3.8 Modeling International Trends

Many large companies have departments charged with forecasting economic performance, exchange rates and prices of shares, commodities, raw supplies and the like. Findings are proprietary, of course, but anecdotal evidence suggests that forecasting is still problematic — a result of incomplete models, the wrong models entirely, or of data collection. Specific answers are nonetheless required, for top management's peace of mind, and for survival in the case of smaller companies that cannot easily absorb large losses when dealing with overseas partners or businesses.

Companies not undertaking such forecasting themselves may purchase third-party studies, of course, but these are not cheap, not always reliable and not likely to give competitive advantage if widely distributed. Crucial is the quality of data and the models employed, matters which only the larger companies with their teams of experts may be in a position to properly assess.

What is offered in this section are simplifications, business models transferred to the larger arena of world trade, currency and investment flows. All models mutate, indeed have a limited shelf life in many cases, being subject to political fortunes, unexpected events and the slow shift in outlook that governments and interest groups of all persuasions exert through reputable newspapers, trade associations and academic journals.

The models espouse political realism of the Morgenthau school, i.e. that countries are motivated by perceived national interests, or national interests disguised as moral concerns. {1}

Those perceived interests may be mistaken, of course, or only reflect the wishes of powerful sectors. A case in point is the 1973 quadrupling of oil prices, which is commonly seen as retaliation imposed by the OPEC countries for Israel's occupation of Arab lands after the Yom Kippur war. It wasn't, not according to evidence assembled by F. William Engdahl. {31} The 'oil-shock', which permanently damaged US industries, leaving industrial wastelands and the attendant problems of unemployment, social deprivation and crime as manufacturing gradually moved offshore — arguably the single most devastating blow to western and third world growth — was created in Washington to favor oil interests, banks and the American dollar. Preposterous as the story must seem, a summary is this: The Shah of Iran, who owed his throne to CIA actions in 1953, was allowed to strengthen his army with American weaponry in exchange for oil price hikes. Saudi Arabia, with whom the US had an agreement of oil for American protection, was similarly instructed. Other OPEC countries followed. The new profits created a world awash with petrodollars, which were first invested in New York and London, profiting the oil families and banks handling the transactions. From banks the petrodollars went as loans needed by third-world countries now suffering from recession and increased energy costs — loans made essential by the 'oil-shock' but increasing the debt burden under which they still labor. North Sea oil, uneconomic at earlier prices, became profitable, and demand for the dollar in which oil is bought (but previously weakened by dollar printing to fund the Vietnam war and by money laundering activities in Europe and Lebanon) strengthened its position as the world's preferred currency. {35}

Many issues are indeed highly politicized, and preconceptions need to be set aside to properly examine the facts and their explanatory power. Most information is taken from the mainstream press, but references do include a wider range of material than is usually found in business studies textbooks. {32} The field more properly belongs to International Political Economy. {33}

The models aim to give a broad understanding of underlying realities: the political, business and currency aspects of international trade. As presented, the models are over-simple and unquantified. Sometimes they are contradictory, or apply to different business sectors: globalization has been a blessing to the emergent middle class of India but not to the rural poor, for example. To make models predictive, and an alternative or supplement to econometric modeling, companies will need to:

1. Check their validity, applying them to a wider range of material than given here (but all available over the Internet).
2. Refine them considerably with information from the international and business news.
3. Evaluate sources of data and statistical information (which are not wholly in agreement).
4. Decide on common bases (year dollar terms, etc.)
5. Identify the relevant factors with regression analysis, etc. (outlined here, but needing a deeper treatment).
6. Build the computer models, with neural network and expert systems commercially available.
7. Sometimes have access to insider or privileged information to gain competitive advantage.

Aims and Benefits

eBusiness is increasingly international, and these models should help readers to:

1. Understand the underlying realities, i.e. read more intelligently the business and overseas news that is often incomplete, partisan or plain wrong.

2. Plan for the longer term. The summaries of business surveys that form sections 3.1 to 3.7 give only the unconfidential responses of interested players, and are sometimes more examples of herd behavior.

3. Build more secure relationships with overseas customers, companies and governments, as only by serving their real interests is a future assured. For all their similarity in websites, businesses in Argentina, China and Russia are not western cousins that unaccountably speak another language, but entities quite different in their cultural backgrounds, aspirations and accepted practices.

In short, all business opportunities have reasons, often apparent to only a few individuals at the time, {30} and so not likely to appear in the mainstream press.

Business Model: Industrial Revolution

 

 

 

 

 

 

 

 

The industrial revolution began in Britain, first with textile mills driven by waterpower, and then with factories powered by steam engines that employed locally-available coal and iron ore. {2} {3}

To protect its cottage industries, Britain first banned Indian textiles, and then, under merchantile-orientated governments enshrining industry and property rights, employed waterpower to run large cotton mills. The first machines were rudimentary, but benefited from continual improvements and inventions: Goods were initially transferred by canals, but pithead pumps and steam engines quickly developed into cheaper railway transport.

Conditions were grim indeed in the tobacco, sugar and cotton plantations, and in the precious metal mines of the New World that formed an essential part of this trading model. {4} Britain received tobacco, sugar and cotton from slave plantations in Brazil, the American colonies and the Caribbean. The cotton it wove into cheap textiles, which were exported to clothe plantation workers, and help buy slaves from Africa. The slaves were transported to Britain, and thence to plantations, and to mines in Latin America.

 

 

 

 

 

 

The silver obtained in return from Potosi and the Mexican operations was used to purchase tea, china and silks from China, these being sold to merchants in Britain, Europe and the American colonies. When Chinese demand a century later threatened to empty British banks of silver, the British East India company promoted the sale of Indian opium to China, overcoming local resistance by wars, which eventually opened up the country to British (and other European) manufactures. The Chinese had no answer to steel-built gunboats that were the products of industrial revolution, any more than had the Japanese confronted with Perry's fleet in 1853. {2}

Contemporary historians have generally disliked this Williams model, {4} noting that slave trafficking contributed to less than 5% of British trade revenues. {5} But who profited from the trafficking is less important than the undoubted importance of plantation products, which were created by labor without the need of sustenance in England: a type of 'manpower at a distance' that was gradually taken over by water power and then coal-fired steam engines. {34} Equally important — indeed more so, given that millennia of slavery had not led to an industrial revolution before — was the growth of enterprise in Britain, a change in mentality, from landed wealth, conspicuous consumption and/or regal display to investment, innovation and respectability. {6} Britain had natural resources in coal and iron ore, and scientific experiment was encouraged. The government created a national market by abolishing internal tariffs, investing in transportation, erecting an external tariff to protect fledgling industries, creating banks to stabilize the currency and mobilize domestic savings for investment, allowing land, natural resources and labor to be treated as commodities, promoting religious freedom and finally undertaking mass education to prepare people for industrial work. {7} {33} Land was protected by title, and jointstock companies restricted investors' liabilities to the shares purchased. The profits made by enterprise did not encourage population increases in Britain because the profits were not shared but kept within hardworking business families. The Land Enclosure Acts not only improved land productivity for their go-ahead owners, but drove the poor off the lands and into the new mills and factories, where conditions were harsh, especially for women and children, {8} but to which there was no alternative. Cottage weavers could not compete with cotton mills, and the workhouses instituted by the new Poor Laws made charity an unattractive option. {9}

Business Model: Colonization

Pressure for land drove Europeans into cities, and many to find opportunities abroad. {10} Colonization was a mixed blessing to the countries concerned, if a blessing at all, and few historians applaud the forcible opening up of China by opium, war and special trade agreements, but the British were not alone in their aggressive policies. Americans sold Turkish opium to China, for example, {2} and acquired Hawaii {11} and the Philippines {12} under the flag of self-determination. Africa became a scramble for territories between the European powers, {13} and King Leopold ran the Belgium Congo as a vast penal colony under conditions that shocked the most hardened travelers. {14} The British in India secured influence by intervening in disputes between local rulers, {15} and then administered through existing power structures, as did the Dutch in the east Indies. {16}

Colonialism is a complex {17} and contentious subject, {18} and historians are undecided who or what colonization really benefited. {19} Britain certainly could not afford to retain her colonies after the second world war, and all colonies (with the partial exception of Chechnya from Russia) regained their independence eventually, though not always easily. The most protracted struggle was in Chechnya, with over 150,000 deaths, and Indochina, which left 58,000 Americans and over a million Vietnamese dead. {20}

To the extent that generalizations can be made, the European powers developed colonies to obtain raw materials for their expanding industries, and markets for their manufactured goods. The elements of modern administration, health and education were introduced, but colonies were not encouraged to threaten European dominance by industrializing themselves. Colonial boundaries did not always represent ethnic or religious divisions, moreover, which caused dissent when European control was removed on independence.

Many countries, to secure independence in more than name only, sought to industrialize on gaining their freedom, but did not realize what was needed: a disciplined and educated workforce, legal protection of land, investment and innovation, a transparent and equitable taxation system, and markets that were not rigged against them — the USA, Europe and Japan subsidized their farmers and maintained high tariffs on agricultural imports. {21} {22}

Points to Note

1. Some political systems are demonstrably better than others in providing for their citizens, but the western democracies succeeded by building on a head start achieved by industrialization and perhaps colonization.

2. Much is culturally conditioned. The stress on competition rather than cooperation may be a legacy of European nationalism, itself deriving from the expansive Roman state. {23} Imperial China was less confrontational to its neighbors, {24} and pre-Moghul India even less so, {25} but pre-Columbian societies were often very bloody indeed, {26} as were the US Plains Indians till recent times. {27}

3. We tend to think that the world, for all its unfairness, reflects the inevitable order of things. {28} {29} It is financial crises, ecological disasters, and the increasing cost of policing the status quo that periodically make us re-examine these assumptions.

4. Unequal systems are wasteful. Like traffic lights unadjusted to the flow of traffic, they leave large sections unable to contribute to (and benefit from) an interdependent world. It is not ethics that argues for more equitable trading systems, but the sound business sense of creating larger markets for a wider range of products.

Sources and Further Reading

The literature is extensive, and standard histories sometimes lose the outlines in illustrative detail. Balance is also difficult to find, especially in original work that aims to overturn previous views. Good starting places are 2 and 33. (easy to read and carrying extensive references), plus historical atlases.

1. Political Realism in International Relations by W. Julian Korab-Karpowicz. Stanford Encyclopedia of Philosophy. July 2010.
2. The Origins of the Modern World: A Global and Ecological Narrative from the Fifteenth to Twenty-first Century by Robert B. Marks. Rowman and Littlefield, 2007.
3. The Origins of the Industrial Revolution in England by Steven Kreis. History Guide. 2001.
4. Capitalism and Slavery by Eric Williams Univ. North Carolina Press, 1994. Reprint of 1944 edition.
5. Slavery, Atlantic Trade and the British Economy, 1660-1800 by Kenneth Morgan. Reviews in History. November 2009.
6. Causes of the Industrial Revolution by Eric Bond, Sheena Gingerich, Oliver Archer-Antonsen, Liam Purcell, and Elizabeth Macklem. Industrial Revolution. February 2003.
7. The Workshop of the World by Pat Hudson. BBC History. March 2011.
8. Fuelling the Industrial Revolution by Dr Alan Rice & Dr Emma Poulter. Revealing Histories. Accessed July 2012.
9. British social policy, 1601-1948 by Paul Spicker. Robert Gordon University. Undated.
10. European Overseas Rule by Reinhard von Wendt. European History Online. December 2010.
11. The US Occupation. Hawaiian Kingdom. Accessed September 2012.
12. U.S. Failed To Learn From Conquest of Philippines, Historian Says: Unintelligent Design by Michael Chesson. Veterans Today. April 2011.
13. What Caused the Scramble for Africa? Why was Africa so rapidly colonized? by Alistair Boddy-Evans. About.com Guide. 2012.
14. A Story of Greed, Terror, and Heroism in Colonial Africa by Adam Hochschild. Review by Garret Wilson. Garret Wilson. December 2007.
15. British Rule in India (c.1600-1947) by Chris Butler. Flow of History. 2007.
16. Dutch Empire/Expansion in the East Indies. Wikibooks. March 2011.
17. Colonialism by Norrie MacQueen. Longman 2007.
18. Colonialism. Stanford Encyclopedia of Philosophy. April 2012.
19. Two cheers for colonialism by Dinesh D'Souza. San Francisco Chronicle. July 2002.
20. Causes and Effects of the Vietnam War. MR Baker. Useful (though undated and unattributed) summary.
21. The Atlas of Food: Who Eats What, Where and Why by Erik Millstone. Univ. of California Press, 2008.
22. Agricultural Subsidy Programs by Daniel A. Sumner. Library of Economics and Liberty. 2008.
23. The Legacy of Rome. Hundred Years War. 1994.
24. Rethinking the 'Tribute System': Broadening the Conceptual Horizon of Historical East Asian Politics by Zhang Feng. Chinese Journal of International Politics. Volume 2, iv.
25. India-Southeast Asian Relations: An Overview by Patit Paban Mishra. Teaching South Asia. Winter 2001.
26. Human sacrifice in pre-Columbian America by Matthia Tomczak. Flinders University. 2001. But note that pre-Columbia societies were very diverse: see American Holocaust: Columbus and the Conquest of the New World by David E. Stannard. O.U.P., 1992. Part One.
27. Empire of the Summer Moon by S.C. Gwynne. Scribner, 2010.
28. The Just World Theory by Claire Andre and Manuel Velasquez. Santa Clara University. Undated.
29. Forces of Production: A Social History of Industrial Automation by David F. Noble. O.U.P. 1986.
30. MS-DOS: A Brief Introduction. The Linux Information Project. September 2006.
31. The primary source is F. William Engdahl's The Gods of Money: Wall Street and the End of the American Century (Edition.Engdahl, 2009), a section of Chapter 14, which is closely documented. The incident involved the machinations of Kissinger and others, but the references include interviews with the leading players and The Hidden Hand of American Hegemony: Petrodollar Recycling and International Markets by David E. Spiro (Cornell Univ. Press, 1999), Interlock: The Untold Story of American banks, oil interests, the Shah's money, debts and the astounding connection between them by Mark Hulbert (Richardson and Snyder, 1982), The Kingdom: Arabia and the House of Saud by Robert Lacey (Avon Books, 1981), The Secret Conversations of Henry Kissinger: Step-by-step diplomacy in the Middle East by Matti Golan (Bantam Books, 1976), Years of Upheaval by Henry Kissinger (Little, Brown & Co., 1982), Managing OPEC's Money by Ann Crittenden (NYT, 24 June 1979) and An Outline for Remaking World Trade and Finance by the Trilateral Commission (New York Univ. Press, 1975)
32. New Articles by Henry C.K. Liu. HenryCKLui. Some examples of the approach in a wide-ranging series of articles. Accessed July 2013.
33. Many textbooks exist. An introduction is: International Political Economy: Contrasting World Views by Raymond C. Miller. Routledge, 2008. More advanced texts include The Globalization of World Politics: An Introduction to International Relations by John Baylis, Steve Smith and Patricia Owens. OUP, 2011 and Understanding International Relations by Chris Brown and Kirsten Ainley. Palgrave Macmillan, 2009.
34. The American Crucible: Slavery, Emancipation and Human Rights by Robin Blackburn. Verso, 2011. Argues that the Industrial Revolution was driven by the need to acquire products of the slave plantations, i.e. supplied the model but not the capital for industrialisation.
35. The Fed and Manufactured Crises by Bob Urie. Counterpunch, May 2014. Suggests that business cycles are manufactured by government and financial interests.