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Supply Chain Renewal

How the search for new supply chains started

The coronavirus pandemic showed the weakness of relying on unreliable or uncertain parts of the global supply chain not just for product but also for critical information. In potential crisis situations information that is needed is needed in hours or days. Delay of weeks or months could mean great losses. This is what the crisis showed during crucial days and weeks in January and early February when information on the coronavirus at its origins was blanked out. The potential for false information in the crucial days could aggravate the situation and lead to a state of unpreparedness and heavy economic losses. No where in textbook economic, political or social theory is this to be found. In fact the textbook economic theory has veered way of course with mathematical modeling that has little knowledge of new situations till after the new developments. This is no substitute for thinking and intelligence, and intuitive sense of all the information that has immediate relevance on the problem, including what has happened or a changing situation, and gut feel about something being wrong.

Between January 6 when the U.S. put in its request to China for its team of experts to go to China and February 16 when it was given approval was a unacceptable and dangerous delay resulting in huge economic losses and losses in lives, physical and mental health for countries all over the world. Misinformation from the WHO for whatever reason about the dangers- a reliable source turning into an unreliable source following changes in the WHO that happened without proper oversight from the U.S. and Europe, and other advanced nations in global health. This misinformation combined with the delay leading to a loss of crucial weeks of preparedness and action at the level of the government and people around the world.

This critical information is part of the supply chain in the world in a broader sense. It is not just one of the supply chains. It must now be understood as the critical supply chain- that was never thought of before or included in the idea of supply chain. This kind of supply chain of critical information does not have any regard for whether there is a free markets theory, monopolies based development, or a state model of state enterprises or infrastructure development model or any other model adopted by countries. It can wreak havoc if it chooses to in any place if it is disregarded in the way nations are developed or in the way economies grow. It slashes, and cuts right through everything and every place. The slightest carelessness or heedlessness, mistaken notions, or biased behaviour, leads to disaster, tearing up generations of hard work in building better lives for citizens or generations of work in economic development. 

China's inability or unwillingness to share the critical supply chain information went in parallel to its increasing influence in the WHO over two decades. During this period more and more of the U.S. role for protecting the American people,  and by default the less understood U.S. British and French role as a safeguard custodian for people of the post- independence developing nations in the British Commonwealth and the French speaking countries in Africa, and historically of Latin America, was delegated to a disproportionate degree to the private foundations active in health care such as the Bill and Melinda Gates Foundation and others. The Gates Foundation did useful work but the responsibility for protecting the interests of the American people, not to mention the even bigger responsibility for the developing nations of the world is far too big for any private foundation or foundations or of one or two individuals to assume. The resources of a foundation are measured in billions, the resources of the American people and allied nations can be measured in trillions of dollars. The economic damage today and the resources needed to recover are measured in trillions of dollars that no company or foundation has and which only the major countries can come up with. Mr. Gates now says he regrets what has happened. Not clear is how any foundation came to accept the role that has to be borne by large free nations in the interests of their people. Global supply chains were too dependent on China. As companies in the U.S. and Europe were not entrusted with the responsibility for national interests, or interests for protecting the American people, and even less protecting the interests of people in the developing countries of Asia, Latin America and Africa, these companies proceeded to act in the same manner with small changes, leaving the unsustainable situation the way it was. Other problems took away much attention from this for the public in these countries- such as climate change, pollution, and jobs. These problems were themselves the result partly of the very actions of companies in depending on manufacturing supply chains in predominantly one country in Asia wreaking havoc on climate, on air quality, on health in China, and on jobs in the countries the U.S. and Europe and in India that were the home base, to a disproportionate degree because of the concentration of manufacturing production in one country. In the U.S. and Europe this meant many communities and towns in all parts of the country losing millions of jobs over two decades of hyper growth in one country and export of manufacturing out of industrialized countries leading to increasing poverty. In India this meant a perpetuation of the country's informal economy and with it poverty with the export of potential manufacturing jobs that meet local demand in a country of one billion people, and the lost demand from the cycle of economic growth propelling economic growth.

The most visible in today's pandemic is the dependence on mainly one country for production of medical supplies, for production of pharmaceutical products, PPE equipment, N95 masks, and the other products needed for a strong health care system. This is true not just for the U.S. but for the European Union countries including France, Britain, and Germany, and to a lesser extent for India. It has caused great amount of grief with unavailability of basic essential needs for masks, PPE equipment and other medical supplies during the pandemic. Supply chain simply stopped functioning or did not exist, evaporating instantly as it were into thin air, even if the manufacturer was an American company or French or Indian with a manufacturing plant in China with the export restrictions placed by China. No where was this more evident than in major cities New York, Milan, Barcelona, Paris, London, Moscow, Sao Paulo, Johannesburg and Mumbai.

The first steps

Australian prime minister Scott Morrison says "global health trumps everything else." And that "we need to have the information and we need to have th transparency." Australia is seeking support from other countries in an effort to launch an investigation into missteps early in the crisis that have led to the epidemic spreading to millions of people around the world. China has rejected such an investigation. It has threatened retailiation with a consumer boycott of Australian beef and wine, and tariffs on barley. Australia tightened its laws on foreign espionage in 2018. U.S. and European calls for an investigation is making Australia reconsider its trading relationship of dependence on China.

An astounding 80% of France's medicine and medical supplies are manufactured in Asia, and France is highly dependent on China for manufacturing. Action is now underway to move the manufacturing back to France as part of a complete reassessment of the supply chain for critical infrastructure related supplies going on in France, Britain, and the U.S. In France the employers union MEDEF is calling for relocating strategic industries back to France. In its plan of reopening of May 28 it calls for "targeted relocating of strategic sectors, to France, to Europe, with healthcare a priority." The French government of president Macron and the French people support this. To get an idea of how people feel consider that surveys recently taken show 89% of French people wanting to relocate industries back to France, and 47% wanting to do this completely, even if this means higher prices for consumers. In the 5 billion euro state aid agreement with Renault the French government required a commitment to bring value added manufacturing back to France. State and business policy have to align and make this happen for revival of once thriving communities in older manufacturing towns that were devastated by years of neglect.

President Macron has called for economic sovereignty. His call as the pandemic leads to rethinking old supply chains is - "We must build more in France, on our soil.  And rebuild our national and European sovereignty."  It is a rethinking that is now getting overwhelming support of the French people. 

Brexit was about national and economic sovereignty and building it in the framework of the British tradition and in the English speaking world. This is now taking shape after the pandemic. Britain is too dependent on China for 71 goods that are critical for infrastructure and the economy, says the Jackson Society. This includes industrial chemicals,metal products, and consumer electronics such as mobile phones and laptops. A group of 20 conservative MP's are seeking an amendment for a trade bill going through parliament, and calling for an audit of imported goods from China, and efforts to make trade deals that reduce this dependency. The group of MP's has written to Liz Truss, the Trade Secretary, and includes former ministers Ian Duncan Smith, David Davis, Owen Paterson. The group of MP's says that the coronavirus epidemic has made all nations reassess their approach to trade and supply chains for security.