Silver linings

29th April, 2006

The Undercover Economist – FT Magazine 29 April

The news makes such depressing reading these days, as it always does when there’s a war on. But amid all the gloom, a small, curious part of me can’t help wondering whether our military escapades in Iraq and Afghanistan will produce any unexpected consequences for our daily economic life.

It wouldn’t be the first time that a war has transformed the economy. When Honore Blanc, a French gunsmith, produced 10,000 muskets a year for Napoleon, he made sure that any faulty pieces could be replaced by standardised components rather than the usual handmade parts. It was a simple idea but an engineering miracle – and without it, mass production would have been impossible.

The first world war provided a more indirect impetus to the process of technological change. More than 30 years after Thomas Edison lit the streets of New York City, the electric dynamo hadn’t produced the new efficient manufacturers that many had expected. Although huge steam engines had been replaced by huge electric motors, factories were still set up the old way: workers were clustered around the monstrous engines because the equipment they used was powered by drive belts, which meant it needed to be close to the source of power. The result was, the workers were arranged according to how much power their equipment needed, rather than what would lead to the most productive flow of work.

The first world war changed all that, according to economic historian Paul David. In 1914, the US government all but shut its borders to immigrants. Manufacturers focused on improving training and hiring the best workers, instead of simply drawing on a boundless supply of cheap muscle. The well-trained workers, with new contracts and new chains of command, were capable of handling new responsibilities. They operated machines using power transmitted through electric cables, not drive belts. Factory floors could be reshaped and products made more quickly, and the US economy enjoyed astonishing productivity gains.

Yet another war spurred one of the most important innovations of the past 50 years: the shipping container. In 1960, half the cost of shipping cargo from Chicago to France was the delay in handling the goods at the docks. Shipping containers cut most of those costs out, and they are fundamental to the way the world works today. Without containerisation, “Made in China” would be words we rarely read. Yet the shipping container was blocked for decades by disputes with unions, shipping cartels, and bureaucrats who regulated the routes and prices that truckers could charge for carrying containers. Change was easy to block because the status quo was sustainable.

That wasn’t true during the Vietnam war, when as early as 1965 the military build-up was being hampered by what the journalist Marc Levinson calls “the greatest logistical mess in the history of the US armed forces”. In The Box, Levinson’s new book about the shipping container, he argues that container shipping provided the answer. Once the military was sold on the idea, there were two swift consequences: a dramatic expansion of container shipping to US forces in Europe, and fleets of empty ships sailing back from Vietnam, offering cheap rates to the rapidly expanding Japanese manufacturers. The rest is history.

Interchangeable parts, electrification and containerisation collectively created the wealth we enjoy in the western world today. The wars that brought us this bounty were bloody enough, but perhaps it is some consolation to reflect that both history and the economy work in mysterious ways.

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