WEBVTT - How the World Ran Out of Everything 0:00:02.480 --> 0:00:06.840 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:07.200 --> 0:00:10.800 You're listening to Bloomberg BusinessWeek with Carol Messer and Tim 0:00:10.840 --> 0:00:15.560 Steneveek on Bloomberg Radio, Bill Clinton and the wto Just 0:00:15.720 --> 0:00:19.320 in Time, and Lean Manufacturing Mackenzie Consultants who earned the 0:00:19.400 --> 0:00:24.200 nickname the Lean Taliban China, share buybacks, increasing dividends and 0:00:24.280 --> 0:00:27.560 executive compensation that has skyrocketed. 0:00:26.920 --> 0:00:29.360 Well, the decline of union power and the working class 0:00:29.800 --> 0:00:33.239 monopolistic takeovers, and then of course the pandemic and the 0:00:33.240 --> 0:00:36.519 Great supply chain crisis. If you want to understand how 0:00:36.560 --> 0:00:40.239 our world really really works today economically and politically, and 0:00:40.320 --> 0:00:42.920 how we got here, then sit down, put down whatever 0:00:42.920 --> 0:00:44.960 the heck you are working on. Get ready for our 0:00:45.000 --> 0:00:47.840 next guest. Journalist and author Peter S. Goodman, his global 0:00:47.880 --> 0:00:50.640 economics correspondent at The New York Times. His new book, 0:00:50.800 --> 0:00:53.480 which neither of us, to be fair can put down 0:00:53.880 --> 0:00:56.320 How the world ran out of everything inside the global 0:00:56.360 --> 0:00:58.520 supply chain. He joins us here in studio and fair 0:00:58.560 --> 0:00:59.880 to say we found our summer. 0:01:00.160 --> 0:01:02.000 Yeah, I'm going to need another read pretty soon after 0:01:02.000 --> 0:01:04.920 this one. To understand the supply chain. Peter visits seemingly 0:01:05.120 --> 0:01:07.520 every link of it. He spends time in one of 0:01:07.560 --> 0:01:10.800 the largest exporters of almonds in California and with the 0:01:10.840 --> 0:01:13.120 dock workers who are supposed to get those almonds all 0:01:13.120 --> 0:01:15.760 over the world. He hitches a ride through Kansas with 0:01:15.800 --> 0:01:19.120 a Brahms loving trucker, feeds cows with a third generation 0:01:19.240 --> 0:01:22.120 rancher in Montana, and eats breakfast with the commissioner of 0:01:22.160 --> 0:01:25.560 the Federal Maritime Commission. He visits ports from LA to 0:01:25.600 --> 0:01:28.120 Savannah to explain how the world found itself in the 0:01:28.120 --> 0:01:30.160 greatest supply chain crisis it's ever seen. 0:01:30.200 --> 0:01:32.880 All Right, he is here in our Bloomberg Interactive Broker studio. 0:01:32.920 --> 0:01:35.600 We wanted to do the setup because it's really comprehensive, 0:01:35.640 --> 0:01:37.440 and I do feel like I think it's safe to 0:01:37.480 --> 0:01:39.280 say that it explains a lot of kind of where 0:01:39.280 --> 0:01:43.120 we are today. So, Peter, you have had such a 0:01:43.120 --> 0:01:46.160 front row seat to so much that is going on 0:01:46.400 --> 0:01:48.360 in the world. Tell us about that front row seat 0:01:48.640 --> 0:01:50.920 and what kind of really stands out for you. We're 0:01:50.960 --> 0:01:53.240 going to kind of dig into the book specifically, but 0:01:53.280 --> 0:01:56.200 that front row seat has given you really this wonderful 0:01:56.200 --> 0:01:57.720 opportunity to see a lot. 0:01:58.040 --> 0:01:59.960 You know, it's changed the way I look at any 0:02:00.160 --> 0:02:03.560 package that lands at my door, or really any product 0:02:03.560 --> 0:02:06.520 that somebody made somewhere that had to be transported to 0:02:06.600 --> 0:02:08.760 a store or to a home or a business. We 0:02:08.919 --> 0:02:11.239 don't tend to think about the supply chain, you know. 0:02:11.320 --> 0:02:13.040 It's one of those things. It's like the light switch. 0:02:13.080 --> 0:02:15.280 We're not thinking about the internal wiring. We flip it on. 0:02:15.320 --> 0:02:17.080 The light's work well, when. 0:02:16.919 --> 0:02:20.280 We needed it most, it failed, it. 0:02:20.200 --> 0:02:23.040 Buckled, and we had frontline medical workers dealing with COVID 0:02:23.080 --> 0:02:26.320 patients without protective gear. We had families unable to find 0:02:26.360 --> 0:02:28.440 infant formula. I mean, that was an incredible criestion. If 0:02:28.440 --> 0:02:31.200 we had a toilet paper scare, which turned out to 0:02:31.240 --> 0:02:34.520 not be so much as shortage as a question of hoarding. 0:02:34.880 --> 0:02:37.840 And we all remember these ships, you know, fifty sixty 0:02:38.040 --> 0:02:41.840 seventy ships that were floating off the coast of southern California, 0:02:41.960 --> 0:02:45.800 unable to land, floating for weeks at a time before 0:02:45.840 --> 0:02:48.280 they could find a slot to load and unload all 0:02:48.280 --> 0:02:51.480 these factory goods coming in from China. And I think 0:02:51.200 --> 0:02:53.400 for all of us in the midst of the pandemic, 0:02:53.480 --> 0:02:57.720 it was so bewildering that it gave us this curiosity 0:02:57.760 --> 0:03:00.440 about these people we never think about. So, Yeah, as 0:03:00.480 --> 0:03:03.200 you guys pointed out, I climbed into the into in 0:03:03.240 --> 0:03:06.760 the front of a truck. I visited with rail maintenance 0:03:06.840 --> 0:03:09.000 workers who were away from their families for weeks at 0:03:09.000 --> 0:03:11.560 a time, and I really tried to understand what has 0:03:11.639 --> 0:03:12.760 gone haywire here. 0:03:13.120 --> 0:03:15.359 Peter, Know, the reason we're talking about such a complex 0:03:15.560 --> 0:03:18.320 supply chain is because of globalization. And one thing that 0:03:18.400 --> 0:03:20.080 Carol and I were talking about as we were preparing 0:03:20.120 --> 0:03:24.440 for this was that your career has kind of coincided 0:03:24.480 --> 0:03:28.040 with the rise of globalization, right being a reporter in 0:03:28.080 --> 0:03:31.040 South Asia in the nineties and then post dot com 0:03:31.040 --> 0:03:33.600 crash working for the Washington Post. I think it was 0:03:33.600 --> 0:03:34.280 out of Shanghai. 0:03:34.400 --> 0:03:34.880 That's right. 0:03:35.800 --> 0:03:38.040 You visited a lot of these factories at times when 0:03:38.640 --> 0:03:40.520 they weren't what they are today. Talk a little bit 0:03:40.560 --> 0:03:44.640 about how you've seen that your career alongside the rise 0:03:44.640 --> 0:03:45.360 of globalization. 0:03:45.760 --> 0:03:48.280 Yeah, I appreciate your pointing that out. So I landed 0:03:48.320 --> 0:03:50.960 in China in two thousand and one, which was the 0:03:51.000 --> 0:03:53.640 same year that China of course enters the World Trade Organization, 0:03:53.920 --> 0:03:57.920 this landmark, you know, moment for globalization, and it was 0:03:58.000 --> 0:04:03.560 pretty clear then that China had huge aspirations and that 0:04:03.800 --> 0:04:06.680 the world was flocking to China in large part because 0:04:06.800 --> 0:04:10.400 you know, corporate CEOs who were constantly looking for ways 0:04:10.400 --> 0:04:15.600 to cut costs availed themselves of this ultimate opportunity to 0:04:16.000 --> 0:04:18.800 you know, engage Chinese labor as a way of undercutting 0:04:19.160 --> 0:04:22.680 labor costs at home in the US and in Japan, 0:04:23.000 --> 0:04:26.839 in South Korea, in Europe. And it was also clear 0:04:26.960 --> 0:04:31.000 that the Chinese government had very systematically built out the 0:04:31.040 --> 0:04:34.720 infrastructure that was needed for trades. So you know, visited 0:04:34.800 --> 0:04:38.240 massive ports factories that were capable of making you know, 0:04:38.400 --> 0:04:42.240 enough microwave ovens to supply Walmart for a year, you know, 0:04:42.320 --> 0:04:46.680 and whole towns were you know, set up for single industries. 0:04:46.720 --> 0:04:49.280 I remember going to the necktie town. There was this 0:04:49.440 --> 0:04:52.680 one town in one province that was suddenly making more 0:04:52.720 --> 0:04:54.719 neck ties than all of Italy, you know, in the 0:04:54.760 --> 0:04:57.479 course of a decade. So you could feel that the 0:04:57.640 --> 0:05:01.160 scale was was you know, a able. But what I 0:05:01.200 --> 0:05:04.680 didn't understand, and what I've come to understand through this book, 0:05:04.760 --> 0:05:06.880 is that all of this was premised on the idea 0:05:06.920 --> 0:05:11.640 that container shipping would be basically free and reliable. And 0:05:12.360 --> 0:05:14.200 what I've come to see is that, you know, we 0:05:14.320 --> 0:05:17.479 built this global economy up, putting ourselves really at the 0:05:17.520 --> 0:05:19.640 mercy of this international cartel. 0:05:20.200 --> 0:05:23.560 Well, so go back to we did kind of a 0:05:23.600 --> 0:05:27.640 laundry list coming in and there's so many different characters. 0:05:27.680 --> 0:05:33.080 Henry Ford, the rumors, plant tat Ono, Toyota after World 0:05:33.120 --> 0:05:37.880 War Two, McKinsey, the consultants, Bill Clinton, and the WTO, 0:05:38.640 --> 0:05:40.960 and then we'll also get into mister Walker and his 0:05:41.080 --> 0:05:44.240 company Glow. But if you had to pinpoint, was it 0:05:45.040 --> 0:05:48.240 President Bill Clinton, former President Bill Clinton and the push 0:05:48.360 --> 0:05:50.920 to get everybody or to get China in the WTO. 0:05:51.240 --> 0:05:54.360 That that's why we're having this conversation. That's why when 0:05:54.360 --> 0:05:56.919 the pandemic hit, we were like, what the heck happened 0:05:56.960 --> 0:06:00.640 to our global supply chain? Isn't that particular moment in 0:06:00.720 --> 0:06:02.320 time that God iss to hear? 0:06:02.640 --> 0:06:04.440 I think that's a landmark. I mean there's a lot 0:06:04.440 --> 0:06:06.240 of moments at time, right. I mean I write about 0:06:06.240 --> 0:06:09.120 Ford because I was interested in the rise of mass assembly. 0:06:09.400 --> 0:06:13.159 I write about the roots of the shipping container because 0:06:13.160 --> 0:06:16.440 the process of standardizing cargo made it possible to go 0:06:16.520 --> 0:06:19.279 look for the cheapest plays to make anything. You could 0:06:19.279 --> 0:06:20.240 go anywhere around the world. 0:06:20.320 --> 0:06:23.440 But if China wasn't accepted on a global scale in 0:06:23.520 --> 0:06:25.560 terms of trade, right, there was a big push. There 0:06:25.560 --> 0:06:27.839 were lots of concerns about human rights. There are still 0:06:28.000 --> 0:06:30.680 lots of big concerns about human rights, and yet there 0:06:30.720 --> 0:06:33.680 they were right in the WTO, something they fought for. 0:06:34.000 --> 0:06:36.800 Well, here's the part that people are generally afraid to 0:06:36.880 --> 0:06:40.760 talk about. You know, China gets into the WTO because 0:06:41.040 --> 0:06:45.560 American retailers lobby like crazy to get China into the WTO, 0:06:46.120 --> 0:06:49.320 and nobody wants to be affiliated with the story of 0:06:49.400 --> 0:06:53.320 labor exploitation. Now, let's remember Chinese labor in American history. 0:06:53.640 --> 0:06:57.240 You know, from the beginning, it's about undercutting wages. Right, 0:06:57.440 --> 0:07:01.200 Chinese workers are systematically brought over from China to build 0:07:01.200 --> 0:07:04.719 the railroads because the mostly Irish laborers say, ah, this 0:07:04.760 --> 0:07:07.160 is pretty dangerous and we're not getting paid enough. So 0:07:07.520 --> 0:07:09.840 this is a continuation of that story, you know, a 0:07:09.880 --> 0:07:13.280 century later where now we're bringing the production to China, 0:07:13.840 --> 0:07:19.720 and it's there's a sort of seeming unsavory quality to 0:07:19.800 --> 0:07:22.560 this story because of course China is controlled by the 0:07:22.640 --> 0:07:25.680 Chinese Commediest Party. There's no elections. You can get access 0:07:25.720 --> 0:07:29.960 to land, you can bypass workplace and environmental standards by 0:07:29.960 --> 0:07:33.400 cutting some local party official in I'm part of the sports. Well, 0:07:33.400 --> 0:07:35.800 this is not a good story for Bill Clinton, who, 0:07:35.920 --> 0:07:38.720 you know, only a decade before he lobbies to get 0:07:38.800 --> 0:07:41.600 China into the WTO, is running as the guy who's 0:07:41.720 --> 0:07:45.120 you know, disciplining George H. W. Bush for coddling the 0:07:45.120 --> 0:07:49.880 butchers of Beijing. He's very critical of the crackdown against 0:07:49.960 --> 0:07:53.600 the pro democracy demonstrators in Tianneman Square. Well, I tell 0:07:53.640 --> 0:07:54.600 the story in the book. 0:07:54.640 --> 0:07:54.760 You know. 0:07:54.800 --> 0:07:57.480 It's not even a decade later, and Clinton's in Beijing 0:07:57.880 --> 0:07:59.920 at a banquet at the Great Hall of the People 0:08:00.080 --> 0:08:03.600 across the street from Tieneman Square, where he literally picks 0:08:03.680 --> 0:08:08.600 up the baton and conducts the People's Liberation Army Orchestra 0:08:08.680 --> 0:08:10.880 as they play this John Phillips south from March. Now, 0:08:10.920 --> 0:08:14.680 why is Bill Clinton there? He's there because his party, 0:08:14.760 --> 0:08:19.760 the Democratic Party, is pulling in massive campaign contributions from retailers, 0:08:20.000 --> 0:08:23.960 and they're fashioning this story. It's not totally a fairy tale, right. 0:08:24.000 --> 0:08:27.040 I mean, trade has been the lynchpin of American farm 0:08:27.080 --> 0:08:29.040 policy since the end of the Second World War. But 0:08:29.040 --> 0:08:30.720 there are a lot of reasons to be dubious that 0:08:30.960 --> 0:08:33.280 you know, this is really about it's not just about 0:08:33.320 --> 0:08:35.840 selling Chinese people lots of stuff. It's not just about 0:08:35.920 --> 0:08:39.280 buying cheap goods from China. This is about democratizing China 0:08:39.360 --> 0:08:40.160 once well, that was. 0:08:40.160 --> 0:08:42.600 The goal, the thinking that okay, let's open up you know, 0:08:42.720 --> 0:08:45.720 trade and probably democracy will come and the human rights 0:08:45.760 --> 0:08:48.680 abuses will go away like that, you know, like you 0:08:49.080 --> 0:08:50.880 feel like my career has kind of seen like the 0:08:50.920 --> 0:08:53.840 opening of China, and that this was going to solve 0:08:53.960 --> 0:08:56.920 so much, and yet it didn't necessarily play out that way. 0:08:57.080 --> 0:08:59.319 Well, one part of it played out. We got really 0:08:59.440 --> 0:09:03.120 low cost goods from China. The Walton family, the founders 0:09:03.160 --> 0:09:05.680 of Walmart, for a while became, you know, the wealthiest 0:09:05.679 --> 0:09:09.959 family on Earth, and anybody who moved production over to 0:09:10.080 --> 0:09:13.000 China at scale and managed to do the right deals 0:09:13.240 --> 0:09:17.240 rewarded their shareholders handsomely. That part held to form. Also, 0:09:17.640 --> 0:09:24.120 not incidentally, the industrialization of China lifted several hundred million 0:09:24.320 --> 0:09:27.880 people out of poverty, and that's highly significant. But the 0:09:27.920 --> 0:09:31.240 part about you know, once Chinese people get a taste 0:09:31.240 --> 0:09:33.480 of Kentucky fried chicken, they're going to demand the ballot 0:09:33.480 --> 0:09:35.880 box well, that has not worked out, as I think 0:09:35.920 --> 0:09:38.360 everyone is now a where you know, we're talking about 0:09:38.640 --> 0:09:42.640 genocide according to the Biden administration in Hinjong, where the 0:09:42.679 --> 0:09:46.440 Wigers are pressed into forced labor to produce cotton that 0:09:46.559 --> 0:09:50.360 ends up in lots of apparel. Of course, we still 0:09:50.400 --> 0:09:54.640 don't have elections. The central government has actually strengthened its 0:09:54.720 --> 0:09:59.040 role in Chinese society, so we don't hear that talk anymore. 0:09:59.080 --> 0:10:03.600 And of course now it's become politically fashionable within both 0:10:03.640 --> 0:10:05.760 parties to attack China as our enemy. One. 0:10:05.800 --> 0:10:10.880 Peter, you mentioned concentration in shipping. I believe you called 0:10:10.880 --> 0:10:14.760 it a cartel. I had no idea before reading this 0:10:14.880 --> 0:10:17.360 that it was basically what three companies. 0:10:16.840 --> 0:10:19.600 Three alliances that control a bunch of companies. But think 0:10:19.600 --> 0:10:20.600 of it like airline alliances. 0:10:20.679 --> 0:10:23.160 Three alliances that control basically all. 0:10:23.120 --> 0:10:26.439 Of shipping ninety five percent of the shipping from China 0:10:26.480 --> 0:10:27.760 to the West coast of the United. 0:10:27.600 --> 0:10:30.719 States, some of them some of the companies owned by 0:10:30.800 --> 0:10:35.720 China or like our state subsidized organizations. How did it 0:10:35.760 --> 0:10:36.319 become like that? 0:10:36.720 --> 0:10:40.360 It became like that because there was deregulation pretty much everywhere, 0:10:40.360 --> 0:10:42.640 including in the US, where you know there used to 0:10:42.720 --> 0:10:45.680 be this anti trust exemption, but there was regulation on 0:10:45.800 --> 0:10:49.480 shipping rates, so you had to post what your rates 0:10:49.559 --> 0:10:52.560 were from one place to another. You couldn't negotiate a 0:10:52.640 --> 0:10:56.480 deal in secret. It was all above board, sort of 0:10:56.480 --> 0:10:59.760 like a utility, right, like, the governments involved because this 0:10:59.840 --> 0:11:03.160 is a vital part of the economy. And then basically 0:11:03.240 --> 0:11:06.640 retailers lobbied. There were a couple of landmarks. The last 0:11:06.640 --> 0:11:10.319 one was in the eighties. There was no Amazon then, 0:11:10.360 --> 0:11:13.320 but there was Walmart target. The big retailers thought, well, 0:11:13.360 --> 0:11:16.040 if we're bringing over lots of these factory goods from 0:11:16.160 --> 0:11:17.959 China to the West coast of the US to the 0:11:18.000 --> 0:11:19.839 East coast of the US, we would like to be 0:11:19.920 --> 0:11:22.560 able to negotiate a better deal than the smaller competitors. 0:11:22.559 --> 0:11:26.560 So essentially we've optimized the supply chain for the biggest companies, 0:11:26.880 --> 0:11:31.360 and the anti trust was essentially deactivated throughout much of 0:11:31.400 --> 0:11:33.600 American life. Right you go back to Reagan, although really 0:11:33.679 --> 0:11:36.320 the story starts with Carter. You know, we're steeped in 0:11:36.360 --> 0:11:40.120 this idea that scale is the way to serve consumers, 0:11:40.240 --> 0:11:42.000 and so let's just get out of the way of 0:11:42.040 --> 0:11:45.800 business and let them provide, you know, that will deliver innovation. 0:11:46.320 --> 0:11:49.040 But once you take away competition, of course, what we 0:11:49.080 --> 0:11:52.120 get is pricing power. And for a long time, these 0:11:52.280 --> 0:11:56.120 mostly well they're all actually foreign companies in international shipping. 0:11:56.440 --> 0:12:00.360 There were like extensions of state policy and China, as 0:12:00.400 --> 0:12:03.600 South Korea, Taiwan, so they were content to keep shipping 0:12:03.600 --> 0:12:06.880 costs low as a way to bolster their exports. But 0:12:06.960 --> 0:12:10.320 once we get a shock, you know, in the great 0:12:10.320 --> 0:12:14.440 supply chain disruption during the pandemic, we see shipping prices 0:12:14.520 --> 0:12:17.800 go up tenfold, and we see, you know, you guys 0:12:17.800 --> 0:12:19.400 were alluding to the fact that I spent some time 0:12:19.440 --> 0:12:22.960 with Alman farmers in central California. We see almed farmers 0:12:23.120 --> 0:12:29.679 I visited had an entire crop sold to Dubai, to 0:12:29.880 --> 0:12:32.440 Japanese purchasers, and they were just sitting on all this 0:12:32.520 --> 0:12:36.040 crop that they couldn't actually get on a ship. Because 0:12:36.080 --> 0:12:40.280 these shipping carriers were making so much money sending factory 0:12:40.320 --> 0:12:42.360 goods from China to the West coast of the US, 0:12:42.400 --> 0:12:44.800 which is the gateway for forty percent of American imports, 0:12:44.960 --> 0:12:47.439 that they didn't even want to bother to send empty 0:12:47.480 --> 0:12:50.320 containers up to the Central Valley to load up with 0:12:50.440 --> 0:12:53.920 farm products. Like Ammonds, they just unloaded factory goods in 0:12:54.080 --> 0:12:58.000 LA and sent empty containers back across the Pacific. We're 0:12:58.000 --> 0:13:01.920 talking about burning diesel fuel to send back across the Pacific. 0:13:02.200 --> 0:13:05.120 So they can get twenty five twenty seven twenty eight 0:13:05.200 --> 0:13:08.840 thousand dollars to move a container of factory goods from 0:13:08.880 --> 0:13:12.440 you know, a place like Shanghai to LA that used 0:13:12.440 --> 0:13:15.160 to cost like twenty twenty five hundred during the pandemic. 0:13:15.400 --> 0:13:17.839 That's largely the story of deregulation. 0:13:18.200 --> 0:13:20.640 I want to you know, one thing I think about, though, 0:13:20.840 --> 0:13:24.480 in particular in your book is kind of the role 0:13:24.520 --> 0:13:26.319 of consultanc here. And I don't want to pick pile 0:13:26.360 --> 0:13:28.720 on anyone in particular, but you do single out mackenzie. 0:13:28.840 --> 0:13:29.320 I sure do. 0:13:29.480 --> 0:13:32.000 You do talk about the lean Taliban. You also get 0:13:32.000 --> 0:13:34.560 into a lot of just in time inventory for anybody's 0:13:34.559 --> 0:13:37.359 taken accounting classes, Like we've played around with this, right, 0:13:37.800 --> 0:13:40.800 but this idea too that you don't want to have 0:13:40.920 --> 0:13:44.280 big inventories. You want to be lean and mean, right, 0:13:44.320 --> 0:13:47.800 So because those inventories are costly to store them, to 0:13:47.880 --> 0:13:51.480 have them, and all that thing, and so this financial 0:13:51.559 --> 0:13:55.200 focus on that and this kind of narrative of saying 0:13:55.559 --> 0:13:57.959 be lean and mean that's a good thing. We've all 0:13:57.960 --> 0:13:59.439 played a part of it. When we go through the 0:13:59.520 --> 0:14:02.240 quarterly lean and mean this is a good thing for 0:14:02.320 --> 0:14:05.200 a company. How big a role did that play in 0:14:05.280 --> 0:14:08.559 getting us so that when the pandemic hit, nobody had 0:14:08.600 --> 0:14:10.000 excess supply anywhere? 0:14:10.120 --> 0:14:13.880 A huge role. We cut inventories to the bone. Publicly 0:14:13.880 --> 0:14:18.160 traded companies cut inventories to the bone over decades. Now, 0:14:18.280 --> 0:14:20.960 just in time is a sensible idea. It was pioneered 0:14:20.960 --> 0:14:25.360 by Toyota and of World War two devastation, not a 0:14:25.400 --> 0:14:27.640 lot of capital, not a lot of land to develop. 0:14:27.920 --> 0:14:31.440 Taichi Ono, who is running Toyota, pioneers this idea. Instead 0:14:31.480 --> 0:14:34.160 of making as much stuff as possible like Henry Ford 0:14:34.200 --> 0:14:37.120 did at Ford and letting salespeople try to figure out 0:14:37.120 --> 0:14:40.600 how to sell it, Let's just make enough to replenish 0:14:40.640 --> 0:14:43.600 the cars that we've already sold. Let's get our suppliers 0:14:43.640 --> 0:14:45.760 to deliver the stuff we need right when we need it, 0:14:46.200 --> 0:14:49.000 rather than waste capital on warehouse. Hey, that's a good idea, 0:14:49.520 --> 0:14:53.160 But a long come of publicly traded companies guided by 0:14:53.240 --> 0:14:57.360 consultants like McKenzie who say, listen, this should apply to everything, 0:14:57.760 --> 0:15:01.960 and you should not stop until there's basically no inventory. 0:15:02.400 --> 0:15:04.920 And what you do is, instead of wasting capital on 0:15:05.000 --> 0:15:07.840 sticking you know, auto parts in a warehouse as a 0:15:07.880 --> 0:15:11.880 hedge against trouble, just liquidate the warehouse. Take the cash, 0:15:11.920 --> 0:15:15.200 give it to yourselves to reward yourselves, corporate executives for 0:15:15.280 --> 0:15:18.160 being smart enough to hire McKenzie, give it to shareholders 0:15:18.160 --> 0:15:20.800 in the form of dividends and share buybacks, and everybody's 0:15:20.840 --> 0:15:25.320 happy until there's a problem. And this pandemic was not 0:15:25.400 --> 0:15:27.040 the first time we saw a shock to the system. 0:15:27.080 --> 0:15:28.920 I mean, I wrote my first supply chain story back 0:15:28.960 --> 0:15:31.880 in nineteen ninety nine. It was about an earthquake in Taiwan. 0:15:32.040 --> 0:15:35.040 And back then people said, oh, whoops, we've got computer 0:15:35.120 --> 0:15:38.640 chip shortages. Maybe we shouldn't concentrate all our industry here, 0:15:38.680 --> 0:15:40.360 maybe we should have a little more differsa. 0:15:40.120 --> 0:15:41.760 We learn our lesson with the computer tip industry. 0:15:41.800 --> 0:15:44.400 We sure did not. I mean, you know, I tell 0:15:44.440 --> 0:15:47.280 the story in the book of Henry Ford, who is 0:15:47.320 --> 0:15:49.400 a problematic figure in history, but knew a thing or 0:15:49.440 --> 0:15:51.400 two about supply chains and never wanted to be in 0:15:51.440 --> 0:15:54.840 a position where he could be pinched by a supplier 0:15:55.040 --> 0:15:58.000 constrained would have been horrified to see what I saw 0:15:58.000 --> 0:16:00.480 one hundred years later, as I'm walking the catwa his 0:16:00.600 --> 0:16:04.880 signature River Rouge plant outside of Detroit, where they're making 0:16:04.880 --> 0:16:08.720 these beautiful f one fifty pickup trucks, their most popular vehicle. 0:16:08.840 --> 0:16:10.800 They've got all the things they need except for the 0:16:10.800 --> 0:16:12.760 one thing that brings it to life, the computer chip. 0:16:12.800 --> 0:16:16.200 And I watched them park these cars in the shadow 0:16:16.680 --> 0:16:20.760 of Ford's corporate headquarters across the street from Henry Ford 0:16:20.840 --> 0:16:23.640 Elementary School. I mean, he would be spinning in his 0:16:23.720 --> 0:16:26.080 grave over this. We did not learn the lesson. 0:16:26.200 --> 0:16:28.000 I think this is the part, and forgive me if 0:16:28.000 --> 0:16:30.120 I've got it wrong, But when I read it, Detroit 0:16:30.160 --> 0:16:32.560 had devolved into a poignant example of what happened when 0:16:32.560 --> 0:16:35.880 middle class factory jobs were replaced by poverty level positions 0:16:35.880 --> 0:16:38.920 at retailers, warehouses, and fast food chains. Next to the 0:16:38.920 --> 0:16:42.120 old Highland Park factory, now a forlorn brickshell, a shopping 0:16:42.160 --> 0:16:45.560 center called Model ty Plaza was anchored by a dollar store, 0:16:45.600 --> 0:16:49.040 a payday lender, and a plasma collection center awaiting people 0:16:49.200 --> 0:16:51.440 willing to swap blood for cash. The car itself had 0:16:51.480 --> 0:16:53.800 become an instrument of white Flight like that to me, 0:16:54.360 --> 0:16:57.080 says so much of what's going on across America and 0:16:57.160 --> 0:16:58.800 explains to me politics in a big way. 0:16:59.080 --> 0:17:00.360 So that's what I wanted to talk about it. 0:17:00.560 --> 0:17:02.880 We want to bring in Doug Prisoners here we are, 0:17:03.960 --> 0:17:07.680 I'm doing well. Doug is like this great thinker and 0:17:08.040 --> 0:17:10.199 like your book just kind of reminds us of the 0:17:10.240 --> 0:17:11.359 things we talk about with Doug. 0:17:11.440 --> 0:17:13.160 So we wanted to bring in one of the things 0:17:13.200 --> 0:17:15.639 that's interesting, Tim was going to talk about politics. In 0:17:15.680 --> 0:17:19.959 the nineteen ninety two presidential campaign. Ross Perrot was the 0:17:20.000 --> 0:17:23.760 lone voice who was kind of cautioning against at that time, 0:17:23.800 --> 0:17:26.560 what was the North American Free Trade Agreement Canada, the 0:17:26.640 --> 0:17:31.119 US and Mexico. What's stunning is how quickly the conversation 0:17:31.320 --> 0:17:35.200 became about China. Why did that pivot happen so quickly 0:17:35.240 --> 0:17:39.320 in your view away from North America manufacturing in China. 0:17:39.480 --> 0:17:43.480 Well, China operates on a whole different scale than Mexico, right, 0:17:43.600 --> 0:17:45.520 So Ross Paro, of course, yeah, famously warned of the 0:17:45.600 --> 0:17:49.119 giant sucking sound. And we did lose some jobs in 0:17:49.160 --> 0:17:51.960 the industrial Midwest to Mexico, but we picked up a 0:17:52.000 --> 0:17:55.880 lot of jobs because the US and Mexico were economically integrated. 0:17:55.920 --> 0:17:58.479 And I mean it's ironic now to think about Mexico 0:17:58.560 --> 0:18:00.960 as the solution to some of our supply chain problems. 0:18:01.040 --> 0:18:04.960 But when we import something from Mexico, forty percent of 0:18:04.960 --> 0:18:07.679 the value of that imported good was actually made in 0:18:07.680 --> 0:18:09.919 the United States. So you know, we bring in a 0:18:10.000 --> 0:18:13.600 car that was made in a Mexican factory, and forty 0:18:13.640 --> 0:18:15.840 percent of the value of that car was built by 0:18:15.880 --> 0:18:22.040 American labor in American factories. The component number for China 0:18:22.160 --> 0:18:25.840 is three percent, so only three percent of the value 0:18:25.920 --> 0:18:30.239 of imports from China have American value add and of 0:18:30.240 --> 0:18:32.919 course Chinese state policy is really directed to driving that 0:18:32.960 --> 0:18:37.000 as close to zero as possible. But I think it's 0:18:37.040 --> 0:18:40.040 really important to note that a lot of these failures 0:18:40.320 --> 0:18:46.000 that have fueled the backlash originally Mexico now China. I 0:18:46.119 --> 0:18:47.960 argue in the book, I mean this part nobody really 0:18:48.000 --> 0:18:51.640 wants to talk about. These are homemade failures. I mean, 0:18:51.680 --> 0:18:54.960 we have benefited from trade with China, we have benefited 0:18:54.960 --> 0:18:56.880 from trade with Mexico. We've got a lot of low 0:18:56.920 --> 0:19:00.000 cost goods. In the case of Mexico, again, we boot 0:19:00.119 --> 0:19:05.520 did our exports. We've got consumers benefiting. A lot of 0:19:05.600 --> 0:19:09.479 data shows that consumer spending has been juiced by trade 0:19:09.520 --> 0:19:11.760 with China, and that money ends up, you know, in 0:19:11.800 --> 0:19:16.080 the hands of American service providers. Our leisure you know, 0:19:16.240 --> 0:19:19.000 is more robot We have more money here. The problem 0:19:19.080 --> 0:19:22.560 is we haven't cushioned the people who have lost, and 0:19:22.640 --> 0:19:27.640 we have seen whole communities, industries, you know, really hit 0:19:27.720 --> 0:19:30.520 hard by this China shock that you know, a lot 0:19:30.560 --> 0:19:33.360 of the data shows we're talking one million direct jobs 0:19:33.359 --> 0:19:36.560 in the space of a decade lost to Chinese imports. 0:19:36.640 --> 0:19:38.520 But it is China the bad guy or is it 0:19:38.880 --> 0:19:43.120 investors and companies who constantly we're seeking out the low 0:19:43.160 --> 0:19:43.960 cost provider. 0:19:44.400 --> 0:19:48.720 The ultimate winners are the investor class, without any question. 0:19:49.240 --> 0:19:52.920 And there's a lot of labor exploitation in China. So yes, 0:19:53.200 --> 0:19:55.760 the winners are the people who funded the Clinton campaign 0:19:55.840 --> 0:19:56.840 and got Bill Clinton. 0:19:56.600 --> 0:19:59.359 Against say nothing of environmental regulation, of course. 0:19:59.440 --> 0:20:00.320 Okay, right, go. 0:20:00.280 --> 0:20:03.720 Ahead, Peter. I want to talk about labor exploitation in 0:20:03.760 --> 0:20:06.840 the trucking industry, sure, because a common thing that we 0:20:06.920 --> 0:20:09.000 heard over and over again during the pandemic and the 0:20:09.040 --> 0:20:11.960 supply chain disruption that we saw was that trucking companies 0:20:12.000 --> 0:20:14.480 just didn't have enough drivers. They needed people to go 0:20:14.520 --> 0:20:17.159 learn how to drive a truck and start driving trucks. 0:20:18.160 --> 0:20:20.600 You found that that wasn't the case. It's just a really, 0:20:20.640 --> 0:20:21.520 really bad job. 0:20:22.200 --> 0:20:25.119 It's a horrible job. I mean, I rode with a 0:20:25.240 --> 0:20:28.800 trucker in the best possible conditions who actually likes his job, 0:20:29.040 --> 0:20:31.880 from Kansas City to Dallas and back in the middle 0:20:31.880 --> 0:20:34.480 of the winter. I slept in the cab for two nights. 0:20:34.840 --> 0:20:38.280 I watched this man have to worry about caffeinating enough 0:20:38.320 --> 0:20:41.000 so we wouldn't fall asleep at the wheel, and yet 0:20:41.080 --> 0:20:43.640