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Provide chain disaster: globalization and self-sufficiency in steadiness – opinion


Provide chain disaster: globalization and self-sufficiency in steadiness – opinion


“The supply chain crisis that threatens the global economy could last at least another year if governments don’t help alleviate the disruption,” warned one of the world’s leading shipping companies. Jeremy Nixon, CEO of Ocean Network Express, which carries more than 6 percent of the world’s container freight, urged governments to increase investment in the capacity of their ports, railways, warehouses and road systems. ‘ – Excerpt from a recent Financial Times (FT) article: “Governments Must Resolve Supply Chain Crisis, Chief Shipping Officer Warns”

While demand has increased due to economic spending, particularly in the industrialized countries, the apparently artificially restricted supply in order to achieve higher income also played an important role; As a result, prices have risen sharply and in many cases have reached a level that has not been reached for years. Regardless, greater investments in improving global supply chains are required. The pandemic has shown that there is too much reliance on the idea of ​​maximizing economic efficiency through increasing globalization. Voices are now being heard to reinforce self-sufficient policies to limit supply vulnerabilities and better protect economies from price shocks, particularly in developing countries which are net imports of oil and agri-food commodities and with strong economic headwinds from troubled balances of payments and debt situations are faced.

Hence, there is a greater consensus on a stronger focus on industrial policy, not the earlier stronger government support for certain industries, but one that plays a more balanced role between competition and support. In this context, a recent New York Times (NYT) article entitled “Why Everyone Cares About Supply Chains” noted: “Globalization may have lifted hundreds of millions out of poverty, but it has long been a dirty word for its critics . They associate it with strengthening corporate power, lowering workers’ wages and widening the gap between the rich and everyone else. … That has led many politicians – Democrats and Republicans – to an issue that has long been a dirty term: industrial policy. … But that enthusiasm for targeting billions of dollars to specific industries may not work in today’s globalized economy. … In order to be successful, what we consider to be a hybrid industrial policy is required. This would incorporate some of the good aspects of globalization, maintain competition, and coordinate policies with like-minded countries to achieve common goals. ‘

Pakistan, which suffers immensely from high imported inflation, should also seek to formulate such a “hybrid industrial policy” that balances economic efficiency with self-sufficient policies to ensure greater national security and welfare concerns, especially as pandemic-like major global shocks result have domestic policies of the countries that are more inwardly directed in order to have their own electoral base. Excessive dependence on imports from other countries to optimize economic efficiency has replaced politics with the necessary roots in political realities and nationalist aspirations.

In the particular case of Pakistan, which is a major agricultural economy, focusing on increasing domestic production of raw materials and reducing dependence on imports is important not only for food security but also for reducing the impact of supply and price shocks on the balance of payments . Similarly, a supply-side price shock in the oil sector should also push a net importer of oil, Pakistan, to greater urgency in the heavily renewable energy economy; something that is also important for dealing with the rapidly developing climate crisis. From around $ 20 per barrel of Brent crude oil in April 2020, prices have risen sharply this year, with a recent Reuter article “Oil prices reaching multi-year highs when supply is scarce” states, among other things: “Brent crude oil futures went down 46 cents and settled at $ 85.99 a barrel. The contract hit a session high of $ 86.70 a barrel, its highest level since October 2018. the sustained surge in fuel demand – which, given the limited supply reaction, is depleting global inventories, “said Louise Dickson, senior oil market analyst at Rystad Energy. ‘

At the moment the big question is whether this supply interruption is temporary or long-term. In Pakistan, from the Prime Minister to a number of its ministers / advisers, there appears to be a general consensus that the supply chain crisis is temporary and the high imported inflation component that goes with it. Deregulation, “just-in-time production” and the lack of detailed data on supply chains limit the capacities of governments and multilateral institutions to urgently address bottlenecks in the supply chain, which in turn leads to a rethinking of the highly liberal globalization model in the direction of stronger regulation and to reach consensus with the private sector to make medium to longer term delivery decisions that concern more than just price signals. Because of these inherent shortcomings, the private sector is in turn more obliged to continue serving the self-interest in higher revenues than to worry about limiting the supply crisis in the short term. The inability to get out of this “liberal” economic orthodoxy mantra, even when banks faced similar concerns after the global financial crisis in the late 2000s, is callous indeed, to say the least.

A recent Project Syndicate (PS) article “The Great Massacre in the Supply Chain” pointed out: “It is unclear whether the current widespread shortage of products is just a temporary disruption or evidence of a global production breakdown. Today’s supply shocks, however, bear striking parallels with the global financial crisis of 2008 and may require a similarly 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 bottlenecks. When the immediate supply situation wears off, companies and policy makers need to consider what type of insurance or leeway to add to the production system over the longer term. Just as banks had to increase their equity buffers after 2008, we may now have to move away from just-in-time production and redefine productivity in the face of supply chain risks. ‘

(The author has a PhD in Economics from the University of Barcelona; he previously worked for the International Monetary Fund)

He [email protected]

Copyright Business Recorder, 2021


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