Tech

The Ballpoint Pen as an Economic Case Study

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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.

What are the Limits of the Alexander Analysis?

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Edward Porter Alexander, who was Lee’s artillery commander at Gettysburg, became a railroad president after the war.  His experiences in running a major transportation system probably had something to do with the evolution of his thoughts regarding state’s rights:

Well that (state’s rights) was the issue of the war; & as we were defeated that right was surrendered & a limit put on state sovereignty. And the South is now entirely satisfied with that result. And the reason of it is very simple. State sovereignty was doubtless a wise political instution for the condition of this vast country in the last century. But the railroad, and the steamboat & the telegraph began to transform things early in this century & have gradually made what may almost be called a new planet of it… Our political institutions have had to change… Briefly we had the right to fight, but our fight was against what might be called a Darwinian development or an adaptation to changed & changing conditions so we need not greatly regret defeat.

I think a lot of the belief in unlimited globalization is implicitly driven by an extension of Alexander’s argument, with the jet plane, the container ship, and the Internet taking the place of the railroad, steamboat, and telegraph.

How far does this extension make sense?  If the ability of locomotives could pull trains across the United States in three days meant that full sovereignty for individual states was obsolete, does the ability of jet airplanes to carry passengers and freight anywhere in the world in less than one day similarly imply that full sovereignty for nations is obsolete?

I suspect that most people at this site will not agree with a transportation-based argument for the elimination of national sovereignty.  So, what is valid and what is invalid about Alexander’s analysis, and what are the limits for the extension of its geographical scope?  Discuss.

Updating Apple Products Part II

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In a recent post I discussed the spate of updates that have occurred in my Apple products including a new iOS for my work and home phone, a new iOS for my iPad, a new iOS for my Apple Watch, and a new operating system for my Mac.

Apple Watch

Let’s start with the Apple Watch. The Apple Watch is an evolutionary product and the jury is out on whether or not it will be a giant part (“move the needle”) of the Apple portfolio. Personally, I find the Apple Watch to be very useful because I can get notifications when big events occur (for instance, I was the first to say “Prince is dead” in a big meeting) or just to be reminded when texts happen and I don’t have my phone on. It also is good for sports score notifications and tracking workouts. Finally, you can also always know if someone is calling you even if the ringer on your phone is off, and you can answer it “Dick Tracy Style” on your wrist (if you want to annoy everyone around you).  Here is my review of the Apple Watch from 2015 when I bought it.

Apple Watch iOS 3.0 is OK. The watch seems a bit faster. They made it easier to utilize some popular apps like the workout app and incorporated some other improvements here and there. I can’t take advantage of all the iOS 3.0 features because my older Apple watch doesn’t have some of the features like the built in GPS that comes with the new watch.

Mac OS Sierra

There has been a lot of noise in the press about Apple not updating their core computers and even letting Microsoft steal their thunder with the new Surface tablet.  However, Apple deserves immense credit for making their OS upgrades work effectively even on older model machines – for instance the Macbook that I am writing this blog post on is from 2011 (my friend Brian installed an SSD and more memory which I documented here).

The most important elements from my perspective are the continued integration of the Mac OS with the iPad and iPhone devices.  With this upgrade I now can easily share a single photo stream (which will get its own post since it is so complicated), use Apple music easily across devices, and use key apps like messenger, notes, ibooks, contacts and Facetime (mostly) seamlessly.  Siri also works on the Mac now which is fine for most people but I don’t use Siri much so it is irrelevant to me.

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This is Why We Can’t Make Nice Things

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A positive review of General Electric stock points out that the company is less exposed to the oil market than it was prior to the Baker Hughes spinoff…and then goes on to say:

Gone too is the iconic firm’s appliances business, which was sold to Chinese firm  Haier. This is really a progression of the economic cycle. While folks like President-elect Donald Trump and financial provocateur Peter Schiff lament that Americans just  don’t make stuff  anymore, at a certain point, advanced economies should outsource physical work to less-advanced countries. It’s not so much a matter of ability as it is financial efficiency.

Does this writer believe that GE should also divest the jet engine business, the power generation business, and the transportation (locomotive) business?  All of these businesses make physical things, and make substantial amounts of those physical things in the US.

The idea that manufacturing is devoid of intellectual content and hence unworthy of advanced economies is fallacious and has done serious harm–see my post Faux Manufacturing Nostalgia.  Happily, this attitude has turned around substantially since I wrote the linked post..to the point that manufacturing is being practically over-romanticized…but islands of the “who needs it?” view still exist.

GE’s reasoning for divesting Appliance seems to have been centered on a desire to focus the company on business-to-business markets rather than consumer markets and, and also, I think, on a perception that there was not sufficient room in the appliance world for product differentiation and a technology edge.  “Technology edge,” rightly understood, includes the complexity/difficulty of manufacturing something, not just the intellectual property embedded in the product itself.  It certainly did not reflect any conclusion that manufacturing is inherently a low-value function.

It would be silly to argue that a computer programmer in a bank is a “knowledge worker” and a programmer in manufacturing is not.  It would be equally silly to argue that a bank branch manager is inherently performing a more highly-skilled job than a shift supervisor in a factory, or that a first-level customer service rep for Amazon is performing a more advanced kind of work than an assembly line worker, or that an operations research expert doing inventory studies for a manufacturing firm is less of a knowledge worker than his equivalent doing inventory studies for Target.  But this is implicitly the argument that many of the ‘we don’t need manufacturing here’ crew have been making.

This dismissive attitude toward a vast and complex industry which supports millions of people represents one more example of the constellation of attitudes against which many people rebelled when choosing to vote for Donald Trump.

Technology and Offshoring

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Thought question: If Henry Ford had been able to have the Model T manufactured in Mexico by people making 50 cents a day…and with no need for the assembly line and related productivity-improving technology…would that have been equivalent, in terms of its economic, social, and political consequences, to making it in Detroit on the assembly line with workers making $5.00/day and a 10:1 reduction in unit labor content?