Author Archives: Marc Levinson

My Adventures in Self-Publishing

When my book The Great A&P was published back in 2011, a major commercial publisher handled the copy editing, the design, the printing, and the distribution. My main jobs were the parts I’m good at, the research and the writing. It was a piece of cake.

When I decided to put out a revised edition, I had to figure out how to handle all those other tasks I’m not so good at — or find others to do them. It wasn’t a piece of cake. Now that the book is out, I’ve written an article about my experience for the American Historical Association’s Perspectives on History. It’s called “Self-Publishing a Second Edition: A Historian’s Adventures in Going It Alone.” I hope you enjoy it.

The Post-Zoom World

In March, as much of the country was shutting down to slow the spread of COVID-19, I attended an annual conference. Instead of meeting in Charlotte, our association convened on Zoom. The president’s thoughtful address came off flawlessly. I delivered a paper, moderated a session, and saw a dozen interesting presentations, each followed by animated discussion. By workaday measures, our conference was a great success.

Yet for me, it wasn’t successful at all. I ran into no one in the hallway and met no one for a drink. I had none of the unexpected encounters that make academic conferences worthwhile, and came away with no great inspirations for new projects. And I had very little opportunity to renew ties with friends and colleagues, some of whom I routinely encounter at conclaves such as this. Our conference was less a gathering than a business meeting that just happened to be online. I promise that if we can manage to pull off our next one in person, I will never complain about hotel coffee again.

So when I hear the claim that COVID-19 will change something or other forever, I’m skeptical. Yes, plenty has changed for the time being: road warriors and bucket-list travelers are stuck at home; shopping malls are silent; fine restaurants are reduced to serving take-out; most people are working remotely if they’re lucky enough to be working at all. Some airlines and department stores may die, the gig economy doesn’t seem so cool, and would-be hoteliers have learned that buying a house to rent out on Airbnb isn’t a sure-fire bet.

Yet the fact that we’ve learned new ways of living doesn’t mean we won’t go back to the old ones. Watching travel videos isn’t much of a substitute for being there. While shopping malls were in trouble long before COVID-19, Amazon.com, for all its brilliance, has not figured out how to turn online shopping into a fun social experience. Spending big bucks to carry out a meal in a plastic bag provides the same calories and taste sensations as dining in the restaurant, but it doesn’t provide the same pleasure. After years of complaining about their long commutes, many teleworkers are champing at the bit to return to the office because, well, working alone at home leaves them no office mates to complain to.

My bet is that after we eventually ease out of social distancing, the post-Zoom world will be a lot less different than we might expect. Yes, some of our familiar shops and eateries will have vanished, but the empty spaces they will leave behind will rent for less, offering opportunities for entrepreneurs. Yes, we’ll be wearing face masks on planes for a while, but competitive pressures will drive airlines to offer low fares, and many of us will choose a middle seat in sardine class to save a few bucks. Some big banks will take a beating, but then they’ll go back to packaging speculative loans into incomprehensible securities, because that’s what big banks do. And yes, firms will pay a bit more attention to the resilience of their supply chains, but globalization won’t be put back in a bottle. If anything, COVID-19 has reminded us that much of what matters is indifferent to borders and to national identify, whether we like it or not.

Megamess

The world economy, as you may have noticed, hasn’t been doing so well of late. Economic growth was slowing and international trade languishing even before COVID-19 swept across the globe. Now, we’re tumbling into a downturn that makes the global financial crisis of 2007-2009 look mild. So, of course, it’s the perfect time to introduce the largest containership ever built.

Meet the HMM Algeciras, which was just launched by Daewoo Shipbuilding in South Korea. HMM is the new name of Hyundai Merchant Marine, the last big Korean container line left standing after the collapse of Hanjin Shipping in 2016. Hanjin’s bankruptcy and eventual dismemberment was a direct result of a market flooded with excess capacity due to carriers’ blind enthusiasm for very large ships. South Korea’s government made sure Hyundai Merchant Marine survived, and induced it to build 20 ships with extremely generous subsidies. Eleven more the size of HMM Algeciras are to be delivered later this year.

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These megaships, each capable of carrying as much cargo as 12,000 full-sized trucks, are being built not to meet the demands of exporters and importers, but rather to preserve jobs at South Korea’s shipyards, steel mills, and marine equipment manufacturers. South Korean President Moon Jae-in expressed the “hope that HMM continues to secure a competitive advantage as a Korean national flagship carrier.” Elected officials have to say such things, but the reality is that HMM will be hard-pressed to fill its new vessels with Korean and Chinese goods bound for Northern Europe. They might be the most efficient ships at sea when fully loaded. But it’s more likely they’ll lumber half-empty across the oceans, spouting red ink as they go.

HMM Algeciras is just the latest example of megaship mania. Shipyards in China and Korea continue to turn out enormous vessels, even though the boom in container trade ended long ago. Once the COVID-19 pandemic has passed, globalization won’t go away, but it will have more to do with spreading ideas than with moving stuff in metal boxes. Many of the carriers unwise enough to own megaships are likely to need government help once more as they struggle to clean up a megamess.

No, the Coronavirus Won’t Kill Off Globalization

The spread of COVID-19 has brought much commentary about the impending end of globalization. While the virus has indisputably disrupted the world economy, I think that many of the claims about its impact on international trade are overblown. Globalization is far from dead. Rather, it is changing in ways that were already apparent well before COVID-19 appeared in Wuhan last December.

When people talk about globalization, they often have something specific in mind — the long value chains that have reshaped the manufacturing sector since the late 1980s. These chains emerged after the development of container shipping, falling communications costs, and more powerful computers made it practical to divide a complex production process among widely dispersed locations, performing each task wherever it is most cost-effective to do so.

Value chains underlay the torrid growth of international trade in the final years of the twentieth century and the early years of the twenty-first. During those years, trade grew two or even three times as fast as the world economy, mainly because of increased shipments of what economists call “intermediate goods,” items made in one place that are being sent elsewhere for further processing. I refer to this period as the Third Globalization, because it was distinctly different from other periods — the decades before World War One, the years between 1948 and the mid-1980s — when international trade and investment grew rapidly, but international value chains were uncommon.

Many companies decided where to locate various parts of their value chains based on production and transportation costs. But over time, complicated long-distance value chains often proved to be less profitable than they had imagined. As freight transportation became slower and less reliable, and as earthquakes and labor disputes resulted in goods not arriving on time, executives and their shareholders became more attuned to the vulnerabilities. Minimizing production costs ceased to be the sole priority. 

Companies have taken a variety of measures to reduce risks in their value chains. They are keeping larger inventories in their warehouses, producing critical components at multiple locations rather than in a single large plant, and dividing exports among several ship lines and sending them through different ports. All of these measures help limit losses when value chains malfunction. But all of them make international sourcing more expensive.

For most of the past decade, international trade has grown more slowly than the world economy, reversing the trend of the previous sixty years. Greater care when it comes to arranging value chains is one reason why. COVID-19 offers further reason to be careful. But it is not likely to cause manufacturers, wholesalers, and retailers to give up on globalization. The alternative, relying on a purely domestic value chain that can be interrupted by a flood or a fire, might create risks rather than contain them.

 

The Great A&P Revisited

When it was published back in 2011, many readers took my book The Great A&P and the Struggle for Small Business in America as an allegory about Walmart: the battle between a highly efficient, vertically integrated grocery chain and the mom-and-pop grocers it was driving out of business seemed to parallel the modern conflict between the giant discounter and the locally owned retailers who could not match up. But things change: now, as I publish a second edition of The Great A&P, Walmart has almost ceased to be regarded as a villain, and the merchant most widely blamed for destroying brick-and-mortar retailers is Amazon.

Walmart is, in many ways, similar to A&P. Its sheer size enables it to bargain low prices for merchandise, it runs a highly efficient logistics operation, and it aims to build local market share, especially in food retailing, to gain efficiencies in distribution and advertising. In recent years, it has even followed A&P’s lead by integrating vertically: Walmart now bottles milk in its own plant, contracts with ranchers to raise Angus beef cattle to Walmart’s standards, and last month opened its first beef processing plant .

Amazon, on the other hand, is quite unlike A&P. The brothers who controlled A&P, George L. and John A. Hartford, stubbornly insisted on earning a profit; Amazon founder Jeff Bezos was willing to tolerate losses for years in order to build the business. For all Bezos’s ambition and imagination, Amazon’s rapid rise owed much to the federal government: in 1992, the U.S. Supreme Court ruled unanimously that a state could not collect sales taxes on goods sold to its residents unless the seller had physical presence in the state, which gave Amazon a huge advantage. By the time the Supreme Court unanimously reversed itself in 2018, declaring that its 1992 decision “creates rather than resolves market distortions,” Amazon was well established and hundred of thousands of retail establishments had closed their doors. Amazon also benefits immensely from its ability to capture and use more customer data than its competitors, allowing it to control pricing and product selection in a way that A&P could not. In the twenty-first century, information technology creates economies of scale in ways that were impossible in the Hartfords’ day.

These differences point to the need for fresh thinking about competition. Those who argue that the only test of excessive market power is whether a firm can raise prices to consumers did not foresee that consumers might be asked to pay by surrendering personal information rather than dollars and cents, or that a seller can change prices instantaneously based on an individual consumer’s behavior, or that its trove of information about customers might give an established company an unsurmountable advantage over potential challengers. Unfortunately, the dusty volumes of court rulings about monopoly dating back to the 1890s provide only limited guidance for measuring market power in the digital age.

On Paul Volcker

A dozen years after anyone in the United States last got worked up about inflation, it’s hard to remind people what it is that made Paul Volcker so important. The best I can do is repeat an anecdote reported by William Silber in his 2012 biography of Volcker. The Fed chairman was on a fly fishing trip in Montana in 1982 when he stopped at a restaurant off in the woods, the parking lot filled with motorcycles and pick-up trucks. Three large men stood up at nearby tables and approached Volcker. One pulled a ten-dollar bill from his pocket, extended it towards Volcker, and said, “Excuse me, sir, but I was wondering whether you could sign this…considering that it’s still worth something only because of you.”

That anecdote captures much about those times. Prices were rising at double-digit rates: consumer prices in the United States more than doubled during the 1970s, spreading panic as inflation destroyed the value of retirees’ savings, ate away at wage increases, and made car loans unaffordable. I recall a real estate agent telling me that houses would sell only if the seller provided financing — indeed, that’s how I bought my first home. And this wasn’t merely an economic matter. Serious people had serious concerns that inflation was destabilizing society. Talk of hyperinflation was not unusual.

As I relate in An Extraordinary Time, central bankers, not least Volcker’s predecessors as Federal Reserve chairman, believed there wasn’t much to be done about it. Arthur Burns, Fed chairman from 1970 to 1978, went so far as to say in 1978 that inflation had nothing to do with the central bank. Many economic experts of the day shared that view, losing sleep over whether the country faced “cost-push” inflation or “demand-pull” inflation or monetary inflation or some other variety. “Jawboning” — attempting to talk inflation down — was a favorite remedy, along with price controls, credit controls, and other measures premised on the hope that the government could simply order inflation to stop. The record of success was abysmal.

When Volcker was first suggested to Jimmy Carter as a potential Fed chairman in 1979, Carter’s response was, “Who’s Paul Volcker?” In their first meeting, Volcker made clear that if he took the job, he would act against inflation. Carter, alarmed at an inflation rate headed towards 13 percent, nominated him anyhow. Volcker was true to his word. Carefully navigating the politics, he pushed interest rates sky high. Businesses closed. Auto sales collapsed. The housing market died in the deepest recession since World War II, as millions of people lost their jobs.

The price was high, but inflation broke. Only once since 1982 have consumer prices increased more than 5 percent in a single year. Mortgage interest rates of four percent — unimaginable back then — seem normal. Prices don’t seem higher every time we go to the store. Americans plan their lives without assuming that rampant inflation will destroy their dreams. Those too young to have lived through the 1970s do not realize what a luxury that assumption is.

Paul Volcker did much else before he died on December 8. We owe him an enormous debt of gratitude.

Too Damn Big

Not too long ago, I had a chat with a high-ranking executive at a major container shipping line. The subject was new ships. “Those guys on the operating side always talk about how the bigger ships have lower costs,” he said, shaking his head. “They don’t see the bigger picture.”

The bigger picture is that the container shipping industry’s enthusiasm for size has brought it nothing but headaches. Changes in trade patterns, still in their early stages, are likely to make the problems worse. And yet most of the major ship lines can’t help themselves. In October, Mediterranean Shipping Company, the Switzerland-based company that is the world’s second-biggest container carrier, said it would acquire five megaships, each able to carry 23,000 20-foot containers — equal to 11,500 truckloads. Evergreen Marine, a Taiwanese line, just ordered six ships of the same size. Hyundai Merchant Marine has a dozen ships of that size on order, with deliveries to begin next year. CMA CGM of France, the fourth-largest container line, has several on the way. All of these vessels, it is worth noting, are larger than any containership now in commercial service.

The attraction of megaships is clear enough: if it is filled to capacity, a ship able to carry 23,000 twenty-foot-equivalent units — TEUs, as they’re called — has much lower operating costs per container than a tiddler carrying, say, 15,000 TEUs. But that is a very big “if.” With international trade growing slowly, there’s a lot of unused capacity on voyages from Asia to Europe, and on the reverse voyage from Europe to Asia empty containers, which travel at very low rates, are often the main cargo. The ships are too big to call at many ports and to fit through the recently enlarged Panama Canal, so they don’t serve North America. While a fully loaded megaship is highly efficient at sea, it can cause chaos in port by discharging or loading thousands of containers at a time, delaying customers’ deliveries and erasing many of the putative benefits of large vessels.

Recent economic trends pose an additional challenge. The world’s ten largest container ports all are located in Asia, seven of them in China. This is important for containership economics, because only a very large port is likely to amass enough outbound cargo to justify frequent calls by very large ships. But due to rising wages in China, trade sanctions in the United States, and businesses’ increased attention to risk, manufacturing of many widely traded goods — clothing, footwear, consumer electronics, toys — is shifting from China to such countries as Vietnam, Bangladesh, and even Ethiopia. This shift is visible in the fact that Chinese ports such as Hong Kong, Qingdao, Xiamen, and Dalian, all of them larger than any port in North America, have seen traffic flatten out or decline. Few of the new manufacturing hotbeds, though, export enough to Europe to justify a 23,000-TEU ship dropping by.

A few people in the shipping industry appear to recognize the insanity of the race for size. The chief financial officer of Maersk, the largest container line, said in November that “there are no intentions now to invest in any large vessels.” Cosco, the state-owned Chinese ship line, seems to have retreated from rumored plans to order 25,000-TEU vessels. No doubt, operating such vessels would bring prestige. But when it comes to making a profit, they’re too damn big.

In Search of Economic Narratives

A few years ago, I joined an organization of economic historians. Having written several books on economic history, I thought my involvement in the organization might help me broaden my horizons. But the main debates I heard at the group’s annual meeting concerned whether an equation used the correct variables or an author had adequately accounted for heteroskedasticity. Economic history, as practiced in academia, seemed to be mainly an exercise in regression analysis. Only the most senior professors, free from the demands of tenure committees, dared look beyond their spreadsheets and consider the meaning and implications of their historical research. I let my membership lapse.

I recalled that meeting as I read a recent Washington Post article about the need for economists to tell stories. According to the author, Heather Long, central bank governors from countries such as Australia and Sweden used the annual Federal Reserve conference at Jackson Hole, Wyoming, this past August to discuss the role of narrative in explaining economic policy to the public. A new book by Yale University economist Robert Shiller, Narrative Economics, emphasizes that economic outcomes often depend on public beliefs, and those beliefs are shaped by the stories people hear and remember. “Economists can best advance their science by developing and incorporating into it the art of narrative economics,” he writes.

Unfortunately, these ideas haven’t sunk very deeply into the economics profession, and certainly not into the historical branch of it. Economic historians are few and far between in university history departments; by and large, they’ve relegated themselves to economics departments where their advanced quantitative techniques are appreciated.

Traditional history departments, moreover, seem happy for the economic historians to stay away. There even seems to be a line between business historians, who typically are less addicted to econometrics and are usually housed in history departments, and economic historians, who mainly crunch numbers. I recently met an economic historian teaching at an influential business school who told me that he’s never met the business historians teaching at the same school. He didn’t seem to find that unusual.

The artificial separation of economic history from history has left students in history classes studying political or cultural or social or gender history with little attention to the economic background. Similarly, the public’s knowledge of history often comes from books or television shows in which economic factors are an afterthought. If economists were better at telling stories, their views might get more air time, and the public might have a broader understanding of history. Shiller is right about that.

But telling better stories requires having stories to tell. Economic historians, I would assert, tend to shortchange non-quantitative sources of information — including oral histories and news articles as well as work by historians — in favor of data that can be subjected to the quantitative tools that define academic economics. If economic historians want to offer better narratives, they have to understand that stories should be not only an output, but also an input.

Revisiting the Productivity Slump

Three years ago, in my book An Extraordinary Time, I advanced the view that governments have little power to make their economies grow faster over the long run. Economic growth, beyond the next year or two, depends mainly on productivity growth. Drawing on the experience of the 1970s, I asserted that governments cannot manage this in any predictable way; there have been periods when productivity improved quickly, usually when no one expected it, but slow productivity gains are the normal state of affairs.

Predictably, this viewpoint was not very popular. On the right, the usual suspects insisted that fewer regulations and lower tax rates, especially on capital, would usher in a new age of higher productivity and faster economic growth. On the left, I heard objections that I was condemning workers to stagnant living standards; if governments would spend more on education or infrastructure or research or something, productivity might skyrocket as it did in the 1930s and the 1950s.

I’ve been reexamining this issue, looking at the evidence that has come in since An Extraordinary Time appeared. Unfortunately, it seems to support my case.

In the United States, the much-touted 2017 tax reform, which mainly reduced taxes on business, seems to be doing nothing for productivity. Last month, in its latest economic outlook, the Congressional Budget Office projected that total factor productivity in the business sector, which takes account of capital investments and improvements in workers’ skills as well as output per worker hour, will grow about 1.1 percent per year over the coming decade, about the same miserable rate as in the 1970s and far more slowly than in the quarter-century between 1982 and 2007. The combination of this performance and slow population growth will leave the U.S. economy will be hard-pressed to grow at 2 percent annually, CBO found. That is far more slowly than U.S. politicians of either party claim is possible.

This is not merely a domestic trend. The OECD, the research organization of rich-country governments, projects that labor productivity in the wealthy economies, on average, will be a minuscule 4% higher in 2020 than it was in 2010. Some countries, mainly in Eastern Europe, are projected to do much better. Others, though, are seeing no productivity growth at all, which will make it difficult to improve workers’ wages. The Conference Board, a business research organization, finds that productivity growth is slowing in the major emerging economies as well, holding down their growth potential.

Is there any be cause for optimism about a productivity revival? Perhaps. An interesting article published last year suggests that slow growth in productivity in U.S. manufacturing may be related to outsourcing; the authors, economists at the Bureau of Labor Statistics, suggested that “industries that shift their production process toward greater use of intermediate purchases may be doing so at the expense of innovation.” We’ve seen some evidence over the past several years — predating President Trump’s attacks on trade — that manufacturers have been shortening their supply chains and bringing a greater share of their production in-house. If the BLS economists are right, this could stimulate innovation and hence faster productivity growth in the manufacturing sector.

Manufacturing, though, now accounts for only a small part of the economy in most wealthy countries. It’s no sure bet that faster productivity growth in manufacturing would provide enough of an economic boost to give workers the higher living standards they expect government to deliver.

Shipbuilders’ Shotgun Weddings

There may be no industry that has lost more money over a longer period of time than shipbuilding. If two recently announced mergers go through, governments may finally have figured out how to stanch the red ink—by putting an end to competition.

Governments have long considered shipbuilding a vital industry, largely because shipyards building oceangoing vessels routinely employ thousands of workers and are major consumers of steel. The lion’s share of the world’s commercial shipbuilding after World War Two—nearly two-thirds in 1960—occurred in Europe, more or less on a commercial basis, to replace merchant ships lost during the war. In the late 1950s, when Japan elbowed its way in, government aid for ship construction was relatively minor, except in the United States. Japan’s low labor costs gave it an edge in building oil tankers, while orders for passenger ships, general cargo ships, and then container ships kept European yards busy. But the 1973 oil crisis changed matters abruptly. Demand for tankers plummeted, and trade in other goods was hit hard by the spreading recession. Many ship owners refused to accept delivery of vessels they had ordered but no longer needed. Orders placed with Japanese shipyards fell 90 percent between 1973 and 1978, and the decline was nearly as steep in Europe. Governments began sending money by the boatload to keep their shipyard afloat.

It was at that moment, when the industry’s outlook already seemed dire, that South Korea determined to become a shipbuilding powerhouse. Korea’s rapid industrialization over the previous decade had depended on exports of labor-intensive products such as clothing and footwear. Government economic planners, concerned that rising wages and other countries’ trade restrictions would crush the apparel manufacturers, set a course for heavy industry. In 1972, they opened Pohang Iron and Steel Company, a government-owned steel mill that was perhaps the most highly subsidized industrial venture in history up to that point. This was followed by a shipbuilding development plan, which proposed to build nine shipyards by 1980 and five more by 1985.

Korean shipbuilders previously had made only small vessels for fishing and coastal trade, mainly out of wood. The government pressured industrial companies with no background in shipbuilding to build and operate the new yards, granting them tax holidays, low-interest loans from state banks, and guarantees that let them borrow cheaply overseas. Hyundai the country’s largest industrial conglomerate, was induced to build the first yard at Ulsan, thirty-five miles down the coast from the mill at Pohang, which could furnish steel at low cost. The late Korea scholar Alice Amsden recounted how Hyundai was granted scarce foreign currency in order to acquire foreign ship designs, but was so inexperienced that when it followed a design calling for building an oil tanker in two halves, the completed halves did not fit together. When the buyer refused to accept the ship, the government supported creation of a new ship line, Hyundai Merchant Marine, to take the unwanted vessels off the shipyard’s hands.

As a job-creation strategy, the shipbuilding development plan proved wildly successful. Subsidies to the shipyards and the Pohang steel mill, along with Korea’s low wages, allowed Korean yards to underprice competitors in Europe and Japan. By 1990, South Korea’s ship production was eight times higher than it had been in 1975, while every other major shipbuilding nation was producing far less tonnage than before. Subsidies flowed freely in Europe and Japan, keeping shipbuilders alive and delivering vessels to ship lines at bargain prices.

In 2006, the Chinese government identified shipbuilding as a “strategic industry” and set a goal of China becoming the largest shipbuilding nation within a decade. It backed this up with heavy state investments: thanks to an estimated $4.3 billion of subsidies, two state-owned companies, China Shipbuilding Industry Corporation and China State Shipbuilding Corporation, added more than 100 dry docks large enough to build commercial vessels within seven years. Chinese ship owners—many of them state-owned companies—went on a demolition spree, replacing their older tankers, bulk ships, and containerships with new, highly subsidized ships built almost exclusively in Chinese yards.

China quickly dominated the market for bulk ships, used to transport raw commodities such as coal and ore: between 2006 and 2012, 57 percent of new bulker tonnage worldwide was produced in China. Breaking into the market for containerships, far more complex vessels, was tougher. As late as 2005, almost all large containerships were built in South Korea and Japan.  But with ample state aid, China quickly moved up the learning curve. Building in a highly subsidized Chinese yard cost 20 to 30 percent less than building in a highly subsidized Korean yard. It was no wonder that between 2006 and 2012, China built about two-fifths of the world’s new containership capacity.

Over the past few years, the Korean yards and the Chinese yards have slugged it out, with plenty of government money financing the battle. Now, though, the Korean government has more or less directed the two largest shipbuilders, one of which is already under outright government control, to merge. The Chinese government responded in July by directing the two large Chinese yards to merge.  Between them, the two giant shipbuilders that will emerge from these shotgun weddings will control roughly 56% of the global shipping order book and an even larger percentage of the capacity to build complicated vessels such as mega-containerships and liquefied natural gas tankers. Subsidies are likely to go down, which means vessel prices are likely to go up. When it all shakes out, ocean shipping may be much less of a bargain.