The economy

The collapse of manufacturing

Feb 19th 2009
From The Economist print edition

The financial crisis has created an industrial crisis. What should governments do about it?

Alamy

$0.00, not counting fuel and handling: that is the cheapest quote right now if you want to ship a container from southern China to Europe. Back in the summer of 2007 the shipper would have charged $1,400. Half-empty freighters are just one sign of a worldwide collapse in manufacturing. In Germany December’s machine-tool orders were 40% lower than a year earlier. Half of China’s 9,000 or so toy exporters have gone bust. Taiwan’s shipments of notebook computers fell by a third in the month of January. The number of cars being assembled in America was 60% below January 2008.

The destructive global power of the financial crisis became clear last year. The immensity of the manufacturing crisis is still sinking in, largely because it is seen in national terms—indeed, often nationalistic ones. In fact manufacturing is also caught up in a global whirlwind.

Industrial production fell in the latest three months by 3.6% and 4.4% respectively in America and Britain (equivalent to annual declines of 13.8% and 16.4%). Some locals blame that on Wall Street and the City. But the collapse is much worse in countries more dependent on manufacturing exports, which have come to rely on consumers in debtor countries. Germany’s industrial production in the fourth quarter fell by 6.8%; Taiwan’s by 21.7%; Japan’s by 12%—which helps to explain why GDP is falling even faster there than it did in the early 1990s (see article). Industrial production is volatile, but the world has not seen a contraction like this since the first oil shock in the 1970s—and even that was not so widespread. Industry is collapsing in eastern Europe, as it is in Brazil, Malaysia and Turkey. Thousands of factories in southern China are now abandoned. Their workers went home to the countryside for the new year in January. Millions never came back (see article).

Factories floored

Having bailed out the financial system, governments are now being called on to save industry, too. Next to scheming bankers, factory workers look positively deserving. Manufacturing is still a big employer and it tends to be a very visible one, concentrated in places like Detroit, Stuttgart and Guangzhou. The failure of a famous manufacturer like General Motors (GM) would be a severe blow to people’s faith in their own prospects when a lack of confidence is already dragging down the economy. So surely it is right to give industry special support?

Despite manufacturing’s woes, the answer is no. There are no painless choices, but industrial aid suffers from two big drawbacks. One is that government programmes, which are slow to design and amend, are too cumbersome to deal with the varied, constantly changing difficulties of the world’s manufacturing industries. Part of the problem has been a drying-up of trade finance. Nobody knows how long that will last. Another part has come as firms have run down their inventories (in China some of these were stockpiles amassed before the Beijing Olympics). The inventory effect should be temporary, but, again, nobody knows how big or lasting it will be.

The other drawback is that sectoral aid does not address the underlying cause of the crisis—a fall in demand, not just for manufactured goods, but for everything. Because there is too much capacity (far too much in the car industry), some businesses must close however much aid the government pumps in. How can governments know which firms to save or the “right” size of any industry? That is for consumers to decide. Giving money to the industries with the loudest voices and cleverest lobbyists would be unjust and wasteful. Shifting demand to the fortunate sector that has won aid from the unfortunate one that has not will only exacerbate the upheaval. One country’s preference for a given industry risks provoking a protectionist backlash abroad and will slow the long-run growth rate at home by locking up resources in inefficient firms.

Nothing to lose but their supply chains

Some say that manufacturing is special, because the rest of the economy depends on it. In fact, the economy is more like a network in which everything is connected to everything else, and in which every producer is also a consumer. The important distinction is not between manufacturing and services, but between productive and unproductive jobs.

Some manufacturers accept that, but proceed immediately to another argument: that the current crisis is needlessly endangering productive, highly skilled manufacturing jobs. Nowadays each link in the supply chain depends on all the others. Carmakers cite GM’s new Camaro, threatened after a firm that makes moulded-plastic parts went bankrupt. The car industry argues that the loss of GM itself would permanently wreck the North American supply chain (see article). Aid, they say, can save good firms to fight another day.

Although some supply chains have choke points, that is a weak general argument for sectoral aid. As a rule, suppliers with several customers, and customers with several suppliers, should be more resilient than if they were a dependent captive of a large group. The evidence from China is that today’s lack of demand creates the spare capacity that allows customers to find a new supplier quickly if theirs goes out of business. When that is hard, because a parts supplier is highly specialised, say, good management is likely to be more effective than state aid. The best firms monitor their vital suppliers closely and buy parts from more than one source, even if it costs money. In the extreme, firms can support vulnerable suppliers by helping them raise cash or by investing in them.

If sectoral aid is wasteful, why then save the banking system? Not for the sake of the bankers, certainly; nor because state aid will create an efficient financial industry. Even flawed bank rescues and stimulus plans, like the one Barack Obama signed into law this week, are aimed at the roots of the economy’s problems: saving the banks, no matter how undeserving they are, is supposed to keep finance flowing to all firms; fiscal stimulus is supposed to lift demand across the board. As manufacturing collapses, governments should not fiddle with sectoral plans. Their proper task is broader but no less urgent: to get on with spending and with freeing up finance.

Memahami pergerakan IHSG dan nilai tukar rupiah/dolar dalam beberapa pekan terakhir cukup mengkhawatirkan beberapa pihak. Penurunan IHSG yang menyentuh posisi 1.296 dan rupiah yang menyentuh 12.050 pada penutupan Jumat (20 Februari 2009) mengindikasikan bahwa kondisi pasar keuangan domestik berada pada posisi rawan.

Pelemahan rupiah dan IHSG di tengah-tengah ambruknya bursa regional dan belum pastinya pemulihan ekonomi AS, secara mudah dan gamblang disebut-sebut sebagian pengamat sebagai penyebab utama masalah ini. Bahkan, pelemahan ini dianggap fenomena yang lazim di saat suatu negara sedang mengalami resesi.

Pelemahan nilai tukar rupiah dan IHSG seharusnya dapat dilihat dalam perspektif yang luas bahwa fenomena ini bukan sekadar fenomena moneter. Lebih dari itu, secara ekonomi politik banyak hal yang menyebabkan keterpurukan ini.

Makroekonomi v Ekonomi Politik

Dalam perspektif makroekonomi, pelemahan indikator IHSG dan kurs mudah dipahami. Bahwa pelemahan itu disebabkan oleh faktor-faktor yang mendeterminasikannya dalam jangka panjang dan jangka pendek.

Dalam jangka panjang, penguatan kurs dan IHSG dipengaruhi oleh faktor seperti: produktivitas ekonomi, harga relatif, hambatan perdagangan, dan kinerja ekspor/impor.

Dalam konteks ini, jika salah satu atau beberapa faktor di atas memberikan efek positif pada kondisi neraca perdagangan (surplus), kurs dan IHSG akan meningkat secara bersamaan. Rasionalnya, jika barang produk Indonesia laku di pasar dunia, permintaan rupiah meningkat (kurs terapresiasi). Contoh lain, jika industri produk domestik semakin baik dalam kompetisi global, investor-investor akan memburu saham-saham domestik (IHSG terdongkrak).

Namun, penjelasan di atas tentu tidak dapat ditelan bulat-bulat bahwa dalam pandangan ekonomi politik (non mainstream), ada pertimbangan lain yang menyebabkan rasionalitas di atas tidak berjalan sebagaimana mestinya.

Pertama, nilai perdagangan valas (mata uang) jauh lebih besar dibanding nilai perdagangan barang dan jasa. Hal ini membuktikkan bahwa neraca perdagangan yang positif belum tentu mendongkrak kurs dan IHSG. Dalam konteks ini tingginya pengaruh sentimen pelaku pasar dan transaksi spekulatif mendominasi ekspektasi investor.

Kedua, tingginya penggunaan US dolar dalam perdagangan internasional semakin menjelaskan bahwa surplus perdagangan (ekspor lebih besar dibanding impor) belum tentu meningkatkan permintaan rupiah. Sebab, partner dagang akan menyukai pembayaran dalam bentuk US dolar.

Lemahnya penjelasan makroekonomi tentang determinasi nilai tukar jangka panjang, mendorong pembenaran lain dalam jangka pendek. Hal itu disebabkan volatilitas dan fluktuasi kurs dan IHSG cenderung tinggi dalam jangka pendek.

Secara sederhana, dalam konteks jangka pendek, dua faktor utama yang dipertimbangkan ialah perbedaan suku bunga (domestik dan asing) dan ekspektasi. Sebagai contoh, jika suku bunga riil (suku bunga domestik dikurangi suku bunga asing) adalah positif, kemungkinan capital inflow yang dapat memperkuat posisi mata uang domestik akan semakin meningkat.

Namun, tentu saja, rasionalitas tersebut dapat memberikkan efek yang mungkin berbeda dan membingungkan. Sebagai contoh, tren suku bunga yang meningkat bisa diartikan investor sebagai preseden buruk dalam suatu perekonomian karena suku bunga yang tinggi bisa berarti inflasi yang tinggi, dan kontraksi ekonomi. Akibatnya, ekspektasi investor akan semakin negatif, yang terefleksi dengan semakin enggannya investor asing/domestik memegang aset domestik.

Dalam konteks jangka pendek, kedua faktor di atas (perbedaan suku bunga dan ekspektasi) memang memainkan peran penting dalam menjelaskan pergerakan bursa dan kurs yang cenderung fluktuatif dan liar. Namun, lebih dari itu, pemahaman yang menyeluruh tentang perilaku pasar dan pemain-pemain di dalamnya juga harus menjadi perhatian serius.

Pertama, kondisi anomali di pasar keuangan yang cenderung liar membutuhkan strategi ekonomi politik yang tepat dan komprehensif. Volatilitas pasar keuangan yang berlebihan harus dapat diregulasi dengan ketat dan kuat, dengan mengontrol modal yang ketat. Krisis keuangan yang terjadi pada 1997 seharusnya dapat menjadi pelajaran penting bahwa krisis ekonomi meluas, berawal dari indikator pasar saham dan pasar keuangan yang semakin drop. Selanjutnya, keikutsertaan asing dalam pasar keuangan domestik harus dapat diregulasi dengan ketat, namun tidak berpaling dari prinsip fairness dan keterbukaan.

Kedua, intervensi Bank Indonesia (BI) jelas tidak akan efektif dengan hanya melakukan intervensi yang bersifat unsterilized dan sterilized di pasar uang. Hal itu disebabkan kemampuan dan kapasitas cadangan devisa BI sangat-sangatlah terbatas. Di sisi lain, intervensi pasar valas yang berlebihan akan berdampak cukup berat dalam pengelolaan uang beredar dan pencapaian target inflasi. Bahwa intervensi valas mungkin akan berkonflik dengan pencapaian target inflasi.

Membangun Kerja Sama Regional

Penguatan bursa saham domestik dan mata uang lokal tidak akan efektif jika dilakukan dengan kemampuan sendiri. Nasib serupa yang dialami bursa regional setidaknya harus dapat mendorong kerja sama regional dalam konteks penguatan sistem keuangan. Hal ini disebabkan tiga rasional penting. Pertama, kekuatan dolar dalam sistem pembayaran dalam perdagangan internasional tentu bukanlah hal mudah untuk ditaklukkan.

Kedua, tingginya aksi spekulatif para Hedge Funds (spekulator besar) tidak akan dapat ditandingi bank sentral mana pun di dunia. Ketiga, penyelamatan pasar keuangan juga berarti penyelamatan ekonomi secara luas. Dalam hal ini jika pasar keuangan dibiarkan bankrupt, efek penularan krisis lambat laun akan menyebar bak penyakit epidemi.

*. Dias Satria SE MAppEc, dosen Jurusan Ekonomi Pembangunan Unibraw, Malang

Jan 29th 2009

From The Economist print edition

The slump in East Asia was made at home as well as in the West

Getty Images

CHINA’s lunar new year sees the world’s largest migration, as tens of millions of workers flock home. Deserting for a few days the factories that make the goods that fill the world’s shops, they surge back to their native villages. This week, however, as they feasted to the deafening rattle of the firecrackers lit to greet the Year of the Ox, their celebrations had an anxious tinge (see article). Many will not have jobs to go back to.

China’s breakneck growth has stalled. The rest of East Asia, too, which had hoped that it was somehow “decoupled” from the economic trauma of the West, has found itself hit as hard as anywhere in the world—and in some cases harder. The temptation is to see this as a plague visited on the region from outside, which its governments are powerless to resist or cure. In truth, their policy errors have played their part in the downturn, so the remedies are partly in their hands.

The scale and speed of that downturn is breathtaking (see article), and broader in scope than in the financial crisis of 1997-98. China’s GDP, which expanded by 13% in 2007, scarcely grew at all in the last quarter of 2008 on a seasonally adjusted basis. In the same quarter Japan’s GDP is estimated to have fallen at an annualised rate of 10%, Singapore’s at 17% and South Korea’s at 21%. Industrial-production numbers have fallen even more dramatically, plummeting in Taiwan, for example, by 32% in the year to December.

Nobody’s buying it

The immediate causes are plain enough: destocking on a huge scale and a collapse in exports. Even in China, exports are spluttering, down by 2.8% in December compared with the previous year. That month Japan’s fell by 35% and Singapore’s by 20%. Falls in imports are often even starker: China’s were down by 21% in December; Vietnam’s by 45% in January. Some had suggested that soaring intra-regional trade would protect Asia against a downturn in the West. But that’s not happening, because trade within Asia is part of a globalised supply chain which is ultimately linked to demand in the rich world.

Some Asians are blaming the West. The Western consensus in favour of globalisation lured them, they say, into opening their economies and pursuing export-led growth to satisfy the bottomless pit of Western consumer demand. They have been betrayed. Western financial incompetence has trashed the value of their investments and consumer demand has dried up. This explanation, which absolves Asian governments of responsibility for economic suffering, has an obvious appeal across the region.

Awkwardly, however, it tells only one part of the story. Most of the slowdown in regional economic growth so far stems not from a fall in net exports but from weaker domestic demand. Even in China, the region’s top exporter, imports are falling faster than exports.

Domestic demand has been weak not just because of the gloomy global outlook, but also because of government policies. After the crisis a decade ago, many countries fixed their broken financial systems, but left their economies skewed towards exports. Savings remained high and domestic consumption was suppressed. Partly out of fright at the balance-of-payments pressures faced then, countries have run large trade surpluses and built up huge foreign-exchange reserves. Thus the savings of poor Asian farmers have financed the habits of spendthrift Westerners.

That’s not all bad. One consequence is that Asian governments have plenty of scope for boosting domestic demand and thus spurring economic recovery. China, in particular, has the wherewithal to make good on its promises of massive economic stimulus. A big public-works programme is the way to go, because it needs the investment anyway. When Japan spent heavily on infrastructure to boost its economy in the early 1990s, much of the money was wasted, because it was not short of the stuff. China, by contrast, could still do with more and better bridges, roads and railways.

Safety in numbers

Yet infrastructure spending alone is not a long-term solution. This sort of stimulus will sooner or later become unaffordable, and growth based on it will run out of steam. To get onto a sustainable long-term growth path—and to help pull the rest of the world out of recession—Asia’s economies need to become less dependent on exports in other ways.

Asian governments must introduce structural reforms that encourage people to spend and reduce the need for them to save. In China, farmers must be given reliable title to their land so that they can borrow money against it or sell it. In many countries, including China, governments need to establish safety-nets that ease worries about the cost of children’s education and of health care. And across Asia, economies need to shift away from increasingly capital-intensive manufacturing towards labour-intensive services, so that a bigger share of national income goes to households.

For Asian governments trying to fix their countries’ problems, the temptation is to reach for familiar tools—mercantilist currency policies to boost exports. But the region’s leaders seem to realise that a round of competitive devaluation will help no one. China has responded to American accusations of currency “manipulation” by denying it has any intention of devaluing the yuan to boost exports. Structural reforms to boost demand would not only help cushion the blow to Asia’s poor and thus help avert an explosion of social unrest that governments such as China’s fear; they would also help counter the relentless rise in protectionist pressure in the West.

If emerging Asia needs a warning of the dangers of relying on exports, it need look no further than Japan. Japan’s decade-long stagnation ended in 2002, thanks to a boom in exports, especially to China. Now, largely because of its failure to tackle the root causes of weak domestic demand, it is taking more of an economic hiding than any other rich country. Japan used to see itself as the lead goose in a regional flight formation, showing the way to export-led prosperity. It is time for the other geese to break ranks.