke as soon as they stopped being protected by tariffs or non tax trade barriers.
Maybe you would want to research what Japan and South Korea have in common and what Argentina has different. Hint: it involves something that starts with U and ends with SA
SK's recovery from the war was very sluggish for a decade until a military coup, protectionist economic polices, nationalization and multi-$B US economic donations.
>Ghana's exporters have just been banned from exporting. They are going to go out of business very soon.
This is just refusing to sell to Switzerland. High end chocolate companies are very interested in developing higher quality and more equitable cacao production in other countries, as there is a shortage of high quality cacao.
I know the company I worked for has recently been buying cacao from Ghana, something that they did not previously do.
Working with these kinds of producers is probably far more beneficial than continuing to work with companies mass producing chocolate.
If the government supports the development of a chocolate production industry, including support for cocoa exporters, then it has every chance of success.
It might, and it might not. Even though Japan also makes some fine watch movements, Swiss ones command a premium over the Japanese ones. I'd assume that this would be similar for chocolate.
>> a fledgling industry in a developing country cannot compete with those of already industrialized countries
Except that often they do. With lower safety/environmental standards, lower wages, and lower expectations many "developing" countries can undercut the labor markets of developed countries, operating advanced manufacturing at far reduced costs. Many would ague that is exactly how China has risen to power.
A reliance on export of raw resources is also no telltale of a country still "developing" its economy. Canada is heavily dependent on resource extraction and export. Canada is also a former colony. But would anyone here dare say Canada is a "developing" economy?
> Canada is heavily dependent on resource extraction and export. Canada is also a former colony. But would anyone here dare say Canada is a "developing" economy?
There's a big chunk of that country that can pretty much only be used for resource extraction. It's hard/impossible to grow anything there and pretty harsh to live there.
The people of some countries are already enslaved by poverty and corruption. The pragmatic question is: will attracting outside capital improve the situation of the populace or not?
The book “How Asian Works” touched on this as well. A combination of promoting/subsidizing local industries whilst pushing them to be competitive on the global stage can do great things
> when developing countries are pressured into free trade agreements (for example by making aid dependent on this)
"forced" is probably not the right word. "baited" is better.
The developed world uses aid/loans to manipulate policy in the developed world, by targeting desperation. Make loans that the recipient cannot repay, then offer to restructure if they will comply with certain conditions.
> So much like we allow children time to learn in school before we expect them to compete in the job market, we should allow developing countries to employ protectionistic policies like tariffs, in order to protect and build up their fledgling industries nationally, before fully entering the world market in a couple decades when they are ready.
Let X be an industrialized country, and Y be the one exporting raw materials.
There are many tea plantations in Y. Companies from X own those plantations. They take the tea that is produced for some few cents, process it, put it in teabags, put the teabags in a well designed box, and then sell it across the world for a much higher value than whatever the cost of producing the plants was in Y. Most of the money goes to people in X.
Now what is we do what you say? then, companies from Y would be selling the boxed tea bags themselves. None of the money would go to X anymore. X exchanges its money for Y's tea.
In fact, X exchanges all of its money for other products from other countries as well. X now falls into a trade deficit.
South Korea must be an exception to '...a fledgling industry in a developing country cannot compete with those of already industrialized countries..'. The electronics industry in Japan and the USA was already well established before South Korea started out. China too, for that matter.
We’ve overthrown countries to protect that in the past. Developed countries honesty care little past having access to cheap goods, and any rhetoric that says otherwise needs to be proven in spades before it should be believed
It's pretty sad that Tunisia and Morocco are the only north African countries with a low corruption index (and by low I mean relative to other African countries). Considering how close they are to Europe it's a waste of a continent.
I don't think this is actually true. IF you go threw all the history of development economics, sure its easy to point out 'X government did X and look at that, now they are successful at X'.
However that is selection bias, government and international development agencies tried literally everything, many things 10 times, often over years and years. Often wasting resources that then didn't go into their successful part of the economy.
Quite often governments also do lead following, they do something, something else is successful, then more money flows into that and then a few years later all the bureaucrats congratulate themselves on their success.
We actually have pretty good and very clear numbers on what actually works. Basically it boils down to 'don't be a shit government' and if you manage that you will have some amount pretty good amount of growth. Avoid a few idioitic policies, implement the basic of law and business (property rights), don't punish successful people, don't be ultra protectionist.
Any country that manages that usually manages to get a fair amount of growth. It might not be growth in Steel industry but better more efficient framing, mining, tourism, labor intensive industry and stuff like that are still very helpful base to build up the basic infrastructure and business environment.
The old Post-WW2 version of 'lets not import steel, invest many billions in building our own steel industry' kind of plans actually have a terrible history of success.
But this debate has been raging for 3000 years now, in modern history mercantilism vs free market debate, then the socialism vs capitalism debate (calculation debate), then Post-WW2 development of 'Development economics' that had all these debates again. Look at India, and its strange 'Indian Socialism' based on many British ideas.
> So much like we allow children time to learn in school before we expect them to compete in the job market
Mostly what we are actually doing for most jobs is kids basically showing that they can be good little workers and have basic social skills.
For a country this would basically be, show that you respect basic property rights, don't have polices that make creating a business impossible, be reasonable accessible to global market. If you can do that, welcome to being adult, you will likely be reasonably successful.
> we should allow developing countries to employ protectionistic policies like tariffs
Allow them sure, who are we to deny them. But that doesn't mean its a good idea most of the time.
>To begin with, a fledgling industry in a developing country cannot compete with those of already industrialized countries
>these countries are also forced into a position where they get stuck at the low end of the production value chain, selling raw materials, while buying processed goods from others (often the same role they were forcibly assigned when they were colonies
Basically what Friedrich List [1] wrote in 1841 [2], and being proven correct time and time again while we completely disregard it.
Now you can even go further and ask yourselves if what is happening in the West by moving all the factories and manufacturing to China and neighbouring countries isn't exactly like the Colonization of the Americas by the British.
It wasn't luck that made the USA Great. It was the best stock from Europe who come up with the American School [3], and we can now see the tragic consequences of abandoning it for "free" trade.
If a country imports manufactured goods and exports raw materials, it is a colony.
Lot's of people said the same about the USA becoming economically independent of the all powerful British Empire. And yet the USA did it.
Alexander Hamilton's influence goes way beyond inspiring a ridiculous musical for an attempt to capture that historical personality and distort his positions so nobody would read his writings.
There is a vast difference between not being possible, and the interlopers we call "the elites" not wanting to do it because they have other interests that don't overlap with the Nation's interests.
It sounds like reinventing the wheel. Why not import the knowledge, rather than develop it again from scratch? Maybe you can imagine it could work with chocolate, but take something more complicated like cars, computers or phones.
It seems absurd to demand non-industrialized countries should develop all those things by themselves, while developed nations stand by. At the very least it would take decades, while people in the developing country remain poor.
Also, I take issue with the formulation "when developing countries are pressured into free trade agreements" - it is still simply a trade, "withholding aid" is not different from a sum of money offered in a trade. "pressured into it" is leftist propaganda.
>It sounds like reinventing the wheel. Why not import the knowledge, rather than develop it again from scratch?
This is why you should let foreign investors into your country. If Switzerland would build chocolate factories in Ghana everyone would be happy and in 30 years non Swiss chocolate industry would grow organically until the Swiss companies can no longer compete.
That's a complete nonsense on how things work in reality. The biggest problem for Africa is that MARKET of anything that they are selling is in Europe and US. They can demand anything they want(which is simple racket and anyone despises these things in business), and it all will simply end with some startup in Cali who will start to grow cocoa beans in vertical farms or some other African country will become cocoa exporter Nr1 in the world.
ANY developing European country in history started with offering raw materials and very quickly invested into manufacturing and producing good quality products. There are no obstacles for Ghana to do the same. At the moment you can see some poor European countries with industry and skilled workforce and they all have poor results because of corruption. Something tells me, that it will be the same for Ghana.
Demanding a greater % of the final value of a good is a racket?
And you really think that Ghana's cocoa superiority will be upended by some American startup? That's laughable, and certainly not enough of a credible threat to keep Ghana under the boot of economic imperialism.
Ghana has superiority regarding quantity, however historically the quality has been low. This is changing due to US startups cooperating with growers in Ghana and elsewhere to improve the quality, as well as use less exploitative labor, as there is a lack of quality fair trade cacao.
This doesn't really reflect the reality of the cacao market or the chocolate making industry, which is rapidly changing.
Countries like Ghana used to be held over a barrel regarding price. They produce low quality cacao usng extremely exploited labor to provide mass quantities to multinationals making low quality chocolate,like Nestle, Dove, Ghiardelli, etc.
Lately there is a lack of high quality, "fair trade" cacao for the growing high quality chocolate industry, which has taken to helping growers develop to be able to provide what they need. Not good news for the low quality producers, which, broadly speaking, are in Europe, which has been resting on its laurels and reputation while the state of the art has rapidly been improved by small, but growing companies.
I don't know for certain but this may be part of the reason Ghana is refusing to sell to Switzerland. I do know that the company I worked for recently began buying cacao from Ghana. And that is certainly partly due to the quality increasing significantly.
