The World is Asymmetrical: Davos, Globalization and the Safety Match
by Charles Lemos, Thu Jan 29, 2009 at 09:31:32 PM EST
It does not get much more humble than a safety match, but through its history the forces at work in globalization are rather clearly demonstrated. The world's match industry dates to the nineteenth century. In 1827, the friction match was invented by a British chemist John Walker using potassium chlorate and antimony sulfide on the burner side. In 1844, two brothers in Sweden, Johan Edvard Lundstrom and Carl Frans Lundstrom, established a match factory in Jonkoping to manufacture lucifer matches. The lucifer match had a fatal flaw however, it ignited too easily but in 1855, Johan Edvard Lundstrom invented the Swedish-style safety match, the same match that we use now, by separating the combustible ingredients between the match stick head and the striking surface using newly discovered red phosphorus. For most of the rest of the nineteenth century, Sweden and then Japan (Makoto Shimizu went to Sweden in 1879 and brought back the technology) would dominate the global trade in matches but even so the world's match industry through 1914 is best described as autarkic. Local demand was largely met by local manufacturing.
As a result of severe competition prior to the First World War, the Swedish match industry underwent consolidation from 20 to two companies. One of these two surviving companies, Aktiebolaget Förenade Tändsticksfabriker (Förenade), was led by Ivar Kreuger. Between 1913 and 1932, Ivar Kreuger, who came to be known as the "Swedish Match King," would turn his small, family-owned match business into a $600 million global match empire. By 1917, Kreuger formed the Svenska Tändsticks Aktiebolaget, or in English, the Swedish Match AB (the company formally changed its name to the English version in 1980).
Despite the economic upheavals and political disruptions of the interwar period, Swedish Match had manufacturing operations in 36 countries including monopolies in 16 countries controlling nearly 60% of the world's match production. Kreuger's companies lent over $300 million dollars to governments in Europe, Latin America, and Asia in exchange for national match monopolies. Relying on international capital markets to finance acquisitions and to secure monopoly deals, by 1929 the stocks and bonds of Kreuger match companies were the most widely held securities in the world, including the most widely held in the US. When Kreuger committed suicide in 1932, forensic auditors discovered that Kreuger had operated a giant pyramid scheme, commonly called Ponzi schemes. His accounts were ridden "with fictitious assets, the truth hidden in a maze of over 400 subsidiary companies". Swedish Match's deficits exceeded Sweden's national debt. Funny how things just don't change though Bernard Madoff is sadly still alive.
In the postwar period, the global match industry stagnated and would begin to face increasing competition from lighters. Svenska Tändsticks AB decided to look for new areas of activity and expansion into other industries. The company would begin to focus on the forest industry as its principal industrial line in conjunction with match production. Product groups as paper, board, wallboard and chipboard were emphasized. The company acquired a disposable lighter company, Poppell, in 1981. This was followed by the acquisition of Cricket from Gillette in 1985. The German floor company, Pegulan, and the UK blade manufacturer, Wilkinson Sword, were acquired in 1987. Meanwhile the company was sold and merged from one large industrial holding company to another. Since the 1980s, the company has been owned by the Nobel Group, the Wallenberg Group, the Stora Kopparberg Group (a who's who of Swedish capitalism) before coming to pass into the hands of Nederlight BV, a consortium comprising Italian, British, Nigerian and Dutch interests in 1990. In 1992, the company would be acquired by Procordia AB, the Swedish packaged food conglomerate that in turn has been bought by the Norwegian Orkla Group.
That was then, this is now. Swedish Match still dominates the global match industry with modern manufacturing in plants in China, Brazil, and Sweden. The company has the world's most advanced match technology that include high speed Swedish peeling lathes and splint choppers. It benefits from economies of scale in its purchasing of wood and phosphorous. Worldwide, Swedish Match employs under 5,000 people. Its products are sold in some 140 countries worldwide. Swedish Match's global market share is at least 60% and perhaps as much as 75%.
In many countries, its matches are the only matches available. And this, in a nutshell, is global capitalism. Swedish Match has a monopoly of income streams of the sale of its matches. This is why the international free flow of capital matters to the Davos set. If there were restrictions on trade of matches and on the ability to repatriate capital, then the character of globalization is changed dramatically. Its function as a mechanism for capital accumulation would be impeded.
India is one of the few countries that has tariffs on matches. It has them to protect the over 50,000 people employed in the Indian match industry which unlike the production of the Swedish Match Company isn't as highly mechanized. 80% of India's safety matches factories are located in Sivakasi in the state of Tamil Nadu and most of the rest are in nearby Kerela. All told there are some 3,500 safety match works in and around Sivakasi directly employing nearly 30,000 persons. Fair to say that if these tariffs were not in place, then the Indian match industry would go up in smoke.
Thomas Friedman thinks the world is flat, David Smick finds the world to be curved in its financial component but the world is asymmetrical. Swedish Match has an asymmetry of power and its history is remarkable in that it is emblematic of the rise of globalization. There is minimal competition in the global match industry by design. With state intervention to bring down trade barriers, the match industry which once was globally diversified has come to be dominated by a single large player and a number of smaller ones. The natural course of global capitalism is to carve out these monopolistic or at best oligopolistic income streams. And what makes it all work is imposing a legal framework on the developing world that forces trade barriers down and permits an international free flow of capital.
Over in Davos, the world's power elite is gathered in its annual jamboree celebrating the glories of globalization even if this year they happen to be more downcast in their spirit. After all, they have lost a mint this past year. The global poor, of course, didn't lose much this year. Their wealth, or rather, their poverty remains intact precisely because the world is asymmetrical. Global rules are written for the benefit of the few.
Since 1980, the neo-liberal policies enacted have led to unparalleled wealth creation and the fans of globalization like the aforementioned Thomas Friedman and David Smick tout this fact suggesting that globalization has lifted a billion people out of poverty. That is true though the gains are largely limited to China, East Asia and to a smaller degree India and the PetroStates. Elsewhere it's been an unmitigated disaster. Where in 1960, only about quarter of humanity might termed as "endemically poor", today that number is now half. Never before in human history have so few been so rich and never have so many been so poor. And in the US, the policies that are part and parcel of the globalization set of policies are responsible for the loss of entire sectors of manufacturing -- electronics, textiles and yes, matches. Income is more skewed than at any time since 1928. India's gini coefficient is 36.8. The US's is 45. What that tells you is that the distribution of income in India is fairer than it is in the United States.
It's important to pay attention to what is being said in Davos. That way, you'll know how they intend to screw you and the global poor. The world is asymmetrical. They have the power. The rest of us do not.
From the Davos World Economic Forum:
Daovs Opening Session: An New Economic Era.
Davos Opening Plenary Session Addresses.
Chinese Premier Wen Jibao's Address.
World Economic Brainstorming (WEB) Session (hosted by Maria Bartiromo).
Europe 2009 Panel.