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You're listening to Bloomberg BusinessWeek with Carol Messer and Tim Steneveek on Bloomberg Radio, Bill Clinton and the wto Just in Time, and Lean Manufacturing Mackenzie Consultants who earned the nickname the Lean Taliban China, share buybacks, increasing dividends and executive compensation that has skyrocketed.
Well, the decline of union power and the working class monopolistic takeovers, and then of course the pandemic and the Great supply chain crisis. If you want to understand how our world really really works today economically and politically, and how we got here, then sit down, put down whatever the heck you are working on. Get ready for our next guest. Journalist and author Peter S. Goodman, his global
economics correspondent at The New York Times. His new book, which neither of us, to be fair can put down How the world ran out of everything inside the global supply chain. He joins us here in studio and fair to say we found our summer.
Yeah, I'm going to need another read pretty soon after this one. To understand the supply chain. Peter visits seemingly every link of it. He spends time in one of the largest exporters of almonds in California and with the dock workers who are supposed to get those almonds all over the world. He hitches a ride through Kansas with a Brahms loving trucker, feeds cows with a third generation rancher in Montana, and eats breakfast with the commissioner of
the Federal Maritime Commission. He visits ports from LA to Savannah to explain how the world found itself in the greatest supply chain crisis it's ever seen.
All Right, he is here in our Bloomberg Interactive Broker studio. We wanted to do the setup because it's really comprehensive, and I do feel like I think it's safe to say that it explains a lot of kind of where we are today. So, Peter, you have had such a front row seat to so much that is going on in the world. Tell us about that front row seat
and what kind of really stands out for you. We're going to kind of dig into the book specifically, but that front row seat has given you really this wonderful opportunity to see a lot.
You know, it's changed the way I look at any package that lands at my door, or really any product that somebody made somewhere that had to be transported to a store or to a home or a business. We don't tend to think about the supply chain, you know. It's one of those things. It's like the light switch. We're not thinking about the internal wiring. We flip it on. The light's work well, when.
We needed it most, it failed, it.
Buckled, and we had frontline medical workers dealing with COVID patients without protective gear. We had families unable to find infant formula. I mean, that was an incredible criestion. If we had a toilet paper scare, which turned out to not be so much as shortage as a question of hoarding.
And we all remember these ships, you know, fifty sixty seventy ships that were floating off the coast of southern California, unable to land, floating for weeks at a time before they could find a slot to load and unload all these factory goods coming in from China. And I think for all of us in the midst of the pandemic, it was so bewildering that it gave us this curiosity about these people we never think about. So, Yeah, as you guys pointed out, I climbed into the into in
the front of a truck. I visited with rail maintenance workers who were away from their families for weeks at a time, and I really tried to understand what has gone haywire here.
Peter, Know, the reason we're talking about such a complex supply chain is because of globalization. And one thing that Carol and I were talking about as we were preparing for this was that your career has kind of coincided with the rise of globalization, right being a reporter in South Asia in the nineties and then post dot com crash working for the Washington Post. I think it was out of Shanghai.
That's right.
You visited a lot of these factories at times when they weren't what they are today. Talk a little bit about how you've seen that your career alongside the rise of globalization.
Yeah, I appreciate your pointing that out. So I landed in China in two thousand and one, which was the same year that China of course enters the World Trade Organization, this landmark, you know, moment for globalization, and it was pretty clear then that China had huge aspirations and that the world was flocking to China in large part because you know, corporate CEOs who were constantly looking for ways to cut costs availed themselves of this ultimate opportunity to
you know, engage Chinese labor as a way of undercutting labor costs at home in the US and in Japan, in South Korea, in Europe. And it was also clear that the Chinese government had very systematically built out the infrastructure that was needed for trades. So you know, visited massive ports factories that were capable of making you know, enough microwave ovens to supply Walmart for a year, you know, and whole towns were you know, set up for single industries.
I remember going to the necktie town. There was this one town in one province that was suddenly making more neck ties than all of Italy, you know, in the course of a decade. So you could feel that the scale was was you know, a able. But what I didn't understand, and what I've come to understand through this book, is that all of this was premised on the idea
that container shipping would be basically free and reliable. And what I've come to see is that, you know, we built this global economy up, putting ourselves really at the mercy of this international cartel.
Well, so go back to we did kind of a laundry list coming in and there's so many different characters. Henry Ford, the rumors, plant tat Ono, Toyota after World War Two, McKinsey, the consultants, Bill Clinton, and the WTO, and then we'll also get into mister Walker and his company Glow. But if you had to pinpoint, was it President Bill Clinton, former President Bill Clinton and the push to get everybody or to get China in the WTO.
That that's why we're having this conversation. That's why when the pandemic hit, we were like, what the heck happened to our global supply chain? Isn't that particular moment in time that God iss to hear?
I think that's a landmark. I mean there's a lot of moments at time, right. I mean I write about Ford because I was interested in the rise of mass assembly. I write about the roots of the shipping container because the process of standardizing cargo made it possible to go look for the cheapest plays to make anything. You could go anywhere around the world.
But if China wasn't accepted on a global scale in terms of trade, right, there was a big push. There were lots of concerns about human rights. There are still lots of big concerns about human rights, and yet there they were right in the WTO, something they fought for.
Well, here's the part that people are generally afraid to talk about. You know, China gets into the WTO because American retailers lobby like crazy to get China into the WTO, and nobody wants to be affiliated with the story of labor exploitation. Now, let's remember Chinese labor in American history. You know, from the beginning, it's about undercutting wages. Right, Chinese workers are systematically brought over from China to build the railroads because the mostly Irish laborers say, ah, this
is pretty dangerous and we're not getting paid enough. So this is a continuation of that story, you know, a century later where now we're bringing the production to China, and it's there's a sort of seeming unsavory quality to this story because of course China is controlled by the Chinese Commediest Party. There's no elections. You can get access to land, you can bypass workplace and environmental standards by
cutting some local party official in I'm part of the sports. Well, this is not a good story for Bill Clinton, who, you know, only a decade before he lobbies to get China into the WTO, is running as the guy who's you know, disciplining George H. W. Bush for coddling the butchers of Beijing. He's very critical of the crackdown against the pro democracy demonstrators in Tianneman Square. Well, I tell the story in the book.
You know.
It's not even a decade later, and Clinton's in Beijing at a banquet at the Great Hall of the People across the street from Tieneman Square, where he literally picks up the baton and conducts the People's Liberation Army Orchestra as they play this John Phillips south from March. Now, why is Bill Clinton there? He's there because his party, the Democratic Party, is pulling in massive campaign contributions from retailers, and they're fashioning this story. It's not totally a fairy tale, right.
I mean, trade has been the lynchpin of American farm policy since the end of the Second World War. But there are a lot of reasons to be dubious that you know, this is really about it's not just about selling Chinese people lots of stuff. It's not just about buying cheap goods from China. This is about democratizing China once well, that was.
The goal, the thinking that okay, let's open up you know, trade and probably democracy will come and the human rights abuses will go away like that, you know, like you feel like my career has kind of seen like the opening of China, and that this was going to solve so much, and yet it didn't necessarily play out that way.
Well, one part of it played out. We got really low cost goods from China. The Walton family, the founders of Walmart, for a while became, you know, the wealthiest family on Earth, and anybody who moved production over to China at scale and managed to do the right deals rewarded their shareholders handsomely. That part held to form. Also, not incidentally, the industrialization of China lifted several hundred million
people out of poverty, and that's highly significant. But the part about you know, once Chinese people get a taste of Kentucky fried chicken, they're going to demand the ballot box well, that has not worked out, as I think everyone is now a where you know, we're talking about genocide according to the Biden administration in Hinjong, where the Wigers are pressed into forced labor to produce cotton that ends up in lots of apparel. Of course, we still
don't have elections. The central government has actually strengthened its role in Chinese society, so we don't hear that talk anymore. And of course now it's become politically fashionable within both parties to attack China as our enemy. One.
Peter, you mentioned concentration in shipping. I believe you called it a cartel. I had no idea before reading this that it was basically what three companies.
Three alliances that control a bunch of companies. But think of it like airline alliances.
Three alliances that control basically all.
Of shipping ninety five percent of the shipping from China to the West coast of the United.
States, some of them some of the companies owned by China or like our state subsidized organizations. How did it become like that?
It became like that because there was deregulation pretty much everywhere, including in the US, where you know there used to be this anti trust exemption, but there was regulation on shipping rates, so you had to post what your rates were from one place to another. You couldn't negotiate a deal in secret. It was all above board, sort of like a utility, right, like, the governments involved because this is a vital part of the economy. And then basically
retailers lobbied. There were a couple of landmarks. The last one was in the eighties. There was no Amazon then, but there was Walmart target. The big retailers thought, well, if we're bringing over lots of these factory goods from China to the West coast of the US to the East coast of the US, we would like to be able to negotiate a better deal than the smaller competitors.
So essentially we've optimized the supply chain for the biggest companies, and the anti trust was essentially deactivated throughout much of American life. Right you go back to Reagan, although really the story starts with Carter. You know, we're steeped in this idea that scale is the way to serve consumers, and so let's just get out of the way of business and let them provide, you know, that will deliver innovation. But once you take away competition, of course, what we
get is pricing power. And for a long time, these mostly well they're all actually foreign companies in international shipping. There were like extensions of state policy and China, as South Korea, Taiwan, so they were content to keep shipping costs low as a way to bolster their exports. But once we get a shock, you know, in the great supply chain disruption during the pandemic, we see shipping prices go up tenfold, and we see, you know, you guys were alluding to the fact that I spent some time
with Alman farmers in central California. We see almed farmers I visited had an entire crop sold to Dubai, to Japanese purchasers, and they were just sitting on all this crop that they couldn't actually get on a ship. Because these shipping carriers were making so much money sending factory goods from China to the West coast of the US, which is the gateway for forty percent of American imports, that they didn't even want to bother to send empty containers up to the Central Valley to load up with
farm products. Like Ammonds, they just unloaded factory goods in LA and sent empty containers back across the Pacific. We're talking about burning diesel fuel to send back across the Pacific. So they can get twenty five twenty seven twenty eight thousand dollars to move a container of factory goods from you know, a place like Shanghai to LA that used to cost like twenty twenty five hundred during the pandemic. That's largely the story of deregulation.
I want to you know, one thing I think about, though, in particular in your book is kind of the role of consultanc here. And I don't want to pick pile on anyone in particular, but you do single out mackenzie.
I sure do.
You do talk about the lean Taliban. You also get into a lot of just in time inventory for anybody's taken accounting classes, Like we've played around with this, right, but this idea too that you don't want to have big inventories. You want to be lean and mean, right, So because those inventories are costly to store them, to have them, and all that thing, and so this financial focus on that and this kind of narrative of saying be lean and mean that's a good thing. We've all
played a part of it. When we go through the quarterly lean and mean this is a good thing for a company. How big a role did that play in getting us so that when the pandemic hit, nobody had excess supply anywhere?
A huge role. We cut inventories to the bone. Publicly traded companies cut inventories to the bone over decades. Now, just in time is a sensible idea. It was pioneered by Toyota and of World War two devastation, not a lot of capital, not a lot of land to develop. Taichi Ono, who is running Toyota, pioneers this idea. Instead of making as much stuff as possible like Henry Ford did at Ford and letting salespeople try to figure out how to sell it, Let's just make enough to replenish
the cars that we've already sold. Let's get our suppliers to deliver the stuff we need right when we need it, rather than waste capital on warehouse. Hey, that's a good idea, But a long come of publicly traded companies guided by consultants like McKenzie who say, listen, this should apply to everything, and you should not stop until there's basically no inventory. And what you do is, instead of wasting capital on sticking you know, auto parts in a warehouse as a
hedge against trouble, just liquidate the warehouse. Take the cash, give it to yourselves to reward yourselves, corporate executives for being smart enough to hire McKenzie, give it to shareholders in the form of dividends and share buybacks, and everybody's happy until there's a problem. And this pandemic was not the first time we saw a shock to the system. I mean, I wrote my first supply chain story back in nineteen ninety nine. It was about an earthquake in Taiwan.
And back then people said, oh, whoops, we've got computer chip shortages. Maybe we shouldn't concentrate all our industry here, maybe we should have a little more differsa.
We learn our lesson with the computer tip industry.
We sure did not. I mean, you know, I tell the story in the book of Henry Ford, who is a problematic figure in history, but knew a thing or two about supply chains and never wanted to be in a position where he could be pinched by a supplier constrained would have been horrified to see what I saw one hundred years later, as I'm walking the catwa his signature River Rouge plant outside of Detroit, where they're making these beautiful f one fifty pickup trucks, their most popular vehicle.
They've got all the things they need except for the one thing that brings it to life, the computer chip. And I watched them park these cars in the shadow of Ford's corporate headquarters across the street from Henry Ford Elementary School. I mean, he would be spinning in his grave over this. We did not learn the lesson.
I think this is the part, and forgive me if I've got it wrong, But when I read it, Detroit had devolved into a poignant example of what happened when middle class factory jobs were replaced by poverty level positions at retailers, warehouses, and fast food chains. Next to the old Highland Park factory, now a forlorn brickshell, a shopping center called Model ty Plaza was anchored by a dollar store, a payday lender, and a plasma collection center awaiting people
willing to swap blood for cash. The car itself had become an instrument of white Flight like that to me, says so much of what's going on across America and explains to me politics in a big way.
So that's what I wanted to talk about it.
We want to bring in Doug Prisoners here we are, I'm doing well. Doug is like this great thinker and like your book just kind of reminds us of the things we talk about with Doug.
So we wanted to bring in one of the things that's interesting, Tim was going to talk about politics. In the nineteen ninety two presidential campaign. Ross Perrot was the lone voice who was kind of cautioning against at that time, what was the North American Free Trade Agreement Canada, the US and Mexico. What's stunning is how quickly the conversation became about China. Why did that pivot happen so quickly in your view away from North America manufacturing in China.
Well, China operates on a whole different scale than Mexico, right, So Ross Paro, of course, yeah, famously warned of the giant sucking sound. And we did lose some jobs in the industrial Midwest to Mexico, but we picked up a lot of jobs because the US and Mexico were economically integrated. And I mean it's ironic now to think about Mexico as the solution to some of our supply chain problems.
But when we import something from Mexico, forty percent of the value of that imported good was actually made in the United States. So you know, we bring in a car that was made in a Mexican factory, and forty percent of the value of that car was built by American labor in American factories. The component number for China is three percent, so only three percent of the value of imports from China have American value add and of course Chinese state policy is really directed to driving that
as close to zero as possible. But I think it's really important to note that a lot of these failures that have fueled the backlash originally Mexico now China. I argue in the book, I mean this part nobody really wants to talk about. These are homemade failures. I mean, we have benefited from trade with China, we have benefited from trade with Mexico. We've got a lot of low cost goods. In the case of Mexico, again, we boot
did our exports. We've got consumers benefiting. A lot of data shows that consumer spending has been juiced by trade with China, and that money ends up, you know, in the hands of American service providers. Our leisure you know,
is more robot We have more money here. The problem is we haven't cushioned the people who have lost, and we have seen whole communities, industries, you know, really hit hard by this China shock that you know, a lot of the data shows we're talking one million direct jobs in the space of a decade lost to Chinese imports.
But it is China the bad guy or is it investors and companies who constantly we're seeking out the low cost provider.
The ultimate winners are the investor class, without any question. And there's a lot of labor exploitation in China. So yes, the winners are the people who funded the Clinton campaign and got Bill Clinton.
Against say nothing of environmental regulation, of course.
Okay, right, go.
Ahead, Peter. I want to talk about labor exploitation in the trucking industry, sure, because a common thing that we heard over and over again during the pandemic and the supply chain disruption that we saw was that trucking companies just didn't have enough drivers. They needed people to go learn how to drive a truck and start driving trucks. You found that that wasn't the case. It's just a really, really bad job.
It's a horrible job. I mean, I rode with a trucker in the best possible conditions who actually likes his job, from Kansas City to Dallas and back in the middle of the winter. I slept in the cab for two nights. I watched this man have to worry about caffeinating enough so we wouldn't fall asleep at the wheel, and yet not having to pull over to use the restroom. Truckers are constantly worried about where they're going to park. They're at the mercy of lots of other parts of the
supply chain they have no influence over. They can get stuck at warehouses for hours waiting for somebody to load or unload their vehicle because warehouses have shortages of workers. Now, this trucking industry shortage, this is an industry talking point. There's ten million people in the United States who have licenses to drive long haul trucks, and we need roughly
a third that number. We've run out of people. We can feed into the mill who are willing to sign off on these predatory lending arrangements by which truckers pay for their certification, by which they end up buying these vehicles at wildly inflated prices from the trucking companies. Then they're forced to go service these vehicles at places that are part of the empires of these trucking companies. And so a lot of people, you know, they get tired
of being away from their families. They get tired of hearing that they've missed another chill child's birthday party, they miss people's funerals. It's a tough job. It's always been a tough job. The difference is it's been downgraded to the point that we've run out of takers for this tough job.
What's the remedy in your view? I mean, how do we get out of the situation that we're in now. I'm listening to the trucking story and I'm thinking of robotic vehicles that are going to be creeping into the scene pretty soon. So the argument that you're making right now may get a remedy, but it's going to be at the cost of labor in a major way. But what do you think the remedy is longer term?
I mean, I think for openers, we got to look at these predatory arrangements that truckers make with the people coming through these educational mills that set up certification. With taxpayer funding, you know, we are paying to feed people into these training programs where they end up getting jobs that pay a fraction of what they've been promised. So
that's the first thing to do. Look, automation is inevitable, it's going to happen, but we got to have a conversation about how we compensate the people who are still in the business. We got to make sure that they can get exercise, that they can different eat better than their eating. I mean the food that you see at these truck stops. It's just a tough life. The government has to get involved in looking at these working conditions.
What's the bigger solution though, because to me, I'm thinking, all right, if we're bringing a lot of stuff home, maybe more jobs are going to be created back home, but it's going to more expensive, so get ready to continue to pay more money. But if it means that workers are actually making more and a real living, that's a good thing. So I don't know. I'm just trying to figure out what you see, is this wait in.
Some cases if we shift production from China to other countries where wagers a high, if we bring some of it back to the US, that that'll mostly be automation. Yeah, the costs for some things are going to go up, some things may go down, some things may go up. But what is the cost that we're paying now that doesn't get factored into the simple you know, sticker price at the Walmart Superstar. What's the cost of running out
of medical devices in the middle of a pandemic. What's the cost of discovering that we've depended upon a single country that we've decided is our adversary that we're having a trade war with for you know, personal protective gear to give frontline medical And none of.
That's really changed right dramatically or.
Have changed somewhat. I mean, I spend a lot of time for the book, you know, I went to Guatemala with Columbia Sportswear. They're looking to move production closer to their biggest market, which is North America. Spend a lot of time in Mexico, you know, as we've discussed how that could potentially be part of this solution to our
excessive reliance on China. But China's going to be the center of manufacturing for a really long time for the simple reason that's got this unbeatable combination of infrastructure, low cost efficiency. The question is how do we compensate the people who were depending on in our own country. And you know, Henry Ford again problematic character for all sorts of reasons, but he got some things right. You know, he doubled wages for his workers in the nineteen teens.
He was called a communist by some people. He said, look, I'm just trying to sell cars, and I'm trying to sell them at low prices. And any business that's built on low wage labor is.
Unreliable away from the government. Is there a role for organized labor in this.
Oh, one hundred percent. I mean we should be embracing labor mobilization. I mean it's bumpy, it does involve higher costs. If you're running a business, you're not delighted that your union is now animated. But first of all, it puts spending capacity in p people's pockets. Right. It boosts consumer power, which is good for all businesses, and it's simply more reliable if people aren't are at work not worried about their ability to put groceries on there.
I was thinking about that when I read about precision scheduled railroading in ye book, because those were union guys, right right, But they had a pretty tough gig too.
So well, some of them are union So you wrote.
About people who missed medical appointments and funerals and like, we're driving so far from their homes in that business were the non unionized? Were the unionized folks who were doing that in a much better position than the non unionized ones. I mean, that's a tough gig too.
Look, the unions, you know, were ready to go on strike and couldn't go on strike because there's this law that says they have to basically get the president's permission to strike, and the president didn't grant that permission because it would have been a shock to the system. It would have uped inflation, and that wasn't something that Joe Biden wanted to happen on his watch. But even you know, this this powerful union that got right to the edge
of strike, they couldn't get paid sick leave. You know, Biden gave it to them through the bully pulp and some of the companies then delivered a few days. But yes, I talked to people who were missing out on In one case, a guy who's who's infant, you know, needed cardiac surgery and he was told, sorry, pal, you know we need you on the maintenance crew. You can't be home for that. And then he finally quit and fired off a letter.
Yeah, go ahead, no, buts so much for like, was it a few years ago? The business round table? Stakeholder like, think of all the stakeholders, including employees.
That's my last book.
We only have, I know, twenty seconds left. Are we going to run out of things again at some point?
Look, we're still running out of things. Yes, you know, talk to contractors about why they can't build more housing. It's part of why housing so unaffordable.
This was so much fun. So appreciate it. Thank you so much. Peter Goodman, global economic correspondent, New York Times his new book How the World Ran out of Everything? And then thanks to our Doug Prisner too. We really appreciate you coming to reading.
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