THE ROOTS OF THE SUPPLY SHOCK lie in a basic bargain made between government and big business, on behalf of the American people but without their consent. In 1970, Milton Friedman argued in The New York Times that “the social responsibility of business is to increase its profits.” Manufacturers used that to rationalize a financial imperative to benefit shareholders by seeking the lowest-cost labor possible. As legendary General Electric CEO Jack Welch put it, “Ideally, you’d have every plant you own on a barge,” able to escape any nation’s wage, safety, or environmental laws.
In place of the barge, multinationals found China, and centralized production there. This added new costs for shipping, but deregulating all the industries in the supply chain could more than compensate. Big companies got the law changed to enable ocean carriers to offer secret discounts in exchange for volume guarantees. Trucking and rail deregulation in the Carter administration eliminated federal standards and squeezed workers, who to this day continue to endure low pay, erratic schedules, wage theft, and rampant misclassification. When trucking was regulated and union truckers earned decent pay, there was no shortage of drivers. And a new religion called “just-in-time” logistics was founded, on the theory that companies could produce exactly what customers demanded and create a supply chain so efficient it would virtually eliminate the need to keep reserve inventory at the warehouse. This kept down costs of production and distribution.
Feeding on these trends was a wave of consolidation, also based on theories of efficiency. Manufacturers and retailers increased market share and empowered offshore production giants like Foxconn. The component parts of the supply chain concentrated as well. Ocean shippers slotted into three global alliances that carry 80 percent of the cargo; 40 rail companies narrowed to just seven, and they carved up regions of the country, so most freight shipping has at most two choices.
Behind all of these choices was Wall Street, insisting on more profit maximization through deregulation, mergers, offshoring, and hyperefficiency. They demanded that companies skimp on long-term resilience, build moats around their businesses by undermining or buying up rivals, adopt practices that kept inventories lean, break down the social contract between employers and workers that offered economic security, and return outsized profits to shareholders. Financiers built our supply chain to enrich investors over workers, big business over small business, private pockets over the public interest.
These policies caused innumerable harms long before the whole system collapsed during the pandemic. Entire regions of the country were abandoned for cheap foreign labor, and the drive for profit maximization facilitated a race to the bottom when it came to labor standards around the world, including the U.S. The transition to a service economy shuttled people into dead-end, low-wage jobs that are among the most brutal and undignified of any industrialized nation.