Unilever Market Development - India's Democracy & China's Emergence -

wanting

 

NB caution !! ... we only keep these notes on our interweb so we don't lose them ... just a few bits of prosaic prose for a bit of fun

... so remember any resemblance to relevance may be coincidental!   

 

:drink

     China's Emergence

1980 to 2018 Unilever growth in China back ... then authoritarian creep & back sliding in Hong Kong & Ukraine to the days of the Tsars & the Emperors?

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Thucydides TrapThucydides Traps & Zero Sum Games     

In exchange trade and in business, companies were not at war with their customers in a winner takes all Athens v. Sparta blood bath which Thucydides described in his history of the Peloponnesian Wars. His realpolitik and evidence based history was dubbed 'scientific' and based on fear and self interest in a zero sum game of thieves.

But Thucydides had not read 'The Selfish Gene' chapter 12 'Nice Guys Finish First' ... how could he? Natural selection suggested successful companies chased cooperative synergies & mutual benefits which were available for everyone in diverse competitive market places ... it was not a fearful zero sum game but rather an exciting positive sum game and companies always equipped themselves with defences against thieves abd gained some immunity from treachery. 

Unilever and P&G were cavorting in a strange intimate dance where mutual benefits came from producing better mouse traps for the same cash strapped customers ... exciting positive sum games which escaped the mythical Thucydides Trap ... a trap which existed only in the clouded minds of the gullible who misinterpreted evolutionary economics and the 2+2=5 synergies of specialisation & scale.

US and China were in a potentially 'fatal embrace', a Thucydides Trap.
Is Beijing’s readiness to finance America’s burgeoning fiscal deficit waning? China could not dump Treasury Notes without pushing up yields (and thus reducing capital values), leading to big losses on its holdings. If the proceeds were repatriated, the losses would be compounded by a surging Renminbi and a falling dollar.
The pool of domestic and foreign savings supporting what is perceived to be the world’s safest collection of assets is so great that the Chinese divestment is no more than a blip.
Alternative havens for Chinese official reserves are less than compelling. There is a limit to how much the gold market can absorb, while the eurozone sovereign debt market is fragmented and relatively illiquid. Moreover, a growing share of eurozone government debt shows a negative yield, unlike the US
An unintended consequence of interdependence was the global financial crisis. China’s excess savings, which were reflected in the build up of its official reserves, were an important contributory factor in the US credit bubble, whose collapse in 2008 came close to precipitating a 1930s-style depression. Everything about economic interdependence is double-edged?
Meanwhile China continued to -
- steal technology  
- fiddle Balance Sheets  
- fix prices
- import cheap jobs  
- save 'fake money'  

We guessed our friend and classical scholar Frank Martin had studied Thucydides as well as Queen Zenobia, and had learned that market development and technology transfer were not adversarial mischiefs demanding compromise but rather synergistic collaborators in economic growth demanding cooperation.

Silk Road TrapThere were mutual benefits for both China and Europe in the old silk road, and any new one for that matter. Free & fair trade always involved synergies ... both gain or why bother? ... folk always seemed to get it wrong ... perhaps Thucydides was easy to grasp but Ricardo a little bit too difficult? 

The quest, focus and aspiration for Unilever was to deliver 'better mouse traps' for everyone ... but Unilever was trying to get to the market first so they could pay the bills! 

The surplus, the profit, after we had paid all the bills, was a post hoc outcome of the Pacioli double entry measurement system ... aka the Unilever Accounts Manual ... a surplus to fund investment in innovation.  

'Build a better mousetrap, and the world will beat a path to your door'

We forgot the wag who first coined this aphorism but we never forgot the message.

We recalled our old chairman in Apapa, Derek Holdsworth -

'Sounds marvelous, John, but will it catch mice'?

'and don't forget it's the 2nd mouse that gets the cheese'!

We recalled Richard Rivers an inspired marketing manager friend we worked with in the 1980s -

'No use producing crap, John, the customers don't like it'!

And Mike Cowan who refined the adage -

'Always remember we are in business not the snake oil industry'!

These one liners remained in the front of our minds during every subsequent business extravaganza that we garnished ... and we soon learned that striving for better mousetraps inevitably produced inequality ... it was an evolutionary arms race which always produced diversity as we knew from our guru Darwin's entangled bank ...

Unilever, PZ & P&G, like everybody else, only avoided bankruptcy by themselves producing better better mouse traps  ... such was the basics of innovation and economic growth ... 'one size fits all' monopoly was not the answer monopoly was the problem ... happy customers was the answer.

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Fred ChengChina's Emergence - Market Development

By the 1990s Hindustan Lever was a big successful company in India growing Unilever 'know how' and benefitting at least 1 billion Indian customers ... and many more around the globe. HLL was a shining example of Ken Durham's strategy for Unilever as a multi local multi national. Significantly the growing of 'know how' was a two way flow, businessmen led by giants like Prakrash Tandon and Ashok Ganguly were adding to Unilever's bank of know how overseas.

Encouragingly Hindustan Unilever continued to prosper with a long successful run of satisfied customers but the bald facts indicated activity but nothing of the fascinating business detail and Indian culture that we had learned from Vijay Bhalla, Ashok Ganguly and Bertie Peira. 

Meanwhile in the 1980s China was only just beginning a restart ... and China was a very different kettle of fish.

During the 1980s FM and the shakers & movers in the OSC were wrestling with the great China opportunity ... how best to get into the action? 'Aim for the orient my man', was the mantra for the young Turks. We knew Hindustan Lever pretty well but China was a mystery. Over cold 'Stars' in the Apapa Club in the early 1970s MJC used to muse about his childhood in Shanghai and the life of his dad as a Mill Manager in the city ... but a much deeper history was the inspiration for the OSC in the 1980s.

Around 1979/80 the interpretation of the cultural history of China demanded endless reflection over beers in the St Bridget's House Club in Bridewell Place, Blackfriars ... this was fun but in real time and we hadn't a clue ... we guessed this was what business risk was all about ... exciting opportunities & fearful horrors. We were familiar with the history of business in India, we started to learn more about the history of China ...  

It seemed to us that China could not easily change its state-dominated bureaucratic system in deference to the clamour of foreigners. Hundreds of written and unwritten rules of engagement seemed designed to keep foreign merchants at arm’s length. How could China possibly join the WTO?
The basic cultural underpinnings of statehood and the exercise of power in China had remained consistent over the eight centuries that had elapsed since the Mongol conquests of Genghis Khan and his successors led to the founding of the Chinese Yuan dynasty in 1271. The 'Great State' world view that came to be during the Yuan was followed by Ming (1368-1644) and Qing (1644-1912) and persisted to today. The ruler with his bureaucracy was endowed with an authority that was universal. Those within China were to submit and those foreigners must defer. The idea of equality between sovereign trading states — the basic building block of the so-called Westphalian system and the WTO — had a more fragile tenure in China even after Deng's opening up in 1978.

We enjoyed a recap -

We easily guessed that the hunter/gatherers settled, cultivated & domesticated animals on the flood plains of the Yangtzi Yellow River in much the same way as the contemporary civilisations which grew on the Nile (5,000BC), the Euphrates & Tigress (4,000BC) and the Indus (3,500BC). It seemed by 5,000 BC 'top pecks' and hierarchies, with Holy Men, Lords, Kings, Pharaos, Emperors & there ilk began to emerge the world over. By 1,000 BC China had Confucius (551-479BC). 

Our recap lingered on a couple of significant economic happenings -

the prosperity of The Silk Road and

the exploits of Admiral Zheng He (1371-1435).     

The Han Dynasty initiated The Old Silk Road around 100 BC. 

The Old Silk Road   

The Silk RoadChina knew all about adaptive markets from yonks ago. Silks & spices flowed along this trade route from Canton to Bagdad to Constantinople and on to Rome, Venice & Genoa ... and inevitably with the camel payloads came ... genes, memes, black rat plagues, parasites, predators, culture, religion, all manner of goods & services ... and technology ... and 'know how'. All this burgeoning 'trucking, bartering & exchanging' was indirectly, and some said miraculously, coordinated by a network of flourishing local markets en route. Multitudes fed off the trade synergies whenever & wherever theft & violence could be mitigated.

But don't get it wrong wherever & whenever the were stocks of goodies there were thieves ... defences were needed and wars were rife. As Rome, with gold & jade met The Orient, with luxurious silk it was the Parthians, Huns and Mongols who kept the routes open and prospered mightily as middlemen and thieves. They were expert horsemen with their composite recurved bows, standardised weight bronze arrows, trousers, stirrups and 'cavalry' team work they kept on winning. Eventually into the mix went Marco Polo and the rise of Genoa & Venice and plague ... and gun powder.

There was competition for the land routes from the cheaper, faster, safer sea routes spurring incentives for smooth efficiency ... but no one 'authority' was in control ... the camel trains were robust and Chinese silk & spices had unmatchable allures in Europe ... the merchants were in business. No doubt these cooperative markets were disrupted by interminable wars and ownership ambitions ... but blockages were by-passed to let the blood flow. Trade along the silk road evolved 'as if' propelled by a will of its own. 

This trade bonanza prospered until the fall of Constantinople in 1453 when the rise of the Ottoman Empire made trade with the west forboden. An act of stupendous folly which sparked the European Voyages of Discovery and the Scientific & Industrial Revolutions. 

The Yuan Dynasty (1279-1368) and the Mongol conquerors brought a profound shock and intimate knowledge of the wider world, culminating with the peak from the discoveries of the Zheng He voyages. 

... and in 1368 crowd trouble.  

The Ming Dynasty from the 14th to 17th centuries was the greatest period of achievement in China's history. China was the world's most powerful country and there was nothing they needed or wanted from the 'barbaric and uncivilized' outside world. Self sufficiency was the creed with no interest in colonies or mercantilism. Any threats came from the Mongols in the North not from Europe. And the Mongols had been neutered and Beijing established and -

'the countries beyond the horizon and at the ends of the world have acknowledged our hegemony' 

But this imperial hegemony was also the beginning of a dark era for international trade.

Zheng He  

Zheng HeThe Confucian System bureaucracy in China sponsored -

moral pride

extended family loyalties 

organised self sufficiency 

... not empire but civilisation.

International trade was not needed and parasitic merchants were not into useful production, they were middle men, moving goods around to make money ... in fact they were a drain on the system. The few of them who were enterprising and innovative often found themselves in impossible competition with the revered imperial bureaucracy. All this was a far cry from the Western traditions of diversity after the fall of the Roman Empire and interminable religious and political factions.

Zheng He's 'seven ocean voyages' of exploration & adventure to Persia, India & East Africa started in 1405 and expired in 1433 with his death. With his massive fleets he brought back new knowledge and strange plants & animals ... and the discovery, or rather confirmation, of China hegemony. The 'soft power' over the Indian Ocean trade brought little profit, was vastly expensive, hogged valuable resources and was unnecessary.

These Confucian traditionalists prevailed at court and China closed its doors to the outside world. Zheng He's ships were scuttled and records were burnt. China with an act of stupendous folly cut itself off and withdrew into its shell and stayed there for centuries.

Michael Wood -

'In 1492 Vasco da Gama sailed into Kerala, where the locals told him of the great Chinese fleet that had come 70 years before. A symbolic moment in world history, when the technological lead would pass to Europeans, who would rise to world domination using old Chinese inventions'.

International trade was never stamped out but without doubt the 1842 Opium Wars and the 1843 colonisation of Hong Kong did nothing to encourage trade and beer drinking with the Brits. 

Not for want of trying, an impoverished agrarian economy in China never successfully industrialised ... why?

The problem was not for want of beer, the locals had been brewing beer from around 9,000 years ago ... made with rice, honey, grape and hawthorn fruits ... similar to the early beers of Mesopotamia and Egypt. Ancient Chinese beer was important as a social lubricant for ancestral worship, funerals and other rituals. But after the Han Dynasty, beer faded from prominence in favor of the renowned 'yellow wine', this elixir remained the bees knees for the next two millennia.

All was not lost because in 1903 the Germans donated a fine modern brew & brewery which we can vouch for ... 'Tsingtao Beer' ... we heartily imbibed this liquor with our noodles in Hong Kong in 1990 and celebrated when 'Tsingtao' found its way into the delicious 'take aways' from the 'Jade Buddha' in Sandiway around 2010 ... cool.

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Cultural Revolution1948 Mao & Revolution   

Mao Zedong & Revolution had its roots in The Treaty of Versailles May 4th 1919 and its peak in the 1948 civil war triumph.

Communism, the Great Leap Forward & the Cultural Revolution cultural revolution proved to be a monumental disasters and led to nothing but grief & horror, famine & disease as inevitable 'Restrictive Practices' & 'Restraints on Trade' killed off all glimmers of progress.

Some said millions died unnecessarily.

 Such fiascos exposed the expanding know how gap ... and no industrial revolution ... meanwhile Hong Kong and Taiwan waxed and prospered.  

Unilever's established business in China, The China Soap Company, Shanghai was confiscated in 1949.     

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Deng Opens Up1978 Deng Opens Up 

Deng Xiaoping & Economic Reform from 1978 opened up the country to trade, Foreign Direct Investment & business entrepreneurs, the way forward was into the thriving, bustling market economics of Hong Kong 'seek truth from facts' ... dynamism ... empirical science.

... but the path was fraught. This was a planned market system which was an oxymoron. The CCP was still 'in charge' and still 'controlled' gigantic state production and banking facilities ... and price fixing of the US$ resulted inevitably in massive misapplication of capital & imbalances? 

May be OK for 'catch' up but how to 'control' the forgotten triplets -

1 crowd trouble

2 bribery & corruption

3 innovation & market development - diversity of productive investment

... the bureaucracy was still intact?

Unilever had 'know how' and China had 1.2 billion consumers. No wonder folk were agog in the 1980s, trade opportunities and mutual advantages were immense.

At the time, of course, we didn't know anything about the future?

So how did all this malarkey relate to the Deng strategy of open doors & market economics but also with party control of capitalist markets? How was the Deng strategy of maintaining 'control' over capitalism implemented?

Once the genii was out of the bottle human creative ingenuity guaranteed conflict -

innovation & trade    2+2=5

power & corruption    2-2=0

The Industrial Revolution in UK took 120 years in the USA 80 years ... in China 30 years. Speed, markets, business based on hard work of learning. Catch up imitation was easy compared to successful business innovation in profitable projects and balanced Balance Sheets? Especially in a totalitarian Communist State?

Initially Chinese industrialisation & urbanisation resulted in a massive production boom and initially in cheap exports to the USA ... with a massive Mercantilist trade imbalance. The associated capital $$$s surpluses flowed back into the USA and spurred real estate prices in America. Sure there was a welcome & dramatic elimination of poverty in China but also an unwelcome & dramatic boom & bust in American real estate ... and a grumbling mass of rust belt rednecks in middle America ... and eventually the global financial crisis in 2008.

In 1980 ... and in 2008 ... Unilever had an opportunity not a problem!

How was it possible for capital imbalances to build up if all the trade was paid for by agreed deals?

The mind blowing quagmire of free & fair trade, comparative advantage, the collapse of the Doha Round and the twin opportunities - 

Free & Fair Trade. American 'know how' or 'intellectual property' was difficult to trade?
Everybody wanted a cure for cancer but nobody knew how to pay for it?

Jobs for the Boys. American 'rednecks' with obsolete skills found it difficult to adapt to the new jobs in innovative in technology in Silicon Valley?
Job vacancies were filled by young immigrants with the latest skills rather than retraining?   

Was there an alternative to the disastrous pouring of capital imbalances into American real estate and the degeneration of productive middle America?

What about investment in American productive assets and what about American goodies for the Chinese consumers? Were western corporations denied the incomes for further faster investment in innovations?  Were the consumers in China denied the opportunities for exciting imports ... iPads, Magnums and Dove smellies?

Chinese 'managed capitalism' involved basic obstacles for Unilever -

tariff barriers - price controls & import restrictions 

non tariff barriers - equity restrictions & local partnerships

local subsidies & taxes - unfair competition with no level playing field & beggar thy neighbour  

exchange rate manipulation - costly gluts & queues

continuous innovation deterrents - 'theft of intellectual property rights' and 'forced technology transfer' 

Richard Cobden would have been appalled! 

 The state-backed industrial policy began to look like an ominous Mercantilist mix of protectionism and import substitution ... moving the already stalled World Trade Organisation & Doha Round further & further from the goal of 'developing market economies' ...

'Free & Fair trade' delivering maybe $750bn to global wealth but -

increased productivity benefitted everybody either through -

rise in real wages

better terms of trade

reduced international violence

more & better new job opportunities from economic growth  

less protective regulation from less aspiration for naive self sufficiency

... but there were always more votes in interest group protectionism and naive

There remained the unanswered questions which had plagued FM in St Bridget's House in 1979 -

Restraint of Trade?
Who pays for the inevitable 'gluts & queues' from price fixing?

Restrictive Practices?
How to be a champion of globalisation and the inevitable flow of ideas, capital, information, goods and services between China and the rest of the world?

All power corrupts?
How to protect bureaucratic top pecks from inevitable corruption ?

The same stubbornly difficult questions, perhaps strategic deep economic issues for Unilever's business investment in China -

Company Culture & Social Clubs
Was the Unilever business strategy of global 'social' culture, relevant?

For sure Unilever's overt strategy was self sustaining innovation ... business driven, market & consumer R&D, propitious acquisitions, specialised expertise, respected competition & imaginative intellectual property ... 

But there was also a covert strategy to push at open doors and go with the flow of human behaviour ... a social culture, an 'undercover' strategy of transferring marketing & technology know how through the 'Unilever social networks' ... such was particularly difficult to copy & assimilate not on for non English speaking indigenes in one party China? ... unfamiliarity with both language and markets reduced the options for -  

'postings for mangers identified as rising stars to gain experience running companies sometimes facing acute challenges' ... 'these expatriates were not necessarily British or Dutch, but increasingly Indians, Brazilians & Turks' ... could they be Chinese? 

During the setting up of joint ventures -

'it had always been a promised carrot and it was a sought after privilege to be allowed to travel to the UK. Also we needed to convince them that they had linked up with a foreign company of importance with the necessary technology to offer to China.' ...

Creative Diversity & Intellectual Property
Did creative project innovation demand a diversity of experiments and market price guidance?

Was the Unilever sponsored 'innovation funnel' from 'imagination to market' compatible with the 'one party', 'one China', 'united front' and state political control of the diversity of middle class ideas?
Was it physically possible to transfer intellectual property? ... or was intellectual property dispersed in the diverse minds of many cooperating cohorts ... and invariably incomplete?

Could Unilever 'know how' be detailed in 'Blue Book Specifications' which could be handed over, sold, leaked or stolen?

Industrial espionage, or reverse engineering, was, by definition no good for innovations but was it a viable route to technology catch up?

Free & Fair Trade & Foreign Direct Investment
Was FDI a good bet even if 'controlled' by restrictions & restraints?

Was any payment for market access commercially viable in the longer term ... or shorter term?

Did local partners bring welcome diversity and new know how or an opportunity for bureaucrats on the cadge to take a cut?

What was the difference between 'free trade' and 'fair trade'?

Were tariff barriers simply 'price fixing' and distortions which inevitably produced costly gluts & queues?

Was it possible to curtail 'price fixing' by the 1974 Trade Act Section 301, or the 29,000 pages of WTO treaty on 'fair trade'?

Tariff Barriers & Non Tariff Barriers
Did all the malarkey of 'tariff barriers' and 'non tariff barriers' amount to 'price fixing' by another name and still lead to the associated gluts & queues of an unlevel playing field ... subsidies, regulation and unfair local competitors?

.. controls of capital outflows, reserves spent on 'defending' the Renminbi, shared ownership, work permits, quotas, theft of intellectual property, subsidies, non-commercial state investment ...

So there! We remained convinced that all these knotty questions were best viewed through the bottom of a beer glass ... most of the fractious issues of folk were soluble in alcohol ... bottoms up ... and go with the flow!

But we did know a bit about the history of Unilever in China ... and the synergies of specialisation & scale ...    

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Unilever in China  

Unilever had been in similar predicaments many times and knew the ropes. Technology Transfer was not a 'package' to be handed over in 'exchange' for market access ... it was an on going process of organisational learning

The developing Unilever strategy of Market Development was pinpointed by David Fieldhouse  -

'Unilever set up production facilities overseas to manufacture goods for local consumption in the local market. These were market development enterprises and formed the heart of Unilever as a multinational'.

'The profitability of Unilever subsidiaries overseas was determined less by efficiency than by government policy and the way it was implemented by the local bureaucracy'.

And Geoffrey Jones had earlier discussed 'mischievous differences' between India & China -

'India reported financially to Unilever plc, China to Unilever nv but opportunities & difficulties were similar and by 1939 it was generally accepted that these artificial distinctions were mischievous. Direction was to come from those who knew most about the companies and the managers who ran them. Unilever's business outside Europe consisted mainly of soap coordinated by The Overseas Committee . The OSC Directors traveled endlessly to ensure personal contact and reported back, most importantly on men.'

The China Soap CompanyAndrew Knox told the story about 'the old man' getting into China in the 1920s. Competitive battles at home led to keen interest in export markets to expand sales ... Lever & 'Pure Sunlight' luxury tablets or Gossages & 'Housewife's Friend' filled soap or Crosfields & high tech 'Blue Mottled' bars?

It was a no brainer; India and China were the big markets ... but for exports or local manufacture?

The Lever Overseas Committee was formed in 1926, bringing together the several Directors of Overseas Companies (DOCs) and their specific country responsibilities, a system which remained after the 1929 merger as the Unilever OSC 'Contact Directors'. Managers were left alone with their huge responsibilities, given guidance not instructions, and encouraged not to mither HO. The slogan was 'don't keep a dog and bark yourself' ... but, fear not, the OSC would respond immediately with requests for help ... you were never alone in the sticks. 

Some time after 1913 independent competitors Crosfields, Brunner Mond & Price's Candle Company founded The China Soap & Candle Company, Shanghai; it was cheaper to manufacture in Shanghai than ship from Liverpool.

In 1919 Lever purchased Gossages & Crosfields from Brunner Mond and resolved the competitive altercation. A new factory was built and new Lever company was formed in Shanghai; The China Soap Company, established in 1923 ... and confiscated in 1949.

When we joined the OSC in 1971, Eric Laycock was on seat as Secretary. Eric had worked in Shanghai and was there when the revolutionaries pushed Unilever out by 'simply' taxing income at 100% plus ... easy. Eric retired in 1976 still urging Unilever to keep an eye open for a sensible way to get back into China.

Unilever started to make it back into China during the 1980s after the Deng Reforms ... and we're still drinking to celebrate such mutual perspicacity ... but once bitten twice shy?

FM recalled that in the early 1980s the OSC was obsessed with seminars and meetings on China. We never claimed FM was also full of the wisdom from our discussions in the bar at St Bridget's House in 1979!

FM later recalled this period as -

'the beginning of a long learning curve that was to lead up to my most fascinating and rewarding years in Unilever. Interest in China was rising for Frazer Sedcole and the OSC, but there was an enormous communication and conceptual gap that existed between western business people and the Chinese at any level'.

In the 1980s all the young wags overseas were well aware of the success that Bill Vale had had in drinking his way into the Taiwan partnership with Formosa United Industrial Corporation ... but no one admitted that beer was the lubricant for a business strategy based learning how to please local consumers.

On the ground the challenge was how best to get back into the old Unilever Shanghai Soap Company, then owned by The Shanghai Daily Chemical Industrial Corporation ... and in a run down condition but with a 3rd of the local soap market? Cautiously in 1985 a 50/50 Shanghai/Lever joint venture was agreed ... initially one Lux Toilet soap production line on one floor of an existing building with 30% of the output to be exported.

Sales exceeded capacity after 6 months. In the 80s Shanghai Ponds and Shanghai Van den Bergh joint ventures followed.

It was a long hard slog for Unilever but right on ... by the time we retired in 1994 China was looking good ... but things could get better ...  ?

However the explosive growth of the post Deng Chinese wealth creating economy inexorably led to dramtic upheavals -

in China massive middle class bulges blossomed as millions were boosted from poverty to plenty

in America mass production workers in obsolete industries were redundant

Mercantilist price fixing and associated $ imbalances were syphoned into unproductive real estate bubble

in Central Banks massive fiat money printing supercharged existing asset prices in the abscence of profitable innovation projects

Global bubbles burst in 2008. Both 'expected' and 'surprising' ... 'Tulip Mania' but 'this time was different' ... back to square one and rhyming history ... Corn Laws, Doha Rounds and the flawed WTO?

Market Development & Technology Transfer?   

Innovation FunnelHere's the thought ... sustainability of Unilever's business overseas was largely based on recruitment of competent local managers into long term membership of the networking social club. A club which was sensitive to the business strategy and the Fieldhouse conclusion ... most happenings engineered by Government Officials involved not 'market development' but 'market distortions' for personal enrichment.

Unilever's business strategy was Market Development but what was China's economic strategy? Technology Transfer and Catch Up? Were these strategies incompatible or were they the same thing?

We were sure that the sun rising in the East did not mean it was setting in the West ... synergies were at work.

Market Development was clear -

the innovation funnel and customer focused sustainability required -

cooperation (honesty & torts) synergies from team work

deals (hard work & trade) straight from the 2nd Law of Thermodynamics

investment (thrift & technology) financial clout

innovative products from M&A or R&D could only be 'tailored' to customers through deep understanding of local markets which required a local teamwork from a presence immersed in local cultural excitements & fears

Ken Durham told us Unilever was a Multi Local Multi National based on exciting investments in The China Soap Company in 1923 but fearful experience of the confiscation of the company in 1948 ... and losses loom large ... PZ an d P&G had a different history? 

trust in local partners with access to tax, FX surpluses, Belt & Road opportunities

access to WTO and Doha Round failure from ????

intimate embers burst into flames empirical science, easy technology, scarce FDI,

Unilever's financial clout and M&A nous ... 'know how' was not wanted? American $$$s were spilling out of the coffers imbalances would build the Belt & Road

Technology Transfer was opaque -

plausible deliberate rational purposeful intentional plans were not what they seemed to be. How could Marxist ideas be compatible with Market Development?

compromise rather than cooperation was the route to an independent self sufficient China rather than a business partner & trading specialisations.

manufacture of Lux Toilet Soap was easy but the success of Lux was not a 'package of specifications' which could be handed over ...

'know how' was all about organisational learning

why should China be interested in buying a 'package' which didn't exist and couldn't be 'nationalised' nor 'handed over' to local partners?

catch up - urbanisation - young demographics - control of investment = copy
but WTO membership and self sustaining economic growth demanded continuous product innovation ... Darwinian copy/vary/natural selection .... innovative products were difficult for state/party control of debt funded investment, in unproductive assets? 

Shanghai R&DWith these ideas in mind, special localized strategies like hiring of local employees, setting up an R&D unit, and planning for stock market listing were initiated to strengthen the company's position in China.

Our mate FC established the new laboratory at The China Academy of Science, Institute of Organic Chemistry, Shanghai in 19?? and recruited excellent local scientists who knew the science and the customers ... and became a source future Unilever business leaders?

Centre stage at the time was AG, an old colleague of ours from Four Acres and HLL ... where else?

The Unilever website told the ongoing story after our retirement -

Unilever were back in China and in 1998 the first Board Meeting outside of London/Rotterdam was held in Shanghai. In Feb 2000, Unilever set up a R&D center in Shanghai. It was Unilever's 6th global research centre (Port Sunlight, Colworth, Vlaardingen, Trumbull, Anderri, Shanghai). (R&D locations = Bangalore, India - Colworth, UK - Port Sunlight, UK - Shanghai, China - Trumbull, North America - Vlaardingen, The Netherlands). This centre acted as a bridge to get closer to local markets (local traditions, local ingredients, local products tailored to cater for local consumers).
Unilever China responded to the complex needs of the country's consumers by developing a portfolio of brands, both local and global, and incorporated traditional Chinese sciences with technological enhancements. The company aimed to identify itself as the brand that was quality conscious and consistently endeavored to meet local needs and tastes. Global brands (Dove, Lux, Ponds, Lipton) promised international expertise in their formulation and development but had local professionals to manage them to ease communication between the company and its customers. Similarly, local brands such as Hazeline and Lao Cai soy sauce benefited from Unilever's extensive knowledge and resources, without losing their local character. Thus, Unilever China endeavored to balance global and local needs by developing solutions that satisfied the demands of its target consumer segment.
Unilever signed a strategic partnership with Alibaba in 2015, including using data from its online marketing unit and its cloud business, to improve its digital advertising strategy and expand its distribution channels for rural consumers.
Chinese ecommerce firm JD.com has agreed a deal with Unilever to move products like Lipton’s tea and Lux soap between warehouses across China as the consumer goods firm looks to expand sales in more remote parts of the country. The deal is the latest move by an ecommerce company to muscle into the territory of logistics companies by leveraging the expertise and supply chains they have built up for their own retail business to offer those services to others.
The Chinese market was not one single market but several where deep studies and analysis reveal different spending habits of different consumers. New products were constantly developed to meet changing tastes, lifestyles and expectations.

Furthermore Unilever's approach seemed to be very different to the bureaucratic direction of our arch competitors -

P&G ... it seemed to us that P&G didn't buy beer they relied on instructions that flowed from central Cincinnati to their subsidiaries? P&G China was established in 1988. 20 brands Rejoice, Pantene, Head & Shoulders, Vidal Sassoon, Olay, SK-II, Safeguard, Ariel, Tide, Febreze, Gillette, Venus, Braun, Oral-B, Crest, Pampers, Whisper, Tampax, Meta, and Vicks. HQ in Guangzhou, Guangdong one innovation center in Beijing, nine manufacturing plants ... 7,000 people.

PZ ... our mate Alan Robinson was there ... and left empty handed?
In 2002 PZ entered China with the purchase of an ancient moribund soap company based in Qingdao ... Tsingtao ... anticipating a mad thirst for successful Western products and were ago for Good Manufacturing Practice.

Qingdao, an old naval dockyard & Yellow Sea port and ship building & commercial centre which was famed as the host for Tsingtao beer! (Qingdao 7 mn population cf Shanghai 25 mn, Shenzhen 13 mn)

Anglo-German Brewery Co Ltd, an English-German joint stock company based in Hong Kong, founded in 1903 and owned it until 1916 when it was liquidated by the Japanese. After the war the brewery was surrendered to the Chinese and confiscated/nationalised in 1949 as a state owned enterprise. After Deng opened up it was then privatised. Anheuser-Busch (American) were involved but sold its shareholding in 2009 & Asahi (Japanese) sold its shareholding in 2019. A familiar pattern?

The CCP were in charge of 'quality control' and everything was perfect ... thus Good Manufacturing Practice was a challenge and marketing was waste ... everybody needed soap for public health reasons. Western know how was anathema. The problems of historical poverty, famine and disease were not because of Mao's Marxist red book policies but rather bad karma and a Western legacy of conspiracy and imperialism. Happenings in Tiananmen Square, Hong Kong and Taiwan were just a small insignificant minority of trouble makers.

But for others, the party line didn't stick, maybe the silent majority aspired to Lux toilet soap made in Hong Kong which contained sweet aromas which made you smell like a beautiful film star and cost the earth. Happenings didn't cut the mustard and bribery & corruption went in tandem with tyranny & oppression.

Placing competent Greek businessmen to manage the company was not on and PZ sold out in 2005.

Raspberry Pi stopped manufacture in China in 20??

Perhaps Chinamen can do 'innovation'? ... yes maybe, but innovation was not in the user manual!

We remember an old boss of mine, senior but clueless,

'they only want to get their hands on our specification, keep it under lock & key'.

Underneath the soap pan in Apapa we learned that even if China received a paper specification on the exact science, the manufacture at the purities, precision, reproducibility, the quality & service, would be really tough. It’s not that simple and they didn’t have the supply chain to support it.

In 1993 Mrs Chan offered us a rebuttal to our equity investment in South Korea,

'now we have the specification we don't need Unilever anymore'!

Then the numbers changed ... progress & infrastructure must be balanced. Problems of complexity, change, conflict & scarcity must be solved as a whole shebang & caboodle.

1978 Deng opened up but 1989 collapse of the Berlin Wall didn't kill off Marx & Communism. China joining the WTO in 2001 did not result in acceptance of the 'Western Rules'. Price fixing was a catastrophe, free trade and detente were an naive optimistic pipedream. The Chinese world view and 'values' were implacably different.

Indigenisation could not change an alien value system. As with 'the Russian World', 'the Chinese World' had no liberal democratic institutions, no free speech, free association, free choice just a host of political regulations; restraints on trade' and 'restrictive practices'!

How Unileverisation? The Wacky Wokes were anti Unilever and didn't like it either, they preferred to be cooped up in their own bunker and let the deplorables go to oblivion. What a dogs breakfast. 

NB Hong Kong, Japan, South Korea, Taiwan ... liberal democratic values?

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unilever_shenzhenShenzhen - Fishing Village to Miracle in 30 years   

Capitalism worked Hong Kong and was bettered in Shenzhen! Poverty was eliminated! Instructions for Wealth Creation? A model for India and Russia imitate? Production problem solved and echoes of Marx!

But how can you keep the lid on crowd trouble as Europe & USA matured?  

The social behaviour of folk everywhere has necessarily evolved to be diverse as they try for longevity through the discovery & accumulation of the synergies of specialisation & scale.  

The process was familiar - bills had to be paid, bills for investment & innovation in better mouse traps for everyone had to be paid from profits, GDP per head growth, profits growth, urban growth, jobs growth, education growth, skills growth, aptitude opportunity growth ... but inevitably growth in congestion, pollution, inequality ...

Deng opened up trade & Foreign Direct Investment for entrepreneurs, the way forward was thru the thriving, bustling market economics of Hong Kong ... 'seek truth from facts' ... empirical science & private enterprise. The economic miracle of Shenzen & Shanghai 'catch up' ...

In 2001 China joins the World Trade Organisation ... game over ... we're on a roll?

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State Stricks Back2012 Xi Strikes Back

The Deng miracle was followed by Xi and 'his thoughts' which re-imposed command & control by cults, cliques, cronies & party dictatorships ... 'innovation by instructions' & 'picking winners'? Was this similar to the Putin reversion to 'control' over Gorbachev's, glasnost & perestroika?

In 1978 Deng showed the way to economic growth but in 2012 Xi and the CCP started to strike back to retain 'control' ... the CCP bureaucracy had to survive ... it was a must.

The impositions, tax & regulation were familiar as bureaucracy grew ... and with it the inevitable problems of dictatorship ... the bureaucracy was still intact?

Xi had a problem? Deng may have been OK for 'catch' up but the question now was how was the CCP to 'control' the forgotten triplets -

1 crowd trouble - price fixing depressed real wages

2 bribery & corruption - tyranny & oppression - parasites & predators - bureaucratic kludge

3 innovation & market development - diversity of productive investment - free & fair trade

There was a familiar road to the 'Common Prosperity' mandates of the CCP ... the legislation of wealth?

Were real wages and profits alternatives ... for compromise?

Were economic growth and inequality alternatives ... for compromise?

Or was there just one whole shebang & caboodle of synergies of specialisation & scale ... widening circles of moral sentiments ... for cooperation?

1 Crowd Trouble

- Tiananmen 1989 & Hong Kong 2019 & when Taiwan ?  

Natural diversity was China's historical strength but the conundrum was how a central authoritarian regime kept the lid on students & workers ... who instinctively always worked hard for longevity & fun ... if not revolution then a constant drive to emulate Hong Kong & Taiwan ... not with guns but with enterprise? ... Tiananmen scares and HK riots and Taiwan ambitions? 

Just 10 years after those musings over beer in 1980, the Tiananmen massacre dashed some of the hope that Shenzhen could easily mimic the synergies of specialisation & scale of vibrant Hong Kong. Then crowd trouble emerged in Hong Kong in 2019 as 'one country two systems' proved to be easy during catch up but more difficult during the hoped for phase of innovative hegemony.

Tiananmen & Bureaucratic Authority clashed in 1989, as the students and workers on the left reacted as hope, stability, efficiency & trust went out of the window with the bath water ... immune systems were needed as the inevitable 'fearsome foursome' of evolution appeared -

inequality from Darwinian diversity & differential survival ... compound interest?

inflation from arrogant tax, spend & print ... American real estate?

bribery & corruption from parasites & predators ... rent seekers without bankruptcy?

pollution from 2nd law of thermodynamics ... if it's free put me down for two, please?

Immune systems evolved as market economies moved from analogy to ontology -

copy - access & participation in the 3% compound growth of the Empirical Science database of 'know how' - required because intellectual property was diverse, dispersed, tacit & incomplete and impossible to steal

vary - diversity of trial & error in the innovation funnel - required because of ignorance

select - natural selection of real prices which clear markets - required to avoid the costs & inefficiencies of gluts & queues by fixing prices 

Were the immune systems of Evolutionary Economics and the synergies of specialisation & scale missing, misunderstood & taboo in the CCP? -

Free & Fair Trade - fixing prices resulted in imbalances & inefficiencies - 'gluts & queues' - 'restraints of trade' - 'restrictive practices'  

Comparative Advantage - self sufficiency resulted in waste & low growth - 'sprinkling the desert with a teaspoon' - 'Jack of all trades master of none'

Everybody, even in Liberal Democracies, seemed to be obsessed with 'control the future' rather than experiments and 'seeking truth from facts'? 

2 Bribery & Corruption

Belts Roads & Guns- One country, Two systems?

The 'West' was in a pickle. China, 1.4 billion customers, economies of scale, diligent and skillful, cheap and efficient had cashed in on a tsunami of global trade.

By 2023 sales of iPhones had reached 2.4 billion. The bare figures -

sales 2.4 bn iPhones, 1,500 components (each supplier had 1,500 suppliers etc) - China 26%, Taiwan 23%, US 18%, Japan, South Korea.
Taiwan had 36% of $$$. CPUs, 5G, WiFi, lenses ...
China had 95% of assembly & 'cheapies' but rising. 20% of iPhone sales revenue.
US & Europe had the design expertise.

Apple device sales crossed the 2bn threshold in 2022, doubled in 7 years ... and 60 per cent of iPhones were made by Foxconn Taiwan in a factory hub in Zhengzhou in China known as 'iPhone City', the complex employed 300,000 workers.

Steve Jobs had the vision but Tim Cook built a superbly complex supply chain ... quality & quantity ... he had skin in the game (GOSPLAN had no chance!)     

Foxconn first moved to mainland China in 1988 ... during Deng's 'Shenzen miracle' ...

Foxconn ZhengzhouinOver a couple of decades Apple Corps had built up this massive manufacturing extravaganza and associated intricate supply chain (Unilever were embroiled in the same way) ... and when the chips were down and politics of the Beltway and the CCP went rogue and threatened synergies of 'globalisation' the total interdependence made decoupling impossible. 

Apple’s symbiotic relationship with China was indestructible despite rising trade and geopolitical tensions between Beijing and Washington ... and despite the iPhone maker’s own moves to diversify production from China.

Apple built up operations in India in an overdue diversification strategy, they followed the blueprint set in China two decades previously, where engineers and designers spent weeks or months at a time in factories to improve manufacturing and secure supply chains. A mammoth task the iPhone boasted suppliers in 43 different countries across six continents, and the chain gets even more complicated when you break it down into raw materials as each supplier also had suppliers ... and, of course there were suppliers to the supplier suppliers ... the numbers were irrelevant and meaningless, the job was beyond mind boggling ... and at each stage quality & quantity were indispensible!

Diversifying into English speaking India made sense but India 'appeared' unhelpful with their traditions of protectionism and import substitution ... and a lack of motivation and urgency?

Meanwhile Washington piled on more bans on exports of high tech to China and more bans on imports from Huawei ... as reversing globalisation became a political ploy.

Decoupling was a pipe dream. A pretty pickle indeed for state dirigisme.

But hang on; factories were fast becoming old hat as 3D printing & software overwhelmed folk in factories with fingers and thumbs ... China lost its competitive advantage in cheap labour?!?!?

3D PrintingYou imagine it we manufacture it!

2001 WTO membership 'rules' were by passed by China as cheating was legitimised and 'muckraker's hyperbole' and 'political correctness' became rife & rampant - 

unfair price fixing trade practices exported jobs with the horror of unemployment (rather than the maths of comparative advantage)    

accumulated debt & money printing fed real estate bubbles (rather than balanced balanced sheets)   

There were interlinked questions about the role of -

Liberal Democracy ?

private investment & innovation ?

Incompatible Distortions & Strategies -

central bank accumulation of $s & export subsidies 

tariff & non tariff barriers and local partners & equity investment,

labour, environment, product standards & liability

intellectual property abuse    

human rights abuse

Around 2013 China confirmed some new words to describe how markets, trade & finance could underpin & grow the 'One Belt & One Road Initiative' into a new silk road with 100s of interlinked thriving markets across Asia to Europe? - 

'China will continue to greatly ease market access, create a more attractive investment environment, strengthen the protection of intellectual property rights, voluntarily expand imports, and create a more relaxed and orderly environment for domestic and foreign entrepreneurs to invest in and start businesses'.

FM & MJC would have loved it ... more synergies of specialisation & scale ... more please!

But the WTO failed to implement the Doha Round ... the CCP blatantly price fixed the rules

... how could two systems deliver if there there remained nagging questions of relentless creeping Mercantilism ... and ongoing continuous Western Innovation?

1.4bn intelligent humans under the 'one size fits all' control of one party, controlled by one man, cannot be the best way?

Human Rights? Central Party Control?

Price Fixing? State Subsidies? Non Tariff Barriers? State Infrastructure? State Procurement?

Industrial Policy? Forced technology transfer or theft of intellectual property?

WTO membership? Tariffs & Trade Wars? Comparative Advantage?

Cyber Security? Stocks & thieves? Parasites & Predators?

Debt Finance? Lethal?

Innovation by Picking Winners? Nobel Prizes?

Darwinian evolution required the copy/vary/select of the innovation funnel ... all three elements of Darwinism didn't feature with the CCP?

Copy alone and you could never be better, you stagnate.

Vary was necessary for the discovery of 'new' innovations.

Natural selection was essential because picking winners was impossible, nobody knew yet the what, where, who and when of the next good idea!

Strong support for state-owned companies & lethal debt was weighing down on the dynamic private sector. 6

The problem - politicians were bad at picking winners but losers were good at picking politicians

There were many exciting rags-to-riches stories as folk didn’t fear heaven nor earth and by 2017 the private sector was 60 per cent of China’s economic output, 80 per cent of urban employment and private companies accounted for 90 per cent of exports. But some entrepreneurs began to worry that the last four decades of economic reform from 1978 had stalled because bank lending to the state monopolies had advanced and 'crowded out' diverse private investment? Weak legal systems and the absence of tort law resulted in regulation of rent seeking bribery & corruption becoming indistinguishable from regulation of entrepreneurial risk investment as economic growth stalled debt & defaults exploded ... tax, borrow, spend  ... sounded familiar? Pushing away every-day entrepreneurial ideas in favor of a crony, bureaucratic communist elites while gorging up on cheap debt as bright people ran away?   

3 Innovation & Market Development

Innovation Funnel- diversity of productive investment   

Unilever's 'market development' was clear - continuous innovation.

The innovation funnel and customer focused sustainability required -

cooperation (honesty & torts) synergies from team work

deals (hard work & trade) straight from the 2nd Law of Thermodynamics

investment (thrift & technology) financial clout  

Continuous InnovationHow was the CCP going to fare with continuous innovation?

Innovation was not a facile process?

Continuous innovation required deep understanding and hard work, honesty & thrift -

compound interest, back half of the chess board

diversity, big data sources no censorship

hitherto unconnected connections, flip flopping diversity of excitement & fear in the creative brain

intensive interactions with others, hustle at the water fountain, no cancelations & party lines

immunity from treachery, weeding out misinformation, trust from -

deep in the whites of their eyes 

empirical science - a double blind randomised control experiment in Scunthorpe which was repeated in the Antipodes 17½ nights later with the same peer reviewed results was meaningful irresistible evidence which could never be ignored ...

Of course there were plenty of CCP initiatives - but all seemed to start with the top down knee jerk hysteria of State Dirigisme and hark back to the abject failures -

 mercantilism, East India Company and

WTO & the Doha Round and global orchestration of free & fair trade

Wotever happened to structural reforms? ... and learning as history rhymed. We were constantly reminded of Richard Dawkins - 

'It is almost as if the human brain were specifically designed to misunderstand Darwinism, and to find it hard to believe'.

Belts & Roads

- Debt Financed Mercantilism?   

New Silk RoadWould the 'Belt & Road' initiative be based on self sustaining innovation and market led economic growth 'below the radar' ... or was 'Made in China 2025' a state sponsored, debt funded pipe dream ... unproductive assets? A top down 13th Five Year Plan with Mercantilist objectives which would sooner or later be embroiled in the universal, uncontrollable, foibles of human emotions - excitement & fear - complexity, conflict, change & scarcity ... and boring 'me too' products, corruption ... a funding shortfall ... and bust?

We bet the wheels came off ... the 'project of the century' was hyperbolic hubris. China had promised to spend about $1tn on building infrastructure in developing countries around the world ... bossed by authoritarian leaders of countries with big debts and junk status ... and the fatal flaw, it was all financed by lethal debt through Chinese financial institutions.

A flawed model that appeared to work at home ... building large infrastructure projects with lethal debt ... was applied abroad.

$s which naturally would have flowed to coolies & yanks accumulated in the Chinese central bank and used to fund overseas adventures in Belts & Roads and American real estate ... all funded with lethal debt rather than enterprising equity.

We looked at Venezuela - hubris, ambition and naïveté ... between 2007 and 2013, the China Development Bank lent Venezuela nearly $40bn, cementing a relationship with Hugo Chávez, and erecting 'a Great Wall' against US hegemony ...

Was it all certain to unravel? We remembered grandiose schemes and The Groundnut Affair. We remembered Unilever's focus on cooperation & innovation and we had a beer and drank to FM's synergies and mantra -

'tell us your rules and we will write the investment proposal ... or not'

'offer your goods & services and we will test them to see if they run on our machines with our products ... or not'

We remembered Unilever's disdain for compromise & direction and had another drink to FM's insistence on local cooperation & synergies -

'external tariffs, non tariff barriers & subsidies of protectionism hurt the Chinese consumers'

'even polarised voting systems led to deadlock, innovation was required and innovation required a Bill of Rights ... a UDHR'

Meanwhile amongst all these shenanigans it became clear that back at the coal face Lux Beauty, Dove Smellies and Magnum Ice Creams were a hit in China!

In 2015 Mr Xi visited the Prime Minister's 'local' for a pint of delicious beer and then promptly invested £265 million through a Chines consortium, China Media Capital, for a 13% stake in Manchester City FC ... wot was that all that about? At the same time old City favourite, Son Jihai was appointed a club ambassador in China ... to help to lever the global Premier League Brand into China ... the Labour Shadow Sports Minister described it as 'a grubby little fix' ... wot had it got to do with him? Perhaps Premier League just like Dove Smellies and Magnum Ice Creams were superb brands!

Debt financing of the Belt & Road Initiative, like all debt financing was lethal to lenders & borrowers alike.

Lotus Tower ColomboIn 2022 The Lotus Tower, Colombo, Sri Lanka showed to the world all the problems of lethal debt, unprofitable projects and white elephants. The FT reported -

China steps back from the Belt and Road - Financial problems are prompting a quiet but fundamental rethink in Beijing as economic risks around the world rise, says a senior government adviser in Beijing, who declined further identification. 'A lot of investment in Belt and Road countries didn’t make commercial sense and was in effect a form of capital flight. 'What’s more, the economic prospects in many BRI countries, led by African ones, has worsened dramatically in recent years. That makes it more imperative for us to think twice before going on another lending spree'. In addition, China’s foreign exchange reserves — which peaked at nearly $4tn in 2014 — have fallen back to just over $3tn in 2022, making the hard currency that Chinese financial institutions use to lend to Belt and Road countries relatively scarce.

Lethal DebtIn March 2023 the FT chimed in ...

Economic growth was about discovering profitable projects (elevating the playing field?) not protectionism and regulating out competition ... but we repeated ourselves.

Perhaps the whole apparatus of state sponsored capitalism & planning simply distorted the markets & delivered gluts & queues and in the end corruption, coups & catastrophe? Were all free & fair market 'corrections' uncompetitive, unsustainable and unfair to someone, sometime, somewhere? 'Free & fair trade' could not be dismissed as 'bullying' ... when the 'managed trade' of the Doha Round, NAFTA, TPP and Euro Reform all proved difficult to sustain ... and even the acclaimed WTO staggered ... weighed down by its 27,000 pages, or was it 29,000 pages, of instantly irrelevant detail ... out of date before the ink had dried.

Why had the Doha Round collapsed? Why did the WTO need reform?

The usual suspects - 

Price Fixing - subsidies, tariffs & FX manipulation

Regulations - non tariff barriers (NTB) - regulation, party control of companies, nationalisation, no term limits, censorship, state-led infrastructure spending, debt financing of Belt & Road

Intellectual Property theft -

Forced Technology transfer

Environmental and Health 'n' Safety costs - 

Five distortions made a mockery of 'free trade' ... 

 Was the concept of free trade, pioneered by Adam Smith & David Ricardo, the foundation of economic analysis? Was applicable to today’s conditions?
Two issues -

'trading countries' did not refrain from mercantilism nor protectionism

'trading countries' did not have automatic adjustment mechanisms that prevented chronic trade imbalances

Free trade did not work when it was not fair and countries adopted non–market economy industrial policies.

Somebody somewhere had to pay for the gluts & queues?

Even unilateral free trade was advantageous as 'dumping' was always unsustainable, bills must be paid. Even with state subsidies, unnecessary costs still had to be be weeded out.

It seemed that the world was protectionist and therefore we had to conform? But this was just not on. Ricardo’s theory of comparative advantage could not be summarily dismissed, with unsustainable arguments -

unfair competition - we cannot compete against a dirigiste and even totalitarian country like China. Trying to do so generates negative externalities ... crime, drugs, suicide & inequalities. But loss of low paid jobs is more than compensated for by gains in well paid jobs. Evolution is creative destruction

fairness - price fixing trade is not free trade and destroys the economy. Theft, piracy, counterfeiting, FX manipulation, forced transfer of technology and low environmental, health & safety and labor regulations. All either illegal or reasonable cost reduction practices ... violations of WTO rules. Mercantilism & protectionism destroys economies not free & fair trade

trade deficit - trade deficit is a serious problem that reduces gross domestic product and indicates unfair trade. All trade is paid for deficits on current account are balanced by surpluses on capital account as FX adjusts. The problem lies investing surpluses in non productive assets (American real estate bubbles?) ... bills have to be paid. One way or another, exports must always equal imports plus net foreign investment 

retaliation - retaliatory protectionist measures are justified against protectionist countries; such retaliation encourages real free trade ... or the downward spiral of trade wars? Tariffs are paid by local consumers. Dumping is paid for by foreign tax payers. Trade is beneficial to all partners; otherwise they would walk away from the deal. Unilateral free trade is beneficial 

national security - protectionism is required for reasons of national security. An excuse. National security is enhanced by trade and economic growth. The best trade policy is not to have one, to leave citizens alone to import or export as they wish and secure the mutual benefits ... synergies. Unfortunately votes can be purchased, not by science but by promising magical alternatives to hard work honesty and thrift.

Made in China 2025

- Fortress China ... again!?  

In 2015 China turned in on itself once again. Another 10 year plan to go wrong?

Integrating China into the WTO and restarting the stalled Doha Round of reciprocal investment failed as the 'rule book' of balanced balance sheets was torn up and forced technology transfer & interventionist price fixing mindsets became the norm.

China was trying to appropriate technology, distort competition and trade, with state spying & price fixing to 'challenge' the prosperity and security in the west? Instead of liberalised trade and mutual gain there seemed to be a zero-sum competition and ruinous use of commercial policy for foreign policy ends.

Gains from trade described specialised high-tech industries where innovators established dominant positions. But old Mercantilist ideas persisted. Current account deficits were a never a sign of economic weakness as all trade was paid for ... but price fixing always resulted in imbalances (gluts & queues) and capital account surpluses invested in non productive assets caused real estate bubbles!

Mercantilism was never a good idea, in our world if you didn't pay your bills the result was bankruptcy or state bail out and the zombies?

Author Wu Xiaoping -

'the private sector had completed its historic task in helping state-owned companies to develop and that it was time for it to start fading away'.

Fortress China and self sufficiency ... a delusion ... continuous innovation was never 'completed' -

science & technology - continuous innovation & global free & fair trade

financing balanced budgets - almighty $s & global Bitcoin 

food - photosynthesis, seeds & global supply chains

energy - renewables & global climate change

Can't be left to chance and the market, must be run by the CCP full of technocrats not bureaucrats?

'Throw money' at 'picking winners'?

NB 14th 5 year plan, 8,997 projects get tax breaks 'stimulus' as 'pump priming'   

Xi ThoughtXi Thought

One size fits all doctrinaire 'Xi Thought' entered the textbooks and curricula it was clear to many who had worked under the soap pans in Apapa that -

wealth creation was about private enterprise ... top pecks were in 'office' but not in 'power' 

Top pecks were inevitably unseated by ingenious folk who were adept at tying shoe laces together ... there always seemed to be unintended consequences ... coups (elections), catastrophes (environmental, nukes, immigrations) & new technologies ... last time we looked happenings were a tad more complicated than the top pecks thought ... perhaps there were ... at least an eightsome assemblage of difficulties & more? 

How much room you give to the market and lower-level bureaucrats, how much freedom do you allow individuals to have?

Flower MarketIn 2022 Xi 'demanded' smiling farmers stop cultivating profitable flowers and turn to growing rice staples again; subsistence self sufficiency for national security?
But how can one leader 'control' 1.4bn people ... who have tasted the sweet success of profitable projects?

Darwin's genie was out of the bottle ... successful market innovation demanded teamwork & cooperation, not instructions from above ... catch-up was comparatively easy but innovation ... ?

Children as young as 10 studied boss honcho Xi's eponymous political philosophy which was labeled by some parents as 'disgusting' and evoked memories of the Mao personality cult, great leap forward & cultural revolution. The thought police were around again. Everybody was scared of Xi and his guns but that did not mean folk obeyed ... thoughts & ideas were beyond reach.
'Power' must be transferred to the lower levels, to invigorate the economy & modernisation, but such transfer to the local levels resulted in extreme difficulties with regulation & control by the CCP. Catch 22?
Deng unleashed centrifugal forces that promoted the interests of the consumer, rather than the interests of the producer and the central CCP.

Innovation?The innovation & science questions lingered on.

Were the Nobel Prize distributions biased? Was empirical science thriving in Shanghai? Were the English language interactions important catalysts? Did the diversity of Mandarin & Shanghai Wu & Pidgin English, help or hinder the process of human interaction?

China was obsessed with 'control' of diversity and businesses, both were denigrated for the cut throat competition, hire & fire winner takes all greed. The talented got to the top of the CCP and recruited clones ... not mavericks ... to build and protect monolithic bureaucracies. It seemed to us that Google 'evolved' from small beginnings in back street Palo Alto but Alibaba exploded as it 'involved' ... work was frenetic, folk had no time think about hitherto unconnected connections ... and ingenuity ... all bureaucracies, state or private, were about 'control' of the construction of monoliths ... not diversity & innovation?  

Then came another 'new' initiative from the CCP -

'Common Prosperity'

Was this the 15th or 17th 5 year plan? ... or a scheme to crack down on compound interest and private enterprise ... or was it a scam to ban inequality ... and much needed diversity?

2023 the CCP policy was to harness new technologies from the private sector for the benefit of the country regardless of intellectual property rights = not for profit?
More than a third of the CCP’s 205-member Central Committee now have a background in science, technology, engineering and mathematics.

Innovation FunnelThe questions remained, how was the CCP to 'control' the continuous innovation -

1 crowd trouble? - when work was focused on the military rather than economic growth 

2 bribery & corruption? - when big numbers of brains were focused on titular power grabs rather than synergies of specialisations & scale

3 bureaucratic kludge? - when state controlled enterprises were focused on hierarchies rather than continuous innovation & market development

4 theft of intellectual property? - when WTO Rules were abandoned by price fixes rather than the complex process of technology transfer?

Imagine the Elon Musk Space X landings?

Diversity of trial & error productive investment?  

... and how was India faring?  

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 Hindustan Lever & Market Development ...   

Michael Wood China Michael Wood IndiaThe comparison between the Unilever history of market development in India & China continued to fascinate us and  no doubt dominated Unilever investment decisions and the quest for excellence in global markets.

The cultural histories of India and China were enlightened by absorbing the wonderful story telling of our favourite historian Michael Wood -   

1. Out of Africa migration & Kerala Trade.
Evidence from DNA genomic analysis and the fossil record does not falsify the first diaspora of hominids out of Africa skirted coasts the Indian Ocean from Ethiopia through the Arabian Peninsular and down the Eastern sea board to the beaches of Kerala. Exploring and tarrying on the great rivers Nile, Euphrates, Tigress and Indus thus feeding the early civilisations ... and on to Indonesia & Australia. 

10 mya Common Ancestor. 2.5 mya Early Hominids Habilis in East Africa.

200,000 ya may be Homo Erectus started it all as small brains grew to big ... upright, hairless, runners with some basics of language and technology - fire, tools, hand axes & art. Motivated by curiosity & the search for survival the diaspora followed the animals for starters then out of Africa treks went global until climate change interfered as skills were accumulated for survival, trade and later defence ... as soon as there were stocks there were thieves.

By 200,000 ya there were many hominids in Africa and Neanderthals & Denisovans in Europe, but eventually Homo Sapiens was the sole surviving species from this frenetic gene pool ... generation after generation, layer upon layer.

Indus Valley Civilisation2. 10,000 ya hunter gatherers settled inland from the Kerala beaches in Southern India. There were also settlements around the North West Frontier, Khyber Pass and on the Indus. These were Iranian Agriculturists.
8,000 ya Harappa settlements in Punjab were uncovered in 1828 on the 'lost rivers' of the Indus where cattle & wheat were known from 7,000 BC ...  these were Indian developments, contemporaneously with Sumeria? Before the Pyramids of Giza?

Was the collapse of the Indus civilisations due to climate change & lost rivers, followed by migration to the Ganges ... or the coming of the Aryans?     

3. 2,000 - 1,500 BC Aryans came as migrants, originally from around the Aral / Caspian seas came via Iran & then into India and the Indus valleys. These were Aryan Pastoralists.  4,000 ya Aryans were developing sophisticated Vedic rituals, Sanskrit & Brahmin priests came down from central Asia with their magic mantras often taking days to recite and passed down religiously from father to son ... patterns of sound from the past, sharpening the mind but often without modern meaning? Aryans came as migrants as described in the Rig Veda - the first historical written information came from the 1,000 hymns recorded the mantras which had been transmitted orally for 2,000 years!

ShivaThese were the roots of Hinduism, meditation and yoga ... and language itself? Sanskrit language was not indigenous to India but part of the rich diversity of modern times? Activity, creativity, diversity ... 1.5 billion folk ... 5,000 castes, 400 languages, 33 million Gods, 4 global religions ... a vibrant embrace of wealth & success, heath & happiness, morality & virtue and knowledge & freedom.     

4. 300 BC Aryans came as conquerors as described in the battles of the Mahabharata - this tome involved a later influx spreading into the Ganges valleys and similar in scope & tone to Homer and the Greeks.   

5. The Greeks & Romans, Arab Muslim traders, Alexander the Great, Vasco da Gama, Zegh He from China ... they all called at the West Coast and Kerala for fishing and trade rather than conquest and some settled and assimilated?
The Greeks were overwhelmed by India where they found 118 separate nations, bright golden adornment, and a culture of wisdom, simplicity, frugality, self restraint ... and 'no Indians ever set out beyond their own country to wage aggressive war because of their respect for justice'.

6. Into this rich diversity, ideas bubbled and fermented into a creative hot bed; along Mother Ganges to Patna.
500 BC from the Aegean to the Indus, Persia and Darius the Great waxed until Alexander the Great came & conquered in the East.
In 325 BC Alexander reached into the Hindu Kush and the Indus valley but was repulsed and returned by land through the desert and sea through the Persian Gulf to Babylon when at just 32 he died.
This was the Axis Age of the Greek Philosophers. the Old Testament Prophets, Mahavira & Buddha in India, Confucius, Lao Tzu, Chuang Tzu in China, new cities and trade routes and enriching interactions.  

Jain (Mahavira no harm, Gujarat trade, Chandragupta & Ashoka), Buddha (no suffering, introspection, strive on) ...
300 BC The first Indian Empire Ashoka & Maurya and the Kalinga War - Brahmin seven pillars inscriptions of power - peace, toleration, self control, 'dharma' Buddhism spread but was subsumed in India by the Hindus & Muslims ... 

7. Trade, the key factor in civilisation, sharing synergies & testing ideas, climbing onto the growth curve. Ship building from Gujarat to Kerala, Spices to the Mediterranean and the Silk Road to China by land & sea.
Dravidian Tamils & Madurai and trade with Mediterranean.
Kushan Era & Bactria from the Aral Sea, to Eastern Central Asia en route to China and down to the mouth of the Ganges ... the great intermediaries?  

Khyber Pass8. Medieval 400-1,400, incursions through the Khyber Pass on the North West Frontier seemed to be continuous, Huns & Islam from Turks and Afghans, military incursions from Spain to the Indus. Why so many converts? Two stories secular assimilation and religious alien intrusion. Secular contribution to diversity, and/or religious monotheism against the many & varied. Great kingdoms living together. Rama.
Gupta Era as divine kings from Khyber to Bengal & The Kama Sutra. Open, pluralist, free society. Brahmins rise and Buddhism declines and the coming of Islam. 
Mahmud & Islam conquest but also science.
Cholon & in the south ... another flowering pluralism untouched?   

9. Reason takes over.
1526 Mughal Era & Babur, a descendant of Genghis Khan, around 1500 conquered Kabul and on to India and a great victory over incumbent Muslims. He brought the Persian culture & language, and the Hindus accommodated with independence of the local rajas.    

Akbar the great, the grandson stretched his empire from Kabul to Bengal. Civilisation was pluralist, no final truth. Hindu, Muslim, Christian, Jain, Zoroaster ... Brahmins, Buddha ... and of course, Sunni & Sheah. Akbar's grandson built Taj Mahal, Agra. Hierarchy, poverty & tax led to downfall.  Greeks, Sakas, Kushans, Turks, Mongols, Afghans, Mughals ... all came thru the Khyber Pass.

Enter the Portuguese in 1498 & East India Companies by sea for trade not conquest.        

India Britannica10.  The East India Company, it all started with free trade ... 'a quiet trade' with no trouble for anyone, as the merchants called it ... they largely exchanged silver bullion and metals, wool staple was not much good in India. And then promise went downhill as the mutual benefits & synergies of trade were undermined by nation state rivalries, insurgents from the North West frontier and bureaucratic excesses. 'It was well understood by everyone from the Mughal Emperor down that if you withed to safeguard your possessions and even your life you had better be prepared to fight', the Company was doing no more than that. 'All war is so contrary to our interest' declared the Directors in 1681.

Venetian Marco Polo found spices around Kerala around 1298? Portuguese Vasco da Gama touched base in Goa during the voyages of discovery in 1498. His sea trade cut out the Arab middle men. Then the Dutch & English East Indian Companies and their monopolies scrapped for dominance.

Science of SpiceThe attraction of peppers for the European palettes was overwhelming and arbitrage prices were high for both traders and pirates and anyone prepared to take the ginormous risk of financing companies now now for precarious later rewards. Inevitably the nation states sold monopolies to privateer companies and pocketed the revenues, leaving the companies with the risks and the mounting costs of defending their stocks from the thieves!     

The trading posts and trading concessions were built and grown at Calcutta, Madras & Bombay. The real estate was built on India soil with full Hughal authority. Initially they were defensive fortresses to protect stocks from thieves. The armies were required to defend stocks from pirates & the Portuguese & Dutch & French. They grew as settlements for the hoards of administrators to balance the books and resolve disputes ... no doubt there were fingers in the tills but the settlements were not an arrogance of empire although they easily slid into protecting the riches in the warehouses against fractious Nawabs who had not benefitted from the synergies and wanted some of the pepper action.

But back in Britain there was unnecessary interventionism from parasites wanting a piece of the action ... often exposed under the guise of Christian evangelism ... in Hindustan!? Parliament was embroiled from the start with the monopoly but trade took a back seat as scraps over peppers with France escalated ... inevitably wars broke out as The War of Austrian Succession and The Seven Years War were reflected o the sub continent. War was contrary to the company's interests with big costs and interruption in trade. 'The directors shrank from warfare for commercial rather than moral reasons, because it damaged trade and it cost a lot of money to conduct'. The company trade created an enormous amount of wealth through Indian trade with Europe. No wonder the company sought to 'create order out of the chaos' of bribery & corruption and fiefdom rivalry in the sub continent.

The Lion & The UnicornThe parallels with the British trade on the Niger were similar. Sir Frederick Pedler described how the commercial British traders tried to develop standards of behaviour which ensured the mutual benefits of trade could be optimised for everyone.          

Robert Clive (1725-74) emerged from this quagmire of company bureaucracy, local bribery & corruption and nation state rivalries to gain some military prowess. Staying out of British and local Nawab politics became impossible as bribery & corruption and gratuitous greed from 'deals on the side' took hold ... 'private trades' were rife. The whole edifice went pear shaped, Clive left in 1767 and his reputation in tatters he committed suicide. Wot a mess ... so much for 'a quiet trade'.   

As Clive succumbed Warren Hastings stepped in to save the company from bankruptcy? Although the powers at Westminster concocted a case against him after a trial lasting 10 years there was 'no case to answer' ... just embarrassment as a great company became ensnared in politics.  

The project of 'civilising' Hinduism was an arrogance ... but the British Raj did 'unify' India ... something the Kushans, Guptas, Maghals 1858 & Muslims 25% never did and the project was totally dependent on local cooperation and secular custom & practice law ... and the English language, English literature, English education & constitutional government 'authority' ... not the caste system. The British seemed to bring a potent mixture of economic 'Utlitarianism' and moral 'Evangelism' which could be a better bet than local 'tribal' feuding. Macaulay wrote the manual ... with total respect for Indian diversity.   

Nevertheless throughout poverty & famine were rife.

The Raj 1857 Mutiny perhaps started with Sepoys within the army, and then civilian rebellions along the Ganges Valley.  Civilised social reforms, harsh taxes, summary treatment of some rich landowners, scepticism about the improvements brought about by British rule. Many Indians rose against the British and many also fought for the British, and the majority remained seemingly compliant to British rule. Significantly the Punjabi Sikhs remained loyal to the Brits ... the mutiny was largely confined to the north. The outcome was the dissolution of The East India Company and the launch of the new British Raj. Awash with tribalism in three armies ... Bengal, Madras & Bombay ... grease used on Enfield rifles was rumoured to include tallow from beef, which offended the Hindus, and lard from pork, which offended the Muslims ... wot was a mess.

The British Raj took over from the defunct East India Company and Victoria's Viceroy sat at the apex of a 'colossal pyramid of power, founded on the idea of hierarchy as baffling in complexity as the caste system of the Hindus themselves'. All encoded in 'The Warrant of Precedence', which detailed the impossible bureaucratic task. Queen Victoria got it , 'Red-tapeism is, alas, our great misfortune'! 

India's strength was its dynamic diversity which 'class' and 'caste' hierarchies could never command & control ... same old story. Indigenisation was always part of the plan, but always there was tribal suspicion rivalry if not clear bribery & corruption. Of course the Indian Civil Service was full of good intent and good work but the task 'control' idea was impossible.   

The English merchants progressed from 'simple arbitrage trade' in spices to 'industrialised production' of indigo, rice, jute, cotton, tea, opium ... an  more. The 'box wallahs' were at work, growing from the bottom up. Ideas were not hatched in the Hill Stations and The Bengal Club where the hierarchy relaxed and tittle tattled but rather by the hard work, honesty & thrift of all the merchants for mutual benefits; synergies of specialisation & scale. Industrial production needed infrastructure; protection of stocks, irrigation, transport & communication ... including the Suez Canal in 1869. All for mutual benefit ... there was more than enough to go round, there was a gravy train. Rudyard Kipling told the stories!

ThanksThe Brits were sticklers for law & order, they were not racist but they were intolerant of insurrection ... and even intolerant of bad behaviour. The Indians were encouraged to love to play English cricket ... Ranjitsinji played for an England XI in 1893! Anglo-Indians were almost a badge of pride ... but unsurprisingly there was arrogance & prejudice everywhere ... and tribal & caste infighting.  Nevertheless a meritocracy was seeded amongst the strict Hindu caste system?
Unfortunately beer never caught on ... grog was the tipple of choice; rum, sugar & milk ... !

Trade, commerce and diversity continued to dominate the economy and deliver considerable mutual benefits & synergies of specialisation & scale. Just like the older days the role of coordinating all the associated hard work, honesty & thrift had been taken from the East India Company by the British Parliament ... an impossible & traumatic task for clueless folk in London citadels even after the Suez canal cut travel time from 3 months to 3 weeks. The box wallahs had the know how ... and unfortunately they also had their fair share of bribery & corruption. Mr Gladstone was aware of the difficulty when he mused, 'Cabinet dreads nothing more than the questions about India' ... the arrogance of hierarchical accountability was echoed years later by NHS founder Aneurin Bevan, 'The sound of a dropped bed pan in Scunthorpe reverberates around the Palace of Westminster'. What a way to run a circus!   

By the 19th century The Raj were well on the way to understanding the strength of diversity and the benefit of indigenisation ... not only Victoria & her Viceroys and Gladstone in Parliament but also the 'government' in Calcutta ...

Allan Octavian HumeAllan Octavian Hume 'got it' (his dad repealed the Corn Laws back home and Hume founded The Congress Party of India in 1885) - 

'Aliens like myself love India & her children but the real work must be done by the people of the country themselves'

No clarion call in any land has had greater consequence without widespread & bloody revolution!

This was the Unilever indigenisation policy directive we absorbed before embarking on our adventures underneath the soap pans in Apapa many decades later. A lesson seldom learned but the echo of Wellington was heard ...

'I told the what to do but they said they wanted to discuss it' ...

Many good men were swamped trying desperately to orchestrate order themselves ... such top down arrogance always inevitably ended in tragedy. The root of the problem had to be recognised, the sub continent was just too big too diverse too unwieldy to be managed. The Durbar, moving the capital to Delhi and partition were all tried but the result was 'ungovernable' and the formation of The Muslim League in 1906. The writing was on the wall as the capital moved from Calcutta to the ancient Hindu capital of Delhi. But as the Turf Correspondent of The Statesman asked,

'Would a change of capital from London to Winchester have any effect on racing at Epsom, Ascot, Newmarket or Doncaster?'

Indian volunteered for English education and service in HM Armed forces but the writing was on the wall, reorganisations and peace keeping became irrelevant, self government was the only answer. Reforms were always to little too late.  Europeans were fighting amongst themselves in Crimea and WW1 and lost all credibility as respectable role models & leaders. There was no way out. In 1919 extremists attacked a missionary and there was a massacre in Amritsar as riflemen opened fire. Everyone was outraged including Mahatma Gandhi.

Mahatma CandhiGandhi (1869-1948) was of the merchant class and called to the Bar as a lawyer in England. But he was drawn to home in India and took over the Congress Party in 1921, renouncing all violence and promoting non-cooperation, he rose to full power ... and eventually after another tragedy of war in Europe in 1947 independence arrived with inevitable religious partition.          

The British left India with age old problems which the Raj had failed to solve.

Gandhi himself had gloried in religion and language diversity in contrast to strict Muslim code of Pakistan ... and although prohibition of home brewed alcohol forewent both a source of nutrition and an aid to music & dance he was eventually murdered by fanatical Hindu nationalists in 1948.

Prime Minister Nehru in 1947 chose Marxism rather than diversity.

And by 2010 Modi was still trying to resurrect Hinduism as diversity and India Inc?

Our history at school was a chronology from the Greeks & Romans to the Anglo Saxons, Danes, Vikings, Normans, Plantagenets, Tudors, Stewarts ... a linear fiction which tragically seemed to miss out India ... although we did know Nawab of Pataudi was a splendid cricketer. 

 

The subcontinent with its flirtation with socialism failed? But Hindustan Lever and continuous innovation was a triumph? ...

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:drink

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