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Supply Chain Fragility and Globalization’s Future

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Marc Levinson is a union economist who has done a lot of great work for a very, very long time. He has an interesting Times op-ed on how the ship getting stuck int the Suez Canal is another sign of the great fragility of our international supply chains, something we were reminded of in a very big way during the early weeks of the pandemic. Moreover, Levinson places this in his larger vision of where globalization is leading us.

Hardly any attention was paid to the risks arising from the number of firms that might be involved in making and delivering any given product. The potential loss of revenue if the supply chain failed to deliver goods on time was simply ignored.

The company at the top of a supply chain often has little insight into its suppliers’ suppliers or into the transportation system that connects them. Incident after incident — from the shutdown of the U.S.-Canada border after 9/11 to the earthquake that crippled hundreds of Japanese auto parts plants in 2011 to pandemic-related factory closures in 2020 — has shown long supply chains to be more fragile than imagined. For many firms, the consequences can be painful, even fatal.

And the business risks are not limited to disruption. Famous firms have seen their names tarnished by scandals involving working conditions or environmental practices at obscure companies far down their supply chains. When consumers in Europe and North America, concerned about repression of the Uyghur minority in China, demanded that apparel companies disclose whether their clothing contained cotton grown in Xinjiang province, many companies, well removed from the production process, did not know.

Meanwhile, the ultralarge container ships like Ever Given that have entered the world’s fleet over the past few years have made long value chains even more problematic. These vessels, some carrying as much cargo as 12,000 trucks, steam more slowly than their predecessors. The complexity of loading and unloading often puts them behind schedule, and the sheer number of boxes moved on and off a single ship tangles ports and delays deliveries.

So long-distance trade is slower and less reliable than it was two decades ago. That helps explain why exports of manufactured goods account for a smaller share of the world’s economic output than they did in 2008. Once the risks are accounted for properly, manufacturing in distant places with low wages isn’t always a bargain.

Yet pronouncements about the death of globalization are not well founded. Rather, the stage of globalization we have known since the 1980s, in which highly trained employees in the advanced economies create physical products to be manufactured where wages are lower, is past its peak. In its place, a new stage of globalization, in which factory production and foreign investment matter less than the flow of services and ideas, is advancing quickly.

The Bollywood movies and Japanese television shows available on your favorite streaming service are part of that flow, but so are the research, engineering and design tasks that companies increasingly distribute across multiple countries in order to take advantage of local talent and shape products to local tastes.

Cross-border trade in other commercial services — a category that excludes transportation, travel and goods-related services — increased roughly 8 percent a year in the first two decades of the 21st century, a third again as fast as trade in manufactured goods. That figure doesn’t include growth in the largely uncountable cross-border flow of data within corporate networks.

In globalization’s next stage, ships carrying metal boxes full of stuff will no longer be at the center of the story.

I have to think more about the latter part of this, where the moving of goods becomes less economically important, largely because a uniting feature of history is that people like to buy stuff and they like to buy it cheap. In any case though, the rah-rah boosters of the late 20th century era of globalization and neoliberalism preferred to see themselves as the harbingers of a new age and just handwave away any obvious questions about the problems all of this would cause. We are no longer able to do that. Quite obviously, the economy of 1950 is never coming back to the western world. Nor should it. There are good reasons to have a globalized economy and it’s not as if you could pull all those jobs from Bangladesh or India and everyone returns to their villages or something. But the future of globalization is most certainly more complex and less clear that the boosters of contemporary global supply chains want to admit.

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