Built to Break

The international system of bottlenecks in the new era of monopoly.
April 1, 2012 |
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In the first days after towering tsunamis smashed Japan’s north coast last March, many economists believed that the disaster would have little effect on growth around the world. The region is much less industrialized than southern Japan, so the thinking went, hence the disruptions would likely be smaller than those caused by the massive Kobe earthquake of 1995. Such hopes did not last. By June, it was clear that the tsunamis had caused an unprecedented “supply paralysis” (Reynolds 2011) that, in turn, helped to trigger what one economics reporter called a “remarkably synchronized worldwide economic slowdown” (Kaiser 2011).

After the panic of September 2008, the story was much the same. That time, however, it was a demand shock that set off a production slowdown that cascaded around the world. The climax came two months later, when Ford CEO Alan Mulally asked Congress to bail out his firm’s competitors General Motors and Chrysler to avoid collapse of the entire automotive production system. The industry, he said, had become “uniquely inter- dependent . . . with respect to our supply base.” Any bankruptcy by a top-tier firm would disrupt parts production, which in turn would mean Ford—along with the U.S. operations of Toyota, Nissan, and Honda—would “not be able to produce vehicles” (Alan R. Mulally, president and chief executive officer of the Ford Motor Company, testimony before the Senate Banking Committee, November 18, 2008).

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