nm1108: let me start by telling you two preliminary things er first of all i plan to do this today in one blow in other words no time out i will just speak for roughly one hour and and a half er bit less i have to be at another classroom er at ten-thirty so er i'll kind of finish the whole thing w-, in one hour and a half second you see that there is a piece of er equipment here er namex is from the er Language Studies and she is concerned with language used in classrooms one of the er reasons for this is that we have an increasingly large number of international students and this is a perfect class for this you come from at least fifteen different countries to the best of my knowledge er which is really quite wonderful for a group that is not so large and if you take me into account er another non-U-K person then it's really wonderful er so this is a good example that they can use also to help students understand what kind of language is used in classes and stuff like this so this has nothing to do with B-B-C or anything of that sort it is just an internal research project okay er what i'm going to do today is based on this two-sheet thing that i gave you the first time we met which sets out my four sessions on say macroeconomic aspects of international construction i told you that namex and i divide this job roughly along micro and macroeconomic lines he's dealing with construction projects and firms largely and i'm dealing largely with er issues of countries and the role of the construction sector as a whole in this business in con-, in in in you know the the national economy as a whole now by chance er at the beginning of this year i got this book from the publisher and a number of you have purchased it but it's available in the resource room and the library's supposed to have it so you then don't have to buy it but almost everything that i will be saying er in these four sessions is in this book er also by chance another book came out er which looks like this and it is called The Future of International Construction it's a bit closer to what we are doing here by title but it actually contains only the results of an international survey that i run from year to year okay so this book now er contains summary results from this survey from nineteen-ninety-two to nineteen-ninety-eight year nineteen-ninety-nine will appear in a paper that the same fellow whose name is namex and myself have written and will publish in Building Research and Information one of the key journals in our field though remember namex is my PhD student and we have another PhD student here i'm sorry namex to bring you out like this er namex from Mexico if you add yet another country er er wonderfully to added to our er mix i like er international classes myself so it's really wonderful to see somebody from Mexico as well namex is now working with me on you know related things having to do with international issues and construction and one day she will probably write a book with me on something of this yeah just like namex sf1109: nm1108: now these two books are available for purchase i'm going to er send this around this will tell you a little bit about this new book unfortunately remember i have nothing to do with prices of these things this thing costs forty pounds which is idiotic but that's what they want for this i get it at a discount so we are selling it to you for thirty-two pounds that is the discount you know er nobody's making any money in this and similarly this costs fifty pounds and we are selling you at the discount that i get it at which is forty pounds okay so we bought these books in order to be able to pass them to those of you who actually want to buy them okay now the syllabus doesn't tell you which pages of this book you should go to but it tells you which papers are assigned for today's readings yeah so er you should er always be able to tell exactly what is assigned reading for a particular day this is not assigned at all but you will notice that i will be talking about the survey on a number of occasions and whenever i talk about the survey this is the relevant book as well okay these are the preliminaries er even though it is relatively difficult to see this er you will see that i will always put on the overhead projector a transparency telling which paper i'm dealing with or which chapter okay so this is chapter fifteen The Future of International Construction and er that's a paper that is now reproduced in the book but the paper is listed in the syllabus and it also tells you you can see this two-hundred-and-seventy-five there's the page where you will find it in the book okay i'm sorry for being a bit like er you know talking to kids er but i'm just trying to make sure that you understand exactly what i'm trying to do now remember this paper is something that was originally given in year nineteen-ninety exactly ten years ago and it was something that was originally discussed in draft form in Sydney Australia the big conference on construction er with many people around the world present er that was an attempt at that time for me to generate discussion within a working commission of C-I-B which is the French acronym for International Building Council C-I-B International Building Council is one of the largest institutions in the world dealing with research into all kinds of issues relating to construction now C-I-B working commission W-fifty-five in building economics is one group that i have been a a part of for many years we tried to generate discussion by writing a draft of this particular paper and giving people some ideas of how i perceive the role of construction in national economic culture how does construction relate to an economy and how does it change over different stages of economic development so this is what this paper is about but also remember that this paper was finally published in nineteen-ninety-one and it was then the basis for the survey which is published here which was started in nineteen- ninety-two a number of my colleagues from various countries felt a bit uneasy about some of the propositions that i was proposing at that time and i said fine let us try to see what an international survey of these issues will tell us and er then i decided to do it on an annual basis to see to what extent people agreed with some propositions which actually come from this paper and then to see how that agreement or disagreement changed over time so that's basically the story so next time we are going to be talking about the survey and i will present you the results of your responses i i have analysed in some simple way your responses to the survey which i collected the first time we met okay so that's that's that now remember in general i not only do not mind but i like when i'm interrupted okay i know how to deal with interruptions of any kind express your opinion freely er tell me that you disagree give me arguments don't be rude be nice but say whatever you wish yeah feel free to talk er that's a good habit to establish as early as possible in undergraduate or graduate education the first proposition that i would like to put forward in dealing with this question how does construction fit into a national economy and how does that role change over time is one of the main drivers of change in any society at least at our stage of economic development and that is the drive associated with urbanization and industrialization these are things that happened in this country roughly starting two-hundred years ago until roughly hundred years ago er but perhaps you know these numbers are too rough it took something like hundred-fifty years in this country for urbanization and industrialization to take place now what happens in this process er let me first tell you what these things are L-D-Cs are less developed countries N-I-Cs are newly industrialized countries and A-I-Cs are advanced industrial er industrial countries or if you wish post-industrial countries which emphasize services much more than before what we have on the vertical axis of this diagram is the share of urban population in total population that is some simple measure of urbanization this country would be some place in the eighties or nineties in percentage terms a country like Ghana would be in the fives tens fifteens yeah so you start some place around ten fifteen and end up some place around eighty-five ninety per cent because population never will be fully urbanized some people would be in er areas which are less dense so this process from this point to that point in the case of Great Britain took something like a hundred-fifty years very rough numbers okay but for example in China that process will take roughly fifty years so you can imagine that the same diagram applies but the time dimension shrinks so economic development if you wish is ever faster and one reason for that is that people are copying other people there is no reason for the Chinese to invent an elevator motor it exists copy it as long as you can copy you can develop very quickly because everything exists you see we have to figure out how to make it in Beijing and not in i don't know Idaho so what happens here is that we have something that is known as a sigmoid or logistic curve an S-shaped furve er curve which says that in early stages of urbanization and industrialization population goes to cities at an increasing rate hits an inflection point and then goes to cities at a decreasing rate and the whole thing evens out at some value yeah so that is one of the main drivers people are coming from rural areas into cities that is not happening any more in the United Kingdom that is happening in a very major way in Malaysia in Thailand in China and it is not yet happening in many parts of Africa people are still in villages they're still not going to cities even though obviously in many countries in Africa you have that process already Nairobi's a big city et cetera so this is one of the main drivers this shift of population shift of pop-, of population from rural to urban areas drives the process of er construction okay er it is one of the main drivers of that process now if it is correct to say and i can tell you urban geographers and demographers will tell you that that curve generally speaking holds for any particular country then it stands to reason that the role of construction in a particular country shifts this way over time let me explain what this is now this is a share of construction in G-N-P G-N-P is the total output generated in a country in one year Gross National Product the share of construction in G-N-P is a percentage early on in economic development that percentage is quite low say five per cent at the top of this cycle when a country reaches the newly industrialized country status say Mexico today or Turkey today then you get something like fifteen to twenty twenty-five even per cent of G-N-P is contributed by construction and then it declines again to again something like five per cent so there is no paradox then in a country like Ghana and in a country like United Kingdom you have the same share of construction in total output because many many things are already in place roads are there buildings are there schools are there ports are there everything is there but you need to maintain it and so on you add a little bit you destroy an old building and put another one in there you take an old bridge down and put another one there but nevertheless most of the stuff is there and people are not moving around any more so in L-D-Cs and A-I-Cs you would expect roughly the same shares of construction in G-N-P whereas newly industrialized countries would have very high share because concrete is being poured right now industrial capacity is being put in place but with it housing schools everything is happening at the same time enormous reconstruction er benefits from that kind of thing now i haven't mentioned so far what is on the horizontal axis i mentioned time but actually the measure that you see there is G-N-P per capita in other words total output divided by total population of a particular country it is a measure of economic development it is not a measure of economic well-being but it is sometimes taken to be you know economic development is taken to be er a kind of measure of well-being people are better off when G-N-P per capita is high in some countries in the world that number is now six seven eight ten-thousand dollars per inhabitant in some other country it is five six-hundred dollars so there's a huge range in which er countries fall but nevertheless you can expect that if this is so and that's the next er diagram that you will actually over time experience a shift in the same direction so i have the same diagram but here i say time and not G-N-P per capita why because under quote unquote normal conditions a country would be developing but there is no guarantee that a country will be developing a country may be stagnating a country may be going backwards in many parts of the world today we have civil wars and different stages of development you know in ex- Yugoslavia where i originally come from er there is a civil war still kind of simmering in the background and obviously not too many people are building there there are no tourists on the coast even though there is no war there but because there are no tourists there are no new hotels added or not too many et cetera but in some countries civil war is going as we speak Sri Lanka is a good example but the Sudan is another so in many of these countries the process of economic development is moving backwards so you can basically use the same graph but looking backwards you know that is what would happen everything will be sliding down everything will be declining yes sm1110: just ask like er you say that all the the say all most countries now are or half the countries some of whom are N-I-C and some of whom are A-I-C but what happens when all countries which A-I-C does that mean that the G-N-P will go down nm1108: okay in other words you are saying what you are talking to us about right now has to do with a particular process which will at some point end yeah and what will happen then er the answer is i have no idea i am and you know i'm saying er in a number of introductory parts of this paper that i'm actually covering a period of roughly twenty-five years ahead why that's one generation it is still possible to think approximately twenty-five years from now one generation but most of the data that i'm using in order to make these kinds of arguments go back fifty to hundred years two to four generations so it gives me some feeling of how these things may be played out now it is really hard to say what will happen if we assume that the level of development around the globe say fifty years from now hundred years from now will be generally uniform will be generally like the U-K today what will happen then i don't know i understand this particular process because it is still moving i can see what is likely to happen up to some point but after that it's relatively difficult to say however you know many economists would say that the process of economic development will probably never end in that sense th-, there will be always some approximation er to equality in different parts of the world there may be some movements some parts will be going up some down people will be shifting around just like in this country you know for example Manchester Liverpool were very important industrial centres people moved there to find work now they're moving out which doesn't mean that these places are going to hell it simply means that the industrial employment of the type that they had before are simply now being changed and there is a process of transition so we may have things like this but the main forces of urbanization and industrialization will have been played out say by fifty hundred years from now okay and at that point some other theoretical framework will be needed to explain what is going on and why yeah so what i'm saying here is because in a normal situation in which there is no war there is no economic decline due to er earthquake or you know case of Turkey er possible case of Japan we never know when that will happen but Tokyo is a tremendous risk and not only Tokyo huge concentration of people in California is also continuously at risk and may actually take people back into er previous stages of economic development if something bad happens which will happen the question is only when so if that is true then i am arguing it is also possible that not only the share of construction in G-N-P but that the volume of construction actual volume would also peak would reach some point and then start declining in other words there will really be fewer pounds and yen and dollars spent on a on construction having taken care of inflation and in other words the value of yen dollar and pound yes namex sf1109: er well we couldn't we wouldn't be able to generalize that for all type of er all types of countries both er let's say for less developed countries you still have a lot of population drawing you know height rate of er population growth secondly perhaps the the if if this process of the government stops it could be because of the economic crisis not exactly because of the of the process of a lot of people going to the cities and things already being built there nm1108: mm sf1109: and er no no need for building more so er nm1108: no i i agree i agree with what you're saying but i would also say that you know what i have in mind in this particular case are countries like er the U-K like er Holland like Denmark sf1109: yeah nm1108: er by the way the U-K er was America hundred years ago this was the most developed part of the world er hundred years ago er this was the place where people would go to do anything not just to build obviously er but you know at some point er because this country started the process of industrial development first that process kind of played itself out sf1109: mm nm1108: to a great extent now the economy's based on completely different things you all know about e-commerce and things like this it's based on something quite different er this is a typical post-industrial er if you wish economy but Denmark is even farther ahead you know there are even fewer reasons to expect that Denmark will change very much from now to i don't know twenty- five years from now so some of the economists who agree with me that even volume may decline would be coming from countries like Denmark okay where they don't expect significant change any more and they expect the volume to be coming down now obviously i'm talking about so-called secular or long term threats i'm not talking about cyclical behaviour of the construction industry that follows the business cycle business cycles depending on many circumstances would be between traditionally three-and-a-half and five years now the last two business cycles were a bit longer but nevertheless business cycles are short term you have everything or almost everything going up then collapsing then going up again so i'm not talking about that cyclical behaviour that will be going around this thing yeah i'm talking about the average that is moving in some smooth way it is very difficult to actually demonstrate that anything like this is going on statistically because we don't possess good enough data for many countries to make such claims but you will find if you look into this book er you will find diagrams which actually suggest these kinds of things i cannot find it right now or i will er there is a diagram on page thirty-one by the way you cannot see it terribly well but there is a curve that looks like this and there are many countries plotted er less developed newly industrialized and advanced industrial countries but statistical evidence for anything like this is hard to agree with people because you you are talking about a statistical cloud of points which can be interpreted many different ways at any rate er i personally believe that if we have a long term decline of the share of construction in G-N-P you would ultimately have a volume decline it cannot just go on for a very long period of time and this is something that i will try to argue right now it is in the text i don't have any pictures so let me er try to do it by just talking to you about this people typically will tell you that those sectors of the economy where employment is dropping do not necessarily produce less output because employment is dropping because productivity is going down let me show you er then i'll skip er the the next er diagram for the time being er here is a diagram that shows er employment share of agriculture services in industry according to a number of serious economists who have looked over one- hundred years to see how employment for example shapes up for these broad categories of economic sector in agriculture the drop corresponds to an incredible increase in productivity by the way the construction sector around the globe but especially the United States which is still the most productive society on this planet way more productive than Japan which is catching up with United States but still the productivity not the rate of change of productivity of most American workers is tremendous by comparison with most Japanese workers er the change is sli-, somewhat different but in the last couple of years the productivity increases in United States have also increased unbelievably so that we have an incredibly productive society still agriculture is the soci-, is the sector of the national economy in the United States that has shown greatest improvements in productivity since the war er by the war i mean the Second World War er now i can tell you in this particular diagram which comes from the work of one great economist whose name is er er Angus Madison Madison he's mentioned in the in the text this bit which is called industry actually combines manufacturing and construction he sees a very tight relationship between manufacturing and construction and i agree with that particular po-, er position and we will talk about these things later on in this course he says that industry experiences this kind of growth up to a point of employment in industry and construction and then it starts declining we know we know that manufacturing is the second major beneficiary of productivity increases in United States and in other parts of the world agriculture and then manufacturing tremendous increases now i can tell you one thing the construction sector in most countries according to all serious studies and especially in United States shows no productivity increases since Second World War no productivity increases it is staggering and normally you know many of us who analyse the construction sector would say that that doesn't take into account the quality of buildings and so on we don't do things this way any more we spend much more money on various kinds of electrical mechanical and electronic systems we don't just take bricks and morta-, mortar bus-, er buildings like this one but nevertheless anybody dealing with any other industries say I-T-related industries will tell you that quality changes there are staggering by comparison with construction so construction is one of the sectors that typically in any serious study comparative or just for one country comparing different sectors and industries shows no productivity increases or slight negative productivity increases in other words drop in productivity these are facts so it is also a fact that the number of people working in construction in advanced industrialized countries is dropping we have very strong data about that the more developed the economy the less people work in construction from one point to another however you compare it over time it is dropping if productivity is not increasing where is the volume of construction going to come from sf1111: maintenance and repair nm1108: i'm sorry sf1111: maintenance and repair nm1108: yes possibly and that's why i had this er diagram here on the previous page you know saying that subsectoral share in total construction which will be new construction and then maintenance and repair is changing over time so new construction may be dropping but maintenance and repair is increasing again i will be talking to you about this again but er er i have studied together with a colleague from the United States i have studied maintenance and repair vis-à-vis new construction in United States it is still a very small proportion of er total construction there it is something like thirty per cent in this country it is believed to be something like forty to fifty per cent er maintenance and repair out of total but we see that maintenance and repair construction is actually much less capable of moving the rest of the national economy than new construction so i like to say that maintenance and repair construction can provide a lower bound on the drop of construction ability you know you will always have replacement of some facilities you will always have an increasing amount of maintenance and repair but that is a declining thing nevertheless in most of the economies we have studied this economy in particular but again countries like Denmark and so on would show in very high er er development er er environments that construction is basically a declining sector in volume terms as well now i am stressing all this because many of my colleagues construction economists disagree with this proposition they agree with the pr-, er the previous one that the share of construction in G-N-P first goes up and then comes down but that volume first comes down and then comes down later on most of my colleagues disagree about and that is therefore something that we will see you know that is a proposition that i am putting my name behind and one day it will be the proven er correct or incorrect but for the time being i don't see any strong reasons to believe that these things would not continue to look like they do the survey which i will discuss with you next time indicates that people disagree with that proposition and that's interesting you know that's interesting and normally i have to listen to this i have to listen to the common sense within my own professional group now this diagram is a kind of a taking on taking on of the previous one saying that if i'm correct about what i am saying right now we would expect something like this with countries which today today have the status of less developed newly industrialized or advanced industrial countries in other words that we can expect to that today's L-D-Cs will continue increasing their volume of er construction volume not share only that NICs would at some point reach some kind of peak and then decline in volume as well and that today's A-I-Cs will at some point start experiencing this kind of growth so er that is a kind of summary of all these diagrams now let me tell you something about these diagrams which i didn't mention before they are obviously not meant to show any mathematical relationship they are ideograms something goes up and comes down so i call this kind of curve i call it simply U-shaped that curve i call S- shaped er et cetera in order to show the basic relationships if you would actually want to draw these things more correctly you would probably have er something like an incline here and a you know some kind of er ramp taking you down to some kind of value obviously doesn't go from zero up and then down to zero it comes to some asymptotic value what was some value that it approximates in the long run but this is simply a simplification to give people a clear picture of what's going on these things would make the whole thing er er too complicated to understand the next point in my argument is like this and this directly relates to the whole question of international trade in construction activity in other words international construction as such i'm saying that present patterns of international trade in construction services to a great extent construction materials as well but mainly construction services looks like this the L-D-Cs are recipients of trade from advanced industrial countries but also from newly industrialized countries er even ten years ago this was very difficult for people to understand even ten years ago you know i had to strain to explain to people that remember only ten to fifteen years ago we would think about Japan as a NIC and not as an advanced industrial country which it is recognized to be today i now don't have to strain so much because it is a fact that many Japanese companies have done extremely well in the United States and Europe and basically left many of these people are not as interested as they used to be in these kinds of markets they are interested in some niche markets but basically they are not at a stage of economic development where that is very interesting for them however we have here we have China here which ten years ago nobody would imagine that Chinese construction companies would be building relatively far from home very complex projects at that time ten years ago it would be surprising that Pakistani companies are building these kinds of things not just Italian companies you know building dams in their region but nevertheless quite far from home Turkish companies are building in Moscow i mean there are many things of that sort which are quite different today and i don't have to explain as much what i expect to see in the future so this is the situation that we have right now that actually there is some trade cross-trade going between NICs A-I-Cs er remember South Korea is still classified as a NIC and not as an advanced industrialized country Japan is and China is a NIC only on the two seaboards but inside it's an L-D-C if you go to China you'll see totally rural pastoral areas in the middle of the country there are people you know carrying things like this in buckets on construction sites er and you can actually see just humans building no machinery no nothing in very large part of China on the seaboards obviously it's exactly the same as in Canada there is no difference really now i'm saying if i take this part of the picture to correspond with the beginning of my diagram that i just showed you in other words those curve A-I- Cs going down NICs going like this in volume and L-D-Cs going up and i now that's the beginning of that diagram and now this is the end of the diagram i'm saying today's today's L-D-Cs they will not be L-D-Cs that well you know they'll be in the future but today's L-D-Cs will be building in A-I-Cs they will and and t-, today's NICs will still be building in a-, A-I-Cs there will be trade between these sf1111: what is it what would be the ou-, the output of A- I-C nm1108: well some niche markets obviously you know nuclear reactors er it is not that easy to actually think up that kind of technology and it depends on very special equipment because a nuclear reactor is not a building a nuclear reactor is a piece of equipment in a shroud yeah and you know modern reactors are like this they they just have a little bit of concrete around them er but generally speaking it is equipment that you are selling and the shroud is relatively simple to build so er i would expect much of this much of this to be internal i would expect much of this to be internal and some niche markets do actually exist yes sm1110: like er it's L-D-Cs A-I-Cs economy stabilized and probably then L-D-Cs then how can an L-D-C actually doesn't seem to make much sense nm1108: no no no but but this is this is not Sri Lanka today you know this is er say er you know Sri Lanka er twenty-five years from now sm1110: nm1108: yes so it's L-D-C today's L-D-Cs so many years later at the end of the diagram which is roughly twenty-five years from now sm1110: so er nm1108: and you know how it happens er you know the-, these these questions er you know at the beginning of this kind of trade what you er had for example you will have in Saudi Arabia you will have Pakistani er labour groups organized by one guy brought there and then they would be working under supervision of a Canadian firm but now what is happening is that these Pakistanis are working for a Pakistani company because they can build a road as well as Canadians and Canadians don't want to spend so much time in Saudi Arabia so there are many reasons for this but nevertheless Pakistanis are capable of doing it and they're now doing much more than just providing labour the same thing with Turks you know at some point you had Turkish crews working in a number of different countries in the broader region but now they are run by Turkish construction companies they're not big construction company run by somebody else yeah so you have many things of that nature which are now happening er in Eastern Europe er or closer to Central Europe you would have Polish companies now building in Germany originally it was simply Polish crews run by a German company so there are many changes of that sort i know that for example there there you know similar things in the fringe countries that used to be called Eastern European countries now they like to call themselves Central European countries but all of these countries Poland er Czechland Slovakia and so on are providing many of these kinds of things now remember i'm not saying that one day in the future nobody in the U-K or Denmark will be building i'm saying that the international trade would probably not go out that much because people would prefer to do something else why be a mason who wants to be a mason which is similar to saying who wants to be working on some assembly line in a Japanese plant if the Japanese want to do it fine but most likely Malaysians will want to do it one day the Japanese will not want to do it yeah i don't want to do it you don't want to do it why do you imagine somebody else will want to do it these are not jobs which are really that grand we here will probably make movies and educational services and you know will make dances [laughter] sf1109: can't you perhaps i mean i-, industrialized countries will be building or focusing on different things you know it would be different things that will nm1108: well advanced industrial countries are very much stressing economies are very much stressing that economic growth in places like Malaysia chain-, China and so on is so-called intensive economic growth where you add capacity and thus you grow but the in advanced industrial countries the ideal is actually to add nothing but to improve the efficiency of what you already have intensive economic growth so extensive intensive growth and economists since long time ago and i'm quoting them in this book like Kuznets visualized you know many years ago but that was science fiction back then that you could actually have very rapid economic growth without really any addition to your capital stock what you would be adding obviously would be wires and you know pieces of gadgetry and you know things like this electronic components er and that all of a sudden is actually driving the e-, American economy today you don't need more buildings in New York or more bridges you can use all of that with very little bit that you add in terms of physical equipment and make it so much more productive you know with information technology and so on so many of these propositions that they started with ten years ago when the internet was not around and so on sound a bit more plausible and a bit more boring because you know way then people say hey you're crazy now they're saying okay why are you boring us with something which is probably going to happen because it's not real science fiction so remember er i had that kind of situation with er i don't know stories about China er before ninety-three when most of the world's realized that China existed and was extremely important when i would speak to you know many of you here from the M-S-C programme are actually professional people who know what construction is er you know i would talk to professionals in construction and they would look at me and they would say where did you get this thing about China er what are you reading that we are not reading now business people very often in my experience behave like idiots you know before they understand before it is written in Time and Newsweek and places like this that something is true it's not true and they don't want to even listen but then once they learn it and they learned it in March nineteen-ninety- three after March nineteen-ninety-three they say okay okay what else is new so there is an enormous kind of shift in public opinion in especially in the business circles and business people are very given to fashion okay so you know for example starting to say today that Africa one day will be a great construction market people will say ergh you know you must be crazy and obviously if we deal to some extent with civil war there and so on Africa may become a wonderful market for Europeans Africa and Europe have always been extremely close since er Greek and Roman times and there is no reason why Africa should be a separate continent in that sense that we see it like some place far away where people are black not like us over there yeah exactly the same people we can make kids together so why we shouldn't do other things together er so in that sense you know i would say that there is very great closedness of mind in many er professional circles about these kinds of questions of where these things are likely to be in twenty-five years now obviously you know business people will tell you if your story doesn't affect me on Monday it's not very interesting because it talks about some kind of long term future obviously that's a correct point but er it is as i said to you the first time we met it is important for a reflective practitioner to have some notion where we came from with the construction industry in our different countries in the world and where that is likely to go over so many years yeah it is important to have some notion of how that works and that is what i am trying to do by one bringing you this particular paper that brings the concepts having to do with my notion of the future of international construction together and two the survey which we will discuss next time yes sm1110: how does this er contrast sort of pr-, practice towards er globalization in construction and er to larger companies looking to move into foreign markets and increase their margins and opportunites but if you're suggesting that construction see to move away from that nm1108: i would say very large proportion of firms will not you know th-, th-, they er a construction firm of s-, say medium size needs a funny jolt to start being interested in Belgium even though Belgium is just across the Channel er the jolt would be for example that the old guy who started the firm in nineteen- fifty-eight is passing the er baton to his son or daughter who is now becoming the C-E-O of this organization and this youngster happens to have learned French which the father will never even dream learning it's a fr-, ene-, you know enemy's language so all of a sudden young people are perfectly open to the notion of going to work in Germany and that kind of person will produce a job that people would say well what the heck is wrong with us why cannot we take this particular job you know er in in a different country if you have a couple of friends there you have some kind of understanding to the company that can help you understand the rules the law and so on you can obviously build things in Belgium as well so er small firms especially are quite set in their ways they're in Essex and that's it now when a firm becomes dead you know people start thinking about large projects which are abroad but generally speaking i again find er like with any fashion you know one year black is in fashion the other it's like blue whatever er these fashions shift quite interestingly from year to year my survey's very much about fashion it is not about what really will happen in the future but how fashions change so for example there was a period when Russia er and you know Eastern Europe was extremely popular then there was a period when they kind of vanished from the picture because there was too much crime there anybody who went there experienced so much trouble that they didn't want to stay er i mean only Turks and Yugoslavs stayed because they would er they would know how to pull out a pistol if the Russian guy pulls out a pistol [laughter] and it's as simple as that you know you protect your perimeter and you say don't come in because we'll shoot you you know [laughter] and the Russians understand that perfectly so there is you know the two crews understand each other and that's it everybody else moved out [laughter] but now Swedes are buying Finns to go to Russia and when you talk to Finns they all just think about Eastern Europe you you ask them about other markets yeah you know we just love Russia but they're acting as how to say not exactly champions but they're really working for Swedes so Skanska will buy one company another third organizations with expertise where people speak Russian don't mind being with Russians which is important and sometimes quite difficult [laughter] you know you for example have to drink like a fish [laughter] if you have a glass like this of vodka you know i can tell you er you are out [laughter] you may think that you drink a lot of beer but beer is nothing that's like water but you know when you have a glass like this of vodka you are out [laughter] and Russians are not it's fine [laughter] they can drink five you know they can all collapse behind the table but tomorrow they are at work [laughter] and if you don't have a habit like this Swedes are nice people Finns are a bit tougher yeah so they have the experience and they're now being sell-, er sold to various kinds of Russian projects and you know there is a certain orientation that particular part of the world is recognized as important so Finns are not looking toward Belgium at all they couldn't care less so that's interesting you know how people train their vision in some direction the British construction companies have because of the British Commonwealth and because of the British Empire an interest in for example South East Asia you know a Briton is not going to feel very uneasy in Kuala Lumpur like wh-, where am i you know how do you eat this they've been there so there is no problem in that sense that's an enormous advantage every country has these kinds of you know blinkers so Portugal will be looking toward Brazil or Mozambique but Ghana mm they don't know about Ghana the Finns will be looking toward Poland and Russia the Germans will be looking that way as well and correctly because huge markets are going to be there once we deal with organized crime that goes all the way to Putin you know or or er Yeltsin there is no question but that organized crime goes all the way to the top of society how do you deal with it most of us are not used to you know for example if you know y-, some of you may er er feel easier than others paying somebody two-hundred dollars to take your mother into hospital i cannot do that i'm not used to that but it's still a bit different to say okay you know two-million dollars let's build this dam for you their minister that's a bit more difficult who is going to do that kind of stuff many people don't know it in a-, in America that's so illegal that business schools have a huge problem how do you have an American organization some place in Pakistan how do you deal with that situation and it's normal in Pakistan to deal that way so either you exclude yourself completely from that world or you learn to do it even though it's not exactly something that you like doing because it's a bit unusual you know it's not something that you read in books so there are many questions of that sort which are quite interesting and er one of the things that i like to do with my survey is to look at for example Japanese opinion about their part of the world i don't publish these things because it becomes too desegregated this kind of information but i'm interested in these questions how do Indians look at this if i have a couple of Indians in my survey or how do the Britons look at things vis-, vis-à-vis Germans and everybody has different blinkers and they're quite interesting British blink-, blinkers and that's good for us and that's reflected here are quite wide because of the British Commonwealth but many Britons don't look toward Germany Germany doesn't exist you look past Germany yeah younger people are different anyway that's the broad answer to your question now let me see how are we doing er i would like to er now shift gears and to introduce you to the methodology or technique that i will be using in er most of my papers that i will be showing you er these three types we meet er the methodology comes from something that is known as input-output analysis er that particular term exists in many fields but in economics it has a very specific meaning input-output models were invented by a Russian fellow whose name is Wassily Leontief who published in nineteen-thirty-six an important paper while he was a professor at Harvard and he remained professor at Harvard er througho-, throughout most of his life and for that paper Leontief got in nineteen- seventy-three quarter of a century ago got his Nobel prize in other words it is a bit of work that is quite important in analysis of national economies is now based on reasonably good data and one can compare different countries with this kind of data so that's what i am doing er this book is almost all almost hundred per cent about input-output analysis many parts are kind of hairy and mathematical and i would tell you not to touch them so for example part one contains four papers that you should avoid if you want to preserve your eyesight er [laughter] er if you like er matrix algebra enjoy but er more likely than not you will find it appalling er and that's okay er i don't want you to learn matrix algebra i want you to learn the basic logic of input-output analysis so that's what i'm trying to do now the paper from which i think you should learn about this is this one it's called Direct and Indirect Resource Utilization by the Construction Sector in the U-S now you have all these some key words in this long and boring title one of the reasons why i'm using input-output ana-, analysis is that if you go to a construction site and you ask a question what is passing through the gate er you will learn that er cement is passing through in trucks which either or don't you will learn that er rebars are going through you will learn that steel beams are passing through labourers you will see cement you will see er various bits and pieces of buildings bricks and so on and if you sat at the gate from day zero to the last day of construction you will get a pretty good picture of what was used in the building if you at the same time look at the plans financial deals made with the company that build this er i don't know loans they got er various kinds of professional advice about foundations and God knows what you will get a pretty good picture of direct inputs into the construction process these are called direct inputs that is going into the site either literally directly or via the construction company in the form of plans and you know things of that sort today much of the plans and er intangible things would be coming via a wire into a computer on the site so you could even measure that you can have a little meter to tell you what went in and you could also learn how much that cost [cough] direct inputs are a very small part of what actually happens when you build something er let me give you a hypothetical example let's imagine that you don't have a small project because it's a bit difficult to stretch your mind like this but you have a very large project you are building a university new university someplace in the United Kingdom for example well there's a lot of concrete there many new things that you will have to bring to that particular location so you can imagine if there is such an increase of input at a particular location that somebody will build a warehouse relatively close to the site in which various things will be stored before they go to the site there will be someplace close to the site a small plant making prefab-, b-, prefabricated beams that are required in construction et cetera these would be secondary inputs they come off-site are worked in some fashion you use cement and rebars and all that you make the beams and then you ship them to the site itself it's not done on the site because the site is for example not big enough to have a plant that makes rebars or beams or whatever but then you can understand that these rebars come from some foundry which makes various products they make shovels as well so that's one step back that's a third step back but then if you take a chain like this you will realize that someplace along this thing somebody had to buy a new truck because they didn't have enough trucks to build this particular thing so the car industry's affect the car industry if a number of cars are required would all of a sudden say well we need new i don't know metal-bending machinery to produce more cars for this particular project and all these are actually inputs into the construction process but they are just further and further back a very long chain well input- output analysis is about direct but also all the indirect effects of a particular purchase so we would say if you increase demand for construction by one pound by how many P will all other industries benefit and i can tell you all other industries will benefit only in the very primitive economy some industries wouldn't benefit for example fishing will be left out because people don't like fish in that country but if people like fish more labourers means more fish for lunches et cetera et cetera so almost everybody's affected by any change even by just one pound but it's difficult to conceptualize in economic analysis these things are known as multipliers so you say one pound spent on construction multiplies into something like two pounds spent on everything including construction but that everything else that you require in order to have construction services and er ultimately a building so input-output analysis is based on input-output tables and an input-output table looks like this it has by column a number of industries or industrial sectors and it has by row a number of these sectors we would look at each sector like this we will say sector one say construction produces a certain amount of stuff by using inputs from all the other sectors including itself because construction may be building that shed in which there will be some materials and equipment for the building itself okay or secondary structures or things like this so construction produces a certain amount of thi-, er er certain amount of stuff which is here in this particular box it will be appearing in this box as output of the construction sector but a portion of that output goes to intermediate use and a portion goes to final use in the case of construction actually very little goes to intermediate use it is only maintenance and repair that goes to different sectors everything that construction produces is considered to be a capital or investment good which is produced whole to be used by other sectors in the next round the of economic production in other words you do not use up a building as you produce something you perhaps depreciate it so a building like this is not used like cement is used you have a bunch of cement and a bunch of sand and water and then you mix them and then cement is kind of lost in concrete well a building is not lost because you set here it is perhaps used a bit more so we will have to paint it a bit sooner okay so remember all construction goods are final goods except maintenance and repair services so final goods are then used as capital goods to produce something else with them but something like sand is used by various sectors for various reasons glass manufacturing uses it in order to make glass we use it to make concrete et cetera et cetera so if we look at any one sector we will see by row the output of that sector and we will see where pieces of it are would actually go in the production or in the industrial scheme in which everybody uses a little bit of something to make something else if you are making a car you need a little bit of steel you need a little bit of this and that and then you put all of that into a car you assemble construction is an assembly industry and if you look into all the inputs into construction so this is output these are all the inputs into construction you will see which sectors the construction sector buys from it buys from agriculture for example materials for roofing er in Sri Lanka palm trees or whatever that is purchased directly from agriculture in this country obviously fewer such things are purchased directly from agriculture but they are purchased from various materials producers which purchase the basic materials from those who made them say steel say plastic materials in bulk then you shape all of that into something like this and you sell it to the construction sector to store in a building so if you look in a particular column you will find where the construction sector buys its products this way you will say you will see where it sells its products in this particular case maintenance and repair services but by looking at the column you will also see the value added component of so-called primary inputs primarily labour but also many other things capital for example also land because this construction company will need land for its equipment and things like this so primary inputs include a number of different things but primarily labour so if you look at the column that corresponds to the construction sector you will see total input down here then you will see various amounts of primary inputs primarily labour you will see all the other industrial inputs that come from other industries and that would form the global input so a table like this is divided into a number of quadrants the first quadrant shows intersectoral demand how different industries buy from each other quadrant two shows buying on demand which is er going by row for each sector or each industry but by column it would each would include consumption it would include investment it would include government expenditures government would be buying i don't know er a building to put a tank in or they would buying a building to put some kind of water resou-, resources unit which is a part of governmental er organization and it would also include exports exports of construction services in this case not construction goods this building or any other bulding can never be exported it is here and that's it if a building is demountable the thing that is transported according to national economic accounts is materials the act of tying the building to a particular plot of land is construction okay now in this sector here quadrant tree three you have value added value added there are various primary inputs that go into a production of anything it will be labour capital land but also imports products coming from other countries so we have exports going out and imports coming in finally quadrant four includes something that is called direct factor purchases for example when government employees are paid for their work in the tax office these are direct purchases of their labour services by the government they're not a part of the industrial companies a table like this has many features first of all it is square it is square it has an equal number of columns as rows N for intersectoral demand and M for final use but also M for primary inputs so each input-output table is square second each term down here for example total input of one particular industry must be equal to total output of that industry because profits are included so total output is for example this building there's the total output of a firm in one year let's imagine that the construction firm built it from January first to December thirty-first of nineteen-seventy-six when this was built that firm would give this building to the university it would be say one-million the firm will have paid various suppliers of materials and services say nine-hundred-thousand and kept hundred- thousand that profit is accounted in the picture because their profit is renumeration for what the company did so output must always be equal to input and when i add all of this up this sum must be equal to this sum this sum must be equal to this sum [cough] so an input-output table is squared and it's also squared away it is made consistent now you can imagine when national income accounts are collected when numbers are collected by statistical office these figures and these figures don't tally up there are all kinds of mistakes in statistical procedures like this and an input-output table is squared away by various mathematical tricks you say for example i believe more in say input figures in Italy than in output figures because everybody is cheating in construction not only in Italy but they're a bit more than in other European countries yeah so if you are building something you get paid in cash do you report the cash of course not many Italian builders especially small builders would never look at the a cheque they're not interested if you are paid only in cash you will clearly report something to the government because it would be suspiscious that you actually lost money all year long so you report something but you report just enough so that you are not suspiscious by comparison with another builder he reported twelve per cent so you report twelve-and-a-half because you're a nice guy [laughter] but if you look at inputs of the construction industry you see an enormous amount of paint and bricks and everything you know much much more than output so then you adjust output by the input figures yeah and these are statistical procedures which are not necessarily easy now another table which relates to this whole story it is the same thing but now they're broken up this is the the interindustry point this is quadrant one quadrant one and it says sector I produces some kind of output which is called X-sub-I which stands for output of sector I here is a sector J and here is the total input into sector J which is called X-sub-J here is a flow and that's expressed actually in pounds or yen or dollars between I and J sectors and it's called X-sub-I-J X-sub-I-J that's the flow between two sectors expressed in value nm1108: says sector I sells many things to other sectors sector J means any receiving sector when you add it up that's the total it sells to final demand and the total output is equal to that now going back to Leontief the basic thing that Leontief said which was a revelation in nineteen-thirty-six is that every sector produces not only for final demand but also for other industrial sectors so a large portion of what you produce is not visible the best example is if you have a pump going down into the earth going to the aquifer where water is and you start doing this and all of a sudden water starts coming up and you want one glass of water you got one glass but the whole pipe is full for you to get one car millions of cars must be on the line for that car to come out so an enormous amount of stuff is always elsewhere being produced being mixed in some fashion we make something we sell it to these guys they do something to it add something to it and then they sell it to another guy and something travels through the national economy for a long time before it finally becomes a car just think about you know dashboard how many things go into a dashboard and there are special manufacturers that make dashboards but that are made from thousands of pieces that come from someplace yeah until they finally come to Mazda and the whole thing is slotted into a chassis so we can also say that input is like this this is all intermediate inputs X-sub-dot-J simply means that you are summing all of this up but also what you are putting in there is value added primarily labour but here it's sum into one term V-sub-J and then the total input into an industry's called X-sub-J so it says we in making anything buy a lot from other industries but we also buy value added we contribute to national income by doing that by the way every time you hire any primary input like labour you pay wages and salaries for capital you pay interest for land you pay rents these are sources of income so when you add all of this up this by the way when you add all this up is contribution of this sector to national income and this is contribution of this sector to G-N-P to output gross national product and this is what this says it says when i add all of this up it will be called V it will be national income that must be equal to adding all of this up which is called gross national product or total output so these are the kinds of things that are there now i don't want to er drag you through all of this right now i'll do it some other time it'll be fun [laughter] er i'm showing you that all of these terms you know have names we'll talk about some of these things but then i can start combining these things i can start forming ratios which are interesting to study which look like this i can take one term for example X-sub-I-dot divided by Y- sub-I and i call that intermediate output to final demand ratio for sector I and i can then plot these things and understand what's happening with a particular sector anyway i'm not going to do that now i'll do it some other time but please look into this because it's boring to talk about it see it's much better for you to read it and for me to refer to it easier on me easier on you now i'd like to er focus your attention briefly on this series of appendices there are two appendices here and i would like you to read them er it was supposed to be read for today but i would still like to point out that this is something that i consider important this is written in so-called matrix notation some of you had some matrix algebra many of you had none but a matrix is basically a table of numbers so a matrix of the kind that you will see in a second which has four numbers has two rows and two columns that thing we call a matrix can be operated on just like you can operate on any standard number which in mathematics is called a scalar a scalar is just a number you can add numbers and so on in matrix algebra you can add matrices you can divide them sort of you can subtract them you can multiply matrices you can operate on them in other words you can operate on tables that look like input-output tables so you can have a table that has five-thousand rows and five-thousand columns but you just write A which means technical coefficient matrix in this case so it's wonderfully easy to manipulate things and not drag five-thousand things by five-thousand things around yeah now this is what this says and i'm not going to talk about the second equation but just the first one it basically says that's the basic set of equations that Leontief set up he said output is equal to intermediate output and final demand every economy must produce to satisfy final demand must produce many other things if you dear folks want three cars we'll have to make fifty for the production process to be possible for you to get three cars or if you want three-million well we'll have to make five- million and they will be in process moving toward you obviously if you don't want them any more we have a big problem because there are many things in the pipeline now this is called an output vector and you will see how it looks but it's basically in my simple example just two numbers one on on top of the other this matrix says well technology matrix and i'll explain to you er when we meet again or when we start talking about things er in a bit more detail how that matrix is constructed this is as you can see exactly the same vector again and this is the vector of final demand i'll just show you er how that looks in actual numbers to give you a feeling of er how this topic will look i have a very simple system in which i have some matrix which i have not introduced yet called Z which simply says or Z in English English er these are all the flows between different sectors of the national economy this is for example flow from industry two to industry one and it's in pounds let's say so this is how it looks this is final demand in pounds again it says people want for one year six-hundred say billion worth of construction goods and they want say fifteen- hundred- billion worth of non- construction goods so that's what that would say this also this is a vector V which is horizontal which says we have for purposes of production six-hundred-fifty-billion worth of money to spend on income of people who will be contributing primary inputs to construction primary inputs mainly labour and this is one-thousand-four-hundred- billion pounds worth of primary inputs for all the other sectors of the national economy so er X is in this particular case output and you know output happens to look like this now matrix A as you can see from this is this matrix transformed in a particular way you first add these two numbers and call that X- sub-one that's total input and then you divide that into this and into that sounds complicated but basically this simply becomes a proportion you say out of one pound of total inputs twenty-five P come from here and the rest that's seventy-five P come from there that's basically all it's the simply coefficients that tell you out of one pound or out of hundred per cent how much comes from a particular place so that matrix which is what i just explained that means fifteen P this means twenty P this tells you how things are actually mixed in terms of some kind of basic not technology really but basic recipe you know out of one kilo how much is in eggs and how much is in flour then you do a few more operations which i will not drag you through right now and why this is so et cetera et cetera then you come up with this thingy this is a matrix it has two rows and two columns but this matrix which we have computed in some mirculous way tells us very interesting things for example this number here tells us something miraculous it says if you increase final demand for non-construction goods in this economy by one pound or one-zillion pounds doesn't make any difference but you know one pound the final demand wh-, sorry the total output of construction industry will go up by point-twenty-six and so on in other words twenty-six P so even though you didn't want any more new construction by wanting more non-construction goods construction goods will be required because these guys that make different things will have to be selling to each other and they will have to be building new plants and things like this and that would involve construction so even if you don't want any construction goods you will get them because construction goods are involved in production of other goods yeah but this is the literal meaning of this if you increase final demand of good two by one pound the output of good one in this economy will go up by twenty-six P even though you don't want it but this is what will happen because things are mixed in that way so this is in economic parlance the sensitivity of output of one industry to changes in final demand of another industry yeah that's what input-output is about so that table is an interesting table it tells us something interesting about how different industries are connected amen finished [laughter]