I’ve been watching the financial news as it relates to the Coronavirus.
Companies are having shortages of raw materials or vendor-supplied parts from China.
There is the beginning of a drug shortage from Chinese supplied pharmaceuticals.
The stock market is going down.
What are the talking heads on TV saying?
The next thing to happen is layoffs or reductions in force as companies try to cut costs as values take a dip.
This is the exact opposite, 180-degrees from right, absolutely wrong thing for companies to do right now.
The lesson that we should be learning is that we are overly dependent on China and South East Asia outsourcing. That has put our economy in a precarious position.
It could be another flu, it could be a war, it could be social upheaval, it could be a local economic collapse, nobody knows, but the next time that China has a major shakeup (which will happen eventually) it will topple our house-of-cards economy.
What American companies should be doing is spending money hard and fast to onshore supply. They should be dumping money into building stateside production and switching to stateside vendors.
They should be building economic breakwaters against a future Chinese economic typhoon.
After Hurricane Andrew, despite a major hit to the South Florida economy, billions were spent on infrastructure and upgrading buildings to new codes, to make sure the next time a Catagory 5 hurricane hit Miami, it wouldn’t wipe it off the map.
Subsequent hurricanes to hit Florida have, compared to Andrew, been minor inconveniences. The after-effects of Hurricane Andrew are a lesson in how to recover from a disaster correctly.
We should be applying exactly the same lessons to the Coronavirus economic disaster. We need to look at everything we are falling short on and immediately prioritize priority production of those items.
But we are not going to do that. Why?
Because since the rise of McKinsey, the idea of long term corporate stability has given way to an all-consuming focus on stock value.
Spending money today to prevent a company from tanking five or ten years from now when the next virus in China takes out its sweatshop slave labor force doesn’t boost this quarter’s stock value, so it won’t get done and instead, people will get laid off.
A smart CEO would say:
“We’re running out of just-in-time vendor-supplied parts from China. We need to build a machine shop, hire machinists, and start making those parts right now. This Coronavirus shit is only going to get worse.”
A CEO trained by McKinsey will say:
“Our stock value dropped 20% as we announced delays in production due to a parts shortage. RIF 20% of the company and let the shareholders know we’re cutting costs.”
Chasing stock values at a time like this is only going to worsen the economic crisis because you cannot fire your way to prosperity when the problem is sick Chinese workers not making parts overseas.
You would think that would be abundantly clear, but I guess that is the difference between learning Engineering Econ at a small midwestern tech school and earning a Harvard MBA.
If America ever gets to the point where we break out the guillotines to the C-suite executives, it’s because some company responded to running out of Chinese made parts in the middle of a virus outbreak in China by stopping production and firing its entire workforce instead of paying it’s machinists overtime to make the parts in house, because that’s what’s best for the shareholders.
Here is an actual economics expert says exactly what I just did:
— Paul Greaney (@PaulGreaney_NTD) February 28, 2020