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3/21/11

Economic, Social and Geopolitical

The Great Disruption is here for real...

The supply lines of essential goods and services being disrupted calls for building to return vital work to the United States.

The current economic crisis that technically began in 2007 is referred by many as the Great Disruption. The original assumption was underlying the obvious economic problems of real estate, highly leveraged debt coupled with unemployment, that technology and the internet fundamentally changed communications and the channels that business was conducted. It seems that definition of disruption was too limiting, we now have far larger disruptions as examples, although the underlying one facilitated the current disintegrations.

This weekend GM announced that they were suspending all "nonessential" spending and "unnecessary travel" while they assess the impact of the crisis in Japan. In doing that they were telegraphing more than just their company's reaction to what is a world crisis, which is greater than the powerful impact of Japan's earthquakes, tsunami and nuclear problems. It actually signals a very real parts supply problem that this crisis portends. GM is merely the speaker that blasts the sirens for the difficulties other companies face and amplifies the fundamental flaw in the "just in time" supply model lauded by the MBA Business Culture.

It isn't limited to automobile manufacturing, just as importantly it impacts our technology dependent economy in entirety. Much of what we need to keep our internet based technology and telecommunications systems infrastructure going relies on Japanese manufacturing and shipments in one way or another. In a terrible event that is a classic example of the "broken window fallacy," it is very likely it will be a number of years before Japan is fully back up to speed. There is every reason to think the resolute Japanese people will successfully rebuild, but what they have is mostly gone, rebuilding destruction is not a path to building an economy.

We ought to be considering now in the US gearing up our own manufacturing abilities in order to keep what we have going. At least we should be doing that and learning a valuable lesson from outsourcing and offshoring the manufacturing of necessary products. It is an opportunity to build on what we have. At this moment I know of two specific examples of major facilities that have computer server problems they are working around, since the parts they need are not available and can't be shipped from Japan. For the time being they are able to operate with a "jerry-rigged" resolution and manual intervention. That can only last so long and it seems obvious those local examples are not unusual and going to repeat in other situations.

Another weekend event that is just as serious, if not more so since resolution is not imminent, is the bombing of Libya by Britain, France and the US. The Libyan oil fields have been destroyed and the economic disruption, besides the turmoil and human toll, cannot be underestimated. Essentially this action cuts off the main oil supplies to Europe, which in turns put the squeeze on the rest of the world's demand for oil. Not the least of which is Japan, which will need more oil now due to neutered nuclear production of energy.

While that story holds the attention of the front pages, there are still problems in the Arab world that are unsettling and irresolute. The Jasmine Revolution continues. Yemen and Syria are in turmoil and the people of Bahrain and Saudi Arabia are not appeased by the offers of their governments. Additionally Iran has cracked down on "web revolutionaries" and Afghanistan, Pakistan and Iraq are still open questions. India has problems the western media doesn't seem to want to report on but ultimately their ability to provide services is threatened by social class and business-political quandaries. Who knows what China and Russia will do in this mix?

If there is anything I have learned from studying history, I do not believe it is a stretch to state that the destructive bombing of Libya won't stop the contagion of unrest in the Middle East. There is simple truth in Santayana's oft misquoted "Those who cannot learn from history are doomed to repeat it." Alongside that is another simple axiomatic truth, it takes three overlapping generations to relearn the lessons of history. It appears we are not paying much attention to learning the history of long standing troubles throughout time in the Middle East.

Regardless of how the bombing of Libya turns out, by the end of the week it should be clear that vital supply lines of essential goods and commodities have been severely disrupted for a lengthy time. Just as we thought 2010 was a respite and that some underlying fundamentals of the economy were making slow improvements, we now have distinct manifestations of disruption with deep economic impact. That is a call for action; now is the time to build in the US to avert future dependence. Although the elemental foundations of commercial and financial spheres have been rocked further, times of difficulty usually bring out the best ability of Americans to rise above and overcome adversity. Actually, we have a long history of it.