Disk drive crisis: Economists are terrible weathermen
How globalisation becomes a washout
Hang on a minute. This globalisation thing, isn't it supposed to have stopped nonsense like this? You know, it rains a bit and so we all run out of something?
When we all lived on what could be grown or made within 5 miles a bit of flooding understandably led to shortages, but now we've the whole world to supply us why does Thailand having floods mean hard drives are in short supply? Isn't this one of the things that the brave new era of globalisation was meant to stop?
Well, yes, it was actually, but we've got three different bits of economics interacting here and how they interact depends upon what specific product, in what sort of industry with what industry characteristics we're talking about.
The first one, the one about globalisation allowing diversity of supply, yup, that's usually true. It certainly is for things like food, which we can indeed get from many parts of the world. Those Thai floods are going to crock the rice harvest there, that's for sure, and 200 years ago that would have meant at the very least some hungry times if not mass starvation. That we, or the Thais more importantly, can get rice from India, Burma, the US, quite possibly Brazil for all I know, means that it's a pain, not a death sentence. So score one for globalisation there.
However, there's another part of economics entirely that looks at the effects of clustering.
Where economic geography doesn't entirely depend upon actual geography (the way say mining or farming depends on the actual piece of land), we can find that as we liberalise trade then some certain specific part of it congregates in one very specific geographical area. We've known about this inside countries for a long time. Cotton was largely Manchester, tin bashing Birmingham, shipbuilding Tyneside.
Even today if you want to set up a UK pottery you do it in Stoke on Trent (one this past year in fact), play with non-ferrous metals in Sheffield or Rotherham (a new Ti factory a couple of years back), chlorine chemistry is Tyneside again, fluorine chemistry Manchester.
These are simply the places with the trained workforce, the accountants and lawyers who understand the industry, the suppliers all there and ready so if you were to want to start up that's where you'd go and do so. And of course each and every company that does so adds a little more to the economic pull of the place as with each incoming asteroid adding that bit more to the gravity of a planet.
What perhaps some hadn't realised is that when the international trade barriers came down the same might be true internationally. That we'd end up with certain industries congregating in certain parts of the world for no other real reason than lots of that sort of industry were already there. There's no particular reason, other than it actually happened, why there's a little region of northern Italy that makes the majority of the world's spectacle frames, or for one town in China making 80 per cent of the world's socks.
Which is one of the things that seems to have happened with the hard drive industry. Here there is a reason, beyond mere happenstance, for it to have happened though.
The Thais thought about this quite a bit. They've got low wages, making hard drives is labour intensive (not the making of the parts, but the piecing them together) and, well, what the heck, Singapore has managed quite nicely out of this industry, so why not give it a go? So, tax breaks galore and once threy've got the industry in then it grows like Topsy. Thailand is not just assembling some large percentage of the world's hard drives, the component manufacturers have gone there too to supply the factories.
Sponsored: Customer Identity and Access Management