Sitting at home during a state of semi-quarantine makes it hard to resist commenting on the overall situation. Much – perhaps too much – has already been written about COVID-19 but one thing that has stood out to me, and that has not received much comment, is this: the pandemic demonstrates that, as a matter of fact, a certain amount of economic inefficiency is a good, possibly even necessary, thing.
I live in Canada, which is the 10th largest economy in the world (according to worldometer we are just behind Italy and a bit ahead of Russia). Less than 30 minutes to my south lies the United States of America, the largest economy in the world, not to mention the most powerful nation our planet has ever seen. Nonetheless, when the pandemic reached ‘social distancing’ proportions, neither country had anything approaching enough face shields, masks, ventilators, or hospital beds, all of which quickly fell into critical shortages. A month later, and neither country was able to procure ‘personal protective equipment’ or ventilators in anything approaching sufficient numbers. In fact, at one point Canada was trying to import large numbers of surgical masks from China, to whom it had donated a few months earlier (the shipment had to be rejected as improperly made). Now, more than two months in, and the situation is largely unchanged, though less critical thanks to social distancing having managed to ‘flatten the curve’, i.e. slow the inevitable spread of the disease so that the limited resources can handle the rate of new infection.
So, why are nations whose deeply integrated economies comprise over 25% of the world’s GDP (26.12% according to worldometer) but whose populations add up to less than 5% of the world’s total (4.73% according to worldometer), utterly unable to produce such simple products as masks and face shields in the face of the largest public health crisis in decades? What is going on here?
There are probably dozens of contributing factors, of course, but one of them is, I think, connected to our nearly obsessive concern with efficiency in modern politics and economics. To begin, notice that the reason why Canada has been unable to ramp up its manufacture of medical supplies is that most manufacturing is not done here. In the past, nations basically did everything they could to produce what they needed themselves. Today, things are different. A country, such as Canada, is just one stop in a large, global supply and manufacture chain that is mostly located outside of its borders. Natural resources are extracted from A, shipped to B for refinement, moved to C for processing, then on to D for shaping into parts, and finally to E for assembly into final products. No country has control over the whole thing, so no country can simply ramp up as it sees fit – it must put its order in and then wait for it to move down the chain and for products to move back up again.
Knowing this, why can’t Canada stock up and have large storehouses of material in waiting at any given time to be put to use? Well, this is where I see the emphasis on efficiency playing a key role. It would be politically difficult to sell a budget that dedicated hundreds of millions, if not billions, of dollars to the purchase and storage of material that will simply sit, unused, until a future time that nobody can see coming. That would be a waste of money that could go to other, more pressing, concerns. Further, the emphasis on efficiency probably asserts itself at every stage of the supply and manufacture chain: factories don’t make extra products just in case they are ordered – they wait for the orders to come in, and then order the parts, after which the part manufacturer orders the processed material, which triggers an order for refined material, which causes an order for natural resource extraction. At each stage, there will be financial pressure and incentive to avoid excess production that sits around waiting. The end result is a chain of supply and manufacture that works smoothly and quickly when all is going well, but is not positioned to absorb shocks because it lacks room to maneuver.
So, a country such as Canada ramp up production because it does not control the manufacturing process, which is run as close to the bone as possible, so that it cannot ramp up very easily anyway. Further, political pressure makes it hard for a government to justify spending on unused stockpiles. Add it all up, and when a pandemic hits, a country such as Canada isn't able to respond as needed.
Notice, however, that evolution through natural selection has, in many cases, seen the problem and responded. For example, though human beings can get along fine with one hand, one ear, one eye, one kidney, and so on, we are typically born with two (unfortunately only one heart, brain and pancreas – I guess there are limits to Mother Nature’s generosity). This is obviously inefficient. We would require fewer calories if we only had one of everything. Still, I am happy for the wisdom of evolution, for it is often good to have a backup, even when it costs something. I always, for instance, spend money on an external hard drive in addition to the one in my computer so that I can have a second copy of all my files.
Having backups, stockpiles, alternatives, etc., is of great use in times of crisis. It is okay to be inefficient by having unused oversupply because it may be just the thing that saves you from a worse outcome when trouble arrives, which it always does and always unpredictably – I have no plans to ever lose an eye, but if it comes to that it is of great comfort that I will still be able to see, if less fully. Governments ought to view stockpiles of crisis-ready supplies in the same way: hopefully they will never be needed, but they should still be there. Short of repatriating manufacturing, that seems like the only thing to do. It might cost a bit more, but right now, it sure seems worth it.
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