Lecture 9: The Textile Industry PDF

Big emerging-market economies like Brazil and Thailand have learned that it is better, if you are going to take money from foreign lenders, to borrow from them only in your own currency. In a crisis, that may still leave the value of your currency in danger—as foreign investors sell out their stakes...

Big emerging-market economies like Brazil and Thailand have learned that it is better, if you are going to take money from foreign lenders, to borrow from them only in your own currency. In a crisis, that may still leave the value of your currency in danger—as foreign investors sell out their stakes, you will likely suffer a devaluation—but at least part of the risk is then borne by the lender, and you can at least ensure you have enough local funds to service the debts The United States, United Kingdom, and European Union agreed at last year's United Nations climate conference to provide financial support to South Africa in the financial restructuring of Eskom, its ailing power utility. This was both an energy transition strategy and a way of relieving the pressure on the South African government account arising from its implicit responsibility for Eskom's debts. What 2022 has revealed is that the dollar system has the resilience and strength that it does because it is deeply entrenched and buttressed by both commercial and geopolitical interests Wall Street Consensus (Daniela Gabor): Highlights the role of investment bankers, fund managers, and their client borrowers in maintaining the dollar-based global financial network. In major crises this system becomes an overt public-private partnership secured from the top down by the liquidity swap lines extended by the Fed to the major central banks of Europe, Latin America, and Asia. In general, a strong U.S. economy promotes growth and secures the prosperity of American capital and the centrality of U.S. equity markets to global capital accumulation. It also, however, requires a tighter stance from U.S. monetary policy. Right now, it is the latter point that is critical. How severe the tension in the global economy becomes over the coming months will depend above all on how far the Fed's tightening goes, and that depends on how rapidly American inflation cools down. LECTURE 9. THE TEXTILE INDUSTRY. “The cotton business chases cheap”. The T-shirt represents many aspects of cotton’s history. It is universal, almost all of us own one. They are usually inexpensive and the ethics of its manufacture can be controversial. Early Cotton: Archeology and early history show cotton has grown and been used by people in both South and Central America since perhaps as early as 5000 B.C.E. 3000 B.C.E. It is grown and spun in both the Indus river valleys. In early Egypt they knew of cotton, but clothing made of linen was the norm. The spread of cotton to Europe: Europe and early Greece used clothing made of wool. Like silk, cotton made its way west through trade and war. Herodotus, an early Greek historian described cotton as “a wool exceeding in beauty and goodness that of sheep”. Alexander the Great invaded India to conquer, and his men found the cotton clothes of the conquered more comfortable than their own. They took things and a lot of what they took was cotton. They made their way back to Europe with all the benefits of the conquest and that fabric, then trade became a factor. By the middle ages cotton is in Europe: Muslim traders and later conquerors spread spinning and cotton use to Spain and Sicily. They brought the technology to spin cotton and create cotton fabric. It spread into Europe later. Columbus finds cotton in the Bahamas, which the natives are using for clothing and he is impressed by the colors. So he steals some and takes it back with him. By 1500, Cotton became more common in Europe. For the most part it was inexpensive. Begins to be grown in America: By the early 1610s cotton was being grown in Virginia. The Spanish had it grown in Florida even earlier. The slave economy in Virginia already existed with Tobacco expanded. To produce cotton and process it you require a large inexpensive workforce, so it means that the British in Virginia and eventually up and down the eastern seaboard introduced an extensive program of slavery. India is a major source of supply: For the most part India remained the major source of supply of cotton. It had a fully developed industry and the cotton grew well there. The secret of dying cotton: how to dye it, how to process it, etc. They supplied most of Europe in exchange for gold. In the 1600s and early 1700s India was the source of 95% of British cotton. Supply is limited by price and limited technology. Production is limited by cost, cost is always a limitation but it is also limited by technology, and technology changes the thing. BEIC and Cotton: The British East India Company began to import cotton in the 1690s. Calico, a brightly coloured version, became very popular. Wool and linen makers tried at all times successfully to keep it out. As the BEIC grew in power it was able to sell cotton back into India after processing it in England. The advent of colonial cotton in America and the Caribbean also led to an expansion of English cotton use and production. RESTRICTIONS: Cotton production was limited by a number of factors: Cotton had to be combed to remove the seeds or it went bad. Cotton needed to be spun into thread in order to be turned into cloth. Thread needed to be loomed to create the cotton fabric. All of these relied on manual labor or rudimentary technology. Industrialism changes everything: The Spinning Jenny: Spinning had been a “craft” taking a place on a wheel in workers' homes. Cotton was spun into thread. In 1764 James Hargreaves invented the Spinning Jenny, which could do 8 spindles at once. Thread was still a bit weak, but it was improving. Richard Akrwright: Richard Arkwright improved upon the concept of the spinning Jenny with his invention of the water frame in 1769. Arkwright added a water powered system which made a much stronger thread. This was required if industrial production was to be possible. One person could do the work of many. Suddenly all of the employment that was required to create cotton thread to fabric was gone and replaced by machines. In 1768, an angry mob destroyed Arkwright’s factory. The power loom: Reverend Edmund Cartwright patented the power loom in 1785, which was improved over the following years to allow faster weaving of more thread. By 1800, the introduction of steam power at each stage made massive productivity possible. The need for more cotton and the restriction created by the need to “comb” the cotton meant only slow increases in yield, even in the new American fields. The solution would be the cotton gin. Patented by Eli Whitney. Created a solution and was able to make people’s hours of work in only a few minutes. Results of the First Industrial Revolution in England: The first Industrial Revolution in England increased production levels. The cotton cloth output was 21 million yards in 1796. 347 million yards of cotton in 1830. This allowed Britain to dominate the world cotton industry for decades. In 1770, the cotton industry was worth around $600,000. By 1805, it had grown to $10,500,000 and by 1870, $38,800,000. By comparison, over the same hundred years, wool had increased in value from $7,000,000 to $25,400,000 and silk from $1,000,000 to $8,000,000. In Manchester alone, the number of cotton mills rose dramatically in a very short space of time: from 2 in 1790 to 66 in 1821. The work force: In England, children and women were prime sources of labor. It was inexpensive and compliant. The 1833 Factory Act banned children from working in textile factories under the age of nine. From nine to thirteen they were limited to nine hours a day and 48 hours a week. By the time you were fourteen, you were considered an adult. Regulations only work if you enforce them. Conclusion: Cotton facilitated the transition of England into the first industrial power. English technology allowed them to mass produce cotton fabric and gave them global control of this commodity. That strength allowed them to dominate the economies of countries like India. It created a powerful industrial economy and an expanded middle class, but at the expense of horrible working conditions for women and children. Also sustaining their economy by globalization of slavery and production of raw materials America gets into the cotton business: Throughout the late eighteenth century and early nineteenth, American industrial spies roamed the British Isles, seeking not just new machines, but skilled workers who could run and maintain those machines. Francis Cabot Lowell talked his way into a number of British mills and memorized the plans for the Cartwright power loom. When he returned home, he built his own version of the loom and became the most successful industrialist of his time. He was only ever known by his name. Lowell’s Mill Girls: Lowell, Massachusetts, named in honor of Francis Cabot Lowell, was founded in the early 1820s as a planned town for the manufacture of textiles. By 1840, the factories in Lowell employed some estimates of more than 8,000 textile workers, commonly known as mill girls or factory girls. These “operatives” so-called because they operated the looms and other machinery–were primarily women and children from farming backgrounds. The decline at Lowell: In the 1830s, cloth prices dropped and wages were cut and hours were extended. After Lowell sells this trend continues. On three occasions the girls went on strike until in 1845, Massachusetts passed laws to help them, which were largely ignored. A wave of poor Irish immigrants replaced the more independent girls in the late 1840s and 1850s. King Cotton: By the 1850s, Cotton accounted for more than 50% of the U.S. exports. By the late 1850s, cotton grown in the United states accounted for 77% of the 800 million pounds of cotton consumed in Britain. It also accounted for 90% of the 192 million pounds used in France, 60% of the 115 million pounds spun in the Zollverein and 92% of the 102 million pounds manufactured in Russia. U.S. Civil War: “Slavery stood at the center of the most dynamic and far-reaching production complex in human history”. Sven Beckert. It was thought essential in the south but many in the north and elsewhere were troubled by both the ethical problem and the instability of slave systems. Civil War: 1861 - 1865 Aside from the implications for north and south, it also created chaos in the world cotton market. Most of the world’s cotton came out of the U.S. and now because of the trade restrictions imposed by the North, they blocked the south to try and prevent cotton from being exported to give the south money. Lost access to American cotton caused England to look to India and the Middle East. Put a real shock to the global economy. Similarly, the same thing happened to feed the appetite for raw cotton. The consequences in India were devastating, famine based upon the loss of food production to replace cotton. Led to some sympathy for the south in England and friction between the North and England. After the Civil War, some friction remained and damaged the relations between the United States and Canada and the United States and England. End of the war: As the war comes to an end, the South loses and slavery ends, meaning that there has to be new ways to replace cotton. Sharecropping replaced slavery. New sources in other parts of the world became important. Emphasized and increased global reach of the industry, even when the American cotton returned to the market. The reason cotton clothing is so cheap is that you can hire people and pay them very little to manufacture clothes. Triangle to Rana Plaza: On March 25, 1911 a fire destroyed the factory of “Triangle Shirtwaist” in New York, U.S.  The fire caused the deaths of 146 garment workers, 123 women and 23 men who died from the fire, smoke inhalation or falling or jumping to their deaths. The oldest victim was Providenza Panano at 43, the youngest were 14 years old, Kate Leone and “Sara” Rosario Maltese. The two guys who owned the factory were afraid of women taking unauthorized breaks or stealing fabric to take home, so when the women went into work they would padlock all of the doors including the fire escapes to keep them in, so they wouldn't sneak out. So when the fire hit, the people with the keys, the owners went out, they were all fine but the doors didn't work. Regulations started hitting in, so they moved to New Jersey and then further into the American South, Mexico and eventually Asia, seeking jurisdictions where they will be allowed to have low wage, highly exploitative working conditions. Rana Plaza and the cost of cotton: In May 2013, a clothing factory in the Rana Plaza building in Bangladesh, had a faulty construction, despite indications it was unsafe. In fact, extra floors were added and they were not in the design. Workers went back to work. The collapse killed 1134 people. Launched a huge debate about responsibility of western consumers and merchants. If you regulate too much, then the companies just move away. And that remains a significant problem. The evolution of the textile industry – Andrew Good (Global Edge) It is estimated by anthropologists that humans began wearing clothes somewhere between 500,000 and 100,000 years ago. Since this time the textile industry has been evolving. The earliest trade hubs of textiles can be found in ancient China, Turkey, and India. All of these regions can be found along the Silk Road. From the linen and animal skin wearing Pharaohs of Egypt to the luxurious purple silk worn in the Byzantine Empire the most fashionable trends have always had a major impact on the textile industry. The most in-demand products are the products every merchant wants to sell and every factory wants to produce. Consumer tastes and the cost of products are two primary demand drivers in the textile industry. The primary driving factors for a company’s success in the textile industry are the ability to operate efficiently and securing contracts with clothing marketers for their products. The textile industry has been shaping international business and cultural trends for thousands of years. In fact, ancient Chinese silk was one of the catalysts for the formation of the world’s first international commercial highway. The Industrial Revolution started in England in 1760. At this time, England was a colonial power, and used its colonies in the Americas and Asia to provide resources such as silk, tobacco, sugar, gold, and cotton, and provided its colonies with finished products such as textiles and metalware. At this time, Britain largely controlled international trade, and most global trade was conducted within Europe, but by the late 1790s, 57% of British exports went to North America and the West Indies, and 32% of British imports were provided by these regions. Before the Industrial Revolution, textiles were made by hand in the “cottage industry”, where materials would be brought to homes and picked up when the textiles were finished. This allowed for workers to decide their own schedules and was largely unproductive. Because Britain was the main supplier of textiles overseas, it needed a new way to meet the large demand for textiles. Many aspects of society and business today started during the Industrial Revolution. Before the Industrial Revolution, over 80 percent of people lived in rural areas and by 1850, more people in Britain and the United States lived in cities than in rural areas. Another aspect of the Industrial Revolution that we can still see today is the rise of the middle class. Additionally, women were introduced to the workforce during the Industrial Revolution. Many women were hired to work in the textile factories because they provided cheap labor and many women were seeking the independence that joining the workforce could give them. An example of this in the Industrial Revolution is the Lowell girls. Francis Cabot Lowell started textile factories in the United States and employed mainly young women, and was able to make large profits because of the cheap labor. Colonialism and the Indian textile industry – Times of India ( The historical context of the British colonial rule over India is marked by a complex interplay of economic interests, cultural dynamics, and imperial ambitions. One prominent aspect of this colonial relationship was the British imposition of restrictions and bans on Indian textiles. While not an outright ban on all Indian textiles, the British colonial authorities strategically employed policies that severely impacted the Indian textile industry. By imposing restrictions on Indian textiles, the British aimed to secure a steady supply of raw cotton from India. This allowed British manufacturers to capitalize on the raw materials, ultimately strengthening Britain's dominance in the global textile trade. The British ban on Indian textiles was also rooted in protectionist policies. The British colonial administration sought to protect its domestic industries from foreign competition, including Indian textiles. To achieve this, the British government implemented tariffs, taxes, and import duties on Indian textiles, making them less competitive in the British market. By stifling the Indian textile industry, the British effectively controlled trade dynamics to their advantage. By imposing restrictions on Indian textiles, the British aimed to diminish traditional Indian textile practices, which were deeply ingrained in the cultural and economic fabric of the nation. This not only eroded India's cultural identity but also weakened its economic resilience. Restricting or banning certain Indian textile products asserted British control over the economy and society. The policy aimed to curtail the economic autonomy of local communities, further subjugating them under British colonial rule. By limiting the economic potential of Indian textiles, the British ensured that India remained a supplier of raw materials and a consumer of British manufactured goods, reinforcing their colonial dominance. The economic interests of the British industrial sector, combined with protectionist measures, market control, and exploitation, converged to create an environment where Indian textiles were systematically suppressed. This suppression had far-reaching consequences for India's economic growth, cultural heritage, and socio-political autonomy. Fashion History Lesson: The Origins of Fast Fashion – Fashionista (Sara Idacavage). The concept of fast fashion is widely regarded as being a fairly new concept that originated from brands like Zara being able to sell trends at record speed for affordable prices, but "fast fashion" is really just a term given to a constantly evolving production system that has been gaining momentum since the 1800s. 1800s: The cycle of fashion finally picked up speed during the Industrial Revolution, which introduced new textile machines, factories and ready-made clothing, or clothing that is made in bulk in a range of sizes rather than being made to order. First patented in 1846, the sewing machine contributed to an extremely rapid fall in the price of clothing and an enormous increase in the scale of clothing manufacturing. Outside of couture houses, localized dressmaking businesses were responsible for making clothing for middle-class women, while women of lower incomes continued to make their own clothing. Local dressmaking businesses typically included a team of workroom employees, although some aspects of production were outsourced to "sweaters," or people who worked from home for very low wages. Although these types of operations were mostly localized, the practice of using "sweaters" in the 1800s provides a small glimpse of what would eventually become the basis of most modern clothing production. 1900s - 1950s: Despite the increasing number of garment factories and sewing innovations, a great deal of clothing production was still done in the home or in small workshops throughout the beginning of the 20th century. The fabric restrictions and more functional styles that were made necessary by World War II led to an increase in standardized production for all clothing. After becoming accustomed to such standardization, middle-class consumers became more receptive to the value of purchasing mass-produced clothing after the war. New York’s Triangle Shirtwaist Factory and the fire in Tazreen Fashion Factory in Bangladesh are some of the examples of how bad fast fashion can be. 1960s - 2000s: Fashion trends began moving at a dizzying speed, in the 1960s, as young people embraced cheaply made clothing to follow these new trends and reject the sartorial traditions of older generations. Soon, fashion brands had to find ways to keep up with this increasing demand for affordable clothing, leading to massive textile mills opening across the developing world, which allowed the U.S. and European companies to save millions of dollars by outsourcing their labor. The rapid growth that defines these brands today goes hand-in-hand with cost-cutting measures, and not many companies are eager to celebrate or detail the controversial switch to overseas sweatshop labor. Technically, H&M is the longest running of these retailers, having opened as Hennes in Sweden in 1947, expanding to London in 1976 and eventually reaching the states in 2000. According to the New York Times, founder Erling Persson drew inspiration for his store from visiting high-volume retail establishments in the U.S. after WWII. Zara’s founder Amancio Ortega opened the first store in 1975 in Northern Spain. When Zara came to New York at the beginning of 1990, the New York Times used the term "fast fashion" to describe Zara’s mission, declaring that it would only take 15 days for a garment to go from a designer's brain to being sold on the racks. Although it is difficult to pinpoint the origins of fast fashion as we know it today, it's easy to understand how the phenomenon caught on. In the late 1990s and early 2000s, it became increasingly more acceptable (and desirable) to flaunt one's love for low-cost fashion, and seen as especially savvy to be able to mix high and low fashion with aplomb. Consumers became more likely to hunt for bargains and dismiss department stores saying it was now “chic to pay less”. The embrace of "disposable fashion" by prominent women such as Kate Middleton or Michelle Obama would have been unheard of just a few decades ago, but speaks to the "democratization of fashion" enabled by mass production, allowing more people to communicate through clothing regardless of their social and economic backgrounds. Today: Considering the long path from spinning one's own yarn to globalized production, it seems amazing that we now live in an age when you can buy a garment on your phone just moments after it first walked down the runway. We must also acknowledge that there are major problems with our current fashion system, such as unjust labor practices and catastrophic amounts of waste. In an industry that has historically been focused on moving faster, it's time to consider slowing down, at least enough to be more mindful of the purchases that we make. Empires of Cotton – Sven Beckert (Factiva) By the time shots were fired on Fort Sumter in April 1861, cotton was the core ingredient of the world's most important manufacturing industry. The manufacture of cotton yarn and cloth had grown into "the greatest industry that ever had or could by possibility have ever existed in any age or country,” according to the self-congratulatory but essentially accurate account of British cotton merchant John Benjamin Smith. By multiple measures—the sheer numbers employed, the value of output, profitability—the cotton empire had no parallel. One author boldly estimated that in 1862, fully 20 million people worldwide—one out of every 65 people alive—were involved in the cultivation of cotton or the production of cotton cloth. In England alone, which still counted two-thirds of the world's mechanical spindles in its factories, the livelihood of between one-fifth and one-fourth of the population was based on the industry; one-tenth of all British capital was invested in it, and close to one-half of all exports consisted of cotton yarn and cloth. ”Cotton exports alone put the United States on the world economic map. On the eve of the Civil War, raw cotton constituted 61 percent of the value of all U.S. products shipped abroad. Before the beginnings of the cotton boom in the 1780s, North America had been a promising but marginal player in the global economy. The reason for America's quick ascent to market dominance was simple. The United States more than any other country had elastic supplies of the three crucial ingredients that went into the production of raw cotton: labor, land, and credit. By midcentury, cotton had become central to the prosperity of the Atlantic world. Poet John Greenleaf Whittier called it the "Hashish of the West,” a drug that was creating powerful hallucinatory dreams of territorial expansion, of judges who decide that "right is wrong,” of heaven as "a snug plantation” with "angel negro overseers.” The Civil War in the United States was an acid test for the entire industrial order: Could it adapt to the even temporary loss of its providential partner—the expansive, slave-powered antebellum United States—before social chaos and economic collapse brought their empire to ruins? The outbreak of the Civil War severed in one stroke the global relationships that had underpinned the worldwide web of cotton production and global capitalism since the 1780s. In an effort to force British diplomatic recognition, the Confederate government banned all cotton exports. Consequently, exports to Europe fell from 3.8 million bales in 1860 to virtually nothing in 1862. The effects of the resulting "cotton famine,” as it came to be known, quickly rippled outward, reshaping industry—and the larger society—in places ranging from Manchester to Alexandria. With only slight hyperbole, the Chamber of Commerce in the Saxon cotton manufacturing city of Chemnitz reported in 1865 that "never in the history of trade have there been such grand and consequential movements as in the past four years.” Considering these fears, it was more remarkable that 4 million slaves in the United States—among them the world's most important cotton growers—gained their freedom during or immediately after the war. Never before and never thereafter did cotton growers revolt with similar success, their strength fortuitously amplified by a deep and irreconcilable split within the nation's elite. The emancipation of America's cotton-growing workers, however, raised the question of where the industrial world's most important raw material would come from. Landowners, manufacturers, merchants, and statesmen concluded from their reading of past experiences that emancipation was potentially threatening to the well-being of the world's mechanized cotton industry. Consequently, they worked zealously to find ways to reconstruct durably the worldwide web of cotton production, to transform the global countryside without resorting to slavery. Already during the war itself, in articles and books, speeches and letters, they belabored the questions of if and where cotton could be grown without slave labor. Boston cotton manufacturer Edward Atkinson, for example, contributed to this debate as early as 1861 with his Cheap Cotton by Free Labor, and one year later, William Holmes's Free Cotton: How and Where to Grow It extended the discussion. An anonymous French author added his voice the same year with Les blancs et les noirs en Amérique et le coton dans les deux mondes. Soon such treatises were informed by lessons drawn from the Civil War experiences. The sudden turn to non-slave cotton during the Civil War years in Egypt, Brazil, and India as well as in Union-controlled zones of the American South represented, after all, a global experiment: What would a world with cotton but without slaves look like? Cotton capitalists and government bureaucrats had learned broad lessons during the war. Most importantly, they understood that labor, not land, constrained the production of cotton. When the guns fell silent on the North American continent in April 1865, the greatest turmoil in the 85-year history of a European-dominated cotton industry came to an end. New systems for the mobilization of labor had been tested around the world— from coolie workers to sharecropping to wage labor—and while it was still uncertain if cotton production would return to antebellum levels, belief in the possibility of "free labor” cotton had become nearly universal. As former slaves throughout the United States celebrated their freedom, manufacturers and workers looked forward to factories running again at capacity, fueled by newly plentiful cotton supplies. If the Civil War was a moment of crisis for the empire of cotton, it was also a rehearsal for its reconstruction. Cotton capitalists were confident from their triumphs in recasting industrial production at home. As they surveyed the ashes of the South, they saw promising new levers that might move the mountain of free labor into cotton cultivation with new lands, new labor relations, and new connections between them. Thus the French observer was correct when he predicted in 1863, "The empire of cotton is ensured; King Cotton is not dethroned.” LECTURE 10. THE HISTORY OF OIL AND GAS INDUSTRY. Initially, gasoline was a byproduct of the refining of oil into kerosene. Prior to the internal combustion engine, it had limited use. In the U.S.A. in the 1800s it was routinely dumped, often into nearby rivers. Relatively recent invention, in the late 1800s it was still not an enormous component of Western Economies. In oil producing areas, for example Pennsylvania, Ohio and Western Ontario very young oil industries were pumping oil out. Until they introduced the refining process that allowed them to create kerosene, kerosene is a flammable liquid, frequently used in lamps and lightning, some general use with engines but not very much. There was a big demand for it in the days before electrical lightning, kerosene was very important. Internal combustion: In Germany, internal combustion cars and engines were developed in the 1870s in order to move carriages or cars and, by the mid 1880s Karl Benz had begun commercial production. The necessity to use gasoline created a new market for what had been discarded in the past. In order for Karl’s invention to gain the significance that it would, networks of places where people with internal combustion engines could add fuel to it were developed. So gasoline started to make its way. Bertha Benz journey Ways to consider gasoline’s impact: Gasoline is very political, the same with oil. One way to look at the influences is to consider individuals who benefitted from the increasing importance of gasoline. William Knox Darcy who developed the oil industry in Persia (now Iran) where he exploited their resources, and elsewhere in the middle East, founded what became British Petroleum. He wanted a monopoly in the extraction and sale of oil in the Middle East, and he got it. John D. Rockerfeller: The American example of William Knox Darcy. He founded a company called “Standard Oil”. By the 1890s, Standard Oil owned more than 90% of the refining capacity in the world. It massively dominated the oil industry in the United States, to the extent to which the American Government and the American public think it is too much. He used gasoline as a fuel to heat oil in the refining process. Internal combustion gave him a huge new market. Standard Oil becomes a virtual Monopoly. In the beginning of the 20th century, American courts and legislators forced Standard Oil to break itself up into smaller components rather than this one massive conglomerate. But it is still not wrested away from John D. Rockefeller and his successors from quite some time. The real competition waited until the 20th century, because Standard Oil was too powerful. Technology: The power of gasoline made internal combustion engines much superior to other types. Henry Ford’s model T made the car more widespread. It became the best selling car in the world by a significant measure. Ford introduced the idea of assembling cars where the role of workers was reduced to a very specific task. Meaning you could build a lot more cars more quickly, and therefore the price of cars declined, significantly and suddenly, waves of new customers were able to purchase cars. And that really created a different world in North America at first, but later in the rest of the world. This change also meant creating a lot of networks of gas stations to provide fuel for all these new cars that are on the highways. In agriculture, tractors replaced steam engines. Society: You also need more highways, roads and highways for cars. Cars allow more suburban spread. Rather than having to walk to work you can now move further away from where you work and drive to work in your car. Cars require the expansion of networks of gas stations. Changes in the oil business: Increased markets for gasoline mean increased exploration for sources. In Canada, this means exploration in Alberta. In the U.S.A. the shift to Texas and Oklahoma. Globally the Middle East becomes more important in global politics. War: Gasoline becomes an essential tool of war. Tanks, ships, planes and transport all need it. What that means is, if you were to successfully prosecute a war you needed lots and lots of gasoline. As a strategic resource it becomes a cause of conflict as well. You cannot allow your rival or your opponent to control oil and gas, you need access to it, and we can see lots of 20th and 21th century wars that revolve around aspects like that. Politics: American and British roles in the August 1953 coup against Iran Premier Mohammad Mossadeq because they were paying ludicrously low royalties to the government of Iran. As they pumped this non-renewable resource and others as famous. Canadian premier of Alberta, Peter Lawhy said you only pump oil once, so that’s your chance. In the post World War II period a lot of countries but specially Iran began to resent this. In 1953 THE CIA and the U.K organized a coup in Iran to replace the popular government with one more amenable to the oil and gas industry. This is one example of the influence of industry in world events. The concern on the part of people in the CIA and MI6 or 5 British Intelligence was that Iran’s premier was too sympathetic to the soviets and the congress. This is the Cold War period, therefore they decided it was not safe to have him as the leader of Iran and organized a coup to use the Iranian military to overthrow him and institute a government that was more amenable to Western Policy in oil and gas. In the 1980s, American historians and political scientists were able to file Freedom of Information requests from what had happened in this time period. And they  could see in black and white that there was documentary evidence that the CIA did orchestrate the overthrow of this government. A classic example of how this industry influences world events. OPEC: The Organization of Petroleum Exporting Countries. It has its origins in a small group of countries, that like Iran, wanted more control over the extraction and sale of the resource and they formed a cartel in order to try and control the world price and world access to this product, with mixed success. Established in 1960, OPEC's primary goal is to coordinate and unify the petroleum policies of its member countries to ensure fair and stable prices for petroleum producers, a steady supply for consumers, and a fair return on capital for investors. The oil embargo, and the aftermath of the Yom Kippur War in the Middle East, they launched in 1973 caused a recession in the Western economies. They dramatically reduce production and dramatically increase the price of oil coming from OPEC members. It knocks Western Economies into a recession that lasts almost a decade. OPEC was very successful and created a cartel, a problem with a cartel is that you need discipline. OPEC still exists, it still has a role in trying to impose their idea of order on the international oil market. They are not in the power that they were in the 1970s, but they’re still very much in existence. Environment: Oil is not just used in cars. Production in refineries. Transportation of product, etc. Land issues with pipelines. Transportation of the products whether is in tankers or pipelines creates environmental risks, pipelines break, oil tankers, rail tankers crash and burn. That is potentially deadly. And their land issues both indigenous and generally speaking property right issues with the construction of pipelines, move the product from source in the ground to refinery and then onto the consumer so lots of stuff with that as well. Canada: Oil and gasoline are still critical to the Canadian economy. One way to look at this is to look at companies and individuals.  Imperial Oil, a branch of Rockefeller’s Standard Oil is the biggest player in the Canadian Oil and gas industry. Rockefeller bought out the Canadian oil industry towards the end of the 1800s and controlled it for quite a long time, similar to what he did in the United States. In the 1970's the recession, oil prices went up and a lot of Canadians wondered why. Canada has a lot of oil, it still has and we didn't understand the way the industry worked. The industry was almost universally owned by American, Dutch and British companies, largely American not Canadians. It required a change, and a Canadian company was created. PetroCanada: Started as a Crown Corporation during the economic crisis in the 1970s. Was to be a “window on the industry”. In the 1980s it became a question, does the government really need to own an oil business? Eventually privatized. PetroCanada and oil and gasoline are not cheaper than the American owned companies providing it, so what are we getting out of this? It was determined that it was not enough and they decided to privatize. Initially 50% of Petro-Canada was sold off by the Mulroney conservative government and eventually the liberal governments of Jean-Claire Chan and Paul Martin sold off the remainder. PetroCanada has leaned into being a Canadian company. ARTICLE 1 - WHAT IS PETROLEUM AND WHY IS IT IMPORTANT TO INVEST IN IT (INVESTOPEDIA). Petroleum, also called crude oil, is a naturally occurring liquid found beneath the earth’s surface that can be refined into fuel. A fossil fuel, petroleum is created by the decomposition of organic matter over time and used as fuel to power vehicles, heating units, and machines, and can be converted into plastics. Because the majority of the world relies on petroleum for many goods and services, the petroleum industry is a major influence on world politics and the global economy. The extraction and processing of petroleum and its availability is a driver of the world's economy and geopolitics. Many of the largest companies in the world are involved in the extraction and processing of petroleum or create petroleum-based products, including plastics, fertilizers, automobiles, and airplanes. Petroleum is recovered by oil drilling and then refined and separated into different types of fuels. Petroleum contains hydrocarbons of different molecular weights and the denser the petroleum the more difficult it is to process and the less valuable it is. Petroleum companies are divided into upstream, midstream, and downstream, depending on the oil and gas company's position in the supply chain. Upstream oil and gas companies identify, extract, or produce raw materials. Downstream oil companies engage in the post-production of crude oil and natural gas. Midstream oil and gas companies connect downstream and upstream companies by storing and transporting oil and other refined products. Pros Stable energy source Easily extracted Variety of uses High power ratio Easily transportable Cons Carbon emissions are toxic to the environment. Transportation can damage the environment. Extraction process is harmful to the environment. The Petroleum Industry Classification: Oil is classified into three categories including the geographic location where it was drilled, its sulfur content, and its API gravity, its density measure. Reservoirs: Geologists, chemists, and engineers research geographical structures that hold petroleum using “seismic reflection." A reservoir’s oil-in-place that can be extracted and refined is that reservoir’s oil reserves. Extracting: Drilling for oil includes developmental drilling, where oil reserves have already been found. Exploratory drilling is conducted to search for new reserves and directional drilling is drilling vertically to a known source of oil. The energy sector attracts investors who speculate on the demand for oil and fossil fuels and many oil and energy fund offerings consist of companies related to energy. Petroleum is a fossil fuel that was formed over millions of years through the transformation of dead organisms, such as algae, plants, and bacteria, that experienced high heat and pressure when trapped inside rock formations. Petroleum is not a renewable energy source. It is a fossil fuel with a finite amount of petroleum available. Alternatives include wind, solar, and biofuels. Wind power uses wind turbines to harness the power of the wind to create energy. Solar power uses the sun as an energy source, and biofuels use vegetable oils and animal fat as a power source. Unrefined petroleum classes include asphalt, bitumen, crude oil, and natural gas. Article 2 – Oil and petroleum products explained (EIA). Crude oil prices are driven by global supply and demand. Economic growth is one of the biggest factors affecting petroleum products—and therefore crude oil—demand. Growing economies mean a higher demand for energy, in general, especially for transporting goods from producers to consumers. The world’s transportation sector depends almost totally on petroleum products such as gasoline and diesel fuel. Many countries also rely primarily on petroleum fuels for heating, cooking, or generating electricity. Petroleum products made from crude oil and other hydrocarbon liquids account for about ⅓ of total world energy consumption. The Organization of the Petroleum Exporting Countries (OPEC) can significantly influence oil prices by setting production targets for its members. OPEC includes countries with some of the world's largest oil reserves. At the beginning of 2021, OPEC members controlled about 72% of total world proven crude oil reserves (plus lease condensate), and they accounted for 37% of total world crude oil production in 2021. OPEC attempts to manage its member countries' oil production by setting crude oil production targets, or quotas, for its members. OPEC member compliance with OPEC quotas is mixed because production decisions are ultimately in the hands of the individual members. In general, the main factors determining OPEC's ability to influence oil prices include: The extent to which OPEC members comply with production quotas The ability or willingness of consumers to reduce petroleum consumption in response to higher product prices The competitiveness of non-OPEC producers when oil prices change The efficiency of OPEC producers to supply oil compared with non-OPEC producers The difference between oil market demand and supply from non-OPEC sources is often referred to as the call on OPEC because OPEC members maintain the world's entire spare crude oil production capacity. Saudi Arabia, the largest OPEC oil producer and one of the world's largest oil exporters, historically has had the largest share of the world's spare oil production capacity. OPEC spare capacity is an indicator of the world oil market's ability to respond to real and potential disruptions in world oil supplies. The EIA defines spare capacity as the volume of oil production that can be brought online within 30 days and sustained for at least 90 days. Geopolitical events and severe weather that disrupt the flow of crude oil and petroleum products to market can affect crude oil and petroleum product prices. These events may create uncertainty about future supply or demand, which can lead to higher price volatility. Oil price volatility is tied to low responsiveness, or inelasticity, of supply and demand to price changes in the short term. Most of the crude oil reserves in the world are located in regions that have been prone to political upheaval or in regions that have had oil production disruptions because of political events. Several major oil price shocks have occurred at the same time that political events caused supply disruptions, most notably the: Arab Oil Embargo in 1973–74 Iranian revolution Iran-Iraq war in the 1980s Persian Gulf War in 1990–91 In recent years, conflicts and political events in the Middle East, the Persian Gulf, Libya, and Venezuela have contributed to world oil supply disruptions that have resulted in higher oil prices. Weather also plays a significant role in crude oil supply. Hurricanes in the Gulf of Mexico can affect oil production and refinery operations in the Gulf region. As a result, U.S. petroleum product prices may increase sharply as supplies from the Gulf to other regions drop. Severe cold weather can also strain product markets as producers attempt to supply enough product, such as heating oil, to consumers in a short amount of time. This seasonal demand can also result in higher prices. Other events such as refinery outages or pipeline problems can also restrict the flow of crude oil and petroleum products to market. These events can lead to a temporary supply disruption that could increase prices. The effect of these factors on crude oil prices tends to be relatively short lived. Once the supply disruption subsides, the oil and product supply chains adjust, and prices usually return to their previous levels. Crude oil is traded in the futures markets. A futures contract is a standard contract to buy or sell a specific commodity of standardized quality at a certain date in the future. If oil producers want to sell oil in the future, they can lock in their desired price by selling a futures contract today. Alternatively, if consumers need to buy crude oil in the future, they can guarantee the price they will pay at a future date by buying a futures contract. Prices in spot markets send a clear signal about the balance of supply and demand. Rising prices indicate that additional supply is needed, and falling prices indicate there is too much supply for current demand. Futures markets also provide information about the physical supply and demand balance as well as the market's expectations. Article 3 – OPEC (brief history) – Energy Education: The Organization of Petroleum Exporting Countries or OPEC is an organization that was created at a conference in Baghdad, Iraq on September 10th-14th, 1960. The founding members which include Iran, Iraq, Kuwait, Saudi Arabia and Venezuela agreed to create an organization that could bring some degree of stability to the world oil market. In the 1950s, the Soviet Union had massively increased its output of crude oil to the market and as a result, members of The Seven Sisters had to drop their price to compete with the Soviet oil in several markets. The Seven Sisters were the largest oil companies of the time: Esso, Mobil, Standard, Gulf, Texaco, BP and CFP. In the 1960s OPEC established its place in the world oil market. Immediately OPEC had trouble cooperating and coordinating strategy, at the 1962 meeting of the members, a battle broke out over export limits. Each country wanted to export as much oil as they could but flooding the market with cheap oil would decrease the price of oil. Since keeping the price of oil at a certain level was the goal of OPEC, a drop in the price was not welcome. The new organization was fragile and suffered from the fact that it straddled the divide between the economic and political realm. During the Six-Day War in 1967 when Israel launched a preemptive military action against its Arab neighbors Syria, Egypt, Jordan, Lebanon and Iraq Many of the Arab members of OPEC wanted to boycott Israel. In 1968 OPEC released the Declaratory Statement of Petroleum Policy in Member Countries which sought to enshrine the right of every nation to have complete sovereignty over their natural resources for the purposes of national enrichment and development.These companies were powerful multinationals mostly owned by wealthy countries. Over this time the membership of OPEC expanded and by 1969 five additional member nations had joined OPEC: Qatar (1961)  Indonesia (1962) Libya (1962) United Arab Emirates (1967) Algeria (1969) The 1970s: By 1970 OPEC had steadily been expanding its share in the market, by 1973 OPEC was supplying 56% of the world’s oil, up from 47% in 1965. In October of 1973 Egypt and Syria (supported by a number of Arab nations) launched an attack against Israel which came to be known as the Yom-Kippur War. At the time the U.S had rising consumption, falling production and increasing imports of oil, mostly from OPEC countries. The embargo shocked the oil market and created a shortage in supply. The embargo nations were able to get oil companies to sell them oil from other countries, however the mass confusion resulting from the normal supply translated into a sharp rise in prices. The embargo was a shift in global political and economic power as now the OPEC countries (largely entered in the Middle-East) could influence powerful nations such as the UK and U.S by manipulating oil supplies. It is important to note that OPEC did and does not have a monopoly over the oil market, in 1973 they only had 56% of the oil market and while this led to a large amount of influence it does not allow OPEC to totally control the market. OPEC is an international cartel. The 1980s: Countries reliant on OPEC oil sought to mitigate the effects of rising prices and dependence by replacing oil with other fuel sources such as coal, nuclear power and natural gas. The switch to coal for electrical generation was a simple change, in addition more research was done and emphasis was placed on the use of nuclear power to encourage the switch from oil. The Iranian Revolution (1979) and the subsequent Iran-Iraq War (1980-1988) restricted the supply of oil from Iran, their production had collapsed. Production increases from other OPEC members plugged the hole left by Iranian production. Continued exploration in the Gulf of Mexico, the North Sea, Alaska, Siberia and other places ate away at OPECs grip on the market. In addition, many countries began to burn more coal as a way of avoiding expensive oil. Technological advances in the North Sea led to overall increases in production and by 1973, the USSR had become the top oil producer worldwide, further eating into OPECs share of the market. In response to rising oil supply, OPEC sought to force a rise in prices by placing a quota on its members. By restricting the level of output, OPEC hoped that the lower supply would cause the price to rise. The quota was a maximum of 17.5 million barrels per day. 1990 to Present: The end of the Iran-Iraq War in 1988 brought only a short period of political stability to OPEC. In 1989 the USSR collapsed and dissociated into a number of republics leading to a disruption in formerly dominant Soviet oil production dominancy. Before long, Iraq invaded another one of its neighbors, Kuwait (in 1990), also a member nation of OPEC. Leading up to the invasion, Iraq advocated for OPEC to revise the quotas that it had imposed. After the eclipse of the Iran-Iraq War, Iraq was struggling to rebuild and wanted to export more oil to increase revenues. Ecuador and Gabon both suspended their membership in OPEC for periods of time, 1992-2007 and 1995-2016 respectively, seeking a release from the terms of the cartel. Both sought to increase their production levels. Conflicts in OPEC countries such as the conflict in Libya (2011-present), Attacks on Nigerian oil infrastructure (present), the ongoing conflict in Iraq and Syria etc. caused periodic disruptions in supply and continue to do so. Article 4 – Not all oil is equal: Explaining Price Differences – Let’s talk Royalties: The price a producer receives for a barrel of oil depends on the type of oil, where it’s produced, and where it is purchased. Lighter oils generally receive higher prices than heavier oils, because they are easier (and cheaper) to process in refineries. Where the oil is produced geographically also matters, because it needs to be transported from its point of production to a refinery. This impacts the price received for the oil. As a starting point, let’s look at “Brent” oil — a global benchmark used by oil markets. Its name refers to oil fields in the European North Sea, where it originates. However, many oils produced in the Middle East, Africa and Europe, all trade in relation to Brent oil. Because it has easy access to coastal ports (e.g., extensive pipelines to the coast), Brent oil can move easily to customers around the world. (Brent oil is even imported by some refineries in the U.S. and Canada.) Because it is inexpensive to move oil in large tankers the price is fairly similar anywhere tankers can load or unload. As a light, sweet oil that can be widely transported, Brent oil currently receives some of the highest prices. “West Texas Intermediate” (WTI) oil is another benchmark used by oil markets, representing oil produced in the U.S. It is based on oil at a large tank and pipeline hub in Cushing, Oklahoma. Like Brent oil, WTI is priced as a light oil, but it doesn’t have the same global reach. One reason is that, with few exceptions, the U.S. prohibits the export of crude oil. Another reason is that WTI supplies are produced in landlocked areas, and nowadays need to be transported to the coast, where most refineries are located. An important benchmark price in Canada is known as Western Canada Select (WCS). WCS rep-resents a stream of conventional heavy (high viscosity) oil mixed with some blends of bitumen and diluents. To break down prices further, the theoretical price of bitumen is determined once you deduct the transportation costs. (This includes the diluent cost used to make the bitumen flow in the pipeline and the pipeline cost.) The resulting price is known as the “bitumen netback”. Producers’ revenues and royalties are based on the “bitumen netback” price. The amount of value depends on the price we receive for our resources, and what it costs to produce and transport them. The lower the prices we receive for our resources, the less value there is. And the prices we actually receive for our oil products are lower than the “Brent” and “WTI” prices typically quoted in business reports. The oil Alberta produces is simply of a lower quality than Brent or WTI, and is located further away from customers. The easier it is to move our oil to refineries around the world, the less the price discounts will be. LECTURE 11. THE SERVICE INDUSTRY. The service economy is many things, ranging from fast food, to heart surgery to consulting, there are different definitions, but it includes things like education, health care, tourism and finance. Services are intangible. Advice to experience, to attention. Currently, the service sector is 50% of all employment, and 67% of global GDP (gross domestic product). In Canada, half of the population worked in agriculture in 1867, down to only 4% in 1987. In 1911, two thirds of workers produced goods and one third worked in the service sector, by 1987 that had reversed. It is easier to boost productivity by making things more efficient than it is to make services more productive. It might also be easier to trade those goods and products. Many believed that services were not important for developing countries to focus on, but that's not a longer widely held view. The reason is because technology changes things. It is easier every year to trade services and they’re likely to become more important with time, not less. From manufacturing to service: Long history of the service sector. Role in industrialization. Ties to urbanization. Even in the pre-industrial economies we’ve always had services like education, healthcare or trade, and even the services were often concentrated in cities, but it tended to be a small part of an economy devoted to agriculture and raw material. For the most part beginning in places like Great Britain and the U.S, there was a shift from farming to industrialization with the Industrial Revolution. As more people lived in cities, demand for all kinds of services increased. Beginning in the 1950s and taking place in the 1970s, there was a process of deindustrialization, where industry made up a smaller portion of the economy. Deindustrialization is the flip side of the rise of the service sector. Deindustrialization: When a country or region experiences a decline in its manufacturing industries, such as factories that produce cars, textiles, or steel. New technology like mechanization and mass production made farming and manufacturing much more productive and freed up labor to work elsewhere, especially as demand for those who outpaced supply. Example: Detroit, Detroit is famous as the birthplace of the automobile industry and the big three automakers: Ford, Chrysler and General Motors. It is also famous as the poster child for deindustrialization. But perhaps it's equally as famous as the poster child for deindustrialization. And the story here, the big theme is really about depopulation as a result. In 1908, years before the model T was introduced, Detroit had a population of 285,000 people. By 1950 just 50 years later, the heyday of auto manufacturing, it had grown to 1.8 million making it big enough for fourth largest in the US. By 2010, it had declined to about 700,000. The common story that's often told here is that in the seventies and eighties, U.S. automakers didn't pay attention to competition from Japan like Toyota or Honda and that's true. But already in the 1940s and 1950s, the auto industry was already seeing job losses, in line when manufacturing more generally began to slow down. Detroit is also a clear if painful example of costs associated with industrialization with widespread poverty, inequality and other social issues that culminated with the city itself going bankrupt in 2013. As Detroit was with the cars, Pittsburgh was the steel. In 1875 Andrew Carnegie opened Edgar Thomson Works, which later opened the Steel Corporation, like Detroit the city’s population between 1870 and 1910 jumped from 80,000 to 530,000. That same year, in 1910 Pittsburgh was manufacturing 60% of America’s steel and the U.S. Steel Corporation which Carnegie owned, was once the largest private company on the entire planet. For reasons like the 1970s recession, the oil crisis right around then Pittsburgh began to rapidly lose steel jobs. A process that accelerated in the 1980s, by the end of the decade, 75% of Pittsburgh’s steel making capacity was closed. Rapid deindustrialization. Between 1980 and 1983 approximately 95,000 manufacturing jobs were cut from a labor force of 1 million. Unemployment spiked to 27% in some places and by 1990 half of the population of the Pittsburgh region disappeared. Older population remained and the healthcare system started to develop over the course of the 1980s and the 1990s, due to the need of the older people who were still in Pittsburgh. Even as the regional economy declined steadily as hospitals and nursing homes expanded, they usually hired women who were seeking to make up for the lost wages of their husbands. In 1980 healthcare surpassed steel as the largest employer in the area. In 2010, healthcare grew as large as steel had been in its 1950s peak. The biggest difference between the steel and healthcare industries is that where much of the steel industry was unionized, stable and fairly well paid full time jobs, healthcare jobs tended to be much more precarious, often part-time, generally non-union and typically not paid much above the minimum wage. This reflects part of the rise of the surplus economy which is a large trend of the care economy which is often poorly paid work performed by women. Pittsburgh is an example of the link between industrialization and the service sector, but also what is often lost and the social effects that can come with the transition. Interestingly, Pittsburgh in recent decades has once again grown. Its population in large part by being a hub for service sector industries like health care, but also education and finance. Global cities in the 1980s: One common feature of service dominated economies is that the returns are often u shaped rather than bell curved. So instead of a large middle section of the bell curve, service work tends to be either very well paid or not well paid at all. So in Pittsburgh, as we saw while many care workers didn't make much. There were some doctors and some hospital administrators who were very high earners and the high earning side of that curve is the focus of our last example. The rise of New York, London and Tokyo as what came to be known as global cities in the 1980s, they weren't the only three, but they were the big three at the time in each of these countries, the fastest growing sectors in the economies in the 1980s were advanced services like law, accounting and finance. As phone faxes, the early internet made communication easier and the world economy became significantly more complex. Most of the decisions about investment, production and trade came to be made in global cities where face to face interactions among executives, lawyers, consultants and so on are made possible. As multinational corporations grew and expanded over multiple different countries, a group of centralized and specialized workers servicing those firms became necessary. Much like in Pittsburgh, there was not much in the middle besides expert knowledge, workers, global cities needed low wage workers to clean, cook, provide child care and so on. Another big change that came about with this is that New York might have once looked to the rest of the United States or London to the rest of the United Kingdom. Globalization by this point had taken effect with such force that these global cities tended to look towards one another in many ways, culturally, but also in economic terms, where they tended to be more affected by the global economy and each other than by the national economy of the country they were in. The past, present and future of offshoring: Offshoring: “The location of productive facilities outside a firm’s home market, for the purpose of making goods to be sold in that home market.” Ex: A company producing something outside of Canada for the product to be sold inside of Canada. Different, but related to outsourcing. Outsourcing occurs when a company purchases goods or services from an independent foreign supplier that could have been procured domestically. The primary difference lies in corporate control. Offshoring involves a company establishing and managing its own facilities in a foreign location, while outsourcing relies on an external supplier in that location. In practice, outsourcing and offshoring often overlap with one another and one can lead to another and vice versa. In some cases both practices overlap within the same industry or in the same area. In one way that it differs from FDI (Foreign Direct Investment) is that offshores facilities aren’t built to produce goods for sale in the country where they are located. Instead, the goods are typically part of a global production process where offshore production, distribution and sales are often managed entirely within a single multinational enterprise rather than through transactions between independent parties. Offshoring of banking, finance and the creation of tax havens. This was most famous in Panama, where the Panama papers leak in 2016 was a huge scandal, in business terms it's quite different from the offshoring production, but the two came about for very similar reasons. So how are they related? The first is that manufacturing jobs moved offshore to places with lower labor costs, advanced economies experienced deindustrialization, more service sector jobs and economies reoriented towards things like finance, healthcare, education and IT. The second is that the competitive pressures created by offshoring and manufacturing were also applied to services, so companies would outsource things like non core functions of customer service, it supported payroll processing and things like that to reduce costs. How did offshoring become a thing? Institutions Technology Communications Starting in the 1500s, Europeans began to grow and ship many things from the Americas in Asia, like sugar, from the Caribbean, cotton from North America or later on, oil from the Middle East. They did that because they couldn’t produce those commodities at home, due to things like climate or soil. There are some differences on why it is not all the same. Offshoring really took off after World War II and it was driven by a combination of several factors and it first took off in the U.S. The first of these is institutions, so the general agreement on tariffs and trade facilitated reductions in trade barriers. The IMF promoted currency stability and encouraged international capital flows. The World Bank supported economic development in countries of the Global South, the end of Bretton Woods. Technology also played a significant role in improving transportation and communications. So, in transportation post-war improvements in shipping, things like better ship design, streamlined port logistics, air travel with jet planes and radar overall created a faster and more efficient global freight network. In communications, advances in telecommunications made managing overseas operations easier. Improvements in undersea cables, teletype technology, direct dialing and transatlantic telephone cables reduced communication costs and increased reliability. By the 1960s, satellite technology further expanded international phone networks. It all laid the groundwork for businesses to manage operations across borders more effectively and efficiently and enabling production to spread across the globe. Offshoring electronics production: U.S. companies offshoring production in East Asia beginning in the 1960s. Japan led the way to this, starting with consumer electronics like radios and semiconductors. Japanese companies began setting up factories in East Asia, particularly Hong Kong, later in Taiwan where wages were much lower than the U.S. Sony and Sanyo took advantage of British Colonial trade preferences to export products to the U.S. by millions. By the mid 1960s other countries followed, with Taiwanese companies assembling radios from components made from Japan in Japan. For example, transair, a small american radio maker set up a factory in Hong Kong in 1962 and quickly expanded as the success of offshoring grew. Other U.S. Electronics companies followed suit setting up plants in other low wage countries. This shift to offshore manufacturing became a standard practice in many electronic sectors by the 1970s. The semiconductor industry, which started offshoring in 1963 expanded rapidly with many American semiconductor companies setting up operations in East Asia overall. By the 1970s, a clear global production model had been established with high tech tasks like design and fabrication remaining in developed countries. Over time, more and more complex tasks like testing some amount of design work moved offshore to countries like Taiwan, South Korea and Singapore. By the 1980s, companies had shifted to more complex international production strategies. While some still relied on traditional methods like backward integration and establishing facilities in low wage countries, many firms embraced something called global production. What this meant was a strategy of spreading different stages of production across multiple countries. Often based on that country's market conditions, their politics, their stability and the technology available in that country. The goal overall was to make the production process more efficient by placing each phase in the most suitable location for it. It resulted in this disbursement of the process. It's not always so simple or so easy as just offshoring production, spreading it out and lowering costs. There's a tough choice to be made. Should they run one big global production system or should they keep separate factories for different markets? A global system sounds very efficient but it can also be fragile. If something goes wrong in one part of the process, like a strike or a plant breakdown, it can mess up the whole thing. Plus even though paying low wages can boost profits, splitting up production stages can cause inefficiencies. And it's really hard to coordinate. It's also very difficult to do offshore research and development. Especially when products are new. Most high value things like research and development tend to stay in the home country as we see more and more of it is being done abroad to find the best talent, but it's still mostly done at home. Another factor is that many companies prefer being close to their customers. Some companies go abroad not to find cheap labor, but to tap into specific skills or technology that aren't available at home. There's also more and more focus on custom products and variety instead of mass producing the same thing. And when quality and customization matters, labor costs aren't always the biggest factor in choosing where to set up shop. And again, you see another issue with the idea of spreading production around. It sounds great to lower labor costs, but it can make other things more expensive. Like it makes it harder to use the same technology in every factory to be consistent. “Global production in the 1980s”. Effects of offshoring: It is a very controversial practice. Many critics of the practice say that companies use this practice to cut costs by lowering wages, weakening unions and avoiding all kinds of regulations. Some countries like Taiwan and Hong Kong have benefited from offshoring with higher wages, but often at the cost of poor working conditions. The idea behind global production was that higher skilled jobs would stay in rich nations and lower skilled jobs in poorer countries. But that didn't always happen. In reality, most offshoring has only happened in a few countries and many developing nations have failed to benefit from this. The US lost millions of manufacturing jobs. Some wages rose for skilled workers but inequality has increased overall. Offshore Finance: De Beers case, 1906. De Beers operated globally, using offshoring strategies to maintain its monopoly in the diamond market. In the early 20th century, including the 1906 case, the company controlled the supply of diamonds by consolidating mining operations in South Africa and selling diamonds through international distribution channels. IMF definition of an Offshore Financial Center: “A country or jurisdiction that provides financial services to nonresidents on a scale that is incommensurate with the size and the financing of its domestic economy”. Around 8-10% of global GDP is held offshore. Offshoring finance essentially means moving banking out of the control and regulation of the country it was in. It was often for minimizing or avoiding taxes and escaping regulations on any number of things. One formal word for this, the way it's organized by tax is tax neutral. Meaning that let's say the Cayman Islands that when money goes there and then leaves that country doesn't levy any corporation taxes, no duties or any withholding taxes as the money goes out. Because this gets complicated in practice to say who is, which country is an offshore financial center. Example: Panama, where it is not a huge country but it is a huge financial center, mostly to service foreign money, not domestic. What are the effects of offshoring finance? It is a very controversial practice. It has happened to cause losing tax revenue to governments around the world, because one advantage of offshore banking is often secrecy. One estimate for the U.S. is that 55% of U.S. foreign corporate profits are earned in low tax countries with the help of accounting maneuverings, resulting in 130 billion dollars in lost corporate income tax each year. Worldwide is something like 500-600 billion. Offshore finance most infamously controversy sparked in 2016 with the Panama Papers which was millions of leaked documents from a Panamanian law firm that serviced this industry, and it showed how all kinds of wealthy individuals, corporations and political figures worldwide used these offshore entities to hide assets, evade taxes and launder money. There was an investigation that implicated over 140 politicians and public officials from 50 countries and the result was a global debate on financial transparency and tax justice. How are the two “offshores” related? Technology/communications Timing End of Bretton Woods Decolonization Offshoring is about moving work or production to another country. An offshore finance center is about managing finances in a favorable jurisdiction, often for tax or regulatory benefits. They’re connected because companies might use offshore finance centers as part of broader offshoring strategies, but the two concepts serve distinct goals. Both of these offshoring practices really accelerated at the same time in the 1970s with the end of the Bretton Woods system of currency controls, as well as the end of a process of decolonization in much of Africa and Asia. Where De Beers had simply moved their directors headquarters to South Africa which was British territory at the time. In the 1970s, few imperial possessions remained and companies found new places like the Channel islands that were very small former possessions to serve a similar purpose. The other connection is that many people from newly independent countries were now seeking tax havens of their own. Both versions of offshoring were affected by the same currents of history. The service sector – The World Counts (Article 1): $61 trillion worth of transport, insurance, restaurant visits, maintenance and repairs etc. is produced globally every year - that’s $116 million every minute. The service (or tertiary) sector of the economy is characterised by “non-material” activities such as transportation, a haircut, or hotel and restaurant visits. Sometimes also called "intangible goods". The service sector is over twice as big as the industrial and manufacturing sectors combined and makes up 63.6% of the global economy. The US has by far the largest service sector in the world and is accountable for 30% of the total global output of the sector! This is more than the next four countries combined (China, Japan, Germany, UK). The 5 I’s: Intangibility: Services are not manufactured and cannot be transported. No physical goods are transferred from the seller to the buyer. Inseparability: Delivery and consumption of a service cannot be split up. They are produced and consumed at the same time (you cannot save a haircut for later). Inventory: Services cannot be stored for future use. Inconsistency: Each service is unique (two haircuts are never exactly the same). Involvement: Both the service provider and the service consumer must participate in the service provision. Even though services involve economic activity that does not result in any physical ownership, supplying and consuming services can have serious social and environmental consequences. The tourism industry, for example, is a heavy polluter and degrades local natural resources. Another example is transportation that makes up over 14 percent of global greenhouse gas emissions. The largest cruise ships carrying over 7,000 people can in one week generate over 200,000 gallons (10 small swimming pools) of human sewage and 1 million gallons (40 more swimming pools) of greywater (water from sinks, baths, showers, laundry and galleys). Often this waste is dumped directly into our oceans. And this is just from one ship. The world has more than 220 large cruise ships carrying 25 million passengers every year. Because it’s cheap, cruise ships burn large amounts of wastes at sea. This includes hazardous wastes such as oil, sewage sludge, and biohazardous waste. It also includes solid wastes such as plastics, paper, metal, glass, and food. An estimated 84,000 people die worldwide each year as a result of under-regulated shipping air emissions. The average bunker fuel used by cruise ships has almost 2,000 times the sulfur content of the fuel used by buses, trucks, and cars on land. As a result ONE single ship can cause as much smog-producing pollution as 350,000 cars! Traditionally, the service sector included activities such as transportation, haircuts, hotels & restaurants and so on. It still does, of course, but the so-called quaternary and quinary (sub)sectors now make up the main part of the service economy. The quaternary sector consists of the knowledge-based part of the economy including information technology, consultation services, research & development, education, financial services, design, culture, media & entertainment and so forth. If seen as a sector, quaternary activities make up the largest sector of the economy - at least in developed countries. Already in 1985 over 40 percent of all activity in the US economy was estimated to derive from knowledge based activities. The quaternary sector is knowledge-based and its activities require a high degree of education. People in this field rely on their intelligence to provide highly specialised services and develop and make use of advanced technologies. It includes programmers, designers, entrepreneurs, consultants, scientists, lawyers, and researchers. The quinary sector is much smaller than the quaternary sector and is made up of activities that involve top-level decision making. The quinary sector mainly consists of CEOs and top-executives from Government. Contrary to research and consultancy services who provide recommendations, the activities of the quinary sector involves taking final far-reaching decisions/actions affecting a large number of people, entire countries or even the whole world. People working in this industry are sometimes referred to as "gold collar" professionals. In Australia, the two sectors have been estimated to make up 59% of the economy in 2015 (quaternary 47.6 % and quinary 11.6 %). Get Ready for the Next Supply Disruption – Article 2 (MITSloan). THE COVID-19 PANDEMIC HAS USHERED in an era of supply chain disruption and unpredictability that has severely challenged many companies' planning and processes, and revealed how far prevailing practices are from the ideal. The problem with crisis-driven supply chain initiatives that are focused on protocols and tools is that they are only as effective as the ability of the organization to use them. Having that ability requires the systematic development of capabilities to manage supply disruptions. These capabilities are combinations of people, policies, processes, and technologies that ensure companies can not only plan for and respond to known business and operating risks but also - and more importantly - manage unknown-but-knowable threats and their associated consequences. We've identified six capabilities that fill this bill: Anticipate, Diagnose, Detect, Activate resources for, Protect against, and Track threats. Together, they constitute the ADDAPT framework, which is based on our research into how public agencies and private enterprises experience and respond to supply disruptions like the COVID-19 pandemic. The ADDAPT capabilities help companies understand the causes of supply disruptions and their immediate and long-term effects. Executives at Loblaw, like the leaders in many major organizations, became aware of COVID-19 through the Canadian news media in January 2020 and reacted to it as a health concern. The company did not recognize COVID-19 as an operating concern and a potential supply disruption trigger until early March 2020. To manage the supply chain disruption, the task force needed to activate resources on an exceptional basis, often manually overriding the demand management system to reset order volumes and stocking level targets for stores and distribution centers. Trucks were rerouted and volumes increased through greater coordination with carriers, but the storage and picking capacity of Loblaw's distribution centers remained a constant constraint on product volumes and flow paths. Like many companies dealing with COVID19, Loblaw had internal performance metrics (such as missed or delayed shipments) that tracked the effects of supply disruption. But it did not have the dedicated people, processes, and systems to monitor evolving external conditions, which would have enabled not only an early warning but also faster mitigation during the pandemic. For instance, pinging suppliers about their operating capacity and sourcing uncertainties to anticipate delivery shortages at distribution centers was not a routine practice at the company, but it became one during COVID-19. The ADDAPT Framework The framework is built on the presumption that the number of known and unknown-but-knowable risks that can interrupt the planned flow of goods in the absence of mitigation plans is infinitely large. These risks are potential supply disruption triggers, and they vary from routine problems, such as output defects and equipment breakdowns, to malicious acts, such as cargo thefts and terrorist attacks, and acts of God, such as earthquakes and hurricanes. Importantly, the ADDAPT framework encourages companies to invest in describing unknown risks and, by doing so, transitioning unknown risks so that they become unknown but knowable threats. This may take organizations out of their comfort zones in that they might need to engage with external experts and viewpoints that pose uncomfortable questions that begin with phrases like "What if...?" or "Have you thought about...?" The six ADDAPT capabilities are interrelated. Together, they make supply chains more resilient by conditioning companies to anticipate, diagnose, detect, activate resources for, protect against, and track both known and unknown-but-knowable threats. In the best-case scenario, they enable companies to avoid interruptions in physical flows of products. In a suboptimal scenario, they help companies experiencing supply disruptions to recover faster and limit their losses. Companies that master the capabilities outlined in the ADDAPT framework will have the best chance of weathering future supply disruptions with minimal impact on their critical customer, employee, and supplier relationships.