David Zalubowski/AP Photo
Shelves are devoid of paper products in a Denver Target store, August 29, 2021.
At least once over the past 18 months, when you tried to order something online or visited a retail store, you have probably experienced something Americans are not supposed to feel: scarcity. Shortages of all kinds have lingered and even worsened over the past 18 months, in every product imaginable: Hot tubs, automobiles, books, fertilizer, plastic pipettes for labs, paint, semiconductor chips, place mats, french fries at Burger King, emergency supplies for disaster aid, aluminum cans, and yes, once again, toilet paper.
One might have assumed that, after the worst lockdowns of 2020 ended, these disruptions would subside, and supply chains would ramp back up to their usual pace. And one could further have assumed that supply would catch up to spikes in demand once mass vaccinations began. But it takes time to untangle something that becomes so tangled, time for a shortage on one side of the world to appear on the other. There are manufacturing plants and ships and ports and containers and airplanes and trucks and trains and warehouses and retail locations that all have to be managed just right, and just in time, under our current nothing-in-excess style of how we get only as many goods as we need in any one location.
The supply snarls we’re seeing today are a function of those previous lockdowns, misaligned inventories of things like shipping containers, continued COVID protections that extend manufacturing and shipping delays, and extreme weather. But more important than all of these is the state of global production. With its thin margins and consolidated structure, the globalization of production magnifies disruptions of any type. This is why getting what you desire when you desire it is no longer a certain bet. And we haven’t even really begun to grapple with this problem, despite a cataclysmic pandemic that should have shaken us into shape.
A year ago, I had the great misfortune of releasing a book that covered this in detail, wondering why one of the most abundant combinations on Earth—salt and water in a plastic bag—could suddenly become hard to obtain. The culprit was not only a disruptive event (a hurricane in Puerto Rico, where most IV bags are made), but a concentrated system of “power buying” for hospitals that prevented any competition to the dominant producer.
When talking about the supply shocks that have extended beyond salt and water in a bag to countless products of all descriptions, a similar issue crops up: namely, that “all roads lead back to China,” as one analyst explained.
China has a COVID-zero policy, where lockdowns of large metropolises are frequent occurrences. In August, it shut down the third-busiest port in the world for two weeks because of one COVID case. This might make sense in the long-term fight against COVID, but in the short term it takes large production inputs offline, as we’ve seen since the beginning of 2020. China has also suffered from a bad storm season with heavy flooding, which has slowed down certain manufacturing centers and even closed the Yangtze River on occasion.
The imminent collapse of China’s second-largest real estate firm Evergrande, amid a national initiative to reduce real estate leverage and rebalance the economy, could exacerbate the problem further. Real estate is close to 30 percent of national GDP, and slowing growth there cannot help but impact the greater Chinese economy.
In addition to delays, the resulting stop-and-start quality of Chinese production creates surges that ports are simply unequipped to deal with. Last week, the giant ports of Los Angeles and Long Beach had 56 container ships stuck offshore, hitting a new record for the fourth time in the past three weeks. Today’s ships are larger and take more time to unload, a consequence of a consolidated shipping industry that packs more in cargo in an attempt to slice costs. There also aren’t enough trucks to get everything out of the ports, or more precisely, not enough truckers, because wages in this deregulated industry have been so crammed down that nobody wants to do the job.
There are other shocks happening too. Vietnam, to which a lot of Chinese work moved for even lower wages, is experiencing its own COVID outbreak affecting manufacturing. The coup in the West African nation of Guinea has diminished raw-material supply of bauxite, a critical element for aluminum manufacturing. But in the aggregate, it’s a case of China coughing and the world getting sick. That’s the ultimate consequence of runaway outsourcing and the sacrifice of redundancy for what was sold as efficiency, but was actually just cheap labor.
With its thin margins and consolidated structure, the globalization of production magnifies disruptions of any type.
But that’s just the regional aspect of concentration. The companies making and transporting the products themselves have also concentrated their industries, building more fragility into the system. Nobody has been sharper on this point than Matthew Stoller of the American Economic Liberties Project. As he puts it, “The consolidation of power over supply chains in the hands of Wall Street, and the thinning out of how we make and produce things over forty years in the name of efficiency, has made our economy much less resilient to shocks. These shortages are the result.”
The philosophy of just-in-time production dictates that you profit more with fewer suppliers using economies of scale. There are monopolies shipping the goods too, another profit-maximization strategy. When trouble arises, the biggest buyers get the goods first; Walmart has a policy of demanding on-time goods or they will dock what they pay to suppliers and shippers. (They’re also chartering their own ships to go get supplies from China.) So supply shocks primarily hit smaller retailers, creating another incentive to get big.
A macroeconomic analysis would say that inflation from increased post-vaccination demand is transitory and limited. But the supply chain snarl could keep it going as long as the disruptions break down an already fragile system. When shipping rates jump 500 percent in a year and companies raise prices to cover for low supply, that will inflate prices irrespective of demand. It’s also a national-security issue, if medicines and other critical goods remain so reliant on circumstances outside of U.S. control.
The Biden administration has certainly talked a good game about reshoring and supply chains. A very good report on supply chains was released in June, but there hasn’t been much follow-through. There are stirrings among scattered policymakers but nothing coherent and consistent across the power centers in Washington. And there remain enormous obstacles to establishing an industrial policy that puts workers and our prosperity above privatized profits that ruin systems. Rome wasn’t built in a day, but it was built.
The first piece the Prospect wrote about the coronavirus warned of the economic red flag of locating so much manufacturing activity in one region of the world, and how that can exacerbate a serious shock. The New Brandeis movement that has cautioned against monopoly power really started with one person worried about supply shortages. This, not Facebook or Big Data, was the animating impulse of today’s anti-monopoly push: the idea that it would fatally damage our resiliency as a society, in the name of corporate profits.
Now, that damage has become terrifyingly real. Everything from Christmas presents to cranberry sauce is not guaranteed for purchase this fall and winter. We tolerated a bad system for nearly a half-century. We cannot tolerate it any longer.
