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  • The Ballpoint Pen as an Economic Case Study

    Posted by David Foster on January 20th, 2017 (All posts by )

    Chinese Premier Li Keqiang has lamented China’s inability to “make ballpoint pens with a smooth writing function.” After five years of research, a state-owned steel company now says it can.

    WSJ notes that 80% of the world’s ballpoint pens are made in China…but that thus far, China has not been making all of the pen’s components.  Specifically:

    The tip of a high-quality ballpoint demands metal work involving high-precision machinery and very hard, ultrathin steel plates. So 90% of pens made in China have imported tips. China’s leaders want “self-sufficiency,” in pens as in semiconductors. Now they claim they’ll have it.

    This little story is interesting from at least three angles.

    First–as the WSJ story points out, China’s desire to control the entire ballpoint pen supply chain indicates that their leaders still value economic autarky, and that Chinese leadership denunciation of President Trump on grounds of his insufficient respect for free trade carry more than a whiff of hypocrisy.

    Second–the ballpoint pen example makes the point that the apparent simplicity of a product does not necessarily reflect the complexity or lack thereof involved in manufacturing it.  American economic commentators often fail to grasp this point when they assert that America’s future must lie in producing “advanced high-technology products.”

    Third–the example should also clarify the point that the highest value in a product supply chain does not necessarily lie in the assembly of the final product.  The final product assembly is usually the most visible part of the supply chain, but very often the creation of components that go into that chain involves more complexity and requires more skill than the final assembly process itself.  It’s considerably more difficult to make integrated circuits, for example, than to assemble those chips onto circuit boards and to assemble the boards into a plastic or metal case.

     

    44 Responses to “The Ballpoint Pen as an Economic Case Study”

    1. DirtyJobsGuy Says:

      The Chinese mercantilist views extend to a very literal idea of controlling trade routes via commercial subsidies and projects. The Silk Road and One Belt, One Road Projects are almost as if the East India Company were reborn. They obsess about raw material ownership and don’t understand economic efficiency. China, like Japan in the 1980’s is no long term economic threat to the US and west. If western populists like President Trump, obsess about this the loss of economic growth will follow us as well.

    2. Mike K Says:

      If western populists like President Trump, obsess about this the loss of economic growth will follow us as well.

      I’m not sure he “obsesses” about it but there is a point in watching the consequences of bad policy and regulation.

    3. Grurray Says:

      Here’s a great old essay on the subject called “I, Pencil” about the dizzying array of unseen inputs that go into a simple product, the self organizing nature of the supply chain, the hubris of top down command economies, and the need for higher providential power guiding a culture that can make just this lowly pencil

      http://www.econlib.org/library/Essays/rdPncl1.html

      I, Pencil, am a complex combination of miracles: a tree, zinc, copper, graphite, and so on. But to these miracles which manifest themselves in Nature an even more extraordinary miracle has been added: the configuration of creative human energies—millions of tiny know-hows configurating naturally and spontaneously in response to human necessity and desire and in the absence of any human master-minding! Since only God can make a tree, I insist that only God could make me. Man can no more direct these millions of know-hows to bring me into being than he can put molecules together to create a tree.

    4. David Foster Says:

      “Man can no more direct these millions of know-hows to bring me into being than he can put molecules together to create a tree.”

      When Rose Wilder Lane visited the Soviet Union in 1919, she was still a Communist. In Russian Georgia, the villager who was her host complained about the growing bureaucracy that was taking more and more men from productive work, and predicted chaos and suffering from the centralizing of economic power in Moscow. At first she saw his attitude as merely “the opposition of the peasant mind to new ideas,” and undertook to convince him of the benefits of central planning. He shook his head sadly.

      “It is too big – he said – too big. At the top, it is too small. It will not work. In Moscow there are only men, and man is not God. A man has only a man’s head, and one hundred heads together do not make one great big head. No. Only God can know Russia.”

      http://chicagoboyz.net/archives/35432.html

    5. neal Says:

      Grandpa hopped up a model T out of the Sears catalogue and ran shine with Colonel Sanders.

      Hot rods, NASCAR, spread of southern fried chicken.

      And then we landed on the moon. And left old hot rods on blocks, just because we could.

      And golf balls. These balls are not going to make themselves.

    6. Rich Rostrom Says:

      I don’t know that it’s “autarky”. China is about a quarter of the world’s industry. It seems reasonable that they should want to be able to do any part of it.

      Not that they have to do it to replace all imports – but a country that makes vast amounts of almost everything still being entirely dependent on outside supplies of a fairly mundane manufactured good seems not right.

    7. PenGun Says:

      You would be foolish to discount China. It’s somewhat exhausted from raising an obscene amount of people from peasants to middle class. It is behind in a few areas, that rather naturally flow from this amazing feat.

      They are learning to make decent jet engines, only a few in the world can make good ones, and that’s a rather good way to rate their position on a scale of worldwide expertise. They are well caught up in others and I expect them to achieve full first world status in 10 – 15 years.

      Then you should learn Chinese.

    8. T Says:

      Third–the example should also clarify the point that the highest value in a product supply chain does not necessarily lie in the assembly of the final product. [David Foster]

      For me the most fascinating part of the process is the machines that make the components and the people who conceive of how to do that–oftentimes at amazingly rapid speeds. There are some incredibly creative people out there.

    9. uofo Says:

      The problems with Chines also with most Eastern Europe countries is the quality of manufacturing also the quality of product.
      I remember when I was kid, there were small toy as Forge made in China with key to turn around then when put of the floor start jumping. that toy not lasting more than 2-3 day although it was very cheep as 10 cent. this was 50 years ago. in same time we had US made fan the mark for that fan is FASTO that fan last for years I had one till 1995 working smooth and reliably. I gifted to one my friend as he asked me about it.

      Also We had Fridge, US made lasting 60 years without any repair whatsoever running all time.

      As for military side its very laughable, I graduate in 1978 as electronic engineer, worked on SAM radar station while my study was all about IC / Chips from Texas instrument and all those series of integrated circuits we trained to service those SAM 2 Radar Station with Valves!! those SAM 2 Anti aircraft missile fitted with control circuit build by Valves. which was shook for us also need continuous tuning to get things working right.

      I do not think with my self and I have believe you can’t compare products manufactured in China or other countries with US or UK, Germany or Switzerland or Finland
      with the rubbish coming from China.

    10. Steve Korn Says:

      After reading this, I too like Grurray immediately thought of “I, Pencil” first published in 1958.

      The technology to produce 1 wooden pencil is beyond the capability of any one person, firm or nation. And since 1958, commercial complexity has gone up many times since then with dependency on electronic supply chain linkages.

      I don’t know what form the next attack will take…but at some point it will attempt to wreck havoc with the US Supply Chain and/or infrastructure.

    11. CapitalistRoader Says:

      There’s a fourth angle: What is the market for ballpoint pens? With smart phones and personal computers, I would think that the market is much smaller than it was thirty years ago and, barring EMP bursts crippling those devices, the market for pens will shrink. Why invest in a dying product?

    12. dearieme Says:

      But America will now produce Yuge tips for Great ballpoint pens.

    13. Mike K Says:

      “I expect them to achieve full first world status in 10 – 15 years.”

      Just like Brazil will be a world power in 10 to 15 years.

      China has huge problems with central control and the western provinces. The empty cities and empty malls are one symptom.

      They are also shackled to the consequences of the one-child policy. I think it was Mark Steyn who said they will get old before they get rich.

    14. PenGun Says:

      ” China has huge problems with central control and the western provinces. The empty cities and empty malls are one symptom.

      They are also shackled to the consequences of the one-child policy. I think it was Mark Steyn who said they will get old before they get rich.”

      They also have infrastructure that makes the US look pretty bad. Any world traveler will tell you the contrast between airports in China and the US is rather large, and not in America’s favor.

      As America, if you don’t get off your collective asses, has steadily failing and neglected infrastructure, and as China is building, perhaps a bit much for sure, it’s infrastructure up, I would not be too cocky.

      And of course betting against Mark Steyn is always worth doing, he is not a smart person.

    15. Mike K Says:

      “betting against Mark Steyn is always worth doing, he is not a smart person.”

      And you are, of course.

      You must know there are other places that have great infrastructure. Have you flown on Emirates airline ?

      When there is no incentive to economize, you get big projects.

    16. Steve Korn Says:

      Centrally planned economies can do large projects well…big dams, airports, power plants, aircraft carriers, etc. That’s about it for complimenting China.

      Command-and-control economies fail to serve the needs of individuals since central planning cannot replace a market economy for efficiency or effectiveness.

      China is trying to have it both ways…we’ll see how well that works out.

    17. MCS Says:

      The joke’s on them. The best pens use either tungsten-carbide or ceramic balls. The production technology is, essentially, the same used to produce ball bearing balls. This is more than 100 years old. The socket is produced with machines identical to those used to produce watches and clocks. This is far older technology.

      Bearing balls are possibly the man made objects closest to ideal perfection. The inner and outer races are a close second. Both are necessary for a bearing to last through millions of revolutions and tens of thousands of hours as they routinely do.

      This is not true of Chinese branded bearings. Their quality is abysmal. These quality issues still plague Russia as well. Items manufactured under close Western supervision have Western quality, albeit, much higher reject/rework rates.

      If I wanted to, I could estimate the number of otherwise empty shipping containers it takes to transport the required number of balls. My guess is 1 or 2. The market for these parts isn’t big enough to support more than a few producers, this is why production is still centered in the most expensive location in the world.

      I’m personally not looking forward to boarding my first Chinese designed and built airliner. I notice that, not withstanding the fact that the Chinese (pre-crash) had the largest ship building industry in the world, all of the super sized cruise ships based there are built in Germany, Italy and France. None from the U.S. either.

      On the other hand I would find much of the talk of globalization and free international trade more convincing if it was possible to walk into a Ford or Chevy dealership in Bonn or Tokyo. Instead these deals always seem to work one way.

    18. ed in texas Says:

      I worked for a number of years in manufacturing in the US (still do), for a multinational company with production subsidiaries in China (and elsewhere). I will say that abilities of Chinese production equals what’s available in the west. However, their Quality Control basically, well, sucks.
      Mostly people don’t understand that Production and Quality are two separate paths that run in parallel in in a successful operation. Let them get out of balance at you make, at one extreme, nothing, and at the other, you make crap.

    19. newrouter Says:

      ““I, Pencil” about the dizzying array of unseen inputs that go into a simple product”

      The pencil is just a thin piece of graphite; all the rest of it is ornamentation. So I Pencil = propaganda.

    20. PenGun Says:

      And of course the pencil ends at the eraser… head:

      https://www.youtube.com/watch?v=dU7OqGCIcak

    21. Jason In LA Says:

      “On the other hand I would find much of the talk of globalization and free international trade more convincing if it was possible to walk into a Ford or Chevy dealership in Bonn or Tokyo. Instead these deals always seem to work one way.” – MCS

      GM sells more cars in China than in the United States.

    22. MCS Says:

      Dito Europe, none built in the U.S.

    23. Mike K Says:

      “Production and Quality are two separate paths that run in parallel in in a successful operation. ”

      The Chinese made heparin created quite a scandal a few years ago.

      Some of it is still not over.

      China’s huge pig population is the reason why the country is a superpower when it comes to making heparin, an anticoagulant used around the globe during heart surgery and dialysis as well as for the treatment of deep vein thrombosis. The country accounts for half of the world’s heparin production.
      Pig intestine mucosa is currently the only approved raw material for producing the heparin sold in most of the world, including the U.S. And given that each mucosa yields only a few grams of heparin, China’s huge pig population is essential to the world’s supply of the drug.

      Ensuring the safety of a substance that is extracted from pig organs thousands of kilometers away poses a great challenge for U.S. regulators, as well as for companies that source heparin to formulate heparin sodium solutions and other treatments based on heparin.
      The risks inherent to this long supply chain became apparent in 2007 and 2008 after hundreds of patients in the U.S. and other countries suffered severe allergic reactions to Chinese heparin that had been adulterated with an unapproved additive. More than 80 people died in the U.S. alone.

      My daughter has visited China several times and has friends there. On her first trip a few years ago, they went out for breakfast. Her friends told her to avoid the fluffy looking muffins. They contained detergent to make them fluffy.

    24. MCS Says:

      When auto parts imported from Japan first became common, I thought: “When Ford buys an alternator from Autolite, there’s a fair chance the guy that built it would buy a Ford. The Japanese part: 0 chance.” And so it has come to pass.

      Of course, I replaced the American made parts a lot more often. China isn’t the only place that has quality control problems. Theirs are compounded by corruption at every level of government.

      All of the successful Chinese producers of high tech are linked closely to outside, mostly Taiwanese, companies or directly supervised by Western customers like Apple. The auditors and inspectors can and do stop production lines or even end contracts and refuse deliveries. These jobs come with a distinct share of risk, especially for Chinese nationals.

      As for all of the bright new infrastructure, it’s all new, I suspect that the shine will wear off and the edges fray rather quickly. It’s a lot easier to build a train station or railroad when you can use the police to simply roll over anyone who objects and property rights are whatever the local Party says they are, subject to remuneration of course.

      All of this will probably improve. I’m old enough to remember when most of these observations about the quality of manufactured goods were made about stuff from Japan. Not many years latter, we were going to Japan to learn how to build cars and a lot else.

      Where would China be without the thirty lost years and many millions of lost lives?

    25. PenGun Says:

      “All of the successful Chinese producers of high tech are linked closely to outside, mostly Taiwanese, companies or directly supervised by Western customers like Apple. The auditors and inspectors can and do stop production lines or even end contracts and refuse deliveries. These jobs come with a distinct share of risk, especially for Chinese nationals.”

      You have no idea:

      https://www.youtube.com/watch?v=hp6F_ApUq-c

    26. Mike K Says:

      There is no point that PenGun is incapable of missing.

    27. PenGun Says:

      You should get over your extreme defensiveness. I know things aren’t going well but making up stuff to make yourselves feel better is not smart.

      China will overtake the US in almost every way in the next 50 years. You should get used to that. Pretending they are backwards, low intelligence, copycats is just ridiculous.

      As Jack Ma said at Davos, no one is stealing your jobs. The US has thrown away maybe 40 trillion in the last 30 years, fighting your halfwit wars across the planet. That would make a profound difference invested back into your country. It’s that lack that has broken you. You might remember that old saw “he who lives by the sword dies by the sword”. As well the 2008 criminal collapse cost you 20 trillion, and the rest of the world much more.

    28. Mrs. Davis Says:

      China will overtake the US in almost every way in the next 50 years.

      Especially immigration. People all over the world will be striving to speak Mandarin as well as PenGun so they can emigrate to China. Just like they move to Japan.

    29. PenGun Says:

      Actually you have it backwards. The Chinese are everywhere. They are gobbling up business and resources with trade all over the world. They are setting up Chinese trade missions everywhere. The Silk Road concept is just a fat physical pipe to Europe.

      They have already bought up a vast amount of Vancouver just across the chuck from me and our trade with them is set to increase substantially. I don’t believe Canada has ever made a deal with the states that they did not get screwed on.

      I don’t have to leave my Island Paradise, they will come to me, undoubtedly speaking English.

    30. Mike K Says:

      “They have already bought up a vast amount of Vancouver just across the chuck from me and our trade with them is set to increase substantially.”

      Do you know why they are buying things in the US and Canada ?

      They want to have a foothold in a stable nation if things blow up at home. One of my students was going to medical school in the US so she could care for her parents. She said China was unreliable as a retirement place. Her mother was high status as a professor at Beijing U.

    31. Mike K Says:

      “Pretending they are backwards, low intelligence, copycats is just ridiculous.”

      Nobody is saying that. There is a reason why 20% of the US Army recruits in Los Angeles are Chinese nationals. They are going for citizenship in an Army program for legal aliens.

      Why do you suppose they are doing that ?

    32. PenGun Says:

      “Do you know why they are buying things in the US and Canada ?”

      Yup, we are a resource monster. As well we are a real first world country, and have a social environment that is multicultural. They love Vancouver. They are buying up the US too?

    33. Mike K Says:

      They love Vancouver. They are buying up the US too?

      I know there are condo complexes in Vancouver that were never offered for sale in Canada.

      As far as the US, yes they are investing in real estate, just like Japan did in the 80s before their economy imploded.

    34. Grurray Says:

      Here is a significant one. Foxconn to invest over $7 billion in America and create tens of thousands of jobs.

      Since the election I have been seeing news on a daily basis about foreign businesses moving to the US.

    35. PenGun Says:

      And Jeff has said Amazon will create 100,000 jobs in the US in the next 18 months. Foxconn, well 7 billion is really peanuts these days. Still the Donald must be placated. ;)

    36. Grurray Says:

      MCS, “The production technology is, essentially, the same used to produce ball bearing balls. This is more than 100 years old. The socket is produced with machines identical to those used to produce watches and clocks. This is far older technology”

      The concept may be old, but the article states modern precision tools are needed for high volume production. On top of that, special micro-elements are added to the alloy to make it hold up to manufacturing and last a long time, which means the Chinese have the added problem of obtaining necessary tribal knowledge. These are artisanal qualities embedded in the quantities of mass production, often dependent on the culture they emerged from. Certainly not impossible to overcome, but it will require more than simply stealing the necessary formulas and procedures and mandating the standards onto their industry.

    37. LetsPlay Says:

      No one seems to give the US credit for all the technology transfers that happen, legally and illegally, with China.
      But once China has the info, what to do with it is the next challenge. Getting the right people to do good, hard work is a big challenge.
      Check out Mr. Chabuduo “close enough” mentality. In America, this is mostly known as “good enough for government work!”
      https://aeon.co/essays/what-chinese-corner-cutting-reveals-about-modernity

    38. David Foster Says:

      LetsPlay….very interesting link, thanks!

    39. CapitalistRoader Says:

      Taiwanese and Singaporean owned manufacturing facilities in the PRC are every bit as modern and well run as their home country counterparts. And there are tens of thousands of those foreign owned facilities throughout the PRC, although Guangdong province–which includes Guangzhou, Shenzhen, and Dongguan–probably has the highest number of foreign owned facilities. From experience auditing some of those facilities I would rate them right up their with any in Europe, the US, or Japan.

      It’s risky though, with intellectual property rip-offs coupled with massively corrupt government at all levels. If Trump and the GOP congress can get the corporate tax rates down and regulatory burden reduced, and if energy stays cheap as it is now, my guess is that some higher-end manufacturing will move from the PRC to the US.

    40. PenGun Says:

      LetsPlay it’s certainly an interesting juxtaposition of terrible infrastructure and rapid development that China presents us with. The bit you linked is useful but I have developed a taste for the various vloggers that do China, for a far more in depth study of the county and society.

      Both Sepentza:

      https://www.youtube.com/user/serpentza/featured

      And laowhy86:

      https://www.youtube.com/user/laowhy86

      Live and work there and their take is very useful, well to me anyway.

    41. Grurray Says:

      My experience with Guangdong suppliers has been the companies may have good equipment and a good reputation and look good, but if you don’t keep up with them checking on them constantly the work will get farmed out the back door to other operations that don’t do nearly as good a job. I also got the impression that when they let their people out for Chinese New Years, many didn’t come back, so there was a lot of turnover. I remember one time there was some natural disaster, like a huge flood or something. Half the company went back home to clean up the mess and never returned.

    42. Mike K Says:

      the companies may have good equipment and a good reputation and look good, but if you don’t keep up with them checking on them constantly the work will get farmed out the back door to other operations that don’t do nearly as good a job.

      It’s interesting that years ago this was an issue with Taiwan boat builders.

      There were some beautiful cruising sailboats built in Taiwan.

      One later one was CT 41, which had a lot of problems.

      The Cheoy Lee 41 was better and looked great but the later ones had problems with quality of construction. The hardware was also a serious matter.

      The Kelly-Peterson 44 was US designed and Taiwan built and had good quality. They were earlier, about 1976.

      Early Taiwan boats were well built but layer ones lost a lot of the reputation.

      Some of this may be similar to China manufacturing.

    43. MCS Says:

      Grurray, We probably mostly agree. My initial point was that the techniques for making itty-bitty balls that are nearly perfect mathematical spheres is pretty old and widely distributed. The metallurgy is probably orders of magnitude more involved. both are also continually improving.

      My main point is that these pen parts are small potatoes. The ability to produce the individual elements and then assemble them into “rolling element anti-friction bearings” is big potatoes indeed. This is at least part of the reason that China still hasn’t developed military turbine engines even as good as the Russians. The rest of the reason is probably a really long list with metallurgy at the top.

      The whole thing reeks of pretense. It’s as if Eisenhower announced that the USDA had succeeded in developing a variety of cabbage that made borscht as good as any in Russia after Sputnik.

    44. CapitalistRoader Says:

      I never experienced any problems with Guangdong based suppliers but all those vendors were foreign owned or Hong Kong owned. I did experience quality problems with an government owned factory in Xi’an. From what I gathered Mao moved most electronics manufacturing to Xi’an in the 1950s and 1960s because it was out of US bomber range and as a result that city ended up being the PRC’s high tech hub until Deng opened up the Special Economic Zones in Guangdong.

      In any case, the government owned factory I audited was dirty, disorganized, and unsafe. At one point during the audit I noticed a female employee gluing parts and her head was right above a pot of contact adhesive, with no ventilation of the VOCs. Management didn’t seem to give a damn when I inquired about the employee’s health.