The vulnerable links in our economic chain

In one sense, I suppose we should actually be grateful to the coronavirus pandemic for the way it's highlighted how our economy has been structured around a series of assumptions, which in turn have driven decisions made to implement those assumptions.  The whole house of cards is predicated on nothing disturbing the arrangements thus made.  Throw a wild card into the equation, and massive disruption ensues - and COVID-19 has been one heck of a wild card!

Let me illustrate with a few examples.  Nobody in their right mind would argue that food safety is unimportant.  Upton Sinclair's novel "The Jungle", serialized in 1905 and published in book form the following year, exposed the appalling conditions in Chicago's meat-packing industry, leading to the establishment of what we know today as the Food and Drug Administration.  This regulates the food and drug industries, their methods of production, the safety of their products, etc.  In order to make such control easier, it was advantageous for many smaller plants to be consolidated into fewer, larger ones, so that fewer inspectors could supervise and control processing and production.  Over time, this consolidation increased, particularly as it became more and more expensive to attract and retain sufficient inspectors with the specialized knowledge and qualifications needed to oversee operations.

Today, there are relatively few meat-processing plants, and those that exist tend to be very large.  Cattle, pigs, sheep, poultry, etc. are brought to them over long distances for processing.  When these plants were hit by COVID-19 infections and closed, consumer shortages inevitably resulted, since there was nowhere else to take the animals for processing.  Because they could not be slaughtered, their numbers increased very rapidly, augmented by ongoing production on the "factory farms" that feed animals into the system on a regular basis.  The result has been the euthanasia of literally millions of animals and birds, and the disposal of their carcasses in landfills - even while consumers were having to make do with a more limited selection and lower quantities of meat available in stores.  Farmers and processors have lost tens of millions of dollars, all because the system was set up for massively large-scale processing in relatively few plants.  A more distributed system, with a lot more smaller plants situated closer to the farms, would probably have been less hard hit by the coronavirus pandemic, and supplies would probably have been maintained at a more stable level.

Another example is "just-in-time" manufacturing.  In the name of efficiency and the most productive application of capital, factories have largely been set up to keep minimal stocks of their input components (raw materials, parts, etc.) on hand.  They receive them "just in time" to use them on the production line.  (This has been reinforced by so-called "inventory taxes" levied by some states.  Where these are applied, it actually costs businesses money to keep large stocks of inventory, rather than move it in and out as quickly as possible.)  As a result, the factory-to-consumer pipeline is a high-volume, low-reserve proposition.  Goods move from factory, to distributor, to store, to consumer on a day-by-day basis.  There are no major reserves anywhere, so that a breakdown in that chain of movement inevitably results in shortages downstream of the break within a very short time.  We saw this earlier in the pandemic, where auto factories shut down within a couple of weeks of critical supplies of parts being interrupted.  It's since spread to almost every high-technology industry.

That, in turn, has been made worse by the global supply chain.  In the name of saving money on wages, buildings and other production costs, many companies shifted production of their components and finished products to lower-cost countries.  China, in particular, has benefited from this over the past few decades.  When manufacturing in those countries, and/or shipping of their production from source to market, was affected by the pandemic, supplies already on hand dried up fast, leaving chronic shortages that are still plaguing us.  (The availability of personal protective equipment for hospital personnel, such as masks, gloves, gowns, etc., is a well-known example.)

The question now becomes:  should our production and distribution systems, facilities and practices be revised in the light of the pandemic?  This seems like an obvious solution to many people - but it will involve massive expense.  To set up new factories in our own country, and have many smaller facilities rather than fewer, larger ones, and keep reserves of products in case of disruptions . . . we're talking billions, probably trillions of dollars in the short to medium term to accomplish those changes.  They may be desirable, and offer the only practical alternative to what we have at present;  but if we can't afford them, they're going to remain a pipe-dream.  What's more, if private enterprise is expected to accomplish all that on its own, it'll soak up a vast amount of money - something those who own the money will resist, because it'll take profits out of their pockets.  Also, countries where our products are presently made will do everything in their power to keep their factories open.  They may reduce their prices so much that it's uneconomical to make goods anywhere else, or impose economic sanctions to make the cost of moving production much higher than it would otherwise have been.  (China is taking all those steps at present, and being very unpleasant to countries that resist its pressures.)

We're in an "irresistible force meets immovable object" moment here.  What will the outcome be?  Nobody knows right now.  The only thing we can be sure of is that disruptions are likely to continue.

The current shape of our economy has proved to be inadequate to cope with a crisis like the coronavirus pandemic.  We can reshape it to be more flexible and responsive, but only at a very high cost.  Are we willing to pay that, as a society?  Are the owners of current means of production willing to forgo short-term profit to change the way they do business, in the hope of long-term stability of production?  Are our politicians willing to forgo short-term tax money (particularly inventory taxes), and provide tax credits, in order to make it easier and more affordable for businesses to change their methods of production?

Nobody knows the answers to those questions right now.  What we do have is a stark choice between a centrally managed economy (the socialist ideal) and a free-market one, where businesses decide for themselves how to change and the market tells them (by voting with its wallet) whether they've made good choices or bad.  Given government ineptitude in handling the coronavirus pandemic, I know which option I prefer.

What about individuals and families?  Each of us needs to take these things into account in planning for our own future.  We should determine what our "essentials" are - the things that we really need to have on hand to cater for what's important to us.  Examples:

• We need a sound, reliable basic food supply.  It's not a bad idea for every family to have at least one month's food in reserve (what my wife calls a "deep pantry") in case of shortages or emergency.  I prefer a three-month supply, and some people try to keep a year or more's food on hand.
• If we rely on a vehicle for transportation, we should consider keeping basic consumables - oil, brake fluid, transmission fluid, filters, belts, etc. - on hand, so that if there's any disruption in factory supplies, we can keep it operating for at least a few months.  A few tools to allow us to change fluids and do other basic maintenance would not be amiss, either.  Also, we should probably be proactive in changing tires, shock-absorbers, etc. before they actually wear out, so that we can be sure they'll have a reasonable useful life if supplies of replacement components are disrupted.
• If we have particular interests, sports or hobbies, how about keeping enough reserve supplies that we can continue with them during interruptions?  For example, I enjoy the shooting sports.  I've made sure that I have a decent reserve supply of ammunition, so that in a sudden shortage (such as we're currently experiencing, and which looks set fair to continue for at least months, if not years) I can continue to enjoy my hobby.
• What about clothing?  Nobody can stock a complete spare wardrobe, but if you have specific needs - business clothing for office wear, or workshop clothing for blue-collar workers, etc. - there's no harm in keeping a small reserve supply of it, particularly safety gear such as work boots, head and eye protection, and so on.  That way, a shortage of supply won't prevent you working, or be embarrassing if you have to wear visibly old, worn-out clothing.
• We live in an electrically powered world.  How many of our essential items of equipment rely on batteries?  Do we have adequate stocks of spare batteries?  What if we suffer local brownouts or blackouts if the electricity supply is cut off due to a lack of spare parts?  Do we have emergency measures (e.g. battery powered flashlights or lanterns) in place?  What about recharging things like cellphones, tablets, laptop computers, etc.?  A small generator (or, at the very least, a solar charger) might well be regarded as an indispensable accessory today.  If we have well-stocked freezers, it's doubly so.

Those are just a few ideas.  If you have more, please share them with us in Comments.

Peter