COVID-19 and the “Just-in-Time” Supply Chain: Why Hospitals Ran Out of Ventilators and Grocery Stores Ran Out of Toilet Paper
On March 25th, N.Y. Times op-ed columnist Farhad Manjoo wrote about “How the World’s Richest Country Ran Out of a 75-Cent Face Mask.” The subtitle certainly went against the grain of what you’d read from a page dominated by Thomas Friedman: “A very American story about capitalism consuming our national preparedness and resiliency.”
Manjoo identified just one of many failures of the Trump administration to be prepared for the epidemic. Alex Azar, the HHS Secretary had testified that there were only about 40 million masks in our domestic stockpiles, around 1 percent of what would be required. Like much else, mask manufacturing had migrated to China in the same way as all other textile industries had long ago.
Manjoo put this into context:
Hospitals began to run out of masks for the same reason that supermarkets ran out of toilet paper — because their “just-in-time” supply chains, which call for holding as little inventory as possible to meet demand, are built to optimize efficiency, not resiliency.
I remember first hearing about just-in-time inventory techniques in the 1990s in the aftermath of the collapse of the USSR. Just-in-time was also called “lean manufacturing” or “stockless production.” Management gurus saw it as a way to eliminate waste and continuously boost productivity. Toyota Corporation adopted it in the 1950’s and soon American auto-makers followed suit in the 1980’s. Ironically, this kind of advanced industrial engineering hearkens back to Frederick Taylor, who Lenin sought to emulate in the early years of the USSR.
Today, Wal-Mart is the marquee brand when it comes to just-in-time inventory. Using sophisticated computer systems, it can guarantee profitability on items that are characterized by low retail margins. Combined with a non-union workforce, it allowed Wal-Mart to become one of the great successes of the capitalist system.
Some on the left were so impressed with Wal-Mart’s technological prowess that they saw it as proof that socialism could work. In a book titled “The People’s Republic of Walmart: How the World’s Biggest Corporations are Laying the Foundation for Socialism,” Jacobin contributors Leigh Phillips and Michal Rozworski argued that if planning could work for a capitalist powerhouse, it could also work for state-owned enterprises. They even refer to how Toyota was a forerunner to Wal-Mart:
The same phenomenon occurs in retail as much as it does manufacturing (and manufacturing is merely another link within the retail supply chain anyway), with Toyota being one of the first firms to implement intra-and inter-firm information visibility through its Walmart-like “Kanban” system, although the origin of this strategy dates as far back as the 1940s. While Walmart was pivotal in development of supply chain management, there are few large companies that have not copied its practices via some form of cross—supply chain visibility and planning, extending the planning that happens within a firm very widely throughout the capitalist “marketplace.”
As for just-in-time techniques accounting for the shortage of life-saving masks, Farhad Manjoo has only scratched the surface. It is not just masks that are in short supply; it is also hospital beds. Hospitals are expected to have a “surge capacity” in case of some calamity—either a pandemic like the current one or—god forbid—a nuclear war. With patients now lying on gurneys in the hallway of hospitals everywhere, what happened to the “surge capacity”?
It turns out that they have followed in the path of Toyota and Wal-Mart. Like the university system, hospitals expanded in the mid-twentieth century when a reasonably progressive tax rate allowed them to add beds on a yearly basis. By the late 1950s, we had nine hospital beds for every 1,000 people. Even if they remained empty much of the time, they were crucial during periods of extreme demand. For example, in the winter of 1957 and 1958, there was a flu epidemic—the worst outbreak since 1918. But hospitals met society’s needs with few problems. Like now, New York City was the hardest hit. Yet it coped with the heightened demand, only needing to add a few extra beds.
In 1983, all that began to change. Like all other institutions relying on an ample tax base, hospitals ran into the consequences of Grover Norquist’s “starve the beast”. Congress passed a bill that made Medicare payments far less able to cover a hospital stay. They could no longer bill by the day, only by the case. Hospitals began shedding beds, just as colleges began shedding tenure-track positions. By the early 1990s, the number of beds per 1,000 population had decreased by fifty percent.
Hospital administrators resorted to just-in-time techniques to rein in costs. They called their version of this technique going back to Taylorism “managed-care”. In 2015, a supply chain manager at Chicago’s Mercy Hospital told reporters, “It’s our job to make sure clinicians have what they need when they need it, but we must also make sure we don’t have too many dollars tied up in inventory.” Mercy went ahead and cut its on-hand inventory by half.
As for Wal-Mart, one must never forget that their profitability is not just based on sophisticated just-in-time computer inventory systems. The corporation also relies on a non-union workforce that tends to accommodate itself to lower wages and onerous working conditions because better-paying jobs have evaporated. In addition, Wal-Mart has an inexhaustible need to encroach upon forests everywhere as part of its supply chain. Without penetrating the Amazon, where are you going to get the land necessary to raise cattle? Without chopping down trees, where are you going to get toilet paper?
Looking back at the forced march of neoliberalism for the past fifty years or so, your first reaction might be to turn back the clock. In many ways, that’s what Bernie Sanders’s campaign was all about. Raise the tax base to what it was under Eisenhower. Use the revenue to add hospital beds and tenure-track positions. This is based on the presumption that it is greed that has led to the impasse we face today, as if Stephen Schwarzman comparing tax increases to Hitler’s invasion of Poland is our main problem. Yes, we understand that people like Schwarzman feel that their life would be incomplete unless he was able to spend $20 million on his 70th birthday party, but there’s more to it.
The real explanation for the attacks on our standard of living, if not our lives, is capitalist competition. Each nation-state understands that its stability rests on the ability to keep its working class mollified through job security and a living wage. In the early part of the twentieth century, countries like the USA, England, Germany and France had to build empires to keep peace at home. Lenin pointed this out in “Imperialism, the Latest Stage of Capitalism”:
And Cecil Rhodes, we are informed by his intimate friend, the journalist Stead, expressed his imperialist views to him in 1895 in the following terms: “I was in the East End of London (a working-class quarter) yesterday and attended a meeting of the unemployed. I listened to the wild speeches, which were just a cry for ‘bread! bread!’ and on my way home I pondered over the scene and I became more than ever convinced of the importance of imperialism…. My cherished idea is a solution for the social problem, i.e., in order to save the 40,000,000 inhabitants of the United Kingdom from a bloody civil war, we colonial statesmen must acquire new lands to settle the surplus population, to provide new markets for the goods produced in the factories and mines. The Empire, as I have always said, is a bread and butter question. If you want to avoid civil war, you must become imperialists.
If colonial empires are no longer feasible, the ruling class must seek other ways of profit-seeking. So, instead you get Chinese manufacturers using raw materials ripped from the earth in Latin America, Africa and Asia with little regard for the environmental consequences. As long as China can provide low-interest loans for infrastructure development in a nation as desperate as Ethiopia or Zimbabwe, this part of the supply chain will remain intact. Furthermore, if Chinese goods can be purchased at low costs at Wal-Mart, it might mollify an American worker who used to have a good union job.
However, if a virus generated by the expansion of cattle ranching into the forests threatens the life of such a worker through starvation or eviction after he loses his job, all bets are off.