 Well good afternoon. I sing to Tom a few minutes ago that my wife told me in the forecourts they have a tea room for the baristers and last week is a special concession to the warm weather they said the baristers may take off their jackets while drinking tea. So feel free to relax because the weather is terribly warm. The first thing would be just mobile phones can be nuisance if they go off, perhaps switch them off or turn them to silent. Now Mike's initial address will be on the record and the Q&A afterwards will be off the record and when we come to that when you ask questions we'll ask you to identify yourself. Now let me say just a few brief words introducing Michael Best. He's Professor Emeritus of Economics at the University of Massachusetts Lowell where he was co-director of the Center for Industrial Competitiveness. He set numerous academic fellowships and participated in development projects with the United Nations, the World Bank and governments in more than 20 countries. Mike really gets around. He's the author of the new competition Institutions of Industrial Restructuring which was published by Harvard University Press in 1990 and of the new competitive advantage the renewal of American industry which was published by Oxford University Press in 2001. Now Mike's latest book is this which was published just a few days ago. It's entitled How Growth Really Happens? The Making of Economic Miracles Through Production, Governance and Skills. It was published by Princeton University Press last week. Now earlier today in Seoul, South Korea, this book was formally awarded the prestigious Shumpeter Prize by the International Joseph A. Shumpeter Society. Previous winners of this prize which is awarded every two years have included Brian Arthur from Northern Ireland who will be known to many people in 1990, Richard Musgrave in 1992, Philippe Agion and Richard Lipsy in 2006 and Kun Lee in 2014. So congratulations Michael, this honor is richly deserved. Michael has had a long engagement with Ireland starting with lectures in ESRI and DCU in the early 1990s on his then recently published book. These were organized by Professor David Jacobson. David is responsible for bringing Mike to Ireland or bringing Ireland to Mike's attention. This continued with an invitation by the Northern Ireland Economic Council to give the 1995 Sir Charles Carter Memorial Lecture in Belfast. It was followed by his writing of a seminal report on Northern Ireland manufacturing using his evolving capability perspective and more recently in 2012 he worked on the economy of the Irish border region and Irish regional policy in path-breaking research carried out for the Centre of Cross-Border Studies. So this is a kind of informal launch of Michael's book in Ireland, an event important since a chapter in it places and interprets Ireland's development strategy alongside other international success stories. The book is available in all good bookstores and fittingly is priced competitively. Michael will address us for about 20 to 30 minutes and there will be lots of time for Q&A session and with respect to the Q&A session researchers find Chatham House rules rather inappropriate but these are the rules of the House and we'd ask you to observe them. Michael. Thank you for the introduction John and John is a co-author of the chapter on Ireland so the questions get too hard there John I hope you do well. It's really thrilled to be here and yes when John brings up that I do remember when David showed up before I knew him before he knew me showed up my parents house in Ellsberg Washington and and said Norm Best was there and he said Norm you have the same name as his book I've just been reading the new competition it's a really good book and so Norm said well what you make of it I couldn't understand it and he said it was written by my son but so in any case that's when the introduction occurred. Now so this is this is a new book and I titled it the making of economic miracles through production governance and skills in part because it well if you Google if you yeah if you Google economic miracles you will have you will find about 25 of them in a Wikipedia so there's all these miracles and he said well why are they called miracles and and the reason I'm afraid that they're called miracles is they haven't yet been explained by by the regular economic frameworks so there may be lots and lots of books and many many articles on the Great Depression and Keynesian economics and so on to do with that but you will find very very few around miracles such as that of the Second World War when US output doubled in about a five-year period and what was the economic policymaking there what are the implications for how we understand how economies work so that's so that's what I went about to do now examples would be have you gone trust in the 1950s I don't know if any of you knew but Greater Boston was in very bad shape it was an amazing amazingly similar in terms of industrial structure to that of Manchester what I mean is is history of textiles still textile firms large employers still in the 50s footwear the shoe is called and who made most of the of the machines for shoemaking around the world and so it had those old industries but in the meantime but the history since then has been wildly different and when I when I read Krugman wants to of course got no pro Nobel Prize for economic geography and increasing for economic geography and in his comments he has never written on on the Massachusetts quote miracle but he didn't say something's happened here there's an amorphous thing going on we're not sure what it is it was a fairly frank assessment of the state of the knowledge but anyway I think I've told the story it's in my book in chapter 3 and I won't do it now but the aircraft industry turns out to be another one where at the going into the Second World War the U.S. Air Corps Army Air Corps had 800 planes and when Franklin Roosevelt said in his arsenal of democracy speech which actually incurred 1940 but anyway he said we want to make 50,000 airplanes like 50,000 a year and you said another set of targets like that which said that can never be done but by the end of the war they'd made 300,000 airplanes and a little anecdote I sort of liked is some guys some pilots shot down over Germany in a B-24 liberator and he's he's shot down and and you get some Germans look at the plane and they say geez this plane is really backward technologically and the pilot says yeah but while you've been talking we made 25 of them and they could make one B-24 in the biggest factory in the world with a run they could make it that whole thing was set up within 19 months there were if you can believe this to make one of those planes it took 1.5 million parts nevertheless they were cranking out these planes of one per hour think of the supply chain that was involved in that and what they had to build in that supply chain so it began to realize this this is a miracle how they drove through the precision engineering the synchronization of all of those small companies around the place to be able to do that at a time when they lost 12 million people I should say lost 12 million people went out of the production sector or 12 million people went into armed services I should say so the fact of the matter was their labor they didn't they were actually had less labor but the fact and a big change in who was actually doing the work so as we all know women and many and people from agricultural sector came into the labor force so that was a miracle now thing is what's really interesting is once you begin thinking this way you say there was there wasn't there's another economics out there another economic history and I wanted to originally call the book let's see I want to call it how growth really happens the economics you were never taught but fortunately the editor at PUP said that's us that's a crazy title and I said well I was John's he said do that I agree with you and it wasn't a good subtitle but nevertheless that's what it is so I present in the book another history all together and it does start with with them with Adam Smith as well because what's really interesting about Adam Smith if we're gonna look at it from the second approach called the capabilities in the action paradigm or whatever that Smith himself did not buy into diminishing returns not turns out to be really important and so he was the first of these guys who began to think in terms of this possibility of increasing returns now Smith was followed by and this guy is my real hero I don't know if anyone here can recognize him from his photo it's terrible you can't but if anyone's here into the history of the computer then this is Babbage and Babbage wrote what I think is one of the most important books ever on economics called the economy of manufacturing machinery in 1832 and it was enough and out in many ways he and his little band of brothers there at Cambridge UK he was the Lucchese Impressor of mathematics but that's where they came up with this the observed systematic observation approach to doing research instead of the axiomatic or a priori you have the great brain and you think it's through and so on they came up with this other approach which which young Darwin attended Babbage's parties and so on was part of that and I won't go on about that but this guy Babbage in order to make his difference engine in his analytical machine the first real efforts to do the calculators and became computers he went around to every machine shop in the Greater Manchester area as well as everywhere else in order to get enough little factories that could in fact do do the machining at the levels of precision required he was a very good friend of the Whitworth and so on the great British engineers at that time and he was super impressed with what he called mechanical principles with the with the brilliant ways in which experiential knowledge now know how knowledge existed in in the hands and the minds of the people who are developing these new machines in the metalworking industries and so on around the UK but at the same time he was a scientist who wanted to integrate that with the knowledge of why the science side of it and the knowledge of what and so on the engineering side of it and and he impressed upon the UK government to in fact pursue a policy of investing heavily and integrating all these into a manual into a man what he used the term manufacturing system and when I first read him and I was after I been using for a long time myself the concept of production system I thought oh my god this is the first time I've seen someone I can you know a really really this is I love this this is fantastic he laid it out and the idea that you had to get a large investments in the science and technology infrastructure to be able for Britain was to be able to maintain its leadership in manufacturing at that time I got too long there so shorter but Alfred Marshall people don't realize this is a principle economics first book called principles of economics it's got a very very long it's got subbook center like a five subbook center some one of them is on organization and and he was a great fan of Darwin and and that's what he laid out this internal and external economies the external economies is really about increasing forms of increasing returns in the spillovers and knowledge Paul Krugman's work and I respect Paul Krugman enormously but he says the part of them the Marshall trilogy that we'll go into we won't look at the know-how part the spillovers because they're too hard to measure so we're going to look at the the fact that there's a labor pool a shared labor pool and the factor supplier relations anyway it's another story but he's a major figure Alan Young actually works on the undynamic increasing returns and then but here's another one of the Giants for me Babbage is a giant he's the theorist of production then we got a pen rose who writes a theory of the growth of the firm and from it's a it's a classic and I defined by classic it's a book that everyone knows about but no one's read and she wrote the the great great book on a theory of the firm theory of the growth of the firm and that's the book which lays out the capabilities perspective and the relationship between technological capability and if you got a certain capability then you are able to identify early on market opportunities if you then pursue those market opportunities you increase the capability the skills you have in your workforce once you've got them you're out of balance you better go look for another product another market to explore and so it's an absolutely pivotal book George Richardson put this into he became an economist who had a falling out with economics student of Hicks he sold all his books and became the editor head of OUP press we wrote a brilliant little article on what every firm does is they focus on their core capability and they partner for complementary capabilities so this is the basis of cluster dynamic processes of cluster dynamic process not clusters we want to look at innovative networked groups of firms so he laid out a neat little theory of that innovation dynamic and of course then here's the great man himself Schumpeter and Schumpeter brings many things to the story but the two that I really build on are he says look at you have to understand economies you see that there is these bursting influences but there's also enabling and and we're going to see how they fit together enabling side of things people don't realize that but second huge since he was Minister of Finance in the great Austrian inflation 1930s he knew all about he he had his concept of future values and that and that the financial system sector was the that was the he says there's the headquarters of the capitalist system the financial sector was because that's those allocations across sectors and so on and he said what what they have to do is bankers have to do is they had they have to learn to do really serious due diligence so they can figure out where the future values are because those future values won't come online if there isn't heavy investment in those projects so you can't leave him aside and and then of course inevitable here's the theory of the cities Jane Jacobs so now we've got we're doing good we've got theory of production over here we've got the theory of the firms and now we got theory of the growth of cities and and then and then a Brahmavitz an assistant in economic statistician to Kuznets during the Second World War he wrote the first of the growth accounting exercises which he looked at how much did labor contribute to growth in American history and how much did capital contribute to growth and he came to the conclusion maybe 13 percent the rest of it was a measure of our ignorance unfortunately that has become total factor productivity and any number of people won Nobel Prizes with macro models in which they just say this is what the total factor productivity was this this is what the this is what these coefficients were for technology but no theory of technology or theory technological change or innovation built into it and now so there's when miracles occur there's some kind of leadership always for a transformation and so you'd have to say the arsenal for democracy of Roosevelt and with messages miracle it have to say Ralph Flanders and I'm going to be short on time so I don't want to go into details but Flanders ran a machine shop in Vermont and then he decided he run for Congress and so I know he ran for Senate became a senator after a while he said I've had enough of this and became the head of the Federal Reserve Bank of Boston he basically almost single- landed Lee established the financial the uniqueness of the bottom of Boston's financial ecosystem it's not it's not an accident that George Dorio Dorio invented the concept of venture capital in the greater Boston area or that the chief economist at the Bank of Boston was in fact a shampoetarian or that Flanders associate in this project was Compton the head of MIT but then we come to Germany miracle your heart and your heart healthy Tiger and I could be in trouble here you all know more about I do but I think in a way the regime change was what he was about let's move away from protectionism on to open markets and that's gonna have to be the future the way to go production system the Toyota production system was Mr. Ono Mr. Ono took just in time from Ford which he said tirely he says what the Ford system is about synchronization and he said I've learned that from Ford and from American supermarkets I learned about Kanban and Kanban was the fact that we don't have a planning system to push material through the factory anytime there's a shortage of some of stuff a product then the person's the shop and we're consumer market they replace it once it's pulled off place it off so that means it's a pole system of pulling material through the factory rather than a push system through the factory and that that keeps a lot of our production planners from becoming alcoholics or drugs or worse because it can't be done and in addition many Japanese would say that the thing that most important they ever imported from the United States was the training within industry program training with industry program is a way to build that's what became known as Kaizen continuous improvement the quality awards that came out of that the TQM movement and so on that was all designed during Second World War. Social market economy in Deng he's learned how to in fact he's learned from Ireland he learned from Singapore Singapore learned from Ireland if you don't have your own science and technology infrastructure go go tap into another one somewhere else and use theirs things meant very good about that in China with the US but you do it through foreign direct investment makers of economics then we got the makers now this is Vannevar Bush who created the the US science and technology infrastructure during the war MIT had very very little funding of company development associated with before the war after the war it was entirely different that's why he's on the cover the scientists who won the war some like that of Time magazine then Kuznets as I say the economic statistician who as I was talking about earlier at the lunchtime who dictated that the invasion of Europe would occur in 1944 instead of 1943 and he was practically torn apart limb by limb really it was a real battle he had over the military planners he wanted to go in in 43 but he knew that Napoleon was not successful in going east he knew that Hitler would not be successful in going east if they didn't have a supply network a supply system in tow I only wish present UK governments understood the importance of supply networks in any case and this this of course is Sorenson chief engineer in the real brains behind the Ford system and this is someone who no one knows but Jesse Jones who was in charging the interwar period of the reconstruction finance corporation but you want to know how these future values were created during the Second World War that it was called the corporation defense no the CDC the corporation corporation defense no CDC anyway but they reconstruction finance corporation leave it there it's in the book we trip on it he they invested very very heavily the rolling mills that my dad worked in were actually built by the government funded by the government and so on sold after the war to Kaiser for a dollar but anyway so he was a big thinker he's there is Roosevelt this guy is the head of the manpower the war manpower commission but not and he developed and built the training within industry program which is still the best program ever designed and built for training and training more people and for introducing into the workplace the very idea is the Babbage promoted which I think I was the John Lewis model you better get the people involved who are working in the place and somehow bought into it otherwise you're not going to be able to make it work any case those are the kind of makers so we're going to look at at the three European studies and three European case studies and I got to say these are probably the ones that are my weakest but my personal knowledge but that's the best thing to do I think today and so the German miracle and the Middle-Stand now at the end of the Second World War Germany well Germany built the Middle-Stand system before German unification and so on but nevertheless they this this SME's and so how are the world are you going to build a powerhouse economy when we see you get the US model the US model is these very very big enterprises as we know and and then the Japanese were building these Kaiisha and going back to the Zybottsu and so on but now they were going to go with the Middle-Stand how do they do it now and so I'm going to look at the ways in which they built up extra firm infrastructures in order to convert and reposition the Middle-Stand and turn the Middle-Stand into companies that were entrepreneurial and I'm going to look at industrial decline and revival just do a client in the US and any revival so to speak and then the Irish tiger now if we and what I use all the time when I'm thinking about these cases and so on is this capability triad because I'm convinced from all the success stories around that you've got to think in terms of the interrelationships between the business organization of the business model and the production capabilities you can't say we're going to pursue a strategy of product and developing new products if you have not thought through on the production capability side what that entails and it requires a lot a whole lot of activities that are not part of production narrowly defined in terms of just getting the material out the door so you've got to make those connections and with skill formation those interrelationships and what happens in and in successful industrial strategies is they develop a set of policies that it's as if they are thinking in terms of the capability triad and the nature of those interrelationships that's that's the claim now so let's go to Germany in the German miracle and then they won't and immediate post-war period and so these are extra firm infrastructures as economic growth instruments that are the miracle now everyone knows about the dual vocational education system again it goes back to pre-unification of Germany the R&D system and innovation process people know that there's always a Fraunhofer institutes and Max Planck institutes and so on there's development capital one of the most important institutions there is KFW which is a Marshall plan that's in other words it went to use Marshall funding in the very first place it's still going because it keeps replenishing things but it focuses entirely on patient capital development then there's the the terrific and this is the same as in Massachusetts the machining subset the machining sectors machining and tooling sectors if a company is going to do technology management or new product development they need to have tooling and machines need of instruments Germany has probably the biggest sector of I think of as TIE tooling instrument making equipment making anything to do with with with getting the tooling things are changing now because I'm like an old guy now on software tools now nowadays of course but nevertheless and multi-level government now multi-level government is the pivotal thing here in many many ways because as a friend of mine from the Rurer told me you know we were got a huge benefit from the UK from the UK and the US governments to the end of the war when they said that the German state was no longer going to be powerful no longer going to be running industry no longer going to be you know using these cartels to do all the rest of this so what we're going to do we're going to demand that the Germans have what a very decentralized government structure so lo and behold they didn't really realize of course what they were doing was creating a new monster in the sense that local government with the power to convene really critical if you're going to grow this middle stone system and make it good you can get in the same room the people who are running the vocational education system the people who are involved in development capital the people who are involved in making the tooling that's required the people and and as well linkages to the R&D system so strategic planning goes on at the center of the government as it does in big multi divisionals but but there's a tremendous degree of operational decentralization with respect and it's really important because that's where know how he is that's where things that's where the makers can operate and so I suggest that each of those infrastructures so now the British strategy is now the British strategy is she we will have infrastructures a lot of infrastructure but they never once say relational infrastructures or how do we get these unified so that they're all part of a mission of advancing the capabilities of a region's enterprises and the thing that the German system has done so well is is it's got balanced regional development now this is pretty hard with Eastern Germany and we say that's successful entirety yet but nevertheless it's across the whole system that works now when we come to Ireland and we try to access the Celtic Tiger as I said before this was ingenious I mean I think it was ingenious and because they fully understood that they didn't have a legacy of engineering didn't have a legacy of industry for all their reasons you guys don't know whether than me and they have a legacy of building companies so but what they do across the ocean over there they got these companies places which in fact have got all set of complementary things going on and if they can and they say gee not a bad idea if we attach ourselves to that capability triad over there and if they're creating and because what Boston's very very good at early-stage technology development they develop new sectors those sectors grow fast but all those big companies like Boston Scientific like Deck was they only act the truth be told they only employ about you're not gonna believe me but 16 to 17% of their employees in Massachusetts so a lot of the this is this is offshoring without outsourcing this remote management so if you can build these world-class manufacturing sites and the regional technology colleges around them and the infrastructure that's required of both types then you can in fact link into these waves these technology waves as they come along the line so race data from amlog devices goes there to limberick wasn't it and becomes great friends with the guy running the regional technology college and we get Boston science so deck is in for a while in a very same plant that deck was in which creates systems engineering out of which comes a lot of well-trained engineers by the way and in parts of British and parts of Irish industry they that then becomes Boston Scientific so they do write the medical device wave and it was like a that is a great strategy you know that's a very rapid growth and everyone knows for a period of time it's fantastic now we got the UK another story all together and the UK a long history of industrial decline and the fact that there was from my viewpoint the UK very very good design engineering as we all know they've never done ever done production engineering that's not what they do and I'll tell you how I think I let me tell you an anecdote that makes the point I think in 1985 I wrote a letter to Ian Gibson who was then the managing director of Nissan up in Sunderland and I said mr. Gibson down here in London but I would love to come up and interview on supplier networks and why does the Nissan's coming to the UK because there's no supplier base left because you know no automobile industry here anymore there's motor sports valley that's no story and he said yeah come up man I was on the next train up there and and he told me two two of the most important things he told me was this one I said how you build a supplier network here says well truth is we're not he says but you know those guys over there he points to the Japanese guys and he says they think that General Motors is an old sick cow but Toyota is the is the global competition for Nissan and the fact of the matter is we think we can get one up on them because they have a couple closed supplier network we want an open one and maybe he had different language I can't remember but a closed one meant that Toyota designed all of her own stuff and sent it down their suppliers link and so these guys would then get the designs drawn up at Toyota headquarters and he says no ours is a different one we think we can tap into Bosch in Germany why because Bosch supplies Airbus the standards for quality are worth of magnitude higher than they are for a car they supply Ariane space shots the standards for miniaturization and order of magnitude higher than they are for Airbus we can tap into the knowledge base of Europe use this as a production platform and that could be a winner for us the our competition Toyota of course next week Toyota comes to town that is what then rebuild that's the revival of the British industry so for the very first time in British history there are companies now in Britain who understand mass production who understand world-class manufacturing who understand what it means to build a labor force around them and know they can do it anywhere and they know the principle interchangeability principle flow systems integration they're very good production engineers oh yeah good at it so then he said the second thing I really got from him which was I thought was really interesting was he says I can I see three different types of engineers he said and he remember this guy was in charge of a Ford plant in Spain before he took charge of that plant up this under the plant he said the British design engineers are really good but they're really bored with manufacturing or production I want to do that they can design new jet engines you know they can design this kind of stuff and but he says the Americans are different they they're not that maybe that great design is you know in a bad but they're more than willing to go through the kind of the prototype to getting the machining in place maybe do a prototype they're kind of bored by the time you're doing pilot projects and they're out the door by the time you're thinking about production these Japanese guys they're different they do all three they integrate it really well they're really per serious production engineers and he says they're good at that now where we come to where we come where we come to Ireland is that is a funny kind of thing there's kind of a way in which the wrong word is convergence but there's a way in which the UK stumbled on to the Irish guilty tiger industrial policy approach of foreign direct investment to build factories to build world-class factories but of course they never admitted to it they just saw that as a way to get foreign direct investment into the country they didn't want to say oh my god that's the reason why we've never done industry well here all gone down the tubes so they backed in now of course they're thinking well we don't really probably you know we probably not I don't know what they're thinking now probably that aside and about time anyway yeah so then we come to a blind spot this is the last slide a blind spot and and this was World Bank growth Commission did a big major study which they spent oh god knows how much money on 2008 and the head of it was Michael Spencer Nobel Prize winner and at the end they say the following oh at a fundamental level economic development is about the building of individual institutional capabilities but do not as yet model well and we do not have models that capture the parallel processes of learning and accumulating intangible assets I eat extra firm infrastructure that go along with measurable capital accumulation and income growth and so these guys I could have told them this if they did just picked up my book the new competition they got saved all that money and they all more than that they would have had some answers to these questions I'm sorry about that but I had included my wife said to me make sure you tell a joke and I'm not good at jokes but I try and tell something kind of funny that was meant to be funny yeah okay John I'm through