This is a followup to my previous post about comparative advantage. You should read that first. That way you’ll understand that I have naïvely built this argument on a transparently false premise, and won’t get quite so angry at my silly conclusions.
Shenzhen
Have you visited Shenzhen? If not, you should.
I have visited Shenzhen. I did not, however, visit any of the famous electronics markets. What follows therefore is entirely made up. Just me extrapolating from the electronics markets I know in Beijing and Chengdu and Hong Kong.
So here’s how it works. You find some random stall and you tell the proprietor, I want a mobile phone with a built-in sink plunger.
They will tell you no, they don’t have anything like that, and in fact no-one does. But can you build one, you ask? No. But we can ask my friend.
So you trail behind this person as they wind through a maze of stalls and find their friend at another stall. Build a mobile phone with a built-in sink plunger? Of course not. You’d need to go to this other person. And so you are dragged through the maze again. No, I can’t build that, although I might be able to customise the housing for you. You’d need to redesign the motherboard and get a custom screen though. More navigating the maze, likely also heading out into the street to visit other buildings. And at the end of an exhausting day, you’ve got a date to come back.
When you return a week or two later, you find the stall, and waiting for you is your brand-new mobile phone with a built-in sink plunger. So you install some apps and unclog a toilet, and pronounce this the best mobile phone with a built-in sink plunger you have ever seen.
Give me eight container loads.
Well, some of these stall owners have contacts with people who run factories, and there will be delays because Golden Week is coming up, and there is more discussion of parts and you also have to negotiate insurance and logistics. But after weeks of discussions, you have another deadline. In a few months you drive to the factory, and there are eight container loads of mobile phones with built-in sink plungers being loaded onto trucks for their long journey to the distribution centres you specified.
And at no time during any of this will anyone say to you, laoban, that is a stupid fucking idea.
After all it’s your money. You’re the boss. That’s the deal.
Mistakes
Shenzhen has become an irreplaceable and indispensible node in the global economy. There is nothing like it in the whole world. Silicon Valley was proverbial for its innovation, efficiency, and ability to plug capital into know-how to move worlds. Shenzhen outshines anything Silicon Valley ever was a hundred-fold. Shenzhen takes the Chinese culture of cooperation and guanxi and extracts the very best of what humans are built to do. There is capitalism and competition, but ultimately everyone is motivated by their personal relationships to get stuff done, in a positive feedback loop of collaborative expertise that Americans could never replicate. The result is not only the mobile phone in your pocket, and in everyone else’s pocket, but all of the electronic gadgetry that makes the world go round. It’s all cheap, it’s all available on demand, it all just works, and we are no longer in any position to do without it.
But holy shit does Shenzhen also churn out some crap.
If you allow people with money to just walk in the door and make their dreams come true, you end up with some terrible products. Once they’re out of the factory, then the normal rules of competition come into play. Those container-loads of ill-conceived ideas are quietly crushed and recycled, usually before we in the west ever get to see them.
Shenzhen is not the capital of engineering. It’s the capital of a particular kind of engineering. It’s a system, and a culture. Individuals in Shenzhen are capable of anything at all. The system as a whole produces an incredible variety of things. But the system as a whole won’t allow the individuals working within to create all of the things they are capable of creating. Shenzhen creates electronic machines. If you are a poet, the factory floors of Shenzhen are probably not the best place for your talents.
And so you have to wonder what are the kinds of engineering that Shenzhen cannot do.
Combustion
Suppose you want to build an enormous lump of steel. You then want to inject that lump of steel with hot poison, under pressure, and then explode the poison thousands of times a minute. This thing will run every day for decades. You want to send this apparatus hurtling along a freeway at 150 kilometers per hour. And your plan is that children will be sitting on top.
To make that work well, you need a different kind of engineering, and a different kind of engineer. You need the kind of engineer who knows how to say “no”.
My observation is that German engineers are, as a rule, very capable of saying “no”. They do it frequently, and with gusto. If you have a suitcase full of cash and a head full of bright ideas and you’d like someone to tell you that both of those are a waste of time, fly to Germany. You will definitely find what you’re after, probably without even needing to leave the airport.
The great sorting of the international marketplace has appropriately digested this reality and allocated its resources accordingly. As a result, Germany has for a very long time been famous for its ability to make internal combustion engines that are the go-to choice of anyone who takes motoring seriously.
It’s not that Germans are better engineers than Shenzheners. Good engineering means providing people with the machines they need, and Shenzhen is doing a better job than Germany in many respects. But there are situations where you need Shenzhen engineering, and situations where you need German engineering.
Socialism
Germany is also famous, or notorious, for its strict worker protections. I am intimately familiar with these, thanks to mandatory training I received as a member of my company’s Works Council. I am also acutely aware how unique Germany is in this regard, because head office helpfully tells me all about how impractical it would be to make special allowances for just one site in the global system.
As a particular example, when the company realises it is overextended and needs to lay off workers, under German law it is not permitted to pick and choose the least productive workers. Instead there is a formula based on a small handful of criteria selected by the government. The person you recently hired who is a nobel-prize winner might be fabulously more important to the company than the crusty old engineer who has been phoning it in for decades, but seniority means it’s the genius who has to go. Those are the rules.
And so a job in Germany, in principle anyway, is more-or-less a job for life. That’s the intent of the design.
Confidence
Two facts about Germany: an engineering culture of high quality, and a strong culture of labour protection. Coincidence? Obviously not.
If you’re going to say “no” to your boss, you need more than just a German upbringing. You need the confidence that you’re not going to lose your job, you’re not going to lose your home, you’re not going to lose your health insurance. The only reason to say “yes” or “no” is if the proposal you’re hearing is right or wrong. You need to be sure of your position, down to your bones, based on the earliest lessons you remember from life, and you need to be surrounded by people with the same presumptions about how work works. And that is why no American engineer will ever be able to say “no” the way a German engineer can say “no”.
Worker protections are not a reward for Germany’s exceptionally high-quality engineering. They are the foundation upon which it is built. The labour laws are where you start. The engineering outcomes flow naturally from that.
Electricity
All of which makes it a bit of a problem for Germany that no-one in the world needs an internal combustion engine any more. The technology is redundant. And so are the moustaches in blue overalls who build them.
Who is replacing them? China, yes. Shenzhen? No. But the rise of electric vehicles only reinforces the point: local engineering cultures are not capable of building just anything. They have their specialisations.
It is a telling point that while China makes all of the things, many of the machines with which they make those things are made in Germany. You can package up a piece of crap that will break on day two and you can make money, but the production line that makes the crap can’t break down. When it needs to work, you still buy German.
But that’s not enough to give laid-off Volkswagen workers a reliable way to get another job. And Germans need jobs like Americans need hamburgers. What are we going to do?
Competition
I have no idea what we’re going to do. But I can tell you this much: if Germany chooses to compete against China, Germany will lose.
Perhaps if we bring our legal system a fraction into closer alignment with China, we will win a fraction of their contracts? This is silly. You will lose 100% of the competition. This is not even a race to the bottom. It’s a race to elimination.
The lesson of comparative advantage is that you should not compete at all. Instead, whatever it is that makes your society unique, you should lean in to that. First concentrate on making your society what you want it to be. Then top that up with reinforcement of the things that make you different. There is no way that the rest of the world can negatively impact your well-being by becoming more efficient at what they do. Let them win, and enjoy the benefits!
Somewhere out there, there is demand for strict engineering, for products that do a good job without fail, reliably year after year. What kind of products, I can’t predict. But I can guarantee that there is enough demand to keep Germans busy, if not make them rich.
It is very possible that entire industries upon which your society is built will disappear. Your task is to replace those with something else. If your standard of living is permanently reduced as a result, that can only be because you deliberately decided to make a challenging situation worse.