In his new book, Goodman explores the business decisions that left the economy vulnerable to a disruption like this and the erosion of government regulation over critical transport industries that left their capacity to move freight weak and brittle. All those issues, he says, were exacerbated by the corporate drive to maximize short-term profits. The ultimate threat to the supply chain, he writes, is unregulated greed. Peter Goodman is the global economics correspondent for the New York Times. His new book is "How The World Ran Out of Everything: Inside The Global Supply Chain." (...)
DAVIES: In April 2020, when all this - the pandemic really hit us, your wife was about to give birth to your third child, and she'd had a premature child in the second. So maybe a little more care and caution than a lot of parents would be expecting. And you write that she was unable to get some needed items, you know, rubbing alcohol, disinfectant wipes, backup baby formula. I mean, you were experiencing this as we all were. Just remind us of some of the dimensions of this breakdown in the supply chain, some of its really meaningful impact.
And there was just this sense that something kind of deep that we had all taken for granted, that we all agreed on, you know, that you could click on your button on Amazon or whatever e-commerce provider you liked and wait a few hours or a couple of days or whatever, and a truck would show up at your door. Well, now, even that had broken down in the middle of this public health catastrophe that was, of course, incredibly confusing. It was very disconcerting.
DAVIES: Right. Right. You know, there's a guy whose story runs through the book, a fellow from Mississippi named Hagan Walker, who had a startup company called Glo, and his efforts to produce and get a product that was really important to his business is kind of illustrative of some of what was going on in the supply chain. What did he make?
GOODMAN: So he made these novelty cubes that light up when they're dropped in water, and this started off as a thing you could sell to bars, the bartender could look down the bar and see who needed a refill because the light went off. And then he discovered that - he heard from somebody whose child was autistic and bath time had been really just a difficult time. And somebody dropped one of these cubes in the bath, discovered that the child was transfixed by this, and that generated this idea to make these bath toys.
And when I met Hagan Walker, he had recently gotten a deal with "Sesame Street." He was making these Elmo and Julia - that's another character - themed bath toys, using factories in China to make these cubes and shipping them in the first shipping container - it was the first time he'd ever had an order big enough to fill a whole 40-foot shipping container, these, you know, boxes that are like the workhorses of the global economy. And so I ended up tracking this one container from this factory in China to his warehouse in Mississippi, and it was a harrowing journey.
DAVIES: Right. This was a make-or-break thing for his, you know, emerging company. One of the things that's interesting is that when it was time to decide how he would find someone to manufacture these little figurines. He wanted to do it in the United States. He really wanted to have jobs here. He couldn't seem to manage that. Why?
GOODMAN: So much of the productive capacity had shifted overseas and specifically to China. So, you know, Hagan Walker's in his college town, Starkville, Miss., where he got a degree in engineering, and he likes the idea of keeping the business in the country. But as he calls around, he discovers, one place can make these steel plates he needs, the kind of molds for his product. But it's 12 times the cost of China. Another place has a slightly lower cost, but it turns out they're just farming the work to China and capturing a cut for themselves. Then at one point, he wants to make this kind of - imagine a children's pop-up book, like that kind of packaging for his product, and he has a meeting with somebody in the States who says, this is just so complicated. You know, you just have to have this made in China.
DAVIES: This is illustrative of what's happened in recent decades where China has emerged as this huge manufacturing power. The numbers are really striking. Chinese companies were making 80% of the world's air conditioners, 70% of the mobile phones. And this drew a lot of criticism from Donald Trump and others, you know, the Chinese are eating our lunch. The balance of trade is terrible. You say if this was a crime, what was happening with the trade imbalance, it was an inside job, right? Meaning what?
GOODMAN: That the reason why so much productive capacity is shifted to China, why so many factory jobs end up in China, is because of what American and other Western corporate executives decided was in their best interest. I mean, they had been perpetually on the prowl for ways to cut costs. They liked the idea of getting out from under labor unions. Unions were effectively banned in China. They like the idea that you could make your own rules. You didn't like an environmental regulation, you needed a big piece of land, as long as you cut in a local communist party official, you could do your deal. And ironically, as I argue in the book, maybe one of the greatest joint ventures in the history of global capitalism is that between Walmart, the world's largest retailer, and the People's Republic of China, this entity that comes out of a peasant-led rebellion in the name of Marxism. And this becomes really the center of the global economy for a time, making goods at an enormous scale.
So what we failed to do in the States was apportion the bounty of trade, and that's why we've had this backlash. I mean, we have had a consumer bonanza from this trade. Prices have gone down. We've got consumer choice. It's been very good for the investor class. It hasn't been good for a couple million workers who lost their jobs and who've largely been abandoned. But yes, that part is an inside job.
DAVIES: And you have a moment where you describe visiting a global procurement center for Walmart in the Chinese city of Shenzhen. Describe what you saw and what it tells us?
GOODMAN: Yeah, this was 20 years ago. What I saw was this waiting room full of the kinds of uncomfortable chairs that you'd see in an elementary school, you know, this sort of all-in-one desk chairs. People drinking tepid cups of tea out of these little plastic cups, sitting for hours and hours for their chance to go pitch a Walmart buyer on their products. And Walmart engineered this so that, you know, you would get your turn. Oh, you make Christmas trees, you make microwave ovens...
DAVIES: And these are Chinese manufacturers saying, hey, we want your business.
GOODMAN: These are Chinese - that's right. These are Chinese manufacturers saying, we can satisfy your demand for cheap goods. And Walmart would say, well, OK, here's the price we're willing to pay, and the Chinese factory reps would know full and well if they don't meet that price, even if that's a price that's so low, that they're going to have to squeeze labor, they're going to have to take shortcuts on workplace and environmental standards. They're going to have to get some credit to go get the materials. Well, they know that out there in the waiting room are representatives for all of their competitors, and somebody out there is going to be desperate enough for cash right now, and they'll take the terms of the deal.
DAVIES: Wow. So we have this situation where these hundreds and hundreds of, you know - thousands of factories all over China are making this stuff, and American investors and other investors are making a lot of money from it, and American consumers are getting really cheap goods. And one of the things, of course, that makes it work is cheap transport. These container ships, these 40-foot containers and these - I mean, the vessels that do these, some of them are as long as the Empire State Building is high. They can...
GOODMAN: Right.
DAVIES: ...Take - what? - tens of thousands of containers at a time, right? How cheap does it get to be to ship your stuff?
GOODMAN: Well, it gets to the point where, you know, as the CEO of Columbia Sportswear put it to me at one point, it feels like it's free. Like, you don't even have to think about it. I mean, the container standardizes shipping.
So, you know, before the shipping container comes along in the 1950s, loading and unloading any kind of cargo vessel is this excruciating, dangerous, grueling process. You know, we're going to put the barrel of chemicals over there. We got to figure out how to fit in the big side of beef over here, and it's very much a jigsaw puzzle.
And once the shipping container comes along, you can load factory goods or really anything into this standard-size box. That box can be lifted up by crane. It can be put on the back of a truck. It can be hoisted onto rail. It can be lifted onto the ship.
So that makes everything cheaper and quicker, and it invites these CEOs of publicly traded companies who are scouring the globe for the cheapest possible place to treat factories in China as if they might as well be in Ohio or Dusseldorf or wherever. You know, as long as a ship comes calling somewhere, and you got road and rail connections, it's all just one big grid, and it largely works that way, except when there are shocks.
DAVIES: Right. The other element of this, which sets up the disaster we experienced in the pandemic, is a change in management practices that dealt with how companies, both manufacturers and retailers, handle the inventory, how many goods they have on hand. You want to explain this?
GOODMAN: Yeah, sure. So Toyota, at the end of the second world war, pioneers this notion that's come to be known as just-in-time manufacturing or lean manufacturing, and the idea is fairly simple and sensible. It's the end of the second world war. Capital is very limited. Japan's dealing with the devastation of the war. They don't have that much developable land.
So Toyota says, well, instead of running our operations the way Ford did in the heyday of mass assembly in the States - just making as much stuff as you possibly can and letting salespeople figure out how to sell it - let's just make as many cars as we need to replenish those that are being sold. Let's get our suppliers to give us the parts and the materials we need right when we need them on the assembly line.
And this is very effective. It's very useful. And then along comes financialization, you know, the paramountcy of the shareholder interest and consultancies like McKinsey, who essentially say to the corporate executive ranks, lean manufacturing, just-in-time manufacturing - this is a way for you to just slash your inventory. Take the savings. Instead of sticking all these parts and extra products in warehouses as a hedge against troubles that aren't going to happen, you know, right now, probably, give the money to yourselves through executive compensation, you know, as a reward for being brilliant enough to hire McKinsey. Give it to shareholders in the form of dividends and share buybacks. That makes share prices go up, and everybody's happy.
And when one day, there is a shock and you run short of inventory, well, that'll be somebody else's problem. But by then, you know, you'll be presumably sleeping in a hammock on some beach hoisting a cocktail.
