[MUSIC PLAYING] MARK BLYTH: From the Rhodes Center for International Economics and Finance at Brown University, this is the Rhodes Centre Podcast, I'm the director of the Rhodes Center, and your host, Mark Blyth. In the last few years, globalization has got an increasingly bad rap. Whether because of increasing geopolitical tensions, over high end chips, or the sudden discovery that when you ship your entire manufacturing base to someone else, it's quite hard to make things in a hurry, see the pandemic, people across the political spectrum are calling time on make it there. Ship it here.
It seems that politicians of all stripes want to roll back global supply chains and friendshore our wants and needs. The problem with doing so however, lies at the level of the firm, as has recently been pointed out by Jonas Nahm. Jonas is an Assistant Professor of Energy, Resources, and environment at the Johns Hopkins School of Advanced International Studies, and he's the author of the recent and most excellent book, Collaborative Advantage, Forging Green Industries in the New Global Economy.
In this book, Jonas examines how US, Chinese, and German firms, and the renewable sector, succeed by collaborating with each other. Far from one side eating the other's proverbial lunch, they find that collectively they can each collaborate, and in doing so more effectively scale up and roll out the green tech that we all need for decarbonization. He paints a picture of globalization that's quite different from the one held by many of its most vociferous critics.
And he also shows us that it's going to be one that's very costly to unravel. In this episode, I talk with Jonas about how private firms, domestic institutions, and national industrial policies mesh together to produce outcomes that are more than the sum of their parts. I hope that you enjoy the conversation as much as I did. Hi Jonas.
JONAS NAHM: Hi, Mark.
MARK BLYTH: It's great to see you back at Brown.
JONAS NAHM: Yeah. Thanks for having me back.
MARK BLYTH: So you've written this award winning and wonderful book, Collaborative Advantage. Let me try and put it in some context first. So we're at this moment where everyone's talking about deglobalization, we're talking about decoupling. Strangely, we're talking about Germany no longer being mercantilist but everybody else becoming mercantilist. We have this inflation reduction that has nothing to do with inflation, and has huge domestic content things we're back to a world of industrial policy. All of that seems to be coming apart.
Now that's weird for your book because in a sense, your book talks about the world before this happens. And collaboration and cooperation among firms from different countries, actually like a truly global scale, it's a very different take on globalization to a certain extent. But it has this real quality of, all of that's changed but your book is more right than it was before. In the sense that what it shows us is that you can't just deglobalize because you want to, you can't just pass an act of Congress and firms reorganize their entire supply chains.
Now, I think, this idea that you've got of collaborative advantage really speaks to all of us. So take us back to, if you will, the core of the book. What is collaborative advantage and why is it a different view of globalization from what we've usually got in our heads?
JONAS NAHM: So the book starts from the central puzzle that, governments around the world actually wanted to do very much what they're trying to do now. They wanted these industries to be entirely domestic, they were interested in wind and solar as domestic industrial projects, and they wanted to use industrial policy in Germany, and China, and the US, in similar ways to build complete supply chains for these industries domestically.
And what we got instead was a highly globalized systems of countries picking very specific parts of these supply chains and getting very good at it, and working with firms from other countries to make these products and bring them to market. And the Collaborative Advantage story is one that firms benefited from this kind of collaboration that was possible in the world economy, and as a result of globalization.
And that collaboration in that sense, allowed them to pick these distinct, national specializations even when governments didn't want them to do that, they wanted them to do everything. And so the view of globalization that I pushed in the book and that informs the way that I think about it, is different from, say, a view of globalization as progressive outsourcing and just sort of reaping gains from trade.
It's also different from a view of globalization that is primarily concerned about what globalization might do to domestic institutions and domestic-- can France still be France in the global economy? But it's a view of globalization that's very much informed by talking to firms on the shop floor and asking them what their concerns are, and their view of all of this is, this is great because I know how to make screws, and now I can work with someone else who knows how to make a hammer, and we can figure out a way to work together.
But I don't have to figure out how to make a hammer anymore because we have this collaboration. And so the stories you get from firms are really just stories about finding opportunities for collaboration that allow them to do what they've always been doing, and new, and better, and more productive, and hopefully, also more profitable ways.
MARK BLYTH: So what that really speaks to for me is, 20 years ago, a book that really reset the field of comparative political economy was, of course, the Varieties of Capitalism, a book by Hall and Soskice. And theirs was a firm centered political economy approach, but the firms were very much ideal types. And what we ended up with was a equilibrium/functionalist understanding of institutions and how they fit together because of the needs of firms.
You're actually dealing very much with, not just real types, real firms. And I like the way you set it up, where basically you said, OK, just think about how we do stuff in the world at this moment in this globalizing world. What does America do? America does in Hall and Soskice systems, radical innovation, tech, IPs, not very good at making stuff because we gave all that away. What is it that China does? Basically, they make loads of stuff, but they built on that and became much more kind of innovative manufacturers, trying to find ways to put things to scale.
And then you've got the Germans. And what the Germans do, is basically, give you the tools to do all their stuff. They are the custom shop, if you will. If you think of this is, if you've got cars as a hobby, you want to turn it into something else, you go to the costume shop, Germany is the costume shop. Add all that together, you've got a very different view of how globalization actually works. Can you unpack that a little bit for us?
JONAS NAHM: Yeah, the Hall and Soskice story is one where you have these national institutions that basically, sharply limit what firms can do in that particular environment. America does radical innovation because you can hire and fire workers very easily in a way that you can't do somewhere else. And so it's sort of the institutional system that's very hard to change, and that then determines what firms can actually do within that system.
And when I started talking to firms for this book, that's not really how they saw the world. They saw institutions as something that can help them do certain things. So it's a supportive infrastructure or ecosystem around them. And they also didn't use all of the institutions of the domestic economy. So the Hall and Soskice idea is that these institutions are interlocking and you're participating in all of them.
And the firms really saw them as a set of resources. So we have this training system, we have this financial system. We have some government policies that help us do R&D in certain ways. And the firms look at the global economy and see opportunities for getting involved in new things, and then look around. And say, OK, so here's what I already know how to do, I know how to make screws.
And which one of these institutions can help me make these screws for that global system? And so it reverses in a way that argument where globalization is enabling firms to take advantage of all the things that are around them, and become political advocates for those institutions as well because they retain value in these new industries and they're important to them. But it's a sort of bottom-up process where the firms are the ones that identify the institutions and they bring them to new economic sectors, and they make them relevant and applicable to new things.
None of the institutions that are important for wind and solar were set up with wind and solar in mind because these were new industries. I mean, we had not really thought about that. So maybe in the nineteen-sixties, there were different sets of problems that led countries to set up, I don't know the American Bayh-Dole Act in the '80s, set up sort of the way that you transfer technology out of universities. That wasn't about wind and solar but firms then later on use these institutions.
MARK BLYTH: Yeah. They're embedded in those institutions, and then they repurposed them in a sense.
JONAS NAHM: Exactly, and the institutions changed in that process because it's new actors, they're using them for slightly different things, but that's what keeps them alive. So it's not stagnant as a system, and it's not limiting, it's a platform on which you can reinvent yourself, but it also doesn't have that interlocking feature where the institutions keep each other in check, and so you can't really change them at all.
MARK BLYTH: Right, absolutely. So it's much more plastic. It's much more fluid in that way. And it's firms own strategies, not just for profit though, not just for competition and earning profit, it is you're actually going to be a vital part of what I do because I can't do that or I'm not going to invest in doing that, it's not worth it for me.
Let's talk about the German, and Chinese cases. Let's talk about the firm Goldwind, who do wind turbines in China. And let's talk about Schmidt, on the other side in the German case. How do they kind of mutually enable each other in this way?
JONAS NAHM: Well, so they're in two different sectors. Schmidt is the solar--
MARK BLYTH: Right, not directly, but what's the complementarity story if you want?
JONAS NAHM: Yeah. So the Germans basically, have this very long tradition of having a high degree of manufacturing firms that are family-owned, they're relatively small, they're actually not automated, they use very well trained manufacturing labor, they don't usually have an R&D department, it's the workers themselves that often give feedback on what things could be changed. So it's this very organic process.
And then you have China, on the other side, which focused on mass production, large production runs, huge plants, and R&D related to how to take a technology and then figure out how to make millions of it very quickly. And so the Germans in many ways, the firms like Schmidt that entered the solar industry from a history of making all sorts of other things, furniture, screen printers, for the semiconductor industry, whatever they knew how to basically make the production equipment that is very complex that you almost make by hand, that you don't model on the computer beforehand because you have to figure out how these things actually work in practice.
But that was precisely the kind of equipment that then allowed a firm on the Chinese side to go from making things by hand on small production runs to bringing it to scale and making these investments in mass production in these industries that hadn't really had mass production before China invented it.
And so that involved R&D and that kind of innovation in this very German style on the shop floor, but it also involved a lot of R&D on the Chinese side, sometimes changing the product architecture of technologies to make them easier to manufacture, sometimes working with the Germans on improving this production equipment in a two way street. And so China and Germany in these industries really got rich together. I mean, they entered them at the same time pretty much, and it was they were basically, solving complementary challenges based on these broader industrial ecosystems that they were part of domestically.
MARK BLYTH: So it wasn't zero sum against each other in the sense there were real complementarities, I'm going to make the stuff that allows you to make stuff, you're going to make that stuff better and take it to scale. Another important point that you show in your work, is that there's a very common narrative that, oh, China doesn't do tech, they can't innovate, and therefore, they steal everything, they break in your servers and steal. But in this cases that you're talking about, these were collaborative ventures with very clear, legal, boundaries and licenses. And both sides pretty much played ball, is that right?
JONAS NAHM: Yes. And that might be different in other sectors in China, but in these particular industries, so solar, was essentially, a university-driven technology based on very commonly known physical principles. So this wasn't a proprietary thing in the beginning. And actually, a lot of Chinese solar firms were graduates from Australian universities that went back to China and set up these firms, and so the knowledge was available in that sense.
In the wind industry, there was a lot of knowledge available for purchase of firms. The German firms that had developed certain things, but didn't have the capabilities and sort of the infrastructure to bring it to scale were willing to license it to a Chinese firm, and there are design houses that do contract design, so you can just order basically something for money.
And so this was often basically, a legal collaboration as well, and some sort of setup. And in some cases in really interesting ways, I interviewed one firm that had developed a certain generative design and they originally were making engines for street cars. I mean, there's a lot of this reinvention happening in these places, and they could never figure out how to incorporate a cheap fan model in this thing, and so to cool the generator, they licensed it off to a Chinese firm.
And the Chinese firm in this scale up, kind of redesigned the whole thing and they figured out how to improve that cooling part. And the German firm eventually licensed it back in a different way. And so there was really kind of knowledge traveling both ways because the Europeans also wanted to know how to improve their things, once they had gone to China and sort of been changed. And so I think that is very different from this story that China stole the global solar industry.
And if we look at the actual also production numbers here, there was very, very little solar manufacturing in most of the world until China came along. And so most of the increase was really in China, wasn't China sucking it out of the West and stealing it from us. They were the ones who invented mass production in these industries.
MARK BLYTH: So this really speaks to me and the stuff I've been interested in for the past couple of years in terms of growth models, something we can talk about because we've collaborated on this together. But it is this idea that and you just really nailed it there by saying, in Germany, there are these design houses. You have an industrial problem, you say here's my problem, they'll go away, figure it out, they'll give you the solution.
They don't, then build a giant factory and try and make a million units of it. That's just not what they do, whether it's geography, whether it's talent, or whatever that's just not it. There is a if you will national business model, they know what they're good at. And you license the ability, and those abilities to other places. China, on the other hand, basically, comes out in '84 doing cheap manufactures at scale, moves up the value chain. This is a kind of a natural next step for them.
Let's start to talk about when this all starts to go awry. On the one hand, you've got G comes in, well, perhaps not G bothers with the China Twenty Twenty-Five, we're going to be self-sufficient and all that stuff you need to start doing more R&D. And it turns out the firms are like, no, not really. We'd rather keep doing manufacturing because this is what we're good at. Talk a little bit about that.
JONAS NAHM: I think, it happens much earlier than she actually, I think, from the beginning there is this notion that these industries are going to be strategic industries of the future, and you want to have as much of those industries domestically including the core technological innovation. At the core of it, I'm the invention, if you will.
And so there are government incentives to do that. But the firms also are stretched thin, and they have limited capabilities to do new things. They're all very capable of learning, but you have to pick your battles especially, if this is a highly competitive environment because there are 10, or 15, or 50 other solar firms who are in the same position.
And so if you have the choice between building a completely new technology that you could also buy from somebody else or focusing on the manufacturing part, that no one else has figured out and that is a Chinese advantage. You're going to do that because it's just too risky to use your limited resources to try to reinvent the wheel and compete with others. And so firms are competing with each other all the time, but they're very strategic about who they're competing with.
And the Germans also have no interest in competing with China on scale because they know they're not going to win that battle because they don't have the institutions to support it, and they are operating in a town of 4,000 people somewhere in the black forest, and so it's unlikely they're going to get the workforce that would even be required to do this well. And so you get government hopes and industrial policy goals, but you get a specialization that's self-reinforcing because when you get good at one particular thing, all the other firms have to be as good or they need to get out of that business.
MARK BLYTH: So that sets us up nicely for talking about the current moment. And this is what I meant about your book being more right despite that no longer being true. If everything you're saying is true, it's not so much that we've got some really tightly coupled path dependent process, it's much more open than that. But you've got firms that know what they're good at. They constitute a sector or a particular suite of technologies.
And it's not based on the nation having a complete complementary set, so we can go from A to Z in solar. We can do this and when, and everybody can do the same, they all in a sense are mutually depend on everyone else. Then along comes, if you will, the geopolitics of the moment. And sort of in Europe, it suddenly becomes strategic autonomy because they get scared both by China and by Trump.
In the United States, it's the inflation Reduction Act and the Green New Deal, and we want to basically get back all the manufacturing that we basically shut down, outsourced, and gave away. And that's how we're going to do it. And then China itself seems to become much more autocratic and inward looking and trying to basically do all this at home. It's not going to work, is it?
JONAS NAHM: It's unlikely to work, but I think, it's especially unlikely to work on the time frame that everyone's envisioning for this. In some ways, I think, it's a very natural process to arrive at. So if you are relying on China for 97% of the world's wafers to make solar cells that you need to make solar panels, and you are in this world of increasing geopolitical tension that would make you feel very uncomfortable naturally, so.
And so there are some inclination to move away from that and to remove some of this weaponized, interdependence potential from these supply chains. The problem with the current approach to doing that is that we are setting a lot of goals, and we think we can give financial incentives for companies to do things differently.
But the reason companies arrived at these different specializations in the first place was because they had an institutional environment that allowed them to do certain kinds of things. And that was maybe less compatible with other strategies in the sense that what they already knew about the world and the institutions that support it, in Germany didn't lend itself to the mass production.
And in the United States, lent itself to having great startups with amazing technologies, but none of them really built manufacturing plants and figured out how to do that. And so in this current political moment where people are concerned about this interdependence and these divisions of labor in these different industries. What we're not yet doing is thinking, what can we learn from China's sort of institutional ecosystem that would help us be better at this stuff?
So we're putting local content requirements on products and saying, you have to make stuff here, but we haven't really had a good conversation about why we're not really making stuff here in the first place. And so as a result, these solutions are also not addressing the career problem that is there.
MARK BLYTH: Do we have the wherewithal to make the thing here that we're telling you need to have here?
JONAS NAHM: Yes. And that in a way is also not a new problem. I mean, we've had this conversation about Japan in the nineteen-eighties, and then on came IT revolution, and we made lots of money with computers and other things, and we forgot about manufacturing. But it turns out we were just distracted and we never actually addressed some of the underlying issues that have been there since the nineteen-eighties.
And I think, they are now coming back to the fore. Unfortunately, the debate is much less about the institutional structure that could support firms and be more of a resource for more different things, but more about the regulatory environment that we could use to force firms to come back without really answering that question.
MARK BLYTH: No. Absolutely. Now, remember, Trump's version of this, which was the executive order ordering American firms to come home, which was utterly meaningless. There was just no content to that. But there's stuff with more teeth now. I'm thinking, for example, not just of the IRA, the Inflation Reduction Act, no the Irish Republican Army, of course.
I'm thinking about that and then also thinking about from a couple of weeks ago, the fabs requirement the fabrication labs. If you're an American working in leading edge fabrication labs in China, stop it, under serious penalties. If we go down that road, do we in a sense make the weaponize dependence potentiality of where we are into an actuality? Do we end up hardening ourselves the further we go down this line?
JONAS NAHM: I think, we're hurting ourselves in different ways and different sectors. And I think, there are very different risks to this interdependence in different industries. And I we have a conversation as if they are all the same. I wrote a paper with a number of wonderful colleagues that recently came out in science trying to essentially, break down these risks for different industries.
And for most of them, there is very little national security risk, for instance, in clean tech, like your solar panels are not going to stop working tomorrow because of geopolitical context. You might not be able to buy more, but the ones that are here are still going to be here. And chips that might be different, I'm not an expert on the semiconductor industry, but there might be concerns about military dual use applications and so on that make that different. And so I think, it's a very sectoral debate and has very sectoral implications in that sense.
MARK BLYTH: So it's interesting that you ended with, that has different sectoral applications and they're very hard to see what they are because even though there is a division amongst large bits of the world now, but they want to decouple from each other. They all have the one singular problem, which is climate change. Which in the one hand suggests a cooperative solution, they should all be cooperating.
And they've all got known technologies with which they can do this. But if we were to think about your book, if we're to think about these different growth models, if you will, the different specialisms of different countries in terms of what they can do, et cetera, et cetera, how does the whole green transformation fit into this? Is China better equipped to do this, for example, than the US?
If the EU has a goal for strategic autonomy, it's also about doing effecting and effective green transition. Do they have the wherewithal to do it, or is it making the same mistake that we're doing with the IRA and saying, 40% of stuff will be made here we don't make that here, does it matter 40%. Is it that same kind of command and control impulse in there, or is it a different way of thinking about how different national models can basically be good or bad at this?
JONAS NAHM: I think, that we have a structural problem in these sectors, where two different trajectories kind of push against one another or maybe away from one another. And so the first is that, for all of these industries related to climate, we still need regulatory environments that are favorable. We're still transitioning away from an existing system that produced enough energy for us we just want a different system and instead.
And so we need public money to do that, and we need regulation, and it's very hard to convince politicians to do this stuff if they can't also promise some local economic benefits. And so this localization debate we're having is not primarily for security reasons, I think, it's for political reasons because you can pass these bills if you don't also say we're going to employ a lot of people in these factories.
The other trajectory that pushes the other way is that, we also have a very good, existing system for manufacturing these things very cheaply, and we don't have a lot of time. And so if we want to decarbonize quickly and meet these climate goals, we need to peak emissions soon. And so we should be putting as much of that stuff into the ground as we possibly can.
And so that doesn't mean we can't also try to make more of this at home, but it certainly means we can't blow apart the current system because we haven't figured out what that other system would look like. And so this tendency to try to want to make things at home and the time frame of the climate problem really are almost incompatible, and I think, that's the kind of tension that we're currently seeing in these industries, and then the politics around them.
MARK BLYTH: So in the talk today, you referred to that dilemma as a shift from collaborative advantage to conscious collaboration. You know you're still going to have to cooperate even if you don't like each other. One example of that you gave was, the simple dependence of the rest of the world on China for the basic minerals, and refined minerals in particular, for green tech. Let's push it as far as we can. Is decoupling ultimately a fun to see because even if you no longer do collaborative advantage you still have to collaborate on some level. Your firms just can't do it for you.
JONAS NAHM: I think, complete decoupling is unrealistic. I mean, it might be doable for certain military applications where basically, cost doesn't matter, and you don't have huge production runs, you need a few of these things. But for these mass industries, that are growing very rapidly in the demand for which is rapidly growing as well, I don't think it's feasible. It's not feasible in part because we have these geographies of raw materials that are a certain way.
We don't actually want to do a lot of the mining here because people don't want that in their backyard. So that's the problem, then we have this skill problem that we don't actually know how to do all of those things. And if we can build those skills, we can develop a great American vocational training system for manufacturing. We used to have one, but it's certainly not there now, so that can be done but not on the time frame we're talking about.
But even then, I think, the dynamic of building on existing strengths of specialization of a division of labor, it's a beautiful thing, right you don't have to be good at everything, you can focus on one thing and be good at that. I mean, that is a driving force of a lot of these collaborations between firms, and I don't think they're willing to give that up. Either because they don't have the tools, and the money, and the skill is to reinvent everything.
MARK BLYTH: And that I think, is what's really, really cool about the book. I started by saying rather than looking at ideal type behavior of firms, it's like what real firms actually do. If these firms ultimately can't be nudged or otherwise incentivized to do these things because either they're not willing to or literally in some cases they are unable to do the things that you're asking them, then in a sense a kind of like cooperative, fallback position has to be what you go on if you want to achieve your own goals.
In a sense, perhaps collaboration is more baked into the cake than politicians any will really want to admit, in part because that implies that all the promises you make of endless green jobs, et cetera, really might not be true.
JONAS NAHM: I mean, this has always been true. If you step back to realize your comparative advantage, you always needed to collaborate. Comparative advantage was never all encompassing, that was always there. You just asked me about this idea of conscious collaboration, and I think, we're talking about these things in very absolutist terms, it's almost zero sum.
MARK BLYTH: Are you doing this or are you doing this.
JONAS NAHM: Are we buying everything from China or are we buying nothing from China? And I think, that's not a productive debate to have for anyone at the moment. And so maybe a better path forward is to say, OK, it's reasonable for us to want to do more of these things domestically. We can sell this to people if we don't have anything to show for it in return.
So let's figure out what our other strengths might be, maybe there are some existing capabilities that we can work with, maybe there are some institutions in the Rust Belt that we can revive and strengthen and that will lead to different outcomes. Let's bring more of this stuff back and do some of it here. But that doesn't mean we have to cut all ties with China and make it very confrontational.
This division of labor broadly can be maintained, but we can shift it at the margins or quite a lot actually, and do more things everywhere, I think, that would be good for everyone and we're also doing this in industries that are growing at a very rapid pace. And so doing more here doesn't necessarily mean doing less somewhere else. So everybody can win in this game.
MARK BLYTH: So in a way what you're doing is something quite remarkable. You're making Chancellor Schulz look far sighted because he's still going to China, and still doing deals, and still doing other things, and he's getting a lot of political flak for it. But in a sense what he says is what do you really want us to do?
This is who we are. This is what we are as a country, this is how we make things, this is how we can do our thing. We're never going to produce at scale. We're not going to be China. We all lose if we don't do this. It's not a very popular message at the moment, but it may be actually paradoxically a more realistic one.
JONAS NAHM: Yeah, I think, it's very hard to extract yourself from that system without terrible economic consequences that then would be politically completely unsustainable. The question is, is China the only partner for these firms, and can we maybe find some other partners, and diversify our risk portfolio here a little bit? And so again, I think, we can have productive conversations about what does collaboration look like? Do we really need to buy 98% of solar wafers from China or are there other places that can also make them?
And so I think, the system can change. What I don't think is going to change is that, we will have global supply chains. And that, with all of the government wish to do that, we won't nationalize them entirely, I think, that's not going to happen.
MARK BLYTH: Thank you very much.
JONAS NAHM: Thank you for having me.
MARK BLYTH: This episode was produced by Dan Richards, and Kate Dario. I'm Mark Blyth. You can listen to more conversations like this by subscribing to the Rhodes Center Podcast, wherever you listen to podcasts. We'll be back soon with another episode of the Rhodes Center Podcast, thanks