isEverything seems to have happened so quickly. Just a few months ago, the government was praising the speed at which Britain was emerging from the pandemic. But as the nights grew longer, there were empty shelves in supermarkets, soaring energy prices and queues returning from gas stations.
If there is a general feeling of bewilderment in all of this, then there really shouldn’t be. This is what happens when just-in-time methods of production collide with just-in-time government and turn a problem into a crisis.
The lessons were clearly not learned from the financial crisis of 2008. Second, it was the just-in-time banking system that saw its fundamental weakness exposed; that is, institutions did not have enough capital reserves to absorb losses. Today, a similar problem has affected production supply chains; there is not enough slack in the system to cope with an unexpected shock.
Just-in-time supply chains were designed around lean production and minimum inventory to reduce waste and costs. But while management consultants loved them, they really only worked in the good times. In the case of automobile production, the problem was a shortage of computer chips. In the case of energy, gas supplies failed to meet demand – particularly from Asia – as the economic recovery took hold.
No country in the world has been immune to bottlenecks, but Britain has suffered more than most. The reason is that a ‘skin-of-the-pants’ approach is ingrained in the UK system of governance, with an almost complete lack of planning and a messianic belief in market forces.
The lack of truck drivers is one example. The trucking industry has warned of problems for more than half a decade, telling ministers more drivers are leaving the industry than joining it, and that shortages would be exacerbated by Brexit. The government did nothing, even when the problem was made worse by the pandemic, and responded by offering 5,000 temporary visas to foreign truck drivers. It is a classic case of too little, too late. It will be interesting to see how many drivers will be attracted to the UK by the lure of (at most) two months of work. Well below 5,000 in all likelihood.
Ultimately, market forces will work. If the wages offered are sufficiently raised, the supply of new drivers will increase and the shortages will disappear. But they may not arrive in time to stock supermarket shelves for Christmas.
Likewise, the reason the UK is entering winter with its lowest gas stocks in a decade is lack of storage. This follows the 2017 closure of the Rough facility, which provided 70% of the UK’s storage capacity for 30 years, following a government decision not to subsidize costly maintenance and any upgrades necessary to keep the site in business.
Britain now has only 1% of Europe’s storage capacity, enough to cope with four or five cold winter days.
Sometimes the government is right. The leave, implemented at a rapid pace in the emergency conditions of March 2020 when the UK faced mass unemployment, is an example of just-in-time policy making that has worked. The success of wage subsidies, however, is the exception, not the rule. The cobbled together program to manage NHS waiting lists and long-term social care needs is much more typical.
Businesses tend to be faster than authorities at spotting trends and were already adjusting to a post-world just in time before the Covid-19 crisis. After decades of offshoring, production is brought ashore for four main reasons: the cost benefits are no longer as great as they used to be; the feeling that shorter supply chains mean less vulnerability to external events; a growing fear of China; and the push to reduce the carbon footprint.
But governments – including the UK government – are starting to get the message. Britain’s relations with China are much colder than they were when David Cameron was prime minister and Brexit has led to a willingness to embrace state aid and industrial policy.
The real test is yet to come, however, as after making the transition from a manufacturing sector to a dominated service sector at the end of the 20th century, the coming years are expected to see the transition to a low carbon economy.
The old coalfields and industrial centers of South Wales, the central belt of Scotland and parts of northern England are still scarred by the shock treatment administered in the 1970s, 1980s and early 1990s. It was not until the factories were bulldozed and the pits closed that much thought was given to what those affected by the loss of their livelihoods would do next. Ultimately, low-wage, precarious jobs replaced well-paying union jobs, with call centers replacing coal mines.
The damage done to these communities has never been repaired remotely, and this should be a lesson for the current generation of policymakers, as the transition to a low-carbon economy will be an equally painful affair if not. not treated with extreme caution.
One small advantage of the current chaos is that it should serve as a warning to proceed without a plan. The transition requires time, sensitivity, investment, collaboration between the public and private sectors, and a willingness to learn from the mistakes of the past.
It is a fantasy to expect such a profound change in the economy to occur without substantial disruption. The real question is whether the disruption is so painful that public support for net zero is running out. What is certain is that just-in-time will not be enough.