Maritime Business and Economics

Asian Perspectives

Okan Duru, Okan Duru

• Publisher: Routledge
• Year: 2018
• ISBN:
  9781351983341
• Edition: 1
• Topic: Business
• Subtopic: Imprenditoria
• Index: Business

Asian shipping entrepreneurship relies on strong ties between private entities and public institutions (i.e. governments). This book examines the growth and sustainability of the Asian maritime world through the lens of the Asian cultural code, its social and institutional economics as well as its unique way of public governance. The book addresses the economics of maritime industry in a broader stroke to include ship owning, shipbuilding, port operation and its links and collaborations to other industries from a refreshing perspective.

The book also examines major maritime nations of Asia in three dimensions: history, strategy (also policy) and the current state of the maritime industry. The relationship between Asian shipping giants and public institutions is also explored, along with the recent developments and challenges of the regional maritime industry in the era of a marine tech boom, upsizing tonnage and environmental debates. Its comprehensive overview of and unique approach to the subject makes the book a valuable reference to anyone interested in the topic.

1

Introduction

Okan Duru

According to Hobson (2004), major developments of Europe in the early-modern age and the contemporary age were significantly led by the assimilation of Eastern inventions through oriental globalism, and Europeans appropriated many Eastern resources. Hobson predicates this provocative argument as follows:

The East enabled the rise of the West through two main processes: diffusionism/assimilationism and appropriationism. First, the Easterners created a global economy and global communications network after 500 along which the more advanced Eastern ‘resource portfolios’ (e.g. Eastern ideas, institutions and technologies) diffused across to the West, where they were subsequently assimilated, through what I call oriental globalisation. And second, Western imperialism after 1492 led the Europeans to appropriate all manner of Eastern economic resources to enable the rise of the West. In short, the West did not autonomously pioneer its own development in the absence of Eastern help …

(Hobson, 2004)

Although Eurocentrism and Orientalism have been accorded particular interest in Hobson (2004, 2012), he also challenges the dichotomy itself, since different forms of Eurocentrism have been experienced throughout the history. One way or another, Asian civilization played a preliminary role in the enlightenment and advancement of the Western world. It is just one or two centuries ago that China and India accounted for more than 50% of world’s GDP (gross domestic product). The California School of Economic History emphasizes the fact that the modern framework of economic history and history of economic thought only originated along with industrialization in the last few centuries (Pomeranz & Topik, 2017; Vries, 2010), while China and India lost their superiority in the long history of preceding centuries (and are currently in the process of recovering it back). In a similar vein, the California School confronts the Eurocentric perspective while avoiding “simple-minded anti-imperialism” (Pomeranz & Topik, 2017). So, the search of Hobson (2004) or the California School stabilizes and removes the bias from the mainstream interpretation with a broader and more historical angle.

This book opens a new chapter to the framework of maritime economics and business history, through the investigation of the commercial history of maritime industry in five major Eastern Asian clusters, including Japan, South Korea, China, Taiwan and Hong Kong. The main argument of this book is that the Eastern Asian perspective of maritime economics and business is somewhat different from the experience of the Western world. This is not a provocative dichotomy that the book promotes for the sake of populism. It is another look at the essential ideas of maritime economics, setting aside the framework originating from neo-classical research programs of economics relying on individualism (i.e. rational actor) and mechanical idealism (Henry, 2012; Morgan, 2015, among others). Each maritime cluster will be investigated in three chapters (for each represented nation/city); namely, (1) history of maritime industry, (2) maritime industry strategies, and (3) contemporary issues and challenges in the 21st century. Our journey will begin with the historical background and foundations of modern maritime economics of the Eastern Asia. In these chapters, readers will clearly notice that government intervention or strong ties between corporations and governments is a unique characteristic of the Asian perspective. Another essential character of Asian shipping firms is the large corporations composed of various business units including those shipping firms themselves. Shipping companies have sometimes been the starting point of huge business groups (for example, Kawasaki Kisen Kaisha, also known as K-Line), or they have been purposefully established at the initial stage to meet the transportation needs of a business enterprise (such as Hyundai Merchant Marine, also known as HMM). In the strategic angle on maritime economics and business of the Eastern Asia, vertical and industrial integration is like a cultural business code of the Asian perspective, which is later adopted to a degree by some European shipping groups such as Maersk Line. Gerlach (1992) prefers the term, “alliance capitalism”, in relation to Japanese industrial organizations established in such a way. The Asian perspective on the maritime industry has a distinct influence on industrial strategy and organization. Finally, this book does not argue that the Asian perspective is especially gifted or error-free. A chapter for each cluster will highlight current issues and challenges as well as counter-measures taken against those disruptive changes and global economic cyclicality.

1.1 Institutional economics and developments in the Eastern Asia

It is obvious that European countries have established various institutions to organize and develop shipping business from a commercial perspective. Business associations and societies were established in Europe much earlier than in any other regions of the world. Among many other reasons, mercantilist and conservative policies played a significant role in economic growth in the 17th to 19th centuries. Ha-Joon Chang, a political and institutional economist at Cambridge University, criticizes the indoctrination of free trade policies to undeveloped or developing countries (Chang, 2010), asserting that this eliminates industrial development in those countries in the long term. Chang (2010) emphasizes the impact of navigation acts (both British and U.S.) in protective trade policies.

The Navigations Acts of 1660 and 1663 (the British Navigation Acts) established a virtual monopoly and mercantilist basis of trade until 1849 (officially), the repeal of the act. The act fundamentally proposed that trade (both import and export) from the British Colonies was restricted to British ships that were under the control of British owners and sailors. As a result of this monopoly in the shipping business, London strengthened its centrality in the maritime industry while challenging Dutch shipping firms in overseas seaborne trade. The political outcomes of the Navigation Acts are numerous, including the American Revolution (Ransom, 1968; Walton, 1971). Adam Smith in his magnum opus, An Inquiry into the Nature and Causes of the Wealth of Nations, justifies the Navigation Acts (Smith, 1776). Adam Smith is known as the father of modern economics (“political economy” in his time), and he was a strong advocate of free trade. Therefore, he is known as a free trade economist. Going against the prevailing wisdom of his age, defending free trade policy was an extraordinary and provocative position. However, Smith (1776) also defended the British Navigation Acts, which is a completely protective policy, and argued that it was the wisest commercial regulation:

… if foreigners, either by prohibitions or high duties, are hindered from coming to sell, they cannot always afford to come to buy; because coming without a cargo, they must lose the freight from their own country to Great Britain. By diminishing the number of sellers, therefore, we necessarily diminish that of buyers, and are thus likely not only to buy foreign goods dearer, but to sell our own cheaper, than if there was a more perfect freedom of trade. As defence, however, is of much more importance than opulence, the act of navigation is, perhaps, the wisest of all the commercial regulations of England.

(Smith, 1776)

The Navigation Acts significantly improved the maritime cluster around London. For example, the Virginia and Baltic Coffee House (i.e. the Baltic Exchange) was a meeting point for traders, shipowners and shipbrokers to match cargoes and ships in colonial trade routes, and today the Baltic Exchange is still a major global institution for pricing shipping services.¹ In contrast to trade and economic institutions, academic institutionalization arose much later, by the mid-1900s. While higher education in the shipping business grew dramatically in the second half of the 20th century, academic societies appear in only the last quarter of the century on a global scale (for example the International Association of Maritime Economics – IAME – in 1992).²

Many Eastern Asian countries had similar institutions by the 1900s. In 1921, the Japan Shipping Exchange (JSE) was established in a similar structure to the Baltic Exchange, with a much broader definition of objectives and activities (currently JSE does not function as a traditional shipping exchange; it is an active maritime industry center publishing various magazines and documents in addition to standard charter party forms, maritime arbitration and so on). Academic societies in the shipping business and maritime logistics research appeared by the mid-1900s. The Chinese Maritime Research Institute (CMRI) of Taiwan is one of the earliest examples of such institutions, and was established in 1951, a few years after the Republic of China formed in the island of Taiwan. The first Asian academic society for maritime economics and business research appeared 41 years earlier than the first international association (IAME). The Chinese Maritime Institute (Taiwan) was also established in 1962. The CMRI is one of the most active maritime research institutes in Asia. The Japan Society of Logistics and Shipping Economics (JSLSE) was established in 1966 after the formation of two supporting institutions, Kobe Maritime Research Society (1953) and the Tokyo Maritime Research Society (1957). The Korean Association of Shipping and Logistics (KASL) is another academic research organization, which was formally established in 1982. Two years later, the Korean Maritime Institute (KMI) was established, today a large-scale organization with hundreds of experts conducting research on various topics in the maritime industry.

The above-mentioned institutional developments explicitly indicate that maritime economics and business resefarch has been of great interest to scholars and national maritime industries from very early on, soon after World War II. The formation of such academic societies gives clues to the number of Asian scholars particularly engaging in maritime research. Although there is a significant volume of research in maritime economics and business from the first half of the 20th century, the vast majority of those publications were written in domestic languages (e.g. Chinese, Japanese), and therefore, publications of early studies in Asia were not disseminated internationally, although some were translated to English in the second half of the 20th century. For example, Tetsuji Shimojo (1930–2009), a leading Japanese shipping economist, published his English book titled Economic Analysis of Shipping Freights in 1979. He also published a bibliometric paper titled “Quantitative Analysis on the Shipping Markets-A Survey of Studies Weighting on Japanese Works” in 1973. Yasukichi Yasuba (1978), a Japanese political economist, revisited the productivity in ocean transport in a similar vein with Douglass C. North (1958), one of founding fathers of the institutional school of economics (The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, 1993).

Shipping business is always thought to be an essential focal area for national development and economic growth in Asia. Japan, South Korea, China, Singapore, Taiwan and Hong Kong adopted this principle through several facets of public administration. These six Asian nations created an ecosystem which is slightly different from that of the rest of the world. An essential difference can be seen on the industrial organization and the role of public institutions. Chang provides an interesting account of government intervention in Singapore:

If you read the standard account of Singapore’s economic success in places like the Economist or the Wall Street Journal, you will only hear about Singapore’s free trade and welcoming attitude towards foreign investment. You will never hear about how almost all the land in Singapore is owned by the government, while 85% of housing is supplied by the government’s housing corporation. 22% of GDP is produced by state-owned enterprises (including Singapore Airlines), when the world average in that respect is only about 9%. To put it bluntly, there isn’t one economic theory that can single-handedly explain Singapore’s success; its economy combines extreme features of capitalism and socialism. All theories are partial; reality is complex.

(Chang, 2014)

The case of Singapore is not an outlier in Asian continent, but rather a cultural and regional reality. Even in non-governmental corporations, you may find the essence of socially organized and publicly oriented structures. Gerlach (1992) investigates the industrial organization of Japanese corporations including three giant business groups: Mitsui, Mitsubishi and Sumitomo (otherwise known as Keiretsu groups). Each of these business groups owns of one of the big shipping firms, namely Mitsui O.S.K. Line (MOL, Mitsui Osaka Shosen Kaisha), NYK (Nippon Yusen Kaisha) and K-Line (Kawasaki Kisen Kaisha) respectively. In each business group there are banks, trading firms, steel industries, ship builders and petrochemical industries, among others, and each company operates in its own market and individual accounts. The industrial organization of Japanese business groups, and shipping companies as their fundamental components, has established a relatively sustainable (somehow risk free) trading ecosystem. Therefore, MOL, NYK and K-Line can make long-term agreements in a less aggressive business environment and achieve win-win deals (See Section 3 for more details on shipping business strategies in Japan).

1.2 Another look to maritime economics

In this book, historical developments will be investigated, in particular for the Eastern Asian nations. In that context, a large part of this book can be seen in line with the historical school of economics, which emphasizes the role of social order, culture, historical background and so on. Among various perspectives in economic thought, the historical school has strong ties with the institutional school and shares two fundamental motivations (in addition to other similarities and differences). The first and most critical distinction of these two economic schools is inductive reasoning. The neo-classical research program of economics employs some theoretical instruments such as equilibrium or rational actor assumption to compose narrative of economic phenomenon. The neo-classical narrative can be found in classical readings of maritime econom...