Politicians in Washington needed a 100-day review to discover what citizens are living through every day: major supply shortages. Eureka — The Biden administration discovered that our global supply chain system is flimsy, and shortages of seemingly everything are bedeviling American life. It’s not rocket science, and it shouldn’t take another year of political supply chain task forces. Here’s why we keep running out of essentials and why the short-term thinking that haunts American business culture is contributing to this economic mess.
First, let’s address the elephant in the room. President Trump’s trade war brought our dependence on China and foreign manufacturing into the mainstream. It’s pretty straightforward that our overreliance on overseas factories is a significant part of the widespread supply shortages. But there’s a whole lot more at play, and one of those factors is the pandemic and forced shutdowns that wreaked chaos on our near-sighted business class.
Closing down is pretty easy; it’s a lot harder to open things back up. And with every country closing and reopening their economies at different times, it’s been nearly impossible to keep things going in a globalized world. This phenomenon is a direct result of our global supply chain system. These problems will likely continue to cause random shortages at a store near you until COVID-19 shutdowns become a thing of the past.
Even here in the United States, where life is beginning to look normal, manufacturing is still using many imported components, controlled by an ever-shrinking number of companies. We’ve created supply chains that are profit-focused and global in their management. These innovations have created unprecedented efficiency but have also introduced wildly unstable supply chains that cannot withstand crises.
The pandemic forced us to face the consequences of the biggest problem in American corporate culture: short-termism. We worship at the altar of the quarterly report, and that’s the prevailing mindset: focusing on short-term gain rather than yearly numbers. The way we do business is driven primarily by one thing: profit. So, we only manufacture products in accordance with demand, and this system makes our ledger look green: Look how we’ve sold out!
A slightly more long-term view in business thinking could solve many of our shortage woes while contributing to more sustainable profitability in the long run. We all know that short-term profit often comes at the expense of long-term profit, and that tradeoff should be discussed in our nation’s most influential boardrooms.
Still, it’s just not corporate short-termism that’s causing shortages, as our federal government pursues stimulus and expansive monetary policy with reckless abandon. The stimulus has provided much-needed relief to people in need. But we’ve had extended delays in consumption because of lockdowns; now, people are finally getting out of the house and spending their relief money, causing demand to rise too quickly. When you marry loose monetary policy with a fragile global supply chain network, you create a fertile breeding ground for shortages.
The good news is that this shortage frenzy will eventually recede as savvy business people figure out how to solve problems. But we need to have honest conversations about the need for domestic manufacturing and more robust supply chains. We need to have the ability to manufacture the right things in a timely fashion for economic and national security reasons. We don’t need to arrive at a place where the White House is in the position of having to invest $60 million in domestic drug production to address chronic short supply.
So, we have an ever-shrinking number of companies, an overwhelming focus on quarterly profits above long-term profits and a focus on efficiency above all. We have products that have gone through a labyrinthine process of global sourcing that can break down at any point for several reasons, including shipping and shutdowns. The commissions by the Biden administration are well-meaning, but they need to explore the integrated nature of things.
Much of the innovation in supply chain management and the loose monetary policies we’ve been promoting in recent decades have created a perfect storm. Sure, the government can investigate, but until we address the root causes, we’re vulnerable to sowing the seeds of the supply shortages of tomorrow.
David Grasso is the host of the Follow the Profit Podcast, where he shares simple ideas for financial success and lessons learned the hard way. He is also the CEO of Bold TV, Inc, a non-profit media company dedicated to entrepreneurship and Millennial economic empowerment. Hannah Buczek is the managing editor and journalist for Bold TV. She also reports and edits for GenBiz, a non-profit media brand focused on promoting financial freedom.