Industrial shortages and the workers

8 October, 2021

Industrial shortages. Yesterday in Spain.
Industrial shortages. Yesterday in Spain.

Industrial shortages are not just a British problem. In Spain they cut industrial output and weigh down the “recovery” despite rising demand. In Germany, the entire industrial production is being disrupted. Chaos reaches such a point that US industrialists call for a truce in the trade war against China and China is unblocking Australian coal imports. But make no mistake, all of these are part of what the EU calls “a war-like effort“. The world’s supply chains are on the verge of collapse.

Table of Contents

The “recovery plans” and the Green Deal do not solve the economic crisis, they escalate and globalize the same contradictions that created it

Biden and Yellen outline increased spending and Green Deal policies to business leaders this week. Industrial shortage problems inevitably came up at the meeting.
Biden and Yellen outline increased spending and Green Deal policies to business leaders this week. Industrial shortages problems inevitably came up at the meeting.

The first waves of industrial shortages were the result of supplier factory closures in China. Far from being solved, the following waves of Covid increased the problem because of the system’s inability to deal with the pandemic globally… and the (economic) “ways out of the crisis” threaten to multiply and aggravate it even more.

Both the EU with its “Recovery Plans” and, on an even larger scale, China and the US – which is now discussing a new $2.3 trillion macro-budget– are basing their anti-crisis policy on increasing demand through injections of spending and investment. Investment that is massively concentrated in the Green Deal, the form chosen to organize a massive transfer of income from labor to capital that will provide vital oxygen to capital accumulation.

The result is however an increase of chaos in the supply system and a global energy crisis.

China, coal and its energy crisis

Australian coal ships wait with their cargo blocked in front of Chinese ports. It was one of the first signs of general industrial shortages to come.
Australian coal ships wait with their cargo blocked in front of Chinese ports. It was one of the first signs of general industrial shortages to come.

The Chinese example is crystal clear. China blocked Australian coal imports last December as part of the imperialist escalation between the two countries. As an immediate effect began blackouts and electricity rationing. Also an increase in coal imports from the US and Canada despite the trade war.

But meanwhile, huge allocations of investment and public spending accelerated electricity demand, and the government chose electricity cuts and quotas rather than breaching its own emissions and “energy intensity” targets for production. The reason: meeting the “border allowance payment” mechanisms established by the EU and the US, the new tariff barrier of the Green Deal. The reflection in GDP has already started to materialize and threatens to affect all of Asia.

The picture, which in itself already reveals serious underlying contradictions, is completed by the general rise in coal prices, partly due to Chinese demand, but also due to the increase in ocean freight costs.

Rising freight costs and collapsing ports

Ships waiting to enter the Port of Los Angeles on August 26. The collapse of Asian and U.S. ports is part of the source of the current industrial shortage.
Ships waiting to enter the Port of Los Angeles on August 26. The collapse of Asian and U.S. ports is part of the source of the current industrial shortages.

The demand generated by the expansionary policies and Green Deal investments has a characteristic structure. Companies are buying more investment goods – machinery, renewable generators, etc. – and work equipment – computers and electronic products – among companies. Private individuals are taking the opportunity to renew consumer durables – household appliances, computers and cars – spurred on by the new housing boom in the US, among other things.

That is, demand for physical goods produced in Asia increases. The result is a 10% increase in international freight rates. This may not seem dramatic, but with insufficient storage systems and scaled structures for a demand with predictable growth, it has resulted in long queues of ships at anchor in port waiting for the summer. Delays and extra time are being added to the cost.

In addition, shipping is one of the sectors where the cost structure is most rapidly affected by the Green Deal. The U.S. has championed the move to zero shipping emissions by 2050 and the EU is determined to charge European shipping companies for emissions… and compensate them by charging “border CO2 adjustments” to non-EU shipping companies when they reach EU ports.

Add to the shipping lines’ early fuel-substitution efforts, the costs accumulated during lockdowns, the lack of adequate warehousing capacity and logistical bottlenecks at ports from Shanghai to Oakland: the price of freight has increased 10-fold in the past year and a half.

The question remains however: how is it that a 10% increase in demand increased the price of freight by a factor of 10 and still there is industrial shortages. Don’t markets work and “balance” themselves on the basis of supply and demand?

Capitalist chaos is the real cause of industrial shortages

Containers waiting at the port of Hamburg.
Containers waiting at the port of Hamburg.

When one asks analysts or industry leaders, the answer is seemingly simple: the global logistics system, based on just-in-time and warehouse savings, has not withstood a sharp increase in demand and has generated industrial shortages because it was unprepared for the current situation.

In a world where everything is foreseen and planned, and where supply chains operate on a “just in time” basis, the slightest unforeseen event can sow chaos as in an orchestra where a musician takes the wrong beat

Sébastien Jean, director of the Center for Prospective Studies and International Information, in Le Monde

But the “just-in-time” system is no product of Nature, it is a very recent creation inextricably linked to the international division of labor created in the 1990s… and to the precarity-inducing policies suffered by workers.

Maximizing the results of this game required flattening tariff and tax differentials to boost the fluidity of the free movement of capital and goods. […]

But the world of commodity production and sale, the material heart of capitalism, had other tempos. It took time to get a commodity from one place to another, and in doing so, logistical costs were built in. The maximizing solution consisted in part in lowering these costs and times, at least as far as state controls were concerned. But above all in reducing the adaptation times of peripheral suppliers to changes in the production needs of the final assembly lines within or at the borders of their main markets.

The predictability and speed of the flow of components and semi-processed products allowed large automotive, electronics and even agri-food companies to establish a new inventory management system, the just-in-time.

The just-in-time system eliminated warehousing costs by freeing capital for speculation, loaded market risks on the shoulders of suppliers and made overproduction invisible in central capitals that would no longer be overwhelmed by masses of unsold stockpiles.

The new archetypal forms of overproduction in Europe and the USA would henceforth be the pauses and temporary layoffs, and in China the unemployment of migrant workers in the cities. The new international division of labor also implied more and new forms of precarization of workers.

The New International Division of Labor and the Suez Canal, 3/19/2021

That is to say, the risk of industrial shortages and the fragility of the system were cushioned by the precarization of workers along the entire international industrial chain: from Chinese electronics factories to European automakers. It is this “cushion”, built at our expense, which now no longer works anymore. And it does not work, among other things, because the two capitalist solutions that are being implemented can only multiply the chaos that they claim to want to resolve.

Read also: The New International Division of Labor and the Suez Canal, 3/19/2021

Capital concentration and industrial shortages

Printing chips on silicon wafers. The industrial shortage of electronic components has triggered a new drive towards concentration of production and capital in response that will only increase chaos and contradictions.
Printing chips on silicon wafers. The industrial shortages of electronic components has triggered a new drive towards concentration of production and capital in response that will only increase chaos and contradictions.

The first strategic reaction to the industrial shortages has been the launching of massive capital investments to create new chip factories in Europe, the US and South Korea.

It is significant because chips, in particular, express well the deformations imposed on technology itself by the need to give an outlet to large masses of capital without profitable productive placement. And yet there is no attempt to change a form of production that is increasingly inefficient and holds back innovation throughout the downstream chain, precisely because of the same thing: the need to render profitable gigantic masses of capital requires larger scales however dysfunctional and anti-human the result.

Read also: The War of the Chips and the Contradictions of Capitalism, 6/14/2021

The consequences of such moves on workers, however much they may be advocated as a strategy against industrial shortages, are necessarily anti-human. We see it in what is goin on with vaccines and was already happening with other pharmaceutical products such as insulin: global monopolies and havens of capital that cut off any alternative but de facto restrict access to vital products to most of the world.

The overall result is not, however, more of the same, but a transformation of the international division of labor whose consequences will further fuel the chaos and the “sacrifices” exacted from the workers.

The new international division of labor, industrial shortages and war

Macron promises in Douai before the Renault trade unionists, that the automotive production line will become 100% made in France. Renationalization - and the precarization of labor - as a false solution to industrial shortages.
Macron promises in Douai before the Renault trade unionists, that the automotive production line will become 100% made in France. Renationalization – and the precarization of labor – as a false solution to industrial shortages.

With the double acceleration of the movement of capital brought about by the overlapping of the Green Deal and the reorganization of production chains around trade – and increasingly military – blocs in formation, the competition to attract capital is accelerating.

The strategy of the US and the EU is twofold: on the one hand, to try to organize new highly concentrated industrial clusters around key industries. In them, the promise of new jobs and of the end of industrial shortages with their more or less temporary job cuts is used, however, to demand from workers “flexibility” and new forms of precarization.

Trump and Biden led the way, and now Macron, Sánchez and Draghi have jumped on the bandwagon, each according to the possibilities of their national capital.

Since June Macron has been on campaign to raise capital and sell workers a Trump-style solution: renationalization of production as a promise of a stop to precarization, at the cost of…. “flexibility” and “moderation”. In his last nationally televised speech the package was explicit: the two big industrial targets for the political course that will begin in September will be to repatriate the entire automotive production chain and a substantial part of pharmaceuticals.

It is no coincidence to find in the same package dual vocational training -free young labor in exchange for a promise of job placement- and the first sketches of a new pension reform that seeks to replicate what is happening with wages: raising the minimum pension, reducing averages and ending up paying overall less to workers under a hypocritically social discourse.

Industrial shortages and fifth wave: prelude to an upsurge of the crisis and an exacerbation of economic nationalism, 7/25/2021

On the other hand, strategically important but less capital-concentrated industrial production moves to low-wage semi-colonial countries in politically and strategically “safer” areas than Asia. It is clear that the danger of industrial shortages is among their motivations, although it is not the only one.

Brussels wants to shortcut production chains and place low value-added segments, i.e. low-wage industrial production in regions within reach of decarbonized transport (Green Deal dictates) from the large factories in the fertile crescent linking northern Italy with Belgium and the Netherlands via France and Germany.

The energy constraints reduce the possible regions to become the new European China to two: the Maghreb and the Western Balkans. In other words, the imperialist goal, as almost always, is not reduced to markets and contracts, but to the possibility of making investments subordinate to their own production and internal markets in safe zones and with low wages to ensure their profitability.

The Battle for the Western Balkans, Eastern Europe and the Future of the EU, 5/7/2021

The EU summit yesterday in Brdo is neither an accident nor, for once, a new fiasco. It is part of the process to “shorten” supply chains and strengthen the control of European capital over the whole of the productive processes of which it is a part.

This new map of the international division of labor, far from easing global imperialist tensions, can only aggravate them. Together with the emergence of new military alliances such as AUKUS and the “European Army” in resuscitation, it represents the first material step towards an economy directed towards war.