Why we ran out of everything during the pandemic, and why it had less to do with the pandemic and more to do with the corporations that made us much more vulnerable to it

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MARK BLYTH: From the Rhodes Center for International Finance and Economics at Brown University, this is The Rhodes Center Podcast. I'm your host, the director of the Rhodes Center, Mark Blyth. Remember those supply chain problems back in Twenty Twenty and Twenty Twenty-One? During the COVID-19 pandemic, stores ran out of everything-- surgical masks, car parts, hand sanitizer, infant formula. Shipments were held up for weeks, and the global economy seemed to run in slow motion.

But as my guest Peter Goodman explains, long before the pandemic, consulting firms and shareholders built a system that fragilized our economy. Just-in-time production combined with a branch of the consulting world that was name-- I kid you not-- the Lean Taliban, promised to guide corporations to share buyback heaven.

The result was a hollowing out of the US economy that made the supply shock and the inflation that followed it much worse than it should have been. And it's this system, more than the global pandemic, that brought us that shortage of, well, everything. And while the pandemic is behind us, for now at least, the system is still with us today. And if Peter is right, it's only a matter of time before the next shock hits us.

Peter Goodman is a reporter covering the global economy for The New York Times. His new book is called How the World Ran Out of Everything-- Inside the Global Supply Chain. I talked with him about how our global supply system became so fragile, why COVID caused it to break down so thoroughly, and what all this had to do with the rising prices that have become a central feature of our political debates today.

Hi, Peter. Welcome to the pod.

PETER GOODMAN: Great to be here, Mark.

MARK BLYTH: So you've written this book. It's called How the World Ran Out of Everything-- Inside the Global Supply Chain. Was it your editor that gave you that title?

PETER GOODMAN: I will confess that I came up with the title, and I stole it from a story that I wrote in The New York Times that had originally had some more expansive, tedious title. And then my editor shortened it to "How the world ran out of everything." And I liked it. And as soon as I pitched the book, I said, that's got to be the title.

MARK BLYTH: Fair enough. Because for me, there's one word that's not quite right. This is an English-American distinction. It's the distinction between how and why. Because how to me signals a mechanical question about why something's screwed up. I see. And I said, why? How something's screwed up, whereas why is the deeper reasons behind that. And what I loved about the book is that you go into the deeper reasons behind this.

Because for you, it's not a question of just there was a pandemic, there was a supply chain crisis, and I'm going to walk you through that. There's much deeper fundamental causes in there-- shareholder value, price gouging, lean production, all that sort of stuff. That's the real animus in the story. Let's start talking about this. Tell us about the Lean Taliban.

PETER GOODMAN: Yeah, I appreciate you picking up on that. So I think people might be familiar with the concept of "just in time," which is this very sensible idea pioneered by Toyota at the end of the Second World War.

They're trying to dig out from the devastation of the war. Their capital is limited. And they say, well, we can't do like Ford. We can't just mass assemble without limit. We don't have enough room. Japan is famously covered in mountains. There isn't that much developable land.

So they study the American supermarket. And they say, we're going to manage our inventory and production the way a supermarket manages milk. You want enough milk on the shelves that nobody ever shows up and has to leave angry that they can't buy milk, but you don't want to have so much that you're spilling lots of milk that's gone bad. We're going to have our suppliers deliver what we need in real time on the assembly line.

And that way, we won't have to have big warehouses. We're only going to make as many cars as we need to replenish those that are sold. It's very efficient, works really well. Toyota becomes, by many measures, the world's most successful car company.

And then along comes shareholder primacy, financialization, if you will. I focus on McKinsey, one of the many business consultant companies that takes this sensible idea, just in time. They turn it into lean manufacturing and other buzzwords. And they go around to corporate executives who hire them saying, here's the magic plan to make your share price go up forever.

Instead of putting parts and components in warehouses as a hedge against inevitable trouble, let's just liquidate all that inventory, take the savings, give it to yourself as a reward for being smart enough to hire McKinsey, hand it to your shareholders through dividends. Your share prices will go up. What could happen?

Well, what could happen is, of course, what always happens. There's some sort of shock. And then we have shortages. And the pandemic wasn't the cause of this. This had been going on for decades, but it was the ultimate reveal.

Because we go into the pandemic so lean that we don't have parts to make ventilators. We don't have basic protective gear. We don't have ingredients to make medicines. We don't have lots more frivolous things. We run out of grape-nuts cereal. We run out of toilet paper. We run out of tapioca beads for boba tea, and on it goes.

MARK BLYTH: So I think most people are familiar with the first part of that story, which is to say, OK, there's a big supply shock, as we call it, called COVID. And we made loads of stuff in China. And we were all like, oh my god, we don't even make our own PPE and protective clothing and all this sort of stuff. This is terrible. We need to do something about that.

But you really stress and you stress that-- and I want to get into it a bit more-- no, there's a Wall Street angle on this. There's something that's driving these companies, not just to be lean as in the Toyota story, but in a sense to be mean in the way that they end up treating their own workers. How does that tie into it?

PETER GOODMAN: Well, actually, I want to go back and fully answer your previous question. So you asked me about the lean Taliban. So McKinsey goes so far with this concept of just liquidating inventory, they even turn human beings into inventory. Let's replace full-time workers with part-time workers.

So I talked to a guy who's working at this industrial engine factory in the Nineteen Eighties in Minnesota. And he describes how the kids from McKinsey show up in their slick suits all fresh out of Ivy League universities, plus 1 older guy from the Chicago branch. And they say, listen, you might have been doing this for a couple of decades and you might have Minnesota common sense. But we're here to tell you, you've got to stop spending on things like $5 sheet metal brackets.

So they run out of $5 sheet metal brackets. And as a result, they end up paying extra to deliver these giant industrial generators to customers like hospitals. Talk about just in time, you have to install those with cranes if you're not ready to go on that day. It cuts your bottom line. But when people protest, they discover that these McKinsey guys call themselves the "Lean Taliban." There are consequences if you cross them.

MARK BLYTH: So let's think about the favorite matrix. How do earnings per share, how does pulling inventory off the shelf and liquidating it boosts your share price? Let's do a little bit of the mechanics of how these two things intersect.

PETER GOODMAN: It's all about return on assets, so less inventory means less asset. So whatever you're taking in, your revenue, is now getting divided by a smaller number, which means you can say to Wall Street, look at that, return on asset one up, simply by, in the case of this particular generator factory, refusing to accept shipments of inventory right near the end of the quarter.

In many cases, they stuck stuff out in the parking lot. I mean, this was totally on paper. But as a guy at London Business School put it to me in the middle of the pandemic, yeah, that's all well and good. You make your return on asset go up. If you don't have the things you need to make a ventilator in the middle of a pandemic, you don't get to say, well, at least our share price is high.

MARK BLYTH: But in a sense, they did, didn't they? I mean, ultimately, were there any consequences for this for the companies themselves?

PETER GOODMAN: Well, there are operational consequences for the companies over time that will hurt society. The problem is that the trick keeps working over and over again. If you optimize your system to make share prices go up-- and then, by the way, you end up convincing lots of people who should know better that equity prices are the real economy.

I mean, we're currently having an election where one of the primary candidates, Donald Trump, seems to think that share prices are the real economy. And a lot of people in the donor class feel that way, too, because they're saturated in this sort of thinking.

So yes, it works. The trouble is, it doesn't work if you're the person who's trying to buy infant formula and you discover that there's one plant that makes half of it in the United States and they've got a problem-- and now you have no backup plan. So it works really well for investors. It doesn't work so well for the rest of us.

MARK BLYTH: So let's take it to a concrete example you talk about in the book, which is the beef industry. Now, there's a weird thing about the pandemic I think a lot of people share, which is we have a collective amnesia about it.

So I, for example, learned to play drums during the pandemic. That's how I made myself sane in a sense. And like many people, I would cook steaks in November because you could-- if you could get the beef and you could afford it. But there was actually a huge price spike in this.

And one of the things you notice in the book and you talk about throughout is that these are highly concentrated markets. Very few firms control these markets. There are very few, for example, in the beef industry, very few plants. You notice at one point, there used to be 140 or thereabouts plants throughout the United States.

So you had redundancy in the system. You had local markets, et cetera. This has just been consolidated by one Brazilian firm, essentially, into four big plants that serve a huge part of America. So if one of these things go down, it's like one central node of failure.

So we've got the concentration story there. This is good for them in terms of they're able to control the market, push on profits, et cetera, squeeze their suppliers. We know this story. How does that intersect with the Wall Street story you just told us?

PETER GOODMAN: Well, the magic of the rollup wave, the way companies like JBS Foods run by these two felonious Brazilian brothers who literally serve time in prison for the financial fraud that they use to gin up the tens of billions of dollars they used to buy up slaughterhouses all over the world, including in the United States, the magic is they always say, well, we're serving consumers.

And for decades, from the time that Robert Bork, as a University of Chicago professor back in the '70s told us that no merger should be opposed as long as it doesn't immediately lead to higher consumer prices, this thinking has guided presidential administrations on both sides of the aisle, both Bushes; Clinton, who bought the idea that more scale, especially in food, would be the way to solve poverty.

It didn't hurt that he comes from Arkansas, where Tyson Foods happens to be based. So a lot of campaign contributions, a lot of social connections there. Obama as well, really right up until Biden changed the script.

And as a result of that, we are more and more vulnerable to any kind of shock in the system. What's broken down, though, is that the companies have gained so much power over the market that they now have pricing power.

So the idea was, under the consumer welfare standard that guided review of mergers is that consumers or investors are on the same side. Investors benefit from efficiency. Consumers get lower prices.

The only people who get hurt are workers, producers. Never mind that all of us are workers on some level, but now that doesn't even work anymore because the consumers are now getting hit as well. The only people winning are the investors.

And what we see in the pandemic is you have record beef prices because we're all stuck at home dealing with our cooped up, kids dealing with distance learning. We can't go to restaurants. Now we're cooking 27 meals a day. We're having barbecues in our backyards.

The price of beef goes through the roof. The supply is hit because a lot of slaughterhouses are affected by the pandemic. But ranchers who used to do well in such times are actually going out of business. They're increasingly selling off their herds. They're selling off their--

MARK BLYTH: So why is that happening? Why are they getting so squeezed?

PETER GOODMAN: Because four companies have 85% of the slaughterhouse capacity, and they control the whole production chain. It used to be, before the mergers, ranchers would have multiple options when their cows would get to the time that they had to be slaughtered. They could go to sale barns. There'd be old-fashioned auctions, where there were lots of different buyers competing.

Now there's usually one player who will buy their cattle. And in the middle of the pandemic, the buying just stopped. The price went through the floor. And so lots of herds basically got liquidated.

MARK BLYTH: Why did it go through the floor rather than go through the roof? Tell the story about the ranchers that you spoke to who all he wanted was $1.50 for the beef. What happened?

PETER GOODMAN: Yeah, so I spent time with this one family out in Montana, the Charter family. And they raised their animals and then discovered that there was only one place willing to buy them. It was a JBS slaughterhouse down-- there's one in Utah. There's one in Colorado.

But basically they said, OK, we don't care that your breakeven point is $1.35 a pound. The price is $0.90 a pound. Take it or leave it. And the Charters were completely outraged. And eventually, they actually tried to bypass this giant integrated company by selling their beef directly to consumers in Montana, which was actually kind of a successful story. But even that didn't cover their costs of production. And by the time I talked to them, they were thinking about selling off their land.

MARK BLYTH: So you've got a-- it's almost like a suicide pact, where these firms are so obsessed with squeezing the last bit of return and maximizing their profits so that they can pass out to their shareholders through dividends and then enrich the CC with themselves, that they're actually putting the people who make the thing that they need for their business out of business.

PETER GOODMAN: Right. And then they're boosting their own giant feedlot operations and tying up ranchers and so-called captive contracts that didn't used to be legal under the old Packers and Stockyards Act, which was how the federal government took on the robber barons back in the early part of the last century.

Well, now we're back to no transparency in the market. Instead of taking your animals to the local sale barn where there's lots and lots of buyers, typically, ranchers, if they're still in the game at all, are tied up producing for single integrated companies. And those companies, according to a class action lawsuit that I air out in the book, are actively manipulating the pricing by refusing to go participate in the sale barns because there's this complicated formula, where whatever the visible price is then affects the captive price.

Well, none of this is transparent to any of us. I mean, you'd have to be a total wonk to understand this. But the long and short of the story is ranchers used to get something like $0.60 on the dollar when we go to the store and we buy hamburger meat, and now they're getting around $0.35 a dollar. And they can't make any money.

MARK BLYTH: And yet, when I go to the restaurant-- and this happened to me a couple of weeks ago. I ordered a beef rib. Guess how much the beef rib was in the restaurant here in Providence?

PETER GOODMAN: Here in providence?

MARK BLYTH: Yeah.

PETER GOODMAN: $70.

MARK BLYTH: Not quite that bad. 45.

PETER GOODMAN: All right.

MARK BLYTH: But when you can--

PETER GOODMAN: --New York experience.

MARK BLYTH: You're in New York. Color is definitely there. But when you consider that, it used to be 25. Now we live through a-- let's go back to the original story we've all been told. We live through a supply shock. And then there was inflation. Luckily, the central banks are on top of it. And they raised interest rates. That kept all of our price expectations anchored. And eventually, we got out of it.

What you're telling me is, nah, that's not what's going on at all. Or at least there's something else going on here, which is you've got highly concentrated markets where you've got pricing power, where you've got firms who are consciously squeezing it. And this is why people still say, well, you keep telling me inflation is going down, but it's $45 for a beef rib. What's going on?

PETER GOODMAN: I mean, what's going on is you're paying for fat or dividends and share buybacks for publicly traded companies that have good shares of concentrated markets. And it's worse than that. I mean, I tell the story in my book of this woman from Myanmar, this refugee from Karen country, who lived in a refugee camp in Thailand with her daughter for 15 years.

They come to the US. She gets a job at a slaughterhouse in Greeley, Colorado, owned by JBS Foods. And as the first wave of the pandemic happens, her daughter's begging her mother, please don't go to work. Seems like perfect conditions for COVID to spread. Nobody has any PPE. You can't wear masks. Anyway, your safety glasses fog up.

And her mom says, look, I don't have sick leave. And if I don't go to work, I can't pay the bills. So she keeps going. She gets COVID. And she becomes one of the five people in the first wave of the pandemic who dies.

And this part of the story I knew when I started to write the book. Well, what I subsequently discovered and what I reveal in the book is that part of the reason why those slaughterhouses are open is because the Trump administration parroted industry talking points, arguing that if women like Tin Aye didn't keep going to slaughterhouses, we would actually run out of meat.

And at the time, what I learned in researching the book, meatpackers were sitting on record volumes of frozen meat. They were boosting exports around the world. Mike Pence was going around saying, listen, we thank you for your heroism, keeping Americans fed.

And by the way, if you stay home, citing the pandemic, slaughterhouse worker, you're not getting unemployment benefits. You're not getting food stamps. It was the carrot and the stick all in one. Basically, we sacrificed the lives of slaughterhouse workers to maintain and fatten profit margins to monopolists like JBS Foods.

MARK BLYTH: And it's not just in beef. Let's talk about shipping. Part of the story that you-- I really love this bit of the book because I bought hook, line, and sinker, it was just simply containers in the wrong place. But there's another story of basically concentration in shipping markets and the shippers sticking it to everybody who needs to use them, right?

PETER GOODMAN: They win every time there's a shock. And I hope-- if my book works, you'll never again read a news story where the shipping companies are saying, oh, no disruption as Houthi rebels are opening fire on our ships. We can't go through the Suez Canal. Oh, what a tragedy. Dockworkers are striking somewhere, can't move cargo. That's really a problem.

Because the punch line-- it's not a very funny punch line-- the end of every chapter of this book, including in shipping, is that they register record profits every time there's a shock to the system because there's engineered scarcity. There's three alliances of shipping carriers. Think like Star Alliance, oneworld, and airlines that control roughly 90% of the traffic on the most important routes between Asia and the West Coast of the US and Asia and Europe.

And every single time something happens-- and the pandemic was a big thing that happened that messes up the system somewhere-- yeah, look, shipping containers were in the wrong places initially, but what the carriers have figured out is it gives them enormous pricing power. There's then anxiety in the marketplace.

I mean, I follow in the book this one company that has this one all-important 40-foot container. It's a startup company that's making bath toys for Sesame Street. It's this Elmo-themed doll made in China. They got to get it to Mississippi in time for the Christmas holiday season to Twenty Twenty-One.

And they're willing to pay anything to get their stuff on the ship because they can't disappoint Sesame Street. Companies like Walmart, Target, Amazon, they can afford to charter their own ships. Huge companies like Columbia Sportswear, they can't miss the holiday season.

So anxiety is a useful tool of pricing power for this unregulated international shipping cartel. And this explains why the price of moving a container from Shanghai to Los Angeles goes from about $2,000 before the pandemic to $25,000, $27,000, $28,000 on the spot market only six months into the pandemic.

MARK BLYTH: And that's not just because the containers are in the wrong place. You detail in the book how the companies basically just cancel contracts.

PETER GOODMAN: They totally cancel contracts. I mean, they will say to large companies with contracts to move-- and I was talking to flooring companies in Georgia that have contracts to move dozens of containers a month. And they would say, well, we know that your contracted rate is $5,000 for a container from China to Savannah, Georgia. Unfortunately, there's no room on the ship. Oh, if you can pay a special handling charge, an extra charge--

MARK BLYTH: There will be room if you pay--

PETER GOODMAN: Suddenly, there's room on the same ship. Now if this were happening--

MARK BLYTH: That's extortion. Isn't that just extortion?

PETER GOODMAN: I mean, look, if this were happening in an industry that we all understand-- I mean, if you could go to JFK for your flight to Glasgow and the airline says, hey, unfortunately, despite your confirmed ticket, we don't have any room, but if you can pay 10 times as much--

MARK BLYTH: We'll give you the same seat.

PETER GOODMAN: There'd be congressional hearings tonight.

MARK BLYTH: Absolutely.

PETER GOODMAN: But this stuff is, oh, it's too complicated. And by the way, they're all foreign companies. And the incredible thing was I talked to the chair of the Federal Maritime Commission, this body that most people had never heard of-- maybe they still haven't-- who was tasked by the Biden administration with bringing the container companies to heel.

And in a series of candid conversations I had with this guy, Dan Maffei, former Congressman, he said, well, I'm a little nervous about pushing the carriers too hard because they're all foreign companies and I'm afraid that maybe they won't serve the American market.

MARK BLYTH: But then that would be commercial suicide, right?

PETER GOODMAN: Yeah, pause for your head to explode. So whatever you think of the merits of the United States using its market power as the largest economy to basically get what it wants around the world, the idea that someone who's actually been tasked by the White House with stopping abuses that are in part responsible for inflation-- you know what I'm saying? Well, I don't want to upset the companies. I mean, maybe they'll all go to Mexico.

MARK BLYTH: The only reason they do that is if they could get to the United States. That brings us to thinking about deglobalization. But we'll get there in a few minutes.

So you said in the book that if I remember correctly, about 75% of everything in the US arrives by truck. The trucking companies are, again, a similar story. They'd managed to design their labor markets for their truck drivers, such that they had 100% turnover year on year prior to the pandemic. What business model from hell makes that your business model? How did that even work? Let alone, why did it break?

PETER GOODMAN: It's a beautiful form of corporate welfare. You basically make the lives of your drivers not only hellish. I mean, look, driving a truck has always been hard. You go back to the '80s-- or '70s, actually--

MARK BLYTH: There was an attempt to romanticize it with convoy that petered out in the early '80s with a television series called BJ and the Bear. And then everyone was like, nah, I don't believe it.

PETER GOODMAN: Yeah, that's when I had a shortwave radio of my own as a seven-year-old talking to truckers on the highway. 10-4, good buddy. Yes, it was romanticized. And that's also part of the marketing pitch.

So carter deregulates trucking. So before deregulation, yeah, truck driving is really hard. Who wants to sit behind the wheel of a truck for 13 hours a day? You're tired. You're worried about caffeinating enough that you don't fall asleep at the wheel, but you're worried about having to pull over to use the restroom all the time. You're lonely. Your family, if you have one, is mad that you're always on the road.

That's always been true, but it was really well paid. You were solidly part of the middle class because there was a militant union that had your back that was limiting supply. So carter deregulates. Incomes, ironically, considering what we've been discussing about market concentration, so much competition that the job gets devalued--

MARK BLYTH: This what happens to airlines as well.

PETER GOODMAN: Same thing, right. So now the job is not only hellish, but it's poorly paid. So they start running out of people to do it. So they have this recruitment campaign, BJ and the Bear, The Open Road, a sense of Kerouac thrown in there. Never mind that what you're really seeing is just like the semi-service end of every city in America that looks exactly the same. It's like one long run of Applebee's superstores--

MARK BLYTH: Microwave hot dogs, terrible coffee--

PETER GOODMAN: All--

MARK BLYTH: --no exercise, the whole lot.

PETER GOODMAN: And no place to park your truck. That's what guys are constantly thinking about. So it's hard to recruit. So they get the federal government and even state governments to start subsidizing their training programs. And they engage in the sort of predatory shenanigans that we're familiar with from the subprime mortgage fiasco.

MARK BLYTH: How does that work?

PETER GOODMAN: They say, well, we will pay for your training. You'll then be obligated to drive for us for two years. And never mind that you could have gone to a community college and gotten the same certificate to drive a truck at a fraction of the cost.

And then they sell you on, hey, why use our truck? You should work for yourself. We'll lease you the truck. Turns out you're spending $150,000 to buy a truck that you could have gotten for $90,000. You're locked into service contracts, where you can only service your vehicle at outfits that are affiliated with the trucking company.

MARK BLYTH: --the whole thing. Oh, my god.

PETER GOODMAN: So this explains why the turnover is 100%. And so they're constantly trying to come up with new reasons to bring more people into the fold. So the latest right before the pandemic was, let's drop the allowable driving range down to 18.

What a fantastic idea. Let's hand the keys to a 53-foot tractor trailer that takes more than the length of a football field to stop, load it up with God knows what to an 18-year-old--

MARK BLYTH: On a highway.

PETER GOODMAN: --and send him on the road for--

MARK BLYTH: In the middle of the night.

PETER GOODMAN: Right. That'll really end well.

MARK BLYTH: That's a good one.

PETER GOODMAN: So that's the model is constantly come up with ways to decry a "shortage." I'm putting that in air quotes. I mean, when you have a shortage of a certain type of worker for decades, what you've basically done is downgraded the working conditions to such a point that nobody's willing to sign up for the deal.

MARK BLYTH: So to bring this back to what we were talking about earlier, the logical, rational, and reasonable thing to do would be to pay them better and stop exploiting the hell out of them. But if you did that, what would happen to your key Wall Street metrics?

PETER GOODMAN: Well, Wall Street might not be so happy about that. It might mean that somebody is going to have to give up margin somewhere, which, from a policy standpoint, if we had competition, wouldn't be a bad thing at all. Let's compete. And by the way, consumers will eventually benefit from more efficiency. But we got to remember that so many of the markets that we're talking about have monopoly power priced in.

So the normal situation-- we're always talking about, when will we get back to normal? Normal involves exploiting the hell out of people who often require government assistance, even though they're working their butts off. They need food stamps to feed their families. And meanwhile, we're paying fat dividends to monopoly companies.

So the consumer is three steps removed from actually getting the benefit out of whatever competition there is. Competition is felt fiercely by drivers who are seeing over the decades their working conditions down.

MARK BLYTH: So we have exploitative competition in the beef sector, which you could generalize to chicken. You can generalize to the egg market. There's a couple of players, Tyson, et cetera, you've mentioned. Sonny Perdue, the other one who is agricultural secretary, at the same time-- I mean, you couldn't have a better gig if you wanted to push on prices.

And then we have the trucking industry. Just as concentrate? Or is that sort of got more going on?

PETER GOODMAN: The trucking industry actually has a fair bit of competition. Trucking is different from shipping and rail in that that's an area where we need more workplace safety regulations. I mean, it's not classic competition policy. I mean, in rail and shipping, we just don't have enough competition.

MARK BLYTH: But there's no way that a firm in that more competitive market could then say, here's my competitive move. I'm going to pay people better. Because if it does, it hits their bottom line. And then if they're at least publicly traded, then that's going to be bad news for them. So it just leads to a race to the bottom.

PETER GOODMAN: 100%. Yeah, actually, I talked to a bunch of-- one of the few union represented trucking firms based in the South, who was complaining about exactly that. It's like, we're just killing ourselves to try to do right by our people. And we know that if our competitors aren't doing right by their people, that's effectively a competitive advantage.

MARK BLYTH: You mentioned railways. I do want to get into that one. That's, again, another story of concentration and the people who are running it taking advantage of the situation. It wasn't that the boxcars were in the wrong place. And it wasn't that the workers didn't want to work. What actually happened?

PETER GOODMAN: Well, in many cases, the boxcars were in the wrong place, but it was by design and it was because of precisely the perverse shareholder incentives that we've discussed. So there was the equivalent of just in time on the rails. This is a precision scheduled railroading, which is a fancy way of saying, let's fire a lot of rail workers. Let's force the remaining rail workers to do more than ever.

So they're on the road for longer. They can't be home for the births of children. They can't take spouses for surgery. They're effectively on call all the time, though they're only paid for their actual hours work. The trains are longer than ever, though we've limited service. And so every time there's a disaster, it's a bigger disaster than previously.

And the ultimate story that I dug up that explains how precision scheduled railroading works for the interests of the shareholder and against the interest of everybody else is I talked to this engineer for Union Pacific, big rail operation out West. And he was horrified to discover that he was pulling cars routinely to the wrong destinations.

And this was because the metric that the rail companies were selling to Wall Street was dwell time. This is how long is cargo sitting in any particular spot. And they promised Wall Street that they would drive down dwell time.

So this turns into the imperative for a guy running a Union Pacific rail yard in Nebraska. I don't care where the next train is going. Wherever it's going, I'm attaching as many cars to it as possible. I'll worry about the details later. Because I'm doing my part to lower dwell time.

MARK BLYTH: So this stuff that's meant to go to California is going to Nebraska and then has to be routed to California by going back to Chicago. And so long as it's moving--

PETER GOODMAN: Exactly.

MARK BLYTH: --nobody cares.

PETER GOODMAN: Exactly. But somewhere, there's somebody trying to get their car fixed, and the auto parts are stuck in Nebraska when they're supposed to be in California. There's some couple trying to get paint to finish their kitchen renovation. Oh, whoops, the paint manufacturer can't make their products because one of the chemicals is held up on this truck.

So here's an example of how efficiency-- we're now being sold this idea that, well, we can either have resilience or efficiency. We've had efficiency. Resilience is going to cost more money. Are we willing to pay for it?

This is the sort of framing of those who benefit from the status quo. It's worth remembering that efficiency has never been all that it's cracked up to be. Efficient for whom? It's good if you want dwell time to go down so your share price goes up. If you're actually waiting for something, not so efficient.

MARK BLYTH: So to bring this all together, what your book gives us is a story of market concentration, corporations following a set of incentives, which are clearly designed to basically enrich themselves and their shareholders. They do this by essentially franchising their operations and ultimately squeezing labor as much as they can.

This is common across all these sectors. And then when the pandemic hits, this is an opportunity to push on prices and produce excess profits. And we see this in sector after sector. The profits have never been higher.

So you're an economic journalist for The New York Times. You've been around the block for a long time. You've spoken to a lot of people. Why is it that mainstream economists-- or at least some of them and a lot of the central bank crowd, et cetera, are really allergic to the notion that the inflation that we just went through was exactly caused by these factors?

PETER GOODMAN: Yeah, I think that it's fair to say that people who are card-carrying economists are so fond of their models that they just are reluctant to get into the messiness of market concentration. It's like, that's for historians.

First of all, we've had free trade. We've had liberalized trade. We've got the magic of the market. Never mind that we're now enough removed from the great financial crisis, the Great Recession, that anybody who's gone outside any time in the last couple of decades had had ample reason to doubt that story.

But I think in the academic ranks, we're still full of people who very reflexively go to supply and demand. Now, obviously, supply and demand does explain lots of stuff that's happening economically. But if you're not paying attention to market concentration, it's not a story that you can explain to your intelligent eight-year-old.

How is it possible that in a time when there's enormous demand for a product and prices have shot way beyond the costs of making that product, there aren't more market entrants lowering the price? Your intelligent eight-year-old understands that that's what should happen.

I just think that, particularly in journalistic ranks, it's always easy to get somebody who's working for a company trying to make equity prices go up-- and they're actually connected to increase corporate profits-- tell you the story. The person who will tell you the story about market concentration, there's a good chance they're home dealing with some sick kid and they don't have child care.

I mean, it requires more work. But if you listen to earnings calls, as everyone who writes about the economy ought to do, the corporate executives themselves, they're saying the quiet part out loud. They don't want to tell US publicly that--

MARK BLYTH: But they do want to tell their investors on the earnings call.

PETER GOODMAN: They are delighted to tell their investors that they can pass on their costs and then some. And this is a trick that gets repeated again and again.

MARK BLYTH: Absolutely. Let's try and bring it to a bit of a close here by being more global. Have we fixed any of this?

PETER GOODMAN: We've fixed some of this in that there's now a serious conversation about resilience. There are real companies-- the biggest companies, Walmart is now honestly moving some of their production out of places like China to areas of industry that are closer to their markets. There's a big push to move production to Mexico. There's a real look at India, which doesn't deal with the shipping problem but deals with the fact that we've overconcentrated a lot of production in China.

But I am dubious that fundamentally we fixed any of this because the same incentives that have time and again replicated this problem of going to the cheapest producer, thinking about the next quarter instead of the resilience of the company, they're still in place. I mean, if you're running a publicly traded company today, yeah, you have to pay some lip service to instead of just in time, we need to do just in case. Even McKinsey is running around saying this now.

But listen, if you put redundancy in your supply chain, if you go buy from a supplier who's closer to home but maybe a little more expensive, you are diluting your earnings in the next quarter. And if everyone else in your industry isn't doing that, the investors are going to notice. And there's a good chance you're going to lose your job.

Whereas if you're saying, yeah, resilience, but meanwhile just doubling down on the ever cheaper China price-- because China is now worried about their own employment, their own growth. The China price is actually low again-- well, there's a good chance that 10 years from now, somebody else will write a book about the next shock.

And there's an equally good chance that you'll have cashed your stock options. You'll be hoisting a cocktail while lying on a hammock on some beautiful beach. Those incentives have not changed. And so we should be very skeptical that the right lessons have been learned.

MARK BLYTH: But what about the incentives for companies themselves, not just moving to Vietnam or trying to get closer to home? What about the railroads? Are they still the same? What about the beef sector? Is it just as concentrated? Are ranchers getting any relief? Is there any move to recognize that concentration and market power are real political problems?

PETER GOODMAN: I mean, there have a bunch of congressional hearings. Lina Khan at the Federal Trade Commission has opened inquiries into the meat industry. The Biden administration has talked about the shipping industry.

But whether this will lead to the sorts of follow-through-- I mean, these are cases that will take years in an atmosphere where the financial incentives are the same for the people running companies and the incentives for those companies to contribute to campaigns where they can get what they want.

I mean, let's note that as Kamala Harris outraises Trump headed toward this all-important presidential election, there's a lot of talk that the tech people who are writing checks are going to demand that she fire Lina Khan, the chair of the Federal Trade Commission. Will that happen? Who knows? The optics would be bad. But certainly, that's out there as part of the conversation.

So the conversation has changed. Whether real action will change is not something we can say with certainty now.

MARK BLYTH: And just bringing this back to the globalization, deglobalization, near-shoring, whatever you want to call it this week, de-risking-- it goes under so many different titles-- there's a great bit in the book where you talk about this company Glo. You start off with Glo. They're the ones that got the Sesame Street bath cubes, that sort of stuff. And it's about how they can't get their stuff. And this is what takes us to shipping, to trucking, et cetera, et cetera.

And at the end, you bring this character back. And you say, he's like, OK, let's not do this again. Maybe I'll join the herd and go to Vietnam. Everybody wants to go to Vietnam. And he goes to Vietnam. And he finds out that, basically, these are still Chinese companies and you're still using Chinese parts.

So this notion that we're moving things around, it's a bit of a shell game, isn't it? It's not really true. You're not really going to be able to take down this global system, which implies that those vulnerabilities, both domestic and internationally, are absolutely still there.

PETER GOODMAN: Yeah, I mean, I'm a little more hopeful than that. I'm not about Vietnam because I think Vietnam, it is pretty clear it's largely dependent on the Chinese supply chain. The fact that big companies like Walmart are seriously investing in India, which on paper, at least, if you think over the decades, could actually replicate some of what China now produces in terms of even the building blocks for industry, that could give us a little more resilience.

The fact that Mexico is becoming a greater place for companies that sell into the US market or North America in general to produce, that's to the good. And frankly, that's to the good for the interests of American industry because something like 30% of the value of everything we import from Mexico is actually made in the US with US labor. The counterpart for Chinese imports is like 3%. Of course, Chinese state policy is trying to drive that as close to 0% as possible.

So there are these moves. But these kind of obituaries for globalization are ridiculous. I mean, as long as we have publicly traded corporations dominating our supply chain, that supply chain is optimized for big box retailers. And the old message that anything that drives consumer prices lower in the short-term is good for everyone, that still has defining currency.

So I am not particularly hopeful that we're on the verge of some kind of fundamental change that will require a lot of follow-through.

MARK BLYTH: The world might run out of everything again.

PETER GOODMAN: Oh, count on it. I mean, the only thing we can say with certainty is there will be a shock. We don't know what it will be. We don't know when it will be. But bad stuff happens. That's life. And we will be vulnerable to these same breakdowns.

Henry Ford, whose story I also tell in the book, is an incredibly problematic character-- racist, anti-Semite, crushed organized labor-- but did know a thing or two about supply chains. He famously raised the wages of his factory workers in Nineteen Fourteen. Some people called him a Communist. He said, I'm a capitalist. I want to make my stuff at scale. And he said, any company that's premised on low wage labor is inherently unstable.

And that's something that we really need to keep in mind. I mean, we've been invited to not think about the army of workers who are behind what happens when we click the Buy button on Amazon and wait sometimes just for a few hours for a package to show up. Well, those people are there. Their lives are increasingly untenable.

And if we want that package to show up reliably, if we want to be able to get stuff like medicine and PPE and ventilators in the middle of a pandemic or whatever thing it is we're going to end up needing in the next emergency, we got to give some thought to having the people engaged in the enterprise, feel like it's worth their time, and to be motivated to show up.

MARK BLYTH: It's a great place to leave it. Thanks very much, Peter.

PETER GOODMAN: Thanks so much, Mark.

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This episode was produced by Dan Richards and Zach Hirsch. Additional production assistance from Eric Emma. If you like the show, please leave us a rating and review on Apple, Spotify, or wherever you listen to your podcasts. And if you haven't subscribed to the show, please do that too.

We'll be back soon with another episode of The Rhodes Center Podcast. Thanks for listening.