Weihnachtsmarktwirtschaft

After soziale Marktwirtschaft, the social market economy, and freie Marktwirtschaft, the free market economy, what about Weihnachtsmarktwirtschaft, the Christmas market economy?

So there’s one of those packaged German Christmas markets outside the Royal Festival Hall at the moment. I was down there last night having a bratwurst and I thought: That’s like Europe! This does remind me a bit of both Thomas “Airmiles” Friedman’s vast collection of highly informative cab drivers and also the vicar in my home village who one Christmas night preached that “Have you ever been at the airport, waiting for your luggage, watching all those strange bags come around, when suddenly, there’s yours? Well, that’s like Jesus“, but I do have an actual point here.

And after all, England Rugby League legends Sam and George Burgess were hitting the bratwurst about the same time and you know they’re right:

Obviously the beer was imported. So were the sausages. But even the bread rolls came out of a box from “Der Heimatbäcker” that promised 80 Stück of Turbobrötchen. All the cooking gear had German brand names on it. The only local contribution was labour, either British, Portuguese, or Polish. It reminded me of a post on my own blog about the introduction of Passivhaus building standards into the UK, and the problem that for a long time this is likely to be a drag on the economy because until the supply chain builds up, it’s basically importing houses.

However, this has much wider applicability. As I keep blogging, ever since 2009 or thereabouts, the core of the EU’s economic problem is trade. It’s not just me; the official line on Spain and Italy’s problems is that they’ve got to move their current accounts towards balance or indeed surplus. That is why they’re ordered to wreck as many generations as it takes to achieve internal devaluation.

The problem, though, or rather one of the many problems, is the Christmas market economy. Getting final products out that compete with the world’s top exporter depends on intermediate products out of the supply chain. And one thing we know is that a hell of a lot of small industrial companies have died the death in southern Europe over the last few years.

One of the worst things about deflations is that they kill the rich ecosystem, the so-called industrial commons, that supports the tall trees of the industrial canopy. This happened in the UK in the 1980s and 1990s, and it’s one of the reasons why trying to reduce the UK’s trade deficit has been so difficult. In the 1970s, the Treasury was astonished by how much of industry was in “Engineering: Not otherwise classified” and concluded that the statistics were useless. But I think an important lesson since then was that the losses to those everything-is-miscellaneous small manufacturers in the 80s permanently weakened the economy.

So, Spain, Italy, and UK “rebalancing”: même combat. Of course, the UK has options that aren’t available to the others here – like devaluation, reflation, and QE.

Update: Another example of the Weihnachtsmarktwirtschaft is Apple’s iGadget production in China. It used to be widely believed that only design lived in Cupertino and all the work was done in China, and this was either disgraceful or brilliant depending on partisanship. In fact, Apple owns and sometimes even invents the tools, both at the Foxconn final assembly line and in the German, Japanese, Korean, and British suppliers. A corroborating lesson is that the other behemoth of mobile to survive the shakeout is Samsung, which produces components on an enormous scale and is of course a key supplier to Apple. As a result, very little of the value content in an iPhone is actually Chinese.

The fact that cheap final assembly elsewhere in Europe with the high value intermediate manufacturing as well as the design work staying in Germany would suit German manufacturers as much as it does Apple should be too obvious to need saying. This is of course largely what the German auto industry does in Poland, Slovakia, and the Czech Republic.

2 thoughts on “Weihnachtsmarktwirtschaft

  1. Very interesting.

    Any thoughts on what an industrial policy to rebuild the rich ecosystem in the UK would look like?

    The Japanese/S. Korean model depended on trade barriers. Identify “national champions” and support them against importers. But at the same time, use cultural and banking and other means to make sure the champions do local sourcing.

    (Not to mention that it was a historical moment before international supply chains really took off.)

    Of course the exchange rate is part of the story for Britain, but is it enough?

  2. I have just remembered that this is also the lesson from the Douglas Hall-Smith paper on Boeing – the least profitable bits of building the aeroplane are design and final assembly, and they outsourced everything else!

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