[OPE-L] The hidden significance of second-hand goods in the world economy

From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Fri Mar 30 2007 - 11:43:23 EDT

Many Marxists focus on the official concept of "value-added" because it
seems the nearest proxy to Marx's concept of newly created value. As I
mentioned before, there are some problems with that approach. But in any
case, one thing that is often ignored is that statistical classifications
based on value-added for the most part overlook the circuit of trade in
second-hand goods; the statistics concern new output, and conceptually
only the value of repair work & maintenance of productive assets is
included in "production".

Second-hand goods already existed, and were not "produced"
in the current year. Conceptually, their sale is a transfer of an asset that
does not add anything to GDP. Thus, no complete and accurate
statistics exist for the trade in second-hand goods, even although
used goods can be an input (or intermediate good) in production.

The New Zealand statistics office comments for example that: "It is
generally easy to determine which industry normally produces a particular
NZHSC product, but there are some exceptions, such as for used goods.
Although "goods" are not normally produced by the wholesale or retail trade
industries, used goods (for example used plant, machinery and equipment in
wholesale trade) have generally been classified to wholesale or retail
trade. This assumes that used goods are not produced by New Zealand
manufacturers and are instead characteristic of the wholesale/retail trade
industries. This treatment is under review and feedback from readers is

Yet, the trade in used goods is burgeoning, and the same
countries who seek to curb greenhouse gases with new technologies are
"recycling" less energy-efficient, more polluting technologies to
poorer countries.

Here's a couple clips:

International trade is not only about new products. A wide variety of used
or refurbished consumer and capital goods are also sold on international
markets, from old cars and turbines to spare parts, mobile phones and
airplanes. Most used goods are sold by developed countries to developing
ones. (...)  The magnitude of international trade can be appreciated from
the fact that, excluding trade with Canada, the US exported approximately
one third as many used automobiles as new automobiles in 1999. Japan, which
is another major exporter of used cars, was estimated to have shipped abroad
a record US$1 billion in used vehicles in 2003. In many countries there are
also major sales opportunities for remanufactured and used motor vehicle
parts and components. The market has been estimated at about $60-70 billion
in sales worldwide, as people on lower incomes in particular keep their
vehicles running for as long as they can to avoid the expense of purchasing
another one. Another major global market is second-hand clothing which, like
used automobiles, could grow much bigger. World exports in used clothing
amounted to $990 million in 2001, a small fraction of the export of new
clothing, valued at $146 billion. However, this trade is more than it seems,
because the relative weight value of second-hand clothing is very small, at
just $0.73 per kilogram.

The transfer of second-hand machinery and equipment has now evolved to
become an important business sector - almost unnoticed. (...) Second-hand
machinery and equipment to the value of more then 100 billion US dollars are
sold every year, primarily to developing countries and emerging markets.
This figure is substantially higher if exports in the context of foreign
investments are also considered. The transfer of second-hand machinery and
equipment sometimes shows double-digit rates of growth. (...) Turnover from
second-hand vehicles has a value of approximately 50 billion US$ annually. A
large portion of it goes to developing countries and emerging markets.
Almost 500,000 second-hand vehicles with a unit price of less than  2,500
euro and an average age of 6-8 years originate from Germany alone. (...)

The "Journal of Commerce" comes to the conclusion that a market analysis
regarding the export of second-hand machinery and equipment would probably
have to build up on a mosaic of "anecdotal pieces of evidence" (Gersten,
1997) and "Statistik Austria" even speaks of "nightmares" for those who wish
to make an international comparison of second-hand machinery as each piece
of used machinery is unique (Rittenau). (...)

The Republic of Korea has recently created some legal conditions of quite a
different type with regard to the export of second-hand machinery and
equipment. The recession unleashed by the Asia Crisis has meant that the
degree of utilisation of the equipment in the various areas of production
has fallen to a minimum. As the country urgently needs foreign currency, in
1998 about 10 per cent of all equipment built between 1991 and 1997 was put
up for sale. The Korean government is actively encouraging the sale of
equipment to the tune of an estimated 14.6 billion US$ - one third of the
original costs of investment - and has not only instructed the Korea Trade
Promotion Agency to sell the equipment to emerging markets, but has also
ensured that it can be shipped without having to overcome bureaucratic
hurdles. (...)

In Germany there are roughly 3000 dealers of second-hand machinery and
equipment. (...) A few experts have tried to estimate the total size of the
market for second-hand machinery and equipment. The estimation for Germany
is an annual turnover of 10 to 15 billion euros (BDEx, HWWA). Most
second-hand machinery and equipment originates from modernisation measures,
factory conversions or from factories being shut down. (...) An estimated 50
per cent of all second-hand machinery and equipment that is sold is
therefore shipped abroad. For the entire area of the European Union the bfai
estimates the total market for second-hand equipment at 45 billion euros.
The Dutch foreign trade service, EVD, is even more optimistic and estimates
the market to have a magnitude of 76 billion euros. The biggest individual
market is the USA where trade in second-hand machinery and equipment has a
long tradition. The annual volume there is estimated at more than 40 billion
euros (bfai). Very optimistic estimations put the figure much higher: "The
worldwide industrial asset industry generates an estimated $1 trillion"
(Online Asset Exchange, San Diego Business Wire, November 9, 2000). The
various estimations may have a high degree of imprecision, but it is highly
likely that each year second-hand machinery and equipment to the value of
more than 100 billion euros is sold throughout the world. A large part of
this goes to developing countries and emerging markets. (...) In some
countries 20% is second-hand machinery (even higher in Africa). Morocco: up
to 35% of the market for machinery. Brazil 3% .Thailand:  90% of textile
machines are second-hand. India: 75% of all imported capital goods are
second hand (IMI-US Gov) (...)

Countries such as Hungary, Poland, the Czech Republic, Slovakia and Slovenia
mainly require second-hand machinery and equipment that is not so old as
they increasingly wish to export their products to western Europe and they
must therefore meet a relatively high standard of quality. At the same time
these countries now even export their old machinery to countries lying
further to the east. The proportion of second-hand machinery in the entire
stock of machinery is estimated to be 10 to 20 per cent. The energy
intensity of Polish industry is three times higher than the average in the
European Union. Russian industry has also expressed a great interest in
second-hand machinery and equipment. About 70 to 90 per cent of Russia's
industrial production basis is outdated (Verteyko). At present most
second-hand machinery and equipment is used in the sectors food,
agriculture, construction, machinery for plastics and wood processing and,
to a lesser extent, in textiles, garments and machine tools (bfai). It can
be assumed that in view of the lack of financial resources an estimated
proportion of 30 to 50 per cent of second-hand machinery that has not been
reconditioned will find its way into the country. The fact that
international internet portals now have an option in the Russian language
and maintain contact offices in Russia can be seen as a further indicator
for the market opportunities of second-hand machinery and equipment in
Russia. According to details provided by the country, Russia has a
particularly high demand in the energy sector. By 2020 more than 350 billion
US$ are intended to go into refineries and power stations and many used
refineries have already been sold to the countries of the Russian Federation

(...) The total imports of machinery and transport equipment to the 14 most
important developing countries and emerging markets amounted to more than
350 billion US$ in 2000. If one takes account of the legal conditions and of
the various different factors in the individual countries (i.e. the
relatively high proportion of second-hand machinery in India or Morocco, the
relatively low proportion in China), it seems more than likely that
second-hand goods with a value of at least 50 to 60 billion US$ were
exported to these countries alone in 2000 (basis 15%).

(...) What was probably the biggest industrial dismantling of all times took
place in Dortmund, Germany. There, in 2002, a steel works of Thyssenkrupp
including, blast furnaces, roll mill and blast roasting plant was dismantled
into its individual parts and shipped to Jiangsu in China. The plant, which
was built in 1960, has a total capacity of 4.5 million tonnes of steel per
year (DER SPIEGEL, 15/2002, "China-Town in Westfalen"). The corporate buyer,
Shasteel, is part of a state-owned steel group with a turnover of more than
a billion US$.

(...) [a] capital stock sold second-hand every year with a value of about
100 billion US$ consumes an average of 20 per cent more energy than what is
possible with the most modern machinery.

(...) According to official export statistics, Germany exported roughly
700,000 second-hand cars with a total value of 4.35 billion euro in 2001. As
in previous years the main sales regions were Eastern Europe, Africa and
the Middle East. Poland and Lithuania head the list among the individual
countries of acceptance. (...) It is undisputed that the most important
motivation for buyers of second-hand machinery and equipment are the savings
in the capital outlay in view of the general lack of financial resources. A
bottle filling machine transferred from the USA to China, for example, costs
2.3 million US$ second-hand instead of 20 million US$ new (Journal of
Commerce). (...)Another important reason for the purchase of second-hand
equipment is the time saved. While the construction of a new nitrogen plant
takes three years, a second-hand plant can already be ready for use in 18
months (Journal of Commerce). The international supplier of second-hand
machinery and equipment, UPE Universal Process Equipment in Berlin, confirms
that: "The great advantage of purchasing second-hand machinery is its
immediate availability. Thus around 30 per cent of the customers who contact
us wish to make substitute investments." (Handelsblatt of 20.April 1999).
Moreover second-hand machinery is often preferred because it has already
proven its worth and tends to be more labour-intensive. Due to its
complexity, modern German machinery often finds no demand in countries at a
lower stage of economic development. In the industrialised countries it is
mainly the high overall costs and the quality demanded that force companies
to purchase increasingly modern machinery at a faster and faster rate. The
old machinery then has to be disposed of at low cost or may possibly be
returned to the dealer as a down payment for new machinery. At the same time
second-hand machinery and equipment comes onto the world market when
capacities have to be reduced in industrialised countries. A relatively new
trend is for users of machinery to include a "remaining value" for a piece
of machinery or equipment in their feasibility calculations, i.e. to
specifically offer a piece of equipment for sale instead of scrapping it
immediately. (...)  in the case of second-hand vehicles it can be concluded
that world-wide exports to the value of approx. 50 billion US$ will result
in additional CO2 pollution of roughly 1.8 million tonnes each year. (...)
Increasing exports of second-hand machinery and equipment undermine efforts
to reduce greenhouse gases.


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