From my experience in Industry the transition from oilfield services to aerospace will not be practical. Sure, engineers from both disciplines study fluid mechanics, but the transference of skills is just not there. Oilfield services makes sense because it is a sunset industry in the west so no one will care if some foreigners overpay for a coiled tubing outfit in Moose Pasture Alberta. Second, oil will still be around for a couple of hundred years just in decline. There will be enough demand for oilfield to make huge rewards.

Another factor to look at is cultural. Given the lack of interest in actually doing physical work (why Saudi Arabia has guest workers with high unemployment is bad policy) maybe the Gulf states should pick industries that are culturally acceptable, like baking and trading. Buying up the back offices of every City and Wall street firm and next Main street firms looks like a better fit to me.

Don’t get me wrong – i understand and respect Abu Dhabi’s goal to diversify. I just hope they do it right. There are plenty of good examples of failures for what not to do and I feel they are picking the wrong road.

I don’t have anything ideologically against it, but it turns out that in many, perhaps most, cases, trying to keep an industry closed for strategic reasons turns out not to be in the national interest. What tends to happen is that you end up with a heavily subsidized industry producing products that no one wants to buy that does nothing real except eat up resources that could be used for other things.

zero: But to the point at hand – building airplanes really makes no sense for Abu Dhabi. They should dust off Micheal Porter and try things like oilfield services and construction.

UAE is a hub for oilfield services and construction. Halliburton just moved their world headquarters from Houston to Dubai.

The trouble with oil services is that the oil is going to run out in about 20-30 years, and you have to have a strategy for what to do then. I agree with ST’s point that creating an aerospace industry is hugely complex, which is why if the UAE or China wants to have something in place by 2040, it has to start investments now.

Part of the reason I think that aerospace is a good fit for UAE is that it can take some of the expertise it has in oil services. Oil services is an extremely high technology, government regulated, high capital industry with large parts that are safety-critical. Some of that expertise can rub off on aerospace.

But to the point at hand – building airplanes really makes no sense for Abu Dhabi. They should dust off Micheal Porter and try things like oilfield services and construction. Value add in your particular area is the way to go. As a Canadian We have seen way to much export of raw logs and importing furniture, exporting pulp and importing paper. And even more galling for a Canadian is most of the technology involved in a sector like Forestry is Scandinavian, or more importantly not Canadian.

So if it was me. I would buy Schlumberger and a host of smaller oilfield service firms and start to quietly corner a few niche markets here and there, transferring technology the whole time. Use connections in the Gulf to squeeze out competitors, and use that as a base to start dominating other oil and gas producing areas.

This might be a bit too mundane for the big thinkers on this board, but it is the sort of hard work that is needed to create a value add cluster. Paying Hollywood to produce a few movies will not make Abu Dhabi into the Hollywood of the Gulf.

But best of luck to them.

Twofish is right in a sense; had a real easy time getting from US$ to RMB, but the other way round was a complete nightmare and was just getting my money back. the only unofficial way was to carry all in cash out of the country (praying that counterfeits weren’t any significant part of the cash) and exchanging in your local friendly currency exchange…

the first signs of trouble will be where transfers of profit (eg transfers to HQ ) accelerate in amount and frequency, probably will guarantee you a visit from all the local bureaucrats though, why? are you thinking of the ‘ole factory sideline?

twofish

think rien may be referring to bretton woods II though that reference has always seemed hazy, help anyone?

as for the consequences, probably not so unforeseen. Just that the key flows and direction were going in (some cases) opposite directions. My university years included continual “harassment” by conscientious parties/individuals hoping to rope in more fellow protestors for demos against globalization amongst other causes; and that was in the mid 90s.

The world is a very different place, in part because globalization has turned out to be more of cerberus than the friendly golden retriever. Would Adam Smith have approved of trade as seen today? Fair trade – does it exist and fair to who or what?

totally beyond my brain capacity…

I don’t think that there was very much of a post-WWII economic consensus. Bretton Woods didn’t break up in 2008, it broke up in 1973. ITO failed in 1950, and we didn’t have a World Trade Organization until the 1990′s. The “Washington Consensus” happened in 1990 rather than in 1950. Throughout the 1970′s the prevailing economic ideas were either “social democratic” in Western Europe, “Marxist” in the Soviet bloc, and the “developmental state” in much of the third world.

The “free market consensus” really didn’t happen until Reagan-Thatcher in the 1980′s, and it wasn’t until the 1990′s that you have that consensus being accepted by the Clinton-Blair group.

So what people talk about “consensus” and “agreed rules of international trade”, my response is “what consensus?” “what agreed rules?”

Huizer: The point is, free trade or rather universal absence of discriminatory economic intervention (to include absence of “strategic” investment by states in other countries) is investment ) is a theoretical concept that requires a set of enforcable international rules.

It actually doesn’t. The thing about trade is that it by definition leaves both sides better off, because if it didn’t, they wouldn’t trade. The thing that is tricky is defining exactly who the “sides” are, and making sure that the “sides” that are making the no-trade/trade decision have the “right motiviations.”

Huizer: That was the environment we were looking forward to some 15 yrs ago and it has simply not materialized.

I think it has. It’s not a glass half-empty/glass half-full situation. It’s 90% full. I think that most of the stated objectives that people interested in freer trade in 1993 were looking at have been achieved, and it is in *dealing with success* that we have the issues of today. The issues that we are looking at today are consequences (in many cases unforeseen consequences) of the success of globalization.

In any case, it’s not 1993, it’s 2008 and the world is a very different place.

So don’t even try, What you really want to do is not do everything in one country, but set up an environment so that lots of key parts and people end up in your country.

The hard part about aerospace is that everything has to work right or else really, really bad things happen. It’s different from things like consumer software, where if you have a bug in a program, people get mildly annoyed. If you have a bug in an avonics system, then things just start blowing up.

ST: ltimately they will contract out crucial and large pieces like the avionics (brain of the aircraft).

Or alternatively, they can develop expertise in a crucial bit and contract in.

ST: I have been in this industry for 10 years. The Economist recently had a good article on this subject making the exact same point wrt China’s planned effort.

But then you have to ask “what are the alternatives?” and “what are they really trying to do?” In the case of China, China is just not going to make better planes than Boeing in the next twenty years. It’s just not going to happen. However, given that reality, what should China do? Boeing is just not going to provide China with the latest fighter jets or critical project management and technology. So should China just give up and do nothing? I don’t think so.

I think that China should just try to do its best with what it has. It’s not going to beat Boeing in the next decade. But if it can get *something* up and flying, that will be in China’s national interest since it means that some of the key people and technology are going to be Chinese.

One other thing is that aerospace is as far from your standard concept of “free markets” as you can get, since the whole entire system is basically government run.

As Airbus and Boeing will tell you from extensive experience, it won’t happen. You simply cannot encapsulate the entire effort in any one country. For one thing the technology is far more complex than people estimate. No one does this today, no one. Malaysia learned a costly lesson and China is going to learn an $800 billion lesson on this as well. Ultimately they will contract out crucial and large pieces like the avionics (brain of the aircraft).

I have been in this industry for 10 years. The Economist recently had a good article on this subject making the exact same point wrt China’s planned effort.

Belatedly, yr #15. You are entirely right and if you are looking for evidence in an American context that SWF activities can result in cross border trade intervention, you are entirely right as well.

But most probably, no democratic (or at least no public governed by a government not openly predatory) (educated or not) will consent to politicians who do not try to gain a “free” (i.e. one without costs caused by retaliation of other costs for the local taxpayer) unfair advantage for their constituents. In the EU there are many rules that the local police is supposed to enforce (for instance fishing quota). The thing to do as local politician (to get votes) is to enforce only weakly (not t all would not do) and signal to the public that you deserve credit for that. All you lose is the green vote, which is necssary only incidentally, and then only for social democrats, a movement in decline. Not very different from what the people in Mississippi expect their local reps to do.

The point is, free trade or rather universal absence of discriminatory economic intervention (to include absence of “strategic” investment by states in other countries) is investment ) is a theoretical concept that requires a set of enforcable international rules. That was the environment we were looking forward to some 15 yrs ago and it has simply not materialized. Too many locals not believing in the growth of the pie and too many wanting a bigger share nor. Plus national prestige, plus proper work for the
elite etc. Plus a lot of poor who expect their government to do things hat are impossible.

The SWF world is the one that is finally replacing the post WWII consensus, consisting of Bretton Woods international finance, decolonization, UN, GATT, plus the stability of a bipolar international system and the non-aligned countries economically irrelevant or captive. Unfortunately, the US could not behave in a Wilsonian fashion due to its political system (predictable from the aftermath of WWI), the USSR committed suicide and various technologies (containers, communication, jet engines) combined with the greed of western workers to make high cost low tech western workers redundant, now finally resulting in a draconian choice between protecting Michigan or Pommeranian workers and accepting lower growth with more inflation (after a while), or having large groups of voters without the financial resources and status (the dole does not replace earned income psychologically) for whom the labor market does not provide space, except if they move to the Pearl Delta or Shenyang. I do not believe that FX adjustments (market- or administrative) are the best way to overcome this situation. What they do is get the politicians in the affected countries off the hook, a bit like central bank credibility does with the policy space of politicians historically associated with intervention and keynesianism.

Probably we should accept that there is a conflict between China and India (for instance) gaining big improvements in their standards of living via labor cost arbitrage (by shipping embodied low labor costs) and western countries maintaining their existing standards or even aspiring to improvement. Since there is no conflict resolution mechanism and the power that could have created a global order (or benevolent empire, whatever you like) has failed to do so (and may not get a second chance, but who knows), we are exposed to the world becoming increasingly anarchic.
In such a world, dealing with SWFs becomes primarily a domestic problem. For a New Yorker working for Goldman, there should be no protection. For a Californian aerospace worker, there might be a dire need. May the best man win!

If you want to convert large amounts of USD->RMB, all you have to do is to start a factory in China. You can convert as much USD->RMB as you want to pay for the expenses for that factory.

bsetser: China tightening controls on inflows, and USD to RMB is an inflow…

They are tightening things up in the sense that now if you say that you want to convert lots of USD->RMB to start a factory, they’ll make sure that you really are starting a factory.