Coronacrunch

Via Foreign Policy: “Get ready for closed borders and crashing markets”. It’s an article where the liberal commentariat finally crashes into full doomercore mode, detailing a series of escalating, mutually-reinforcing tendencies capable of, at the limit, tearing apart the world order as we know it. James Palmer, the piece’s author (and FP’s Beijing-based senior editor), proposes four distinct phases in this process: worldwide shutdown (increased travel restrictions, quarantines, etc), panic buying (the emptying out of stores and commercial stockpiles), racism and division (needs no explanation), and systemic failure. This last bit is particularly alarming:

All of these scenarios play into and worsen each other. Shutdowns spur fear. Fear distorts markets and wrecks productivity. Division harms international cooperation and prompts travel bans. The most dangerous scenarios are those where the impact of the virus causes entire systems to collapse.

And although China is still relatively poor per capita, the country has enormous reserves of wealth and manpower. Nations such as India or Indonesia, with huge populations and considerably fewer resources, may have an even harder time. If ordinary services, from health care to banking, break down, the knock-on effects will be calamitous.

Palmer’s article comes amidst a blizzard of bad news. Confirmed cases of coronavirus have exploded at the international level, travel restrictions have been imposed and even in Europe quarantines have gone into effect. The stock market has been undergoing a historic tumble for three days now, and there’s every reason to expect that President Trump is downplaying the threat to try and insulate it from further shocks (in this evening’s press conference, he went as far as to point to the recent Democratic Party debates as perhaps the culprit behind the fall). And while he strives to soften the blow, the country stands ill-prepared for what is possibly coming thanks to the massive budgetary cuts his administration has exacted on national pandemic/epidemic preparedness institutions. Meanwhile, cut over to the stories of a Miami man getting slapped with a hefty hospital bill for medical tests (he ended up testing negative) to US Health Secretary Alex Azar giving assurances that price controls wouldn’t be used in the case of a potential vaccine being brought to market.

There’s a worrying convergence here of multiple trends. We have the persistence of the thing this blog has been banging on about—the house built upon eroding sand that is the economy, with its retrograde growth and top-heavy financialization—and the impending hazards of a public health catastrophe colliding with the structures of globalized production networks. The stock market turbulence radiates the implications of this convergence. Back on February 18th, Yossi Sheffi in the Wall Street Journal warned of the impact of coronavirus on global supply chains. Several days later, on February 21st, Fortune announced that “94% of the Fortune 1000 [were] seeing coronavirus supply chain disruptions”. Compliance Week then wrote in a February 24th article that both the bulk of Fortune 1000’s Tier 1 and Tier 2 suppliers were affected.

In supply chain jargon, Tiers 1 and 2 refer to the movement of goods or parts in part of the overall process. Tier 2, usually smaller webs of companies with high degrees of specialization, suppliers Tier 1 with what they need—and Tier 1 in turn supplies assembled components to the lead company. This structure is susceptible to what’s known as the supply chain bullwhip effect. Changes on the demand side or the supply side have cascading effects that reiterate through each step of the supply chain; working in multiple directions, it can cause inventories to bloat or a lack of supplies can cause the chain to crumble. Ability to ride the waves of the bullwhip effect can make or break the firms that constitute the chain.

This highly-networked structure of production is an effect of a broad shift towards what is known as vertical fragmentation. This is the splitting-up of the industrial process into multiple parts, distributed across spatially-dispersed companies: “middle products” (‘goods-in-process’, raw materials and the like) become the bulk of what constitutes global trade flows. Entry into a trade environment dominated by vertical fragmentation is largely contingent on a firm being capable of engaging in just-in-time production techniques, the ostensible goal of which is the reduction of production time across space, calling forth an increased reliance on rapid information communication platforms, flexible production processes, and increased coordination between producers and consumers.

The movement from the centralized industrial processes of Fordism to decentralized post-Fordism has been hailed as the victory of the new and flexible over the old and rigid. Drunk on the imagery of complexity and distributed networks, the stewards of this iterative phase of capitalist development see in the globe criss-crossed by rapidly moving chains of production, trade and commerce the emergence of stigmergy, the dance of self-organizing agencies coasting across a electronically-mediated transnational smooth space.

This picture couldn’t be further from the truth. The inflexibilities of Fordism were never eliminated; they were merely smeared into a network organization. During Japan’s 2011 earthquake and tsunami, the ‘productive ecology’ of Toyota—the very innovator of the just-in-time system—collapsed. It was a twofold movement: on the one hand, the low inventories held by the company were completely wiped out, while on the other, the networking-out of production failed to achieve the ideal of the distributed network, where connection lines are capable of ‘routing around’ any critical stoppage and continue unabated.

A more direct comparison might be the fears that arose during 2003 SARS outbreak. Occurring right alongside China’s entry into the WTO, panic over the impact on supply chain led the country into a serious contraction—one that it recovered from rapidly. In the intervening years, however, China’s position in the global economy has grown to immense proportions (via the New York Times: “China’s annual economic output has multiplied more than eightfold, to nearly $14 trillion from $1.7 trillion… Its share of global trade has more than doubled, to 12.8 percent last year from 5.3 percent in 2003”).

Besides China, suppliers in South Korea, India, the Eurozone and elsewhere must be considered, while beyond production shutdowns the specter of generalized border closures is rising. This occurs alongside the increased demand on necessities: food, medicine, masks, etc. In the collision, the crunch.

It might be cliched to quote Hardt and Negri’s Empire, but since the tome is the most shimmering example of a leftist enthusiasm for post-Fordist ‘hybridity’, ‘flexibility’ and globe communication-production flows, it feels perversely appropriate: “The age of globalization is the age of universal contagion”. In the present moment, this contagion takes two forms: that of the coronavirus itself, and an endemic structural instability.

UPDATE: