Disconnected: Perils and Paradoxes of the Isolated Global Value Chain
DEVELOPMENTS
We live in a world so complicated that few anticipated the financial crisis that crippled the
world economy. Nothing stopped us from seeing the damage looming, and yet our most
esteemed economists, businesspeople, and politicians failed to predict it. Why didn’t we
see this crisis on the horizon beforehand? Why couldn’t we have acted to prevent it?
Answering these questions requires facing an unsettling truth: that the arrangement
of our financial and economic systems is almost as mysterious, complex, and
labyrinthine as any natural science. In many ways, we have even less capacity
for understanding economic systems, because natural sciences are governed by
processes that are reproducible and testable in laboratories, while economics is not
suited to such studies, being governed by irrational and unpredictable human behavior
within a changing environment impacted by billions of factors. We are excellent
economic historians, adept at developing post hoc explanations after the fact. We are
not skilled at doing it in advance, precisely when we really need it.
There are people who understand parts of the economic whole, but nobody is in a
position to single-handedly put it all together this very moment. Minute portions are
so complex that grasping the entirety would require the instantaneous processing of
constantly changing information, and a capacity for superhuman knowledge absorption.
We don’t even have computers that can manage the herculean task of collecting and
crunching those kinds of numbers at the rate necessary for us to make sense of it.
BACKGROUND
The complexity that has come to define our economic world is paradoxical, because
we tend to think of the ascent of rapid transit, satellite links, and the Internet as forces
shrinking the globe and increasing communication and understanding. However, these
same forces obscure the mechanics of the global economy through the sheer multiplicity
of inter-regional relationships, corporate partnerships, and business dealings, leading to
a tangled web-like global supply chain.
Just 50 years ago, an everyday household item in the United States was likely to be
made from raw materials, labor, and resources entirely from the United States; it is
now common for products to be cobbled together using the resources and labor of
numerous companies in multiple countries. With an exponential rise in the number of
consumer goods available globally, it has become difficult to understand exactly what
went into making any particular object. Where did the materials come from? How far
were the parts shipped? Were they sustainably produced? How much net pollution was
created? Were there human rights abuses associated with manufacturing this product?
As intermediary steps are introduced from production to consumption, the feedback
mechanism between economic action and global consequence becomes increasingly
unclear.
On the outskirts of New Delhi, India there is a tiny, impoverished village called Tila
Byehta whose economy revolves around the stripping and processing of e-waste
imported from countries like the United States. E-waste consists of discarded computers,
cell phones, and other electronic devices that contain highly toxic but expensive
and critical metals that can be reused to make new electronics. While Tila Byehta
benefits economically from processing this e-waste, we also know that e-waste is
highly carcinogenic, causes permanent neurological and reproductive damage, and
contaminates groundwater. But that matters little to the peasant workers in India who are
more concerned with their next meal than long-term health consequences.
Why is this village halfway across the globe littered with toxic waste shipped from the
United States? Because America’s social and economic footing on the global stage
facilitates the ability to pay others not only for manufacturing and production, but
also to absorb the costs, whether implicitly (as in the environmental costs of mining
copper for computer components in Chile) or explicitly (by making trade deals to ship
hazardous waste to India). The dominant paradigm in our global supply chain is a kind
of transnational NIMBYism, where the U.S. consumer can consume all the value, while
being alienated from social and environmental costs.
Modernity’s creation of rationalized industries has led to consumers being almost entirely
isolated from both the production and post-consumer sides for any given product or
service. It has also allowed those controlling the means of production to run factories by
proxy, without necessarily having to witness the extent of the damages they are tacitly
responsible for.
In an era of escalating environmental hazard, low-latency feedback mechanisms in
which our actions can be immediately seen as being causally-related to undesirable
social outcomes are crucial to preventing us from unwittingly supporting dangerous and
unsustainable practices.
Imagine that for every consumer good you purchase, you would be forced to discard all
related waste and packaging into your own home. There’s a very good chance that this
model would radically change your approach to consumption; for all value you consume,
you must also absorb the costs, forcing you to recognize the consequences of your
choices. It may make life harder, but it’s far less likely that you will be ambushed by an
unpleasant surprise down the road. Living in the Western Hemisphere, we many not
care about e-waste in India at the moment, but the earth is an interconnected ecosystem
where events in one place can have serious downstream impacts elsewhere.
The “glocalization” movement has embraced “think globally, but act locally.” The
sentiment is well-intentioned. As consumers, we should be reflecting on how our
actions affect our whole planet, while focusing on doing our part within our immediate
surroundings. But as an American, there is a good chance that you will never be
exposed to the concept of e-waste, much less that it’s a growing problem causing
serious injury to human populations. Because it is not happening in consumers’
backyards, only advocacy groups and activists are seriously thinking of human rights
abuses in Chinese factories or e-waste seeping into water in India.
Unfortunately, our system discourages us from thinking about such things, since we
rarely deal with real consequences directly. Even worse, our supply chains are so
long, convoluted, and opaque that it’s virtually impossible to find information when
one’s morals demand it. By contrast geographical proximity in traditional societies to
production and consumption bestowed the ability to monitor and adjust behavior to
maintain balance with the ecosystem and ensure the society’s health as a whole.
It becomes increasingly hard to view consumption-driven failures like the BP Gulf oil spill
simply as one-time, geographically limited disasters. Accounting for natural ecology and
the globalized supply chain, such failures can easily become systemic. With high levels
of interdependency, failure in one area creates unpredictable effects through unrelated
industries, societies, and environments. The BP oil spill was not just a disaster for BP’s
oil drilling and stock price. It impacted the fuel supply chain, which influenced oil markets
and increased transportation and heating costs. The spill ruined the Gulf fishing industry,
and crippled its tourism industry. Animals killed by the oil were integral to the food chain,
and affected the reproduction of marine life across the Atlantic. These are just a few
entities affected by this one disaster. Imagine the exponential effects that this might
have, once we take into account how the aforementioned groups interact with other
groups and industries that normally have no direct connection to the Gulf.
ANALYSIS
The BP disaster and the financial meltdown illuminate how we are approaching a future
where we, as individuals linked into the global supply chain and the global flow of capital,
are perpetually exposed to systemic risks. Yet, despite the alarming disconnect between
consumption patterns and very real threats of global ecological catastrophe, it is difficult
to imagine how our civilization might ever mitigate it. We rely on this chain in every
sphere. We require newer and faster computer components for economic growth, and
so need the copper that is strip-mined from developing countries; our transportation
infrastructure is dependent on foreign fossil fuels; nearly every item that populates our
Wal-Marts and Targets is manufactured thousands of miles away; and we enjoy eating
fruits and vegetables completely out of season, something the global supply chain is
happy to provide.
We tend to fixate exclusively on growth, profit, and convenience motives, rather than
balancing them with social and environmental costs– especially when these costs tend
to be intangible, elusive, and difficult to monetize. How do we put a dollar figure on a
systemic problem like the decline of the honeybee population, when the role of bees in
crop pollination is so crucial that no one in the agriculture industry ever conceived of the
possibility that they might be gone? Putting a dollar value on bees is like trying to cost
out your sense of sight; their work is so utterly irreplaceable that to assign a monetary
value is almost pointless. The value of such “natural services” in the U.S. has been
estimated at $33 trillion a year. The entire U.S. GDP is estimated at $14.26 trillion.
Such numbers highlight the true frailty of the global ecosystem. Unfortunately, there’s
no simple solution we can implement without severely scaling back many of the
positive developments of globalization and modernity. Some relevant ideas could aid in
solving this problem; each has a set of advantages, disadvantages, and challenges to
implement, but all are worth discussing:
• Stronger incentives for corporations to not outsource labor and manufacturing;
• VAT taxes incorporating social costs into product prices;
• Data that quantifies social impacts of products, which consumers can access at
point-of-sale;
• The “locavore” movement, encouraging consumers to voluntarily limit
consumption to products they know are made entirely within a certain
geographical proximity
These suggestions are serious ones, but they all seem quite inadequate for problems
requiring drastic shifts. Whatever we do, it’s important to do something, and ensure
that we are encouraging politicians, manufacturers, businesspeople, academics, and
consumers to develop engaging methods of reuniting the isolated regimes of production,
consumption, and post-consumption in our global ecology before it’s too late. There is, of
course, the distinct possibility that we’re already there and just haven’t realized it yet.
—
Rahul Kamath is a market researcher and analyst.
