Supply chain crisis: reconciling globalization and autarky – Opinion

“The supply chain crisis threatening the global economy is likely to last for at least a year unless governments step in to mitigate the disruption,” warned one of the world’s leading shipping companies. Jeremy Nixon, Director General of Ocean Network Express, which carries more than 6% of the world’s containerized freight, urged governments to increase investments in the capacity of their ports, railways, warehouses and road systems. ‘ – An excerpt from a recent Financial Times (FT) article “Governments must solve supply chain crisis, top shipping boss warns”

While demand increased thanks to stimulus spending, especially in developed countries, a seemingly artificially limited supply to reach higher incomes also played an important role; as a result, prices have risen sharply and reached levels not seen in years in many cases. In addition, there is a need to invest more in improving global supply chains. The pandemic has revealed an overreliance on the idea of ​​maximizing economic efficiency through increased globalization. Voices are now being raised to intensify autarkist policies to limit supply vulnerabilities and better guard against price shocks for economies, especially developing countries which are net importers of oil and products. agriculture / food and face strong economic headwinds linked to a difficult balance of payments and debt. situations.

Therefore, a greater consensus emerges on a greater focus on industrial policy, but not that of past years of greater government support for specific industries, but that which plays a more balanced role between competition and support. A recent New York Times (NYT) article “Why Everyone Suddenly Cares About Supply Chains” stated the following in this regard: “Globalization has perhaps taken out hundreds of millions of dollars. people of poverty, but for its detractors it has long been a dirty word. They associate it with strengthening corporate power, reducing workers’ wages and deepening divisions between the rich and the rest. … This has led many politicians – Democrats and Republicans – to a subject that was also for a long time a dirty term: industrial policy. … But this enthusiasm for spending billions of dollars on certain industries may not work in today’s globalized economy. … Instead, success will require what we see as a hybrid industrial policy. This would incorporate some of the good aspects of globalization, preserve competition, and coordinate policy with like-minded countries to achieve common goals.

Pakistan, which suffers greatly from high imported inflation, should also seek to formulate such a “hybrid industrial policy” that balances economic efficiency with autarkist policies to ensure greater national security and welfare concerns, all the more so as serious global shocks of the pandemic type lead to the national policies of countries more inward-looking to appropriate the national electoral base. Too much dependence on imports from other countries for the sake of optimizing economic efficiency has distanced policies from the necessary rooting in political realities and nationalist aspirations.

In the particular case of Pakistan, which is a predominantly agricultural economy, it is important to focus on improving domestic production of basic commodities and relying less on imports, not only for food security, but also to reduce the footprint of supply and price shocks on the balance of payments. . Likewise, the price shock and limited supply in the oil sector are also expected to push a net oil importer, Pakistan, into greater urgency towards the economy, which is largely based on renewable energy sources; something that is also important in dealing with the rapidly unfolding climate change crisis. From around $ 20 a barrel of Brent crude in April 2020, prices have risen sharply this year, a recent Reuter article “Oil Prices Hit Multi-Year High With Tight Supply” stated, among other things, in this regard: “Brent crude Futures gained 46 cents to settle at $ 85.99 per barrel. The contract peaked at $ 86.70 per barrel, its highest level since October 2018. …” Global energy supply crisis continues to show its teeth, as oil prices extend their upward march this week, as traders’ prices continue to rise in demand for fuel – which in a context of response limited supply, depleting global stocks, ”said Louise Dickson, senior oil markets analyst at Rystad Energy.

The big question right now is whether this disruption in supply is transient or long term. In Pakistan, from the Prime Minister to a number of his ministers / advisers, the general consensus is apparently in favor of a supply chain crisis of a temporary nature, and with it the strong component of imported inflation therein. associated. Deregulation, “just-in-time production” and the lack of detailed supply chain data all limit the ability of governments and multilateral institutions to urgently remove supply chain bottlenecks, calling in turn to revisit the highly liberal model of globalization towards greater regulation, and reach consensus with the private sector to make supply decisions of more concern than mere medium to long term price signals. These inherent flaws, in turn, compel the private sector more to continue serving its own interests and generating larger revenues than worrying about limiting the short-term supply crisis. The failure to break out of this mantra of “liberal” economic orthodoxy, even when similar concerns were encountered by banks after the global financial crisis of the late 2000s, is indeed insensitive to say the least.

A recent Project Syndicate (PS) article “The Great Supply Chain Massacre” pointed out in this regard: “It is not clear whether the current widespread product shortages are only a temporary disruption or evidence. a collapse in world production. But today’s supply shocks offer stark parallels to the 2008 global financial crisis and may require an equally bold policy response. … But in the short term, decentralized markets and price signals are the problem, not the solution. Governments will have to step in … to alleviate some of the shortages. When immediate supply problems ease, businesses and policymakers need to think about what kind of insurance or wiggle room they should build into the longer-term production system. Just as banks needed to increase their capital reserves after 2008, perhaps we now need to step back from just-in-time production and redefine productivity in light of supply chain risks. . ‘

(The writer holds a doctorate in economics from the University of Barcelona; he previously worked at the International Monetary Fund)

He [email protected]

Copyright Business Recorder, 2021

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Estelle D. Eden

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