Comment le monde a manqué de tout, avec Peter S. Goodman

NIKOLAS GVOSDEV: Welcome, everyone, to this final edition of The Doorstep. I am your cohost Nick Gvosdev, senior fellow at Carnegie Council.

TATIANA SERAFIN: And I am Tatiana Serafin, also a senior fellow here at Carnegie Council, welcoming you to our final episode, as Nick said, but with the best guest ever, Peter Goodman, global economics correspondent for The New York Times, who, literally just yesterday I believe, came out with How the World Ran Out of Everything: Inside the Global Supply Chain, which I think is an important read for us today as we almost forget about the pandemic, but it is still with us and the ramifications are still with us. This book is timely and relevant, but most importantly for us here at The Doorstep it relates to what we have wanted to do here over the last four years, which is bring international affairs and tie them to our everyday issues and concerns. If I can read what you write about what you cover, you say: “I write about the intersection of economics and geopolitics with an emphasis on the consequences for ordinary people.” Ordinary people. That is what we want to talk about today, how the world ran out of everything and how ordinary people were affected by this.

I want to start with you. One of the anecdotes in the book is about your own family and what you suffered at your doorstep. I want to start out with that story because I think it is very poignant and very telling as a lead-in to this conversation today.

PETER GOODMAN: We were living in London, more fortunate than most people on planet Earth. My wife and I could both work from home, we had a little outdoor space which gave the kids who were cooped up and dealing with distance learning some activity, we were not that far away from a park, we were never in terrible physical danger, but like everyone else we were dealing with this bewildering experience and, not incidentally, our third child was born on April 8, 2020, in the middle of lockdowned London.

My wife was quite stoic about the whole thing. I could be in the hospital for an hour or two the day of the birth and then I had to go home. She was there for a couple of days. We had obviously no ability to have her parents fly over from New York to help out. Any family having a newborn is dealing with their life getting turned upside down, and with the pandemic on top of it, but it was striking that she finally reached her breaking point understanding the fact that the doctors could not come to our house for their usual checkups—all of that was thrown out of the way.

We get home and suddenly she is trying to order hand sanitizer. There is no hand sanitizer. She tries to order the ingredients for hand sanitizer so we can make it, not possible. She urges me to stockpile toilet paper. That was wise. I had tuned that out dealing with other stuff, and now it’s like wartime. I am begging the person at the local grocery story to tell me when the truck is going to come in. I remember she said at one point, “It’s like we were waiting for this baby and this magical experience, he’s here, he’s healthy, and the world has just turned upside down.”

Again, we had it better than most, but I think that in a time when we do not agree about much these days we have this faith that the supply chain, this thing we do not even talk or think about most of the time, is going to function the way we flip on a light switch—we don’t know what is happening behind the scenes, but the lights always come on, unless they don’t, and it is somewhat startling.

This was cosmically bewildering. It was a sign that we were lacking adult supervision, that the whole global economy was somewhat out of whack such that this unseen army of people—who again we do not really think about but who I have written a book about and who I think we are going to talk about—who are participants in making the stuff that we depend on, some frivolous stuff, some not-frivolous stuff, like medical devices and computer chips that are required to run them, things like hand sanitizer in the middle of a pandemic. That this could all fail was disconcerting in a deep way.

TATIANA SERAFIN: One of your strengths in this piece for me is your people stories. For every piece of the supply chain that we are going to talk about you find a person to be emblematic of what is happening at your doorstep.

One of those people is Hagan Walker. How did you meet him? He pokes around your LinkedIn. A fortuitous meeting. What was the fortuitous meeting? How did you know it was him who was going to lead you into this story?

PETER GOODMAN: I started doing some supply chain stories. I was doing some Brexit stories actually, still living in London and looking into various trade disruptions from Britain leaving the European Union, and somehow I found myself talking to someone in Ireland who told me that the cost of moving a container—the basic building block of international trade, these steel boxes that move stuff around the world—of factory goods from Asia to Europe had gone up tenfold in the space of a couple of months. At first I thought, Well, that’s a part of Brexit that I have never heard about.

I did a little bit of digging and figured out that this was a global phenomenon, that there was a shortage of shipping containers in China. I did not know anything about shipping at that point, but as I reveal in the book it is this unregulated international cartel, and every time there is a shock to the system it is a moment when they can jack up the prices, and they had done that.

I did that story, I did a story on the implications of “just-in-time” delivery, which is the famous Toyota production system, this genius idea going back to the end of the Second World War, that instead of factories making as much stuff as they possibly could, let’s just make enough to replenish what we have already sold and let’s get our suppliers to do likewise. As I lay out in the book and in that piece, that has turned into this crude imperative to just slash inventory: “Why waste money warehousing parts as a hedge against some trouble that is probably not happening in the next quarter?”—and corporate CEOs only care about the next quarter. “Let’s just save the money, give it to ourselves as executive compensation and give it to investors through dividends.”

Along the way I figured out, Oh, this is actually a book. How did this happen? There is monopoly power, there is just-in-time, and there are the people at the center of this book. There was all this talk of labor shortages—“We’ve run out of truck drivers,” as if truck drivers have just their will to work or something.

I wanted to dig into this, and I thought the natural narrative device was to follow a shipping container from a factory town in China to somewhere in North America, and I started casting around—it was actually kind of difficult. I talked to a bunch of publicly traded companies: “Would you be willing to let me dive into your history of shipping, correspondence, and understand all of your factory operations?”

They said: “Hm. We’ve never been asked that. We’ll think about it.”

I almost got there with a couple of companies, and then I started responding to the emails that public relations people bombard all reporters with at all times: “How would you like to write the inspiring profile of this dog trainer who is now using vegan treats?” No, I am not going to do that, but here is what I am looking for. I started just responding: “I am looking for somebody who will let me understand how they moved a shipping container from China to North America.”

Eventually I found Freightos, which is like the Expedia of shipping containers. You can book right there. They served Hagan Walker, who I talked to and immediately realized he was the perfect guy, to follow for the story. He is an entrepreneur living in his college town of Starkville, Mississippi, degree in engineering, had turned down a job at Tesla after being an intern there because he was excited to stay in his town, buy up this cool old movie theater, and turn it into a warehouse for his startup company that was making these novelty cubes, you drop them in a drink and they light up, and the bartender could immediately look down the bar and see that the light went out and somebody is ready for a refill.

It turned out these were useful to parents with autistic children, for whom bath time is often a hellish experience. The light-up cubes soothe a kid who has autism and has this trouble, so suddenly this turned into a deal with Sesame Street to make Elmo-themed bath toys, and Hagan Walker was willing to let me come down to Mississippi, follow him around, and root through months of correspondence to understand how his single container on a ship with 12,000 of them, one container, the first full container load he had ever had, try to get Elmo back to the United States in time for the holiday season. His first order for Sesame Street in 2021, get stuck floating in this giant queue with 60 other ships off the port of Long Beach, California, for weeks.

I recognized that if I could trace that, if I could talk to the factory that made these products in China, if I could figure out how the truck industry fit in, the rail industry, warehouses, that that was going to be a way to take a lay reader, because this book is written for everyone. Businesses I think will be interested because we have ignored supply chain as this unsexy subject for a long time until finally it has now become dinner party conversation, something I did not expect to see happen, but this would be the way to get to the regular people who emanate from this story.

NIKOLAS GVOSDEV: I appreciate the book. It is fitting to end The Doorstep run with it because so many of the themes we have explored over the last four years are present here, not just the supply chains but also questions about consultants, politics, geopolitics, international relations, decoupling, inequality, and regulations. So many issues are there.

As I read it, one of the things that struck me—and this was a pre-pandemic ad that people may recall for MasterCard that starred Camila Cabello, where she is walking down a street in New York, she has her smartphone out, she is tapping on it and is providing shoes, cupcakes, and good and services to people on the stoops, and that seemed to epitomize as you said the supply chain notion that we just flip a switch and do not really understand how it works, but we expected it to be there until it wasn’t.

I wanted to then get to the point which I thought you developed in the book and have you explain it more, which is that this did not happen by accident. We make conscious choices. We make conscious choices to deregulate, we make conscious choices not to stockpile, and companies make conscious choices to prioritize dividends over capacity. Can you maybe walk us through the saga: How did we get to the world running out of everything?

PETER GOODMAN: The short version is that we essentially entrusted publicly traded companies and the concept that scale and deregulation are the solutions to all of life’s problems, and we said, “Let’s just run with that.”

People like to start that story with Reagan, who is obviously very important. It really starts with Carter. Carter deregulated trucking. Carter deregulated shipping and rail, and ever since we have been marinated in this idea that, as Reagan famously put it, “Government is not the solution, it is the problem.”

Ultimately this is a book about how this narrow obsession with handing Wall Street what it supposedly craves will be good for all of us, and it turned out that is a good way to give Wall Street what it craves right now, but it is not even a good way to give the investor class what it wants.

I will give you an example. We have talked about just-in-time manufacturing. The American rail system—there is a lot of history in the book, from the beginning of time going back to the robber barons. The story of rail in the United States is the story of investor interest taking precedence over everything—the safety of workers, basic decency of the people working on the railroads—to the interest of shippers to get their stuff from one place to another.

There is a version of just-in-time in railroads called “precision scheduled railroading.” In the last few years this has been the lodestar for the rail industry. It is a fancy way of saying: “Let’s fire lots of people, let’s take rail engines out of commission, let’s force the people doing the maintenance work—who are away from their families months at a time, missing the births of children, the deaths of relatives, not able to be home for scheduled surgeries in some cases—work harder than ever, and then let’s come up with some metrics that we will use to show the investors that we are more efficient than ever.”

Here is where this goes: In the middle of the pandemic—this is a story I tell in the book—there is an engineer out in Idaho working for Union Pacific, one of the biggest monopoly rail companies in America, and he discovers that his train is actually pulling cars that are going to the wrong places. He realizes that what is going on is that under precision scheduled rail, which is all about showing Wall Street, “Look at these numbers, we’re with the program, we are so efficient,” at the moment they are obsessed with something called the “dwell time,” the amount of time that a rail car is sitting in a rail yard. As long as whatever we are doing is lowering dwell time, that is going to make our share price go up, which is going to make all the corporate bosses happy.

Somebody at a rail yard in Nebraska decides: “Well, here are these cars. They are supposed to go to California. We don’t have a train going to California, but we got one going to Oregon. Good enough. Let’s put them on that train.” Never mind that there are car parts, there are drums of chemicals that somebody in California is waiting for to make their product so that somebody else, maybe your family trying to paint your kitchen, maybe some medical device manufacturer in San Diego needs to make their product, and this rail operator realizes, I am actually carrying this stuff to the wrong place because that’s my job. These are the incentives.

This is an instance where even the shareholder should feel ripped off. That is the system that we have built through this obsession with deregulation and scale combined with financialization.

TATIANA SERAFIN: I think the scale issue is not just in railroads. You mentioned it is trucking. It is across the board. It is in shipping. The government has given up regulating, so this has also led to even more problems because as you said at the top of our conversation there is nobody manning the ship. There is nobody looking up.

PETER GOODMAN: It is really perverse. A lot of this book is about shipping so I had been talking to importers who had been paying $2,500 under their contracts to move containers—furniture companies, apparel companies, companies that assemble gift baskets drawing on factories often in China—and they have these contracts: “Okay, I can move my 40-foot container for $2,500 from Shanghai or Shenzhen to Los Angeles or Long Beach,” and suddenly with the pandemic shock shipping companies say, “Well, actually we don’t have space on the ship under your contracted rate, but if you pay a special rate we might.”

“How much is the special rate?”

“Well, there are various handling charges, $25,000.”

People were shocked by this so they started protesting. This becomes such a problem—I open the book with the mother of all traffic jams, this queue of ships floating off the port that no less a figure than President Biden appoints a czar to go down to the ports and figure out what is going on, and he gives this speech. He actually uses the State of the Union to say, “Shipping companies are the reason why we have these big queues and that is why we have inflation”—which of course is a huge problem for him right now, and it was going into the 2022 midterms.

I spent a lot of time with a guy named Dan Maffei, a former congressman from upstate New York, who was the chair of a then-obscure body, the Federal Maritime Commission. Dan Maffei had lost his seat, he was casting about for his next job, he met with some former Obama people—“What have you got?”—and they said, “Well, there’s a seat on this commission.”

“Oh, the Consumer Product Safety Commission? That could be interesting.”

“Uh, no. The Federal Maritime Commission.”

“Oh, I think I’ve heard of that.”

So he is given this sleepy job—big office with models of container ships and old oil paintings of maritime history—and suddenly he is the guy who Joe Biden has appointed to sort out the inflation problem heading into the 2022 midterms. There is the passage of this thing called The Ocean Shipping Reform Act in 2022, and he is supposed to bring the shipping industry to heel so that you cannot rip off importers or exporters.

I spent time with almond farmers in the Central Valley of California who, when I was out there in the spring of 2022, were sitting on an entire year, a whole crop, of almonds, mostly sold to buyers in Japan and Dubai. They cannot get the ships to stop in Oakland to pick up their crop because the shipping companies, again, a cartel—there are three basic alliances that dominate 95-plus percent of the traffic from Asia to the West Coast of the United States—are making so much money moving factory goods from China to the West Coast of the United States that they are not even bothering to send the empty ones up to the Central Valley to pick up almonds like they usually do. They are sending the empties. They are shipping air, they are burning diesel fuel, to send empty containers back across the Pacific as quickly as possible to cash in on this bonanza of charging people ten times as much to move their stuff.

Here I am talking to Dan Maffei, the Federal Maritime Commission chair who is going to sort all of this out. We are having breakfast in Washington, and he says, “Well, you know, I’m kind of nervous about pushing the shipping carriers too far because I’m worried that they might not serve us. They don’t have to serve us.”

Parse that. This is still the largest economy on earth. I still like to think that the United States has a little bit of clout in the global economy, but the guy who is tasked with sorting this out is essentially saying, “We’re at the mercy of these foreign carriers who have all the muscle, so we are going to have to do the best we can and suck it up.” To discover that many of the products of the modern world that we all depend on are dependent upon that is profoundly frightening. By the way, this is not the history of the pandemic, this is the present and the future. We are going to have more shocks, and that basic market structure has not changed.

NIKOLAS GVOSDEV: On that point maybe you can discuss a bit more, as you do in the book, that there is this popular belief: “Well, we’ll just bring manufacturing back to the United States. Forget the shippers. We will just reopen factories here.”

Can you discuss more about, as you say particularly at the end, about how decoupling and de-risking sounds great in theory but how difficult it is to bring manufacturing back to the United States given certainly the advantage China has and perhaps maybe Mexico might be able to affect that at the margins?

PETER GOODMAN: So-called “nearshoring,” moving stuff from faraway factory zones to closer to the market where you are selling stuff, that is happening in the margins. We are not going to abandon China. China is going to remain the center of global manufacturing into the foreseeable future because it has an unbeatable combination of efficiency, a very large workforce even though wages are up a bit, and it has all the infrastructure. That is not going away.

The geopolitics are complicated, and we can get into it if you want. The Trump tariffs on Chinese exports, now the Biden tariffs, continue. There is a lot to talk about there, but there is a movement—and I write about this in the book—for manufacturing companies to look to Mexico. You can get from anywhere in Mexico to anywhere in North America in a couple of weeks maximum. If you are in a border state like Nueva Leone, you can ship into Texas in a matter of hours by rail or road.

Some of that is happening. I spent time with Columbia Sportswear, which is based outside of Portland, Oregon. They are looking to move some of their production from Asia to Guatemala. I followed them around as they looked.

It is hard to know how much of this will stick because the basic incentive—if you are a corporate executive and you are saying, “Yes, let’s spend some extra money to be more resilient”—that is the new talk. Consultancies like McKinsey that have been proselytizing for just-in-time for years are now saying we overdid it, we need just-in-case.

That is all true, but you are diluting this quarter’s earnings if you are proposing to spend money to fill warehouses with extra parts or to move your production around. That is complicated.

This so-called “reshoring” is something that people are talking about more and more. Some of that is happening. I tell the story of this guy Taylor Shupe, the guy behind Stance socks—Jay-Z has a song about Stance socks, NBA players love them, you probably see them in airports—these highly designed, cool, comfortable socks. This is a guy who spent a lot of his career in China figuring out how to make stuff cheaply for the U.S. market. He now has a factory north of San Diego. He has all local workers, he is making a new sock, a brand called Future Stitch.

He is a very social media-conscious, fashion-conscious guy. His thing is that “made in China” has how actually become a branding liability from awareness of the shipping problems to awareness of the accusations that China is using slave labor in Xinjiang, repression of the Uyghurs where a lot of cotton comes from, so there is this move afoot to get out from under the Chinese supply chain, and some of that is happening.

I just came back from a couple of weeks in India, where Walmart is moving production also to get out from under the tariffs and diversify away from this heavy reliance on China, but the same basic incentive structure is there for executives, so we will have to see what happens. People tend to lose their memories of shocks when low prices can be found.

NIKOLAS GVOSDEV: Just to touch on that, I was struck by Hagan’s experience going to Vietnam, thinking he is going to diversify, and Vietnamese factory owners saying, “By the way, all of our components are going to come from China.”

PETER GOODMAN: That is right. That was a conversation stopper for him. Hagan, who is a guy who actually wants to make stuff in the States but cannot find the capacity here, did go to Vietnam and was thinking about Vietnam. Then he was thinking about Cambodia. At one point we had this conversation. He said, “You know, I am just going to stay in China.”

He showed me this app. He can go on Ali Baba, which is bigger than Amazon, put out a request for a proposal: “I need a certain number of electronics components for my cubes and in a matter of minutes I’ve got 20 bids from factories around China, I’ve got reviews like on Amazon telling me other people’s experiences with these factories, I can talk to the factories in real time, there is somebody who speaks English and is responsive 24/7 via various channels.” He said, “If I go to Cambodia or Vietnam and I try to recreate this, it will take me two years what I can do in 15 minutes on this app.”

It is hard to break up with China if you are in manufacturing. China has a lot of stuff that is very useful.

TATIANA SERAFIN: And they are moving to Mexico. I thought that was an interesting part of your book, that Chinese companies are now setting up in Mexico as well to take advantage of the nearshoring.

PETER GOODMAN: Chinese companies are not going to walk away from the world’s largest consumer market. Mexico is part of this North American trade deal, and a lot of Chinese companies—I visited this industrial park that has 28 Chinese companies in it. These are companies that most people have not heard of, but they are supplying Walmart and Target with furniture and clothing.

I talked to a guy at a wheel company. This is a company that makes aluminum wheels, and they sell to companies like General Motors and Ford. I said, “What are you doing here?”

He said, “Well, General Motors and Ford basically said, ‘If you want to serve our North American factories, you’ve got to be closer,’ so here we are.”

TATIANA SERAFIN: You spent time with some truck drivers. I want to ask you more about that and maybe share that with our audience. That is really a doorstep issue. They are taking stuff from the world and bringing it to where it needs to go and yet nobody talks about the lifestyle that has to happen.

PETER GOODMAN: I will never drive past a truck on the highway without giving a thought to who is in the cab.

Let’s remember that while we are experiencing these floating traffic jams off the ports and while we are finding out that we cannot get a car or we cannot get the kitchen cabinet we ordered or whatever, we are told by the trucking industry, “Oh, yes, there is this shortage of truck drivers.”

I decided to look into this, and I spent three days traveling with a truck driver in the best possible circumstances. This was a guy who likes his job and has been doing it for 20 years and is very good at it and takes it very seriously, Stephen Graves. We are driving from Kansas City down to Dallas to drop off a shipment, picking stuff up, a Walmart shipment—dog food, salsa, contact lenses—driving north, retracing our steps through Oklahoma and Kansas back to Kansas City. I am with him for three days and two nights. I am sleeping in the back of the cab, and my biggest takeaway is, Man, you would not be doing this job if you had some more stable way to earn a living.

This has always been a difficult job, but it used to be a high-paying job back when the Teamsters organized the workers. Now the Teamsters are obviously a controversial union, tied up with the history of Jimmy Hoffa, but that story demonstrates that when you have a union behind you, you have a say over your working conditions and wages. Yes, you are away from your family, you are behind the wheel of a truck, it’s tough, but you are getting paid decent money.

Today’s truck drivers spend all of their time worrying about where they are going to park. They are worried about falling asleep at the wheel. As Stephen Graves put it to me: “If you’re not scared out here, you’re a fool. It takes more than the length of a football field to stop a truck, so you are constantly thinking, How am I going to caffeinate so I don’t fall asleep at the wheel but not have to stop to use the restroom again?”

At one point we stopped at a truck stop in a little town, Springer, Oklahoma. Nothing there at all, next to a big gun dealership. We pulled up there because there was ample parking and he did not want to worry about having to pull off on the side of the highway somewhere. I walked in with him to this convenience store. Dinner was a shrink-wrapped turkey sandwich and a couple of Pop Tarts, one for dessert, one for breakfast. It is very difficult to get any exercise. This is a tough job.

The worst part is that in this just-in-time world these people are treated as if their time is limitless and valueless because they spend a lot of time sitting at warehouses hoping that someone will fill up their container quickly but not knowing. They are not getting paid by the hour. They are getting paid for the delivery of the load, the miles that they complete.

This is one of the reasons why we “ran out” of truck drivers in the middle of the pandemic. We have got roughly 10 million people who have commercial driver’s licenses in the United States. We need about a third that many. This is industry lobbying talk. What we have run out of is people willing to sign off on this miserable deal.

There is predatory lending involved. I spent time with a so-called “dray” operator—these are the people who drive short-haul trucks, mostly from ports to warehouses—out in Los Angeles. This guy had signed off on a predatory lending scheme to buy a truck. He ended up spending three times more than if he had gotten it himself, but he didn’t have the cash for that. He accepted free training from a giant trucking company, which put him on the hook to drive for these guys for a couple of years. He is missing his daughter’s school graduation, he is away for weeks, and it puts a strain on marriage.

This is a thing I heard again and again, not just in trucking but in rail. It is very tough on relationships. That is true for a lot of jobs, but to layer on top of that the financial worry of “How am I going to pay my bills even though I’m away from my family for weeks at a time?” It is not a mystery why, when there is a shock and there are suddenly other things for people to do, it turns out people lose their appetite for these jobs.

I tell the story of Henry Ford in this book. He is a problematic character for all sorts of reasons, but he knew a thing or two about the supply chain. One thing he said—this was somebody who wanted to make goods efficiently and cheaply at mass scale—was: “Any business that is built on low-wage labor is inherently unreliable,” and he didn’t want any part of it. He actually doubled the wages of factory workers in the 1910s and was branded a communist for doing that, but he said, “I just want people showing up able to do the work.” We are now dependent on this rickety and ad hoc global supply chain with no clear regulation, these overlapping systems, and a lot of it comes down to exploited labor, and that puts us all in harm’s way perpetually.

NIKOLAS GVOSDEV: Reading the book and going through some of these stories that you are laying out there is a sense that on the one hand you are reading the stories of the truck drivers, the shippers, and the railway workers, and you are saying, “Who would want to do these jobs, why are the conditions like this,” but on the other hand, from the perspective of Americans as voters and consumers the system is delivering what people seem to want, which is low-cost goods and a wide panoply of goods that they can, as you say, get at a Walmart or a Target.

How is this going to break out? In the future between people seeing themselves as consumers and saying, “I want to be able to go to Walmart and I want 50 choices, and I don’t want to pay a lot for it,” versus people saying, “I’d like to have job opportunities that pay well and potentially are fulfilling.” How is this going to break, do you think?

PETER GOODMAN: Look, low costs are attractive to everyone. No question. But we didn’t sign up for this. This is a system that has been optimized for big-box retail. If you go to ports and wonder whose ships are floating in these queues for a long period of time and whose ships are docking, it is Amazon, Walmart, Target, they are big enough that they have been able to actually charter their own ships. Their stuff is coming in.

When I was with the dray operator, the short-haul truck driver at a port, he got pulled over on inspection. His chassis, the big thing that holds the container at the end of the truck, had some kind of a problem, so he said: “Oh, no, I’m going to end up in this inspection line. This could take hours. I’m going to miss my next shipment as a result.”

I said, “Well, what’s the problem?”

He said, “Well, there aren’t any chassis.”

I looked at this lot and there were hundreds of them. He said: “Oh, no, no, no. Those are Amazon’s chassis.”

We didn’t sign up for this any more than Stephen Graves, the long-haul truck driver, signed up for the service end of every town in America. This is a guy who is enthralled to be seeing the world. He will tell you about the painted hills of Kansas. He looks forward to the most beautiful stretches of road, but mostly what he sees are the same things that all of us see if we are just on the interstate all the time—Applebee’s, Walmart Supercenter, Hardee’s, fast food.

We didn’t vote for this. This is the system that got created based on these economic incentives where the larger businesses have essentially used their money to purchase political power, and they have used political power to deregulate in their own interests. So we do not have fair competition.

These low costs, well, it turns out that there are some pretty nasty costs that go along with the low costs. I tell the story of a guy in San Diego who needed a medical device for sleep apnea. He waits for six months to get this medical device because we have run out of computer chips.

Why did we run out of computer chips? Because everyone was so lean. “Just in time” was the mantra, so when the pandemic starts the people running big businesses think: Well, we know this movie goes. Everybody is cooped up. There is going to be a lack of demand, so we’d better slash our orders for everything.

The shipping industry takes vessels out of commission. Meanwhile the companies that make computer chips diminish their orders for all their components, so when it turns out that, oh, whoops, that was wrong, we are not going to restaurants, but we are buying lots of kitchen appliances so we can cook stuff at home, we are not going to the gym, but we are buying Pelotons and putting them in our basement, and the whole system buckles in the face of this surge of demand for these factory goods coming over from Asia. It turns that what chips are made of are dominated by Google and Apple, so even car companies can’t make them.

One of the most incredible experiences I had was walking the catwalk at the River Rouge factory, Henry Ford’s landmark factory outside of Detroit, where he was all about self-sufficiency. He never wanted to put himself into a position where some supplier running out of the components he needed to make his cars could pinch him or run out themselves.

I’m looking down from the catwalk at the F150, Ford’s most popular vehicle, their pickup truck. They are getting made. It is this kind of ballet of robotics and skilled workers. Everything is rolling along beautifully, except when they are done making these vehicles they are parking them in the shadow of Ford’s corporate headquarters across the street from Henry Ford Elementary School because they can’t get the computer chips.

This medical device manufacturer in San Diego cannot get chips, so there is a guy with sleep apnea who has been prescribed this device and cannot get it because we have run out of chips. What kind of cost do we apply to that? What is the cost of discovering that in the wealthiest, most powerful country on Earth, we do not have personal protective devices, facemasks, and gowns for frontline medical workers going to treat Covid-19 patients in the middle of a public health catastrophe?

By the way, this is not just backward looking, right now, in Phoenix, Arizona, there’s a dramatic problem with housing unaffordability. This is one of those issues that Joe Biden is especially worried about because people are angry about this. Why is housing so unaffordable? For lots of reasons, but one of them is that we cannot build housing fast enough because the supply chain is still out of whack.

This idea that, “Well, the supply chain has delivered all these low-priced goods,” yes, that is true. If you want to go to Walmart and buy a T-shirt, this supply chain is for you. If you want to make sure that you can buy infant formula without a hitch, if you want to know that you can get basic medicines, this is a problem, and it was not just a problem then, it is a problem now.

NIKOLAS GVOSDEV: There was a report today that there are again pharmaceutical shortages across the United States.

PETER GOODMAN: Right.

NIKOLAS GVOSDEV: We are not able to get all sorts of antibiotics and even headache relief. We don’t have enough.

TATIANA SERAFIN: Maybe we can open up for some questions. If you have a question, I would ask for you to stand up.

QUESTION: I got your book yesterday, so I have not gotten all the way through it, so pardon me if you answer it later on.

PETER GOODMAN: I am sad to hear that it takes more than a day to read my book.

QUESTIONER: How do we fix this? Is it an issue with consumers? Is it governments? Is it people on Wall Street and their interests? How do they work together to find solutions?

PETER GOODMAN: Very important question. I am glad you asked it.

First of all, yes, consumers play a role, but we cannot expect that consumers are going to fix the global supply chain. We are all busy. We have jobs and children to take care of. We have things to do. We are not all going to become supply chain geeks and understand the permutations of all of this, though it would be healthy to think more about place. The construction of the supply chain has invited us to forget about place. It doesn’t matter if the factory is across the ocean or down the street, somebody made this and brought it to my door. That worked out.

Well, it would be helpful to the extent to which we are able to think about the old, “Buy Local”—although that is not always as it turns out so efficient in terms of emissions, that is a complex problem, but we should be attuned to our own consumption.

The real thing that has to happen is labor mobilization so that working people get their piece of the action and they are fairly compensated so that they are incentivized to keep going to work, because that is a rewarding experience for them and they do not show up to work financially insecure and ready to jump the minute there is a better deal to be had.

We certainly need government to play a significant role. We regulate utilities. Why do we regulate utilities? Because electricity is this thing that we all need, it needs to be secure. We all lived through Enron and the gaming of that system. It turns out running your energy market like a casino is not a great way to run society, and the same goes for industries like trucking, rail, and shipping. These are basic services that we depend on that are tied up in every part of our economy, every part of our modern life.

We do not want to go back to the government necessarily setting all the rates. We are not living in a planned economy. I am a card-carrying capitalist. The global economy has delivered a lot of innovation and a lot of consumer choice. We do not want to lose that, but we need somebody at the government level empowered to say: “We can’t just have secret deals between the largest companies and the largest carriers where all the smaller players get shut out and when every time there is a shock to the system it is a chance to celebrate record earnings.” The unfunny punchline of my book is that every chapter ends with, “And then the companies involved in trucking”—or shipping or meatpacking, an industry we have not talked about—“celebrated record earnings.” That is a failure of governance that has to be addressed.

QUESTION: A virtual question from Liz Picarazzi: “What are your thoughts on what a Trump presidency would do for global trade?”

PETER GOODMAN: That is a huge wild card. First of all, it is very hard to predict because we do not know what rhetoric will turn into reality.

I will say this: I remember when Trump was running in 2016. I was then based in London, and I was assigned a bunch of stories on the consequences for trade. At that point Trump was talking about slapping 25 percent across-the-board tariffs on all Chinese imports, and I was assigned to write a story about what that would mean for the global supply chain.

I called all my usual trade sources, people I have talked to over the years in places like Georgetown and other places in DC. It was actually very difficult to get experts to talk about it because they all said: “Well, that would be patently illegal. That could never happen. That is impossible under the World Trade Organization (WTO). This is a silly story.” Then, of course, what we lived through was much more extreme than what he campaigned on. That is a long-winded way of saying I don’t know but fasten your seatbelts. He is talking about 60 percent tariffs on everything.

I think it is important to remember that a lot of the global supply chain is moving not finished goods but so called “intermediate” goods, parts of the things that we buy. So most cars have tens of thousands of parts, and these parts are crossing borders sometimes dozens of times. A piece gets made in Malaysia and shipped to Mexico, where there is some chemical treatment applied, and it gets sent to the United States, where it gets attached to some other part and then sent back to Mexico to be turned into a car.

When you monkey around with these individual components there are all kinds of unintended consequences. I do think it is important to note that Trump does seem to believe in tariffs, he does seem to believe in the supposed justice of this trade war with China that he launched and that he would continue, but he tends to favor the photo op over the reality.

The steel tariffs that he imposed in his first term, it turns out there were eight times as many people in America who go to work at factories that buy steel as there are people who go to steel mills themselves, so when you stick tariffs on imported steel in a country that is net importing steel you have just made it more expensive—in other words, you have made the companies depending on steel less competitive, and there are a lot more people working at those factories than there are people working at steel mills. But Trump went out to Granite City, Illinois, a place I visited in the summer of 2016, where I found a lot of lifelong Democratic steel workers who were about to vote for Donald Trump. He mugged for the cameras with guys in hardhats and overalls, and it was a great photo op. I think we can probably expect more of the same.

TATIANA SERAFIN: Before we go to another question, can we talk about the anti-globalization sentiment that is now happening with the European elections that we just saw and will be coming more in the rhetoric in the election I think, this kind of “America First” or “Germany First” or “France First.” France is in a big mess right now.

What is that nationalism that you talk about in the book? What did you see when writing the book, and what do you see now with this nationalistic fervor?

PETER GOODMAN: That is my last book that we talked about,Davos Man: How the Billionaires Devoured the World. I am of the mind that most of this “right-wing populism,” for lack of a better term, “nationalism,” or “nativism” is not far below the surface. On the surface there is always this demonization of immigrants and demonization of trade as if trade itself is bad, which is demonstrably ridiculous. Trade has boosted wealth. It boosts wages for companies that export. It does give us lots of consumer choice.

The part that we have done very badly, especially in this country, is attended to the people who are affected badly by trade. In the United States the vast majority of us have benefited from trade especially with China. We have gotten lower-cost goods, we have exported a lot of goods and services ourselves even though there is a trade imbalance there, but as a lot of scholarship has shown there was a shock after China entered the WTO in 2001 and we lost roughly 1 million factory jobs directly and another million if you count the truck drivers and the catering companies that used to have a contract to make food for the factory that does not exist anymore down the street.

That is a very real problem, but that is not a problem that is manufactured in China. That is a problem that is manufactured in Washington, New York, and boardrooms in Seattle, where instead of financing trade adjustment assistance, which is a program that is supposed to help people who lose their jobs through trade to train people for another career, we haven’t. We have come up with tax cuts for billionaires and have done almost nothing for working people affected by trade.

We do not have national healthcare in the United States. I am not breaking any news there. If you lose a job, it is a pretty steep way down. We have very minimal unemployment benefits except in emergencies like pandemics, and then that goes away so you do not really know how to count on it.

As I argued in my last book Davos Man: How the Billionaires Devoured the World, this is not just an American problem. This is the story of Brexit, this is the story of the right-wing surge in France, in Sweden even, and in Italy. When you take away people’ livelihoods, when you engage in this kind of bottom-up transfer of wealth where the billionaires win, the billionaires use their wealth to amass political power, they use their political power to write the rules in their favor so it is easier for them to make their next billion, people are going to be angry.

That could go lots of different ways, but you have set up a group of people who are open for political opportunists who then typically peddle the same story: “Oh, it’s the immigrants. Let’s blame them. Oh, it’s China. China is eating our lunch.”

This is an old story. It is painful that we are constantly falling for that instead of holding to account the people who are right here in our midst who are responsible for taking a very bounteous trade system and monopolizing the benefits for themselves.

NIKOLAS GVOSDEV: Tatiana, I know you brought the other book as well from another of our podcasts. We talk about businesses and Wall Street, but there is a particular group I think we maybe should put a bit more under the microscope, and that is the consultants. These ideas did not come out of a vacuum. They did not just appear out of nowhere. Can you talk a bit about the growth of the consultancies and how that becomes the conventional wisdom that this is the way you succeed in business? It is not to be Henry Ford but the anti-Fords in a way: You do not pay your workers a good wage. You don’t stockpile. You don’t become self-sufficient in your supply chain.

PETER GOODMAN: It is a great question. Let’s just pause to note that Henry Ford was a racist, anti-Semite, and actually crushed organized labor. Not a great hero for our time, but he did understand how to make stuff reliably, and he was very distrustful of finance.

There was a famous case, again in the 1910s, when he was trying to build the River Rouge factory because he wanted self-sufficiency. The Dodge brothers, some of his earliest investors, said: “Well, hold on. You got”—I think it was—“$50 million on your balance sheet. How about you give us some of that in cash as a dividend instead of building this giant factory?”

He said: “Absolutely not. I want to be able to make everything I need right under this roof.”

The Dodge brothers resorted to an American tradition known as the lawsuit, and they won. Ford was able to build the River Rouge factory, but he had to pay out the dividends. I argue in the book that there is a straight line from that moment to everything that has happened since because along comes the consulting class—I focus on McKinsey in the book but there are others—and they succeed in taking the very sensible idea of just-in-time manufacturing, which worked very well for Toyota, and go around the globe saying to corporate CEOs, “The secret is lean, slash inventory, go just-in-time, rely on container shipping”—I tell the story of the roots of container shipping in the book, “rely on the internet, just make something in real time,” and this becomes a crude imperative to slash inventory and take the cash and give it to the investor class. There have been moments throughout recent history when people have said, “Maybe we’ve overdone it with that.”

The first supply chain story I ever wrote was in 1999. There was an earthquake in Taiwan. Even way back then Taiwan was important in terms of the global chip industry. We ran out of computer chips, and some people said, “Maybe we should spread this around a little more.” In 2012 with the Fukushima nuclear disaster we had shortages of electronics for months afterward. Again lots of people said, “Maybe we should diversify a little bit.” A book that I draw on came out in 2014 that forecasted that a pandemic could be the thing that shuts down the global economy.

At every step of the way the consumer class said, “Don’t worry about that.” I tell the story in the book of an engine factory in Minnesota where McKinsey comes calling. If you were not with the program at McKinsey, you got turned into your own bosses. They were known as the “lean Taliban.” I talked to this guy, Jerome Bodner, who is a very sensible business school graduate working at this factory in Minnesota when the lean Taliban shows up, these young, fresh, Ivy League-educated guys in suits, one older guy from the Chicago office of McKinsey, and they say: “You guys are doing it all wrong. Your warehouse is full of parts. These five-dollar sheet metal brackets, why do you have so many of them?”

He said: “Well, because we are making these enormous industrial machines. We’re making generators. These generators are so big they have to be installed by crane. Hospitals are depending on us for these generators, so if we do not get that order there right when it is needed”—talk about just-in-time, right, that actually has to be just in time —“if you don’t get the generator to the hospital, we have a problem.”

McKinsey said: “No, no, no. You need to focus on return on assets. That is what Wall Street wants to see from you.” That is another metric. If you lower the inventory, then there is less asset to be divided into the revenue that is coming in. That is the return. Your metric goes up if you slash the inventory.

A lot of these guys grumble, “Well, that’s not such a good idea,” and sure enough, they run out of these five-dollar sheet metal brackets and are having to spend hundreds of thousands of dollars extra to airfreight parts and pay trucking companies to emergency ship these giant generators, and on it goes.

I talked to a consultant whose story I draw on in the book, this guy Knut Alicke, who is in a German office for McKinsey, in the middle of the pandemic. He said, “Yes, we went too far.”

I asked, “Do you think this time anything will change?”

“Oh, yes. Companies now, they are all talking about just-in-case, not just-in-time.”

I asked, “But what about after Fukushima?”

He said: “Yes. Companies do tend to forget pretty quickly.”

That is the incentives. The incentives are still there. If you are a corporate CEO tuning out all the stuff about resilience and just focusing on the next earnings, the next quarter, yes, something will happen eventually, but by that time you will be on some beach with a cocktail in your hand in a hammock and that will be somebody else’s problem. If you are the CEO who says, “Maybe we should spend more,” you might get thrown out of a job.

TATIANA SERAFIN: I want to leave on a hopeful note. What are you hopeful about? After all of this, after How the World Ran Out of Everything, it is still running out of everything, is there hope?

PETER GOODMAN: There are some reasons to be hopeful. First of all, we have not talked much about monopoly power, pick up the book and check it out. We have monopoly power that would make the robber barons blush, but we now actually have an administration in Washington that is talking seriously about anti-trust enforcement. It is the first time probably in most of our lifetimes that an American presidential administration is talking seriously about antitrust. That is hopeful.

I am hopeful that if you read this book you will never see a package arriving at your door in the same way. I think we can be hopeful that there is an upsurge of labor mobilization. Some businesses are decrying this. They are going to have to get with the program. Working people are organizing and demanding to be paid more, and if they get their way, those of us who depend upon labor—and that is all of us, by the way, and many of us are laborers ourselves—that is to the good in terms of more reliable stuff and more spending power, which is good for the economy in general. I think that is a hopeful sign.

TATIANA SERAFIN: Thank you so much for joining us today. How the World Ran Out of Everything by Peter Goodman. Get it now.

PETER GOODMAN: Thank you so much. I appreciate it.