The hypocrisy over Cadbury’s is nauseating


11:20 am - January 21st 2010

by Claude Carpentieri    


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A bitter taste in Bournville” and “Cadbury: Not such a sweet deal“, said the Guardian. “Why takeover bids rarely work“, warned Jeremy Warner in the Telegraph. “Kraft takeover jobs bloodbath” and “High price for handing UK PLC to foreigners” were the headlines in the Daily Mail, while the Independent noted that “Bournville laments saddest day for 10 years“.

Yesterday’s papers couldn’t agree more. In essence, the widespread opinion across the spectrum was that another British institution is going, that the usual City “short-termists” are making a mint off the back of a local community, that the economic long-term interests of the country are being ignored and that Britain’s surrendering to one too many foreign takeovers.

But scratch beneath the condemnation for Cadbury boss Roger Karr’s own admission that job losses were an “inevitability“, the CEO’s £12m payout, or the simple fact that the buyers Kraft are a company ridden with something like £22 billion of debt, and few grasp the fundamental reasons behind the potential loss of Cadbury.

For instance the fact that the industrial policy of the past thirty years has been coherently and systematically biased towards the professional short-termism that turned London into the Mecca of City spivvery. And that’s under the active complicity of both Tories and Labour.

For all the hollow cries from Gordon Brown that he’ll do his best to secure jobs and the right-wing revulsion at foreign companies sucking the blood out of British firms and then binning them after a couple of years, this is a script we already saw with Rover and more recently with Bosch and Corus: sorry very much, but it’s all shareholders uber alles and tough for whoever’s left to mop up the mess.

Bournville is one of the prettiest areas of Birmingham as well as one with a fairly solid community spirit. One can only imagine what would happen if the factory that’s provided a living to thousands since the 19th century was to up sticks or be significantly scaled down.

And yet the picture’s pretty clear. Like they point out at Unite, wherever it’s gone in the past 10 years, “Kraft has sacked 60,000 workers to pay for other companies it has eaten up”.

The sourest irony of all is that the £7bn Kraft raised to table the bid were financed by RBS which is 84 per cent owned by the British government.

And until any of the major political parties will say loud and clear that Britain can’t carry on turning into a country exclusively centred around City gambles with the rest working in call centres and mobile phone shops, we will witness similar devastation time and time again.

So would all the opinionmeisters that today are crying crocodile tears for the loss of a British institution be prepared to change their tack given that they normally spot the dark shadows of “socialism” lurking behind the slightest governmental intervention?

Would they be prepared to accept that only a state that plays a bigger role in protecting manufacturing can halt the dependence on Bullshit Economy? Would they be able to clock that protecting long-term stability, often the default policy in France, the US and Japan, doesn’t mean that Stalin and Lenin are on their way back?

Sign the petition to Keep Cadbury Independent here.

——–
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About the author
Claude is a regular contributor, and blogs more regularly at: Hagley Road to Ladywood
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Reader comments


The conventional wisdom is that the continuing pervasive threat of corporate takeovers is necessary to discipline directors and senior management to ensure we benefit as consumers from efficiently run companies.

Curiously, the conventional wisdom among economists is that usually the only stakeholders to gain in completed takeovers are the shareholders of the acquired company – and, of course, the investment bankers who advise the respective companies on the bid and defence.

“The chief executive of Cadbury will receive a bumper £12million payout if he leaves the company as part of Kraft’s £11.9billion takeover of the iconic British Chocolate-maker.”
http://www.dailymail.co.uk/news/article-1244330/Cadburys-boss-set-collect-12million-pay-unions-fear-jobs-bloodbath-Kraft-takeover.html#ixzz0dFHokHik

2. Albert M. Bankment

Even before the takeover terms were announced, almost 50% of Cadbury’s shares were held in the USA. These would either be the long-term funds or, increasingly, the arbitrageurs who have trading in the shares since Kraft first appeared over the horizon last autumn. The sellers would have been, in many cases, the domestic funds who skilfully took prices lower than the eventually agreed terms.

The most telling commentary on Kraft comes from the sad recent history of Terry’s, since Kraft bought that company in 1993. The Terry family, like the Cadburys, were Quakers and significantly good employers. Kraft was then part of Phillip Morris, but being run autonomously before its eventual demerger, and gave all sorts of worthy undertakings about its long-term commitment to the British company and the community. By 2000 the proud strapline “Terry’s of York” mysteriously started to lose the “of York” progressively from the products. In 2005 the factory was closed and production shifted overseas.

Add to all this that Warren Buffet, who is said to know a thing or two about valuing companies, thinks that Kraft is paying too much. The auguries are not good for Cadbury’s UK employees.

…”the dark shadows of ‘socialism ‘ lurking behind the slightest governmental intervention”
Any government intervention within a capitalist economy is not socialism by any measure, most state intervention in the economy is designed to serve the interests of owners (usually large corporations)
Kraft are doing what they are supposed to, serving their own interests, what sentiment is there in a pursuit which only has a profit nexus, who cares about Cadbury, the family or the history?
The rhetoric of Gordon Brown with regard to safeguarding jobs is laughable – me thinks white man speak with forked-tongue.

“Add to all this that Warren Buffet, who is said to know a thing or two about valuing companies, thinks that Kraft is paying too much.”

Erm, which means that selling is a damn good idea doesn’t it? If someone offers you more than something is worth you should take the offer, no?

Tim Worstall: I’ll give you fifty quid for your heart. 😉

‘Erm, which means that selling is a damn good idea doesn’t it? If someone offers you more than something is worth you should take the offer, no?’

A penny for your thoughts?

🙂

Just a minor correction here. Bournville is indeed pretty, but I doubt many workers at the factory could afford to live there – being in the Bournville Village Trust adds thousands to house values, and most houses are anyway better than the run of the mill South-Birmingham terraces or mid-twentieth-century developments.

But Bournville and its community are managed by a seperate organisation than the chocolate company. Because the Cadbury’s were never stupid, and knew that nothing is for ever. So they set up charitable concerns to ensure their workers village retained its identity and spirit (if, unexpectedly, not their workers).

# 7 First time I’ve actually laughed on this site

Curious how the cadbury takeover has triggered a populist nationalist response. ditch the analysis, feel the patriotism eh? Let’s all start singing Jerusalem and slagging off foreigners. (The author would appear to already be there, presumably surrounded by good old BRITISH chocolate bars.)

And just a point of fact (sorry, but someone’s got to), RBS is one of at least 9 banks helping to arrange a syndicated loan. It is not financing £7bn of the debt, as the author suggests.

“Kraft is paying too much”

Except it isn’t. Its paying a fraction of the price, and the rest is being paid by the financial industry in loans who hope to make money for a few years off the interest payments before selling the debt onto someone else.

Planeshift,

Kraft is paying that figure – that is the money that has to be handed over to buy the shares. I think you will find it has borrowed the money (presumably against assets) from the financial industry, who exist to allow this. They have paid Kraft, not the shareholders; Kraft has paid the shareholders.

Or did the bank buy my house? In which case, I’m squatting.

13. Luis Enrique

if anybody has time for a long read on the subject of “financial capitalism what is it good for?” this should be rewarding. Worth clicking through for the lovely quotes that start the post alone.

14. Luis Enrique

@14
Sorry but the link provided doesn’t work. It says “Page not found”.

@10 Tom
RBS is one of at least 9 banks helping, it is true. But this doesn’t change the substance of the problem. The paradox of having an almost nationalised bank contributing millions to something the government is allegedly against (see here for details).

Also Tom. I’m sorry you didn’t get the point of my article. My intention was actually to point out that those adopting the “jingoistic” position across the spectrum (following the news of the takeover) don’t realise the major contradiction with their uncritical glaze-eyed support of free market most of the time.

You can’t have the cake and eat it basically. You believe in blind free-market and the law of profit? Fine, absolutely fine. But then don’t moan about the loss of “national institutions” because it makes no sense.

@8 Watchman
You’re thinking of Bournville “strictly”, so to speak.
This may be tedious for readers who are not familiar with Brum, but the factory is at the heart of a wider area. When I mentioned Bournville, I also had in mind neighbouring Cotteridge, Selly Park, Northfield and Kings Norton.

16. Albert M. Bankment

@ No.4, Tim Worstall

Kraft is over-paying to acquire a business which was profitable, and is borrowing heavily to finance the purchase. Thus it is more, rather than less, likely that Kraft will seek to reduce its overheads by moving production overseas, to countries where labour is cheaper, as it has done in the past.

17. Luis Enrique

Claude, I like this line a lot: And until any of the major political parties will say loud and clear that Britain can’t carry on turning into a country exclusively centred around City gambles with the rest working in call centres and mobile phone shops, we will witness similar devastation time and time again.

There’s something about turning our country into something that worships the City, casinos and mobile phone shops that is calling out for a slogan.

I think it can tap deeply into the idea that our society isn’t producing anything of value any more, just lame services or worshipping an institution (the City) which isn’t that healthy for the economy.

This is crying out for a good slogan / soundbite… any thoughts?

18 Perhaps a tagline of ‘Back to the 70s!’, over a photo of proper manufacturing at Longbridge under British Leyland.

The footer could have ‘Labour, picking winners since 1975’

I think it can tap deeply into the idea that our society isn’t producing anything of value any more, just lame services or worshipping an institution (the City) which isn’t that healthy for the economy.

This is crying out for a good slogan / soundbite… any thoughts?

Errrr…..Labour fucked up? 🙂

“This is crying out for a good slogan / soundbite… any thoughts?”

“My prejudices outweigh others’ experiences”
“I’m right and reality is wrong”
“My understanding of economics never really went beyond the basics”
“Sometimes all this understanding stuff is just a little too difficult”
“Let’s all continue worshipping mythologised pre-industrial societies”

I speak as someone who works in an “lame services” industry that generates vast amounts of foreign exchange for the UK economy. I’ll advise my colleagues to stop working as the internet tells us we’re all doing something very wrong.

Buffett’s point that Kraft were paying too much was about the structure of the deal not the total cost. Partially paying in Kraft shares will see his existing holdings in Kraft diluted. In his opinion, using Kraft shares is an expensive currency compared to cash.

There is no paradox in RBS being part of the syndicate. The government specifically set up UKFI to manage the state’s investment and ensure they could operate commercially at arms length from political interference.

I totally fail to understand the notion that manufacturing is in some way morally superior to the services sector. A growing services sector is an indication that an economy is becoming more prosperous. The growing services sector as a ratio of the economy phenomenon affects every economy that gains in prosperity. This has also happened in Germany and Japan, but not so pronounced as elsewhere. Moreover, the consequence of the economies with large service sectors manufacturing more would mean the others manufacturing less. If they then can’t grow a service sector to take the slack because services are seen as undesirable. Everyone then must be worse off.

I signed the petition because I think it is a bad deal for Cadbury.

If Kraft actually buy Cadburys, they’ll have an awful lot of debt to pay back. One assumption is that they will achieve this by producing comparable products more cheaply than the current business is able.

Perhaps Kraft will have better purchasing power; I think that we can disregard that given the Cadburys is already a huge, multinational business. Kraft might move manufacturing abroad, but Cadburys do this now. For low value goods that don’t travel brilliantly, it makes sense to manufacture fairly close to the consumer. Kraft might save a bit of money by using lower qualities ingredients or by switching the mix in boxes of chocolates, but that runs the risk of offending consumers and encouraging a switch to other brands. Or they could kill off unprofitable brands; but Cadburys is a profitable company and there are no obvious brands to ditch.

We should assume that Cadburys is a lean company; if another multinational thought that they could run it better, we’d have heard about a counter bid.

Kraft can’t save a lot of money by tweaking Cadburys manufacturing but the purchase will increase their debt. Thus to pay back the debt, Kraft will have to increase prices creating a valid consumer interest argument. And the proposal is bad too for Kraft shareholders and employees; Kraft need to get their existing debt under control before taking on a further distraction.

@23 Richard
I could mention a lot of things: impact on communities, wage differentials (the proven fact that it’s a more financially rewarding employment than the service sector on average), long-termism, a (at least partial) shield from megahumongous financial crises, a lever for research and development, competitiveness with abroad, keeping a reasonable import/export balance.
But I’m not even gonna bother with all that, because I’m not going to change your mind and you’re not going to change mine.

One thing though:
A growing services sector is an indication that an economy is becoming more prosperous.
“To whom”, however, is the crucial question – which you’re not asking.

And…ooops…another thing.
It’s very true. The service sector has been growing in Germany and Japan too. And France also. But, this is exactly the point: in all those countries, a balance has been maintained. The above mentioned country have not given up on manufacturing – they still see it as a centrepiece of their economy.

The French and the Germans would be fucked if they let their companies snuff it just like they do in the UK.

claude

any facts on how much of Cadbury’s production is actually done in the UK? or are facts too sacred to waste on us?

@23 Richard: “I totally fail to understand the notion that manufacturing is in some way morally superior to the services sector.”

Don’t you remember the story about Jesus casting out the money lenders from the temple? Have you checked the interest rates at Islamic banks?

The resentment of financial services may not be entirely rational, but reversing it is not an overnight exercise.

Remember also that whilst services, financial or otherwise, may make a nation rich they do not contribute directly to global wealth. The world gets richer (defined by citizen ownership of goodies or human essentials) by people making stuff that others want to buy.

I prefer the idea that manufacturing stuff is more “noble” than financial services; you can grow, make and trade goods without need for a bank; banking indirectly enhances manufacture, but services cannot exist without manufacture.

Looking around the world, the more affluent countries have smaller manufacturing sectors relative to their GDP than do less affluent countries. How come if manufacturing is so important for wealth?

Claude, I think you have a very narrow view of what the service sector is in a modern economy. Sure there are the fast food outlets and the disliked by many people financial services. However, that is not all there is to a service sector. The UK is one of the world’s leading exporters of computer services. Are software designers any less worthy than people assembling a tangible good? The global computer and video games industry is massive and the UK is the World’s third largest producer. These IT jobs in the service sector are all highly paid jobs.

When I said getting more prosperous I was referring to the macro economy. I will readily accept that the economy can be getting more prosperous but some people can lose their industry. Other than the government taking over all industry and no industry is allowed to close that will always happen. However, in that situation new industries will be inhibited. We would still have been keeping the carriage industry as the horse was supplanted by the car.

I am all for a balanced economy and think the government could do more to incentivise R&D. Incidentally, France with a larger population has a smaller manufacturing sector than the UK. Germany firms in recent years have been outsourcing production to Eastern Europe, this will accelerate as a consequence of the demographic pressure of an aging population. A Porsche stamped made in Germany is really only just over 30% made in Germany.

@29
Charmer you are, arent you.

If you’re into yo-yo economics then fair enough, go ahead, it’s a respectable position. But spare us the “prosperity for everyone” bit, because if you had the misfortune of being on the receiving end of it, you wouldn’t be speaking like that.
This is exactly what happened in Britain. Considerable GDP growth; Tony Blair and Gordon lecturing Europe on how it’s done; an overinflated City; few making ridiculous amounts of money; the most casualised and disadvantageous working conditions in Western Europe sold as ” flexibility”—and here we are, ten years later with the taxpayer forking out £850bn to keep the economy and cash points afloat and public service cuts looming to make up for it. Larvely.

Some people may prefer that way. In France and Germany they didn’t experience OTT GDP growth throughout the noughties, but they didn’t experience a dramatic crisis either. Both countries remained amongst the richest in the world, with the added bonus that people dont get the sack on a whim and, if they did lose their job safety nets were a bit less demeaning. Most importantly, tiny detail, no bank had to be bailed out.

BTW, I may have a narrow minded view, mate, but you know how to patronise people alright. You know… I didnt know that computer services were part of the financial sector!!!??? Wow! Thanks very much for enlightening me, Richard. And me the plonker thinking all those PCs were agriculture all along! Who would have thought…

Claude, that is not what I am saying at all. I do not believe in YOYO economics nor do I believe in Trickle-down economics. I agree GDP growth on its own does not tell the whole story. My point was the idea that the manufacturing sector is full of highly skilled well-paid workers and the service sector low-paid is simplistic. I may be wrong but manufacturing jobs moving overseas to lower cost areas implies to me that they were not that highly skilled. I say that because there will not be a ready existing pool of highly skilled in that area.

BNP Paribas were bailed out by the French government. Germany had to bail out a number of institutions, especially their mutual sector. The US taxpayer indirectly bailed-out French and German banks to the tune of $36 billion through the AIG rescue. That was real money that the US taxpayer will never see again. The 850 billion figure that is usually quoted for Britain is not a real cost but is a contingent liability.

I would like to see a growing British manufacturing sector. However, other than saying they would like it, no one comes up with sensible ideas how they would achieve it.

@29 Richard: “Are software designers any less worthy than people assembling a tangible good?”

Patents, copyrights and registered designs protect the works of software creators. In the same way as the designer of a new motor engine or a bronze sculptor. But then it becomes a creativity argument, physical versus digital. I would argue that software designers who genuinely innovate are not part of the “service” industry.

Rover and Corus were loss-making basketcases. They may have been iconic brands but there was no value left there. On the opposite, Cadburys is a profitable company being sold to inferiour badly managed conlomerate. It is more similar to a recent attempt by Gazprom to buy British Gas: they were shown the doors by the government quckly

“wage differentials (the proven fact that it’s a more financially rewarding employment than the service sector on average)!

I’d love to see the actual figures on that. Sure, flipping burgers pays less than whippet flanging but the garment trade (which is indeed manufacturing) pays a lot less than the law (a service). I know that this is said a lot, but I’m really not all that sure that it’s true, that manufacturing pays better than services.

“a (at least partial) shield from megahumongous financial crises, ”

Hmm….not convinced again. From the figures it looks like manufacturing output is more volatile than output in general. Last few recessions (including this one) if GDP went down by x then manufacturing went down by 2x or 3x. Same is true of Germany (not looked up figures for other places). Manufacturing is thus more vulnerable, not less.

“a lever for research and development,”

Again not convinced. All the R&D for those poncey vacuum cleaners is done in Malmesbury, all the manufacturing in Malaysia. Doesn’t seem to be true that we need to do the manufaturing in order to do the R&D, nor for us to have the nice high paid, high value jobs in R&D.

“competitiveness with abroad”

Sorry, but what does this mean? Trade (and thus wealth creation) is based upon comparative advantage, not absolute advantage or competitive advantage.

“keeping a reasonable import/export balance.” You can import and export both manufactures and services you know. As we do. Manufacturing has been in export surplus in only 6 years since 1945 (and three of those were the Thatcher recession of 80-82) while services have been in surplus all but two years.

“It’s very true. The service sector has been growing in Germany and Japan too. And France also. But, this is exactly the point: in all those countries, a balance has been maintained. The above mentioned country have not given up on manufacturing”

Nor has the UK. As has been mentioned here before, just before the recession hit (ie, 2007) was the high point for UK manufacturing output ever. Higher than 1990 (although the recession has taken it back to 1990 levels, see above greater volatility of manufacturing, GDP is back only to 2005) which is higher than 1980 levels, near twice 1960 levels and near three times 1945 levels.

BTW, concentrating on financial services isn’t the right way to look at services. All fservices are about 8% of GDP (this includes life insurance and so on). The City, the wheeler dealers in the wholesale markets, is about 4%. Given that services broadly defined are about 80% (or something like that) of the UK economy there’s a hell of a lot more to services than chinless wonders in pinstripes.

“Remember also that whilst services, financial or otherwise, may make a nation rich they do not contribute directly to global wealth. The world gets richer (defined by citizen ownership of goodies or human essentials) by people making stuff that others want to buy.”

Eh? What Kool Aid have you been snorting? The world gets richer by people providing whatever others want to buy, not just by physical goods that others want to buy. Otherwise we’re pretty much wasting the £100 billion a year we spend on the NHS aren’t we? Medicine is a service…..we don’t (whether it’s free market provision or State) get something from it that we can drop on our foot. What we do get is longer lifespans, lower infant mortality and so on. Are you seriously trying to say that the vaccines that enable parents to see almost all of their children live to smile at their 5 th birthday party, as opposed to the without vaccines two thirds of them, does not make us richer?

In fact, medicine is a very good example of why this warbling over manufacturing is just that, warbling. Way back when medicine at the founding of the NHS was about 4% of the economy (at least that’s the number I have in myu mind, might be wrong). Now medicine is about 10% of the economy (NHS plus private). Would you really want to tell us that this move of the economy from (percentage wise) manufacturing to services has made us poorer?

“I would argue that software designers who genuinely innovate are not part of the “service” industry.”

Actually, they are part of the service industry as it is defined. If you want to say they’re not then all the figures everyone uses to talk about manufaturing output, manufacturing employment and manufaturing as a percentage of the economy are wrong.

@34
Unbelievable.
So now to show that their argument isn’t weak, the fans of banker bonuses on LC are no longer defending the oversized “financial services”, the City, the investors, the stockbrokers, the casinos. No, it’s gone all quiet on that front.

No, now Worstall & co refer to “services” such as including IT, medicine and lawyers!
Worstall even makes a comparison between assembly line workers and lawyers to show that the “service sector” is more rewarding!

Classic this is, Worstall.

@31 Richard.

Sorry but you’re not being honest. Specks and planks aplenty again.

BNP Paribas received €4.3bn (other people report €5.1bn) by the state. The total given to banks by the French taxpayer at the end of 2008 was €7bn. It’s also worth saying that the French banks are already repaying the bailout and that it should be done by the end of 2010.

Compare that with £44.2bn the Government forked out to shore up RBS (and that was just initially), plus the further injections and all the other banks, HBOS, Northern Rock, Bradford & Bingley. The full figures are here and make what the French bailout look like a “modest” one indeed, to quote Forbes.

Also, for clarity. Last night, before hitting the sack I mistyped this @30:
I didnt know that computer services were part of the financial sector!!!“.

My sleepy attempt at sarcasm obviously backfired because what I meant is:

I didnt know that computer services were part of the service sector!!!“.

The intention was: here we are comparing industrial policies with the government’s approach towards the City and financial services. So please don’t do a Worstall and start blabbering on about the NHS or lawyers or IT being a service. That is not the point.

When discussing services , one aspect is consulting engineering. Some of the best engineeeing and architectural consultancies in the World are British. Therefore are consulting engineers classed as industry or the service sector.

What is problem with Cadbury’s is that the R and D involved with manufacturing could go offshore and this would weaken our national expertise. Therefore we reduce the pool of engieering/manufacturing expertise and reduce the ability to develop consulting engineering expertise which can then be exported. Part of the reason Dyson exported the manufacturing is that we lack the ability to develop advanced factories which can keep unit costs at a competitive price.

The problem is that we lack the ability to scale up our manufacturing. We have the ability to undertake the manufacturing required to support F1 teams but lack considerable expertise in production engineering – the expertise to design , manufacture and operate the most up to date factories.

Production engineering is probaly one of the nation’s weak points. We produce engineers who are brilliant at innovative work but find the work of designing and opersating factories rather tedious. The joint Masters in Car Design between Imperial and Royal College of Art produces car designers who are snapped up the World car companies. We do not produce enough world class engineers who have a desire to design the best factories and the sale of Cadbury’s is only likley to make the situation worse.

What nonsense is being spoken here in defence of manufacturing. When exposed, claude blithely switches his definition (to include any software etc) so as to make his argument tautological. By his definition, the service sector specifically excludes high value add business, so by definition services are worthless. My my, if only all debates were so simple.

How about knowledge then? I get paid for the information I package and produce. Does that mean I work in the manufacturing industry?! Am I worthy of your praise? Or does the reverse snobbery all too evident in this thread apply here as well?

This debate is based on a false distinction and worthless ideological posturing.

“Also Tom. I’m sorry you didn’t get the point of my article. My intention was actually to point out that those adopting the “jingoistic” position across the spectrum (following the news of the takeover) don’t realise the major contradiction with their uncritical glaze-eyed support of free market most of the time.

You can’t have the cake and eat it basically. You believe in blind free-market and the law of profit? Fine, absolutely fine. But then don’t moan about the loss of “national institutions” because it makes no sense.”

So are you writing about the media or someone else’s ideology? Or both, but you don’t really highlight which or how? Have the newspapers ever had a consistent “line” on foreign takeovers? No, they just respond to whatever the prevailing view is. As someone else said elsewhere, you might as well tilt at windmills.

And who here is moaning about loss of national institutions? The only person I can see getting misty eyed and unfactual on us is you with your meaningless “pretty village” talk. Cadburys became a very normal multinational corp some time ago (look at where its production is), Kraft or no Kraft.

And on economics, all this talk about the mighty loss of our beloved carmakers and steel industry would make a whole lot more sense if the world had never experienced competition from elsewhere, especially Asia. You know, the poorer countries of the world, able to produce stuff cheaper than we can. Comparative advantage explains an awful lot, including why we do finance and stopped making the Austin Allegro.

39. Tom. Germany has a large capability in high value manufacturing. Advances made by Siemens may help the car producers. Demand by car producers stimulate the electrical capability of Siemens.

High value manufacturing, such as manufacturing jet engines and repairing them ( Rolls Royce) needs a pool of expertise. As the number of British manufacturing companies decline the national pool of expertise declines.

Britain has a world class pharmaceutical industry because we have 4-5 top companies supported by a 4-5 universities. The companies and universities create a pool of expertise which all can draw upon.

Loss of Cadbury’s manufacturing reduces our national pool of engineering expertise and therefore makes Rolls Royce and any other manufacturer’s job more difficult. It is the death of thousand cuts.

Not making chocloate bars makes it more difficult to make jet engines?

Novel argument, certainly.

Tim,

Didn’t you know the RR Trent 900 is essentially just a very extravagant Curly-Wurly?

41.Tim Worstall. My comments are about the pool of engineering expertise, especially production engineering, in the country. Expertise gained in mechanical engineering working in one type of industry can be applicable in another. RJ Mitchell served his apprenticeship in locomotive emgineering and then moved into aeronautical engineering.

I could imagine the problems of temperature, humidity and dust control in a factory making chocolate may have engineering solutions which would be applicable in another type of manufacturing process. The control of odour from a chocolate factory is a problem to many factories. One of the main costs in the production of silicon chips is the creation of “clean ” manufacturing areas. I imagine aero engines need to be constructed in a factory with stringent control on dust, temperature and humidity; especially the electronic control systems.

Chocolate contains fat and one of the important issues is how to remove fat/oil from machinery without using chlorinated solvents. The government set up a First Faraday research initiative on food technology because modern day food production involves advanced equipment. The equipment which is used to wash and sort lettuce leaves and remove those which are damaged use very advance cameras and computerised control systems. This sort of technology can be used in waste recycling. The Salmonella found in the cadbury’s chocolate shows what can go wrong if stringent procedures are not followed.

Wilkie ( was awarded a Nobel Prize) who did much of the work to obtain the crystal x -ray images which provided the data for Crick and Watson was not a biologist or a chemist, but a physicist, who had worked on developing atoms bombs in WW2.

Many engineering breakthroughs occur when people move from one area of expertise to another.

Tom @38
This debate is based on a false distinction and worthless ideological posturing.

You nailed it there. No point in reading the tons of ideological nonsense you wrote. Oh… Don’t forget to wash your car on Sunday, eh?

“Would they be prepared to accept that only a state that plays a bigger role in protecting manufacturing can halt the dependence on Bullshit Economy? Would they be able to clock that protecting long-term stability, often the default policy in France, the US and Japan, doesn’t mean that Stalin and Lenin are on their way back?”

Er that sounds an awful lot like protectionism, which many on the left were arguing passionately against in the wake of the “credit crunch”, presumably because it’s seen as dangeroulsy close to nationalism and opposed to the alledged inevitability of gloabalisation. After all, if you limit free movement of goods, which protectionism has to by defintion, then how do you defend free movement of people ?

@34 Tim Worstall: “The world gets richer by people providing whatever others want to buy, not just by physical goods that others want to buy.”

My original statement “Remember also that whilst services, financial or otherwise, may make a nation rich they do not contribute directly to global wealth. “makes sense when you pay attention to the qualifier “directly”.

Imagine a closed community that starts off with a fixed quantity of goods. The community only trades with itself. Nobody makes anything and everyone earns a living from services. Some people will get richer because they can provide a more desirable service, but collectively the wealth of the community is fixed. Services on their own do not create stuff.

Imagine another community that comprises of Bob the farmer living on his own somewhere remote. Bob has a few tools and a bit of knowledge, so he is able to grow his own food, kill some game using the crossbow that he made for himself, and in the evenings he uses his talents to make furniture for the home. When Bob dies in thirty years time, he will be a richer man than when he inherited his farmstead.

Fortunately for Bob, he encounters a stranger on his land (the closed system ends). The stranger offers some labour and agricultural know how in exchange for accommodation and that nice stool that Bob made in anticipation of evenings in front of the fire playing his harmonica. The stranger points Bob in the direction of a village where Bob can buy and sell stuff. Bob follows the stranger’s advice, and thanks to the service economy, Bob’s quality of life improves a bit further. Services mean that Bob will have a more comfortable retirement.

The meeting was beneficial to the stranger, too. Had the stranger bumped into an accountant who owned a large tent, perhaps he might have spent a few nights protected from the weather, but neither party would have much else to trade.

Just in case Claude is fretting, I’ll bring this post more on topic. Manufacturing and financial services are mutually dependent in any developed economy. The Soviet Union had banks.

In theory financial services could operate from anywhere, relying on the interweb thing to perform transactions and to talk with people. In practice, people talk to those around them, and if your business is six time zones away from your customers you may be missing out on the debate. And if your business is trading cacao, you can now downsize your London office because the main action will be in New York and Zurich.

“Imagine a closed community that starts off with a fixed quantity of goods.”

Fail, it ain’t a zero sum game.

“Nobody makes anything and everyone earns a living from services. Some people will get richer because they can provide a more desirable service, but collectively the wealth of the community is fixed.”

Nope. Let us imagine that this more desirable service is, say, a better treatment for cholera. No, just imagine. This is medicine, health care. It’s a service. There is no manufacturing occuring here.

So, do you think that if we move from a society which does not know how to treat cholera (and indeed we do, mix sugar and salt into boiled water, called OHT) to one that does then the wealth of the community has not increased?

Well, maybe you do but I would say that that belief is insane.

“Services on their own do not create stuff.”

Sure, services do not create “stuff”. But services (well, OK, can at least) create wealth. For some of the things that we define as wealth (which, for those taking notes at home, is an increase in human utility) are indeed services. A doctor (or midwife) to aid in childbirth is a service. Yes, societies that can provide such we regard as wealthier than those which cannot. That is, we define provision of services as increasing wealth.

Just to make it even clearer. Wealth, by definition, is the things that human beings want. An increase in what human beings want is an increase in wealth. This is true whether it is services, manufactures, freedom, liberty or equality that human beings want. This is how economists define it: more of what humans want is an increase in wealth….thus the concept of utility. And yes, this does mean that if a more equal society is what increases human utility then a more equal society increases wealth.

“Manufacturing and financial services are mutually dependent in any developed economy.”

I don’t disagree with this point. I do disagree with some of the assumptions that go into the way you’ve put it though.

1) You’ve switched from “services” to “financial services”. If you want to show how important “manufacturing” is then you’ve got to deal with the idea of services as a whole, not just financial services.

2) Sure, financial services and manufacturing are interdependent. Where do you think the capital to fund manufacturing comes from if not the financial services sector? Most savings are short term and most lending for industry is long: that’s what we have banks for, to make the temporal transformation. Equity markets, the invention of limited liability (as I call it, the third great invention of humanity) allow the mass participation of capital. This is a service, ain’t it great?

3) Ever heard of trade? Globalisation? Please define “the economy”. “An economy”. “Our” economy in the UK depends upon, well, perhaps this is what your problem is, but our vacuum cleaners are made in Malaysia, our computers are assembled in China, the chips are designed in the US and the games we play upon them are written in Scotland. And the financing of all that effort runs through the City.

Now I’m fine with that, it’s called “comparative advantage” and David Ricardo published on it in 1817. But there’s pretty much no such thing as a “national economy” so worrying about the exact balance between the manufacturing bits and the service bits of some putative national economy looks a tad strange to me.

44 – ignore the substance eh? never heard of comparative advantage wherever you didn’t get an education from. Or is education too “ideological”?

The self-righteousness ignorance on this site is quite sickening. I come back every few months and quickly remember why I loathe it so.

@43 Tim Worstall: ”Fail, it ain’t a zero sum game.”

The first scenario that I described was a world where everyone inevitably dies. Citizens can earn money by exchanging back rubs and selling tofu, but when the physical stuff runs out, the consequences are obvious.

Tim, you’ve almost made a career of blogging about idiotic comparisons of “national happiness”. Happiness may be something that can be measured by economists or psychologists one day, but now the academic papers merely deliver laughs. Today we listen to songs from the 1950s and 1960s — so what works for you? Is it “Who Wants to Be a Millionaire” or “Money”? How do you measure “freedom”? (Didn’t somebody attempt a good try in the Guardian this week?)

“The first scenario that I described was a world where everyone inevitably dies. ”

And the difference between this and the real world is?

“Tim, you’ve almost made a career of blogging about idiotic comparisons of “national happiness”. Happiness may be something that can be measured by economists or psychologists one day, but now the academic papers merely deliver laughs.”

Who in hell was talking about “happiness”? Certainly not me. Utility, yes, but that’s what the very basis of advance is all about. An advance in total utility is an advance, a reduction in it is a retrogression. Sorry, do you think that is some weird idea or something?

“Today we listen to songs from the 1950s and 1960s — so what works for you? Is it “Who Wants to Be a Millionaire” or “Money”?”

Bernard Levin had this right. “The sieve of history”. Most times produce an awful lot of crap. What we listen to later are those few bits that aren’t crap. Take Five, Yesterday, You Can’t Alway’s Get What You Want……

“How do you measure “freedom”? (Didn’t somebody attempt a good try in the Guardian this week?)”

Wasn’t it Karl Popper who nailed this one? Positive and negative freedoms?

@50 Tim Worstall: “And the difference between this and the real world is?”

My world was purely hypothetical. I would not wish anyone to live in my hypothetical world. It was a thought experiment. In my imaginary world, everyone dies.

I acknowledge that you never used the word “happiness”; I am guilty in equating your expression “freedom, liberty or equality” with “happiness”.

Popper (or whoever) on negative and positive freedoms: They are important arguments for us all. Alas, given the craptaptitude of the Guardian website, I can’t provide a link to the commentary.

charlieman

just think…if everyone is bringing home the bacon and reaping the corn and dying young then result = misery. If someone can be freed up to discover fertilisers and medicines etc (the service sector), the remaining people in manufacturing will both live longer and not have to work to hard to support the guy in the service industry. result = growth.


Reactions: Twitter, blogs
  1. Liberal Conspiracy

    The hypocrisy over Cadbury’s is nauseating http://bit.ly/6F01U6

  2. Tory ReformGroup

    Kraft is £22bn in debt, sacked 60k workers in 10 yrs and raised some of the £7bn to buy Cadbury's via RBS http://bit.ly/6F01U6 (via @libcon)

  3. nicole brown

    Liberal Conspiracy » The hypocrisy over Cadbury's is nauseating: But scratch beneath the condemnation for Cadbury … http://bit.ly/6WYHGr

  4. Tabitha

    Great post RT @libcon: The hypocrisy over Cadbury’s is nauseating http://bit.ly/6F01U6

  5. Alex Naysmith

    ..>>7bn Kraft raised to table the bid were financed by RBS which is 84% owned by the British government. http://bit.ly/6F01U6

  6. Frank

    RT @amerimatryoshka: Great post RT @libcon: The hypocrisy over Cadbury’s is nauseating http://bit.ly/6F01U6

  7. Andrew Roche

    Liked "The hypocrisy over Cadbury’s is nauseating" http://ff.im/-eCk5f

  8. Edward Clarke

    The hypocrisy over Cadbury’s is nauseating http://is.gd/6JR05

  9. sunny hundal

    'The hypocrisy over Cadbury’s is nauseating'. This happens when you start worshipping the City: http://bit.ly/7flGrG

  10. luciobuffone

    RT @pickledpolitics: 'The hypocrisy over Cadbury’s is nauseating'. This happens when you start worshipping the City: http://bit.ly/7flGrG

  11. George Allwell

    Liberal Conspiracy » The hypocrisy over Cadbury’s is nauseating http://bit.ly/6F01U6

  12. Richard Smith

    RT @libcon: The hypocrisy over Cadbury’s is nauseating http://bit.ly/6F01U6

  13. Web links for 21st January 2010 | ToUChstone blog: A public policy blog from the TUC

    […] The hypocrisy over Cadbury’s is nauseating Claude Carpentieri's piece on Liberal Conspiracy asks why so many protest the loss of Cadbury's if they aren't willing to consider changing a jot from the kind of economy where this happens all the time? […]





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