We might just be focusing on the wrong supply chains

Around the globe, markets are adjusting.  Inflation is looking less and less transitory: the Bank of England’s chief economist reckons that UK inflation will top 5%.

It’s all very painful.

Big companies are getting a lot of the blame.  Take the energy crisis for example.  Governments have scrambled to blame corporates for supply problems that, when you look closely, mostly trace back to their own rules and regulations. Evidence of profiteering is thin on the ground.

One of the few things we can rely on is that the private sector’s love of money leads to a market response.  The price system is how supply chains ration, respond and thus resolve economic problems

So the disruption in markets is actually a pretty good sign that the folk involved are trying to deal with the problems built up over 18 months of Covid restrictions.

The supply chains which we really ought to be thinking about are the government supply chains.

These have historically had a poor record of responding to consumer needs, because consumer satisfaction is usually one of many priorities (including the needs of civil servants and noise from well-connected interest groups), and the lack of choice does little to encourage performance.

And when you start looking from this angle you can see more and more unresponsive government supply chains: teachers not keen on classrooms; doctors who prefer not see their patients; driving examiners who enjoy not testing. Tackling these is shaping as one of the major issues for politicians in the post-Covid era.

For a single major project – say like a moon short, a major war or a pandemic response – the state can do a good enough job, particularly if money is no object.  But looking at something like the Christchurch earthquake aftermath, it is clear that doing it cost effectively can be another matter.  Examining the standout projects during the Covid pandemic – the rapid genome sequencing and the vaccine development – you would conclude that they owed their success to their independence from close state control.

So grit your teeth now and let private businesses reshape the markets to reflect new realities. If we are not better off, we will at least have avoided a worse outcome.

Make sure to hold the government accountable for its current and future supply chain failures. There are bound to be more of them.  

And keep your fingers crossed that politicians avoid making too many costly interventions in markets, which aim to suppress a problem and only make it worse.

2 thoughts on “We might just be focusing on the wrong supply chains

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