Globalization and France

French wine makers and grape growers are facing increased competition from foreign producers as the wine market becomes more globalized. What do you think is their response to the increasing amounts of foreign imports?

Cut costs? Rationalize production? Innovate? Wrong.

TERRORISM!!!!!

A few excerpts:

"Too much wine, it is known, can cause violent behavior. But few have gone as far as the grape growers of France's Languedoc-Rousillon region, the world's biggest wine growing area by volume. Hurting from over-production and cheap imports, and punished lately by the rising cost of gas, a small group of local wine growers has resorted to "wine terrorism" in a violent attempt to shock the French government into helping them."

"Those incidents are just two of many in a series of violent and destructive acts by local grape growers over the past three years that has targeted public and private buildings, supermarkets, tanker trucks hauling cheap imported wine, and businesses accused of gouging growers with ever-shrinking prices. Claiming responsibility: a clandestine group known as the "CRAV", or 'Regional Committe of Viticulture Action'."

Quixotic as it may seem to outsiders, the group — and many Langeudoc-Rousillon growers who support its aims while condemning the violence used to achieve them — want the French government to protect them from a rapidly globalizing market. Foreign wine from cheaper producers such as Italy, Spain, Australia, the US, and South America — where costs can be one-fifth of those in France — has saturated the market, and driven down demand for locally-grown grapes. That has depressed the price Langeudoc-Rousillon growers get for their crops by up to 50% in recent years.

That doesn't impress locals. "Many of these vineyard owners are committed to production and investment plans spanning 20 or 30 years," says one member of the regional wine sector who asks not to be named due to "the vivid tension" the situation has created. "These aren't operations that can change strategy or cut production overnight."

So, in the face of competitive pressure from foreign producers--producers that can make a bottle of wine 5 times cheaper (!) in some cases--the French wine growers turn to terrorism in order to protect their abnormal profits. I wonder how the non-wine growing Frenchman feel about this. Maybe they enjoy paying more for their wine? It really wouldn't surprise me considering the overall French attitude toward competition and the market economy (they famously reprimanded Amazon.com for shipping books for free. FOR FREE! Because it undercut domestic booksellers.) I just love the last guy basically saying that the wine makers overestimated in their long-run investments and that should serve to help their case for protection.

I really wish the article would have closed by explaining that trade facilitates a more efficient and effective utilization of all available resources. Without any protective barriers, some French wine growers will go out of business while others may have to make undesirable adjustments. Such is life in any environment where the future is not completely knowable or predictable. But the by-product of cheaper foreign imports are lower prices and higher quality products for consumers, as well as the capability to produce other stuff with the newly freed up resources that come from the inefficient and now defunct producers.

With attitudes like this, it is not surprising that France continues to have limited economic growth.

300mpg Car

I found the link to this on one of my favorite blog sites, Division of Labor.

The Aptera is a hybrid car that looks like something from a sci-fi movie, yet it seems to be on the verge of becoming a viable alternative to the vastly inferior contemporary autos. Click the link to watch a brief video showing off the car and its impressive features.

What Is Seen and What Is Not Seen

Drake Bennett in the Boston Globe recently wrote an article arguing that natural disasters can help facilitate and sometimes embolden a country's drive for economic growth.

He argues,

Rebuilding efforts serve as a short-term boost by attracting resources to a
country, and the disasters themselves, by destroying old factories and old
roads, airports, and bridges, allow new and more efficient public and private
infrastructure to be built, forcing the transition to a sleeker, more productive
economy in the long term.

Aside from the often terrible after-effects of earthquakes, hurricanes, and tornados, Bennett disregards the fact that if it were not for the destruction caused by these events then the resources employed in reconstruction would instead be employed in some other pursuit. Natural disasters always result in the elimination of some resources. Bennett's view has already been proven fallacious by Frédéric Bastiat. Writing in 1848, Bastiat distinguished between What Is Seen and What Is Not Seen. In part 1, The Broken Window, he wrote that economic life is characterized by finite resources; all resources that are economic are essentially scarce, and the destruction of any of these limited resources can only make man poorer. This is true because more of the limited resources must now be used to replace what has been destroyed rather than be used to satisfy some other human need.

Bennett qualifies his view that natural disaster can be beneficial to the economy by saying that the recently eliminated resources can be replaced by more efficient and technologically superior methods, which then result in a less wasteful utilization of resources employed in any particular pursuit, ie. an older factory is leveled and replaced by a state-of-the-art factory. Although Bennett cites Schumpeter's concept of "Creative Destruction" he fails to recognize the role played by the entrepreneur in that "Creative Destruction"! Entrepreneurs determine when it is more or less profitable to replace older methods of production with newer, more techonologically up-to-date methods. Using the interest rate, they weigh the net present value of the expected earnings that would be generated from a more efficient mode of production against the net present value of the depreciating older capital stock. Once the value assigned to the former is larger than the latter, then older capital is replaced. There is a natural mechanism inherent to the capitalistic economy that determines when it is useful to replace older, less efficient modes of resource utilization with newer, more efficient modes. And this method is aligned with the demands of all consumers in the market economy (through the interest rate), rather than by the arbitrary effects of a natural disaster. Natural disasters do not result in economic growth, and any evidence to support such a claim is merely a trick of statistics.

Creative Destruction in NYC

Follow the link to see a bunch of older photos of NYC and a few of the surrounding boroughs. Some of the pictures go back as far as the 1880s. In my view, getting a glimpse of pre-WWI shots of the economic capital of the world is worth taking a peak in and of itself. The architectural achievements of the people, in a time that pre-dated the automobile, where horsedrawn carriages were the primary mode of transportion, and seemingly every man wore some sort of bowler hat, are all the more impressive and spectacular. The degree of building development that existed back then is truly a marvel once one considers the, from today's perspective, primitive state of techonological development that existed in pre-WWI society.

Also, as I made my way through the collection it was interesting to read some of the advertisements. Many companies were featured that remain in existence to this day, though many in a far less vibrant position than they were surely in during the time of the photographs. Coca-Cola, Chevrolet, Ford, and Macy's are all still present in the current business scene. But there are numerous other companies, and even select services, that I had no idea ever existed and have since disappeared from the production scene altogether. These photos are a great indicator of Joseph Schumpeter's notion of Creative Destruction, and its influence on the progressive removal and replacement of old firms, obsolete processes of production, out-dated cultural norms, and upsetting of old social hierarchies, in favor of new enterprises, more efficient and effective utilization of resources, and newly formed and realigned social classes.

Again, check it out.