Today I will introduce one more concept critical for understanding of how the manufacturing industry has evolved over the last few decades. It is the shift of technological knowledge from esoteric to exoteric
In the pre-digital era, manufacturing used to be mysterious, esoteric
To visualize how the manufacturing worked in the pre-computer/early computer age, imagine the atmosphere of magic, mysticism, enigma. That would be not very far from truth.
To illustrate the idea, I will give you one simple, straightforward example. The train car production.
Train production is a very, very rare example of a Russian machinery industry that survived through the post-Soviet collapse. Of course, it contracted. Of course, it suffered losses. Still, it made it through, while most of the Soviet machinery sector was simply wiped out.
The year 2003. You a private investor who just bought an old Soviet train car plant. There's a positive surprise. The plant you have purchased is actually making trains, and selling them, for money. Unbelievable.
(As I said, it was not the case for most Soviet machinery plants)
In a heavily railroad centric country, the rolling stock producers had more or less guaranteed demand on the entire 1,520s mm gauge space (red). Demand that could not be that easily satisfied by competitors from the 1,435 mm countries (black), such as China.
So, they survived.
So, you bought a plant. And the plant is making trains. And these trains can roll (& sell). Cool.
The problem, however, is that you, as an investor, have very limited understanding of how your plant works. Honestly, you have little idea of what does your plant even do, exactly.
Like how would you even know, what is your plant is doing to make the rolling stock roll? What are all the workers, technologists, engineers doing exactly?
In theory, you could scroll through the technical documentation. In practice, it sheds very limited light on that.
In theory, the entire production process must be described on the technological cards, step by step.
In practice, you find that to not be the case.
First, some of the technical documentation is simply false. Sometimes, it describes the production processes as they used to work years and years ago (and were never updated ever since). Sometimes, it describes them as they might have never ever worked in the first place.
Much more often, it is cryptic. What you have is the laconic notes your engineers, technicians, workers made for themselves. They can get it. No outsider, including the owner, can.
Imagine deciphering the hieroglyphs. Now your task can be way more difficult.
Furthermore, all the documentation you have, whether it is accurate, inaccurate or somewhere in between, whether it decipherable, indecipherable or somewhere in between, is very inexhaustive.
Few pieces of a puzzle at best. Not enough to make a picture.
Add to that, that it is all very difficult to navigate through. It is not impossible that the specific piece of information you are looking for, is perfectly documented. You are just not going to find it.
Long story short, the functioning of your plant is not codified clearly, exhaustively, accurately and in a sufficiently structured way for an outsider to understand it.
It's a black box to pretty much everyone, including the new owners and the new management.
Still, your plant makes the rolling stock that actually rolls. You can observe it rolling. Which means that your engineers, technologists, workers all collectively hold the knowledge of how to make a rolling train car.
It's just their knowledge is not really codified.
When they document the knowledge, they primarily document it for themselves. In practice, that means they own this knowledge. Documentation (if it exists) requires a key, and only the insiders would have it.
If a key employee retires or dies without training a replacement, some pieces of knowledge may very well be lost. An outsider (like a fresh graduate, or a hire from another structure) will not be able to reconstruct what is lost based on the existing papers
As the critical knowledge does not exist anywhere except for the employee's brains, some of them hold a significant leverage. This includes the top technical workers, such as the Chief Design Engineer and the Chief Technologist
It's all in their heads, or much of it
Now why would anything of that be a problem in the eyes of investors?
First, the lack of transparency. Owners want to see it all through to optimize it all financially
(While their employees may not want to)
Second, the irreplaceability of key knowledge holders. If irreplaceable, they have too much power. The owners would like to see everyone replaceable.
(Which their employees certainly don't want to)
Third, the lack of the overall manageability, especially by the outsiders.
(Which may very well be preferable from the employee's perspective)
To put it simply, the old, esoteric organization of knowledge favors insiders, especially the key technical employees. And vice versa, codifying it in the most structured, transparent and exoteric way possible favors outsiders, especially the investors and professional managers.
There is a clear and obvious conflict of interests here. The class conflict, I would say. This may be the key reason why the exoterisation of knowledge can never grow "naturally", from below. It can only be imposed from above, breaking the opposition of qualified labor.
The end
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As I have already pointed out, general audience, analysts, strategists & decision makers included holds unrealistic notions of how the global economy is organised. Now that is because they never see the back end of industrial civilisation
So let me show you some
There is a major delusion of seeing Europe as a sort of retired continent that "lags in tech" or even "doesn't produce anything". To some extent, it is just American hubris.
But there is more in there than just hubris. There is also some honest, sincere ignorance. The thing with most people is that they see only facade of industrial civilisation. They never ever had a chance to look behind the curtains
Tu-160M, the "White Swan" is the largest, the heaviest and the fastest bomber in the world. Originally a Soviet design, the plane you see today has limited continuity with the USSR. It was created in late 2010s, as a combined project of Putin's Russia and Siemens Digital Factory
Original Tu-160 was created as a domesday weapon of the Cold War. Designed in the 1970s, it was officially launched into production in 1984. And yet, with the collapse of the Soviet Union the project was aborted. In 1992, their production ceased.
No Nuclear War, no White Swans.
With the fall of USSR, Russia suffered a catastrophic drop in military expenditures. As the state was buying little weaponry (and paying for it highly erratically), entire production chains were wiped out. That included some ultra expensive projects such as strategic bombers.
I have repeatedly pointed out that the modern Russian military industry has little continuity with the Soviet one. Destroyed in the 1990s, it was effectively created anew in the Putin's era. Still, it may sound too abstract, so I will zoom in on one specific example:
Stankomash
Located in Chelyabink, Stankomash industrial park hosts major producers for the nuclear, shipbuilding, oil & gas and energy industries. It also produces weaponry, including mine trawls and artillery ammunition (based on the open sources)
All under the umbrella of Konar company
Some examples of the Stankomash manufacture. These photos well illustrate the philosophy of Soviet/Russian dual use industry. In the peace time, you focus primarily on civilian products, in the war time you convert it all to the production of weaponry.
No offence, but this is a completely imbecile, ignorant, ridiculous framing. I have no explanation for all this debate except for a complete & determined ignorance of the foreign policy making class, and their refusal to learn literally anything about the material world.
"Components" framing makes sense when we are discussing drones. Why? Because drones are literally made from the imported components. You buy like 90% of them in China, and may be you make like 10% domestically. For the most part, you just assemble what you bought in China.
Not the case with missiles. Most of what the missile consists of, including its most critical, hard to make parts is produced domestically. Why? Because you cannot buy it abroad. More often than not, you cannot buy it in China. You can only make it yourself, domestically.
Contrary to the popular opinion, Andrey Belousov's appointment as a Minister of Defense makes perfect sense. From the Kremlin's perspective, war is primarily about industry & economy. Now Belousov is the central economic & industrial thinker (and planner) in the Russian gov.
Born into a Soviet Brahmin economist family, Belousov is an exceedingly rare case of an academician making a successful career in the Russian gov. Even more noteworthy, he rose to the position of power through his academic work and publications.
This is unique, ultra rare.
Belousov's career track:
1976-1981 Moscow State University ("economic cybernetics"). Basically, economics, but with the heavy use of then new computers.
1981-1986 Central Economic Mathematical Institute
1986-2006 Instutute of Economic Forecasting
2006-2024 Government
If you want to imagine Russia, imagine a depressive, depopulating town. Now on the outskirts of a town, there is an outrageously over-equipped, overfunded strategic enterprise that has literally everything money can buy in the world. It feels like a spaceship from another planet
Strategic industry is extremely generously equipped. Western companies look scoundrels in comparison. That’s why I am so sceptical about the whole “corruption” narrative. Not that it’s wrong. It’s just that it is the perspective of a little, envious bitch.
What needs to be funded, will be funded. It will actually be overfunded and most literally drowned in money. Obviously, overfunding the strategic sector comes at the cost of underfunding almost everything else (like urban infrastructure). That’s why the town looks so grim.