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The New European Federalism - Joost de Jong

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  • #31
    Re: The New European Federalism - Joost de Jong

    Dear c1ue - indeed my thanks for taking the time to make your comments. It is good to delve into the very roots of the policies we profess.


    First, I would definitly agree with you that price alone is not a sufficient guide to success. There are definitly subjective values such as perceived quality, status, and availability which influence price as well. However, in an economic environment where these factors can operate without interference they can find their own mix and come to a price level matching the cultural and economic environment for each region.

    As for supermarkets in the US, Europe, and Japan; having spent considerable time in all of them, I must say that they are remarkably similar. The cereal section, including kids negotiating chores in exchange for the sugary/chocolate renditions, are pretty much the same in all of them. Personally, I can not tell the Carrefour in Suntec City / Singapore apart from their store in Murcia. Sure, the product mix changes according to local tastes, but you would find your way through them without any trouble.

    I am also a firm believer that the selection of products and their prices in stores reflect the customer, and not vice-versa. If Americans indeed prefer cheaper but lower quality products, than that is what US stores will carry. There are powerful cultural reasons why Japanese and Germans prefer higher quality products, and they have shown the willness to pay for them. But do not underestimate the power of bargains. Low cost direct distributors/retailers in Germany such as LIDL and LOFT in Japan have cut out layers of distribution in order to offer better prices to their customers for medium quality goods. They have certainly demonstrated great success through these strategies. But, as per your point, on the whole, there does exist a tacit recognition in these countries that the pursuit of lower price at the expense of all else does little to ensure that the manufacturer of a given product will be around in the future to support or replace a given acquisition.

    As for your other point, substitute German for Chinese: that holds true even more. The Germans are able to overcome major cultural barriers on the sheer power of their reputation for quality. Think of all the Mercedes and BMW cars sold in Israel as an illustration. No, the Chinese have certainly mastered the art of low cost manufacturing, but they still have a long, long road before them untill they will have mastered branding. The Japanese spent decades moving from low cost manufacturer to having viable brands. Korea is on the same path, lagging Japan by 15 to 20 years. We have yet to see a Chinese company seriously attempt to market it is own name and reputation in the US and European markets.

    Another good illustration is the Apple iPod. As far as I understand, most of these are made in China. However, the bulk of the value goes to Apple and the retail channel. Why? Apple owns the intellectual property, design, software, and a 30 year reputation for clean and innovative design. It could probably even pull manufacturing to the US if it desired to do so. At the moment that manufacturing becomes more capital than labor intensive, it would be cheaper to manufacture in a high wage but better organized economic environment.

    As it happens, there is a lot of chinese investment here in Spain. There are entire industrial areas now taken over by Chinese distributors. As yet, the sell little more than low cost sunglasses, handbags, luggage, toys and clothing. Cost is the sole factor. Are they successful, yes, but so far in very limited markets. Mostly disposable non-branded goods. There are still major regulatory changes, brand development, and a whole generation of acceptance before the Chinese will be able to sell higher value premium goods.

    And lastly, regarding will lowering prices offset long term job losses. Yes they do. The old perception problem is that job losses due to free trade are specific and identifiable, while the gains are diffuse. The best example I remember is when the US textile industry went into a freefall. The cost to society for each textile job protected ran somewhere North of $225.000. We would have been better off retiring each textile worker to a year long cruise and have us purchase Italian designer clothes instead. It is just that the extra cost per item due to protectionism might be something as trifling as 50c or $1. However, the added cost when seen on a national scale can give an indication of the true burden of market protections.

    Comment


    • #32
      Re: The New European Federalism - Joost de Jong

      Originally posted by LorenS View Post
      The more the problem and it's consequences are distanced from those making the decisions the bigger the problem is allowed to get. That's simple, established control theory. Phase delays in the feedback loop make the loop unstable.
      I wish more people appreciated this fact, particularly with regard to interest rates and the Taylor rule.
      It's Economics vs Thermodynamics. Thermodynamics wins.

      Comment


      • #33
        Re: The New European Federalism - Joost de Jong

        Originally posted by joost View Post
        However, for all their imperfections, it is far preferable over the alternative, which would be a loose association of vulnerable nation states. I do not see how these would make smarter decision. Besides, what is the ideal size of a nation state? Should Italy break up into two nations with separate currencies because the North and South's economies operate differently. How small do you need to go before this argument becomes nonsensical?

        I can certainly see your point about the dubious abilities of large centralized government. However, alternative is far worse. Besides, do not confuse a strong federal government with Soviet central planning. If you look at how both the US and the EU are developing, it is clear that some powers should be federal, others should be at the member - state level, some should be local. Allocating powers, raising taxes and its subsequent spending then should shift according to the same criteria.
        There is a certainty in your statement: "However, alternative is far worse" that I have to admit I find a little disturbing. You seem to be entirely on the side of gathering profoundly, distinctively, different nations into one super State and justifying your hypothesis on circumstantial evidence.

        For a start, you profess to assume that the United States only became successful because of the grouping of the "States" into a Federation. I would instead argue that the decline of the United States started with the recognition of the ultimate power available to the central executive; by the executive.

        That the differences of the original, mostly once native European populations, now US citizens, was the great strength. By the same token, the whole European experiment is showing the same inherent difficulties; where, if it was so supremely successful, then why would it need to restrain the ordinary people from openly voting for the changes to the likes of treaties or constitution?

        And, once any group, in any nation, starts to refuse to accept the opinion of the general population, surely they have already lost control even though to their viewpoint, they are in total control? Moreover, trying to subjugate the population by weird 'social' mechanisms, always, eventually; leads to self destruction. Eastern Europe being an excellent example. Eventually it all breaks apart when the general population stop in their tracks and start to shout "Enough!"

        The inherent problem with the Global view of trade is that it simply does not create enough jobs. Particularly interesting and exciting jobs to catch the imagination of the young people, the new citizens, coming out of education. But to be able to do that, then everyone has to recognise that the small matter of diversity is essential to the job creation process. Here in the UK we are presently short of roughly six million new jobs, and that disregards the needs to replace many existing jobs. What you have believed is a solution; is wrapped around your imagination and has cloaked you from the true understanding of where your perception is wrong footed.

        History will have to be my guardian as this will take many decades to unravel; but as I see it, we are on the wrong side of full circle and the wheel has to come back to the beginning. The only solution is wide diversity, many individual skills, many, many, different suppliers; all producing similar products, but each designed very particularly; for the local marketplace to suite the needs of their local populations. A true free market solution, where ordinary people make the decisions and create their own solutions.

        So, while I respect your viewpoint and will defend your right to your opinion to the nth degree, I disagree.

        Comment


        • #34
          Re: The New European Federalism - Joost de Jong

          Originally posted by Joost de Jong
          And lastly, regarding will lowering prices offset long term job losses. Yes they do. The old perception problem is that job losses due to free trade are specific and identifiable, while the gains are diffuse. The best example I remember is when the US textile industry went into a freefall. The cost to society for each textile job protected ran somewhere North of $225.000. We would have been better off retiring each textile worker to a year long cruise and have us purchase Italian designer clothes instead. It is just that the extra cost per item due to protectionism might be something as trifling as 50c or $1. However, the added cost when seen on a national scale can give an indication of the true burden of market protections.
          Certainly true that job losses are specific and identifiable - but simultaneously follow-on job losses are not. These are the jobs that depended on the 'primary' jobs; much as the city of Flint, Michigan rose with the rise of GM and is now falling due to the travails of same, so too are the effects of job losses also diffuse.

          The present situation in Latvia, Greece, and a number of other nations is equally a telling example of how free trade is not clearly a beneficial phenomenon.

          While the de-industrialization of Eastern Europe may or may not have been a direct goal of its 'westernized economy', what is absolutely true is that the subsequent loss of manufacturing jobs in favor of service jobs like real estate has left these nations with gigantic fiscal holes with no way to recover.

          Similarly you did not address the conundrum of balance of trade deficits: even most of the developed nations of the EU have this same problem as Eastern Europe - where the chronic balance of trade hence balance of payment deficits contribute ever greater stress to national balance sheets.

          I return to my previous statement: while free trade itself is not inherently evil, in my view an over focus on it is as much an evil as too much protectionism.

          Comment


          • #35
            Re: The New European Federalism - Joost de Jong

            "Same for the military. Europe may be spending more, but gets less "bang for the buck" because it can not concentrate its efforts in these areas."

            Joost, are you saying that Europe is spending more on defense than the United States? Can you cite your sources for that information? Because according to a few public sources, the United States spends more than twice as much as the EU member states combined, as it wages two hot wars and manages a few cold ones. I don't say that's a good use of money. And I don't mean to undermine your otherwise lucid points above. But let's check our facts.

            Comment


            • #36
              Re: The New European Federalism - Joost de Jong

              "While the de-industrialization of Eastern Europe may or may not have been a direct goal of its 'westernized economy', what is absolutely true is that the subsequent loss of manufacturing jobs in favor of service jobs like real estate has left these nations with gigantic fiscal holes with no way to recover."

              It's very hard to generalize about Eastern Europe, C1ue, as I'm sure you know. Much of the de-industrialization resulted less from correcting the gross mis-allocations of industrial assets during the previous decades of command economics, not to mention the economic collapse across all Comecon economies. It was inevitable, westernized economy or otherwise. And the industrial bases of some countries -- Czech Republic and Slovakia come quickly to mind -- have benefited greatly from close proximity to Germany and cheaper/more flexible labor than the German labor force, with a rapid modernization of industry and a surge in industrial wages.

              Comment


              • #37
                Re: The New European Federalism - Joost de Jong

                Originally posted by Prazak
                It's very hard to generalize about Eastern Europe, C1ue, as I'm sure you know. Much of the de-industrialization resulted less from correcting the gross mis-allocations of industrial assets during the previous decades of command economics, not to mention the economic collapse across all Comecon economies. It was inevitable, westernized economy or otherwise. And the industrial bases of some countries -- Czech Republic and Slovakia come quickly to mind -- have benefited greatly from close proximity to Germany and cheaper/more flexible labor than the German labor force, with a rapid modernization of industry and a surge in industrial wages.
                Certainly true, but for Latvia in particular this doesn't apply. Latvia never had the equivalent of the Russian collapse in 1998; it was already firmly digging itself a FIRE hole starting from its independence in 1991.

                From wiki:

                In 1992, Latvia became eligible for the International Monetary Fund and in 1994 took part in the NATO Partnership for Peace program in addition to signing the free trade agreement with the European Union.

                Latvia became a member of the European Council as well as a candidate for the membership in the European Union and NATO. Latvia was the first of the three Baltic nations to be accepted into the World Trade Organization.

                At the end of 1999 in Helsinki, the heads of the European Union governments invited Latvia to begin negotiations regarding accession to the European Union. In 2004, Latvia's most important foreign policy goals, membership of the European Union and NATO, were fulfilled. On April 2, Latvia became a member of NATO and on May 1, Latvia, along with the other two Baltic States, became a member of the European Union. Around 67% had voted in favor of EU membership in a September 2003 referendum with turnout at 72.5 percent
                While certainly no one would mistake Latvia for Germany, at the same time Latvia was once a fairly significant producer of agricultural machinery.

                Where is that industry now? We're not talking about Zhigulys and Trabants...

                And the examples of the Czech republic and Slovakia are also interesting - did these nations experience the same real estate bubbles as in the Baltics?

                I think you know the answer to that.

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