H/T to Roger Henry for the link.
October 15, 2014
October 11, 2014
We are the heirs of the Industrial Revolution, and, of course, the Industrial Revolution was all about economies of scale. Its efficiencies and advances were made possible by banding people together in larger and larger amalgamations, and we invented all sorts of institutions — from corporations to municipal governments — to do just that.
This process continues to this day. In its heyday, General Motors employed about 500,000 people; Wal-Mart employs more than twice that now. We continue to urbanize, depopulating the Great Plains and repopulating downtowns. Our most successful industry — the technology company — is driven by unprecedented economies of scale that allow a handful of programmers to make squintillions selling some software applications to half the world’s population.
This has left us, I think, with a cultural tendency to assume that everything is subject to economies of scale. You find this as much on the left as the right, about everything from government programs to corporations. People just take it as naturally given that making a company or an institution or a program bigger will drive cost efficiencies that allow them to get bigger still.
Of course, this often is the case. Facebook is better off with 2 billion customers than 1 billion, and a program that provides health insurance to everyone over the age of 65 has lower per-user overhead than a program that provides health insurance to 200 homeless drug users in Atlanta. I’m not trying to suggest that economies of scale don’t exist, only that not every successful model enjoys them. In fact, many successful models enjoy diseconomies of scale: After a certain point, the bigger you get, the worse you do.
Megan McArdle, “In-N-Out Doesn’t Want to Be McDonald’s”, Bloomberg View, 2014-10-02.
October 8, 2014
I don’t know how I missed this when it was published last week…
All right, boys and girls, it’s time to have some real talk about efficiency wages.
I know, you’re older now. You’re starting to notice things that you never noticed before. Like the differences between Costco and Wal-Mart, differences that suddenly seem so … intriguing. Exciting. You suddenly want to explore those feelings, maybe post a few GIFs to Facebook. You hear other kids talking, and suddenly you wonder about this whole new world of labor relations that you never even knew existed.
I want you to know that what you’re feeling is completely normal. Efficiency wages — that’s the scientific term, and we’re going to use scientific terms, not that dirty talk about scabs and exploiters that you hear in the locker room — are very exciting. It’s only natural that you want to explore. Now, stop tittering. I said “explore,” not “exploit.”
But you need to explore safely. You can’t just plunge straight into advocating a $15-an-hour minimum wage; you need to know all the facts so you can make sound, educated decisions about your labor-policy activism. So let’s talk about efficiency wages and how they work.
When an employer loves his workers … OK, never mind. Straight to the real talk.
As they used to say, “read the whole thing“.
September 28, 2014
At The Diplomat, Mohamed Zeeshan talks about India’s self-imposed disadvantages in manufacturing both for domestic and export consumption:
Indian Prime Minister Narendra Modi’s maiden Independence Day speech was laced with inspiring rhetoric. But of the many things he said, the one slogan that inevitably caught public attention was this: “Come, make in India!” With those words, Modi was trying to make the case for turning India into the world’s next great manufacturing hub. Understandably, the Indian populace was thrilled.
India is one of the world’s ten largest economies (and is third largest on a purchasing power parity basis), with a total annual output of nearly $2 trillion. As much as 57 percent of this output is produced by a service sector that employs just 28 percent of the population, largely concentrated in urban parts of the country. That is no surprise, because most Indians lack the skills and education to join the more knowledge-intensive service sector. What they need is what successful developing nations all over the world have had ever since the Industrial Revolution: a robust and productive manufacturing sector.
Yet India’s manufacturing sector contributes just 16 percent to the total GDP pie (China’s, by contrast, accounts for almost half of its total economic output). Victor Mallet, writing in the McKinsey book Reimagining India, recently offered an anecdote that was illuminating. “One of India’s largest carmakers recently boasted that it was selling more vehicles than ever and that it was hiring an extra eight hundred workers for its factory,” he wrote, “But the plant employing those workers belongs to the Jaguar Land Rover subsidiary of Tata Motors and is in the English Midlands, not in job-hungry India.”
Mallet goes on to make a point that has been made frequently by Indian economists: The world doesn’t want to “make in India,” because it is simply too painful. There’s bureaucratic red tape, a difficult land acquisition act, troublesome environmental legislation, a shortage of electricity, and a lack of water resources. The only thing India doesn’t seem to lack is labor, but that merely adds to the problem. As Mallet points out in the same essay, aptly titled “Demographic dividend – or disaster?”, “India’s population grew by 181 million in the decade to 2011 – and (despite falling fertility rates) a rise of nearly 50% in the total number of inhabitants is unavoidable.” But the number of jobs being added to feed that population is inadequate.
However, the labor dividend is still important. India doesn’t need to reduce the number of hands on deck. It needs to weed out the challenges that stop them from being productive.
July 5, 2014
May 26, 2014
These spectacular symptoms of dysfunctionality might appear to support the view that the Austro-Hungarian Empire was a moribund polity whose disappearance from the political map was merely a matter of time: an argument deployed by hostile contemporaries to suggest that the empire’s efforts to defend its integrity during the last years before the outbreak of war were in some sense illegitimate. In reality, the roots of Austria-Hungary’s political turbulence went less deep than appearances suggested. [...]
The Habsburg lands passed during the last pre-war decade through a phase of strong economic growth with a corresponding rise in general prosperity — an important point of contrast with the contemporary Ottoman Empire, but also with another classic collapsing polity, the Soviet Union of the 1980s. Free markets and competition across the empire’s vast customs union stimulated technical progress and the introduction of new products. The sheer size and diversity of the double monarchy meant that new industrial plants benefited from sophisticated networks of cooperating industries underpinned by an effective transport infrastructure and a high-quality service and support sector. The salutary economic effects were particularly evident in the Kingdom of Hungary. In the 1840s. Hungary really had been the larder of the Austrian Empire — 90 per cent of its exports to Austria consisted of agricultural products. But by the years 1909-13, Hungarian industrial exports had risen to 44 per cent, while the constantly growing demand for cheap foodstuffs of the Austro-Bohemian industrial region ensured the Hungarian agricultural sector survived in the best of health, protected by the Habsburg common market from Romanian, Russian and American competition. For the monarchy as a whole, most economic historians agree that the period 1887-1913 saw an ‘industrial revolution’, or a take-off into self-sustaining growth, with the usual indices of expansion: pig-iron consumption increased fourfold between 1881 and 1911, railroad coverage did the same between 1870 and 1900 and infant mortality decreased, while elementary schooling figures surpassed those in Germany, France, Italy and Russia. In the last years before the war, Austria-Hungary and Hungary in particular (with an average annual growth of 4.8 per cent) was one of the fastest growing economies in Europe.
Christopher Clark, The Sleepwalkers: How Europe Went To War In 1914, 2012.
March 3, 2014
Published on 19 Feb 2011
The Phillips Brothers all Steam Powered Box Factory, founded in 1897, is family owned and operated and listed in the National Register of Historic places. This mill is believed to be the last fully operational all steam powered mill in America.
H/T to Roger Henry for the link.
February 10, 2014
At Ace of Spades HQ, Monty gives an introduction to Say’s Law:
Jean-Baptiste Say, an 18th-century economist and follower of Adam Smith, recognized one of the most fundamental laws in all economics: the entirely common-sense observation that consumption requires production. This axiom is called Say’s Law of Markets.
However, this axiom is often mis-stated as “production creates its own demand”. This is incorrect — production is necessary for consumption to take place, but production anticipates demand, it does not cause it. Production is speculative in this sense. The simple act of producing some good or service does not, in and of itself, create demand for that good or service. (This is true even for basic commodities.)
What Say’s Law really says is that production is the source of wealth. Market-driven production creates value and provides choice to consumers. Inventors and innovators bring new products to market, and as consumers are exposed to these new products, demand rises with the utility or desirability of these new products. New markets are opened by innovators who are able to tap into needs and wants that consumers didn’t even know they had until a new product or service is offered.
And he explains why money is not wealth:
So what is “wealth”, really? (I could write a whole book on the difference between “wealth” and “money”, but I’ll try to boil it down.) Wealth is options. Wealth is choice. Wealth is variety. Wealth is agency — being able to do what you want to do when you want to do it. Wealth is surfeit — having more than the essentials of life. It is comfort, leisure, ease — or at least the agency and option (those words again) to avail oneself of leisure. Simply put, wealth is stored value that can be drawn down in various ways, only some of which involve the exchange of money for goods and services. And how is wealth created? Through production, because production must necessarily precede consumption.
Money correlates with wealth because money is a medium of exchange and a store of value. Rich people have a lot of money because they are wealthy, not the other way around. Wealth allows us to buy a bigger house or better car or nicer furniture. It pays for a nice dinner for two at an upscale restaurant. Note well: wealth buys these things, not money per se. Consumption is the draw-down of wealth, not the simple expenditure of money.
Money is the oil in the machine of an economy, but money is not in and of itself wealth. If I am stranded on a desert island with a thousand gold coins, I am just as poor as if I were a homeless vagrant living in an alleyway somewhere, because I cannot exchange my gold for things I want or need. It does not give me options or variety or comfort. My gold facilitates neither production nor consumption absent a market mechanism that makes use of it.
February 5, 2014
An interesting post by Frank Maas at the LCMSDS website looks at the story of the Canadian army’s attempts during the 1980s to get modern armoured vehicles for infantry support and battlefield mobility:
The Militia, the traditional mobilization base for the Canadian army, withered during the Cold War. Its ranks were flushed with Second World War veterans in the 1950s and there was money for new tanks and vehicles, but morale declined as the Militia’s role became civil defence in the late 1950s, and it languished in the 1960s and 1970s as defence budgets shrank. The Militia reached a nadir of 15,000 by the late 1970s, but ironically, there was a false dawn at the end of the Cold War. In the 1987 Defence White Paper, Challenge and Commitment, the Mulroney government announced that the strength of the Reserves would skyrocket to 90,000, and would complement Regular units and allow Canada to better meet commitments to NATO and continental defence. This increase in strength would be complemented by a package of improvements to bases and new equipment purchases. One of these was for a purchase of 200 armoured personnel carriers, and here the story begins.
Back then, Colonel Romeo Dallaire was head of the army’s department for assessing armoured vehicles. Dallaire was intent on purchasing the venerable and ubiquitous M113, which first entered service in the 1960s, and is one of the most numerous armoured vehicles in the world. (The Canadian army had purchased more than 900 in the 1960s, and fielded up-armoured M113s in Afghanistan). The original plan was to buy 200 M113s from the American manufacturer and have some components licence-built in Canada to fulfill requirements for Canadian content.
At the same time, however, Canada’s only manufacturer of armoured vehicles, Diesel Division General Motors (DDGM), in London Ontario, was nearly out of work. It was approaching completion of a United States Marine Corps order for 758 vehicles, and although some sales to Saudi Arabia were on the horizon for the early 1990s, the company was facing a year with empty production lines. Some salesmen and engineers at DDGM began to think they could scoop up the contract for two hundred APCs by substituting their vehicle, the Piranha Light Armoured Vehicle (LAV), and bridge the gap between the contracts.
There were some significant differences between the Piranha LAV and the M113 that would complicate DDGM’s plan. First, the LAV was wheeled, and the M113 was tracked. Wheeled vehicles were easier to maintain, but tracked vehicles had better off-road mobility. Second, the sides of the LAV’s troop compartment sloped sharply inward, which improved ballistic protection, but reduced internal space. Finally, the LAV had doors at the back for soldiers to deploy from, while the M113 had a ramp which made it much easier for soldiers to run out of the back of the vehicle. DDGM’s engineers could not do much about putting tracks on the LAV-25, although a wheeled vehicle would be better-suited for service with the Reserves because it would be cheaper to operate and soldiers could drive it on roads. (There are prohibitions against driving tracked vehicles on roads). DDGM could reconfigure its vehicle to look more like a M113 from the back to convince the army to accept the LAV-25 as a substitute, but this would require a significant reconfiguration of the vehicle.
Back in the late 1970s, my militia unit got some familiarization training with the then-new Grizzly AVGP, which was based on an earlier model than the LAV. While it was neat to be given the chance to try working with (and in) new equipment, we found that getting in and out of the back of the vehicle was awkward and much slower than we (well, actually our NCOs) had hoped. Practicing a dismount with a full infantry section on board was … less than tactically brilliant. The small doors tended to snag any of our equipment as we squeezed through, so you had to move more slowly to get through successfully.
Here’s a look at the rear of the Cougar AVGP from the same vehicle family as the Grizzly:
November 29, 2013
A growing concern for companies that deal with Chinese businesses is when safety is compromised and (as in this case) required safety certifications are falsified:
Railway workers have been exposed to potentially hazardous asbestos after the deadly dust was found in locomotives brought in from China.
The breach of a 10-year ban on the import of products containing the carcinogenic fibre is not the first incident of its kind.
Unions are now demanding tougher policing of Chinese imports, describing the current asbestos-free certificates as a farce.
Last year freight carrier SCT imported 10 locomotives made by China Southern Rail (CSR) to tow iron ore bound for China to port.
To comply with the decade-old Australian ban on asbestos imports, they were certified asbestos-free. However, this was not the case.
National secretary of the Rail, Tram and Bus Union Bob Nanva says maintenance workers raised concerns about the dust.
“We had our maintenance workers repairing a number of diesel engines,” he said.
“They identified a lot of white dust among those engines and asked the question as to whether or not that dust was safe.”
The workers’ concerns were justified. White asbestos — or chrysotile — was found throughout the locomotives, in insulation around the exhaust and muffler system, around coolant pipes and in the brake exhaust section near the roof of the driver’s cabin.
This is not the first time China has broken the Australian ban on asbestos.
Last year more than 25,000 Chinese-made Great Wall, Chery and Geely cars were recalled after asbestos was discovered in their engine gaskets and brakes.
In decades to come experts expect hundreds of thousands of Chinese casualties from asbestos.
A 1980s film by Szechuan University smuggled out from China shows the tragic story of China’s own Wittenoom — at Dayao, in the province of Yunnan — where asbestos exposures had led to the fatal cancer — mesothelioma.
Back in Australia, it was the same type of blue asbestos, from the Wittenoom mine, that lined Melbourne’s blue Harris trains, potentially poisoning passengers when the walls were broken.
So dangerous were the trains they were sealed in plastic and buried in quicksand at a quarry in Clayton.
Blue asbestos, which is more likely to cause the cancer mesothelioma, is now banned in both countries — but China is now the world’s largest user of white asbestos, which Perth’s asbestos expert Professor Bill Musk warns still causes cancer.
H/T to Craig Zeni for the link.
November 7, 2013
Wendy McElroy talks about the plight of poor children in the early days of the industrial revolution in Britain:
Parish workhouses existed in Britain long before the Industrial Revolution. In 1601, the Poor Relief Act paved the way for parish officials to collect property taxes to provide for the “deserving poor.” In 1723, the Workhouse Test Act was passed to prevent false claims of poverty. Any able-bodied person who wished to receive poor relief was expected to enter a workhouse; its harsh conditions would presumably act as a deterrent. About the same time as the Industrial Revolution (circa 1760-1840), attitudes toward the poor underwent their own revolution. The Napoleonic Wars (1803-1815) not only bled Britain of money; they also created a flood of injured and unemployable men who returned from battle. Those men had families who were plunged into poverty. Between 1795 and 1815 the tab for Britain’s poor relief quadrupled. Meanwhile, the cost of mere subsistence soared because of political machinations such as the Corn Laws, a series of trade laws that artificially preserved the high price of grains produced by British agriculture. Many people could not afford a slice of bread.
But sympathy for the poor was in short supply. Historian Gertrude Himmelfarb’s definitive book The Idea of Poverty chronicles the shift in attitude toward the poor during that period; it turned from compassion to condemnation. An 1832 government report basically divided the poor into two categories: the lazy who sucked up other people’s money and the industrious working poor who were self-supporting. The Poor Law Amendment Act of 1834 instructed parishes to establish “Poor Law Unions” with each union administering a workhouse that continued to act as a deterrent by ‘virtue’ of its miserable conditions. Correctly or not, statesman Benjamin Disraeli called the act an announcement that “poverty is a crime.”
Pauper children were virtually imprisoned in workhouses. And nearly every parish in Britain had a “stockpile” of abandoned workhouse children who were virtually sold to factories. Unlike parents, bureaucrats did not view poor children as loved or otherwise valuable human beings. They were interchangeable units whose presence was a glut on the market because there would always be another poor child born tomorrow. Private businessmen who shook hands with government did not have clean fingers, either. Factory owners could not force free-labor children to take dangerous, wretched jobs but workhouse children had no choice and so they experienced the deepest horrors of child labor. The horror was not because of the free market or capitalism; those forces, along with the family, were among the protectors of children. Child laborers were victims of government, bureaucracy and businessmen who used the law unscrupulously.
August 26, 2013
In a discussion of the plight of Sears in the major appliance market, Coyote Blog mentions an earlier Sears mis-step in a different market:
Oddly, I witnessed a similar Sears private label fracas when I worked for Emerson Electric over a decade ago. For years and years, Emerson (not the folks who make the cheap radios and TVs) manufactured many of the Sears Craftsman hand tools and power tools. Sears got tough one year, and negotiated a better deal of some sort with someone else, and an entire division of Emerson saw its sales basically going to zero. So Emerson bought a bunch of orange paint and plastic, went to Home Depot, and cut a deal for a private label tool line at Home Depot (Emerson separately owns the Rigid tool company, so a lot of the items were branded Rigid). Emerson ended up in potentially better shape (I did not stay long enough to see how it turned out), partnered with a growing rather than a declining franchise.
August 22, 2013
Whenever I hear a politician or pundit talk about a modern economy like they understand it well enough to run it, I want to burst out laughing, or cry, or both. If you can’t even keep pictures of your dick off the Intertunnel during an election cycle, I imagine being Emperor of the Economic and Social Universe is probably well above your abilities. Politicians have to take tours of factories because to them, everything and everybody in a factory might as well be alchemy performed by men from Jupiter.
“Sippican Cottage”, “Mene, Mene, Tekel, Upharsin” Sippican Cottage, 2013-08-21.
July 27, 2013
The South China Morning Post on the economic troubles of the provincial, municipal and local authorities in Jiangsu:
The nightmare scenario for China’s leaders as they try to wean the country off a diet of easy credit and breakneck expansion is a local government buckling under the weight of its own debt. Few provinces fit that bill quite like Jiangsu, home to China’s most indebted local government.
Hefty borrowings through banks, investment trusts and the bond market by Jiangsu’s provincial, city and county governments have saddled the province north of Shanghai with debt far higher than its peers, public records show.
Many of the province’s mainstay industries, including shipbuilding and the manufacturer of solar panels, are drowning in overcapacity. Profits are dwindling, and the government’s tax growth is braking hard.
Little public information is available on the total debt of Chinese local governments. Indeed, earlier this month China’s Vice-Finance Minister Zhu Guangyao said Beijing did not know the precise level of their debts either.
But from what ratings agencies and think-tanks can piece together, Jiangsu may be the standout debt risk among China’s 31 provinces.
Looking at bank loan books, they can see that China’s eastern provinces including Jiangsu have the highest concentration of government debt. Jiangsu then looms large because of its reliance on costlier and alternative forms of financing, which they said suggested that cheaper bank loans and land sales are not giving the authorities the funding they need.
The risk that Jiangsu might pose to the Chinese economy in a crisis is clear. On its own, the province would be a top 20 global economy with GDP greater than G20 member Turkey. Its 79 million population tops that of most European countries.
July 17, 2013
While my childhood toys revolved more around Airfix 1/72nd scale soldiers and Lego blocks (to provide the necessary terrain for the soldiers to fight over), I had a modest collection of Matchbox cars. After reading this article, I realize that if I’d only had the foresight to keep them in their original packaging and never actually playing with them I’d have the core of an expensive collection on my hands (I’d also have completely missed the whole notion of “fun”, but that’s a separate issue):
The concept of these tiny die-cast models was the response of a father, Jack Odell, to a rule at his daughter’s school stating that pupils were only allowed to bring in toys that would fit inside a matchbox. Odell, a school dropout who later joined the Royal Army Service Corps, was by this time working for a die-casting company, Lesney Products (itself set up by two British ex-servicemen, Leslie Smith and Rodney Smith in 1947). Working out of a bombed-out Tottenham pub called The Rifleman, Lesney spent the early Fifties moving away from producing small products for industrial use towards making die-cast toys. Believing this direction to be a lost cause, Rodney Smith quit the company in 1951, leaving it in the hands of Leslie Smith and Odell, who was by then a partner.
A year later Odell had his brainwave, creating a scaled-down version of an existing Lesney toy, the model road roller, packaging it in a matchbox and sending it with his daughter to school. It was an instant hit: with his little toys, Odell was on to something big.
Matchbox, along with Corgi and Dinky, turned Britain into the dominant force in die-cast models. In the Sixties, Lesney would become the fourth largest toy company in Europe, with 14 factories in and around London producing more than 250,000 models a week. By the end of the decade Matchbox was the biggest-selling brand of small die-cast models in the world.
To date, there have been more than 12,000 individual model lines, and total production exceeds three billion. If placed bumper-to-bumper they would circle the Earth more than six times — assuming they could be prized from the possessive fingers of their owners.
H/T to Blazing Cat Fur for the link.