Business in Times of Corona: The Lure of Rustbelts When Lean Is No Longer Mean

shrimpDuring their short lifetime, shrimp barely migrate. Aided by a snap of their tail and the tidal currents, the crustaceans may cover a distance of perhaps a few thousand meters in a day. However, once caught, shrimp become a migrating species.

After landing in the nets of a Spanish bottom-trawler working the rich fishing grounds off Morocco, ensnared shrimp embark on a seesawing journey that often takes them first to Breskens in The Netherlands. This rather unremarkable village of barely 5,000 inhabitants at the mouth of the Scheldt – the waterway that links the port of Antwerp to the North Sea and beyond – is home to one of Europe’s largest fish auctions.

Arriving in reefer trailers, the catch is put ‘on the clock’, sold, and shipped back home to Morocco for cleaning and packing before returning to Breskens where it is warehoused. After changing hands a few more times, the shrimp enter the wholesale distribution chain. Every morning, before the break of dawn, hundreds of lorries fan out from Breskens to deliver their cargo all over Europe. Some shrimp may have travelled the length of Europe up to four times before being served in a cocktail.

The plight of shrimp is just a basic example of the many intricate supply chains than span continents, oceans, and the globe. They are powered by economies of scale and the comparative advantages first described by David Ricardo, one of the four great classical economists, in the early 19th century.

In an example perhaps more relevant to the present time, Dutch medical equipment manufacturer Philips was able to avoid an export ban on the respirators it assembles in the United States only after the company reminded federal authorities that European countries such as Czechia and Germany, where Philips sources key components for the device, could respond in kind, breaking an already strained supply chain and interrupting the production process altogether.

In a globalised world, no single country is truly independent. Sovereign prerogatives such as the control of domestic markets have been eroded to a degree that few governments truly grasped – until now. In normal times, almost nobody cares. Goods and services are delivered efficiently and cheaply. Hauling shrimp over vast distances makes perfect sense when the low cost of manual labour in Morocco more than compensates for the extra outlays on logistics. Likewise, Philips assembles its respirators from components sourced on the global marketplace. Their provenance is irrelevant. Today’s ‘lean’ equipment manufacturers are, at most, design studios, assemblers, and marketeers. Most even cut out the middle bit such as Apple did: the company’s engineers design products and its marketing department finds customers for them. All other processes are outsourced and offshored.

The corona pandemic has put a ticking timebomb under this setup. Earlier this week, French president Emmanuel Macron was one of the first heads of state to openly recognise the importance of rebuilding national sovereignty: “The day after will not be like the day before.” President Macron made his remark during a discussion about the need for France to produce the personal protection equipment (PPE) needed by medical professionals locally, instead of buying them from China.

A painful moment ensued when Jean-Luc Mélenchon, a former presidential candidate and leader of the hard-left La France Insoumise (LFI ‘Unbowed France’), reminded President Macron on Twitter that just two years ago the country’s only PPE manufacturer was bought up by the US industrial conglomerate Honeywell which shuttered the factory in Bretagne and moved production offshore – to China. According to Mr Mélenchon, the machines that produced almost a million facemasks each day were subsequently destroyed: “At the time, Mr President, you did nothing to stop that.”

One of the most convincing selling points of globalisation used to be the self-evident affirmation that economic downturns are localised: no matter how overcast the sky, somewhere in the world the sun would still be shining. Over the past 30-odd years that somewhere was usually China which seemed impervious to recession. The country was suspected to have found the magic potion that broke the spell of the business cycle and cleared the path for sustained, if not unstoppable, growth.

This caused a great deal of concern amongst political scientists who feared that the potion’s formula included a mix of authoritarianism and mass surveillance with added elements of a command economy – a concoction potentially lethal to western liberalism. Literati were quick to detect echoes of the warnings dispensed by George Orwell in his dystopian classic 1984.

If there is a silver lining to be found anywhere in the corona pandemic now holding the world hostage, it could very well include the virus’ equalising properties that dim the sun everywhere and involve a re-evaluation of corporate and societal values previously dismissed as outdated and inefficient.

An existential threat tends to focus the mind on that what is most important – individual and national survival. To understand the true nature of that quest, and the role of the private sector in it, light needs to be shed on one of the least studied areas of the economic sciences: the functioning of wartime economies.

Churchill’s Great Britain, Stalin’s Soviet Union, Roosevelt’s United States, but also Ho Chí Min’s North Vietnam, all battled seemingly unsurmountable odds and somehow managed to rally formidable forces to face, and defeat, their foes. They also defied economic logic. That same defiance of logic must again be called upon to offer a way out of our collective predicament.

In a report released yesterday, United Nations Secretary General António Guterres described the corona pandemic as the worst crisis to have hit the global community in the organisation’s history. In Europe, leaders are almost unanimously calling the pandemic the greatest tragedy since World War II. In the United States, President Donald Trump prepared his nation for a death toll in excess of 200,000. Apart from President Jair Bolsonaro of Brazil and, perhaps, the surprisingly lackadaisical prime minister of Sweden Stefan Löfven, nobody is foolish enough to dismiss the corona virus as a slightly more deadly version of the flu.

Returning to supply chains and sovereignty: both need fixing and the path to follow seems already traced. As governments pour untold billions of dollars and euros into ever-larger corporate aid packages, most will eventually want to have their say in how business is conducted. Even before the corona virus struck, some die-hard fans of free trade such as Denmark, Germany, and The Netherlands had already begun to question the wisdom of granting primacy to the global market. Even Great Britain, for all its talk of the magnificent benefits brought by free trade, retreated from the European Union, arguably the freest market of all.

Once the pandemic has subsided there will, of course, still be a global market of sorts. Redesigned and rebuilt supply chains will emerge, applying the lessons learnt with or without government prodding. Expect more eye for resilience and less emphasis on outsourcing offshore production. For future growth, China may want to consider boosting domestic consumption whilst the US and Europe will perhaps need to revisit their industrial past and polish up a few rustbelts.

However, in uncertain times, the futurology is a pursuit fraught with danger. Presently, facts are few and far in between. The only certainty that businesses can count on is that the longer it takes to contain and defeat the virus, the more profound and lasting the changes it will cause.

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