When I was in college, the term laissez-faire, defined as noninterference in the economy by government (in literal French, let people do as they choose) was generally considered a bad thing policywise. This belief was based on decades of hard experience with a rapacious capitalist system that had dominated America’s economic scene up until the Progressive and New Deal eras, when it was gradually supplanted by the regulatory state.
Then, beginning in the 1980s, economic fashion changed again, and laissez-faire, theretofore the province of cranks and the academic fringe, became once more the established orthodoxy. It’s still entrenched, though under serious siege these days, especially from the political and intellectual left, but in the meantime, it remains the philosophical bedrock of the American and world economies.
One of laissez-faire’s dubious successes has been the broad acceptance of corporate-led economic globalization and free trade by both a resigned general public and by our two political parties. Donald Trump did rail against it, capitalizing on the pockets of dissatisfaction and dislocation it produced, but his opposition was (and is) purely rhetorical. In practice, whatever freed-up corporate America wanted to do was mostly fine with him.
The Democrats, for their part, remain schizophrenic on the issue — the populist challenge of Bernie Sanders and others has given them pause — but the party’s establishment, particularly the Biden administration, remains committed to the globalization project. It was, after all, fathered by a Democratic president, Bill Clinton, who pushed through the North American Free Trade Agreement (NAFTA) in 1994, sponsored China’s entry into the World Trade Organization (WTO) in 2000, and signed permanent normal trade relations (PNTR) with China the same year. The fact that Clinton used Republican votes to enact NAFTA, as well as PNTR, made his accomplishment truly “bipartisan” — to use the current buzzword.
The upshot of this successful foray into cementing global laissez-faire has produced two unforeseen consequences: (1) the vast enrichment of capital (including the creation of an unprecedented and dominant billionaire class) and (2) the comparative impoverishment of labor (through the outsourcing revolution and domestic deindustrialization).
But the Clintonian globalization project was nevertheless enthusiastically endorsed by both the Bush and Obama administrations, Obama himself going so far as to propose the globalizing Trans-Pacific Partnership (TPP) despite the financial crash and the ensuing Great Recession, both of them products of deregulated and unsupervised international finance — in other words, more laissez-faire on a global scale.
You may have guessed the end result: today’s pandemic economy, rife with the dislocations (inflation, shortages) brought about by corporate globalization. The chickens hatched over the past 20 years are at last coming home to roost, revealing the inherent systemic flaws that were previously unanticipated or glossed over, but now lie exposed for all to see.
America’s rampant price inflation (up 7% this past December over December 2020, the fastest rate of increase since 1982) is the problem most observers are focused on, and blame for it has been variously directed toward overly generous stimulus checks (the Republican argument), unrealistically low Fed interest rates, a labor shortage stimulating rising wages, and demand outpacing supply.
But the multinational conglomerates that produce the goods whose prices are accelerating so dramatically have their own explanation, and it’s laughably ironic. Spokespersons for multinationals Proctor & Gamble, Nestlé, Danone, and Honeywell recently repeated the identical refrain. The problem of increased costs, they told the New York Times, was caused by pandemic-related “supply-chain disruptions,” which will unfortunately necessitate more price increases in coming months. This is rich, considering these very multinationals created the worldwide supply chains in the first place.
Most economic experts predict inflated prices and the associated problem of product shortages will continue well into 2022 and perhaps through 2023. The Organization for Economic Cooperation and Development (OECD), representing 35 countries, sees no return to economic normality much before 2025. This has caused policymakers worldwide to question whether global supply chains have been stretched too far and to consider the heretofore unthinkable — shifting production back to the home countries, or “reshoring.”
They may have no choice; disruptions in globalized supply chains have undermined the very basis of American (and worldwide) manufacturing and retail business, the process of “just in time” ordering for goods and supplies that had rendered the holding of inventories obsolete — but may now become obsolete itself.
Just in Time is capitalism at its best or worst, depending on your point of view. Developed by automaker Toyota in the 1970s and subsequently promoted by the management gurus at McKinsey & Company, it was adopted in the 1980s by companies far and wide as the lean-and-mean road to business success. The operable idea was to minimize stockpiling of production supplies or consumer goods to reduce overhead, maintaining on hand only what would be immediately used or sold. The process worked equally well when ordering finished items for retail (say clothing, electronics and pharmaceuticals) or unprocessed materials for manufacturing (say car parts and semiconductors).
Just in Time is cost-cutting refined to the nth degree. Eliminating warehousing, like eliminating higher-paid domestic labor, boosts profits and pleases investors. But it depends on predictable deliveries made cheaply and in coordination with planned marketing or production schedules; it especially depends, when paired with foreign outsourcing, on a smooth, inexpensive supply chain from there to here. In the last analysis, then, shipping is the key variable in economic globalization.
Unfortunately for the multinationals, global supply chains are no longer working as intended. Because of glitches along the way (labor problems, port congestion or closures), shipping costs are soaring — up 10-fold for transporting containers from Asia to the US West Coast — and transit times have in some cases doubled.
Add in the idiosyncratic economics of maritime commerce (availability of container ships and their fluctuating contract rates), and globalization faces a perfect storm. According to The Economist, concentrated shipping ownership is a factor; Danish-based Maersk, bent on establishing an “end-to-end” logistics empire, controls 20% of the world container-shipping market. Another factor is a shortage of container ships, limiting capacity; many are old, and new orders — construction takes three years — are lagging, a function of the decline in world trade following the financial crisis of a decade ago plus uncertainty over technological fixes needed to meet pending world carbon-emissions standards.
So, welcome to the Great Supply Chain Disruption, just another episode in the global laissez-faire follies.
Wayne O’Leary is a writer in Orono, Maine, specializing in political economy. He holds a doctorate in American history and is the author of two prizewinning books.
From The Progressive Populist, February 15, 2022
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