Thomas Palley: Jack Welch’s Barge: The New Economics of Trade

Thomas Palley sends along his latest:

Jack Welch’s Barge: The New Economics of Trade, by Thomas I. Palley: The classical theory of comparative advantage has driven US trade policy for the past fifty years. That policy, in combination with technical innovations that have lowered costs of transportation and communication, has opened the global economy. Yet paradoxically, this opening has rendered classical trade theory obsolete. That in turn has left the US economically vulnerable because its trade policy remains stuck in the past and based on ideas that no longer hold.

The logic behind classical free trade is that all can benefit when countries specialize in producing those things in which they have comparative advantage. The necessary requirement is that the means of production (capital and technology) are internationally immobile and stuck in each country. That is what globalization has undone.

Several years ago Jack Welch, former CEO of General Electric, captured the new reality when he talked of ideally having “every plant you own on a barge”. The economic logic was that factories should float between countries to take advantage of lowest costs, be they due to under-valued exchange rates, low taxes, subsidies, or a surfeit of cheap labor. Globalization has made Welch’s barge a reality. However, in doing so it has made capital mobility rather than country comparative advantage the engine of trade. And with that change, “free trade” increasingly trades jobs and promotes downward wage equalization.

The U.S. and European response to Welch’s barge has been competitiveness policy that advocates measures such as increased education spending to improve skills; lower corporate tax rates; and investment and R&D incentives. The thinking is increased competitiveness can make Europe and the US more attractive to businesses.

Unfortunately, competitiveness policy is not up to the task of anchoring the barge, and it can even be counter-productive. The core problem is corporations are globally mobile. Thus, government can subsidize R&D spending, but the resulting innovations may simply end up in new offshore factories. Moreover, competitiveness policy easily degenerates into a race to the bottom. For instance, if the US cuts corporation taxes, other countries may match to stay competitive. The result is no gain for the US, while profit taxes are lowered and tax burdens shifted on to wages, which widens income inequality.

Worse yet, capital mobility prompts countries to adopt unfair policies to increase their relative business attractiveness. These policies include disregard of environmental damage; suppression of labor to keep wages low; direct subsidies; and under-valued exchange rates. All are visible in China, which is the poster-child for such abuses.

A critical consequence of Welch’s barge is the creation of a “corporation versus country” divide. Previously, when corporations were nationally based, profit maximization by business contributed to national economic success by ensuring efficient resource use. Today, corporations still maximize profits, but they do so from the standpoint of their global operations. Consequently, what is good for corporations may not be good for country.

When companies raise profits by rearranging production according to global cost patterns, those shifts can lower country income. For instance, when Boeing transfers production to China, the US loses high value adding jobs and national income can fall. Moreover, though Boeing makes larger short-run profits on its Chinese production, even it may lose in the long run if it inadvertently creates a rival Chinese aircraft producer.

From an American worker perspective, the global economy has always had abundant supplies of cheap labor. In the past American workers were still able to compete and benefit from trade. The critical difference today is American corporations are taking their capital and technology offshore and equipping low-wage foreign workers. Those investments undermine American workers because that foreign production is intended for the US market.

The emergence of barge-like corporations has reduced the scope for effective competitiveness policy, increased the temptations for unfair policy, and created a wedge between corporate and national interests. This poses two critical policy challenges. First, there is need for rules against unfair competition, which is where exchange rate rules and labor and environment standards enter.

Second, there is need to close the wedge between corporation and country. In the U.S. that calls for such measures as ending preferential tax treatment of profits earned offshore; making it illegal for corporations to reincorporate outside the US to escape US tax laws; and new tax arrangements that encourage jobs and value creation within the US.

Addressing globalization’s challenges poses enormous analytical difficulties. Unfair competition must be prevented and companies re-anchored. But this must be done without losing the benefits of real trade based on comparative advantage or ending investment that fosters development.

These economic challenges are compounded by political difficulties. In Washington, elite policy thinking is funded and lobbied for by corporations. Consequently, corporations control trade policy at a time when corporate interests differ from the national interest. That is also increasingly true in Brussels. Fifty years ago what was good for GM may really have been good for the US. With Jack Welch’s barge, that may no longer hold.

I tend to see more benefits from trade than Thomas, so I can't help noting that while capital mobility may reduce the benefits from comparative advantage, specialization, and trade, it does not necessarily eliminate all benefits since capital immobility is only one of the channels through which comparative advantage can operate.

Comments

[Farrar Richardson]

I haven't seen anyone who blogs more clearly and convincingly on these problems, at least for us non-economists.

@mark
thanks for the wikipedia link, but it wasn't very convincing.

[mark]

Classical economics assumed the unit of account would be the same in all trading regions. That's not the case with the dollar being the reserve currency.

I wonder how long it's going to take economist to notice that there will always be a balance of payments deficit and private citizens of creditor nations won't exchange their dollars back for their local currency.

I think it will be about the time these economist retire and notice that many people in their new retirement villa or local Shop Rite don't speak english.

[calmo]

And making those "barges" an inappropriate metaphor (or am I missing the barges that come back from China loaded with corporate capital?) is fx, no?
But appreciate this sketch of the transnational character of the MSM (possibly also transnational?) view of Multinational Corporations.
Listening to GM executives (GM, like the rest of the trans nationals, exploiting the rnmbi/dollar) explain Toyota's unfair advantage by citing the yen/dollar is like Paulson visiting China jawboning them on modernizing their banking system. Transparent?
Yes, transparent hypocrisy.

[Barry]

Mark: "I think it will be about the time these economist retire and notice that many people in their new retirement villa or local Shop Rite don't speak english."

No, they'll notice it the day that they're turfed out of their tenured positions into the actual job market.

And when they're earning 50% of what they did earn, they'll see some right-wing tool talking about how it's proof that they were stealing that additional 50%.

[baileyman]

Where does Ricardo calculate comparative externalities?

[johnchx]

Thomas Palley writes:The logic behind classical free trade is that all can benefit when countries specialize in producing those things in which they have comparative advantage. The necessary requirement is that the means of production (capital and technology) are internationally immobile and stuck in each country. That is what globalization has undone.

Oh, this again. Let's turn the mike over to the ghost of Paul Krugman past, speaking to us from 1998, in a review of John Gray's False Dawn:Gray's economic analysis is as garbled as you might expect. He attacks the supposed naivete of conventional economic theory, but cannot be bothered to get straight what that theory actually says. Thus he declares at one point that in theory and practice the effect of global capital mobility is to nullify the Ricardian doctrine of comparative advantage. Yet it is on that flimsy reed that the edifice of unregulated global free trade still stands. I don't know who told him the urban legend that capital mobility undermines the case for free trade, but one might have expected him to glance at an actual textbook, where he would have found a passage something like this (from my own sophomore-level text): 'Both international borrowing and lending and international labor movement can be thought of as analogous in their causes and effects to the movements of goods ... So when we turn from trade in goods and services to factor movements we do not make a radical shift in emphasis.' It's true that the simplest model of the benefits from international trade, the one David Ricardo introduced 180 years ago, assumes no capital mobility; but any economist could have told him that the simplification is not essential to the principle.

There are plenty of interesting policy and theoretical issues connected with international trade. There really isn't any need to keep ourselves occupied with endless repetition of long-debunked fallacies and factual errors.

It's like talking with Republicans about taxes...sooner or later it emerges that they simply can't get over the peculiar conceit that lowering tax rates (from, say, 1999 levels) raises tax revenues. The conversation begins to seem kinda pointless.

[Bruce Wilder]

Palley's argument is one, which grips thinking about trade -- free or otherwise -- altogether too tightly. The Heckscher-Ohlin model does not fit the data on trade in manufactured goods or many services well -- for example, you really have to torture it to "explain" vast intra-industry exchange (countries export and import products in the same categories, no matter how narrowly the categories are defined).

Increasing returns and external economies are recognized as critical factors by economists doing formal studies, but these factors are not frequently enough introduced to popular, political discussions. Great "export" engines like Hollywood, Silicon Valley, Boston's medical and educational complex, or New York's financial center are too seldom held up as more realistic models than Ricardo's England and Portugal.

When people think of China's great growth of manufacturing, people think in terms of Palley's Welch barges: they imagine factories on barges, attracted by incredibly low wages. It is an image that misses important, qualifying details, that illuminate factors, which ought to be leveraged by any liberal trade or competitiveness policy. Heckscher-Ohlin models rule the day, it seems, abundant Chinese labor makes for low wages, attracting mobile capital, etc. Except that, in a strict Heckscher-Ohlin model, shouldn't China be specializing in accord with its abundant labor/scarce capital endowments? Why is China bending the global financial fabric to what ought to be its manifest disadvantage, in order to depress the value of its own currency? Why is China pouring vast sums into high-capital-intensity manufacturing?

People, who actually invest in manufacturing in China, are often dismissive about the labor cost factor, because the capital and sunk-cost intensity of modern manufacturing often makes even large labor cost differences trivial. If a retail $1000 washing machine contains less than an hour of direct labor input, the labor savings associated with producing in China instead of Michigan are wiped out by the cost of transportation. That increasing returns means that a major manufacturer will have only a handful of washing machine plants worldwide -- there won't be a plant in Michigan AND a plant in China producing the same model, even though they are on opposite sides of the globe -- is often unconsidered. And, China's infrastructure and institutional weaknesses can impose many costs. Factories are not moving on barges; factories become obsolete and the new ones are far more sunk-cost-intensive -- generational change in manufacturing technologies figure in the dynamics.

I wish we could loosen the grip neo-protectionist thinking has on the debate -- and that's where the metaphor of Welch barges leads, I think. I wish people could see the strategic potential of strengthening infrastructure, as well as institutions.

Political ideology interferes with the ability of people to see, for example, that strong regulation enhances the prospects for high-value-added, high-wage industry. The FAA/NTSB is an important reason the U.S. dominates aircraft manufacture as well as as airline management services. The FDA is an important reason that the U.S. Pharma leads the world. The SEC helps to make New York a financial capital.

I was once an expert on the auto industry and trade. The whining about retiree health care costs is a lot of crap, really -- GM did not plan to shrink, and it should have. But, if I wanted to do one thing to enhance the competitiveness of U.S. auto manufacturing, I would initiate a system of mandatory automobile safety and environmental inspections -- inspect every car on the road once every three years for operating condition and appearance and current maintenance requirements and report publicly and in detail on the results. That is the single most effective policy intervention the government could make to enhance productivity and competitiveness for American auto producers. Yet, that kind of policy intervention is not even under discussion; and libertarian fools in economics departments would ridicule it and ask, "where is the market failure?" I am not suggesting a focus on at-the-border inspection for safety/health/labor problems with imported goods; I am saying that industrial productivity is about control and feedback, and enhancing feedback, institutionally, is likely to be effective in enhancing productivity. Information is an incentive.

The U.S. could make important interventions in infrastructure, as part of an effective industrial competitiveness policy. The U.S. is falling steadily behind in internet connectivity. How stupid is that? At the other end of the historic spectrum, the U.S. railroad system sucks -- with an absolutely terrible record for safety and on-time delivery that adversely affects manufacturing competitiveness. The weakness of both railroads and internet contributes to the excessive concentration of economic opportunity in a few coastal, airport-centered urban areas. Again, are we talking about that? Instead, we seem to be stumbling toward rescuing rural America with expensive, strip-mine-the-soil corn.

I'm stopping the rant now. Sorry.

[Holly W.]

In the U.S. that [closing the wedge between corporation and country] calls for such measures as ending preferential tax treatment of profits earned offshore; making it illegal for corporations to reincorporate outside the US to escape US tax laws; and new tax arrangements that encourage jobs and value creation within the US.

Doesn't that about sum up the points of America: What Went Wrong?, which was published in 1992?

Fifteen years later, plus ca change ...

[Meh]

The first problem with Comparative Advantage is simple:

It only actually states that wealth will increase in aggregate. It makes no predictions about the distribution of that wealth between the countries involved (or worse, between the investor class and the wage class in those countries.)

As such, it should be apparent that it doesn't answer the important questions. Why? Back to Keynes. In the long run, we're all dead. It may be that free trade will increase wealth and that will "trickle down" from Chinese oligarchs (say) to the US worker in the next 100 years.

That still doesn't make it the right or rational policy for a US worker to vote for today.

The second one is unfortunately very complicated. As such, most economists don't like to touch it with a barge pole. I'll mention it for completeness.

The problem with MODERN capital mobility is that it interacts with the modern phenomenon of "the industrial base." In essence, it's not just "capital" that is mobile, it's also "productive capacity" which is increasingly not in the hands of the locals, but the investor. We've seen some indications of what effect a stunted or declining "industrial base" has from studies of "the Natural Resource Curse" notably the Dutch gas situation.

But, the theories aren't well developed, so expecting anyone to sit down and work through the implications of how modern capital and productive resource mobility can leave a region in effect without a viable industrial capacity, with an attendent downward slide of the economy, well, that's expecting too much.

[Meh]

Taking on the wikipedia article may not be that useful, but since Mark Thoma links to it, I'll make some points:

"* Early qualitative descriptions of the principle were based on the greater ease of producing different commodities in one country than another, and not on capital mobility. The comparative advantage of France over Iceland in wine production is not based on capital immobility."

This is so badly developed a point, I have to give in to temptation with the glib point that this example is an abuse of the notion of "comparative advantage" after all, thanks to geography, France has an "absolute advantage" over Iceland in wine. If we want to think of it as a "technological advantage" it comes under the next point.

"* As economist Paul Krugman has noted, 19th century economist David Ricardo who formulated the basic model of comparative advantage lived in a period of high capital mobility. His ideas were based on different production functions in different goods (different technologies) internationally. These do not necessarily require capital immobility."

As I noted in my previous comment, in the age of the multinational (and Palley makes this point too) this argument is becoming defunct. The Production Technology advantage is not the property of the country, it's the property of the corporation and as such is now completely mobile.

The example of wine is instructive. The Australians had to invent new technologies to compete with the existing French ones, but now those technologies move in a footloose manner around various countries like Chile etc. sabotaging Australian government attempts to regulate water usage by vineyards.

As a side note, I haven't seen the figures for Krugman's assertion that Ricardo lived in a time of "high capital mobility." Given how much more of the modern economy is monetized than in the past, it would be an interesting set of figures to examine.

* Comparative advantage can be derived from more complicated models including capital mobility (i.e. international borrowing, lending, and labor movement) and often posit movement of capital as analogous to the movement of goods."

There really seems to be a sleight of hand going on here. Every model I've seen does exactly that, uses international borrowing, lending and labour movement to derive comparative advantage. The hitch? Out here in the ordinary world, labour movement is a lot harder than in those models.

Again, it's not to say that you can't see the system settling down into a comparative advantage equilibrium sometime in the next 100 years. The question is, why should I vote for it in my lifetime, if that's the case?

[Meh]

Bruce Wilder: Don't the proposals you make about the auto-industry just amount to "industrial policy" with a little bit of "standards protectionism" thrown in?

I don't say this in attack, despite my hideously long comments above, I don't see the problem with Comparative Advantage as being that "we must have protectionism" as much as "we need to be realistic about industrial policy."

I say this particularly, because what we see in East Germany (and indeed Detroit) is that what Comparative Advantage adds up to in fact, not a thriving local economy that "focuses on what it is good at" but simply depopulation, because there's no shortage of what these areas "are good at."

One other point:

The US (and other developed countries) have had a huge "absolute advantage" in various forms of financial infrastructure, education and other things. I'm not sure that comparative advantage means that can be sustained and that may mean our economies have to change much more radically than we have suspected so far.

[calmo]

Ricocheting off Holly's paste of Thomas'sSecond, there is need to close the wedge between corporation and country. keeping in mind the dangers of getting a "wedgee" (I warned you it was more than a bounce of Holly)[How *do* you people keep from getting distracted like this?], we must be vigilant about not expanding our notion of this simple machine, the wedge.
We must.

[Jonathan Goldberg]

These days, comparative advantage can be the result of policy. Airbus is the poster example; it required decades of subsidy to get going, but is now competitive. The Europeans, meanwhile, argued that American aircraft manufacturers were being subsidized by military contracts.

A large part of China's manufacturing advantage is in infrastructure; the configuration of suppliers allows for very rapid changes in specification. I've seen estimates that attribute to this factor about half of China's comparative advantage.

Also, China systematically pursues these things. Intel is building a big new chip fabrication plant there. The labor input to chip manfacture is trivial. In return for a subsidy that amounts to about $500M, China gets technology transfer.

It should be noted in passing that Krugman knows as much about these things as anyone in the world.

[Bruce Wilder]

Meh: Don't the proposals you make about the auto-industry just amount to "industrial policy" with a little bit of "standards protectionism" thrown in?

I was not talking about "standards protectionism" at all. It would "industrial policy", I suppose, but the problem with "industrial policy" is its content, no?

My problem with conventional economic analysis of industrial policy issues is the tendency of economists to focus on allocative efficiency to the exclusion of technical or managerial efficiency. Efficiency is a limit or a frontier at equilibrium with regard to the mix of resources, but the extent to which efficiency is a matter of dynamic technological or organizational progress is not adequately analyzed.

I would propose automobile inspections as an industrial policy aimed at enhancing competitiveness, because it would strengthen the institutional capability of the market to provide fine-grained feedback on quality of manufacture and design. That fine-grain feedback is a potential foundation for incremental improvements in organizational capability. When people know, objectively, which manufacturers and which plants are producing better autos, the ability of the market to discriminate and reward incremental improvements is enhanced, and so, the investments to make those improvements are better able to be managed and financed.

It is not unlike the way the FDA requirements force U.S. Pharma to concentrate on developing effective drugs with a scientific basis, in a way that, say, Italian policy does not. Italian pharma produces liver pills and tonics, because that's what a market without good, discriminatory information channels demands.

[Daniel]

I've long felt that a corporation's foreign assets should be should be valued through a different class of stock.

[donna]

A city in China of 50,000 people doing nothing but making socks. The equivalent of my entire city, and everyone in town just makes socks at the factory.

That's what this "factory on a barge" notion makes me think of.

I hope one day the global economy can take us beyond this floating company town notion.

[robertdfeinman]

The American competitive advantage for its first 300 years was abundant natural resources and undeveloped land. It was also free of entrenched oligarchs who worked to prevent change as in Europe. It was thus able to devise new business models rapidly.

We are now in an era where these competitive advantages no longer exist. The US is not an important source of resources. Only coal and iron ore are still abundant. We do export agricultural products because we still have a large amount of suitable land.

Whatever the reasons, manufacturing has moved elsewhere and won't return. We have substituted financial services and intellectual property as new industries. But what competitive advantage does the US have in these areas? Film and TV making takes place anywhere now, the location of the firm making the film is arbitrary. Sony is now a major "US" film producer. The skills and collegial networks which lie behind the financial sector can be replicated anywhere, and are.

Dubai has more in common with the social networks in the Middle East than does the US and is more likely to get the business as a result. The same thing is happening in India and China to service the Asian markets.

Commentators in the US keep looking for theoretical arguments as to why the balance of power is shifting away from the US. There are also many suggestions on how to restore the golden age. Perhaps it is time to acknowledge that the US is on the downside of the curve, just as the UK was 60 years ago. It's a former empire. We will be one shortly too. We can't even practice gunboat diplomacy in our backyard in Latin America anymore.

Former empires need to scale down to a standard of living that they can sustain. Right now we are living on borrowed money. This can't continue. How we handle the adjustment will impact many people. We can plan for an equitable adjustment or we can allow inequality to continue and brace for civil unrest.

[donna]

Here's a link if you don't know about sock town:

http://www.ctei.gov.cn/htmlib/english/base/2003120305.htm

[Lafayette]

Article: Globalization has made Welch’s barge a reality.

Bollocks. Welch was smoking pot … on a barge.

Subcontracting production where cost is the lowest can be a dicey proposition. It presumes that ALL input factors of production are uniform throughout the world. They aren't (Jack should have had a go at opening a semiconductor plant in China …he’d have seen the limits of his little fantasy.)

Technology Transfer is an art and not a science. A company does not just take a group of development engineers at the home office, ship them off with the plans for the greatest-thing-since-sliced-bread to establish a manufacturing plant in Timbuctoo. And presto, 11 months later the Home Office is seeing that its national distributors’ shelves are stocked with product.

It – just – doesn’t – work – like – that.

… in doing so it has made capital mobility rather than country comparative advantage the engine of trade.

Capital expenditure is necessary but not the paramount consideration. Local skill competence is far more important by a hundredfold. If a transplanted production operation cannot get that right, then the money is being thrown away.

Example: American Micro Devices (AMD) opened up a semiconductor foundry in East Germany. Amazing. Nobody in their right mind – except Germans -- would open up a production facility in high-cost Germany. So, why did they do it?

Because the German engineers had devised a way to nimbly shift manufacturing from one product to another without the long preparation time that it usually takes in the semiconductor industry. Integrated circuits (not memories) are purpose-built to a specific set of customer specifications. This means a great diversity of product designs need to be accommodated amongst a large group of customers in order to assure that a plant is running optimally. This means stopping and restarting production often.

In fact, the plant is a robotic marvel … its total personnel is numbered below 50 or so. The local competence of German engineering made the plant possible in Germany (with some state subventions, of course.)

Try that in China, or even Taiwan. There is no guarantee that it will work and every risk that it wont. (I know first hand.) Regardless of how much money you put into the effort, if the local competence is not up to the task, the project will flop and the ROI will be zip.

So, Taiwanese engineers are just as crafty as German engineers? Well, sometimes they are. But, it depends upon what the task is that they are expected to accomplish. If it is simple design and large production, they can handle it. If it is the opposite (complex design and repeatedly small lots), they run not so efficiently.

The core problem is corporations are globally mobile.

True enough. Companies will seek the lowest cost manufacturer who builds a quality product. It is easy to ask for the “China price”. You’ll get it in a nanosecond. But, you want “quality” – oh, that’s more expensive. It is also a lot more risky.

Throw in transportation cost and it is entirely possible that a product dislocation becomes a lot less interesting. What is required in America and Europe is a close look at manufacturing processes to see where they can be automated and run by a minimum of personnel.

This can be done, but not across all industries. Labor intensive production lines that cannot be automated are never coming back. But, production amenable to robotic processes have a chance of staying at home. It takes a sophisticated work crew to run them, but they are not Mission Impossible. (It will also require some accelerated tax amortization to help convince production engineers that it is worth the effort.)

And, that is why skills enhancement is such a key part of any solution to the challenge of manufacturing dislocation.

Does Jack care? Nah … he’s out on the back nine improving his handicap.

[Meh]

The problem with the "skills enhancement" solution is, like the AMD factory, it just doesn't employ that many people. And our economy has yet to shift far enough away from mass produced goods for the rest of the people to do more than scratch a living in the service sectors.

[calmo]

Darn that donna if she isn't a huge distraction...You mean there isn't enough variety in that town?
Argyle socks, sport socks, panty hose, silk or wool...what more could anyone want?
Boots. Pants. Shirts. And hats.
Anything to look respectable.
Such a wonderful and child-like impression...that makes us (not only me I swear) put our noses to this "comparative advantage" thingie once more.
The cultural poverty of only growing bananas.
My new distraction: donna. Yours?

[cm]

Bruce Wilder: "I would initiate a system of mandatory automobile safety and environmental inspections -- inspect every car on the road once every three years for operating condition and appearance and current maintenance requirements ..."

In Germany you have to bring in your car every year for "TÜV" certification, where all the essential controls, frame, brakes, steering, signals, etc. are inspected. There is a whole industry around this, but then you won't see the same portion of junk boxes on the road that you will see in various other countries. Even though it doers not cover the "appearance" part.

[dissent]

"Both international borrowing and lending and international labor movement can be thought of as analogous in their causes and effects to the movements of goods ... So when we turn from trade in goods and services to factor movements we do not make a radical shift in emphasis."

I know Krugman is God but none-the-less: I Don't Believe This.

What did we just see in August? A meltdown in globalized finance because the system got so complex the experts, people like Alan Greenspan, didn't have a clue as to what the most important factors were that would lead to a systemic crisis.

Confidence inspiring, isn't it?

Economists use the simple manufacturing model to explain comparative advantage for a reason: it helps to make sense of dynamic and complex trade relationships. They don't use 'factor movements' to illustrate comparative advantage because the model is no longer simplifying; it's overwhelmed by feedback loops and complexity and frankly no one knows how all these ingredients are going to work together anyhow.

The truth is globalization as currently practiced is a huge experiment: each one of us is in the petri dish along with the global environment, etc.

It is not adequate, at this point, to trill about how, due to comparative advantage, everything will be fine. And it's worth nothing why it's not adequate: that assertion has lost political credibility because of changes in the real economy and political world-- loss of jobs, benefits, security, rising inequality, rise of 'free market' dictatorships, pollution in China, etc.

One of the useful aspects of Palley's ideas is it would restore the political and economic power of governments.

What we have with modern globalized capitalism is a system that produces 'super-predators'. Wal-mart is not just a corporation, it is a super-predator. It moves in and wipes out much of the economic ecosystem: everything smaller than it on the food chain.

[cm]

robertdfeinman: "The American competitive advantage for its first 300 years was abundant natural resources and undeveloped land. It was also free of entrenched oligarchs who worked to prevent change as in Europe."

Very important point. It's essentially a "thermodynamic" argument. But it also implies previous "growth" models were based on throwing more resources into an inefficient process. "Europe" overall has not had this extent of resource abundance for a long time (aside from access to oil), but its industries and economies are not fundamentally lagging behind the US. Much of the differences in reported numbers are different methodologies in composing and massaging the indicators.

[anne]

Johnchx, thank you for the comment with which I completely agree. Where was Paul Krugman's review published? I can find no original publication source.

http://www.pkarchive.org/cranks/gray.html

1998

'False Dawn'
By Paul Krugman

False Dawn
The Delusions of Global Capitalism
By John Gray

[anne]

Thomas Palley simply decides that because there are easily identifiable market problem in international trade, the problem is international trade. Opposite this we have the markets are always right because they are markets conservative crowd; a crowd that is after a century of experience not sure whether even anti-trust considerations should be taken as Supreme Court conservatives have just shown us.

The point is that the theoretical benefits of trade which are immense can be made all the greater by attending to consumer and worker and enviornmental protections in the course of trade, but we are convinced by conservatives to do no such thing and anti-globalists rather than point to conservative obstruction would set aside trade.

[robertdfeinman]

cm:
It took 150 years of almost constant war in Europe to rid itself of the rigidities of an entrenched aristocracy. Many of the big industrial states also had empires (especially the UK, France and Germany) which didn't collapse until the middle of the 20th Century.

The fact that they have learned from this history (and maybe copied some features from the US) should not disguise the fact that millions died in the process and many more lived in misery. With the exception of the slaves, the US avoided all this because America was, essentially, a blank slate.

I do think that the resource limits and pressures of global overpopulation will affect Europe just as much as the US and that the EU is as unwilling to face up to this as well. There are lots of fine pronouncements in the EU, but not much in the way of tangible progress. In Europe more politicians are paying lip service to the issues than in the US, but this seems to be more a matter of style rather than substance.

[mark]

Here's an idea to smooth out asymetries in trade from Dean Baker:

Addendum: I just remembered one of the policy levers which would almost certainly help bring down the value of the dollar and eliminate a costly barrier for consumers. The government could allow banks and other financial institutions to offer saving accounts denominated in other currencies. As it is, it is very inconvenient for a typical middle income person with a modest sum to invest (e.g. $10,000 to $40,000) to hold foreign currencies. If the government didn't prohibit the practice, small savers could just go to their local bank and have a saving account denominated in yen, euros, pounds or other major currencies. If a saver had put their money in euros back in 2002, they would be more than 50 percent richer today.

If the "free traders" actually were concerned about free trade, they would have focused on eliminating this wasteful restriction on currency trading long ago, instead of focusing on much less consequential barriers to merchandise trade.]

--Dean Baker

[calmo]

I don't know whether 'dissent' allows one to agree with him...I'm going to anyhow, even if it means taking flack.
But first some friendly but misleading dissent on 'dissent':
From God Krugman (that linked paragragh you paste), the operative phrase is as analogous and so it is not a matter of you "believing" but imagining, entertaining, and considering.
Tis.
Tis so, because Krugman, who is not God (I fibbed!), is not an idjit either...an we don't want to look for another candidate, right dissent?.
Ok then.
Now for tons of agreement: like how huge this is:Confidence inspiring, isn't it?Readers want a context (that foregoing paragraph you provide).
But that is a mislead which I think you are unearthing: what those events did was to shake that confidence and now they want it back. Skip the explanations and the solid foundation of reasons for that confidence. Just slap that lever that restores my confidence and melts my worries, dissolves my panic. And so the Fed speaks like it does (and not like us).
An how distractin is this?:It is not adequate, at this point, to trill about...[you play the piano, obviously, and know an embellishment when you see one (which is why I cut off the rest of the statement carrying the melody)]Very...with us little trillin pipsqueaks --tasty morsels for the 'super-predators', very Very.
Last little nibble before they take me away: you figure that Ben sees this dollar devaluation as the mechanism to adjust the fx lever that has served the trans nats...or is this just an immediate response to more immediate concerns?

[paine]

no comment is the best comment
when shadow armies clash benighted

immobile labor vs mobile capital
nobody dared build
the open border trade story
on that assumption set

[dissent]

Last little nibble before they take me away: you figure that Ben sees this dollar devaluation as the mechanism to adjust the fx lever that has served the trans nats...or is this just an immediate response to more immediate concerns?

Good question.

I think that if the Fed cared about the dollar one of their number would be mouthing soft platitudes, not continually, not loudly, but we would all notice the soft soothing background murmur.

They're not. I think they probably buy the by now obvious idea that the dollar has to fall. They are not concerned with preventing this, as long as it is 'orderly'.

[paine]

krug circa 98
clearly assumes
full factor mobility all around don't he ???

"when we turn from trade in goods and services
to factor movements
we do not make a radical shift in emphasis"

now capital as a word
subsumes a multitude of particulars
from machines to mutual funds
so much confusion is bred into the terms of engagement

suffice it to remind us all

the bretton woods rationed
cross border labor movements
are losing the post 71
race to mobility max
a race
against formerly also rationed hi fi flows

chx
use krug to address palley
not a straw dog
at the halloween fete

[PSP]

Bruce Wilder "would propose automobile inspections as an industrial policy aimed at enhancing competitiveness, because ... provide fine-grained feedback on quality of manufacture and design."

If GM was interested, they could easily get much the information from warranty and extended warranty claims. Probably they already do. The point is that there is nothing to kick them in the ass and make them do anything with the information other than price their extended warranties. Even losing 25% of the market has failed to motivate GM to design for excellence.

At some point, GM’s quality reputation will sink so low, that it is forced to match Hyundai’s warranty. I think the big three are already there, but Detroit’s managers live in their own isolated little world. When that happens, GM will design products that last as long as Hyundai’s.

Yes, we NEED an industrial policy. But the policy makers will need power. MITI controlled companies ability to finance. Information alone is not going to change irrational decision making. After all, railroads' poor freight service drove them nearly out of existence without producing any change to the ingrained habit of poor service for the money.

says...

goldb:

uses
"comparative advantage "
the layman's way
the way i'df use
cometitive advantage

please save the comparative advantage label
placed on ricardo's very precise notion
for passages containing his meme only
and we'll all save on
our mud slinging time

[paine]

bw:

we have an industrial policy
not made by uncle of course
only accomodated by uncle
the policy is made by the trans nats
and it looks like ....barges

automated or not laff
ultimately they're headed
to the lower bid locations
a staircase ever downwards
up fluxes
thru creative short cuts
are momentary

[german_reader]

@Lafayette

AMD employs 3000 workers in its factory in Dresden - EastGermany. 50 may be the correct number for a single part of the factory.

http://www.heise.de/english/newsticker/news/76902/

[calmo]

greetings Herr paine (the sun comes out for calmo...maybe mo)

Don't tease me before I get my meds
no comment is the best comment
But this
when shadow armies clash benighted
is such a tonic
As if that throng, labor --no army,
was ever anything more
than a construction
by a real army, --an organization
quite benighted

says...

mark t :

"I tend to see more benefits from trade ..."

if you see "net" benefits for jobholder amerika now
please list
or
are they comparative static ones ???
ie maybe headed into reverse
now
but eventually and sustainably
headed forward some day
give or take a time frame of a generation or two ???

says...

calmolicious

"an organization
quite benighted "

as in the UAW

BEHOLD THE RECENT
LUNCH HOUR STRIKE
at GM

besides swallowing a veba
that could sink the rockies
the pieheads
WON
a future wage rate
for organized industrial amerika
equal to
about one half today's going rate

[paine]

bw
thinks its about "stupid" and about "dogma"

i think its about comparative corporate profits ....
the whiff of higher ones else where
draw the nose of the execuitive suite

show me how the trans nats can be won
to domestic final product market regulations
they don't already push for ????

i'll kiss your elite toes
if
you prove it ain't class politics here
not the darkness battling the light

says...

"Yes, we NEED an industrial policy. But the policy makers will need power"

amen

and who in play now
can successfully
take on the trans nat congolock ???

says...

the dollar has two aggregate rates
against the other north giants

and against the south pegs

plaza showed a flex against the north giants

which is flexing again

but the south and east peg countries ..... nyet

[paine]

anne

"anti-globalists rather than point to conservative obstruction would set aside trade "

a pause in the slaughter seems in order here anne

lets take stock as a people

surely there's no reason to race toward
our global emerald city future
when
we don't yet know the optimal means

right now we're exporting our industrial platform
from a bag of magic beans
called IP

says...

DISSENT

"The truth is globalization as currently practiced
is a huge experiment"

bravo !!!!

world history is
an uncontroled experiment

well lit self interest
is a dangerous de-lusion
but up or down
saved or damned
venturing has its rewards

a ho-monk-ulus
of goethe's faust
happy sits by the helm of most trans nats

[James Killus]

"Factories on barges" aka "globalization" is not a plan for manufacturing. It is a slogan to be used to extort more concessions from workers, employed by managers who have come to believe in a zero-sum world.

This is interesting, actually, because outsourcing and other globalization projects usually fail due to the inability of managers to adapt to the new requirement of managing workers who are not basically self-managing. Experience suggests that most labor in the U.S. is self-managing. I've seldom seen circumstances where any manager above the unit supervisor had the slightest ability to assist in what was actually being accomplished. Upper level managers exist solely to protect underlings from the predations of other upper level managers. At the highest levels, there seems to be interest in nothing but buying and selling each others' companies and looting the corporate till.

I suspect that the ongoing failures of U.S. management has to do with the rise of academic certification and the impact of the MBA. The majority of managers are now indoctrinated with Social Darwinist Economics and treat their underlings as operant-conditioned lab rats, to be motivated entirely by greed and fear (as the managers themselves have learned to be so motivated). It is the corporate leadership that is failing, just as (and for the same reasons) that political leadership is failing. It is a tribute to the competence of American workers that anything is ever accomplished in this country. The managerial class could be Raptured to Capitalist Heaven tomorrow and the country's economy would probably improve.

Or, to put it another way, General Electric is a great company because of the people who have worked for it, whereas Jack Welsh is merely an ass.

[paine]

killius
sounds the great trumpet

"The managerial class could be Raptured to Capitalist Heaven tomorrow and the country's economy would probably improve "

the question then is this

why does middle and upper management exist ???

as grand guignol theatre

between gasps of fear and self loathing

managements prat-follies
are a great source
of mirthful solice
to their groundling-underlings

[kthomas]

I agree with Killius: Welch is an arse. Looter.

[BJ Feng]

The best companies don't have rigid segregation structures. That is you can see the CEO walking around among other workers and can go up and talk to him or her. Unfortunately, as companies get bigger, this becomes less likely and less possible, which is why they eventually get replaced by smaller companies, which in turn get big and the cycle is renewed.

In my friend's old company, the CFO called him personally to ask him not to leave. He was just a low-level operations guy in the financial services sector, but I guess he showed enough potential that, first his manager asked him not to leave, and then he was surprised with a phone call from the CFO himself. In another previous company, he was invited to a top level meeting with the CEO, President, and CFO after he told them he was leaving. The meeting was just for him to make suggestions on how to improve the company and what was wrong with the company. Management did this with every employee who was leaving and asked them to be candid because they had nothing to lose by telling the truth. This is the kind of behavior that marks a good company from bad.

Back to some of the previous posts, I think middle-management exists so that someone can be held responsible for a failure or huge mess. If a department screws up, you can't fire the entire department, but you can fire the manager. They also exist to communicate the strategy management sets down to all the "little people". We all know communication is most effective when done in person. Unfortunately, those middle managers are often ill-informed and are told of big decisions through e-mail or some other impersonal method. That's where problems can occur.

[anne]

"Several years ago Jack Welch, former CEO of General Electric, captured the new reality when he talked of ideally having 'every plant you own on a barge'. The economic logic was that factories should float between countries to take advantage of lowest costs, be they due to under-valued exchange rates, low taxes, subsidies, or a surfeit of cheap labor."

Darn; I did not understand, but there is surely a threatening element here and the metaphor lacks sensibility in that the significance of labor expertise is as nothing but that is not true.

[James Killus]

In theory, managers exist to hire and fire, set budgets (including salaries) and priorities, and to map out long range strategies and short term tactics for a company. When employees of nominally equal rank disagree, there needs to be someone to make the decision at a higher level.

In practice, managers spend almost all their time dealing with other managers, in meetings, memos, and sneaking (that is, stabbing) behind the back. Far from taking responsibility for making decisions with insufficient information, (which would be a worthy function), they generally spend most of their time evading those decisions or finding ways to point the blame at others when things go wrong. Alternately they try to take the credit for sunshine when it doesn't rain.

I have yet to see a company above about 20 people in size that did not have twice as many managers as would be needed if not for the general shark tank behavior of the class as a whole. This has been getting worse, to such an extent that most organizations that I've seen in the past decade or so depend primarily on the fact that the front line employees have a fairly good idea of what business they are in, and work towards that end almost without direction (or, on many cases, in spite of truly dreadful direction) from above. The most pithy thing I've heard on the subject in years was said at the John Bolten hearings: "Kiss up, kick down." Any manager who does not take that as his motto is seen as weak, and little better than chum in the water.

But hey, it could be worse. At least we don't have a lot of unions to get in the way of productivity.

[robertdfeinman]

I think the trend towards interchangeable managers started when Scully went from selling sugar water at Pepsi to computers at Apple. The idea that one should know something about the business one is in was finally put to rest. I remember lots of his interviews at the time filled with technobable. Of course then Steve Jobs had to come back and fix everything...

An interesting tidbit about the direction of labor and the need for line managers. Walmart instituted a computer system to assign work schedules a few months ago. Workers bid on hours they wish to work and times they are available. Those who are the most flexible get the most work. Apparently, lately, business has been a bit slow and "full-time" workers have been getting even less. From a blog run by an insider:
Last month, all full time employees got 38 hours. Three weeks ago, they got 36 hours. Two weeks ago, they got 32. Last week, they got 29. They will continue to get 29 until our sales go back up and they can justify giving them more hours. [http://www.behindthecounter.com/2007/10/wal-mart-and-customer-service-problem.html]

Workers can't even be assured of a week's wages anymore. Another task for managers eliminated.

[paine]

"At least we don't have a lot of unions to get in the way of productivity."

kill or be killed

obviously exploitation
has a narrower meaning for you then for some other folks

[gordon]

Because I worry about the apparent tendency in the US to blame China for everything, I’m heartened by the obvious existence in these comments of more positive ideas which don’t rely on blaming a foreign country:

Bruce Wilder: “The FAA/NTSB is an important reason the U.S. dominates aircraft manufacture as well as as airline management services. The FDA is an important reason that the U.S. Pharma leads the world. The SEC helps to make New York a financial capital…if I wanted to do one thing to enhance the competitiveness of U.S. auto manufacturing, I would initiate a system of mandatory automobile safety and environmental inspections –“

Meh: ‘I don't see the problem with Comparative Advantage as being that "we must have protectionism" as much as "we need to be realistic about industrial policy."’

Anne: “…the theoretical benefits of trade which are immense can be made all the greater by attending to consumer and worker and enviornmental protections in the course of trade..”

PSP: “…Detroit’s managers live in their own isolated little world…Yes, we NEED an industrial policy…”

James Killus: “I've seldom seen circumstances where any manager above the unit supervisor had the slightest ability to assist in what was actually being accomplished”

and

“I have yet to see a company above about 20 people in size that did not have twice as many managers as would be needed if not for the general shark tank behavior of the class as a whole.”

B.J.Feng: “…I think middle-management exists so that someone can be held responsible for a failure or huge mess.”

These are all good ideas but they are also old ideas. Go back and read Porter on the Comparative Advantage of Nations. Go and re-read Work in America. The problem doesn’t seem to be absence of ideas, but inability to implement and profit from them.

[ken melvin]

"…the theoretical benefits of trade..." I shall think on this a long time, trying to envision a theoretical benefit.

[James Killus]

paine,

I hope that you are joining in the spirit of irony and not thinking that I was making solemn pronouncement in my last sentence.

[johnchx]

anne: It looks like Krugman's review was originally published in the New Statesman around July of 1998. Unfortunately, their online archives only go back to November of '98. Online copies are at pkarchive and Krugman's old page at MIT.

[cm]

James Killus: I marvel at and envy your clarity of insight and eloquent exposition.

[wjd123]

Gray's economic analysis is as garbled as you might expect. He attacks the supposed naivete of conventional economic theory, but cannot be bothered to get straight what that theory actually says. Thus he declares at one point that in theory and practice the effect of global capital mobility is to nullify the Ricardian doctrine of comparative advantage. Yet it is on that flimsy reed that the edifice of unregulated global free trade still stands. I don't know who told him the urban legend that capital mobility undermines the case for free trade, but one might have expected him to glance at an actual textbook, where he would have found a passage something like this (from my own sophomore-level text): 'Both international borrowing and lending and international labor movement can be thought of as analogous in their causes and effects to the movements of goods ... So when we turn from trade in goods and services to factor movements we do not make a radical shift in emphasis.' It's true that the simplest model of the benefits from international trade, the one David Ricardo introduced 180 years ago, assumes no capital mobility; but any economist could have told him that the simplification is not essential to the principle.--Critique of John Gray's False Dawn Paul Krugman(?)

'Both international borrowing and lending and international labor movement can be thought of as analogous in their causes and effects to the movements of goods ... So when we turn from trade in goods and services to factor movements we do not make a radical shift in emphasis.'

Who is the "we?" How comparative advantage is packaged matters greatly to labor. Particularly if the emphasis is on the ability of businesses to be put on barges and shipped around the world. Emphasis on capital mobility matters greatly to investors who would like to maximize the gains on their investments. Where emphasis in placed matters to those in society that have to live under the rules and regulations that make up the political economy of the nation. Evidently, the only people for whom emphasis doesn't seem to matter are economist. Which makes them naive in the extreme if they believe that their text book definition somehow defuses the debate over free trade.

[calmo]

James, you use the word 'irony' the way I do 'sarcasm'.
You think I should back up ...or back off ...or back out? I am unable to back down, it appears.
We (I speak/jabber for us) are friends (still us) and there is no risk for me butting in --I can take the shoo-fly from you --even with some pleasure. [Or I could be an insensitive oaf or a hungry masochist or...but this insensitive oaf means well, in the case that 'friend' is regarded as so presumptuous...and geeze the masochist is hungry!]
Tis always a risk (and here, one you recognize and cover, not wanting to give paine (who takes no such pains to guide us)[nevamind what he says to the contrary] the wrong impression). [There is a little irony *here*, I think in this covering but the main slab of irony is me trying to modify your use of "irony" and see it my way ("sarcasm").
In a way, I am unable to butt out and just shuddup...which is the essential element in irony for me: it discovers you. You cannot intend it. ("Structural Irony" they (puddin heads) call it, to distinguish it from theatrical irony or verbal irony...but it is the only kind there is and those fine distinctions are academic (useless).)] to state something meaning the opposite (to have it taken literally).
[I am so sorry about this last torturous sentence.]
So your urgency to save paine (the incorrigible) from a possible misunderstanding, draws me in...nose to nose with this irony: it could be Mission Accomplished (paine understands where you are coming from) but for me it is an Unavoidable Disaster, knowing we will just have to live with you misusing a perfectly good word: irony.

[cm]

wjd123: "Evidently, the only people for whom emphasis doesn't seem to matter are economist."

As long as the emphasis is not applied to them I guess ... (holds for most any profession/social group of course).

[gordon]

That should have been "...read Porter on the Competitive Advantage of Nations" (Macmillan 1990). Hope that mistake didn't waste anybody's time.

[Lafayette]

JK: "Kiss up, kick down." Any manager who does not take that as his motto is seen as weak, and little better than chum in the water.

Draconian management behaviour, that.

There are hierarchies and hierarchies. Each depends upon the culture that is imposed from above.

The pyramidal structure is a throwback to the dawn of time. It can be recognized in any armed force on earth. It is no surprise that it was adopted by industry/commerce, because it was around long before the division of labor was implemented (which led to the organization of industry/commerce). After all, a lot of managers had served military duty.

Still, any hierarchy depends upon top management that sets the tone. I worked in a company that introduced "matrix management", where decision making was shared according to the number of managers responsible for a project to whom an engineer/consultant was "sub-contracted".

The result was that any review of an individual's performance was not concentrated in the hands of only their direct manager. This diffuses somewhat the tendency to abuse power -- most times, but not always.

The argument that a company is top weighted by watchers and not doers simply does not hold water. That is not a winning attribute. Such companies inevitably wither on the vine. Were it only that public administration have the same fate, but they don't.

In fact, "matrix management", which has many detractors, is probably the best way forward in terms of complex management structures that must correspond to complex businesses.

The concentration of power up the ladder almost always engenders abuse -- or seems to by those who feel abused. The only way to avoid it is to have clear task definitions and limpidly clear task metrics that staff understand well, the whole managed by people who are basically honest. I like to think that most people are basically honest.

But honesty as a durable cultural attribute in a country is by no means easy to maintain. With time, most companies tend to "rust" from the inside out.

In a world with rapid change, we must learn to adapt to it. Change is the only constant in life.

[cm]

Lafayette: Any management scheme will only work in the presence of competence and shared goals. Pushing one formal approach versus another often reflects a misguided technocratic belief that form dictates function, and every problem can be addressed by just instituting a particular form of organization or "process".

[James Killus]

calmo,

There are many discussions the nature of irony, but I know of none that suggest that unintentional irony is a redundant phrase, which is what you imply. Moreover, sarcasm is usually held to be dependent upon a tone of voice, which makes me reluctant to claim it in print, no matter how distinctive my authorial voice may be.

Irony itself has many garbs, and I spent a lot of time in the fitting room. I console myself with the reflection that great minds are frequently misunderstood.

[James Killus]

The argument that a company is top weighted by watchers and not doers simply does not hold water. That is not a winning attribute. Such companies inevitably wither on the vine.

The argument that a country is top weighted by incompetents and not capable men does not hold water. That is not a winning attribute. Such countries inevitably wither on the vine.

The argument that a stock is overvalued does not hold water. That is not a winning attribute. Such stocks inevitably lose value.

Everything returns to equilibrium over time, and in the long run we are all dead as the guy once noted. But herd mentality is just another name for class interests, and they all hang together or they hang separately. Never seek medical help from anyone name Pangloss, if you get my drift.

[James Killus]

Oh, and authors create irony all the time. I'm sure it's in my contract, for example.

[notsneaky]

To go along with Johnchx above, he is simply confusing "necessary" and "sufficient" in this passage:

"The necessary requirement is that the means of production (capital and technology) are internationally immobile and stuck in each country."

...

"It only actually states that wealth will increase in aggregate. It makes no predictions about the distribution of that wealth between the countries involved"

But it does predict that aggregate wealth in both countries will increase.

...

"The Production Technology advantage is not the property of the country, it's the property of the corporation and as such is now completely mobile."

If it's not a property of a country, then no problem. If it's not a property of a country then corporations will be completely indifferent of their location. Since corporations do seem to move around, this assertion is most likely wrong. Or just plain ridiculous.

...

Then I saw that I was agreeing with anne and I got scared and stopped reading.

[calmo]

James,
I could retreat back to the broad (grossly inflated, diluted and puddin-headed, I tell you!) definition of irony that recognizes 3 species (1 genuine and 2 puddin-headed): Structural (genuine), theatrical (the audience knows unlike the characters...tis a heuristic of the genuine, people, not a separate species) and the sarcastic (using expressions at non-face value), a different animal...but as you can see this is no easy retreat.
No, it has the appearance of an advance: calmo stuffing his narrow conception of irony down James's throat...as if defending his share of the precious jewels, a segment of our commonly held language.
Ok, before the quicksand takes me away, the structural (I need to be compensated for this concession (as I claw it back, conceding nothing)) irony (hear all that cryin? tis the great mourning for the dilution of irony) is that (because of)/despite my best efforts, I am up to my neck, tryin to save this stupid irony...which will float anyway, right? Right?

[James Killus]

calmo,

I'm sure we are both agreed that Alanis Morissette sang nary a shred of irony, and yet I've heard it argued that the total lack of ironic incident in her song was itself an example of irony.

Would that be genuine irony, or the puddin-headed sort? Perhaps it all hinges on whether she meant it to be so.

I now realize that I missed an opportunity, however, and may need to rewrite. And my hat remains off to you, as love of language is precious, and he who is neither hawk nor dove is at risk of being a turkey.

[Lafayette]

JK: The argument that a stock is overvalued does not hold water. That is not a winning attribute. Such stocks inevitably lose value.

Seven cardinal sins

"Overvalued" is in the eye of the beholder. Within a speculative frenzy, an overvalued stock (in relation to its P/E ratio) maintains nonetheless a speculative value.

Until, abruptly, proven otherwise by the bubble's burst. This is the nature of all Ponzi-schemes whereby future worth is esteemed by past returns (which are not based upon reality).

One might say that speculative frenzies are pure fiction in the minds of those participating, prompted by greed. They deserve, in other words, the consequences in having indulged in fantasy and not fact.

But, is that not part of human nature? I often indulge in the fantasy that I shall be sleeping with Nicole Kidman, but that is pure fiction. Just ask Nicole.

In America, we have confused Hollywood and Wall Street. They are at opposite ends of the believable. But, we all want to believe that it is possible to be rich, or richer.

The notion is the foundation of our innate cupidity, which is also one of the seven cardinal sins. They have characterized mankind for quite some time. Remember them?

[Lafayette]

JK: This is interesting, actually, because outsourcing and other globalization projects usually fail

They don't usually fail. Quite the opposite; they usually succeed. They can fail if implemented improperly, and that happens at the higher levels of technical competence when undertaking technology transfer. At the lower technological levels (product knock-offs), they work fairly well. (This is what Jack was talking about, particularly the manufacture of light bulbs not gas turbines.)

For the moment, the job losses are largely contained to unskilled and semi-skilled (assembly line) production in developed nations. But, that is only the handwriting on the wall. India has already proven what it can achieve competitively in I.T., which is MUCH higher up the skills ladder.

China is graduating tons and tons of engineers every year. That means it will start, sooner or later, competing at even higher levels of skill, meaning higher technological levels.

China's exploitation of low cost labor is just the handwriting on the wall. You've been warned ... now continue in your fixation on evil "profits". Blaming management for exploiting workers/staff is NOT going to solve the problem. It never has and never will.

Ours has become a viciously competitive world. Lamenting the obvious is a sure recipe for economic disaster. As Americans are wont to do ... they are looking for some "smoking gun" or "quick fix". It doesn't exist.

[cm]

Lafayette: I cannot scientifically dispute your favorable assessment of outsourcing efforts at least when it comes to "R&D" type stuff, not applying raw labor to an all figured-out process, and I certainly don't want to belittle foreign workers.

But the results that offshoring corporations are getting out of their low-cost subsidiaries have so far not impressed me. That's not just a function of the offshore talent, but how that talent is being (ab)used. I could add "by organizations that have robbed themselves of the ability to produce and innovate".