Dangerous Complexity — Supply-Chain Breakdown Edition

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In 2019, before the pandemic insanity, I wrote a blog, “Dangerous Complexity: What To Do About the Complex Problem of Complexity,” which explored various systems where human operators were unable to correctly diagnose a problem leading to disaster. 

In each case a small glitch led to a spiral out of control.  The problem being our capacity, as finite creatures, to sift through all of the alarm bells going off and come to the right answer before the clock runs out.

As I write, countless container ships loiter offshore and waiting to be unloaded.  It is a logistics nightmare directly the result of lockdown mandates.  It is something I had warned about way back when governors were arbitrarily declaring livelihoods to be “essential” or “nonessential” and playing out currently as the slow motion trainwreck of predictable consequences.  

To those seeing conspiracy in this, I would suggest Hanlon’s razor: “Never attribute to malice that which is adequately explained by stupidity.”

This is what you get when you elect lawyers, with the most political experience, rather than those who understand the basics of business, trade, and supply-chains.  Many who hold office, like their constituents, are economic illiterates and can only see what is right in front of their face.  

As a TWIC card holder with a long time interest in economics and logistics, I do feel qualified to explain.  We have been heading this way for a for decades.  The economy has become extremely complex and also increasingly in fragile.

How did we get here?

From Locally Produced To Corporate Globalism

There was a time when most things were produced for local consumption.  For most of human history transportation had been very slow and costly.  Sure, there was the silk road and the spice trade between the continents.  But it was simply impractical, and unnecessary, to ship things long distances. Food was grown close enough to market that it could be brought by horse and cart.  Towns had their own millers, tailors and blacksmiths.

Comparatively to modern times, this was very inefficient.  In the 1800s one farmer could only feed three to five people and 90% of population lived on a farm.  Today one farmer can feed 128 people and only around 1% live on a farm.  This is due, in large part, to the internal combustion engine, as well as advancements in agricultural science, and also the ability (with refrigeration) to move vast amounts of fresh produce to far away markets.  Meat can be trucked from Texas slaughterhouses to New York City grocery shelves in a matter of hours.

But the bigger revolution has been the imperishable items, the gadgets that require labor intensive manufacturing processes, and generally are produced by the lowest bidder.  This is mostly for our benefit.  If an iPhone might cost $2000 if it was produced in the United States and thus outsourcing production means that more people can afford to buy this technological wonder.  Of course Apple and big corporations are the biggest beneficiaries of this global trade paradigm, still the consumer does get a lower prices.

Slowly, but surely, due to the advantages of economies of scale, small local mom and pop businesses are bought out by ever more expansive corporate conglomerates.  Like that old abandoned dairy farm I used to see, from the interstate highway, on the outskirts of Richmond or in upstate NY. Once thriving farms, within miles of the market, are simply unable to compete with those bigger (and oftentimes further away) producers.

Our Very Fragile “Just-In-Time” Supply-chain

Manufacturing our complex technology takes a large variety of materials and components, these are sourced through a tangled web of suppliers.  If parts don’t come in from Taiwan, then automobile factories in Michigan sit idle.  And you don’t just go out and build a semiconductor industry overnight.  Even if it were possible, the raw materials would need to come from somewhere.   All it takes is couple links in the chain to be broken, even just one, and whole swaths of the economy will grind to a halt.  

In the past there were droughts and famines, countless people died of starvation due to changes in climate.  But then the problem was often local, like the potato blight that hit Ireland hard from 1845 to 1852, and contained.  The overall system was robust because it was decentralized and full of redundancies.  There were places to flee to, like the United States, where there was a chance.

But that’s not the case anymore.  Not only are supply lines stretched very thin and delicate, with many moving parts, we also have the ‘just-in-time” manufacturing concept where inventories are kept low as a cost saving measure.  Inventory is a big business expense and “lean manufacturing” has been the rage for this reason. The end result being there is no extra capacity in the system.  

Ports lack the additional capacity and should never have been shutdown.  A minor disruption of an already overtaxed system will very quickly lead to major backlogs and a cascade of failures down the line.  It’s not only unloading the ships, but finding space for containers, having the rail cars and chassis to put them on.  There was already a shortage of CDL drivers before this started and there is no fast or easy way to fix the situation.

We Need Local Production and Built-in Resilience

We are seeing the weakness of the current economic paradigm in full display and it will likely get worse before it gets better.  I would expect slim pickings when it comes to the Christmas season.  No, it is not likely that we’ll run out of food or fuel here in the United States.  We do produce those things locally and therefore have some security in that regard.  However, that doesn’t mean there will be no pain.  Prices are likely to continue to rise.

It is a good time to reflect on where we’re headed.  Do we really want to continue to outsource our blue collar jobs to countries that do not follow our environmental standards or labor laws?  If climate change is an issue, why not use tariffs to bias the market in favor of domestic and local production?  Sure, it makes sense for big corporations and their bottom lines to chase cheap labor overseas, but does it serve national security or the betterment of Americans who aren’t privileged with college degrees?

Efficiency is a good thing.  It is of some benefit for us to have access to the lower priced labor in the developing world.  But then this is not coming at a cost.  It may relatively inexpensive to ship things around the globe in some regards, it certainly has made big corporations very powerful (with a lobbying and propaganda arm to match), yet it does come at an environmental cost and has also left the whole economic system vulnerable to collapse.

It is totally wrongheaded to increase taxes on domestic manufacturing and then remove tariffs on imported goods.  Sure, this might slow economic growth and possibly even lead to a small recession.  But real leadership is about seeing a little further down the road, and being prepared, rather than always doing what is politically expedient.  We need a new crop of elected leaders who are locally, and not globally, oriented.