… is from page 97 of Eamonn Butler’s excellent 2021 book, An Introduction to Trade & Globalisation:
Too often, people imagine that global value chains arise naturally, by themselves. In fact, such highly sophisticated structures do not come together by chance. Someone has to decide which of the many parts of the production process are best sources from where and from whom. Are there economies of scale if manufacturing is done by a single firm, for example, or is it better divided between specialist firms and countries – technical components being made in skilled-labour countries, say, and assembly done in cheap-labour countries? Whatever the answers, all the various elements in the production chain must be designed, financed, made, assembled, finished, packaged, transported, marketed and sold into a diverse array of countries with diverse rules and diverse consumers. That all takes conscious planning and management by practitioners who have an international reach and a deep, direct and up-to-date understanding of the markets in which they operate. TNCs [transnational corporations] have all these qualifications.
DBx: Yes.
Pundits, professors, and politicians talk glibly about ‘reshoring’ supply chains and about the need to take account of the risks of sourcing inputs from this or that foreign country. The pundits, professors, and politicians who talk this way presume either that existing supply arrangements are random or that the private firms that rely upon various sources for their supplies are myopically motivated exclusively to pay the lowest monetary prices today for their supplies.
Each of these presumptions is mistaken. Private business people have strong incentives to correctly assess the various risks and rewards of alternative sources of supplies and to choose those particular sources that are most likely to work best over the long run. Of course, they won’t always get it right, but what’s the realistic alternative? The notion that elected officials and their bureaucratic underlings in government will outperform private decision-makers – the belief that think-tank pundits, professors of this, that, and the other thing, or government officials have more expertise, information, skill, and incentive to correctly determine how to arrange supply sources – is ludicrous. Yet this belief is so commonplace that it strikes few people as odd.
The likelihood of pundit Oren Cass, professor Dani Rodrik, politician Donald Trump, or political appointee Jamieson Greer having deeper insight than do business people spending their own money into the most appropriate ways to source supplies is no higher than is the likelihood of me having such deeper insight. And I assure you that I have no such insight. This likelihood, in short, is practically zero.
A more-general point here is that all proponents of industrial policy suffer a from the arrogant pretension that they have information – or access to information – not only that they simply do not have, but that is impossible for anyone to have independently of an on-going competitive discovery process.
