The pandemic has exposed this fundamental flaw in the economic system
As Warren Buffett once said, “it’s only when the tide goes out that you can see who’s been swimming naked.”
In this deepest of crises, one might hope to see some deep truths laid bare — but what are they? Looking at our economy and society, what fundamental weakness do we see exposed?
In a highly interesting piece for The Guardian, Malcolm Bull points the finger at our obsession with efficiency — and in particular our aversion to slack:
Having large stocks of PPE, underemployed nurses, or a lot of spare capacity in ICUs, falls into the same category. Idle resources are what you need in a crisis, so some degree of inefficiency isn’t necessarily a bad idea.
Except that this is the just-in-time economy, in which unused capacity is a wasted resource, stock is clutter and redundancy a design fault. Anything that isn’t being used right now is the enemy — prey to an army of management consultants and lifestyle gurus.
Bull makes a compelling case against our culture of over-optimisation, but I wonder if it really is the defining error of the age.
Yes, we’ve been caught out on some key items — above all, the PPE needed by frontline workers. But, more generally, the just-in-time economy has come out of this looking pretty good. Supermarkets have moved fast to adapt to unprecedented shifts in supply and demand. Despite a locked-down global economy, they’ve managed to close the gaps on their shelves — and have kept people socially distanced in just about the only large indoor spaces where strangers still congregate. The fact that we’re getting fatter in lockdown is an extraordinary and under-appreciated achievement (theirs, not ours). It’s just a shame we didn’t put the supermarket bosses in charge of PPE and testing kits.
For all the talk of Al, gene therapy and other advances, the wonder of our age is logistical excellence.
There’s a strong argument that we’re in the midst of a “great stagnation” — that we’re no longer making technological breakthroughs like we did in the 19th and 20th centuries. But when it comes to managing the productive capacities that we do possess — it’s incredibly impressive. Just look at the speed with which extra hospital capacity was delivered (not that we’ve needed it so far).
We’ve become really, really good at matching supply to demand. So good in fact that we’re having to rethink some basic economic assumptions. For instance, we’ve had a whole decade of ultra-low interest rates and yet no sign of inflation — surely testament to our ability to deal with shortages fast.
If the pandemic has exposed a fundamental flaw in the economic system it is extreme mobility. The virus has only caused so much harm because the infrastructure of the globalised economy massively accelerated its spread across the world. Hyper-connectivity, not over-efficiency, is our fatal weakness.
Ah, but aren’t the two related — the former enabling the latter? Yes, but they don’t have to be. We don’t need millions of people in the air and crossing borders at any one time to keep most global trade going.
With some judicious re-shoring of strategically-significant supply chains, we can continue to exchange physical and virtual goods. But whether we can continue exchanging people on anything like the same scale as before is the most important of all the post-Covid questions.