Global supply chain woes stemming from the Covid-19 pandemic are highlighting the fragility of globalisation, according to Steve Keen.
Keen, an honorary professor of economics at UCL (University College London), describes himself as a critic of mainstream economics.
In a Zoom interview with interest.co.nz from Thailand, Keen said countries opening up with 70% vaccination rates, which the Government of his native Australia has touted, will result in continuous Covid-19 outbreaks.
"This [Covid-19] is so contagious that 70% is not enough. I've seen estimates from a virologist that you need 90% of the population, that includes children, 90% vaccinated to stop the transmission link," Keen said.
"Opening up at 70% we're going to continue getting outbreaks, and then when the outbreaks happen you have to isolate because with the Delta variant if one person gets it then all their close contacts will get it. So this is going to mean continuous interruptions to the economy."
"So I see this as a series of booms and slumps in the economic data, but overall the trend is probably flatlining to falling because what this is doing is disrupting the global supply chain," said Keen.
The pandemic, he adds, is showing up the fragility of globalisation. With many big, especially US corporates, having shifted manufacturing to China, just in time warehousing and components of things like Apple's iPhone being made in dozens of different locations, "one outbreak anywhere is going to break that whole chain."
"Then with just in time you don't have much in the way of inventory in case there's a disruption. So it means production is incredibly fragile...We should have an anti-fragile system, not one that is easily broken down. To be robust you have to have buffers. It means you have to have short supply chains, and have to have stocks on hand. So if there are disruptions to the supply chain you can continue producing while you work out how to get around the disruption," said Keen.
"So I think what Covid is going to do is force production back onshore. And that's going to be extremely difficult because they've outsourced that production because they've lost the skill set. America is the classic example of that, but Australia, New Zealand, the UK...The Anglo-Saxon countries which fell for this neoclassical [economic] garbage more than the rest of the world did, are going to find it very, very hard to reestablish industries they've outsourced."
However, reestablishing industries in countries that have outsourced them would not be easy or quick to accomplish.
"It would take of the order of a decade. For a start you haven't got the engineers you need, so you've got to train them. And you probably haven't even got the staff to train them," said Keen.
"It will take you a decade to build back the manufacturing capability you've lost over the last four decades."
He acknowledges, however, that there isn't necessarily the political or public will to actually do this, saying mainstream economists will continue advising against it citing comparative advantage, which Keen describes as "the greatest load of codswallop in economic history." He says the public has lost that experience of working in factories, doing design.
'When it comes to some products you simply can't imagine doing the design yourself...Then we'd need to get to the stage where people are willing to sell designs rather than sell products. And that is a world we've never lived in, and it won't be easy to make that transition. But I think it will be necessary," said Keen.
Meanwhile, he doesn't expect to see sustained inflation, rather a collapse in demand.
"What I expect is a collapse in demand meaning many things we've taken for granted as a mass consumer item will cease being a mass consumer item. And that won't go down very well because people have got used to a comfortable lifestyle, an international holiday every year, a new car every five years etc, etc."
*Keen last spoke to interest.co.nz in April 2020 when he said a debt jubilee, universal basic income and the reversal of globalisation were three things he wanted to see in response to the Covid-19 pandemic. And you can see more from Keen here.
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