This is a problem in a system in which analysis is based on microfoundations, which assumes methodological individualism based on a presumption of ontological individualism. This overlooks network effects, e.g., involving the fallacy of composition, as Keynes pointed out.
So it was perfectly logical for firms to outsource supply chains abroad in the interest of short-term profits as the market requires, but this resulted in foregoing of resilience, in addition to the shifting of the global balance of trade, capital flows and the emergence of the developing world (former colonies) as a global economic factor.
From the perspective of the world system, this was a consequence of de-colonization and greater global liberalism in addition to the normal process of free market capitalism that if resulting in the great leveling, a good thing from the POV of the world system but disruptive in some areas that are getting leveled down. In the end, everyone will be better off socially and economically, as well as politically if one accepts greater liberalization as progress politically.
The problem the US has is that China is not liberalizing quickly enough to suit the American elite, but China is taking a managed approach and has the experience of the collapse of the USSR as precedent of liberalizing too quickly.
Industry Week
OEMs Have Long Enabled China to Out-Compete the US
Industry Week
OEMs Have Long Enabled China to Out-Compete the US
Paul Ericksen
Firms are incentivized to curtail resilience in order to complete in the market place where buyers are looking for the best deal in the present.
ReplyDeleteWell said. I recall making the same argument when people were discussing drug shortages and moving supply chains on Arnold Kling's blog.
Because the active ingredients of most generic drugs come from China and India, including 84% of the world’s supply of acetaminophen, the coronavirus could cause supply disruptions, experts warn.
“One of the ugly secrets of the pharmaceutical industry is that the vast majority of raw materials that go into a prescription drug are produced overseas, mostly in China and India,” said Geoffrey Joyce, chairman of the Department of Pharmaceutical and Health Economics at the USC School of Pharmacy.
Before we go any further, it’s important to note that U.S. Customs law has a big loophole when it comes to country-of-origin labeling.
It doesn’t require that the sources of a drug’s ingredients be disclosed. Rather, the law says a drugmaker can claim as the country of origin wherever the drug’s various components were “substantially transformed” into the final product.
That means a drug manufacturer can gather ingredients from around the world. But if it pulls them all together into pill form in the United States, the country of origin can be claimed as the U.S.
source: Column: With most drug ingredients coming from China, FDA says shortages have begun
No one goes into a pharmacy and buys the acetaminophen with the most robust supply chain. It's always about price. (Not that you could tell where it originated from anyway as the above quote shows.)
The patent protected drug industry is hardly the best place to get a good price.
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