The Basic Problem

I have a basic problem with Jeff Webb’s observations at Human Events:

While the idea of supply chain is often associated with manufacturing and the required parts needed to assemble something, the concept is much broader and simpler than that. Simply put, the supply chain (think visually of an actual linked chain) is every part of the process that gets what is needed to arrive at its final destination. That final destination is different for every participant in the economic product or service life cycle.

The Nobel Prize winning economist and champion of free enterprise, Milton Friedman, used to famously refer to the short, fable-like story known as “I, Pencil” written by Leonard Read and published in 1958. In that clever piece, Read traces the family tree of a typical wooden pencil. He mentions all the raw material required, the parts of the world from which they are mined or harvested, and how they are assembled. His point, which Freidman took to a much higher level, was that no one person in the world could make, or knew how to make, a pencil. Only a free marketplace could get all of the necessary components delivered to the final manufacturing point.

Wood, metal, graphite, the harvesting and refining of those items, the shipments of the various parts, and so on, are all part of the supply chain. For the pencil manufacturing company, the supply chain end point is the one at which all of the components necessary to make that pencil arrive. For the consumer who wants to buy a pencil, the supply chain ends when the pencil is placed on the store shelf for their purchase.

Use your imagination and you can instantly see how complex this is even for something as basic as a wooden pencil. Now, extend that to millions of products needed all over the world to produce necessities like food, gasoline, and appliances. Further complicate with the fact that the components for all of them come from all different parts of the world. The complexity is overwhelming. How, might you ask, can anyone figure out how to solve these problems.

The answer is that they can’t. The point Read was making and the point that Freidman rode to fame was that no central planner, no bureaucracy, no star chamber, no politician, can figure out how to choreograph a supply chain. It defies central design. It needs to be developed by individual participants in the marketplace, each acting in their own self-interest, and each finding a way to get that pencil to the shelf without ever necessarily envisioning a pencil.

Said differently, government can’t make pencils and it can’t stock shelves with bread. It can only cause people to wear out pencils filling out forms and create lines of people waiting for bread. Transportation Secretary Pete Buttigieg says that this supply chain problem could last for “years and years.” Years and years? We’ll starve! Buttigieg personifies the general level of incompetency throughout the Biden administration. The last thing we need to do is to deploy that incompetency to solve supply chain problems.

which is that it’s a free flight of fancy, a fantasy. When was this time when private businesses managed their own supply chains without any government involvement? Hint: not in my lifetime which is getting to be nearly a century. It wasn’t 2019 or 1979 or even in 1958 when the article to which Mr. Webb refers was written. The late Dr. Friedman couldn’t even remember such a time. We had them but you need to go back to the 19^th century when things were much, much simpler to find them.

The alternatives aren’t limited to a free and unfettered private enterprise on the one hand and centralized planning on the other. That is what is called in the trade the “tertium non datur fallacy”. The challenge lies not in freeing private enterprise to do what only it can do but in having appropriate regulations coupled with incentives to ensure that private enterprises will indeed do what they are better at than government.

No, we shouldn’t have a centrally planned economy but we shouldn’t have laissez-faire capitalism, either. The right solution is the messy, imperfect working of government together with private businesses that constantly needs readjustment and retuning.