Ed Conway, Part 2: Chinese vs American Cars, Andy Burnham's £80 T-shirt & How Dr. Dre Uses AI

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1:03One of the bits I did find particularly interesting in the book, in the cars section, was kind of the red flag act. And how that essentially, like, Britain leads the world in the Industrial Revolution, lots of things, but in cars were kind of nowhere to be seen. And that is basically a policy intervention, I think, in 1865, the locomotive act.

1:25Ed Conway:Yeah, it's really weird. It happened with cars and it also happened with electricity. We, you would have thought, given the UK was so far up, you know, in the lead with the Industrial Revolution, particularly, and, you know, I talked through this, the whole history of it, textiles sector, you know, that was massive. And our attitude, actually, when you think about our attitude to free trade and the coronals and this is the country that invented free trade, all of that stuff. What did that really derive from? It derived from the fact that in the kind of middle of the 19th century, we became so much better at spinning and weaving cotton than any other country around the world.

2:04Ed Conway:And cotton, it was cotton, you know, like in the same way that, you know, the economy is dominated by AI right now. the economy was dominated by cotton back in the kind of middle of the in the 19th century and they basically just wanted to ensure that they could buy their cotton from america for cheap and sell that cotton without any trade barriers elsewhere and so the attitude towards right let's be this free trading nation it wasn't just because we wanted to reduce the tariffs on wheat it was because we wanted to sell our stuff elsewhere it was because of entrepreneurs um lobbying against the Corn Laws.

2:39Ed Conway:But anyway, because the UK was so, so advanced when it came to the industrial revolution, it's, you know, a lot of people thought it's, it seems to some extent surprising that most of the innovations for cars were happening elsewhere in France, in Germany, and then in America. So in terms of the industrialization of the automotive. And I think, you know, part of the explanation for that is that we were slow to get there. And part the explanation for why we were slow to get there was but is because there was this bizarre act called the red flag act i can't remember the full name but it came to be known as the red flag act which basically says if you're driving an automotive and initially they were kind of steam locomotives um but then in time it was it was internal combustion engine cars then someone had to walk ahead of you holding a red flag in the air i think it was like four five miles an hour or maybe at three miles an hour, but basically at walking pace.

3:33Ed Conway:So you have this car, but you can't drive it. You can't drive it any faster than you can walk. And you have to employ someone to walk in front of you holding a red flag. And that was the case for quite a long time. While all these other countries are like, right, let's just go like gangbusters. Let's have a car and let's drive it as fast as we can. And eventually the UK kind of gets rid of this kind of preposterous act. But I mean, like, I don't know. There's so many analogies to where we are now with AI and people being worried about AI. Are those who are trying to impose regulations on AI, are they the people with the red flags walking out in front of the cars?

4:13Ed Conway:But the long and short of it is that as a result of that, or partly thanks to that, I think, the UK was much slower to develop a motor industry than America. And it happened in America. The real industrialization of the motor car happened in America. And it was the same, like I say, for electricity. So we had a very powerful, and to some extent, maybe there's a vested interests thing here. The vested interests of the people, the farriers and the various people working in kind of horse carriages and those that were really powerful at the time. and they were able to lobby for the red flags because, oh, you don't want to have this weird kind of automotive that's going to scare the horses.

4:54Ed Conway:In the same way, we had a very kind of established gas industry that was responsible for all of the lighting in the country, so gas lamps around the country. And they, when electricity came along, they were like, well, no, I don't know about this. And so they encouraged the government to basically make these really onerous rules on anyone who wanted to try and build an electric plant. And so although Britain was the first place in the world to have the world's first conventional power station was in Holborn, although that happened here, it just didn't take off across the country because the rules were so tough on it, which actually set us back for decades.

5:34Ed Conway:Other countries around the world had electricity long before Britain had it kind of around the country mainstream. And so there are these weird kind of, I don't know, fossils of regulation in the past that to some extent explain why a particular thing didn't take off in this country and did take off elsewhere. I don't think, you know, I think there's, no one knows the reasons for these. You know, this is a big economic field of study, why innovations tend to happen in certain parts of the world, why it is the Industrial Revolution happened here and didn't happen, you know, elsewhere in Europe, for instance, or elsewhere in kind of sub-Saharan Africa.

6:14Ed Conway:These are still, these are kind of long and chewy kind of debates. But, you know, this is one part of it, is that, you know, your willingness to be open to a new technology matters. And, yeah, like I say, maybe we're going through various versions of that right now with AI as well. So I think one of the interesting things about AI will be the driverless vehicle revolution, how that may end up sort of changing our cities and all the knock-on effects that that may have. like what we'll do with all the supermarket car parks in London, for example, will be an interesting kind of question. And I also think in terms of jobs, it might be quite interesting because we could end up seeing the kind of Jevons paradox take place with much more people kind of driving in terms of the miles being used.

7:12And actually, so I went through and did this with AI earlier. There are 15 million more cars in the UK, but actually the number of mechanics has dropped since the start of the year. Only slightly, but I thought that's an interesting kind of logic. I wonder what will happen with mechanics. I have a slight obsession with mechanics because I think it's actually a really cool job. If you like cars, you're fixing stuff, you're helping people. Any garage I've been into, it seems to have quite a good atmosphere and so on. so but i wonder whether there'll be more mechanics created as a job or certainly more people that are going to service the cars because yes one of the interesting parts of the book as well i thought was how you talked about there were 5 000 components in the average car 30 years ago now there's 30 000 and how essentially doing a bit of fag packet maths with it is that possibly a car has 100 ,000 border crossings before being put together.

8:17That was what I inferred it from that because you were just talking about the amount that it happens. I thought, well, that's a nuts stat.

8:25Ed Conway:It's kind of, I mean, like the thing about a car is we see it as this kind of homogenous thing. But actually, when you... But kind of going back to those early days of automotives, Henry Ford was obsessed with the idea of trying to make as much as he possibly could of his car himself. So cars have always, you know, back in the day, in the time of the Model T, it was kind of maybe 5 ,000 parts. And there's lots of different parts because an engine in particular has all of these different moving parts. And you've got pistons and you've got the whole kind of, you know, the whole thing. And then you've got the kind of drive shaft and everything else.

9:03Ed Conway:And that's before you get to the seats, the windows, the cabins, everything else. So there have always been lots of parts in cars. Henry Ford wanted desperately to be able to make as many of those parts himself. And he went on this kind of slightly, some would say, harebrained kind of scheme, including buying up plantations in Brazil, which were going to be the Ford rubber plantations where he was going to grow the rubber that was going to be the rubber that was going to go into the Ford tires. And the long and the short of it is it completely flopped. And it wasn't just because of what happened in Brazil.

9:34Ed Conway:Still, it flopped because it is just really, really, really hard, given how many different parts you need to make them all yourself. And over time, the amount of those kind of parts that go into a car that is made by the carmaker, and this is my point going back to earlier about the company with the badge on the front of the car did not make the car. Over time, the amount of those parts that are made by the actual company that makes the car has just gone down and down and down and down and down and down and down to the extent that these days maybe 15 % of the value of the car in terms of the components inside, maybe 15 % of it is made by your Volkswagens and other companies, which when you think about it, it's kind of crazy, isn't it?

10:22Ed Conway:These are the most famous manufacturing companies in the world. And whereas I think most people kind of understand that a company like Apple doesn't really actually make its own phones. They kind of, you know, or maybe they do. I mean, like, Apple doesn't make its own phones. Apple doesn't make a single thing. Apple is not a manufacturer. Apple designs the phones and then sends it off to Foxconn. Designed in California. Designed in California, made in China or these days India to some extent. But the point is, maybe people kind of broadly understand it's not Apple that actually makes the phones, but maybe they do.

10:54Ed Conway:But even within the world of economics, the assumption is that BMW makes their own cars and that Ford does and everything. No. If you're thinking about the actual process of taking metal and turning it into a shape that can eventually become a part that goes into the car, the vast, vast, vast majority of that is done by other companies who make components that then go to another company that puts those components into an assembly that then Ford or BMW buy, and then they slot it together, and it becomes a car at the end. So that's, and that is a profound difference. They are assemblers. They're not making the car.

11:37Ed Conway:They do still make a few bits and pieces. So, you know, if you're a particularly European carmaker, you want to maintain control of how to make the engine because the engine is seen as the kind of identity of the car. You know, but even there are various carmakers who don't even make their own engines anymore. and so that I think that is an enormous shift in the the geography and architecture of how the global economy works and it's been happening over time like I say and the the companies that do make the car are that constellation of kind of manufacturers that no one's ever heard of that are dotted around in the case of you know the UK mostly around the Midlands in the US it's mostly around the Michigan area, Detroit, Windsor, Ontario as well.

12:25And those parts, little cogs and camshafts

12:30Ed Conway:and the seats that go into a car. I used to think, you know, when I bought... We've got a Volvo now for our big family. Is it the EX90? No, it's not. No, it's the X. I'm afraid it's not an electric car. It's the old diesel one because we can kind of stretch that one. But I always thought that Volvo seats, Volvo seats are really comfy. They're kind of famous for their seats. So I kind of thought, well, obviously Volvo make the seats because they're Volvo seats. They don't make the seats. It's another company that makes the seats. And it's the same company making the seats for Volvo that's making the seats for Porsche, which are also kind of, you know, the kind of key defining feature of a, no, I don't call it clear, it's not a defining feature.

13:17Ed Conway:But like the 911 has particular seats that I think people are kind of familiar. Oh, that's a 911 seat. That's made by Porsche. No, Porsche doesn't make it. Porsche doesn't make it. Volvo doesn't make it. It's made by a selection of companies that most people haven't heard of. Lear, Adiant. Like the random companies that you've never heard of make pretty much everything in a car. So who makes the car? Like that is actually a question that becomes quite philosophical. Is it the car maker or not? And there's some cars, I'm going to get back to your question on mechanics in a second, but there's some cars like the Mercedes G-Wagon.

13:54Ed Conway:You know, they're crazily expensive cars, the big SUVs, the big boxy SUVs that Mercedes makes. They don't make them. Mercedes doesn't even actually make them. They outsource the production of the car to another company called Magnus Stier, I think, based in Austria, who make the entire car. So Mercedes, one of Mercedes' most iconic cars is not made by Mercedes. And so that is kind of interesting. And so if you're kind of thinking about the question of the future of the automotive industry and who is going to be able to kind of be the mechanics and fix these cars and make them and so on, actually that's got less to do with the car companies than it does have to do with these other random companies that are the manufacturers of cars.

14:52Ed Conway:and so for me the car industry is another kind of topsy-turvy kind of environment but I think what makes it really profound like this a profound moment it's not just about the future of cars and about self-driving cars it's about the fact that we are right now in the midst of the biggest disruption of our kind of industrial fabric that we've ever had because it is it's becoming nigh on impossible for domestic car producers, both in the UK and in Europe as well, to compete with China. Yeah. Because it's almost gone, that was the thing when I was reading your book, is it's almost gone back to Henry Ford time in terms of BYD, which I hadn't realised was Build Your Dreams before the book either.

15:40But is that they are now coming back to the kind of autarky self-sufficient.

15:46Ed Conway:So if you think about cars as an assembly of 30 ,000 parts, where do those parts come from? In the past, a lot of those parts would come, if you're an American carmaker, a lot of my car section, I'm looking at America just because it's where it all began. A lot of those parts historically would come from around the Detroit area. But over time, particularly in the 80s and the 90s, the American carmakers were like, well we're not making it ourselves we're sourcing it from a random group of people around the detroit area we want it cheaper and so they would say to the random group of car suppliers they would say okay well we want this cheaper and they'll say well we can't produce it cheaper here they'd be like well do what you have to do and so they'd be like okay well in that case i'm gonna source this metal part from china instead yeah and so the car makers were like okay if you do what you have to do, get it from China, get it from Asia, wherever, just make sure it is good enough quality.

16:47Ed Conway:And so they then fly out. And this is one of the most fascinating sets of conversations I had was someone called Mary Buckseiger, who works within that industry, who went out to China. And so they're making parts like bumpers and hinges and brackets and things that go into cars for all American companies. And in the kind of, you know, 90s, 2000s, they basically went out to China. This is just at the point where China is starting to open up to the world. They went out to China and they basically taught the Chinese how to make these car parts. Because the American industry wanted cheaper car parts to put into their cars, to make their cars.

17:31Ed Conway:So they're starting to teach the Chinese how to make the parts. And then over time, China learns how to make them. make them and it's great for both sides because it's like great okay america has cheaper cars than they would have had china is making these parts and has you know a business but now we've come to the point where china has learned because they've been taught by us you know by the european and by the american car makers how to make a car and now we're at the point where china is able to make these cars not just the parts but the entire car for far cheaper than we can do over here And we're faced with a massive quandary.

18:07Ed Conway:And the thing that makes this quandary particularly uncomfortable is it's not like this exogenous force like China came along and just ate their lunch. It was their doing. They said, we'll teach you how to make these parts that go into our cars. And now China is the biggest existential threat to the manufacturing sector in Europe that we have ever seen. And like I say, the reason I focused on this, the reason I've written a book that's partly about this is I think this is one of the biggest stories of the next decade, is what does that do for manufacturing in the UK to the extent that it's left and in Europe?

18:48Ed Conway:And the answer is really scary because almost all of the manufacturing sector is one way or another directly or indirectly dependent on the car industry. Because if you're talking about all of those people or making metal parts in Birmingham, or making other parts in the Midlands, thousands of companies, most of which are not household names, they're relatively small companies, but that's the fabric of manufacturing in this country. Well, maybe not all of their produce is going to car factories, but most of it is, a lot of it is, at least some of it will be. If all of a sudden there's no business because everything's coming in from China, then that is existentially a crisis for the UK manufacturing sector and I think we are just beginning on that right now and that scares me.

19:41Because BYD has become, and again it's one of these things that happens slowly then suddenly, right? In the last three, four years it's basically become the biggest car on British roads, right? What are the stats around?

19:54Ed Conway:And there's this car called the Jaycoo 7 which has become the biggest selling car. People call it the Timu Range Rover. You'll have seen them around. They're all right, but they're cheap. They're much cheaper than any equivalent you can get in Europe or from Japanese car makers. And they are the biggest car model that is sold in the UK, which is mental. It's come from nowhere. And it's a Chinese company that most people had never heard of a few years ago. so I think that's profound but if anything in the history of the book that showed me is that we're not going to possibly care that much until it's too late, until the unintended consequences happen, if we can get something cheaper people like cheap stuff we don't care where it comes from too much people like cheap stuff and ultimately don't necessarily care that much where it comes from and And I think we're seeing the consequences of that now.

21:01And that's, I think it's a conversation we're just beginning to have,

21:10Ed Conway:but we're increasingly going to be beginning to have that at the kind of barrel of an economic gun. Because we like cheap stuff. but does it matter that that cheap stuff comes from the other side of the world whether it's like cheap clothes that get flown across in a jet or whether it's a cheaper car how much does that trump being able to make stuff and i think i think kind of you know it matters a lot of the time it doesn't matter and then you have i don't know then you have a war and all of a sudden your ability to take those factories that were making cars and turn them into factories that are making, I don't know, armaments, that matters.

21:56We've mainly talked about bread and cars, but there's a whole chapter on textiles as well. Do you want to talk to us a bit about Andy Burnham's£80 T-shirt?

22:08Ed Conway:Well, yeah, because I think it's a good example of, you know, the difference between making stuff domestically. and buying it from overseas. And we like cheap stuff, obviously. We like cheap clothing. The vast majority of our clothing is grown in a cotton field in India. It's woven in India often. It's cut in Bangladesh. The merit of that is that it's cheap. and you can have cheap t-shirts, jeans, everything else. Andy Burnham got a bit of stick recently for spending kind of 80 quid on a t-shirt and more on other bits and pieces from a company based in Manchester.

23:00Ed Conway:And it's easy to kind of give him stick for it, but the reality is that's kind of, for the most part, how much it costs to make stuff domestically. It just costs more. And if you're going to want to have more domestic production of things, and if you do care about where things come from, then life will be more expensive. Yeah. And so, you know, actually, it's a pretty good illustration of the way that we have ordered the world, which is that cheap things, the consequence of having cheap stuff is often that we have to just import them in from overseas, from wherever it is cheapest to make it. And you don't have as much visibility of what the labour conditions were there.

23:47Ed Conway:You don't have a sense of the environmental implications. No one really knows this stuff. However many kind of labels, fair trade or whatever, you see on your clothes or on the food,

24:00Ed Conway:it often doesn't really tell you the full story. You only get the full story by going out and seeing, what it's like in the cotton field or what it's like in the mills. And so I think actually the expensive T-shirt is kind of an interesting illustration of the reality of how to re-industrialise in a world where it just costs much more to make stuff domestically and how we've forgotten the reality of how much it costs to make things. We've forgotten that most of the things that surround us that are pretty cheap to buy are a function for the most part of trade. And trade has made stuff so much cheaper.

24:50But it's made stuff cheaper with some compromises.