Localism vs globalisation, more complex than it looks has been saved
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Western politics has developed a more nationalist character in recent years. In Europe populist parties claim to champion national interest against globalisation while in the US Bernie Sanders and Donald Trump have broken with the free trade consensus that has lasted since 1945.
Quite different in character, but also focused on the local, is growing consumer interest in regional production. From farmers’ markets, to local currencies, such as the Brixton pound, the slow food movement, microbreweries and artisan-produced products, localism is a growing force, especially among socially-concerned, affluent and urban consumers.
Localism has many motivations. Concern for the environment features prominently, as does the search for higher quality, distinctive products. Culture and economics come into it too. Localism seeks to strengthen local communities, traditions and businesses. For some localism is a counter to the supposedly anonymous, homogenising forces of globalisation.
So, in two very different ways, localism seems to be on the rise.
Yet despite the growing appeal of localism, the big trend in manufacturing over the last fifty years has been towards internationalising production. Consumers have benefited from this, with specialisation, mass production and international trade giving them better products at keener prices.
Globalisation has enabled the production process to be broken into sections and performed where they can be most efficiently accomplished. Idea generation, design, marketing and control functions tend to stay in the home country. Lower-value manufacturing and assembly operations often head to developing economies where wages are lower.
Like most such free exchanges, this has been mutually beneficial and welfare enhancing – though, as Western opponents of free trade point out, it has also led to job losses and dislocation at home. Yet lower prices give consumers increased incomes and spending power which, in turn, generates new demand and new jobs.
Global supply chains and sourcing mean that the idea of a country of origin for complex products has become increasingly slippery. For many years the UK’s Which? Magazine, in reviewing products, would note where product was manufactured. The globalisation of production means that products are now sourced from numerous, sometimes changing, countries and companies. The concept of country of manufacture no longer works for many complex products and Which? has long since ceased noting this information.
The automotive industry provides a striking example of the internationalisation of production.
Cross-country partnerships and acquisitions are a longstanding feature of the industry - as with the strategic alliance between Nissan and Renault, the recent Peugeot-Citroen acquisition of GM’s Opel and Vauxhall operations in Europe or BMW’s ownership of Rolls Royce.
The idea of nationality is a murky concept in car manufacturing. America’s Ford started making vehicles in the UK in 1909 and, though today it manufactures only engines and components here, in its post-war heyday its vehicles were widely seen as British. Vauxhall cars, a quintessential British brand, was in US ownership for 90 years. Germany’s BMW manufactures cars in 14 countries and its biggest plant is at in South Carolina in the US.
This just covers in-house production. Add in the complication of measuring the country of origin of the components externally sourced it becomes even trickier to work out where a car is made.
Yet academics at the American University in Washington DC, do just this, compiling an annual a list of the cars Americans drive and where they are made. Just 60% of the Dodge Ram 1500 pickup truck, a classic American vehicle, is made in the US. This is because the Ram is made in Detroit and Mexico and because components are sourced from around the world. By contrast the Honda Accord sold in the US is 81% American. The interesting question, and one to which there is no objective answer, is whether this makes the Honda Accord a more American car than the Dodge Ram 1500.
Or take the example of VW-owned Bentley’s new SUV, the Bentaygas. Its bumpers are made in Europe, sent to Bentley’s factory in Crewe for inspection, then despatched to Germany for specialist painting before finally returning to the UK for assembly.
Consumers’ perceptions of the nationality of complex products is flexible and often personal. High-end cars, regardless of the ultimate owner of the company or where they are made, tend to retain a national identity: Jaguars and Bentleys are British, BMWs and Mercedes are German and so on. Yet many consumers also recognise the local character of the home-produced output of foreign-owned car companies, such as the Nissan Leaf or Honda CRV in the UK.
In reality consumers seem to have a sophisticated and nuanced view of the idea of country of origin. They can value the brand heritage but also recognise that identity is not solely a matter of where something is assembled. The ideas behind a product matter at least as much, both to consumers and economically.
Take Apple’s production of the iPad. In a 2011 study, the Personal Computing Industry Centre estimated that Apple's profit - in effect a return on its design and marketing acumen - accounts for 30% of the wholesale price of an iPad. Materials account for 31% of the price and 15% goes on distribution and retail. Manufacturers and suppliers of components and labour get the rest, some 24%. China's share of the total wholesale price, as an assembler, is just under 2%.
Apple has kept high value functions from product design to marketing and software development in the US. Despite the fact that its products and components are manufactured offshore, Apple pays more wages in the US than it does overseas. The main beneficiaries of Apple's success are consumers, Apple itself and its predominantly US shareholders and employees. Consumers who see Apple products as essentially American are right to do so.
Perhaps consumer support for local production should be seen as a complement to internationalisation, not as a rejection of it. They co-exist, meeting different preferences for different products. There is, after all, no contradiction between a preference for the output of a nearby microbrewery and buying the product of a British-assembled, globally-sourced car made by a Japanese company.
PS – A fortnight ago we wrote on the alarming trend of rising mortality among the white working class in the US. Since then data released in the UK shows that life expectancy for UK adults has declined for the second consecutive year in 2016. The FT reports that “the vast improvements in life expectancy witnessed in the first decade of this century have stalled.” Data from other parts of Europe and the US suggest similar developments. It is too early to say if this is a trend or what is causing it, but we will continue to watch this space.
Ian Stewart is a Partner and Chief Economist at Deloitte where he advises Boards and companies on macroeconomics. Ian devised the Deloitte Survey of Chief Financial Officers and writes a popular weekly economics blog, the Monday Briefing. His previous roles include Chief Economist for Europe at Merrill Lynch, Head of Economics in the Conservative Research Department and Special Adviser to the Secretary of State for Work and Pensions. Ian was educated at the London School of Economics.