Thursday, June 28, 2007

What That's For

What That's For

As I lay on the ceramic tile floor, grasping my ribs and trying in vain to force my collapsed lungs to suck in air, I saw through my tears a face from my past. Jimmy Brown leaned down close to me and hissed through his clenched teeth, "You know what that's for!"

Yeah, I guess I do know what it was for, but sitting here in the nurse's office it is hard for me to believe that it really happened. You see, the last time I saw Jimmy Brown I was only seven years old. He was an older kid, two grades ahead of me, and a notorious bully. I was a scrawny second-grader, the same way I'm a scrawny seventh-grader now.

When the vice-principle, Ms. Batise-Brown, who is in charge of discipline, asked me who hit me, I lied. I said I didn't know. I'm not sure why I lied. I guess there are a lot of reasons, really. For one thing, by the time she arrived on the scene, Jimmy Brown was long gone, along with any potential witnesses. That means that it would be just my word against his, which is the same as nothing at all. Besides, the way she asked me was more of an accusation that anything else. She stood over me with her feet wide apart and her hands on her hips, no trace of sympathy in her expression. Her attitude told me that I was in trouble, and that helped remind me of the law of all junior high kids: the kid who squeals on another kid is a dead kid. I've never really taken that rule to heart, but one look at Ms. Batise-Brown's cocked eyebrow and surly grimace told me that naming names would get me less than nothing. It could get me beat up for real.

Now that I've had some time to sit here on the green vinyl couch in the nurse's office and think about the whole mess, I've come to the conclusion that the real reason I didn't tell on Jimmy Brown is not that I fear being labeled as a stool-pigeon, or that I'm afraid of being "rubbed out" for breaking the code of silence. Actually the reason I didn't rat Jimmy Brown out is that I don't really blame him for what he did. No, now that I've had a chance to turn the whole event over in my mind, I guess I'd have to blame my second grade teacher, Mrs. Hartstein, for what happened. Either her or a boy named Chin who did nothing more than get picked on by a bully at recess one day. That bully was Jimmy Brown.

The first day that Chin came to Mrs. Hartstein's class, she introduced him as a boy who had come all the way from China to go to our school. "Chin does not speak English," she said, "so we must help him in any way we can." He was seated directly in front of me and without so much as a word passing between us, we became fast friends. "Since he is different," Mrs. Hartstein went on, "the older bullies may try to pick on him. It is your duty," she told us, "to band together and protect him." Having been the victim of bullies myself, I took her instructions to heart. No one would pick on Chin if there was anything I could do about it.

Later that week I say Jimmy Brown pushing Chin around on the playfield. He was laughing as he alternately shoved Chin away and then pulled him back by the collar of his jacket. I was halfway across the asphalt schoolyard, but that was close enough to see the look of confusion and fear on Chin's face. I looked around and saw kids everywhere playing and laughing the way little kids do. No one seemed to be aware of the scene I was witnessing. There was no one I could turn to for support. I stood there, heart in my throat, unable to do more than to clench and unclench my fists. Slowly, everything on the playfield dimmed except for Jimmy and Chin. I saw them as through a tunnel, and as my anger and frustration grew, the words of Mrs. Hartstein rang out in my head: "Protect Chin!"

Suddenly I was running. I wasn't sure what I was going to do, but for the first time in my short life I felt the exhilarating freedom of doing something. As I approached the struggling pair, I thrust my arms out like a linebacker. Jimmy Brown never saw me coming. When we collided, Jimmy's feet left the ground and his body slammed against the school wall. He crumpled into a heap and lay there. Chin looked at me with an expression of shocked relief. Just then the bell signaling the end of recess rang and in the confusion, I slipped inside, escaping any consequences that my actions might have brought about. Until today, that is. As for Jimmy Brown, I didn't see him again until his hissed those words at me, "You know what that's for!"

Wednesday, June 27, 2007

Juanita la Larga

I just finished re-reading a novel by Juan Valera entitled Juanita la Larga. I first read it when I went to study in Spain in 1997-98. Reading it again had special resonance for me, because it tells the story of an older man who falls in love with a much younger woman, and all the nonsense that happens between them and their various friends and relatives.

He was 53, and she was 17. That's a pretty big leap, even compared to the ones I've tried to make.

In the beginning of the novel, Juanita rejects Don Paco's advances, respectful as they are. In the end, however, she realizes that she indeed truly loves him, and they marry and everyone lives happily ever after.

Sunday, June 24, 2007

Taiwan, Japan, and Germany: Miraculous Economies, or Predictable Stories of Growth?

Taiwan, Japan, and Germany
Miraculous Economies, or Predictable Stories of Growth?

Introduction: What is an Economic Miracle?

Since the end of World War II the global economy has gone through drastic changes. One characteristic of these changes has been the emergence of what are called “economic miracles.” Many countries have been assigned this label, including Germany, Japan, South Korea, Ireland, and Taiwan, among others. But what actually constitutes a miracle? Merriam-Webster’s dictionary gives three definitions, the first and third of which have religious overtones—basically the intervention of a deity is required, and therefore can be excluded from our consideration. The second definition, however, is applicable: “an extremely outstanding or unusual event, thing, or accomplishment.” In other words, a miracle happens when something unexpected happens.

Seen from this perspective, it is easy to understand why each country is considered to have experienced a miracle. The aforementioned countries all experienced remarkable growth in a relatively short period of time. Considering the various points from which they started, the accomplishment for these countries is truly outstanding. When we look at Taiwan in particular, there is another aspect to its “miraculous” economic growth: its relatively high level of economic equality. Rapid economic growth is a remarkable phenomenon, but to be truly a miracle, economic growth should be coupled with an equal distribution of wealth. Despite the rapid growth and economic equality being an outstanding accomplishment, however, it may be overstating the case to say that there was anything miraculous going on.

In order to examine what factors may have been driving these miracles, as well as to see which satisfy both the rapid growth and equality of distribution conditions, this paper will look into a few countries whose economies have experienced “miraculous” growth. It will look at the starting point of each country before the miracle began, its geographic location, and the time frame involved. Then it will look into some of the specifics of the growth: how much? How fast? How evenly were the benefits of growth distributed? Finally, it will look at the differences, if any, between these miracle countries.

For each country examined, I will first determine the beginning of the period of rapid economic growth, and then approximate the end of this period. Then I will provide data on the rate of growth per year during that period.

In order to help determine the level of economic equality in each country examined, I will use current UN Gini index figures. The Gini index assigns a value from 0 to 100 to the level of economic equality, with 0 being perfect equality and 100 being perfect inequality. For the purposes of comparison, most European nations have Gini indexes between 24 and 36, and the United States has a Gini index of about 40.

Finally, I will look at some alternate theories that help to shed some light on what was going on in the countries examined. Did actual miracles happen in these countries? Some of the theories I will look at may serve to provide some perspective and lessen the perception that, in light of certain factors, what happened to these economies was really all that unexpected.
Survey of Economic Miracles

There are quite a number of countries that have been considered to have experienced economic miracles. Germany, Japan, Taiwan, South Korea, and, more recently, Ireland, are just a few. For the purposes of this paper, I will limit my discussion to Germany, Japan, and Taiwan.

Germany, located in Western Europe, began its rapid period of growth relatively earlier than most of the other countries. Between 1948 and 1972, Germany’s output per person grew at 5.7 percent (Mankiw, 2003, p. 188). Considering its starting point, its defeat at the hands of the Allies in World War II which left much of the country in ruins, this is a rather impressive turnaround. In 2000, Germany’s Gini index was 28.3 (Wikipedia), Making it about average for a European country.

Japan, and East Asian country, started out in a similar situation to that of Germany. That is, it ended up on the losing side of World War II, with much of its infrastructure in ruins and its economy devastated. In the same time period as cited above for Germany, its output per person grew at 8.2 percent per year (Mankiw, 2003, p. 188). In 1993, Japan’s Gini index was 24.9 (Wikipedia).

In the case of Taiwan, another East Asian country largely destroyed by the war, it’s “GNP increased an average of 10.6% a year in the decade 1963-72, and in the decade 1973-82 . . . it increased 7.5% a year” (Hamilton, 1988). According to the Directorate General of Budget, Accounting and Statistics, Taiwan’s Gini index peaked in 2001 at 35, and has fallen steadily over the past four years (Su, 2006). Taiwan’s Gini index is currently higher than either Japan’s or Germany’s, but it is important to point out that, according to Greenhalgh, in Taiwan, “during most periods economic inequality either remained stable or decline, finally leveling off at a level that is remarkable low by the standards of both developing and developed societies” (Greenhalgh, 1988).

Each of these three countries satisfies the requirements of rapid growth and relative economic equality. Combined with their starting points of having been severely damaged by war, and, in the case of Taiwan, caught up in a wave of immigration and political change, their ability to grow their economies and maintain economic equality is surprising and gives rise to the concept of their having experienced a miracle.

Alternatives to the Miracle Explanation
Demographic Transition

One aspect of assigning “miracle” status to the phenomenon of the growth of any country’s economy is that it tends to inspire the notion that what occurred has an almost magical aura about it. Use of the word miracle makes us feel that what happened has no explanation other than that it just happened deus ex machina. There are, however, other ways of looking deeper into what happened and finding possible alternative explanations, or at least explanations that give a little bit more of a theory to rely on.

One such explanation is found in the examination of the demographic changes that occurred, especially in East Asian countries. Throughout the world, a demographic transition has taken place in the twentieth century. Both fertility and mortality rates have moved from high to low. In the initial stage, both rates are high, and population remains stable. In the second stage, both the birth and death rates decline, but at different speeds. The mortality rate typically declines faster than the birth rate. In the final stage, both rates stabilize and the population growth stabilizes again.This change has been particularly pronounced in East Asia. According to Bloom and Williamson, the so-called economic miracle in many East Asian countries (including Japan and Taiwan), “occurred in part because East Asia’s demographic transition resulted in its working-age population growing at a much faster rate than its dependent population during 1965–90, thereby expanding the per capita productive capacity” (Bloom and Williamson, 1998). They go on to argue that, “This effect was not inevitable; rather, it occurred because East Asian countries had social, economic, and political institutions and policies that allowed them to realize the growth potential created by the transition” (Bloom and Williamson, 1998).

By taking into account such factors as the above cited demographic changes and the institutional structures that leveraged those changes, a little of the mystery is taken out of the economic transition that Japan and Taiwan experienced. The growth is less surprising, and so the perception of it being miraculous is mitigated.

Economic Growth, the Savings Rate, and the Steady State

Another way of looking at the surprising rates of growth that these countries experienced is through economics. One of the basic assumptions of macroeconomic models is that the output of an economy is a function of labor and capital. Capital increases with investment, and decreases through depreciation. When an economy is in what is called the steady state, investment and depreciation are equal, so the level of capital remains the same. As already stated about the three countries we are examining, after World War II, much of their infrastructure had been destroyed. The same was true of much of their capital stock—the property, plants, and equipment used in industry. In such a situation, since the resources needed for manufacturing and other economic activities have been reduced, the output of the economy falls. According to Mankiw, however, “if the savings rate—the fraction of output devoted to saving and investment—is unchanged, the economy with then experience a period of high growth. Output grows because, at the lower capital stock, more capital is added by investment than is removed by depreciation” (Mankiw, 2003). In other words, since output is a function of labor and capital, and capital is growing (through investment) faster than it is depreciating (since it takes time for capital to wear out), for a while output will grow faster than normal. Instead of rapid growth being the result of a miracle, it is precisely what is predicted for this situation in macroeconomic growth models.

The savings rate is especially important to consider in this context. Germany, Taiwan, and Japan have had high rates of saving in comparison to the United States. During the same period cited above for Germany and Japan—between 1948 and 1972—the U.S. economy only grew 2.2% per year, a figure much lower than either of its wartime enemies or Taiwan. According to Mankiw (2003), “If the saving rate is high, the economy will have a large capital stock and a high level of output. If the saving rate is low, the economy will have a small capital stock and a low level of output.” This helps explain why these three economies grew so quickly, but how does it account for the eventual slowdown all three faced? Estimates for the year 2006 put real GDP growth at 2.7%, 2.2%, and 4.6% respectively for Germany, Japan, and Taiwan. Why the slowdown? There may be many factors involved, but in the growth model we’ve looked at, there is an explanation: “Higher saving leads to faster growth . . . but only temporarily. An increase in the rate of saving raises growth only until the economy reaches the new steady state. If the economy maintains a high saving rate, it will maintain a large capital stock and a high level of output, but it will not maintain a high rate of growth forever” (Mankiw, 2003). This means that once the level of depreciation caught up with the rates of savings and investments in these economies, it was predictable that they would all experience a slowdown in growth.
This analysis of macroeconomic theories shows us again that by understanding the underlying factors at work in so-called miracle economies, a phenomenon that at first appears miraculous can actually be shown to have been a predictable outcome.
Technological Assimilation

Another method of accounting for the East Asian miracles is that much of the growth these countries experienced was the result of technological assimilation, as well as the favorable policy environment and the entrepreneurial efforts of firms. Nelson and Howard (1999) put forth the argument that it was protectionism, subsidized credit, and other favorable policies that helped the firms of East Asian countries take part in technological learning and assimilation that led to rapid growth. While policies differed from one country to the next, they assert that, overall, “the policy environment was obviously a critical component of the success in these countries” (Nelson & Howard, 1999).

This policy environment on its own was not enough; it had to be accompanied by the willingness of firms to take chances, and especially to take part in the difficult path of technological learning. This is something that Taiwan did especially well, as we can see in the example that “in 1960 virtually no electronics goods were produced in Taiwan but by 1990 these accounted for roughly 21% of manufacturing exports” (Nelson & Howard, 1999). To most eyes, such a rapid change could be considered miraculous, but to look at it that way seems reductive considering how much effort must have been put into assimilating this technology. As Nelson and Howard (1999) state, “To learn to use new technologies and to function effectively in new sectors required the development of new sets of skills, new ways of organising economic activity, and becoming familiar with and competent in new markets. To do this was far from a routine matter, but involved risk taking entrepreneurship as well as good management.” In other words, East Asian countries like Taiwan did not suddenly, miraculously, acquire the new technologies that they leveraged into rapid economic growth, but did so through painstaking study and hard work.
Conclusion
By examining these three countries and the rapid levels of growth and relatively high rates of economic equality that they posses, it is easy to see why they are often labeled as economic miracles. When a country begins as a third-world, mostly agrarian society, or is devastated by war, or both, and then goes on to experience extremely high levels of economic growth, it is very surprising. However, this paper has tried to show that when one takes a closer look at the forces at work, whether they be demographic, macroeconomic, or due to technological assimilation, the miracle begins to fade and a more realistic perspective can be formed. Is the term “miracle” too strong to use in the context of describing these and other economies? Maybe not. Even removed from its religious context, a miracle is something outstanding, unusual, and quite special, and it is fair to describe the characteristics of these three economies in this way. It is likely that, had any of the various factors at work developed in a different way, these economies could have floundered. Hindsight, as they say, is 20-20. We can look back at the history of these countries and apply whatever theory we like to explain why they grew as they did. The fact is they did grow, and if asked at the beginning of this growth period what their chances were for attaining miracle status, most people would have been doubtful. Perhaps it is in that that the true miracle lies: that against all odds, some economies succeed where others fail. If this is not a miracle, then one would be hard-pressed to find a better term.


References

Bloom, David E. and Jeffrey G. Williamson (1998). Demographic Transitions and Economic Miracles in Emerging Asia. The World Bank Economic Review, Vol. 12, No. 3, pp. 419-55.

CIA World Factbook. https://www.cia.gov/library/publications/the-world-factbook/index.html

Hamilton, Gary G and Nicole Woolsey Biggart (1988). “Market, Culture, and Authority: A comparative Analysis of Management of Organization in the Far East.” American Journal of Sociology XCIV:S52-294.

Mankiw, Gregory N. (2003) Macroeconomics, Fifth Edition. New York, NY: Worth.

Merriam-Webster’s Collegiate Dictionary, 10th edition (1993). Springfield, Massachusetts: Merriam-Webster, Inc.

Nelson, Richard R. and Howard Pack (1999). “The Asian Miracle and Modern Growth Theory.” The Economic Journal, Vol. 109, No. 457. (Jul., 1999), pp. 416-436.

Su, David, (2006). Media's Bias on Economics Shows. Taipei Times Archives. http://www.taipeitimes.com/News/editorials/archives/2006/03/21/2003298479

Wikipedia, List of countries by income equality, http://en.wikipedia.org/wiki/List_of_countries_by_income_equality

Friday, June 22, 2007

Cross-Straits Integration and Industrial Catch-Up

Cross-Straits Integration and Industrial Catch-Up:
How Vulnerable Is the Taiwan Miracle to an Ascendant Mainland?

Edward S. Steinfeld

The chapter argues that a profound, essentially technologically driven transformation has occurred in the organization of production world wide, China’s emergence as a manufacturing hub is only one element of this shift.

In this chapter, Steinfeld makes the case that because of the above mentioned shift, Taiwan finds itself in an uncertain situation. However, also because of the shift—in which economic activities rather than entire industries can be relocated—the situation may not be as dire as some might think.

The Evolving Cross-Straits Economic Relationship
In recent years, Taiwanese investment in mainland China has grown considerably, often due to Taiwanese firms moving their production activities there to reduce costs. This is despite ROC regulations designed to limit such investment. As the text says, “what can be observed are increasingly dense connection between two economies at complementary, phased stages of development, albeit two economies separated by a vast political division.” As China integrates into the world economy, this connection grows and deepens as well.

Shifting Architectures of Global Production and Mainland Chinese Competitiveness
The varying degrees of modularity in production architectures have played an important role in China’s industrial development. This same modularity has also posed certain challenges. Due to the nature of modularized production products (standardized, codified), there are few alternatives in terms of remaining competitive other than high volume and low cost. This poses the risk of being replaced by a lower-priced competitor. The author poses three strategies for dealing with this situation: 1) the producer creates the modularized product that everyone else must design around, 2) the producer can shift away from modularization, and 3) the producer can provide key services like overall product definition, branding, and marketing in order to shape the supply chain.

Because these options all require some degree of innovation, they pose somewhat of a challenge for commodity manufacturers. It allows the rule makers (lead firms) to force rule takers to scramble to respond to their innovations.

Mainland Chinese Domestic Firms: Corporate Structure and “Price Wars”
One of the main characteristics of Chinese domestic industry is the intense competition based on price. Rather than causing a shakeout of smaller, less competitive firms and industrial upgrading, little of that has been in evidence. Instead, there has been the development of a pattern of corporate organization that is unlike that of many of China’s global counter parts. First, Chinese firms tend to be both newer and smaller than their counterparts. Second, the operations of Chinese firms tend to be localized. Third, Chinese firms are relatively shallowly integrated into global supply chains. Fourth, Chinese firms are under intense pressure to upgrade their technological capabilities.

The pressures these firms face force them to try to reduce costs or to rapidly change product lines—processes often thought of as innovative. True innovation and moving into higher value product lines doesn’t often occur, and firms find it difficult to maintain their “innovative” strategies because everyone else can pursue them as well.

Drivers of Mainland Pattern: Style, Capacity, and Policy
The patterns describe result from the interaction between three factors: government reform style, state capacity, and industrial policy. This interaction has simultaneously enabled and constrained Chinese firms’ integration into the global economy, the result of which is those firms are highly dependent on foreign firms that coordinate global supply chains.

Reform Style
The informality and decentralization of China’s reform style which has made it possible to transition into a form of capitalism has also made property rights unclear and financing of firms almost impossible, which has limited enterprise growth.

State Capacity
The Chinese realized that the usefulness of informality and decentralization had served its purpose and began to formalize its market system. Unfortunately, the state’s capacity for this reform was limited, particularly regarding the central government’s ability to coordinate policy across its administrative hierarchy, and in the government’s ability to regulate the commercial activity in the civil sphere. There is a certain level of lawlessness that has lead to a large number of unpaid loans which continues to grow. This causes liquidity problems as firms have uncertain relationships with state banks.

Industrial Policy
The industrial policy pursued by the Chinese government is a “comparative advantage” strategy, in which China uses its relative factor endowments (surplus labor, scarce capital) by specializing in the production and export of goods that require those factor endowments. They have also opened up the markets to competition, both domestic and foreign, in an effort to winnow out the less competitive firms. Because of the modularity of global industry, there is an emphasis on creating environments, rather than firms, and to develop the capability to “accord control and high returns in the international supply chains.”

Industrial Policy and the Building of National Champions
In contrast to the stated desire to use comparative advantage to help reform and shape industrial policy, China also desires to follow the Japanese and Korean models of the past to create “National Champion” firms—self-reliant, vertically integrated pillar firms—which are just the kind of firms that comparative advantage and technological innovation select against. This is probably due in large part because of the degree of control that the old models afforded the state over industry. There are some important differences, however, between China’s situation and those of Korea and Japan in the past. First, the Chinese economy of today is much larger and more diversified than those of the other countries in the past. Second, whereas Japan and Korea aimed to focus limited resources in certain key industrial giants, China’s efforts tend toward duplication of industries throughout the country. Third, the models of Japan and Korea required a high degree of protectionism, which, since joining the WTO, China will have difficulty defending. Even if these conditions did not exist, the two goals (allowing comparative advantage and competition to shape industry and creating large conglomerates) are essentially irreconcilable visions of industrial development.

China’s Emerging Multinationals and the Question of “Catch-Up”
Despite the issues mentioned above, some Chinese firms have been very successful in building powerful brands and in becoming global players. On an industry-wide scale, the Chinese motorcycle industry has been very successful. Most of the success of Chinese firms and industries is based on low cost production, even in more high-tech segments. Product innovation and definition are still beyond the grasp of most Chinese firms. Because of the emphasis on modularity, profit margins are very slim and the low entry barriers make competition very strong. One strategy to overcome this would be to reverse the standardization trend, allowing Chinese firms to control the connectivity between production modules and thereby achieve a degree of vertical integration.

The Issue of Catch-Up
The environment that China occupies today is much different from that of Japan or Korea in the past, in which manufacturing processes and innovation were highly proprietary to individual firms. Today it is activities, rather than industries, that move between countries. Also, in contrast to the past, today the incumbents are not manufacturing firms, but rather engage in high-value non-manufacturing activities. For this reason the relationship between Chinese firms and incumbents is more of a complimentary nature, rather than one of competition. In addition, because of the increased modularity of production processes, the boundary between industries and nations is blurred. For that reason it is risky to emphasize vertically integrated firms. Doing so can cause an industry to become captive to a supply chain, limiting innovation and cross-fertilization. The current Chinese emphasis on vertically integrated, “national champion” firms isolates the best Chinese enterprises from state-of-the-art technology, and limits their ability to become “rule makers.” This results in a widened gap between Chinese firms and foreign lead firms.

Conclusion
Although many manufacturing activities have been moved from abroad to China, it cannot be said that new Chinese global competitors have emerged. “Shifting geography has . . . failed to bring a comparable shift in control and capabilities.” In the old model, new firms could jump in at the low-end of a production process and hope to master the process to the point that it could eventually compete with lead firms. Now, due to modularization, this path to development is cut off. Because of this, Taiwanese firms still possess a strong advantage over Chinese firms.

There are a lot of political and security concerns between Taiwan and the mainland, and the current climate—which impedes cross-straits business—does not help matters. Still, Taiwanese firms, in part due to there deep imbeddedness in networks, maintain a powerful competitive advantage.

Thursday, June 21, 2007

Tale of Two Sectors, From NAFTA to China, Innovation and the Limits of State Power, and From Us to Them

Tale of Two Sectors

This chapter looks at the Taiwanese auto industry in terms of the product life-cycle theory as well as the commodity chain perspective—both buyer-driven and producer driven. It examines three components of the industry: assemblers, OEM manufacturers, and aftermarket manufacturers. Each component faces particular constraints to growth, such as a small domestic market and dependence on foreign (mostly Japanese) technology. The producer-driven segments, assemblers and OEM companies, face the most difficult situation as they are locked into relationships with foreign firms, and there is a demand for high levels of production at low cost. The buyer-driven segment, aftermarket, faces less pressure, more flexibility, and lower demand for innovation.

One strategy that Taiwanese firms have pursued is in creating niche markets for specialized products. They have also sought to build brand recognition, diversified product lines, and market segmentation. Another strategy has been to invest in facilities overseas, particularly in China.

The move to China presents a number of challenges. At the time of the writing of the chapter, there were many advantages of moving production to China—its large and highly protected potential market and low labor costs for example. However, as trade barriers come down, and as Chinese firms start to bypass Taiwan in favor of direct ties to Japanese firms (who provide most of the technology to Taiwanese firms), Taiwanese firms will have to develop new strategies in order to remain competitive.

Policy suggestions for the Taiwan government are 1)encourage standardization, 2) support and strengthen a sophisticated parts testing center, 3) strengthen its role as a clearing house for aftermarket parts and improve communication between key parties, and 4) create collective leverage among leaking aftermarket parts manufacturers. Suggested strategies for Taiwanese firms include selective integration into global production networks, tying into the lower tiers of supply networks, and to seek domination of the largest markets for aftermarket parts.

From NAFTA to China

This chapter examines the implications of the shift of production from Mexico to China in light of the theories of regionalization and globalization—two theories that see the organization of regional trading blocks as leading to a breakdown of national borders and an increased emphasis on free trade. The evidence of many firms moving production facilities from Mexico to China calls into question the assumptions of these theories.

Regionalization dictates that proximity to markets is necessary. However, the evidence examined in this chapter shows that shipping finished goods to far away markets can be cheaper and quicker than sending rich country inputs for labor-intensive assembly in low-wage environments. This means trouble for Mexico’s industries, but it can also provide some opportunity for industrial upgrading and niche-market production.

Taiwanese firms, in light of the lessons of Mexico, should consider investing in distribution and service centers in the U.S., rather than in production facilities in Mexico.

Innovation and the Limits of State Power

This chapter looks at software and IC chip design in Taiwan, focusing on the state’s role in their development in terms of financing and innovation. It also takes a critical look at the neodevelopmental state theories, and contends that their assertion that a state is either neodevelopmental or not is not true, with Taiwan being a case in point (as it has had both successes and failures).

There are a lot of details about how the IT industry is organized and how it works, but much of this we’ve already seen in other readings. I found the most interesting part to be about how the state encourages/discourages firms to follow particular business models. For example, how the regulations regarding paying employees stock options encourages companies to go public as fast as possible, foregoing costly and time-consuming R & D.

From Us to Them

This paper looks at the identity politics of diasporic groups, particularly Chinese and Taiwanese. First it shows how these types of groups form networks across national boundaries that are based on ethnic, racial, national, or religious commonalities, either real or perceived. For example, Taiwanese business people form closer ties to ethnic Chinese people when they do business in Indonesia than they do with the “native” Indonesians. This is due in large part because they generally feel more comfortable and safe with people that share “Chineseness” with them. On the other hand, they also try to distance themselves from this Chinesesness when it is perceived as being a disadvantage or danger to their interests.

Thursday, June 14, 2007

Leading, Following, or Cooked Goose?

Leading, Following, or Cooked Goose?

In this chapter of Global Taiwan, we look at three different high tech industries in Taiwan and examine the differing levels of success of each. The title of the chapter comes from an analogy made by Akamatsu of firms resembling a flock of migrating geese, with some firms being leaders (innovators of new technology), while others are followers (playing technological “catch-up”). The authors of the chapter added a third category: cooked goose. This category represents firms that waste resources on segments in which they cannot be competitive, much less advance to innovator, or “lead goose,” position.

The authors contend that the reason that the different industries have had different levels of success is that each was able to leverage different strengths of the Taiwan economy. The first industry, CMOS logic fabrication, is the lead goose because the firms were able to establish a high level of granularity and they did not need a high level of patient capital in order to maintain profit margins. In addition, the creation of the pure-play foundry model made it possible to focus efforts narrowly, thus enabling them to achieve innovation in process, instead of dividing attention between process and products.

The next industry, DRAM, is at the other end of the success spectrum. Because of the necessity of large amounts of patient capital—something lacking in the Taiwanese economy—the DRAM industry has not been able to maintain profits and produce the next generation of DRAM technology. This is in contrast to South Korea, whose DRAM industry was able to absorb extended periods of losses in order to build up market share and fund R & D to stay on the cutting edge of innovation.

The follower goose is exemplified by the AMLCD firms, who received the technology mainly from the Japanese. Because AMLCD production is much simpler than DRAM or CMOS, and because the technology doesn’t change as fast, Taiwanese firms were able to leverage their strengths in manufacturing to establish a solid foothold in the industry.

Moving Along the Electronics Value Chain

This chapter is another look at the electronics industry in Taiwan. It begins by stressing the importance that the electronics industry has had in the Taiwanese economy, and it describes the evolution of policies within the electronics sector that has caused it to be successful. There are four features that characterize the development of the industry: the state’s fostering of domestic industrial competencies by linking local firms to large international firms; the model of state-led and partially state-financed R&D through organizations like ITRI; the emphasis on manufacturing over branding and R&D; and the positioning of Taiwanese firms as suppliers to international lead firms.

In examining the electronics industry, the authors look at two main segments: the IC industry and PC systems manufacturing. As in the previous chapter, it is shown that the varying success of the industries derives to a great deal from the ability of the sectors to leverage strengths of the Taiwanese economy.

The IC industry is shown, for reasons illustrated in chapter 3, to be highly successful and to have achieved a high level of interdependence with its customers. By following the pure-play model, it has been able to benefit from granularity and learning from its customers. The PC system industry, on the other hand, has been less successful, and is highly dependent on its international branded customers. Because of shrinking margins, PC systems producers are challenged to find new ways to remain profitable. Two product options they could pursue are the AMLCD and wireless segments.

Expanding into China is another route that both industries are actively pursuing, with differing results. For the IC industry, opportunities in China strengthen its already strong position. For the systems industry, it is merely a way to help relieve downward pressure on costs.

The authors also emphasize the importance of state and industry policies in the development of the electronics industry, especially in encouraging R&D and the focus on leveraging the various sectors strengths while limiting the focus on elements that have proven to be unsuccessful.

Leading, Following, or Cooked Goose?

In this chapter of Global Taiwan, we look at three different high tech industries in Taiwan and examine the differing levels of success of each. The title of the chapter comes from an analogy made by Akamatsu of firms resembling a flock of migrating geese, with some firms being leaders (innovators of new technology), while others are followers (playing technological “catch-up”). The authors of the chapter added a third category: cooked goose. This category represents firms that waste resources on segments in which they cannot be competitive, much less advance to innovator, or “lead goose,” position.

The authors contend that the reason that the different industries have had different levels of success is that each was able to leverage different strengths of the Taiwan economy. The first industry, CMOS logic fabrication, is the lead goose because the firms were able to establish a high level of granularity and they did not need a high level of patient capital in order to maintain profit margins. In addition, the creation of the pure-play foundry model made it possible to focus efforts narrowly, thus enabling them to achieve innovation in process, instead of dividing attention between process and products.

The next industry, DRAM, is at the other end of the success spectrum. Because of the necessity of large amounts of patient capital—something lacking in the Taiwanese economy—the DRAM industry has not been able to maintain profits and produce the next generation of DRAM technology. This is in contrast to South Korea, whose DRAM industry was able to absorb extended periods of losses in order to build up market share and fund R & D to stay on the cutting edge of innovation.

The follower goose is exemplified by the AMLCD firms, who received the technology mainly from the Japanese. Because AMLCD production is much simpler than DRAM or CMOS, and because the technology doesn’t change as fast, Taiwanese firms were able to leverage their strengths in manufacturing to establish a solid foothold in the industry.

Moving Along the Electronics Value Chain

This chapter is another look at the electronics industry in Taiwan. It begins by stressing the importance that the electronics industry has had in the Taiwanese economy, and it describes the evolution of policies within the electronics sector that has caused it to be successful. There are four features that characterize the development of the industry: the state’s fostering of domestic industrial competencies by linking local firms to large international firms; the model of state-led and partially state-financed R&D through organizations like ITRI; the emphasis on manufacturing over branding and R&D; and the positioning of Taiwanese firms as suppliers to international lead firms.

In examining the electronics industry, the authors look at two main segments: the IC industry and PC systems manufacturing. As in the previous chapter, it is shown that the varying success of the industries derives to a great deal from the ability of the sectors to leverage strengths of the Taiwanese economy.

The IC industry is shown, for reasons illustrated in chapter 3, to be highly successful and to have achieved a high level of interdependence with its customers. By following the pure-play model, it has been able to benefit from granularity and learning from its customers. The PC system industry, on the other hand, has been less successful, and is highly dependent on its international branded customers. Because of shrinking margins, PC systems producers are challenged to find new ways to remain profitable. Two product options they could pursue are the AMLCD and wireless segments.

Expanding into China is another route that both industries are actively pursuing, with differing results. For the IC industry, opportunities in China strengthen its already strong position. For the systems industry, it is merely a way to help relieve downward pressure on costs.

The authors also emphasize the importance of state and industry policies in the development of the electronics industry, especially in encouraging R&D and the focus on leveraging the various sectors strengths while limiting the focus on elements that have proven to be unsuccessful.

Wednesday, June 13, 2007

Industry Co-Evolution: A Comparison of Taiwan and North American Electronics Contract Manufacturers

Industry Co-Evolution
A Comparison of Taiwan and North American Electronics Contract Manufacturers


The chapter begins with a brief explanation of the history of global economic integration. It divides it into two levels: deep and shallow. Shallow integration has to do with marketing integration, in which firms sell to customers and compete with firms in distant locations. The deep level has to do with operations, in which firms spread their activities over a wide geographic area. One aspect of this which is the focus of the chapter is global outsourcing.

Another focus of the chapter is co-evolution. This is a process in which firms in the same value chain gain from interaction with other firms, their suppliers, and their customers. The interaction is complex, as firms both influence and are influenced by the other organizations and institutions. The particular model the chapter examines is the growth of strategic outsourcing and how that has led to the rise of a shared supplier network. As the text states, “The emergence of shared supply networks can be understood as a co-evolutionary process encompassing series of strategic choices and interactions between lead firms and their suppliers that occur in the context of a dynamic environment.”

Basically, lead firms, in order to reduce their costs, contract with suppliers whose competencies complement the needs of the lead firm. As the relationship between the lead firms and the suppliers develops, the suppliers often increase the quality and scope of their competencies. This makes it possible to develop relationships with other lead firms, as well as to develop new relationships with the original lead firm. As the lead firms needs grow and change, so do the suppliers competencies, which in turn can lead to new requests from lead firms.

Suppliers can be of several types. There are those that invest in specific assets (captive supplier) and those that don’t (commodity supplier). There is also what the text refers to as a turnkey supplier, which is a supplier with a strong multiple-customer and/or multiple-business profile. Lead firms that deal with captive suppliers can become locked into only using those suppliers, which creates a risk of opportunism on the part of the supplier, as well as high transaction costs. In order to avoid these and other risks, modular value chains have developed in which suppliers’ processes depend on generic assets that can be applied to fulfilling the needs of a wide range of customers.

The term “turnkey” is used to describe suppliers that have high competency levels, independence from lead firms, there use of generic assets, and who require relatively limited interaction with and instruction from their customers prior to collaboration. This allows the supplier to minimize risk and underutilization, as well as provides it with industry-wide learning opportunities. These learning opportunities work for the lead firms as well, as they can acquire knowledge from their suppliers.

This two-way learning can cause problems with leakage of intellectual property, but due to short product life cycles, and given the overall increase in efficiency in the industry, the learning tends to be a positive result of the linkage between supplier and lead firms.

At different levels, there are different requirements for turnkey suppliers to be accessible to a wide number of lead firms. At the micro level, highly codified transactions and generic products are necessary. At the macro level, widely accepted standards in product features and components is require. At the meso level, the creation of large pools of customers and low exit barriers are characteristic of turnkey suppliers. This large pool creates a condition in which greater learning exchanges take place, which in turn encourages lead firms to become more involved in outsourcing. Outsourcing has the effect of encouraging more outsourcing.

At this point in the chapter, ODM and EMS firms are introduced. ODM is highly characteristic of Taiwanese firms. It stands for original design manufacturers and it is a model in which a firm receives contract orders from a lead firm to design and manufacture components for the lead firm’s finished product. EMS firms are more characteristic of North American firms. The model is similar to ODM, with the distinction that EMS firms tend to do less design. Both models are suppliers of outsourced components for lead firms. There are three dimensions in which the text analyzes the two different models: value chain scope (basically what services the firm provides), product/customer scope (what the firm makes and for whom), and geographic scope (where the firms are located).

ODM is further defined as being distinct from another common model of Taiwanese firms: OEM. Whereas original equipment manufacturers are essentially manufacturers of outsourced goods, ODM firms, due to the standardization of PC products and peripherals, also are able to offer design services. After the definition, the text goes on to elaborate on the development of ODM firms, the forces that encouraged that development, and the extent of the business they do. ODM firms have catapulted Taiwan into the lead in production of PC products and peripherals. The focus of ODM firms on a limited number of products and customers creates certain risks. For example, they are susceptible to ups and downs in the IT industry, as well as being subject to low profits due to the pressures to decrease costs for IT products.

In order to counter these risks, ODM firms have followed several strategies, including broadening their product scope and developing their own brands. For the most part, brand creation has not been an especially successful strategy for Taiwanese firms.

The EMS model is dominated by North American firms. A driving force in the development of this model was the reluctance of electronics firms to invest in production assets, preferring to sell off their production facilities and focus on innovation and marketing. Firms that specialized in producing outsourced goods took over this production, sometimes purchasing the production units from the electronics firms. The text goes on in great detail to describe the development of EMS firms.

The next section of the text describes the differences and similarities between ODM and EMS firms. ODM firms produce a wider range of value chain activities than EMS firms do, as they provide design and development services for PC products—which is enabled by the standardization of PC systems and peripherals—whereas EMS firms do not, focusing instead on base manufacturing of electronic products and subsystems.

This difference in value chain scope is related to differences in customer/product scope. Where ODM firms focus on PC products, EMS firms produce a broader variety of electronic products.

The two models also differ in geographic scope, with ODM firms being concentrated in East Asia, while EMS firms are much more widely distributed.

Despite the differences, the two models share a number of similarities, some of which are a high level of product and component standardization and codified processes, overlapping sets of customers, a quasi-merchant, noncaptive, multiple customer/multiple product stance toward customers and markets, reliance on generic, easily transferable, widely applicable core of fixed assets, and a reliance on mechanisms to support a thick customer interface.

Recent trends in the electronics industry have been causing increasing competition and convergence between the two models. EMS firms are attempting to take on a greater role in providing design and development services. Lead firms have been pushing suppliers for greater design services, which has led to more direct competition between ODM and EMS firms as EMS firms attempt to take on more design activities.

QUESTIONS

1. Given the increased competitive pressure from EMS firms entering the design aspect of outsourcing, as well as the pressure to continue to reduce costs, what can Taiwanese ODM firms do to remain competitive and relative in the global economy? Will any strategies they pursue have a negative effect on Taiwan’s economy in terms of employment (for example, shifting more production overseas) or in other areas?

2. Should Taiwanese firms remain content with providing outsourcing services, or should they pursue the development of their own brands? Why have they been relatively unsuccessful in doing so thus far?

3. Are there ways in which the Taiwan government can encourage a shift from the “manufacturing first” mindset of Taiwanese firms to an “ideas first” mindset? Should this be the role of public policy makers, or should industry leaders be the ones to create the impetus for such a move?

Tuesday, June 12, 2007

Globalist, Statist, and Network Paradigms in East Asia

Globalist, Statist, and Network Paradigms in East Asia

This chapter, as it is a form of summary in itself, is difficult to summarize. Essentially, it examines the positions of the various authors of the text, and seeks to find the commonalities in their arguments.

Its main sections are globalism and statism, which in turn are divided into subglobal regions and semiperipheral zone, and global influences and state institutions, respectively.

In the globalism section, globalism itself is defined, and the theoretical approaches of radicalism, conservatism, and liberalism are lined up in order of degree of globalism, with radicalism being the most global and liberalism being the least. Then the differences in the arguments of the various authors are pointed out, and they are distributed as most (Cumings) to least (Simon) globalist. Winckler then goes on to point out that the similarities between the arguments are really less than the similarities, and to introduce two areas in which a synthesis of liberal, radical, and conservative approaches to globalism shows promise: subglobal regions and semiperipheral zone.

The subsection on subglobal regions reviews the elements of the three-zone model (core, semiperiphery, periphery) and the processes (geopolitical, political-economic, sociocultural) and how they can be applied to identify the differences between subglobal regions. Because each such region represents a multiplicity of “cases,” each with a different set of historical circumstances, a more flexible approach is emerging, stressing historical-structural elements and the notion of conjuncture. Winckler, however, warns against reducing analysis of subglobal regions to “mere historical narrative.”

The subsection on semiperipheral zone discusses the arguments for and against the existence of such a zone, its function, and the usefulness of it in analysis.

The section on statism begins with a definition of statism and how it focuses on the national level to explain socioeconomic development, and it places liberalism (least statist) and conservatism (most statist) at opposite ends of the spectrum of theoretical approaches. This is followed by a review of the different authors’ emphasis in terms of statism. Winckler then looks at how their approaches differ and are similar, again finding a synthesis of approaches.

Winckler then points out two areas in which radical-statist literature is weak: global influences, in which the statist approach fails to explain the connection between supranational and national, and state institutions, in which the statist approach fails to “posit an explicit conception of state institutions and to asses the mutual impact of these institutions on each other’s development.” He ends this section with an interesting discussion of alternative social mechanisms and social networks.

Globalization and the Future

This chapter begins with a brief summary of Taiwan’s economic history, and then goes on to explain the dilemma that it faces for the future. Basically, the conditions that Taiwan relied on for its own development (low-wage labor, positioning itself strategically in the world economy, and the leveraging of technological innovation) have now shifted to other, less-developed countries like China.

Next it examines new product and market strategies, particularly competing on price versus competing on innovation, differentiation, and brand. Then it examines location strategies, or whether it is best for firms to stay in Taiwan, or move production elsewhere.

Low-cost manufacturing has been Taiwan’s greatest strength, but faced with increased competition and a rising standard of living, there is not much further firms can go in keeping costs down. As the text says, “the most serious problem of relying on a strategy of lowering costs is that this is a game that many other can, and do, play.” In order to continue to achieve profits, Taiwanese firms need to develop other strategies to remain competitive and profitable.

Another problem Taiwanese firms face is a dependence on a small number of customers. Because of this, these firms need to develop “unique or difficult-to-replace products and services” in order to “raise the entry bars for would-be rivals.” Branding is one way to do this, but it has proven difficult and risky. OEM firms stand the chance of alienating their customers when they enter into competition with them. Other strategies are to continually innovate on new and current products.

Another important strategy involves location. The chapter discusses the pros and cons of firms keeping some or part of their operations in Taiwan (R and D, for example), while moving other parts (like production) overseas either to China or other places (Mexico is one example, that has the advantage of being geographically close to American markets).

The chapter closes by positing that, in order for Taiwan to remain competitive and relevant in the global marketplace, it will be important for public policy to continue to support research (ITRI) and other institutions like higher education that support and contribute to new technologies and innovation.

Monday, June 11, 2007

Global Commodity Chains

Global Commodity Chains

This reading is from the introduction to Commodity Chain and Global Capitalism, by Gary Gereffi, Miguel Korzeniewicz, and Roberto P. Korzeniewicz. The purpose of the introduction is to provide some basic concepts regarding global commodity chains (GCCs), and to orient the reader to the scope of the text’s treatment of them.

The chapter begins by introducing the socio-economic context of today’s globalized economy. The dispersion of production and distribution of goods and services in this context has resulted in a relatively new form of capitalism in which production and consumption occur across national boundaries, within complex networks of entities. This emerging form of capitalism calls into question the applicability of concepts such as national development and industrialization. For this reason, the authors focus is on the GCC approach, as it is “sensitive to historical change in order to evaluate and distinguish cyclical patterns from new trends,” and it captures “both the spatial features of these transformations across the world-economy, and the relationships that link these processes together.” They apply the GCC analysis within the construction of core and peripheral “nodes.”

What is a global commodity chain? In its most basic definition, a GCC is a network, or rather a complex of networks, of processes that result in a finished product or commodity. These networks link labor, production, households, states, and enterprises to one another within the global economy. They are “situationally specific, socially constructed, and locally integrated, underscoring the social embeddedness of economic organization.”

GCCs can be represented by nodes that represent different processes in the production of a commodity. Each node represents the acquisition or organization of inputs, labor power used in the process, transportation, distribution, and consumption. The interaction of the nodes is socially shaped.

“The GCCs approach promotes a nuanced analysis of world-economic spatial inequalities in terms of differential access to markets and resources.” Because it is “network-centered,” and uses an “historical approach,” it is better able to analyze patterns and changes in the current world economic context than previous methods.


COMPETITION, INNOVATION AND COMMODITY CHAINS
One main emphasis of the text is the treatment of how competition and innovation work as forces in shaping the organization of GCCs, as well as in the distribution of wealth among nodes. The fundamental premise is that competition is lower in core nodes, while innovation is higher. This shifts the pressures of competition toward the periphery, while concentrating profit-producing advances in the core.

To illustrate how competition and innovation have historically shaped GCCs, the text looks at shipbuilding during the period following the oceanic revolution, and how competitive pressures caused the constant peripheralization of some production process (due to lower cost in the periphery), creating the necessity of generating innovations in the core to maintain a competitive edge.

The text also provides a non-manufacturing example of how GCC processes function by examining the wheat commodity chain, and how those processes have varying effects in core and periphery nodes on elements such as marketing, consumption, and distribution. For example, marketing as a distinct activity emerged only in the core, because in the periphery merchants and landlords tended to be the same person. Another example showed how consumption differed across core and peripheral nodes, as wheat bread was only consumed by the wealthy in the core, and by the “highest magnates” in the periphery, while rye bread was consumed by the poor in the core, and almost everyone in the periphery. These examples show the importance of competition and innovation in understanding the organization and transformation of GCCs, and it brings a new focus to world-systems theory.


COMMODITY CHAINS AS COMPETITION EMBEDDED IN TIME AND SPACE
In analyzing the new division of labor in the world-systems theory, the authors examine competition as a geographically embedded phenomenon in GCCs. As opposed to previous models, in which stable products and markets allowed international production to be facilitated (more time allowed for greater spatial distribution), current emphasis on batch production and shorter cycles reduces the spatial flexibility of GCCs. To illustrate this point, the authors point out that during periods of economic expansion, there are “incentives to lower transaction costs (and hence lead to growing vertical integration),” while periods of economic contraction “provide incentives to reduce labor costs (leading to declining vertical integration and an increase of subcontracting).” The authors assume that “current transformations in the world-economy . . . are rooted in these historical cycles.” These patterns suggest a variation of organizational strategies across GCCs and within nodes, as exemplified by the shipbuilding and garment industry models. Because of this heterogeneity, patterns of organization and competition are examined in the text within GCCs.


THE ORGANIZATION OF COMMODITY CHAINS AND INTERNATIONAL COMPETITIVENESS
This section looks at how competitiveness is a function of organizational strategies of firms and states. It considers two main factors to explain geographical location and organization of GCCs: low-wage labor and organizational flexibility. However, the authors point out that these two are not sufficient to account for the dynamic trends in international competitiveness: other “higher-order” factors include “proprietary technology, product differentiation, brand reputation, customer relationships, and constant industrial upgrading.”

The rest of the section tells us more about how to define GCCs, and the methodology within which they can be used to test hypotheses. For example, Gereffi tells us that commodity chains have three main dimensions: in input-output structure, a territoriality, and a governance structure. Whereas once the governance structure was internal to vertically integrated enterprises, it is now externalized as the task of a network of independent firms. These structures can be further classified as producer-driven or buyer driven. Other attributes of GCCs are described as length, depth, and density. At the end of the section some examples of how to construct hypotheses and gather data are provided, as well as direction to further information on methodological guidelines.

LINKING THE MICRO AND MACRO DIMENSIONS OF COMMODITY CHAINS
This section describes how the “analysis of GCCs provides a bridge between the macro-historical concerns that have usually characterized the world-systems literature, and the micro-organizational and state-centered issues that have stimulated recent studies in international political economy.” By looking at the micro dimensions of GCCs, it is possible to examine the role of factors like ethnicity, family, and other social resources in shaping the structure of commodity chains.

Of special emphasis is the role of the state in shaping the organizational structures within commodity chains. China’s state policies are given as an example of the relation of the state to the formation of commodity chain networks between Taiwan, Hong Kong, and China. Another example of how the state’s role effects GCCs is the production and distribution of crack cocaine. Despite it being an officially unregulated industry, government policies are fundamental in the formation and processes in the cocaine network system.

LINKING PERIPHERAL AND CORE NODES: SERVICES, DISTRIBUTION, AND CONSUMPTION
This section begins by further defining Gereffi’s buyer and producer-driven networks, and describing how systemic and subsystemic niches function in each. In producer-driven chains, systemic niches are “closely integrated with established markets and are characterized by high capital investments.” After initial periods of strong competition, they tend to be followed by limited competitive challenges. The technological and marketing paradigms generated by these systemic niches determine the more flexible subsystemic niches. Buyer-driven chains, on the other hand, are basically subsystemic, and lack the qualitative or technological shifts of the type that prevail in the systemic niches in producer-driven chains.

The section goes on to describe the role of services in GCCs, and how they function to link the nodes of GCCs together. They are said to “integrate and coordinate the atomized and globalized production processes.” In addition to shaping what is produced, how it is produced, spatial coordination, other facilitating activities, and the distribution of commodities, services also control the organization of information, the rate of increase of which helps to determine the production of wealth within a GCC.

The GCC approach identifies the recent transformations in the organization of production and consumption as “an outcome of the complex and diverse strategic choices pursued by households, states, and enterprises.” For example, Latin American farmers choice to pursue cocoa cultivation as a response to falling commodity prices, or the choice of the urban poor in the U.S. to sell drugs in response to low-paid jobs. Another way that the GCC approach is used in the text is in analyzing the recent trends in agriculture towards flexible production. Finally, the importance of consumption patterns in understanding the dynamics of commodity chains is introduced with an example of Nike and its success in extending effect control over the distribution, marketing, and advertising nodes of its commodity chain, as well as how an increase in health and fitness awareness in North America has affected the commodity chain of Chilean fruit. The emphasis is on the changing culture of the core, and the affect of that change on core consumption.

The last part of the section discusses households, and how that category is not sufficiently examined in the text.

CONCLUSION
The reading stresses the insufficiency of conventional approaches to the study of development, especially those of industrialization and national development. These two assume positive linkage between industrialization and development, and they share a focus on nation-states as being the locus of capital accumulation, industrial growth, and state policies fostering integrated national development. The authors find these assumptions debatable, preferring the GCC approach as its focus is on the “creation and distribution of global wealth as embodied in a multidimensional, multistage sequence of activities, rather than as an outcome of industrialization alone.”


QUESTIONS

1. It is clear that the GCC approach is based in world-system theory. The authors of the text contend that this approach serves to highlight the flaws in more conventional social theories. In light of this, does the GCC approach render the other theoretical approaches we have examined (liberal, conservative, radical) obsolete, or can those approaches be integrated into GCC?

2. How does the GCC approach fit into or work to describe the specific issues in the economic development of Taiwan? Are there examples we can take from the Taiwan experience and place them in a GCC explanation?

3. From the text of this reading, the GCC approach seems to encompass all possible explanations of development theory. What are some, if any, of the criticisms of this approach?

Friday, June 01, 2007

Reading Summary: Married Women's Employment

“Living Rooms as Factories”: Women, the State, and Taiwan’s Economic Development

The essay examines the role of the state in reinforcing the patriarchal and anti-feminist social patterns in Taiwan during the period of the growth of the export-led economy. It points out how the KMT state’s policies acted to subordinate the needs of women, and especially married women, to the interests of patriarchal capitalism.

One means to achieving that end was through the use of community development programs, especially the “living rooms as factories” and “mothers’ workshops.” In the first program, women’s labor was exploited in order to harness surplus labor, decrease costs to capitalists, increase productivity, stabilize consumer prices, reduce friction between labor and capitalists, and encourage economic growth. These were all benefits to society in general, but they came at a cost to the women whose labor was utilized: due to the nature of the structure of the system, capitalists were free from the constraints of providing social benefits or decent wages to the laborers.

The second program, the “mothers’ workshops,” aimed at reinforcing traditional roles for women. Part of this was using women to provide free social services to their communities, among other things.

The essay also examines the development of labor laws in Taiwan, and the resistance of the capitalists and the state to their implementation. Despite the implementation of the Standard Labor Law, the state has taken a hands-off approach to its enforcement, thus benefiting the capitalist system that often ignores or circumvents the regulations.

The Satellite Factory System from Within


This essay examines the structure of the satellite factory system and how it functions to exploit labor as well as the unrealistic aspirations of workers who hope to become their own bosses. Again, as in the previous essay, it is shown that women and their labor are disproportionately taken advantage of. This is due to the small size of most of the firms in the satellite system, and their patriarchal nature, within which many married women work for free for their husband’s enterprise.

There is fierce competition between the satellite firms, but there is also a certain level of cooperation that is necessary in order for survival. In order to remain competitive, the owners of the firms pit the various labor groups (insiders, outsiders, and home workers) against each other in what amounts to a race to the bottom in terms of wages.

In the end, it seems that the traditional patriarchal social patterns have served to reinforce the patriarchal economic structures, which in turn have further reinforced the power of men as heads of households due to their also being the heads of family firms.

Married Women’s Employment in rapidly Industrializing Societies

In this paper the authors examine the divergence in patterns of female employment between Taiwan and South Korea. They examine five different explanatory models for why, despite having similar initial conditions, the two countries have had different outcomes in terms of the path of changing women’s labor force participation. These five models are the labor supply model, the labor demand model, the patriarchal values model, the new international division of labor model, and the export-led growth model.

The authors found that the labor supply model, which is based on the characteristics of women’s labor supply in the two countries, was insufficient to explain the divergent patterns. In fact, due to the similarities of the changes in female life-cycle patterns between the two countries, basing one’s examination on the labor supply explanation alone would lead to the conclusion that Taiwanese and Korean women would display converging patterns of work force participation, not diverging patterns.

Likewise, the patriarchal values model, which uses cultural practices that discourage women from joining the labor force as an explanation, was found to be inadequate to explain the phenomenon. This is because both countries have strong Confucian tradition of patrilineal and patrilocal patterns, and at one time they shared similar female employment patterns. At the time of the study, however, those patterns had diverged sharply, bringing the authors to the conclusion that the patriarchal values model cannot adequately explain the situation without including an examination of the labor demand in each society.

The authors found that the labor demand explanation seemed to provide the best explanation. Because Taiwan and South Korea have different economic organizational structures, the kinds of jobs available in each country is different. Because Taiwanese jobs are often more flexible and closer to home, as well as having a stronger personal bond between employer and employee, it is easier for married women to balance home and work. On the contrary, many South Korean jobs are at large firms that are often far from home and have a less flexible schedule. Education also play a role, in that in S. Korea, there is a surplus of highly educated males, which was a disincentive to lower traditional bars to women’s employment. In summary, the authors say that it is the intersection of the similar labor supplies of the two countries with the dissimilar labor demands of the two countries that explains the divergent labor patterns.

The authors also found the new international division of labor fails to explain Taiwan and South Korea, but the export-led growth explanation is more productive because it helps explain how Taiwan’s dispersed, labor-intensive industries differ in job makeup from South Korea’s more capital-intensive ones.