Into the Maelstrom
UNTIL ITS DRAMATIC COLLAPSE, most people barely knew that something called the global supply chain existed, much less understood how much their daily lives depended on it. Then, suddenly, toilet paper and frozen chicken disappeared from supermarket shelves, and COVID-19 patients were left dying in hospitals for lack of medical equipment. How could it have happened?
Enter Peter S. Goodman, veteran economics reporter for the New York Times, who chronicled the unfolding disaster at close quarters, from the factories of Shenzhen, China, to the ports of Los Angeles and Long Beach and the truck stops and rail yards of Middle America. His reporting forms the heart of this new book, How the World Ran Out of Everything.
Goodman’s gift for storytelling and eye for vivid detail breathe life into an inherently arcane subject. His story follows the travails of one Hagan Walker, an entrepreneur who struggles to have an order of plastic toys shipped from a factory in China to customers in the United States in time for the holiday shopping season. (I won’t reveal how the journey ended.)
Along the way, we meet a host of minor characters whose lives were upended by the pandemic and resulting economic fallout: sailors marooned aboard an idle container ship, a California farmer who cannot deliver his almonds to customers in the Middle East, and a railroad worker who is refused paid leave to care for a sick child.
Goodman widens his lens to deliver pithy accounts of the forces that propelled globalization. These include the economic reforms that unleashed China’s export-led economic transformation; the invention of the shipping container, which dramatically reduced the time and expense of moving goods across oceans; and the concept of just-in-time manufacturing, which, taken to extremes, made the world more vulnerable to supply-chain disruptions, Goodman argues.
There are villains, too, including management consultants who counseled their corporate clients to slash inventories and payrolls in the name of lean manufacturing. The archvillain, however, is the “investor class,” whose relentless pursuit of profit comes at the expense of consumers and workers.
HOW THE WORLD RAN OUT OF EVERYTHING
Peter S. Goodman
Mariner Books
New York and Boston, 2024, 406 pp., $37
“Goodman’s gift for storytelling and eye for vivid detail breathe life into an inherently arcane subject.”
Some of Goodman’s reporting is truly moving, such as his description of the horrific conditions in meat-packing plants that were declared essential during the pandemic, leading to the needless deaths of many workers, including an immigrant from Myanmar who didn’t live to see her grandchild born. Yet these stories are marred by somewhat tedious denunciations of “unregulated greed” and “coldblooded exploitation.”
The final chapters offer a quick survey of efforts at re-shoring and near-shoring. But the book ends on a pessimistic note, given that in Goodman’s analysis, the root of the problem lies in the pursuit of profit. Goodman stops short of advocating the abolition of capitalism. Instead, his somewhat perfunctory conclusion calls for stricter antitrust enforcement and stronger labor unions. Nevertheless, his book offers a gripping and enlightening account of one of the most consequential economic events of modern times, told through the eyes of the people caught up in it. F&D
CHRIS WELLISZ manages communications for the World Bank’s trade team.
Competing for the Future
Krishna Srinivasan
IN THEIR RECENT BOOK Breaking the Mold: India’s Untraveled Path to Prosperity, Raghuram G. Rajan and Rohit Lamba argue that India’s future economic well-being lies in a different development strategy than the one successfully followed by many other advanced and emerging market economies—such as Japan, Korea, Taiwan Province of China, and, most notably, China.
These countries pursued a strategy of export-led manufacturing that leveraged cheap labor and transitioned into more sophisticated manufacturing as they became more integrated into global supply chains. Drawing on their extensive experience in policymaking in India, Rajan and Lamba argue that India should break this mold by instead focusing on services, an approach that is more aligned with India’s strengths and comparative advantage.
Why should India break the mold? The country has missed the bus, argue Rajan and Lamba, because the labor cost advantage no longer exists. And moving up the supply chain is not assured, as countries that moved early—not just China, but other emerging market economies, like Malaysia and Thailand—have developed their logistics so spectacularly that they can ship sophisticated manufacturing components easily and cheaply across the globe. Every segment of the manufacturing portion of global supply chains has become extremely competitive, so much so that even if India is successful in making its presence felt in low-skill assembly, it would not ensure profits or entry into other higher-skill manufacturing segments, they say.
Rajan and Lamba are persuasive in noting that it is in the early and late segments of a product’s production in the global supply chain—involving R&D, design, branding, marketing, and such—that the most value is added, with the manufacturing middle segment adding only a modest amount. They are not suggesting that India should discriminate against manufacturing, but caution against throwing costly subsidies at manufacturers.
Rajan and Lamba argue that India should instead leverage technology to boost exports of services, such as chip design and financial modeling, and those that cater to a growing domestic market, such as education and health care. But the strategy would require greater reform of, and investment in, India’s education system to generate a highly skilled, idea-generating, and entrepreneurial labor force. In their words, India must pivot from brawn to brain.
BREAKING THE MOLD
India’s Untraveled Path to Prosperity
Raghuram G. Rajan and Rohit Lamba
Princeton University Press
Princeton, NJ, 2024, 336 pp., $35
“The authors argue that India should leverage technology to boost exports of services.”
There is a lot to like in Rajan and Lamba’s book, including their call to revamp and revitalize India’s education and health care systems; improve data, governance, and transparency; and decentralize power to bring it closer to the country’s citizens. But their key recommendation leaves the reader wondering whether they are advocating a false binary choice between manufacturing and services. India does not have a sufficiently large skilled labor force to expand services as they advocate, and it will take a long time to get there.
It would also have been compelling if Rajan and Lamba had quantified the number of jobs that their proposed strategy would generate. With India projected to add 15 million people to the labor force every year, one could argue that it needs to create jobs across all possible activities and in every sector of the economy. To this end, wouldn’t it be better for India to pursue a wide swath of reforms—including improving the business environment, scaling up investment in education and health care, bridging infrastructure gaps, trade liberalization, and labor and land reforms—and leave the decision on where to invest, and which activities to pursue, to India’s entrepreneurial private sector?
Setting aside my disagreements, this book is a must-read for anyone who follows India. Rajan and Lamba should be applauded for lucidly articulating many innovative ideas that deserve serious attention and that should be actively debated. F&D
KRISHNA SRINIVASAN is director of the IMF’s Asia and Pacific Department.
Currencies Considered
Tamim Bayoumi
THIS SPLENDID CONFERENCE VOLUME comprises 28 succinct essays by top researchers and policymakers on the switch to floating exchange rates in 1973, plus an introduction by Maury Obstfield and Doug Irwin, the editors. Its breadth, depth, and clarity attest to the quality of the editors and the extent of the network of the Peterson Institute for International Economics.
The diversity of topics, approaches, and conclusions makes reading the book feel a bit like looking through a kaleidoscope—fun and a bit disorienting in the best sense of that word. The initial section, “Historical Perspective on 1973 and its Legacy,” illustrates the diversity of conclusions. While essays by Anne Krueger and Fred Bergsten are relatively positive, seeing floating as better than the alternatives, Robert Aliber views it as the cause of serial financial instability. The section also contains a fair bit of discussion of political economy constraints to improvements in the system, a theme that runs through the book.
The move to floating rates was a leap in the dark that turned out very differently from expectations. Exchange rates did not adjust smoothly but jumped around because financial transactions have always dominated those associated with trade, as noted by Hyun Song Shin. This financial dominance also explains why the demise of fixed dollar parities enhanced the role of the dollar, reflecting the unparalleled breadth and depth of US financial markets. In addition, the desire to stabilize exchange rates across European countries following the demise of dollar parities launched the monetary cooperation that culminated in the euro, as discussed by Philip Lane. Finally, most people expected the floating rate system to be a temporary stopgap, yet it remains, albeit with less-effusive accolades than might be expected on a golden anniversary.
Another theme running through the book is the evolution of the system. The early years of floating were beset by many financial and currency problems as countries sought to replace fixed parities with a different monetary anchor. Gradually, a new system emerged in advanced economies comprising inflation targeting, free-floating rates, and deep and highly integrated capital markets anchored on the dollar. This integration and dependence on US markets caused major problems during the 2008 North Atlantic financial crisis, which led the Federal Reserve to arrange swap agreements with other major central banks and effectively made it the lender of last resort for the advanced world.
FLOATING EXCHANGE RATES AT FIFTY
Douglas A. Irwin and Maurice Obstfeld, eds.
PIIE Press
Washington, DC, 2024, 384 pp., $25
“The early years of floating were beset by many financial and currency problems.”
The book pays welcome attention to the experience of emerging markets, whose evolution has been slightly different and significantly rougher. While the more successful emerging markets have adopted inflation targeting and floating rates, their thinner domestic capital markets and lack of access to swap lines make them more vulnerable to financial shocks. This explains their continued use of intervention and capital controls. The last major regional bloc wedded to dollar pegs is Middle Eastern oil producers, reflecting their shallow capital markets and geopolitical considerations, as discussed by Adnan Mazarei.
The final section addresses the future of the dollar, the euro, and the renminbi. In contrast to the diversity of views elsewhere, there is relative unanimity that the dollar will remain the dominant currency for at least the next decade, since neither the euro area nor China offers the financial depth needed to replace it.
This book is a treasure trove of information and insight. I learned an awful lot from reading it and am sure you will too. F&D
TAMIM BAYOUMI is a visiting professor at King’s College London.
