- New pathogens generated unintentionally by agribusiness are not themselves natural-material use-values.
- They are toxic residues of the capitalist production system.
- It can be traced to agribusiness commodity chains as part of a globalized food regime.
- The ripple effects of combined ecological and epidemiological disasters are felt.
- They have been introduced by today’s global commodity chains and agribusiness.
- This has given rise to the COVID-19 and disrupted the entire system of global production.
- The supply/value chains affected has generated a gigantic ‘bullwhip effect’.
- It is rippling up from both the supply and demand ends of the global commodity chains.
According to an article published in the Monthly Review, the new pathogens generated unintentionally by agribusiness are not themselves natural-material use-values, but rather are toxic residues of the capitalist production system, traceable to agribusiness commodity chains as part of a globalized food regime.
This is in continuation of the series on how COVID-19 catapulted into an economic cataclysm? You can read more about it from here.
Metaphorical revenge
Yet, in a kind of metaphorical “revenge” of nature as first depicted by Engels and Lankester, the ripple effects of combined ecological and epidemiological disasters introduced by today’s global commodity chains and the actions of agribusiness, giving rise to the COVID-19 pandemic, have disrupted the entire system of global production. The effect of lockdowns and social distancing, shutting down production in key sectors of the globe, has shaken supply/value chains internationally.
Generation of a bullwhip effect
This has generated a gigantic “bullwhip effect” rippling up from both the supply and demand ends of the global commodity chains. Moreover, the COVID-19 pandemic has occurred in the context of a global regime of neoliberal monopoly-finance capital that has imposed worldwide austerity, including on public health. The universal adoption of just-in-time production and time-based competition in the regulation of global commodity chains has left corporations and facilities such as hospitals with few inventories, a problem compounded by urgent stockpiling of some goods on the part of the population. The result is the extraordinary dislocation of the entire global economy.
Well organized labor-value chains
Today’s global commodity chains—or what we call labor-value chains—are organized primarily in order to exploit lower unit labor costs (taking into account both wage costs and productivity) in the poorer countries of the Global South where world industrial production is now predominantly located. Unit labor costs in India in 2014 were 37 percent of the U.S. level, while China’s and Mexico’s were 46 and 43 percent, respectively. Indonesia was higher with unit labor costs at 62 percent of the U.S. level. Much of this is due to the extremely low wages in countries in the South, which are only a small fraction of the wage levels of those in the North.
Meanwhile, arm’s length production carried out under multinational corporation specifications, along with advanced technology introduced into the new export platforms in the Global South, generates productivity on levels comparable in many areas to that of the Global North. The result is an integrated global system of exploitation in which the differences in wages between countries in the Global North and the Global South are greater than the difference in productivities, leading to very low unit labor costs in countries in the South and generating enormous gross profit margins (or economic surplus) on the export price of goods from the poorer countries.
Economic surpluses generated in the Global South
The enormous economic surpluses generated in the Global South are logged in gross domestic product accounting as value-added in the North. However, they are better understood as value captured from the South. This whole new system of international exploitation associated with the globalization of production constitutes the deep structure of late imperialism in the twenty-first century. It is a system of world exploitation/expropriation formed around the global labor arbitrage, resulting in a vast drain of value generated from the poor to the rich countries.
All of this was facilitated by revolutions in transportation and communication. Shipping costs dived as standardized shipping containers proliferated. Communication technologies such as fiber-optic cables, mobile phones, the Internet, broadband, cloud computing, and video conferencing altered global connectivity.
Air travel cheapened rapid travel, annually growing by an average of 6.5 percent between 2010 and 2019. Around a third of U.S. exports are intermediate products for final goods produced elsewhere, such as cotton, steel, engines, and semiconductors. It is out of these rapidly changing conditions, generating an increasingly integrated, hierarchical international accumulation structure, that the present global commodity-chain structure arose. The result was the connecting of all parts of the globe within a world system of oppression, a connectivity that is now showing signs of destabilizing under the impacts of the U.S. trade war against China and the global economic effects of the COVID-19 pandemic.
First global supply-chain crisis
The COVID-19 pandemic, with its lockdowns and social distancing, is “the first global supply-chain crisis.” This has led to losses in economic value, vast unemployment and underemployment, corporate collapse, increased exploitation, and widespread hunger and deprivation.
The key to understanding both the complexity and chaos of the present crisis is the fact that no CEO of a multinational corporation anywhere has a complete map of the firm’s commodity chain.
Usually, the financial centers and procurement officers in corporations know their first-tier suppliers, but not their second-tier (that is, the suppliers of their suppliers), much less the third- or even fourth-tier suppliers. As Elisabeth Braw writes in Foreign Policy, “Michael Essig, a professor of supply management at the Bundeswehr University of Munich calculated that a multinational company such as Volkswagen has 5,000 suppliers (the so-called tier-one suppliers), each with an average of 250 tier-two suppliers. That means that the company actually has 1.25 million suppliers—the vast majority of whom it doesn’t know.”
Moreover, this leaves out the third-tier suppliers. When the novel coronavirus outbreak occurred in Wuhan in China, it was discovered that fifty-one thousand companies globally had at least one direct supplier in Wuhan, while five million companies had at least one two-tier supplier there. On February 27, 2020, when the supply chain disruption was still largely centered on China, the World Economic Forum, citing a report by Dun & Bradstreet, declared that more than 90 percent of the Fortune 1000 multinational corporations had a tier-one or tier-two supplier affected by the virus.
Corporations try to map their entire commodity chains
The effects of SARS-CoV-2 have made it urgent for corporations to try to map their entire commodity chains. But this is enormously complex. When the Fukushima nuclear disaster occurred, it was discovered that the Fukushima area produced 60 percent of the world’s critical auto parts, a large share of world lithium battery chemicals, and 22 percent of the world’s three-hundred-millimeter silicon wafers, all crucial to industrial production. Attempts were made at that time by some monopoly-finance corporations to map their supply chains.
According to the Harvard Business Review, “executives of a Japanese semiconductor manufacturer told us it took a team of 100 people more than a year to map the company’s supply networks deep into the sub-tiers following the earthquake and tsunami [and the Fukushima nuclear disaster] in 2011.”
Chain of metamorphoses
Faced with commodity chains in which many of the links in the chain are invisible, and where the chains are breaking in numerous places, corporations are faced with interruptions and uncertainties in what Marx called the “chain of metamorphoses” in the production, distribution, and consumption of material products, coupled with erratic changes in overall supply-demand.
The scale of the coronavirus pandemic and its consequences on world accumulation is unprecedented, with the global economic costs still increasing. At the end of March, some three billion people on the planet were in lockdown or social-distancing mode. Most corporations have no emergency plan for dealing with the multiple breaks in their supply chains.
Increase in blank sailings
The scale of the problem has manifested itself in the early months of 2020 in tens of thousands of force majeure declarations, beginning first in China and then spreading elsewhere, where various suppliers indicate they are unable to fulfill contracts due to extraordinary external events. This is accompanied by numerous “blank sailings” standing for scheduled voyages of cargo ships that are canceled with the goods being held up due either to failure of supply or demand.
In early April, the U.S. National Retail Federation indicated that March 2020 saw a five-year low in the shipment of twenty-foot equivalents (of containers) in ship cargo, with shipments expected to plummet much more rapidly from that point. Airline passenger flights all over the world have decreased by around 90 percent, leading the major U.S. airlines to leverage “the bellies and passenger cabins of their aircraft [in order to redirect them] for cargo flights, often removing seats and using the empty tracks to secure cargo.”
WTO warns of economic fallout due to COVID-19
According to the estimates in early April by the World Trade Organization, the economic fallout from the COVID-19 pandemic would lead to a drop in annual world trade in 2020 by 13 percent in the more optimistic scenario, and by 32 percent in the more pessimistic scenario. In the latter case, the collapse of world trade would equal in one year what happened in the Great Depression of the 1930s over a three-year period.
The dire effects of the disruption of global supply chains during the pandemic have been particularly evident with respect to medical equipment. Premier, one of the chief general purchasing organizations for hospitals in the United States, indicated that it normally purchases up to twenty-four million N95 respirators (masks) per year for its member health care providers and organizations, while in January and February 2020 alone its members used fifty-six million respirators.
In late March, Premier was ordering 110 to 150 million respirators, while its member organizations such as hospitals and nursing homes when surveyed indicated they had barely more than a week’s supply. The demand for medical masks soared while the global supply froze up. COVID-19 test kits were also in chronically short supply globally until China revved up production in late March.
Many goods in short supply
Many other goods are also now in short supply, while in the general chaos warehouses are overflowing with goods, such as fashion clothing, for which demand has plummeted. In the world of just-in-time production and time-based competition, inventories are generally reduced to a minimum to decrease costs.
With no slack, auto and many retail supply chains in the United States are likely to see a chronic shortage in supplies by early May. As Peter Hasenkamp, who directed Tesla’s supply chain strategy and now is in charge of purchasing for Lucid Motors, an electric car startup, has stated: “It takes 2,500 parts to build a car, but only one not to.” COVID-19 test kits were in scarce supply in the United States partly because of a shortage of swabs.
By mid–April 2020, 81 percent of global manufacturing firms were experiencing supply shortages, evident in a 44 percent increase in force majeure declarations by March from the beginning of the year before the emergence of the novel coronavirus, and a 38 percent increase in production shutdowns. The result is not only material shortfalls but a crisis in cash flow and hence a huge “spike in financial risks.”
Effects of supply-side disruption
For today’s multinational corporations, which care little about the use-values they sell provided they generate exchange value, the real economic impact of the disruption of supply chains is their effect on value chains—that is, on the exchange, value flows. Although the full value effects of the global supply-side disruption will not be known for some time, an indication of the crisis this generates for accumulation can be seen in the losses in value that corporations have experienced.
Hundreds of companies, including firms such as Boeing, Nike, Hershey, Sun Microsystems, and Cisco, have encountered critical commodity chain disruptions in the last couple of decades. Studies based on some eight hundred cases have shown that the average effect for firms of such a supply chain disruption includes: a “107 percent drop in operating income; 114 percent drop in return on sales; 93 percent drop in return on assets; 7 percent lower sales growth; 11 percent growth in cost; and 14 percent growth in inventories,” with the negative effects normally lasting for two years.
The same research indicates that “companies suffering from supply chain disruptions experience between 33 to 40 percent lower stock returns relative to their industry benchmarks over a three-year time period that starts one year before and ends two years after the disruption announcement date. Also, share price volatility in the year after the disruption is 13.50 percent higher when compared to the volatility in the year before the disruption.”
When will this fallout subside?
Although no one knows how all this will fall out in the present, even in the case of an individual firm, capital has every reason to fear the consequences for valorization and accumulation. Everywhere, production is dropping and unemployment/underemployment is soaring as firms shed workers who in the United States are left simply to fend for themselves.
Corporations are now in a race to pull in their commodity chains and provide some semblance of stability in what seems to be an all-encompassing crisis. Moreover, the disruption of the whole chain of metamorphoses involved in the global labor arbitrage threatens to engender a financial meltdown in a world economy still characterized by stagnation, debt, and financialization.
Conclusion
Not the least of the vulnerabilities exposed is what is known as supply-chain finance, which allows corporations to defer payments to suppliers, with the help of bank finance. According to the Wall Street Journal, some corporations have supply-chain financing obligations that dwarf their reported net debt.
These debts owed to suppliers are sold by other financial interests in the form of short-term notes. Credit Suisse owns notes that are owed by large U.S. corporations such as Kellogg and General Mills. With a general disruption of commodity chains, this intricate chain of finance, which is itself the object of speculation, is inherently placed in a crisis mode itself, creating additional vulnerabilities in an already fragile financial system.
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Source: MonthlyReview
