When termites attack a wooden building, they eat up the structural resilience that is designed in the building. Since they are very aware of the tension in the fibers they are eating, they leave it before the break point. Then the unexpected burden of an earthquake, high wind, or a party with fifty friends causes the house to fall down. Free market capitalism works the same way.
In manufacturing, uncertainties in the manufacture and transportation of components can lead to costly assembly delays that can be avoided by storing materials. The greater the inventory, the greater the reliability of the system, but at a higher cost. In the 1970s, the Japanese perfected what came to be known as “just-in-time manufacturing”. Thanks to the precise timing of the component production and the reliable and cost-effective transport, the parts arrive “just in time” for assembly, which reduces storage costs. As long as everything works as planned, this creates an economic competitive advantage and the process spreads around the world. But as with termites, the overall system stability is limited, making systems extremely susceptible to the unexpected.
For example, in July 1993, there was an explosion in a Japanese factory producing epoxy resin for encapsulating semiconductor chips. Despite a massive global market for semiconductors, this one factory was the primary source of the resin. Chip prices doubled within a few days, and impending bottlenecks threatened to disrupt several industries. At a high cost, the marketplace sought to set up alternative production lines for the manufacture of this essential ingredient.
The illusion of economic thrift through decreased resilience was central to the US Covid-19 response disaster. For decades, capitalists have told us that we cannot afford socialized medicine and public health for everyone, even though every advanced country in the world has figured out how to work. Since profit, rather than a healthy population, is the main driver in our system, there is an incentive to keep the public health infrastructure to a minimum as some people are excluded from the market. In normal times, the result is high levels of chronic illness resulting from unaddressed preventive care and leading to more expensive emergency rooms. During the pandemic, the result was the highest death toll on the planet.
The world has not faced this type of pandemic in a century, and even nations with good public health infrastructure have been hard hit. Our healthcare industry is regulated to some extent, a combination of not-for-profit and for-profit organizations, and is being stopped somewhat by the federal government. Even with a dysfunctional federal leadership in the first year, states and hospitals worked together, exchanging resources, information, and staff, and managing to avoid a complete breakdown in health care. But it was a close call in many churches.
To see the full downside effect of a lack of resilience in an unrestrained capitalist free market, the recent cold weather collapse of the Texas power grid is spot on. This event was not even unexpected, since the same thing happened ten years earlier.
Believing that government is always a problem and that privatized free market capitalism is always the solution, the Republicans of Texas created an unregulated power grid in the 1990s. It was purposely separated from the rest of the country to avoid federal regulation, and promised that competition would ensure Texans received the cheapest power possible. But cheap is different from quality.
If demand exceeds supply, theoretically prices rise, decrease demand or load new resources into the lucrative market, causing prices to fall again. In practice, the Texan energy market quickly focused on two large suppliers that overburdened Texans by $ 28 billion over the next three decades. With no incentive to invest in spare capacity or costly upgrades to improve weather resistance, the entire system was not prepared for rare extreme conditions. Last month, unusual cold frozen half of the available electricity generation in Texas, reducing the supply to 40 megawatts to meet a demand of 70 megawatts. People couldn’t reduce demand, and there was no way to import new resources. To avoid total destruction, the grid was shut down, resulting in a record $ 20 billion catastrophe. To add insult to injury, unregulated market prices rose to produce some consumer bills over $ 10,000 per month, capitalizing on gains and socializing losses.
Building system resilience to avoid major social and economic disasters requires long-term planning and upfront investments impossible for corporate capitalism and driven by the lowest cost and short-term profit.
Crispin B. Hollinshead lives in Ukiah. This and previous articles can be found at cbhollinshead.blogspot.com.
