Friends,
The only light at the end of the tunnel
is a recognition that we must renounce empire and then devote tax dollars
toward sustainability and income equality. Otherwise we are doomed.
Kagiso, Max
The Corona Virus and the Limits of the Market: Convert
Defense and Other Industries to Fight New Security Threats
Jonathan
Michael Feldman
March
25, 2020
Global
Teach-In
A
Crisis of Supply and Demand
The
Corona Virus crisis is a crisis of both economic supply and economic
demand. The supply crisis is triggered by factories closing to protect factory
workers and other businesses doing the same (to protect workers or consumers).
The demand side of the crisis is triggered by the fact that workers laid off
often don’t have as great incomes, because many service businesses are closed
or see less business for obvious reasons. The market, which often works as a
useful coordinating mechanism, has proven to be limited in solving the supply
and demand problems generated by this crisis.
Cutting
interest rates won’t provide a meaningful alternative to these supply and
demand problems. Instead, we must ask basic questions about how
resources are organized in society. The basic questions center on the role which
security policies and globalization have played in diverting nations from
priorities in health, welfare and equitable economic development. The
health crisis is partially a production crisis.
On
the one hand, governments have invested in obsolete “hard power” military
missions that increasingly waste resources needed to combat environmental and
health crises. On the other hand, a team of writers at The
New York Times have explained how globalization and
outsourcing sustain the production crisis: “a shortage of masks has become a
bottleneck slowing the rollout of testing, which experts say is crucial to
containing the virus.” Various “companies are struggling to quickly expand
their mask-making capacities, in part because of broken overseas supply chains and
some countries’ restrictions on exporting protective gear during the crisis.”
The
Threat of the Next Great Depression
A
March 20, 2020 article by Laurence Darmiento in The Los
Angeles Times discussed the potential of a Great
Depression: “experts are grappling with a situation as novel as the virus that
caused it, and they really don’t know how much our high-tech, interconnected
and consumption-oriented economy can endure.” He quotes Roger Framer of UCLA
and Warwick as follows: “The longer this disruption goes on, the more likely it
will have a permanent effect…Three weeks we can bounce back from, three months
is not so clear.” A report on March 17th on the USA noted about 18% of adults
reported that “they had hours cut or had been laid off, with the workers in
lower-income households hit hardest.” Moody’s Analytics claimed that “nearly 80
million U.S. jobs” have different risk levels with Darmiento suggesting
“it’s more likely some 10 million workers could either be laid off,
furloughed or see their hours and wages cut.” While teleworking can help some,
Darmiento noted: “Cashiers, waiters, construction workers and others in the
blue-collar workforce don’t have that luxury as they sit at home without pay.”
Dion
Rabouin in Axios went further in an article entitled, “Coronavirus could force
the world into an unprecedented depression.” Rabouin began his essay as
follows: “In its latest repricing of the economy, the market sees the
now-expected global recession caused by the coronavirus outbreak morphing
into an economic depression unlike any the world has seen in generations.” He
identified “the big picture” by stating that “bankers and traders are looking
to sell everything that isn’t nailed down to boost cash positions and hunker
down for the worst.” Rabouin pointed to Deutsche Bank economists who predicted
a “severe global recession occurring in the first half of 2020” and “quarterly
declines in GDP growth we anticipate substantially exceed anything previously
recorded going back to at least World War II.”
CNN
on March 21st published a story, “Coronavirus spreads, raising threat of global
economic depression.” An earlier CNN story on March 19th quoted
former Trump economist Kevin Hassett as follows: “We’re going to have to
either have a Great Depression, or figure out a way to send people back to work
even though that’s risky…Because at some point, we can’t not have an economy,
right?”
Finally,
Nouriel Roubini, the business and economics scholar, wrote on March 24,
2020: “With the COVID-19 pandemic still spiraling out of
control, the best economic outcome that anyone can hope for is a recession
deeper than that following the 2008 financial crisis. But given the flailing
policy response so far, the chances of a far worse outcome are increasing by
the day.” He continued: “Not even during the Great Depression
and World War II did the bulk of economic activity literally shut down, as it
has in China, the United States, and Europe today. The best-case
scenario would be a downturn that is more severe than the [2008 financial
crisis] (in terms of reduced cumulative global output) but shorter-lived,
allowing for a return to positive growth by the fourth quarter of this year. In
that case, markets would start to recover when the light at the end of the
tunnel appears.”
Roubini
expressed doubts that the best-case would occur, however. One reason was that
“the public-health response in advanced economies has fallen far short of what
is needed to contain the pandemic, and the fiscal-policy package currently
being debated is neither large nor rapid enough to create the conditions for a
timely recovery.” Therefore, he concluded that “the risk of a new Great
Depression, worse than the original – a Greater Depression – is rising by the
day.”
A
Depression Defined by Institutional Bottlenecks and Health Security Challenges
The
bottlenecks in the economic/health system revolve around the following: a)
vaccine production, b) protective equipment, c) ventilators and
d) the design of workplaces. One way to respond to the failure of the market
and private capitalist system is to supplement it with another kind of system
that organizes supply or demand. A March 16, 2020 story in The
Financial Times referred to Jagjit Chadha, director of
the National Institute for Economic and Social Research, “who said policymakers
could consider the kind of measures seen in a wartime ‘command economy’ — using
spare capacity in manufacturing or the hotel sector for efforts to fight the
virus, or training people for health work.”
The
U.S. faces a critical shortage in protective masks because much of
production has been outsourced. Farhad Manjoo at The New
York Times described the shortage as rooted in “a
very American set of capitalist pathologies — the rise and inevitable lure of
low-cost overseas manufacturing, and a strategic failure, at the national level
and in the health care industry, to consider seriously the cascading
vulnerabilities that flowed from the incentives to reduce costs.” In less
polite terms, transnational outsourcing corporations represent a Fifth
Column, part of a long-term trend seen in how politicians and others
have sold out the nation to short-term profit making.
A report in The
New York Times explains how the Command Economy could
take the form of a U.S. president using “the Defense Production Act “which was
passed by Congress at the outset of the Korean War and grants presidents
extraordinary powers to force American industries to ensure the availability of
critical equipment.” President Trump said recently “that he had used the law to
spur the production of ‘millions of masks,’ without offering evidence or
specifics about who was manufacturing them or when they would reach health
workers.”
The Times noted
that when the Defense Production Act was originally passed, it “granted
President Harry S. Truman the power to spur the production of aluminum,
titanium and other needed materials during wartime.” It has since “been used
for both the prevention of terrorism and to prepare for natural disasters.”
While some U.S. companies are cooperating with the Trump Administration
efforts, “without the Defense Production Act, the government will lack the
ability to channel these supplies to areas that need it most — or to persuade
companies to act quickly and without regard for their profits.”
What
does the “command economy” mean, however, when globalization hollows out supply
chains? How can the state bark orders at factories that are so subject to
vertical or horizontal disintegration that they can’t deliver the goods? By
March 27, The New York Times reported
that President Trump threatened to “invoke the Defense Production Act, which
would enable the federal government to mobilize privately-held companies to
produce critically-needed supplies.” Yet, it was “not clear that will speed the
process.” In the case of ventilators, their complexity means that they use
“upwards of 1,500 unique parts from more than a dozen nations, and the
manufacturers say they will be limited in part by the availability of parts.”
The
Solution is Economic and Political Redesign
Returning
to the question of ventilator production and the design of workplaces, we
confront various design questions. These questions involve production design
and political/economic design. When it comes to Ford and GM making
ventilators a recent report in Politico noted:
“Automakers are offering up their factories to help solve the shortage of
ventilators needed to treat an expected crush of coronavirus patients, but production
likely won’t begin for months — too late to help ease the immediate need.”
One
key problem is the need for social distancing which requires a redesign of
the assembly line. Flavio Volpe, head of the Automotive Pars Manufacturers’
Association in Canada explained: “If you were to start a new production line
making medical goods, from scratch, you could design [social distancing] into
the line and for a lot of these, they’ll have to be made in medical clean
rooms…You’re addressing, by definition, a whole bunch of the concerns that
employees have on the cleanliness and the spread in the workforce.”
A
German/Swiss Company called Schilling Engineering has a homepage in
which they profile different kinds of turnkey clean rooms. Here we see very
clearly a variety of clean room solutions which could be developed for
factories in the U.S. and elsewhere. Willis Whitfield, an American, was the
inventor of the clean room. A profile in The New
York Times explains what he accomplished: “His clean
rooms blew air in from the ceiling and sucked it out from the floor. Filters
scrubbed the air before it entered the room. Gravity helped particles exit. It
might not seem like a complicated concept, but no one had tried it before. The
process could completely replace the air in the room 10 times a minute.
Particle detectors in Mr. Whitfield’s clean rooms reported showing numbers so
low — a thousand times lower than other methods — that some people did not
believe the readings, or Mr. Whitfield.”
The
development of a facility to make ventilators is not simply a
production design problem. It is also a
political economic design problem. By the auto industry’s
own admission, they lack proper cleanrooms such that there will be a production
lag in producing them. Where then could such clean rooms be found? Well, it
turns out that various countries have a number of such rooms only they are
designed to meet security needs which correspond often to threats that are
either: a) non-existent or b) exaggerated. I am of course speaking of the
so-called “defense industry.”
The SOSCleanRoom site
explains the sectors having such cleanrooms as follows: “The optics and defense
industries use cleanrooms for many applications, including microelectronic,
biotech and pharmaceutical, and medical device[s].” Such “applications also
include things like chip making for controlling missiles, radar and electronic
components, laser development for guidance systems and even biological
components for vaccines and test agents.” A 2010 study shows that cleanrooms
are not only used in the defense industry, but also in “biotechnology,
microelectronics, pharmaceuticals and nanotechnology.” They vary in “size from
small to complex multilevel structures with large serviced equipment and
utilities.”
Convert
the Defense and Pharmaceutical Industries
The
defense industry is a key sector because it utilizes many cleanrooms and is
vast in scale. The aerospace industry can also make
ventilators. Deloitte recently documented how vast the defense
industry is. On the global level, “defense expenditure is expected to grow
between 3 and 4 percent in 2020 to reach an estimated US$1.9
trillion, as governments worldwide continue to modernize and recapitalize
their militaries.” Much of the growth was “driven by increased defense spending
in the United States, as well as in other regions, such as China and India.”
Here we have an industry that already has many cleanrooms and the production
capacity to eventually convert to making other equipment in safe assembly
lines.
While
the U.S. and other governments should study the possibilities for converting
defense and other industries, one should also note that the U.S. defense
industry potentially is seeking further government support:
“The U.S. aerospace and defense sector is feeling the impact of the
coronavirus, with companies limiting travel, defense trade events scuttled and
contingency planning underway.” Politicians should leverage any defense
industry requests for support by demanding conversion in exchange.
In
theory the U.S. defense industry should have been immune to shocks in supply
chains, but this industry has also gone global on certain production
items. Defense News pointed to the
U.S. Chamber of Commerce’s Defense and Aerospace Export Council’s president,
Keith Webster who explained that “‘Buy-America’ regulations and other controls
mean the U.S. defense industry’s supply chains may be less susceptible to
disruption than some consumer sectors, where reliance on China-made components
is more widespread.” The F-35 fighter aircraft is a supply chain that is very
much “globally linked,” however.
Thus,
the globalization of defense production reveals the how economic considerations
hollow out the security of the U.S. and others seeking cost savings. Yet,
defense products were supposed to be “beyond economic considerations” according
to the dogma of many economists. In this dogma, defense products meet “security
considerations” and thus we can’t talk about shifting budgets from military
items because these items are defined by security needs rather than economic
choices. Yet, our current use of defense or military resources increasingly
represents an economic, political and security opportunity cost.
In
2018, the cleanroom-rich global pharmaceutical industry was worth $1.2 trillion
dollars according to statistics published by Statista.
Some of the capacity of this industry could in theory be converted to more
severely needed medical-related products. The pharmaceutical industry, however,
is part of the larger medical industrial complex which has often
acted against public interest. Barbara and John Ehrenreich were among the first
to address this sector in a 1970 book entitled, The
American Health Empire: Power, Profits and Politics. In the
1960s there was a boom in health industries that was largely based on
“government subsidization of the market.” Over many years the government
“directly or indirectly fed dollars into the gaping pockets of the dealers in
human disease.” These payments include direct funding for health care, education
of health workers, hospital construction, and tax deductions for individuals’
medical expenses. The government has also aided “nonprofit hospitals” with tax
exemptions and supported basic chemical and biological research worth billions
of dollars.
In 1966, Medicare and Medicaid, launched “the biggest government
subsidy of all.”
Much
like the defense industry, which has received trillions of dollars of
government and taxpayer support over the years, the medical industrial complex
also represents a system that robs the public interest. As the Ehrenreichs
explained: “Much of the money which flows through the delivery system to the
health industry’s drug and hospital supply and equipment companies never
returns to the delivery system in any medically useful form, or in any form at
all.” As much as “five to ten percent is raked off directly as profits, and
these by and large vanish into the larger economy, going to stockholders and
going to finance the companies’ expansions into other enterprises.” Increasingly
“health industry firms are conglomerates, whose holdings in drugs or hospital
supplies help finance their acquisitions in cosmetics, catering, or pet food.”
Some
Early Data on Other Industrial Platforms
Some
early data is available on alternative platforms for making ventilators and
other medical-related equipment. David E. Sanger, Maggie Haberman and Zolan
Kanno-Youngs at The New York Times reported
on March 26th about a joint venture production arrangement between auto
giant General Motors and Ventec Life Systems. The plan was originally expected
to lead to the production of up to 80,000 ventilators. In this plan, General
Motors (GM) would have retooled an automotive parts plant in Kokomo, Ind. with
the ventilators manufactured using Ventec’s technology. The announcement about
an actual deal was called because “the Federal Emergency Management Agency said
it needed more time to assess whether the estimated cost was prohibitive.” In
addition, government officials claimed “that an initial promise that the
joint venture could turn out 20,000 ventilators in short order had shrunk to
7,500, with even that number in doubt.”
The
joint venture provides us with many useful pieces of information about the
possibilities for GM to diversify. First, GM says “there’s no issue with
retooling,” i.e. there are no technical diversification barriers. This
assessment was shared by Ventec. GM has expertise in manufacturing, purchasing
and logistics which were viewed as complementary capacities for Ventec.
Nevertheless, FEMA believes it “would have to select multiple manufacturers, in
part to avoid the risk that one production line runs into technical trouble.”
Second,
the very plant selected by GM was closed in part because of the corona crisis,
i.e. the health bottleneck in production looms over this plan: The plan was
considered as GM’s “factory floor in Kokomo was grinding to a halt and workers
were being sent home — partly because the market was collapsing but also because
workers would otherwise risk exposure to the coronavirus.” Similarly, FEMA was
also considering multiple production sites because of fears that workers would
“contract the very virus the ventilators are being built to defeat.”
Third, past
research suggests that the government can be a key agent to steer and
promote successful diversification (by generating new markets
and contributing to performance specifications). Yet, Sanger and his
colleagues report that “the effort to produce [ventilators] has been confused
and disorganized.”
Fourth,
one reason for delay in the GM-Ventec plan was its cost, yet cost decisions
have not stopped overly expensive military production plans. As the Times reported:
“The $1.5 billion price tag comes to around $18,000 a ventilator. And the
overall cost, by comparison, is roughly equal to buying 18 F-35s, the
Pentagon’s most advanced fighter jet. Yet, just last year The
New York Times described the F-35s as “America’s
Dysfunctional Trillion Dollar Fighter-Jet Program.”
Fifth,
the GM-Ventec deal reveals how parts of corporate America are organizing
politically to advance ventilator production. The two companies joined a
coalition of business executives called StopTheSpread.org in
advancing the plan. The network’s homepage claims that “thousands of CEOs,
executives, and leaders around the country have committed to #StopTheSpread of
COVID-1.”
Finally,
in contrast to the hang ups involving GM, innovators at universities and
elsewhere are already developing ventilators with no apparent cost
barrier or with designs that may not be cost prohibitive. A Sky
News report described how a team of persons from
Oxford University and King’s College London “took less than a week” to take a
plan for a ventilator “from the drawing board to working prototype, so that it
can soon help.” They cited Andrew Orr, an Oxford University engineer who said
“Sony confirmed that it could turn what is currently a jumble of wires into a
printed circuit board – and produce 5000 of them in a week.” While it is too
early to tell whether such efforts will be sufficient, they do suggest the
possibility that the big overhead production model of GM should be complemented
by other efforts to give grants to a decentralized network of producers.
Research by Charles Perrow indicates that such a decentralized
network could address the vulnerability of a centralized production point.
Social
and Economic Reconstruction is Urgently Needed
In
sum, we need to begin to investigate how to convert both the military and health
industrial complexes to the urgent needs required by the Coronavirus crisis. In
Italy, the military has sent technicians to aid the production of
ventilators. The logic of the health economic crisis and StopTheSpread.org’s
efforts both show how some parts of the business and capitalist class, as well
as millions of workers, NGOs, and other groups now have a vested interest in
the conversion of another part of the capitalism system. Face-to-face food
service industries, industrial manufacturers, airlines, the tourist sector and
countless other business sectors whose livelihoods, profits and employees have
an immediate and dramatic interest in conversion. The immediate question,
however, is whether political and social movement entrepreneurs can seize the
opportunities presented by this crisis.
Progressive
forces should focus more on how to exploit the looming potential split among
business groups rather than simply call for a total redesign of the system
outside any specific policy framework. In contrast to an abstract set of
proposals for remaking society, we need to figure out how to build new
institutional leverage points tied to: a) conversion, b) alternative budget
priorities and c) distribution of grants to individuals or businesses. This
incremental strategy can tie into the large scale policy discussions that need
to occur about ratcheting up production of new health security production runs.
One opening is that British universities have begun to play a key
role in addressing the health production crisis by developing a ventilator
prototype.
Social
and economic reconstruction involves the redesign of political, economic and
media spaces to advance public needs and interests. The political is
reconstructed to advance greater citizen participation and representation. The
economic is reconfigured to advance human needs rather than simply profit
and pollution. The media is reshaped such that participation and education
take preference over political marketing by various vested interests. In addition
to Barbara and John Ehrenreich, thinkers like Gar Alperovitz, Barry
Commoner, Seymour Melman, Marcus Raskin and Simone Weil, as
well as countless others, have each contributed to the ideas of such
reconstruction.
The
new economic design and conversion changes we require depend on political
innovations. The left has been totally derelict in advancing a politics of
production, with a few notable exceptions. The right has been wedded to
obsolete models of security, markets and limited government. The critical failures
of globalization are self evident now. To move beyond these limitations, we
need to advance a new institutional platform that can transform media
power into political and ultimately economic power. There are various
models for doing so, so one of the most urgent problems we face is the crippled
political imagination of the societies we live in. This imagination should link
cooperative and community ownership, the efforts of the Bernie Sanders
presidential campaign, and various other circuits of economic, political and
media power.
Donations can be sent
to the Baltimore Nonviolence Center, 431 Notre Dame Lane, Apt. 206, Baltimore,
MD 21212. Ph: 410-323-1607; Email: mobuszewski2001 [at] comcast.net. Go
to http://baltimorenonviolencecenter.blogspot.com/
"The master class
has always declared the wars; the subject class has always fought the battles.
The master class has had all to gain and nothing to lose, while the subject
class has had nothing to gain and everything to lose--especially their
lives." Eugene Victor Debs
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