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Serving Northern St. Louis County, Minnesota

Economic planning

The free market built a supply chain that’s failing; it’s time for a new approach

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The fallout from the COVID-19 pandemic continues to be felt by businesses across the North Country. Car dealerships are struggling to find vehicles. A local snowmobile dealership told us they won’t have sleds to sell this winter. Many building materials remain in short supply.
Demands for all of these products remain exceptionally high, as consumers are eager to spend, but problems throughout the supply chain are making it difficult for businesses who make the things consumers want.
There is no easy fix to the problem, which has revealed the extent to which our globalized economy is vulnerable to shocks like the pandemic. That’s something to consider if the Biden administration intends to fulfill its promise to Build Back Better. We know that COVID won’t be the last shock to our economic system, so we need to ensure that our economy is more resilient when surprises happen.
We can do that, in part, through economic planning. That’s long been considered anathema to many in Washington, D.C., who have long opposed economic planning in favor of the “creative destruction” of the so-called free market. Yet it is the free market, with its relentless focus on short-term profits, that has created the supply chain that has all but collapsed before our eyes.
It’s the free market that has prompted U.S. manufacturers, for example, to ship so much of their production overseas. Traditional free market economics suggests that this is all a matter of “efficiency,” and that some countries have inherent advantages for some types of production that makes it perfectly sensible that an automobile that’s finally assembled in the U.S. includes components from 20 different countries.
In fact, there’s nothing efficient about such a system at all. There is only the bottom-line advantage that companies receive from manufacturing in low wage countries. And even that advantage disappears when supply chains are disrupted. When that new car can’t roll off the assembly line because an overseas semi-conductor is stuck in a logjam at a foreign port, auto manufacturers are only losing money. Indeed, the Wall Street Journal recently reported that auto manufacturers globally are expected to lose $210 billion this year due to the supply chain issues. That’s certainly not efficient.
The current system is even worse from an environmental perspective. The current globalized supply chain, which involves a massive shipping, rail, and trucking infrastructure, is highly inefficient and has become a huge driver of the carbon emissions that threaten our future. Shipping, in particular, will be a difficult transportation mode to shift to non-carbon-based power sources.
Presumably, U.S. manufacturers and retailers alike are beginning to recognize the risks inherent in our current supply chain. Some have already opted to return manufacturing back to the U.S., closer to their intended markets.
But there is a role here for economic and societal planning. While the market does provide some valuable incentives, the notion that it yields maximum value to society is preposterous, as any of hundreds of hollowed-out communities across the Midwestern Rust Belt could attest. Better policies, developed through economic planning, could have prevented much of that social devastation.
The Biden administration has taken some steps to open up supply chain bottlenecks, but that’s just treating the symptoms. Investing more in ports to facilitate even more international shipping could ease one bottleneck, but it fails to address the degree to which all that shipping is worsening climate change, which is supposed to be another priority of the administration.
Perhaps we need to take a new approach entirely. Take the auto sector, for example. Fifty years ago, the U.S. Midwest was a booming place thanks to an auto sector that sourced virtually all of its components from hundreds of small to medium-sized parts manufacturers scattered from Ohio to Wisconsin. Collectively, they employed hundreds of thousands of workers and were the basis for a thriving economy in many of those communities. Today, the vast majority of those manufacturers are gone and the jobs went with them, devastating these communities.
The market says that’s efficient. We say, “Bull.”
If the Biden administration wants to Build Back Better, it would do well to forget about expanding our shipping infrastructure and begin to invest in policies that actually return manufacturing jobs to the U.S. on a major scale, and create the kind of manufacturing hubs that built the Midwest. There’s less worry about supply chains, after all, when all your components are built within a couple hundred miles.
The market can’t make that happen because it focuses only on short-term profit and views societal costs as irrelevant externalities. Only economic planning can develop the right mix of incentives and investments in infrastructure and worker training to restore the social fabric of America and bring back the middle-class communities we once took for granted.

Comments

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  • Shaking my head

    Great editorial! The slogan of 'Build Back Better' however sounds ridiculous.

    Wednesday, October 27 Report this

  • THAT guy

    In concept I am on board with this theory, but in reality the bottom line will always rule the day. All of the big auto makers / manufacturers are losing money at the same time. Once the supply chain is "fixed," they will keep the same model. If they switch to more regional or local manufacturing, they will get undercut by the competition and die when consumers flock to the cheaper alternative. They won't last until the next global supply chain meltdown. This is one of the inherent problems of pure capitalism - companies can and will do what they can to maximize profits. If we want an approach that benefits us in the long run, it requires some degree of government regulations. Too often those that are chanting for USA Made are also the ones against government regulations.

    Friday, November 5 Report this