The American Prospect #324

I D E A S, P O L I T I C S & P O W E R

A PROSPECT SPECIAL ISSUE

The Supply Chain Debacle How decades of bad policy slowed goods and raised costs

FEB 2022 PROSPECT.ORG

BONUS ISSUE, 2020 THE AMERICAN PROSPECT 35

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FEB 2022 VOL 33 #1

How We Broke the Supply Chain A Special Issue 3 How We Broke the Supply Chain

Rampant outsourcing, financialization, monopolization, deregulation, and just-in-time logistics are the culprits. By David Dayen and Rakeen Mabud

8 China: Epicenter of the Supply Chain Crisis

How concentrating dependence on China upended our economy and added risk

By Robert Kuttner

16 The Hidden Costs of Containerization

How the unsustainable growth of the container ship industry led to the supply chain crisis

By Amir Khafagy

22 We Were Warned About the Ports

A 2015 federal report predicted the entire slowdown that’s come to pass. By Alexander Sammon

28 How America’s Supply Chains Got Railroaded

Rail deregulation led to consolidation, price-gouging, and a variant of just-in-time unloading that left no slack in the system. By Matthew Jinoo Buck

34 Why Trucking Can’t Deliver the Goods

The yearly turnover rate among long-haul truckers is 94 percent. And you wonder why you’re not getting your orders on time? By Harold Meyerson

40 The Warehouse Space Race

With warehouse capacity at a premium, businesses try to get goods and move them out as global economic chaos disrupts long-held ideas about stocking stuff just in time. By Gabrielle Gurley

46 Big Business Games the Supply Chain

The disruptions, and the subsequent circumventions, have accelerated Amazon and Walmart’s takeover at the expense of independent retailers. By Rose Adams

52 Frackers Restrict the Flow and Raise the Price

After a decade of flooding the market with cheap fossil fuels, investors have cut back on production. By Lee Harris

58 Re-Engineering Our Supply Chains

It’s time for a coherent national logistics system, regulating and coordinating what has been privatized. By David Dayen

64 Parting Shot: Toy Story: The Supply Chain By Francesca Fiorentini COVER AND ILLUSTRATIONS BY PETER AND MARIA HOEY

On the Web

Visit prospect.org/ontheweb to read the following stories:

Check out the Prospect’s best stories from 2021, handpicked by members of our staff.

Labor Victories The Prospect’s best-in-class labor coverage continues with stories about unionized graduate students, victorious Starbucks baristas, striking pharmacists, and a prolonged walkout coming to an end at Kellogg.

Rollups

A new Prospect series looking at obscure markets that have been rolled up by under-the-radar monopolies. Read about monopolies in ammunition, hospital beds, and even psychedelic mushrooms.

Defending Roe

Contributors Scott Lemieux and Felicia Kornbluh analyze Supreme Court oral arguments in a critical abortion rights case. And Senior Editor Gabrielle Gurley interviews Michigan Attorney General Dana Nessel about the future of reproductive rights in America.

Financial Fight

Executive Editor David Dayen, Writing Fellow Lee Harris, and Co-Editor Robert Kuttner zeroed in on an obscure interparty battle at the Federal Deposit Insurance Corporation that will shape the direction of financial regulation in the Biden presidency.

How We Broke the Supply Chain Rampant outsourcing, financialization, monopolization, deregulation, and just-in-time logistics are the culprits.

By David Dayen and Rakeen Mabud

A

nyone old enough to remember the Cold War is familiar with a scene routinely depicted on U.S. television at the time: the Soviet breadline. Warning Americans about life under communism, these clips showed Russian citizens lingering forlornly outside businesses for hours to obtain basic goods—indelible proof of the inferiority of central planning, and an advertisement for capitalism’s abundance.

Breadlines, the Big Book of Capitalism assured us, could not happen in a market economy. Supply would always rise to meet demand, as long as there’s money to be

made. Only deviating from free-market fundamentalism—giving everyone health care, for example—could lead to shortages.

Otherwise, capitalism has your every desire covered.

Yet we have breadlines in America today, or at least just off our coasts. They consist of dozens of ships with billions of dollars of cargo, idling outside the Ports of Los Angeles and Long Beach, the docks through which 40 percent of all U.S. seaborne imports flow. “Ships” barely conveys the scale of these giants, which are more like floating Empire State Buildings, stacked high with multicolored containers filled

to the brim with toys and clothes and electronics, produced mostly in Asia.

The lines don’t end there, with worndown physical infrastructure and the lack of a well-compensated, stable labor force impeding cargo from getting unloaded at the yards, transferred to trucks or railcars, stored in warehouses, and transported to shops or mailboxes across America. As a direct result, for the first time in most of our lifetimes (provided we didn’t live in the former Soviet Union), we’re experiencing random shortages.

One day you can’t find bicycle parts; the next day it’s luxury watches or L.O.L. dolls; FEB 2022 THE AMERICAN PROSPECT 3

4 PROSPECT.ORG FEB 2022

Shortages and price hikes were brought to life through bad public policy coupled with decades of corporate greed. will blame fiscal-relief programs, large deficits, and loose monetary policies for making inflation worse. Nearly all will frame the matter as a momentary kink in the global logistics leviathan, which is bound to work itself out. Anyway, everyone got their Christmas gifts this year, so maybe it was overblown to begin with.

Almost none of these stories will explain how these shortages and price hikes were also brought to life through bad public policy coupled with decades of corporate greed.

We spent a half-century allowing business executives and financiers to take control of our supply chains, enabled by leaders in both parties. They all hailed the transformation, cheering the advances of globalization, the efficient network that would free us from want. Motivated by greed and

dismissive of the public interest, they didn’t mention that their invention was supremely ill-equipped to handle inevitable supply bottlenecks. And the pandemic exposed this hidden risk, like a domino bringing down a system primed to topple.

This special issue of the Prospect explains how this failure happened, and what it signifies. No American took a vote to trade resiliency for cheap socks; only a handful made the deliberate decisions that put us at the mercy of the world’s largest traffic jam. But we’re paying for the consequences of those decisions today, and we’ll continue to shoulder the dangers of the next supply shock, the next critical shortage, the next breadline. Unless we decide to take on the corporate interests that got us here and build a system that actually works for all of us.

The roots of the supply shock lie in a basic bargain made between government and big business, on behalf of the American people but without their consent. In 1970, Milton Friedman argued in The New York Times that “the social responsibility of business is to increase its profits.” Manufacturers used that to rationalize a financial imperative to benefit shareholders by seeking the lowestcost labor possible. As legendary General Electric CEO Jack Welch put it, “Ideally, you’d have every plant you own on a barge,”

WILFREDO LEE / AP PHOTO

then it’s cream cheese in New York City.

You might walk into a Burger King and see a sign that says “Sorry, no french fries with any order. We have no potatoes.” Or the fries will be soggy, because there’s not enough cooking oil. Common lab materials like pipette tips or the special plastic bags used to make vaccines may not be sold at the corner store, but shortages in these items arguably have an even greater impact on our lives in the age of COVID. Even if you missed the shortages, it’s unlikely that you’ve missed the clamor about increased prices. Inflation in the U.S. reached a 39-year high in December, eating into wage gains, straining people’s pocketbooks, and causing existential political headaches for the Biden administration.

Prices in Europe, the U.K., and elsewhere are also surging, and will surge for the indefinite future, as companies struggle to rescue goods from the maw of what we all know as the supply chain.

You could read hundreds of stories about this phenomenon, about the stress of longshoremen and supply chain managers and government officials, the consequences for consumers and small businesses and retailers, and superficial attempts at explaining why we got here. Many will tell you that the pandemic changed consumption patterns, favoring physical goods over services as barhopping and travel shut down. Some

EXECUTIVE EDITOR David Dayen FOUNDING CO-EDITORS Robert Kuttner,

Paul Starr

CO-FOUNDER Robert B. Reich EDITOR AT LARGE Harold Meyerson SENIOR EDITOR Gabrielle Gurley ART DIRECTOR Jandos Rothstein ASSOCIATE EDITOR Susanna Beiser STAFF WRITER Alexander Sammon WRITING FELLOWS Jarod Facundo, Lee Harris PROJECT MANAGER Abby Seiff INTERNS Ahmari Anthony, Connor Bulgrin,

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able to escape any nation’s wage, safety, or environmental laws.

In place of the barge, multinationals found China, and centralized production there. This added new costs for shipping, but dereg ulating all the industries in the supply chain could more than compensate. Big companies got the law changed to enable ocean carriers to offer secret discounts in exchange for volume guarantees. Trucking and rail deregulation in the Carter administration eliminated federal standards and squeezed workers, who to this day continue to endure low pay, erratic schedules, wage theft, and rampant misclassification. When trucking was regulated and union truckers earned decent pay, there was no shortage of drivers. And a new religion called “just-intime” logistics was founded, on the theory that companies could produce exactly what customers demanded and create a supply chain so efficient it would virtually eliminate the need to keep reserve inventory at the warehouse. This kept down costs of production and distribution.

Feeding on these trends was a wave of consolidation, also based on theories of efficiency. Manufacturers and retailers increased market share and empowered offshore production giants like Foxconn.

The component parts of the supply chain concentrated as well. Ocean shippers slotted into three global alliances that carry 80 percent of the cargo; 40 rail companies narrowed to just seven, and they carved up regions of the country, so most freight shipping has at most two choices.

Behind all of these choices was Wall Street, insisting on more profit maximization through deregulation, mergers, offshoring, and hyperefficiency. They demanded that companies skimp on long-term resilience, build moats around their businesses by undermining or buying up rivals, adopt practices that kept inventories lean, break down the social contract between employers and workers that offered economic security, and return outsized profits to shareholders.

Financiers built our supply chain to enrich investors over workers, big business over small business, private pockets over the public interest.

These policies caused innumerable harms long before the whole system collapsed during the pandemic. Entire regions of the country were abandoned for cheap foreign labor, and the drive for profit maximization 6 PROSPECT.ORG FEB 2022

facilitated a race to the bottom when it came to labor standards around the world, including the U.S. The transition to a service economy shuttled people into dead-end, lowwage jobs that are among the most brutal and undignified of any industrialized nation.

Meanwhile, in the supply chain, longrunning declines in unionization rates, coupled with a drive toward reliance on precarious labor meant that workers toil for less, like truckers who don’t get paid while waiting for loads. The bifurcated economy tilted mightily toward the wealthy, with displaced workers easy prey for Trumpism.

Locating manufacturing plants based on which countries allowed the most environmental degradation, and shipping goods globally from there, exacerbated the climate crisis.

But here was the bargain: In exchange for funneling all this money upward, hollowing out the industrial base, ruining competitive markets, and worsening U.S. jobs, businesses would keep consumer prices low. And low prices have a definite psychological pull. That belief in getting more for less, of perceiving that you’ve beat the system, was enough to keep people reasonably satisfied. If you are stuck with low wages, you depend on low prices. As

long as shelves were stocked, and America’s desires were covered with overseas goods, this radical reinvention of the supply chain kept us fulfilled. Until it didn’t.

If you paid attention, you could spot how this knife-edge system could be thrown out of balance. Consolidating production and relying on long, complex logistical chains magnified the slightest disruptions.

An earthquake in Taiwan in 1999 cut off supplies of the world’s semiconductor chips, which were mostly produced in that country.

Barry Lynn, then a business reporter, was practically the only person to notice, tracing it back to this revolution in policy that built fragility into the economy. (He offered his warning in the pages of the Prospect in 2007, but unsurprisingly that didn’t move elite economists or corporate America.)

Other localized shocks ensued, from a videotape shortage in 2011 to shortages of IVs, essentially salt and water in a bag, in 2017. After Superstorm Sandy, local food distribution systems in New York City veered toward collapse, a risk that lingered for years. Few connected this to a badly designed system, with its disinvestment in national production, reliance on exploited labor, and corporate extraction that has weakened our responsiveness to crises. No

KEVIN DRUM

A container ship parked at the Port of Long Beach, 2021

Our supply chains were designed for maximum profit rather than reliably getting things to people. engineer would construct a supply chain with this many vulnerabilities, with this little resiliency.

And when the first of many lockdowns due to coronavirus was rolled out in Wuhan, appropriately a manufacturing hub known as “the Detroit of China,” we all learned why. COVID, in other words, was the straw that broke the camel’s overstretched and under-resourced back.

Just like that, the bargain was broken.

Not only did Americans get the bad jobs, the left-behind regions, and the soaring stratification between rich and poor— when the supply chain broke down, they lost the low prices, the only compensation for all these other horrors. Economists like Larry Summers and other defenders of the status quo base their entire worldview on low prices trumping all other harms. Their fatal miscalculation has them seeking other scapegoats, like government spending or Federal Reserve policy. Their policies of deregulation and corporate globalization built this monster. Now they’re trying to scratch their name off the dedication plaque. But if we’re to put people over corporate profits, we must call out this design failure, and redesign it to prevent future catastrophes.

Because our supply chains were designed for maximum profit rather than reliably getting things to people, the problems that arose in the pandemic folded in on themselves. Shifting consumption from services to goods accounts for part of the problem, but that began two years ago and the system has been unable to adjust.

In fact, things have grown worse from year to year, because none of the private players involved with the supply chain has any incentive to fix it. Ocean shippers made nearly $80 billion in the first three quarters of 2021, twice as much as in the entire ten-year period from 2010 to 2020.

They’ve increased freight rates up to tenfold

and can keep those prices high if ships are idling outside the ports, artificially reducing capacity. Shortages of chassis and containers that transport goods by truck or boat enable firms to increase fees on what loads they can move. Trading futures that track shipping rates have enriched hedge fund managers in the past year.

Retailers, too, have capitalized on supply shocks and the subsequent inflation. From Macy’s to Kohl’s, retailers are hiking prices on consumers while engaging in massive buybacks to enrich their CEOs and shareholders. The biggest have guaranteed their own supplies at the expense of rivals, further consolidating markets. This has set the stage for another hidden wealth transfer, as inf lation masks what any reasonable observer would identify as price-gouging.

Corporate profit margins are at their highest level in 70 years, and CEOs cannot help but tout in earnings calls how they have taken advantage of the media commotion around inflation to boost profits.

“A little bit of inflation is always good in our business,” the CEO of Kroger said last June. “What we are very good at is pricing,” the CEO of Colgate-Palmolive added in October. Inflation is being enhanced by exploitation, with companies seeing a “once-in-a-generation opportunity” to raise prices. And coordinated price movements by the handful of companies offering necessities in concentrated markets offer few options for escape.

Meanwhile, smaller companies exper­ iencing supply chain uncertainty have been double-ordering out of desperation, hoping that something can pull through the gauntlet. This further snarls supply chains and introduces even more risk into the system.

The slightest economic downturn would turn shortage into glut, leaving retailers stuck with inventory they cannot sell.

An unstable supply chain breeds vulnerability: for consumers, for workers, for businesses, and for our economy. Supply chains are a microcosm of the wildly imbalanced power dynamics in our economy.

In the same way that our dysfunctional supply chains end up crushing the economic security of low-income people of color, our economy has been broken for these historically marginalized groups for decades. Addressing the myriad challenges that destabilized the supply chain— from deeply consolidated industries rife

with overextended corporate power to the complete disregard for worker rights and a healthier climate—is an important step toward reorienting our understanding of economic health from one that is flush with cheap goods to one where people are prioritized over profits.

Public debate hasn’t focused enough on how we drifted into this vulnerability. That’s what this special issue is designed to illuminate. We take a journey through the supply chain, from offshored production facilities, to mega-container ships, to ports bursting at the seams, to deregulated rail and trucking services, to warehouse way stations, to retail and commodity profiteers.

The stories lay out how this breakdown sprung from explicit choices, not a oncein-a-lifetime virus or some other natural disaster. The pandemic was a catalyst, not a cause. Corporate interests structured a supply chain that can’t withstand shocks, can’t meet increases in demand, and invites profit extraction in moments of crisis.

We cannot resolve these hazards by raising interest rates, cutting spending, and pushing more people into unemployment. We must instead attack the root causes: the prodigious downsides of rampant outsourcing, financialization, monopolization, deregulation, and just-in-time logistics. That means investing in our economic security, building in supply redundancies, fighting concentrated power, and making markets work for workers and consumers rather than Wall Street accounts and corporate treasuries.

The Biden administration inherited a halfcentury of bad policy; they need to summon the fortitude to reverse it, and while they’ve gotten started, it won’t happen overnight.

Economic elites have ripped off the public and put us in danger for too long, and they did it largely undetected. We are in the midst of a unique crisis that has clarified the vulnerabilities of this system like never before, and the untold story of corporate takeover and catastrophe ought to trigger a rethinking about whom an economy should serve. Now’s our chance to flip the script and start building toward an economy that truly works for all of us. We the people didn’t make these choices, but together, all of us can command change. n Rakeen Mabud is the chief economist and managing director of research and policy at Groundwork Collaborative.

FEB 2022 THE AMERICAN PROSPECT 7

China: Epicenter of the Supply Chain Crisis How concentrating dependence on China upended our economy and added risk

BY ROBERT KUTTNER Early on in the COVID pandemic, indelible images began to appear of medical personnel wearing trash bags for protection instead of hospital scrubs. It was indicative of unprecedented nationwide shortages of basic medical supplies, particularly PPE (personal protective equipment), such as surgical gloves, masks, face shields, gowns, and hand sanitizer.

Why the abrupt scarcity? Initially, it wasn’t due to increased global demand.

Wuhan, China, where the COVID outbreak began, happens to be a major center of production and export. The Chinese government, a dictatorship that can make draconian decisions instantly, decided not to fool around. On January 23, 2020, when there were still few U.S. cases, the Chinese state shut Wuhan down, including all transport in or out. Some 11 million people in and around the city were under quarantine.

Just west of Wuhan, in Hubei province, is Xiantao, the site of China’s largest manufacturer of nonwoven fabrics used in the production of PPE. An alarming percentage of PPE was made in China, even if the nominal vendor was a U.S.-based multinational corporation, such as 3M. The quarantine blocked not just products made in the Wuhan area, but also exports originating elsewhere that had to pass through Wuhan 8 PROSPECT.ORG FEB 2022

to get to the ports. Twelve other cities in Hubei province, with a total population of 60 million, were subjected to similar restrictions.

Other Chinese responses to the pandemic emergency disrupted production more broadly, extending the supply chain crisis from medical supplies to the larger economy. Travel restrictions prevented workers who had gone home for the Lunar New Year from returning to work. China’s “floating population” of rural migrant workers is estimated at 288 million, or about one-third of its labor force. Ports were also suddenly short of workers, causing exports to pile up on docks.

In addition, the Chinese government, realizing that it would soon face a mask shortage at home, sent out a call via the Communist Party’s United Front Work Department to have Chinese people living outside the country buy all available PPE and send it to China. By mid-February, as other nations were just beginning to appreciate the impending shortage, overseas Chinese had already sent some 2.5 billion PPE items to China, including two billion masks.

Shortages only worsened as the pandemic took hold. By March 3, 2020, the World Health Organization issued a warning of “severe and mounting disruption to the global supply of personal protective

equipment (PPE).” This revealed itself in both monthslong delivery delays and inf lation: Prices for surgical masks increased sixfold, N95 respirators tripled, and gowns doubled. Bidding wars and market manipulation proliferated.

China’s extreme quarantine measures have continued into the omicron era. In the Yangtze River Delta, a vital manufacturing center south of Shanghai, outbreaks of COVID in December led to government restrictions on movements in the cities of Hangzhou, Shaoxing, and Ningbo until March 2022, causing factories to cut production. Ningbo is also one of China’s largest container ports. China’s zero-COVID policy is so strict that the Ningbo port, the third-busiest in the world, shut down for two weeks last summer because of one worker’s infection.

So, from the very beginning of the pandemic, China has played a bottleneck role unique in the world, both as a producer and as a consumer. The reason why involves decades of decisions made at the highest levels of public and corporate policy, with devastating

consequences for American workers, consumers, businesses, communities, and our national security.

China is now the world’s second-largest economy, and the world leader in manufacturing, with 28.7 percent of all manufacturing output, compared to 16.8 percent for the U.S. China’s trade surplus with the U.S. in manufactured goods has grown from $83 billion in 2001 to $310 billion in 2020. This relentless increase in export penetration cost U.S. workers an estimated 3.4 million jobs between 2001 and 2017, and put downward wage pressure on the jobs that remained.

The cascading effect on entire communities was devastating. China’s mercantilist strategy was facilitated by its 2001 entry into the World Trade Organization, exponentially increasing the world’s reliance on Chinese

manufacturing.

The precarious system of just-intime production coupled with extensive offshoring predates the rise of China as global economic superpower. The strategy of keeping minimal inventory and outsourcing production to far-flung global supply chains became fashionable in the late 1970s. This occurred in the same decade that key elements of the global system for shipping goods from producer to final destination were deregulated—trucking, rail, ports, and later ocean shipping—leaving the world with a less coherent logistics system and more of a series of privatized segments. It was a supply chain with poorly connected links. Just-in-time production was cheered in business schools and on Wall Street as a source of greater efficiency. But this myopic analysis left out the catastrophic risk of

supply chain disruption, a risk that was magnified as so much global supply became increasingly reliant on China.

Take, for example, so-called rare earth minerals. According to the Department of Energy, China refines 60 percent of the world’s lithium, 80 percent of the world’s cobalt, and mines 68 percent of the world’s graphite, three core inputs to high-capacity batteries. China’s battery industry has also benefited from at least $100 billion in direct government subsidy.

This advantage in high-capacity batteries and their raw materials in turn creates a competitive advantage that China will exploit as the world moves to electric vehicles. China already outproduces the U.S. in vehicle production generally. The U.S. built about 15 million cars overall in 2021, compared to China’s 24 million.

FEB 2022 THE AMERICAN PROSPECT 9

And China is moving rapidly to displace other makers of electric vehicles. Thanks to cheap labor and state subsidy, China can sell an electric car for about $15,000 less than the cheapest comparable U.S. car. And, amazingly, made-in-China electric cars still qualify for the $7,500 tax credit in the U.S. China has also subsidized its huge domestic market to promote sales of electric cars, trucks, and buses. In 2018, China’s electric bus fleet comprised 421,000 out of 425,000 buses overall. The entire U.S. electric bus fleet totaled just 300 vehicles.

Rare earths are used not only in production of batteries but in other advanced products, including metal alloys, jet engines, camera lenses, turbine blades, optical fiber, advanced magnets, and a great deal more. China is estimated to control 55 percent of global rare earths mining capacity in 2020, and 85 percent of rare earths refining.

Through its Belt and Road Initiative, China trades investment in development of ports, railroads, roads, and other infrastructure for preferential access to raw materials. China is using this strategy to capture control of even more of the global supply of rare earths. In the case of cobalt, where China has reserves but is not selfsufficient, Chinese companies have actively pursued equity positions or outright ownership in cobalt assets in the Democratic Republic of the Congo, Papua New Guinea, and Zambia.

One can tell the same story across the value chains of one sector after another. We see increased Chinese capacity, increased U.S. reliance on China, and importantly, declining U.S. competence. For example, the fact that the U.S. has ceded so much production of consumer electronics to China has resulted in the erosion of the entire domestic microelectronics ecosystem. As a Department of Defense report put it, citing the case of printed circuit boards, which interconnect circuits in electronics systems: “Today, 90 percent of worldwide printed circuit board production is in Asia, over half of which occurring in China; and the U.S. printed circuit board sub-sector is aging, constricting, and failing to maintain the state of the art.”

A separate Defense Department review of the supply chain for minerals and materials critical for the national defense found that of all the nations of the world, only China has mastery of every step in the supply and 10 PROSPECT.ORG FEB 2022

production of all key minerals, from mining and extraction to purification, metallurgy, refining, and finishing.

What domestic industry remains in the U.S. is heavily dependent on inputs made in China. So these businesses become part of the China lobby, pressing the administration to lift tariffs and opposing national-security restrictions on Chinese exports. The Biden administration has made some encouraging moves to recapture manufacturing capacity.

But due to the reliance of so many producers on China, the counterpressures to maintain the status quo are fierce.

Take solar. As Joan Fitzgerald reported in the Prospect, the U.S. currently has almost no production capacity for solar cells, while China produces 80 percent of the world’s output. In 2020, China also accounted for 99 percent of global wafer production, 75 percent of global module production, and 64 percent of solar-quality polysilicon capacity—all substantial increases over its market share in 2010. So if the U.S. were to pursue a reshoring strategy, it would need to regain production capacity, not just in finished solar cells but in the inputs that go into their manufacture.

All this creates immense pressure to stick to the status quo, since the dominant lowcost producer is China. Whenever the U.S. government proposes strategies for favoring or rebuilding domestic solar production, they are fiercely resisted by the Solar Energy Industries Association, ostensibly a domestic group but actually one riddled with Chinese producers and suppliers.

Given Chinese state subsidies combined with cheap Chinese labor, purely domestic solar panels are more expensive to end users, at least for a prolonged interim period until the U.S. regains capacity at scale. If China can create enough such dependency and interlocks, blurring who is domestic and who is Chinese, reviving domestic leadership becomes all but impossible.

In the case of pharmaceuticals, many of the scientific advances that make possible modern lifesaving drugs are the result of U.S. spending via the National Institutes of Health. But the profits go to giant drug companies that commercialize these scientific breakthroughs. And the industry is in turn reliant on offshore production to provide the materials needed to produce drugs, known as active pharmaceutical ingredients (APIs). According to the Depar tment of Health and Human

Across one sector after another, we see increased Chinese capacity and declining U.S. competence.

Services, only about half of the 120 vital pharmaceutical products registered with the FDA have any domestic production capacity. China is only one foreign supplier among several, but coming on fast.

This heavy reliance on foreign sources is not only alarming per se. It creates a kind of path dependence that precludes alternative policy regimes. Suppose the U.S. government wanted to use the Defense Production Act to develop lifesaving drugs directly and put them in the public domain for widespread cheap production. It would run into not only fierce political opposition from the pharmaceutical industry, but the practical problem that the U.S. does not produce sufficient ingredients.

An important research report published last October, “Factory Towns,” pointed out that factory jobs “tend to be higher paying and often offer health care, union membership, and other benefits like pension plans, deferred savings vehicles, etc. that help build wealth and financial security. Manufacturing job growth in the three decades following the end of WWII helped build a growing, thriving American middle class.”

Thanks to multiplier effects, these good paychecks cycle through the entire community, creating broad prosperity. When that cycle goes into reverse, the entire local economy craters. And, as the report documents, these economic effects have dire political consequences. The loss of support for Democrats between 2012 and 2020 was heavily concentrated in working-class counties in ten Midwestern states that had lost large numbers of factory jobs.

The reliance on China is a disaster from the perspective of U.S. economic security and leadership in production. But as a source for products and product inputs, the corporate appeal of China is obvious. Wages are low, workers have few rights, and there is minimal health, safety, or environmental

WANG GANG / AP PHOTO

Extreme weather events, like flooding at the Yangtze River in summer 2020, have curtailed Chinese production as much as the pandemic. regulation, as well as plenty of new investment-banking business for Wall Street.

Even better, the state and the Chinese Communist Party could quickly ramp up production as needed to meet U.S. just-intime demands.

Yet by definition, such a system has little if any reserve capacity. Any disruption gets magnified and rattles around the world, creating volatility and instability that can show up in shortages and increased prices.

This system was a crisis waiting to happen—awaiting just the right event, or series of events. The pandemic certainly triggered the supply mess we are now dealing with.

But interestingly, the strains on the Chinese system were not caused by COVID alone.

Throughout the pandemic, China has had to curtail production because of extreme weather events and energy shortages, which in turn have resulted in factories going dark. In the summer of 2020, the Yangtze River f looded into Wuhan and surrounding areas, shutting down PPE production. In May 2021, extreme heat in Guangdong province, a major manufacturing hub with a GDP equal to South Korea’s, led to increased air conditioner use, leading

in turn to power outages and government restrictions on factories.

China’s electricity regulation is rudimentary. Increased power costs may not be passed along to consumers. So rather than relying on higher prices to promote conservation, the government restricts factory hours. The spring heat was followed by summer droughts, which reduced available hydropower, exacerbating the energy shortage. Factories, facing higher input costs, also raised prices.

By the fall of 2021, mandated cuts in energy use were still increasing, with more than half of China’s provinces limiting electric power. No other major trading nation had any such policy reducing factory production.

And no other country is as important to the global manufacturing supply chain.

It’s worth noting that China’s lax environmental standards, a major attraction for multinationals due to the lower cost of production, played a role in worsening the climate, leading to the very extreme weather events that knocked out production. None of these costs are ever factored into the choice of where to locate a factory; instead, we all pay the price.

These production-limiting events would not have had such domestic knock-on effects were America not so reliant on China. The central role of China in the supply chain crisis sheds light on both the flaws and risks in the overall system and the special perils of heavy dependence on one source of supply.

This is even more risky when that source is a dictatorship that has escalating geopolitical conflicts with the United States, and that has demonstrated its willingness to use economic weapons.

These weapons have not been explicitly deployed against the U.S. yet, but China’s intermittent economic squeezes on Australia are the canary in the coal mine. Over the past 15 years, Beijing has regularly cut off Australia’s access to vital raw materials whenever it didn’t like a policy of the Australian government. That literal playbook, which was given to Western intelligence by a Chinese defector, Chen Yonglin, in 2005, reads like a dress rehearsal for a get-tough policy with the U.S. We are already close to a tipping point of perpetual dependency that China will continue to exploit.

In short, if you wanted to pick a single nation as a dominant offshore source of FEB 2022 THE AMERICAN PROSPECT 11

supply, a dubious proposition in any case, China is the worst possible candidate. The supply chain crisis puts that reality into sharp relief.

Even where China isn’t dominant, it is attempting to wrest control. For example, a good deal of the current supply crunch results from a shortage of semiconductors, which are used ubiquitously in products from cars to cellphones to appliances. U.S.-based semiconductor companies, including such crown jewels as Intel, now do most of their actual production in East Asia, to take advantage of state subsidies for new production facilities, known as “fabs,” and cheap labor.

The semiconductor industry is complex. It includes many different types of chips, as well as inputs and machines for semiconductor manufacturing. The U.S. is losing capacity at every link in the chain. U.S. global share of semiconductor production is now just 12 percent, down from 37 percent in 1990.

In the immediate crisis, some of the disruption and shortages were once again the result of extreme weather events or random outages that were worsened by the just-intime production strategy. A fire occurred in March 2021 at a Japanese semiconductor plant that, astonishingly, produces 30 percent of all the microcontrollers used in cars. In Taiwan, the world’s top producer of many categories of chips, the worst drought in half a century cut semiconductor production, which requires vast quantities of water.

Obviously, such weather events, which will only intensify, would be less damaging if there were more diversified sources of semiconductor supply close to home.

For now, other Asian producers, notably South Korea and Taiwan, outrank China.

But China, with 16 percent of worldwide production capacity, is expected to hit 28 percent by 2030. In 2019, of six new major semiconductor production facilities in the world, four were in China and none in the U.S. In 2018, China accounted for more than half of worldwide construction spending on fabs. In 2019, total announced Chinese investments in fabs exceeded $215 billion.

This dwarfs the scale of money even the largest private-sector firms, such as Intel or Samsung, can invest. No other nation is spending anything like this.

China is also increasingly dominant in the materials that go into the fabrication of semiconductors. A key input is polysilicon, where China now accounts for more than two12 PROSPECT.ORG FEB 2022

thirds of world production capacity. The U.S. has 9 percent. China is also the main source for two other materials crucial to semiconductor production, gallium and indium.

Due to China’s dominance in consumer electronics assembly, U.S. chip-makers are also reliant on China for sales revenue.

Qualcomm gets two-thirds of its revenue from Chinese customers such as electronics companies, and Micron 57 percent. A June 2021 supply chain report to President Biden warned: “Heavy reliance on sales to China provides the Chinese Government with economic leverage and the potential to retaliate against the United States.”

Dependence on foreign sourcing of chips is a general problem. But other offshore sources of semiconductors, mainly South Korea, Taiwan, and Japan, are basically American protectorates and not about to engage in economic warfare against the U.S. The dynamics of the supply chain give China an immense advantage in what the Chinese state views as a global struggle for economic hegemony. If the U.S. is attempting to recapture technological leadership or a larger share of production in key sectors, whether for economic or national-security reasons, we begin at a huge disadvantage if key inputs come only from China—even more so if China begins threatening to withhold such materials as economic leverage.

For the most part, China’s own economy has no such problems. Most of the core ingredients in its own production chain are from domestic Chinese sources, and priority goes to Chinese end users. Extreme weather events and other disruptions that reduce Chinese capacity diminish their domestic supplies, but at a much more muted level than the rest of the world, due to that prioritization.

So in addition to the other imbalances in the U.S.-China economic relationship that favor China, supply chain shortages disadvantage the U.S. and help China.

Because of the heavy reliance of U.S. producers on Chinese sources of supply, and the prevalence of “partnerships” in which U.S.-based corporations produce in China and benefit from Chinese subsidies and cheap labor, there is not much of a corporate constituency for a tough, coherent policy to reshore production and crack down on Chinese government abuses. The Biden administration policy on supply chains and domestic production is a vast improvement on that of any postwar Democratic

U.S. global share of semiconductor production is now just 12 percent, down from 37 percent in 1990. president. But U.S. public and corporate policy is a house divided against itself.

On the positive side, the White House’s June 2021 report on reclaiming supply chains and domestic production is the most impressive, detailed, and forthright call for economic planning since World War II. It gives a comprehensive picture of the state of U.S. manufacturing and reliance on offshore supply chains in four key sectors, warns explicitly about overreliance on China, and calls for a frankly economic nationalist strategy of reclaiming domestic production. It suggests a drastic and welcome shift in U.S. government awareness, ideology, and policy.

But other Cabinet departments sometimes undermine this effort. Last August, a group of the last remaining U.S. solar manufacturers petitioned the Commerce Department to investigate China’s deceptive practice of transshipping solar products made in China to the U.S. via such countries as Malaysia, Thailand, and Vietnam, to circumvent tariffs on Chinese solar exports that were ordered after extensive antidumping investigations. But the Commerce Department was subjected to an extensive lobbying campaign by both Chinese solar companies and their U.S. customers, as well as a letter by 12 Senate Democrats echoing the talking points of the Chinese solar industry. In the end, the Commerce Department took no action.

The administration has been subject to intense lobbying by industry and its allies to reduce or suspend tariffs on Chinese exports that were first imposed by President Trump.

These tariffs serve as a rough offset to the extensive Chinese government subsidies of export sectors. In addition to creating more of a level playing field for unsubsidized U.S. producers, they create general bargaining leverage for a broader challenge to China’s worldwide mercantilist tactics.

President Biden has retained the tariffs, for now. But not only do domestic corporations

Medical Emergency Supply chain disruptions reduce availability of critical medical devices.

By Esther Eriksson von Allmen As the pandemic forced workplaces and schools to switch to telecommuting, demand for computers, smart home devices, and other electronics has soared, contributing to a global shortage of semiconductor chips.

Made from silicon and as small as an inch in diameter, these tiny chips function as the “brain” for important tech devices and consumer products, including smartphones, cars, computers, and dishwashers.

Only a fraction of the global supply of semiconductor chips goes toward the medical technology industry, but that figure still represents a huge number of products. And disruptions in the supply chain for medtech have greater implications than making people wait for their new iPhone; they have the potential to seriously compromise patient care in the United States.

A September 2021 study by Deloitte, which surveyed some of the largest U.S. medical technology companies, found that two-thirds of companies have semiconductors in over half of their products. Over 75 percent of companies reported delays, and over 60 percent reported reduced order quantities in their chip supply chains.

“We are hearing that equipment delivery, which historically has never been an issue, is now a concern,” Michael Schiller, senior director of supply chain at the Association for Health Care Resource & Materials Management, told the Prospect in an email. According to Schiller, product lead times have increased significantly, in some cases up to six to nine months, for defibrillators, CT scanners, and patient monitoring and telemetry equipment. Oxygen delivery systems such as CPAP and BiPap units are also becoming less available, which could potentially impact the patient discharge processes.

Semiconductor chips are just one of many products dealing with delays and disruptions in the overall medical supply chain. Currently,

between 8,000 and 12,000 industrial containers filled with millions of critical medical supplies, such as gowns, syringes, and surgical gloves, are delayed by an average of 37 days at ports across the country. Hospitals have also reported supply issues with catheters, crutches, gloves, syringes, needles, tubing, suction canisters for medical waste, and urine cups. In late November, a shortage of urine collection kits forced a Minnesota hospital system to find other alternatives, including ordering individual parts to make their own makeshift kits. However, because some of the

the case of the medical supply chain, can pose serious threats to patient care.

New legislation introduced last summer aims to tackle this problem and prevent future supply chain disruptions. The Creating Helpful Incentives to Produce Semiconductors for America (CHIPS) Act allocates $52 billion in federal investments to subsidize American semiconductor manufacturing plants, and the Facilitating American-Built Semiconductors (FABS) Act offers an investment tax credit on domestic semiconductor design and manufacturing. Neither bill has made it through ConTwo-thirds of medical technology companies have semiconductors in over half their products.

urine cups do not fit in the normal hospital tube system, hospital workers must take the urine samples to the lab themselves, diverting time and attention away from patients.

Currently, the two largest manufacturers, Taiwan Semiconductor Manufacturing Company and Samsung, hold 72 percent of the market share. Overreliance on these overseas manufacturers can make supply chains more vulnerable to market fluctuations, which, in

gress yet, prompting 59 corporate execs to sign a letter urging Congress to pass the legislation.

“Medical devices is only a sliver of the overall chips market,” wrote AdvaMed, an American medical device trade association, in a separate public comment to the Chamber of Commerce in early November, “but it is undeniably a critical sector that supports our national security.” n

FEB 2022 THE AMERICAN PROSPECT 13

China produces 80 percent of the world’s solar cell output.

14 PROSPECT.ORG FEB 2022

ible effect on inflation, and Biden would be ridiculed if he said so.

Some U.S.-based companies, such as Amazon and Tesla, have begun to emulate China by seeking to develop their own proprietary supply chain networks. But few companies have the reach of a Tesla or an Amazon. Tesla has made deals with the French colony of New Caledonia, off the coast of Australia, to assure itself plenty of nickel, a vital ingredient in high-capacity batteries. But Tesla has divided loyalties.

This nominally American company does deals with China, produces in China, and even opened a showroom in Xinjiang province, site of the cultural genocide against the Uyghurs. Chinese companies, by contrast, have loyalty only to China. And Chinese producers are advantaged by a master strategy on supply chains orchestrated by their government, something that doesn’t yet exist in the U.S. In sum, the whole system of just-in-time offshoring, with China at its center, has been an economic and political failure. It has ruined communities, discredited Democrats as champions of working people, and left the

The system of just-intime offshoring, with China at its center, has been an economic and political failure. entire economy far more fragile to shocks.

It did not even deliver its promise of greater efficiency. Rather than producing more price competition and consumer choice, the system facilitated greater concentration and market power.

Disengaging from China will be an arduous process. They play the game much more strategically than Washington does. Beijing has a domestic U.S. lobby doing its bidding, with no counterpart complicating its policies or goals at home. But if the supply chain crisis has called attention to the folly of the U.S.China status quo and America acts accordingly, that will be a silver lining. n

AP PHOTO

want tariff-free inputs; some of his own appointees have called for a rollback. The most egregious of these is his Treasury secretary, Janet Yellen. On several occasions, Yellen has opined that tariffs function as a tax on consumers. Yellen is evidently oblivious to the White House effort to reshore production, and the use of tariffs as vital leverage in that enterprise. Someone, ideally Biden himself, needs to remind Yellen who she works for.

This effort is tough enough without being undercut by the president’s own Cabinet.

In addition, others on Biden’s economics and communications staff have been pushing the idea that rolling back some of the tariffs could cut the rate of inflation by reducing prices to consumers. As I have pointed out, not only is that bad China policy; it is bad arithmetic. The tariffs total less than $80 billion a year, in a $21 trillion economy. Some of the costs are absorbed by U.S. companies. If all of the China tariffs were ended, that would be one-third of 1 percent of GDP. The actual proposed cuts are less than one-tenth of 1 percent of GDP. So reducing tariffs on China’s exports would have no discern-

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The Hidden Costs of Containerization How the unsustainable growth of the container ship industry led to the supply chain crisis

BY AMIR KHAFAGY

As the world celebrated the new year with family and friends, 23-year-old Filipino seafarer Vince Valeriano marked a dispiriting milestone. For over 15 months, the soft-spoken Valeriano and 22 of his fellow Filipino crewmates have been aboard Cyprus Sea Lines’ massive 54,000-ton MBSC Maria, without ever leaving the ship.

This is their second consecutive holiday season without stepping ashore. Although Valeriano was well aware of the long stretches of time that he would be away from his family when he began seafaring two years ago, he could never have anticipated that he would not step on land for this long.

Valeriano says that he and his crewmates have been going stir-crazy. “We cannot go shopping. We’re very homesick here because the internet is limited and we can’t contact our family.”

To make matters worse, for two months Valeriano and the rest of the crew of the Maria have been in a seaman’s form of purgatory, indefinitely anchored off the Port of Long Beach, California, without any word when they will be able to unload their cargo and go back home. Originally, the crew of the Maria had an 11-month contract, but due to the traffic jam, their contract was involuntarily extended by four months. Valeriano makes a mere $530 a month aboard the ship. During the delays, the shipping companies have added very little in the way of hazard pay.

16 PROSPECT.ORG FEB 2022

The waiting can be excruciating. “It’s not so normal to be anchored this long,” he said via Messenger, his face visibly consumed by fatigue. “This is the first time I experienced this because with container ships you just go to the port but what can we do? They tell us the port is congested.”

Valeriano and the crew of the Maria are not alone. According to data from the Marine Exchange of Southern California, as of the first week of January, there were 105 container ships backed up outside the Ports of Los Angeles and Long Beach, by far the busiest por ts in the United States. There was more cargo in the water offshore than the ports processed in all of November. Across the world, nearly 400 container vessels have piled up outside U.S. and Chinese ports, carrying 2.4 million containers.

On board with the cargo are people like Valeriano. At the start of the pandemic, 400,000 seafarers across the world were stranded at sea. As many store shelves lie bare and the cost of consumer goods continues to spike, seafarers are the

unseen victims of the crisis, bearing some of the most painful costs.

By contrast, the crisis’s big winners are the nine ocean carrier companies controlling 80 percent of global shipping, which are raking in so much money that they have no reason to fix the problems and end Valeriano’s virtual imprisonment. The price of shipping a 40-foot container from China to the United States was once around $2,000. By August,

it had soared to a record $20,000, a tenfold increase. By January, rates receded, but only to around $14,000, still enough to produce incredible profits for a concentrated industry.

Shippers earned $25 billion in 2020; research consultant Drewry predicted $300 billion for 2021 and 2022.

This split between the fortunes of ocean shippers and their barely-hangingon workers stems from industry-wide

deregulation that supersized both container ships and the companies that pilot them.

Governments handed over power to ocean shippers, and they took it, turning a global crisis into a historic jackpot, at the expense of seafarers and consumers.

The Rise of Containerization It’s no exaggeration to say that the rise of the shipping container revolutionized

FEB 2022 THE AMERICAN PROSPECT 17

the global economy. The abundance of plentiful and cheap goods we have become accustomed to finding at our local Walmart would not exist without the shipping container. Containerization drastically reduced the expense of international trade and increased the speed at which goods are delivered. Today, more than 60 percent of the world’s consumer goods, nearly $14 trillion worth of everything from iPhones to Chiquita bananas, are transported this way. Practically everything we own, will own, or ever want to own has been and will be shipped in a container.

Prior to the standardization of shipping containers between the 1960s and 1970s, most goods were stowed aboard cargo ships in individually counted units known as “break-bulk cargo.” Longshoremen, in crews of up to 25 men at a time, would manually load and unload cargo by hand in a timeconsuming and laborious process that would 18 PROSPECT.ORG FEB 2022

take days. Ships would sit idle at port for far longer than they would be sailing at sea, making ocean shipping impractical, costly, and unreliable. Thus, most consumer goods were manufactured regionally and shipped by truck or rail; imports were rather limited and expensive.

It was not until 1956 that a trucking company owner named Malcolm McLean converted two old World War II oil tankers into the world’s first container ships.

McLean, with the assistance of engineer Keith Tantlinger, designed a 33-foot steel intermodal container that could be easily lifted by cranes, placed snugly on the back of trucks and train cars, and locked to reduce theft. It would take only a few hours to unload a ship as opposed to days. Typically, the cost of hand-loading a ship would be about $5.86 per ton. With McLean’s new system, the price dropped to only 16 cents per ton.

Charmaine Chua, assistant professor of

Three ocean shipping alliances carry about 80 percent of seaborne cargo, up from 40 percent in 1998. global studies at the University of California, Santa Barbara, has spent most of her career studying the growth and politics of the global logistics system. She explains that the move toward containerization did not take place overnight. Ports had to implement massive infrastructure upgrades, in turn radically reconfiguring the urban ecosystem. “It was a process not just about the box but about organizing the whole world transportation

PAUL HENNESSY / SIPA USA VIA AP

The rise of the shipping container revolutionized the globalized economy.

system in order to standardize the process in which containers would travel,” she said. “It requires ecological changes to port cities and massive expansions of trucking and shipping spaces that have huge consequences both for the lived environment for people who live in these cities as well as the ecological damage it has done to ports.”

But the cost savings were hard to ignore.

Mass containerization would allow goods to be produced in any and every low-wage country, radically reducing the biggest cost a company faces: labor. Still, the practice did not really take off until the U.S. deregulated the industries that would be newly boosted by this innovation: trucking, rail, and ocean shipping itself.

Prior to the 1980s, the Shipping Act of 1916 regulated the relatively modest ocean carrier industr y like a public utility. Prices were transparent and there

were no exclusive agreements for volume shippers; anyone wanting to ship cargo could access the same rates. The United States Shipping Board, later the Federal Maritime Commission (FMC), regulated prices and practices, and subsidies assisted domestic shipbuilding. The act enabled smaller companies to enter ocean shipping with stable prices to weather downturns.

But the Shipping Act of 1984, and later the Ocean Shipping Reform Act of 1998, took down this architecture. It allowed shipping companies to consolidate, and eliminated price transparency, facilitating secret deals with importers and exporters. The FMC was defanged as a regulator.

Almost immediately, containerization took off. The number of goods carried by containers skyrocketed from 102 million metric tons in 1980 to about 1.83 billion metric tons as of 2017.

Ocean carriers quickly fell into three “alliances”: 2M, Ocean Alliance, and “THE Alliance.” These alliances carry about 80 percent of seaborne cargo, up from 40 percent in 1998, giving customers few options. Container ships also dramatically increased in size. Today, the average ship is capable of carrying over 20,000 containers at any given time. Many ships are absurdly gargantuan, with some as long as the length of the Empire State Building.

Between 1980 and 2020, the deadweight tonnage of container ships has grown from about 11 million metric tons to around 275 million metric tons.

Infrastructure had to be altered to accommodate the increasingly large vessels.

Between 2013 and 2019, the Port Authority of New York and New Jersey spent $1.7 billion to raise the 90-year-old Bayonne Bridge—which connects the New York City borough of Staten Island to New Jersey— clearance approximately 64 feet, from 151 to 215 feet, in an effort to accommodate larger ships. Several ports simply cannot handle mega-ships, narrowing the locations where they can be off-loaded.

The mega-ships reduced the per capita cost of shipping goods, which importers and exporters loved. But there were ulterior motives. No upstart carrier could possibly compete with the alliances; they couldn’t afford the massive startup costs to build or lease their own mega-ship. And ports that sunk money into accommodating the bigger ships were unlikely to alienate those megashippers through fees or other disfavored

practices. The big bad ocean carriers had the rest of the supply chain over a barrel.

Unintended Consequences While offshoring made sense to some firms before containerization, its rise significantly cut down on shipping costs and made transporting finished goods over long distances economical. “The shipping container allowed us to take advantage of cheap labor overseas and move a lot of manufacturing offshore,” said Martin Danyluk, assistant professor in the School of Geography at the University of Nottingham. “And that comes at an incredible cost for workers domestically but also for communities.”

Factories no longer needed to be near suppliers and markets, paving the way for mass migration away from manufacturing hubs in Rust Belt cities such as Detroit, Flint, Cleveland, and Buffalo. In New York City, containerization was a major factor in the collapse of its industrial base between 1967 and 1975, pushing the city into a fiscal crisis. Organized labor was also severely wounded from outsourcing.

In 2020, only 10.8 percent of wage and salary workers belonged to unions, down from 20 percent in 1983.

Container ization ha s also had a detrimental impact on the environment.

Nearly all cargo ships use low-grade ship bunker diesel combustion engines to power themselves. Some of the biggest tankers can carry approximately 4.5 million gallons of fuel. Ships emit a plethora of toxic substances such as CO2, nitrous oxides, and sulfur oxides, which are known to cause acid rain. The pollution one ship emits produces the same amount of pollution as 50 million cars; emissions from just 15 ships would be the equivalent of all of the cars in the world. A study by the National Oceanic and Atmospheric Administration found that pollution from cargo ships has led to 60,000 deaths per year and costs up to $330 billion in annual health costs from lung and heart diseases.

Port-adjacent communities in Southern California are habitually covered in a blanket of smog emitted from ships and trucks idling in and around the ports. Yale researchers found that a 1 percent increase in vessel tonnage in port “increases pollution concentrations for major air pollutants by 0.3–0.4% within a 25-mile radius of the 27 largest ports in the United States.”

FEB 2022 THE AMERICAN PROSPECT 19

Black communities are disproportionately located near ports, and Black people are more likely to be hospitalized for portrelated illness. “ The communities that are being harmed by shipping activ ity are not evenly distributed,” said Danyluk. “It tends to be low-income communities of color … People who are already being marginalized and exploited for whatever t he re a son a re d i sprop or t ionat ely impacted by this activity.”

Increased shipping traffic is also playing a major role in disrupting fragile marine ecosystems. Thousands of cargo containers are lost at sea every year, with a possible 10,000 metric tons of plastic being released into the ocean. Vancouver’s famed Southern Resident killer whales are facing the possibility of extinction. The noise that container ships produce is loud enough to drown out up to 97 percent of the whale’s communication range, which impedes their ability to communicate and hunt cooperatively.

An Unsustainable Model On the ground, the exuberant and gregarious Stefan Mueller, a tugboat captain with a passion for the sea who also serves as an inspector with the International Transport Workers’ Federation (ITF), the union that represents transport workers globally, has combed the shores of Long Beach on his boat, meeting with the crews of the ships anchored offshore. Throughout his many decades of organizing seafarers, he has never seen such a bottleneck, nor has he seen crews this exhausted. As he sees it, the entire shipping industry has grown unstable; in essence, the ships have become too big to fail.

“People say why don’t the ships just go to other ports, well it’s because other ports don’t have deep enough harbors,” he says. “In this big rush for shipping, and monopolizing of the industry, they also said bigger ships mean more cargo. So the ships are really big and that’s the problem, so it became not practical.”

Supply chain experts such as Martin Danyluk agree with Mueller that the entire model on which containerization was built was unsustainable. The pandemic has only exposed the vulnerable underbelly of the supply chain system. As manufacturers, retailers, and consumers have grown to depend on constant flow on cheap container ships, any delay could lead to a domino 20 PROSPECT.ORG FEB 2022

FBX Global Container Index JANUARY 2017–JANUARY 2022

$11,133

$1,119

Jan ’17

Jan ’19

Jul ’20

Jan ’22

This index measures the cost of shipping a 40-foot shipping container from China/East Asia to the West Coast of North America.

effect. Case in point: Last March, when the massive, 1,300-foot-long Ever Given clogged the Suez Canal, one of the world’s most significant routes for global trade, it nearly brought the world to its knees. Nearly 400 ships were lined up behind it and are estimated to have prevented $9.6 billion worth of trade.

“O ver the decades, we have seen ma nufa c t ur ing compa nies embra ce a kind of riskier supply chain model, where they have tried to trim the fat and embrace what is called lean production systems at every point along the chain,” said Danyluk. “ They are minimizing inventory, they are working to minimize labor cost, by counting out workers and automating as much of the transport system as possible. They are tightening the timeline so that goods are sitting for as little time as possible.”

Meanwhile, the ocean carrier alliances were able to take advantage of the bottlenecks that arose in the pandemic because of their prodigious pricing power.

They could raise shipping rates tenfold without fearing any loss of business because customers had next to no alternatives. And they could charge importers for use of their containers (known as detention fees) even if their cargo was buried under several stacked containers and couldn’t be reached.

It’s like Uber running all the taxi companies out of town and then being able to jack up prices without limit.

Even as many businesses struggle to keep afloat during the pandemic and consumers

struggle to afford consumer goods that have seen prices surge to 31-year highs, the pandemic has been generous to the container shipping industry, with profits at record highs.

Mega-ship companies see the increased risk of their business model not as a problem to solve but as an opportunity to exploit. They have no reason to fix the backlog; they’re too busy making money off it.

The Hidden Cost of Labor on the High Seas Crew members aboard ships, meanwhile, are not reaping any of the industry’s rewards. In fact, with many shipping delays, instead of switching crews at the port after the end of their contracts, companies are forcing their crews to work well beyond the end of their contracts with very little, if any, additional compensation.

“I’m blown away that they aren’t offering these crews double their wages,” said ITF inspector Mueller. “Some of the companies have been pumping up extra $100 or $200 a month. They add a little money to their basic pay, but after you have been on a ship for over a year even that is not enough.”

In 2018, the International Labour Organization (ILO) set the recommended minimum wage for an able-bodied seafarer on a global vessel at $641 a month. A wellpaid worker makes a little less than twice that, Mueller explained. “That’s their basic 40-hour week, all their overtime, they live on the ship and a good-paying job is $1,200 a month total,” he said. “So basically it’s so cheap to get these guys.”

But the minimum wage set by the

ILO is only a recommendation that ship owners are not bound to. Valeriano, who is just starting out, makes much less than the minimum wage set by the ILO. Although he wouldn’t mind earning extra money, what he really wants is for the company to send him home, rather than wait indefinitely to switch crews. The ITF union, which has agreements with several shipping companies, including Valeriano’s employer, has been advocating for longdelayed crews like his to be replaced and f lown home, with little success.

“I should be able to relax with my family with no stress. It’s very stressful here,” Valeriano says.

One way that container shipping companies cut labor costs and avoid regulatory oversight is by adopting the flag of another nation. These are known as flags of convenience (FOC), and shipping companies around the world will often register their ships with a nation that offers less regulatory scrutiny. As of 2009, Panama, Liberia, and the Marshall Islands were the most frequent f lags f lown by container ships. Workers aboard FOC ships operate under the labor laws of that country, enduring much lower standards in working conditions and receiving far lower wages.

Valeriano’s ship, the Maria, flies the flag of the Marshall Islands but is in fact owned by a Greek firm.

“What it has essentially allowed is a massive shifting of the burden of costs and the depressing of wages onto seafarers, who are often paid below what the ship would pay if they were beholden to regulatory standards in their home country,” says Charmaine Chua of UC Santa Barbara.

In 2015, Chua saw firsthand how FOC served to lower the wages of workers when she embarked on a grueling journey from Los Angeles to China on an Evergreen Marine Corp. container ship. The crew was mostly Filipinos who were subcontracted

Crew members aboard ships are not reaping any of the industry’s rewards.

by a hiring agency, and the officers were all German.

“The differences in wages were about $3,000 per crew member at the same rate depending on if you were German or Filipino,” she said. “This turned out to be too costly for the company, so they started to move to a flag-of-convenience model and fired all of the German crew on the ship, which means that everybody worked at a lower wage.”

With companies increasingly turning to an FOC business model, it has led to a race to the bottom. To save on labor costs, shipping companies outsource much of their staffing to third-party companies in the developing world. Of the 1.6 million seafarers currently working on 50,000 commercial ships, about 230,000 of them are from the Philippines, making them the single-largest group of seafarers in the world. India represents a close second.

“Most people when they talk about races to the bottom, they are really talking about labor markets between the U.S., Europe, and the rest of the world when it comes to factories and industrial production, but this is happening on the ocean too,” Chua says.

The Loneliness of the Seafarer On land, 72-year-old Pat Pettit and her sister Mary have been running the International Seafarers Center (ISC), a workers center supporting seafarers in Long Beach, pretty much single-handedly throughout the pandemic. Pettit f irst volunteered with ISC in the 1980s and eventually became the organization’s manager. Her grandfather was a seafarer and so was her stepfather. “I lived the seafarer’s life, so I know how hard it is,” she says.

For long stretches of time, seafarers are alone with their thoughts and out of contact with the outside world. In the open ocean, seafarers have no access to Wi-Fi or the telephone. This can take a toll on one’s mental health. Over 25 percent of seafarers suffer from severe depression, and nearly 6 percent commit suicide. The pandemic has only worsened the alienation, and suicide rates have been increasing.

Since the outbreak of the pandemic, Pettit has been driving back and forth to the port nonstop, purchasing and dropping off supplies for the seafarers anchored offshore.

Even if seafarers are docked at port, their companies are not allowing them to come

onshore out of fear of triggering a COVID outbreak on the ship. Together with the Long Beach health department, Pettit has been working to vaccinate as many of the crews as they can, and they have already vaccinated 10,000 workers.

Although the past two years have been exhausting, the pandemic has only strengthened Pettit’s resolve in alleviating the plight of seafarers in the modest way that she can. “Work on the ship has gotten way more difficult, especially with this pandemic,” she says. “It’s just crazy and I just feel sorry for them.”

For workers like Valeriano, the nearly two years at sea have taken a toll on his body and mind. “It’s like a prison,” he said. “I can’t sleep because I want to go home and miss my family. I’m dealing with anxiety and depression. It’s not easy.”

During his wellness checks aboard anchored ships, Stefan Mueller has been working with seafarers as they try to push for the companies to send them home.

However, many are reluctant to rock the boat, so to speak, out of fear their company could retaliate against them.

“There’s a blacklist,” said Mueller. “If there were 24 guys out of 200,000 seafarers that made a really big stink, those guys’ names would be faxed to all the crewing agencies and make sure never to hire them. So they don’t want to risk losing their entire careers.”

Normally clean-shaven, Valeriano has allowed his beard to grow wild as a testament to his mental state. He aches for the comforts of his mother’s home cooking and craves Jollibee, a Filipino fast-food restaurant, and guilty pleasure. Onboard the ship, mechado, a Filipino beef stew, is routinely served for dinner. He says it’s hard to swallow.

With internet access sporadic, Valeriano finds it hard to pass the time. Regardless, he fights off the depression with the hope that one day soon he will be back in the warm sun of Manila with his family and friends. As a frontline worker, he feels that has earned his right to some rest.

“I want to go home. I deserve to go home actually.” n Amir Khafagy is an award-winning New York City–based journalist. He has contributed to such publications as The New Republic, Vice, The Appeal, The Guardian, Curbed, Bloomberg, and In These Times.

FEB 2022 THE AMERICAN PROSPECT 21

We Were Warned About the Ports A 2015 federal report predicted the entire slowdown that’s come to pass.

BY ALEXANDER SAMMON In July 2015, the Federal Maritime Commission, a federal agency with little name recognition and even less influence, released a report sounding the alarm about the state of America’s ports. A congestion crisis had been building for years and was fast becoming untenable; even the country’s relatively tepid economic-growth rate was straining against decades of disinvestment at its most critical trading hubs. Chassis weren’t available, trucks couldn’t get in or out, and terminals stayed perpetually clogged.

That crisis had “resulted from events that have developed or emerged over a considerable period of time and from within the system itself, rather than being the result of external shocks, such as unanticipated surges in container volumes or managementlabor issues,” the report surmised. “Many seem to think it is inevitable that embracing ‘business as usual’ will lead to significant further declines in the performance of the U.S. intermodal transportation system.”

And then, of course, business went on as usual. Almost five years passed before the coronavirus announced itself on American shores, and another year after that before the disease gave an already fissured supply chain the nudge it needed to fully rupture.

And while the circumstances of a global pandemic, its shutdowns and labor shortages, seemed exceptional, it was something 22 PROSPECT.ORG FEB 2022

as routine as a double-digit import growth, feared specifically by the FMC since at least 2006, that sent shipping container volume skyrocketing and brought the system to a grinding halt. A prophecy that few heard and no one heeded had finally come true.

Before the Biden administration was even sworn in, the ports were already in a state of chaos. It got worse throughout the year, and by the time the administration appointed its ports czar John Porcari and began looking toward emergency intervention, only minor measures were even available to remedy decades of bipartisan mismanagement.

Today, congestion at the twin ports of Los Angeles and Long Beach, collectively the nation’s largest, is “at historic high levels,” as the shipping giant Maersk announced in a customer advisory in late December. Reporting indicated that there were 133 vessels en route to San Pedro Bay, with delays stretching upward of 41 days. One ship in particular had left Busan, South Korea, on November 17 and was not scheduled to dock until January 2, a 47-day duration for a routine voyage that should take, at most, half that time. “It took Columbus less time to cross the

Atlantic,” said Sal Mercogliano, an associate professor and maritime historian at Campbell University.

Despite problems in manufacturing, shipping, trucking, and warehousing, it’s been ports that have taken the brunt of the criticism for their role in a breakdown that has seen everything from stranded Halloween costumes to rapidly rising prices.

Ports sit in the middle of a tangled nest of unwise policy choices made over the past half-century, having to deal with the consequences despite a lack of investment and manpower to handle the ever-burgeoning flood of cargo.

As the country’s most cynical economists and credulous news anchors would tell it, the breaking of the ports was the natural result of lavishing stimulus checks upon lower-income Americans, who nearly ruined Christmas with their indomitable desire for foldable furniture and Tickle Me Elmo. In reality, it’s the combination of some of the worst sins in economic policy: privatization, deregulation, cartelization, with some parasitic private equity sprinkled in too, all of which sacrificed resiliency, long-term planning, and even the country’s aptitude for economic growth in favor of corporate profits.

Like so many of the country’s late-breaking societal failures, the story of America’s modern ports began in the 1980s.

First under the Reagan administration and later until Bill Clinton, the U.S. radically deregulated the ocean shipping industry. Out went the public-utility model, with prices overseen by a robust Federal Maritime Commission that helped offset that natural monopoly status that ruled the industry; in came the cartelized free-market system that has ruled ever since. (Incidentally, one of the early heads

of the enervated FMC under Reagan was none other than Elaine Chao, the scion of a family shipping business, eventual wife of Mitch McConnell, and transportation secretary under Trump.)

Shipping deregulation quickly led to a cartelized private sector trudging ever-larger container vessels across the oceans. This intersected with a host of other trends in the economy: the outsourcing wave of the 1980s, the deregulation of the trucking and rail industries, the weakening of unions, and the desire among businesses to efficiently speed to retail stores only what consumers needed in the moment, just in time. Ports were the intersection point of all of these trends, and as the trade imbalance grew, the critical choke point for U.S. commerce.

For many years, the system succeeded in reducing prices and upping profits to the companies involved. “For a really long time, it was really cheap,” said Mercogliano. “That deregulation was what everybody loved.” But the price of cheapness was consolidation. As containers and ships got bigger, the ports had to get bigger as well. Ports dredged furiously to stay passable for increasingly deepriding ships—the Port of Los Angeles isn’t even a deep bay by nature—and strained to clear out other obstacles like bridges, which had to be raised, to accommodate ships carrying as many as 16,000 containers each.

On the West Coast, this meant that smaller ports like San Diego, which lacked the rail infrastructure to get cargo eastward, and Oakland, with its famously bridged bay, were passed over. (Vancouver boasts a sizable port with the cranes needed to offload large ships, but it was taken offline for weeks in 2021 due to flooding and torrential rains, adding to the supply chain crunch.)

By 2014, the top three ports—L.A., Long Beach, and New York/New Jersey—brought in nearly half of all containerized imports, and the top 11 brought in over 85 percent.

Concentration in other elements of global shipping led to concentration at the ports.

That would magnify future disruptions.

As the American economy became increasingly reliant on goods made in East Asia, so too did it rely on the only port that could readily receive them, L.A./Long Beach, which strained against its own limitations.

The expansive nearby population of Southern California, once seen as an asset to finding cheap and ample labor to unload containers and drive trucks and staff warehouses, soon became a hindrance to expanFEB 2022 THE AMERICAN PROSPECT 23

sion, as land around the ports was ringed with housing, making growth impossible.

Instead, the ports began expanding out into the sea, with major terraforming initiatives to conjure more dock space from the ocean floor, a process that still couldn’t keep up with the strains of a growing e-commerce sector that relied overwhelmingly on Chinese manufacturing. (This led to a separate problem during the supply crunch: where to put the empty containers. Often they were dumped in residential neighborhoods, towering above modest homes and subdivisions.)

Private investment had begun to replace public investment. While port authorities still control some ports, others like L.A./Long Beach became landlords to a tiny group of shipping cartels that operate most marine terminals where ships docked. While data is scarce, ships typically dock at the terminals within their own shipping alliances, like gate slots at an airport, and disfavor rival ships. Other marine terminal owners include private equity firms; the largest marine terminal operator on the continent, Ports America, went through multiple private equity owners before being sold to a Canadian pension fund last September.

While private capital has delighted in the passive income available at marine terminals, they’ve done next to nothing in the way of technological or infrastructural upgrades. Meanwhile, the combination of potential preferential treatment and financiers seeking alpha portended even further bottlenecks.

By the mid 2000s, the whole thing was primed for meltdown. With global liner cargo growing 10 percent annually during the 25-year period beginning in 1980, port infrastructure was on the edge of faltering, bailed out only by the economic constriction of the financial crisis. Just like that, “the issues being faced in 2006 went into hiding,” the 2015 FMC report recounted, “but they did not disappear.”

The FMC set out nearly all of the issues that would be blamed on COVID a half-decade later, which were evident another ten years before that: things like chassis availability, terminal operations, truck turn time, and gate hours. These factors “must be addressed in the near term to ensure an efficient and reliable international ocean transportation system and the relevant supply chain,” said FMC chairman Mario Cordero at the time 24 PROSPECT.ORG FEB 2022

Ports sit in the middle of a tangled nest of unwise policy choices made over the past half-century. (he now runs the Port of Long Beach). The report’s subheader exclaimed: “Congestion is a serious challenge to America’s continuing economic growth and competitive position in the world economy.”

Availability of chassis, the semitrailers that containers get attached to after coming off ships, was seen as a particular cause of congestion. The shortage was being exacerbated by the growth of ever-larger ships, and the outstanding monopolistic reach of the shipping companies. Chassis usage was being built into the freight rate negotiated between the ocean carrier and its customer as a bundled service. “The practice of shipping lines owning the chassis is unique to the U.S. In most other countries, the motor carrier provides the chassis with which to move the container,” the report noted. This created exceptional issues of unaligned priorities in clearing out shipments, and deferred maintenance of aging, decrepit equipment in dire need of repair.

Terminal operations had become a similarly elevated concern. Vessels are supposed to arrive on precise schedules, spaced out enough to give time for longshoremen to unload and move cargo to the container yard. But ships had been “slow steaming” across the ocean to conserve fuel, falling behind schedule and leading to significant bunching at marine terminals, the report explained, a habit they’d picked up as a cost-cutting measure in the wake of the Great Recession. “Bunching can put enormous pressures on the terminal because resources available to work the vessels are finite … overcrowded container stacks lead to shuffling containers multiple times to get to the required container and this slows the process, delays and congestion build, and in-terminal dwell-time lengthens.”

That’s become the norm in today’s ports, a process which Mercogliano described to me as “a big game of Tetris in the terminal,” where empty containers piled high have to be moved around ceaselessly to facilitate

unloading. The report, too, raised concern about the impact of a new ocean carrier consolidation that was just emerging at publication date, resulting in three major shipping alliances running the vast majority of operations. The alliances were already “a factor contributing to port congestion,” with “the potential to cause severe dislocation of chassis,” which are not shared across alliances.

A third area of concern came from slow “turn times,” or the time a truck spends at the marine terminal. While trucking deregulation and the conversion to an independent-contractor model made interventions difficult, the report keyed on low-cost suggestions that could be implemented without high price tags: setting up appointment systems through communication between truckers and marine terminal operators, for example, or “free-flow” strategies that stack containers from one cargo owner for quick loading to chassis.

Still, because deregulation brought a broader dealignment of priorities—a number of independent corporations merely looking out for themselves, rather than the holistic operation of the port—even those suggestions were impossible to implement.

In one instance, the FMC referenced another report that found “queuing constitutes a significant portion of the 25 percent of truck visits that take two hours or more, but it is not being addressed because the marine terminals … do not consider the long lines outside the gates as their problem.”

Finally, the report looked at expanded gate hours as a possible solution to congestion, a tool with a track record. Ten years prior to the 2015 publication, the Ports of L.A. and Long Beach had pioneered an extended-hours approach, with mixed results. The costs of running an extended operation were substantial, with wages one-third to one-half higher during night and weekend shifts, the authors noted.

Meanwhile, for those shifts to be functional required warehouses, manufacturers, and steamship lines, as well as their various help desks and support services, to also be operational, an expensive staffing requirement beyond just longshoremen and truckers. While the aim was to continue truck movement through terminals on nights and weekends, the report relayed, “anecdotal reports indicate this aim has not been achieved.”

Nearly everything that that 2015 report

Labor Fight Brews on the Docks

Negotiations loom between the dockworkers union and shipping companies making record profits.

JEAN-MARC BOUJU / AP PHOTO

By Ella Fanger In December 2021, the top ten publicly listed shipping companies were on track to earn a record $115 billion in profits. Maersk, the world’s second-largest shipping company, posted its most profitable quarter in 117 years in November 2021. Now, this profit bonanza is the backdrop of upcoming labor negotiations between dockworkers and shipping companies. Negotiations are set to begin in early 2022 between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA) over a new contract before the current one expires on July 1st.

The PMA, which represents 70 ocean carriers operating terminals at 29 West Coast ports, has tried to delay negotiations by pointing to the ongoing supply chain crisis. In a November 2021 letter, PMA President Jim McKenna said he was concerned that negotiations could lead to further “disruption” of the supply chain. In a same-day response, ILWU President Willie Adams rejected the PMA’s request for an extension, which would have been the second delay in negotiations after a 2019 extension delayed talks for three years. Adams rebuked the idea that supply chain delays justified an extension, telling The Journal of Commerce online that collective bargaining should be welcomed “as fundamental to the wellbeing of our ports rather than prognosticating disaster.” The new contract will affect 22,400 dockworkers who staff ports from Washington state to Southern California.

While the details of union demands will be ironed out in the union caucus at the beginning of 2022, the COVID-19 pandemic has highlighted the urgency of issues like safety and pay that may be raised in negotiations. ILWU members have worked longer hours processing more cargo than usual during the pandemic.

Workers at the Ports of Los Angeles and Long Beach moved a record equivalent of ten million

20-foot containers in the first half of 2021. Ports have remained open and operational throughout the pandemic, exposing longshore workers to health risks. At least 20 ILWU members have died of COVID-19.

Labor negotiations that could disrupt operations come at an inconvenient time for shipping companies reaping once-in-a-lifetime profits.

In his response to McKenna, Adams highlighted that shipping companies have made “historic profits off the backs of ILWU dockworkers” and included three pages of headlines about shippers’ record profits.

But such tactics may not be politically feasible this time around due to the supply chain crisis. Passage of an ocean shipping bill that would regulate the major carriers and President Biden’s plan to run port operations 24/7 indicate that the administration and bipartisan members of Congress are prioritizing easing supply chain issues, even at the expense of shipping company profits.

One sticking point in negotiations could be terminal operators seeking to expand their use of automated technology, which union officials have opposed over job loss concerns. In pre-

The Pacific Maritime Association locked dockworkers out of the ports for 11 days in 2002.

In past negotiations, supply chain disruptions have resulted from management pressure tactics. During 2002 negotiations, the PMA locked out dockworkers for 11 days until President Bush invoked the Taft-Hartley Act to forcibly open the ports. In 2014, the PMA similarly ended night and weekend work shifts.

vious negotiations, shipping companies have also tried to limit the jurisdiction of the ILWU by reducing the categories of work performed by union workers. With these contentious issues looming, ILWU President Adams has told members to gear up for a fight: “There may be a battle in 2022. Be prepared.” n FEB 2022 THE AMERICAN PROSPECT 25

warned about came to nightmarish fruition amid the pandemic, in one way or another.

Trucking backlogs, chassis shortages, container clusters, and bunching of ships have all reached extreme levels; and the solutions on offer, like extended hours, were largely ones that had been tried and failed. The shipping companies, still milking the costcutting measures that they implemented during the previous recession, felt little impulse to implement expensive changes, and were all too happy to convert chaos into record quarterly profits.

When the ports slowed to a crawl, the disempowered federal agencies could do little in the face of outsourcing and deregulation and corporate capture. The White House response team, spearheaded by Port Envoy Porcari, along with Transportation and Commerce Secretaries Pete Buttigieg and Gina Raimondo, settled on stopgap solutions that were well-intended, but crashed into the underlying poor structure of the system.

In October, President Biden announced a plan to run the port of L.A. 24 hours, following Long Beach’s commitment weeks earlier. But as the 2015 FMC report showed, running ports around the clock would have required the entire logistics industry to run at that same pace, mandating a major hiring 26 PROSPECT.ORG FEB 2022

surge. If ships were being unloaded at 3 a.m. but had no chassis to load those containers onto, the backlog would only have moved a few feet. And if the warehouses weren’t open at 3 a.m. to take those container loads, the truckers would have merely been parked or idled on and around the docks, waiting for the warehouses to open. Given that port truckers are overwhelmingly independent contractors and not hourly employees, that would have cost them personally. Fully staffing a third shift of warehouse workers would have made such a move more viable, but warehouses, where COVID has run rampant and wages are low, were already having a hard enough time finding enough workers for the primary shifts. All of those sectors would require support staff, too. To nobody’s surprise, records of port activity showed in the months following the announcement that the ports were definitively not operating around the clock.

Even if all of that had fallen into place, it would have required a regulated, centralized port system to coordinate and share data about ships and containers and load times. In reality, with a dizzying array of different and sometimes overlapping systems governing each stage of the process, getting real-time data proved impossible. As Robert Kuttner reported for the Prospect, even identifying the location of cargo proved too

much. Cargo owners often don’t know what ship their product is on, where it’s located, or when it will arrive; the federal government, without any authority or visibility, knows even less.

A second solution arose to deal with ship congestion. The backlog of nearly 100 ships clustered in San Pedro Bay had become one of the most glaring indications of the supply chain problems, with environmental advocates sounding the alarm about the impact of ships idling offshore, burning fuel and billowing exhaust.

Without consulting the White House, a coalition of ocean shipping company–owned associations and the Marine Exchange of Southern California, a nonprofit vessel management organization, fashioned a solution: a new queuing system that moved the ships from 40 miles offshore to 150 miles, putting them out of sight. That aimed to solve multiple problems: It would facilitate better communication of berthing availability, ships would stay further from one another in the open water to increase safety, and the environmental damage from the “parking lot” of smokestacks would be minimized.

But not everyone was convinced. While the number of ships near shore halved, a nearly identical number of boats began queuing at greater distance. When all those ships were counted, the total remained

KEVIN DRUM

The Port of Long Beach (shown here) sits in the bottom half of the World Bank Group’s worldwide port performance rankings.

If economic expansion is correctly a priority of the Biden administration, then having a functioning port system is essential. stubbornly high, with even more on the way.

“What they’re doing is a shell game,” said Mercogliano. “They say they’re 150 miles off; they’re not. They’re 500 miles, burning more fuel than they would.” And while it may look better from shore, being out at sea is not easy on workers. “When vessels are 500 miles out at sea, and guys are out of sight of land for months with no internet, it’s a black hole out there. That’s a lot of fatigue, a lot of pressure on the crews,” Mercogliano said. In January, over 100 ships remained clustered in the farther reaches of San Pedro Bay. Perhaps the most touted solution was the advent of a “container dwell fee.” The congestion of empty containers cluttering up the docks, where companies effectively warehoused their empty crates for free, was identified as one of the major impediments to offloading cargo from the port. The Biden administration sought to “impose a fee on ocean carriers for containers that sit on the docks for more than eight days” at the Ports of L.A. and Long Beach. The ports would charge $100 per container dwelling on the dock for the first nine days, and an additional $100 for each day beyond that.

The announcement may have had some impact in clearing the backlog, as longdwelling containers sitting on the docks reduced “by almost 50 percent” from the beginning of November to mid-December, according to the White House. But the fees, hotly contested by retailers and freight shippers, most certainly did not impact anything, because they were never implemented. The date for enactment of the empty-container penalty was pushed back throughout October, November, and December. In January, it was re-upped, with the intention of going into effect at the end of the month, but that was delayed once more. Given that the threat has failed to

materialize after four months, cargo owners may reasonably assume it never will, and the threat could lose its staying power.

If it ever happens, it would fly in the face of the usual policy at the ports. For years, ports advertised to shippers that they’d be able to leave their containers in the yard for free. Meanwhile, the Port of Los Angeles currently pays shipping companies volume incentives to bring a certain number of containers through their port instead of the Port of Long Beach. Those incentives can run as much as seven figures in value; if the ports began implementing penalties for empty containers, they’d merely be debiting the penalty out of the incentive payments they’d be sending those same shipping companies in the first place.

Not every port has proven so stubborn to fixes as the West Coast’s flagship. The Port of Savannah’s pop-up, inland container depots have allowed processing and storage of the added volume, and reduced port congestion. But that’s an expression of real estate prices more than anything else; the land surrounding that port is not nearly as pricey as the land surrounding the South Bay of Los Angeles. While the White House’s initial executive order in October directed California to find locations to “address short-term storage needs,” little has been able to get done.

The ports may be Biden’s problem, but they’re far from Biden’s fault. As the 2015 FMC report identifies, much of the antiquated essential infrastructure remains hamstrung by cost-saving measures adopted in the wake of the Great Recession, a phrase that appears repeatedly in its 83 pages. The story of America’s ports is one of decades of bad policy and tragic disinvestment. In the World Bank Group’s performance rankings of 500 ports worldwide, no U.S. port appears in the top 50, and L.A. and Long Beach, the critical node for 40 percent of American seaborne imports, languish in the 300s.

All of the elements that made the supply chain breakdown so catastrophic remain in place. COVID continues to snarl production centers in China; its ports continue to close to prevent outbreaks. The behavior at American ports remains largely unchanged; the infrastructure does as well. And the mess is taking its toll; container imports at L.A. and Long Beach actually fell in November, as smaller ships made their way into port while the bigger ones stayed at sea. More

ships are fleeing to the East Coast, exporting the problems in L.A. and Long Beach across the country. “It’s almost like a game of whack-a-mole,” Port of L.A. executive director Gene Seroka told The Wall Street Journal. “We try to get after one issue, and then two or three more pop up.”

The current structure is not only poorly positioned to absorb the shocks and uncertainties of the COVID era, it’s also an enemy of growth. If economic expansion is correctly a priority of the Biden administration, then having a functioning port system is essential, even with the commitment to onshoring jobs and manufacturing.

While giant ports like Singapore’s have produced the most stunning infrastructural adaptations with terraforming projects of unparalleled ambition, the ports of Europe provide a blueprint as well. European ports have much better data sharing than their American counterparts. Their port authorities, dock-operating logistics companies, and shipping companies are all on a centralized database looking at the same data. None of that exists in American ports. Meanwhile, European ports are able to take in ships much larger than even the biggest American behemoth, accommodating vessels with 20,000 to 25,000 containers without problem. Perhaps unsurprisingly, a 2005 campaign to deregulate EU ports failed.

The investment issue is beginning to change. In late December, the Department of Transportation awarded $241 million in grants for infrastructure investment at the ports, and the bipartisan infrastructure bill holds $17 billion in total for port upgrades.

But building up capacity can be slow, just like clearing a backlog. The infamous Ever Given was stuck for just six days in the Suez Canal, and shipping companies are still sorting through the aftermath. At the same time, while investment is essential, re-regulating American ports would not require decade-long building projects.

Something as simple as re-establishing price transparency would prevent some of the most opportunistic profiteering and weaken the stranglehold of large shipping cabals. Congressional investigations into these firms could pave the way for public involvement in price-setting. The challenge of the unwinding of deregulation will not be a simple one, but it’s proven to be a fundamental point of departure for America’s post-COVID economy. n FEB 2022 THE AMERICAN PROSPECT 27

How America’s Chains

28 PROSPECT.ORG FEB 2022

Supply Got Railroaded

Rail deregulation led to consolidation, price-gouging, and a variant of just-in-time unloading that left no slack in the system.

BY MATTHEW JINOO BUCK When the Union Pacific Railroad closed its Global 3 Intermodal Ramp outside of Chicago in 2019, Union Pacific marketing executive Kenny Rocker promised that closing the facility would bring “more consistent, reliable and predictable service” to shippers who depend on rail. Union Pacific was cutting costs by consolidating its unloading facilities in Chicago, a national center of transshipment for goods that come by rail from ports.

Tw o y e a r s later, as the supply chain cr isis gripped the country, the railroad had to abruptly reopen Global 3. In the meantime, Union Pacific stopped service between the all-important shipping hubs of Los Angeles and Chicago for one week last July while the company reconfigured its operations. Union Pacific’s remaining facilities in Chicago couldn’t keep up with the volume, nor could Union Pacific find enough workers or equipment to handle the goods. Industry analyst

Larry Gross told Trains.com that Union Pacific “sacrificed surge capacity” when it closed Global 3. “If you don’t have any additional capacity in your hip pocket, even moderate disruptions put you in a world of hurt.” Gross estimated that Union Pacific’s weeklong suspension of service would keep roughly 40,000 containers stranded on the West Coast.

Every other major railroad suffered from supply chain snags in 2021. Another overwhelmed rail company, BNSF, ordered a slowdown of shipments into its Chicago facility. Two other remaining large rail companies, Norfolk Southern and CSX, received sharply worded letters from the head of their primary regulator, Surface Transportation Board Chairman Martin Oberman.

In his letters, Chairman Oberman asked each railroad to respond to complaints from shippers—across different types of goods— of worsened service delays and higher costs.

But the freight railroads’ poor operational performance has not impaired their spectacular financial performance. If anything, the bottlenecks create more pricing power.

Less than a week after his company reversed its 2019 decision and reopened Global 3, Union Pacific executive Rocker optimistically predicted on an earnings call that Union Pacific would be able to “take some pretty robust pricing on the market”—in other words, keep its prices high. The stock market shared Rocker’s optimism for all Class I railroads, whose stock prices rose in 2021, many by 20 percent or more. The last year was one more of a decade of financial

prosperity for the industry as the stock price and total return of every publicly traded Class I railroad from the end of 2011 to the end of 2021, except for Canadian National, grew faster than the S&P 500. Union Pacific earned the second-highest total return in that period, getting investors an almost sixfold return on their money and beating the S&P 500 by over 100 points.

The rail supply chain crisis was decades in the making, based on two fundamental sources—excessive consolidation and the railroads’ version of just-in-time, called precision scheduled railroading (PSR). In 1980, at the dawn of rail deregulation, there were 40 Class I railroads. Today, there are just seven. Of those seven, four have 83 percent to 90 percent of the freight railroading market. Wall Street took notice of railroads’ growing market power and pushed them to implement PSR, which meant running faster, longer trains, and skimping on service, spare capacity, systemwide resilience, and safety. When Union Pacific closed Global 3, the railroad was implementing PSR. Today, using PSR, railroad management’s job is to drive down the “operating ratio,” or operating expenses as a percentage of revenue. In other words, Wall Street judges railroads’ success based in part on spending less money running the railroad and more on stock buybacks or dividends. Theoretically, focusing on lowering operating ratios pushes railroads to be more efficient, to do more with less. But when railroads have the market power they have today, they can

FEB 2022 THE AMERICAN PROSPECT 29

one holdout yet to officially adopt PSR, BNSF, has adopted PSR-like measures.

Though supply chain bottlenecks had a number of other causes, shippers, workers, and industry watchers agree that railroads’ embrace of cost-cutting and PSR played a major role. Max Fisher, chief economist at the National Grain and Feed Association, explains that “because of PSR,” the railroads “needed a little bit of surge capacity and they don’t have it now.” He added that grain shippers across the country suffered from insufficient rail service, not just those in the western half affected by the congestion at the Ports of Los Angeles and Long Beach.

Fisher says, “Yeah, the ports have been a problem, but it’s also just not having enough labor and power.”

“The circumstances of the past year couldn’t have been predicted completely,” Jeff Sloan of the American Chemistry Council says, “but it was entirely foreseeable that there would be a … sharp increase in demand for [rail] service and that running without excess capacity would be a resiliency problem.”

All of that extra effort, cost, and delay from PSR means higher prices for businesses

The Largest U.S. Rail Companies* The four major railroads run essentially two duopolies.

CSX

12.3 bn

Norfolk Southern

Union Pacific 22.8 bn

or consumers that rely on rail for transportation. Shippers or shipper trade groups interviewed said that PSR and rail service resulted in higher costs.

A primary cause of railroads’ fragility came from decades of laying off labor. From the passage of the 1980 Staggers Act to 2019, total employment in the railroad industry fell from about 500,000 to roughly 135,000.

Some of that decline came from concentrating operations on more profitable lines. But a lot came from regulators advocating for Class I railroads to sell off rail lines or move freight to smaller companies with fewer worker protections and less union presence.

Greg Regan, president of the Transportation Trades Department, a labor organization, explains that when the supply chain crisis hit, “the drastic cuts to the rail labor force during PSR have ensured that there is no flexibility in the workforce.” Railroads used to maintain “extra boards,” or backup train crews on call just in case. In recent years, railroads viewed those as costs to be cut, which, Regan says, “backfired when those employees were needed.” Training and certification requirements then prevented employees from being hired back quickly.

A deteriorating safety culture has also prompted laid-off railroad workers to rethink coming back to railroads that seem to view their safety as another cost to minimize in the name of efficiency and PSR. Workers overwhelmingly complain of being pushed to work faster and sacrifice safety for speed. Regan says that railroad managers rush workers into neglecting safety inspections and argues that thousands of workers have left the railroad industry out of concern for the railroads’ poor workplace safety. The Federal Railroad Administration, the primary safety regulator for the railroad industry, reports that, since 2012, Class I railroads had higher rates of train accidents or incidents, higher rates of yard switching accidents, higher rates of equipment defects, and more total fatalities, all while total Class I train miles were down roughly 40 percent. A Vice investigation in March covered a streak of train derailments that it described as “the all-too-predictable result of … adopting [PSR].” One labor leader warned, “It’s going to end up … like Boeing.”

11.5 bn

BNSF 23.4 bn

*2018 OPER ATING REVENUE

30 PROSPECT.ORG FEB 2022

Like many pernicious elements of our political economy, today’s railroad industry is a product of the deregulatory era of the 1970s and 1980s. Though responding to

SOUNDINGMAPS.COM

instead “do less with less,” as shippers and workers put it.

In a September speech, STB Chairman Martin Oberman criticized railroads for their “pursuit of the almighty OR” and estimated that U.S. railroads have paid out $196 billion in stock buybacks or dividends to shareholders since 2010. In comparison, over that same period according to Oberman, railroads spent $150 billion actually maintaining the physical rail and equipment they need to run their railroad.

The driving force behind PSR’s widespread adoption was railroad executive E. Hunter Harrison and investor Bill Ackman, a notorious hedge fund manager. After the two pushed through PSR at the Canadian Pacific railroad, Ackman’s colleague Paul Hilal opened an investment fund called Mantle Ridge, which invested $1.2 billion in CSX and successfully pushed CSX to appoint Harrison CEO. Under Harrison, and with the backing of CSX’s board, who saw larger bottom lines in sight, CSX pushed through PSR despite complaints from shippers who reported long delays or lost shipments.

Every other railroad has adopted PSR or PSR equivalents; industry watchers say the

Wall Street judges railroads’ success based in part on spending less money running the railroad and more on stock buybacks or dividends. real regulatory shortcomings, railroad deregulation ended up releasing railroads from almost all of their historical obligations to serve the public.

The Congress that brought the railroads under federal control at the end of the 19th century wanted to check the monopoly power that a few railroads and financiers had over the U.S. economy. With the Interstate Commerce Act of 1887, Congress responded to the farmer-labor coalition agitating against the power of private corporations like the railroads and brought the nation-spanning transportation networks under the control of the Interstate Commerce Commission (ICC). At the time, there was neither long-distance trucking nor air freight. Other than minor competition from canal barges, transport meant rail.

The rules of the ICC could be complicated, but a few key features emerged from this era, bolstered by additional Progressive Era legislation. A railroad could not discriminate between similarly situated shippers, meaning that a railroad couldn’t favor similarly situated businesses, and railroads had to post their prices publicly, with those prices subject to ICC oversight.

By the mid-20th century, however, railroads struggled to stay profitable. The freight trucking industry began to grow, helped significantly by federal investments in the national highway system. The railroads had no such federal subsidy, and had to invest their own revenues in system maintenance. Though railroads carried most, almost 70 percent, of all freight after World War II, by 1975 its share dropped to 37 percent. The ICC frequently required railroads to provide service to unprofitable routes. For a universal service, cross-subsidy and service to unprofitable routes made

sense as national policy, but the railroads were still privately owned and needed to book profits. By the late 1970s, bankrupt railroads ran 21 percent of all U.S. track.

In response, Congress and the Carter administration deregulated the freight railroad industry with the Staggers Rail Act of 1980, which deregulated the railroad industry in at least two key ways. First, railroads did not have to submit rates, or prices, to the ICC anymore. Instead, they could enter into private contracts with shippers and give different shippers different deals, including volume rebates to big businesses. This reversed one of the original reforms of the Progressive Era. Economic historian Marc Levinson argues that railroads’ abilities to bargain and offer volume discounts to large retailers helped facilitate the growth of bigbox retailers like Walmart, which could secure advantageous volume discounts, unlike smaller retailers.

Second, the law made shutting down unprofitable routes easier. Before Staggers, the ICC presided over railroad requests to abandon unprofitable lines, and frequently rejected requests so as to maintain service levels for wide swaths of the country. With Staggers, abandonments became easier, supported by appointees of both Presidents Carter and Reagan. In the first years of deregulation, the ICC essentially stopped denying abandonment requests, helping the railroads reduce their networks from 1980 to 2008 by more than 40 percent, according to research from Christensen Associates.

Consolidation became another legacy of deregulation. The ICC and its successor rail regulation agency, the Surface Transportation Board (STB), enforce antitrust laws in the railroad industry, rather than the Department of Justice or Federal Trade Commission. In an era of permissive antitrust enforcement, and despite having a lower legal standard to block consolidation than the other antitrust agencies, railroad regulators managed to be even more permissive than the DOJ or FTC. By the 1990s, STB policy blessed nearly all mergers except those that left only one railroad in a market.

Over the objections of other federal departments and states, the ICC and STB presided over two merger waves, one in the 1980s and one in the 1990s, that produced today’s market structure. A 2018 study of railroad mergers from 1983 to 2008 was unable to find that mergers improved efficiency.

Of the surviving seven Class I railroads,

CSX and Norfolk Southern have a duopoly on traffic east of Chicago, while Union Pacific and BNSF have a duopoly on traffic west of Chicago. Canadian Pacific, Canadian National, and Kansas City Southern run much traffic going north-south through the Midwest. Even so, according to the Rail Customer Coalition, a shippers’ trade association, most train stations (78 percent in 2012) only have one railroad serving them.

Most places rely on a monopoly railroad.

Railroads have started to resemble airlines by pulling more revenue from their customers through fees. These fees penalize shippers for taking away their cargo too slowly. That makes sense if shippers use railroad yards as free warehouse space, a problem that has plagued ports. But the railroads also use these “demurrage and accessorial” fees as a form of price-gouging.

In response to complaints, the STB passed a rule in March requiring greater transparency over the fees and has also asked Class I railroads to submit quarterly updates.

Nonetheless, in the third quarter of 2021, Class I railroads almost doubled the revenue they brought in from demurrage and accessorial fees—roughly $800 million—from the start of 2019. Every single railroad except Kansas City Southern brought in more in fees in 2021 than it did in 2019.

Shipping associations interviewed said individual shippers preferred not to speak out for fear of retaliation. Of the seven Class I railroads and the main industry trade group, the Association of American Railroads (AAR), Union Pacific, Kansas City Southern, and the AAR responded to a request for comment.

Union Pacific spokesperson Robynn Tysver noted that the railroad is “just one piece of the supply chain puzzle” and said, “The changes Union Pacific has made over the last several years with PSR put us in a better position—with a less congested network—to meet today’s supply chain challenges.” Kansas City Southern spokesperson C. Doniele Carlson said that supply chain issues had been “overcome” and lauded the rail network and PSR for providing “seamless transportation” and “a sustained and disciplined approach to customer service,” with the Staggers Act being “just one piece of the puzzle sparking ingenuity.”

AAR spokesperson Jessica Kahanek pointed to steps the railroads took to address supply chain congestion, such as reopening closed yards and bringing equipment out of FEB 2022 THE AMERICAN PROSPECT 31

Business rail prices rose 54.7 percent from 2004 to 2016, faster than any other mode of transportation. storage. “Railroads have remained one of the most responsive, nimble partners in the supply chain thanks to their ability to freely manage their operations and make key investments,” Kahanek wrote in an email.

Kahanek added that railroads moved an “unprecedented” number of containers in the first half of 2021.

However, PSR and its effect on supply chain bottlenecks seriously challenges the triumphant narrative of railroad deregulation’s success. Proponents argue that railroad deregulation has been a resounding success. Since Congress passed the Staggers Act in 1980, real average railroad rates have gone down 44 percent, according to the AAR. Productivity rose steeply, too, as did the volume the freight railroads carried.

Many of deregulation’s successes tend to come if one looks only at the first two decades. Railroad prices did fall from 1980 to 2004. But in the almost two decades since, the prices start going back up. According to data from the AAR, railroad prices look like a ladle from 1980 to 2019, the last year data appears to be publicly available: They go down, but then they go back up.

They go back up by a lot. By 2019, railroad rates were about as high as they were in 1991. The Bureau of Transportation Statistics reported that from 2004 to 2016, a business purchasing rail services experienced price increases of 54.7 percent, the fastest increase of any mode of transportation. In a 2019 analysis from the American 32 PROSPECT.ORG FEB 2022

Chemistry Council, Martha Moore notes that from 2000 to 2017, rates went up 30 percent while costs went up 3 percent and output only increased by 3 percent. Profits went up 186 percent.

The AAR attributes this rise to higher costs. But when the STB studied railroad rates in 2009, as they started to increase, the STB found that “even after factoring out rising fuel costs, railroad rates have risen in the last three years after falling for decades.”

The higher prices also came as the railroads continued to reduce how much they did. In 1980, Class I railroads had 164,822 miles of track. By 2019, that figure fell by almost half to 92,282. But the volume of shipments has leveled off since 2000, while the total economy has only grown since then.

Productivity has leveled off, too. AAR data shows fast growth since deregulation until the mid-1990s, at which point productivity fluctuates until 2019, when productivity was about the same as it was in 1995. However, much of the railroads’ productivity gains came from two sources of questionable value: laying off workers and cutting unprofitable service to smaller communities that needed railroads to reach customers.

Looking at productivity figures alone masks harms to labor and left-behind places.

PSR has other indirect consequences, too.

PSR became a dominant business strategy in an era when the planet needs more freight to move by rail and less by truck. One way railroads cut service is through “demarket-

ing,” or pushing away business that’s profitable, but not as profitable as other business.

By turning that business away, the railroads push it onto trucks. While trucks today provide most freight transportation, trucks inflict much more harm to the environment than rail. Freight trains are many times more fuel-efficient than trucks and emit much fewer emissions. Though railroads carry 40 percent of U.S. freight, the AAR points out, they account for only 2 percent of U.S. transportation-related greenhouse gas emissions. In his speech, STB Chairman Oberman estimated that “an additional 123 [million] tons of global warming CO2 [has been] pumped into our atmosphere since 2002 just because the [railroads] chose not to maintain their market share as compared to trucks.”

Safety suffers as well from PSR’s pushing freight to trucks. Large trucks are much more dangerous than trains; according to the Federal Motor Carrier Safety Administration, large-truck crashes killed or injured 163,000 people in 2019. For railroads, that same figure, according to the Federal Railroad Administration, was 9,000.

Shedding workers, consolidating ownership, and ignoring shippers’ complaints about PSR have helped the railroad industry achieve a profitable, privately owned railroad industry. The American Journal of Transportation reported that in 2019, freight railroading was the most profitable industry in the country, with a 51 percent

Deregulation’s proponents gave the railroad industry little reason or motive to do more for the public good. profit margin, outpacing tobacco, banks, and real estate investment trusts.

The current STB is considering rulemakings or gathering public comment on initiatives that have shippers optimistic. Chairman Oberman has also tied PSR to supply chain issues and criticized the railroads for serving fewer customers and places while prioritizing financial gains.

In March, the STB will hold a hearing on “reciprocal switching” rules, which would allow shippers captive to a monopolist railroad to require that railroad to carry its goods along its track until the monopolist railroad can transfer those goods to a competitor railroad. President Biden’s summer Executive Order on Promoting Competition in the American Economy encouraged the STB to consider such a rulemaking.

The STB also has Canadian Pacific Railroad’s $27 billion acquisition of Kansas City Southern to consider. The combination of Class I railroads would be the first major combination since the 1990s and lower the number of Class I railroads to six, further reducing the number of independent railroads that shippers and workers can choose between.

And the STB is gathering comments on “first-mile/last-mile service,” or how to measure railroads’ service between the customer’s facility and the local railroad station. The STB is currently reliant on shippers coming to them with complaints; if the STB instead regularly measured first-mile/ last-mile service, such as when a shipper actually gets their delivery or a railroad’s on-time performance, the STB could get a better sense of what the railroads are doing.

First-mile/last-mile service metrics could prove useful in informing whether railroads are meeting their statutory “common carrier” obligations. A common carrier is a person or business that provides

transportation services to the public and usually has legal obligations to serve the public fairly and without discrimination.

The concept comes from English common law and has seen a resurgence in the past decade with the principle applied in policy debates to net neutrality and increasingly dominant online intermediaries.

Despite deregulation, the railroad industry still has a common-carrier obligation, defined as “provid[ing] the transportation or service on reasonable request.” The STB has broad powers to define what “reasonable request” means, though experts point out that the definition “remains poorly defined.” First-mile/last-mile metrics could help push for a better understanding of how to measure service and thus talk about what an acceptable baseline level of service should be.

A push to define an acceptable baseline level of service could come from Congress.

Last year, Sen. Tammy Baldwin (D-WI) proposed a measure that would require the STB to define the common-carrier obligation further. An amendment to the defense authorization bill, Baldwin’s proposal would have required the STB to factor into the commoncarrier obligation reductions in employment, equipment, and whether fees are necessary to run profitably. Sen. Baldwin told the Prospect, “Now more than ever, we must ensure our railroads are able to offer quality service and are not left vulnerable to supply chain or economic shocks and disruptions.”

What the STB comes up with could prove instructive to federal regulators in different sectors. Common-carrier obligations appeal to people’s sense of fairness, that their treatment in some areas of life shouldn’t depend on their identity but on their status as an equal participant in society. At a more granular level, filling out what exactly it means to be a common carrier—how much should specific routes or specific types of services cost and what kind of service should one get for that price?—are tougher questions that should be informed by both technical features and values like nondomination or equality. Thinking through the railroads’ common-carrier obligation could prove instructive to structuring other essential networked industries like the airlines or Amazon Web Services.

Other government agencies are working, too. The Government Accountability Office recently began a study into precision scheduled railroading. And House Transporta-

tion Committee Chairman Peter DeFazio, (D-OR) who pushed for the GAO study, has criticized the railroads for being controlled by “the jackals on Wall Street.” Noting the “staggering” number of jobs railroads have eliminated since 2015 as well as safety concerns and supply chain issues tied to PSR, DeFazio said in an email, “I anticipate hearings on these deeply problematic developments in the coming months.”

At some point, however, Congress and the STB should consider more direct measures, to bring the railroads under public control. The 1980s deregulation movement empowered corporations to run markets and essential systems. But by prioritizing profits for railroads over communities, workers, the environment, and consumers, and offloading risk to them as well, deregulation’s proponents gave the railroad industry little reason or motive to do more for the public good. “If we want there to be additional capacity in the system in case of unforeseen events,” economic historian Marc Levinson says, “the private market isn’t going to provide that.”

The private, monopoly-dominated market failed people at various points during the ongoing COVID-19 pandemic. From ventilators to toilet paper to food on our tables, the past generation of policymaking has allowed ever-bigger and more powerful corporations to run markets not for widespread prosperity or even for the customer, but for the interests of a wealthy few. At the same time, policymakers have begun rejecting received ideas on political economy and instead, for example, gave people money directly, actually valued child care with real support, and engaged in skillful central planning for vaccine development.

Recent calls to consider price controls to address inflation, in the words of a recent Harvard Law Review note, “remind Americans that even the most sacred signals of the market are well within their collective control.” The systems we make, we can remake.

Some form of increased public control, learning from the mistakes of the ICC and the STB, could secure a cleaner transportation system more resilient to shocks and responsive, not to Wall Street, but to shippers, communities, and the public good. n Matthew Jinoo Buck is a first-year student at Yale Law School and a fellow at the American Economic Liberties Project. Thanks to Phil Longman for research guidance.

FEB 2022 THE AMERICAN PROSPECT 33

Why Trucking Can’t

The yearly turnover rate among long-haul truckers is 94 percent. And

BY HAROLD MEYERSON For the past dozen years, Omar Alvarez has been a key link in the nation’s supply chain.

He’s one of some 12,000 truckers who haul the containers from the adjacent ports of Los Angeles and Long Beach (where 40 percent of all the ship-borne imports to the United States arrive) to the immense com-

34 PROSPECT.ORG FEB 2022

plex of warehouses 50 miles east of L.A., where the goods are unpacked, resorted, put back on other trucks, and sent to all the Walmarts, Targets, and the like within a thousand-mile radius.

In the course of his daily rounds, Alvarez promotes the general welfare to insure

the domestic tranquility of manufacturers, shopkeepers, and consumers. For which the economic system of his grateful country rewards him with … a pittance.

Alvarez works for one of the largest trucking companies at the ports, XPO Logistics, but XPO insists that Alvarez and his fellow

Deliver the Goods you wonder why you’re not getting your orders on time?

truckers aren’t really employees. As far as XPO is concerned, they’re independent contractors and it treats them as such—though they drive XPO trucks they lease from the company or its adjuncts and can’t use those trucks for any other jobs. As independent contractors, they receive no benefits and aren’t covered by minimum-wage statutes.

They must pay for their gas, maintenance, rig insurance, and repairs themselves; and, ever since the pandemic clogged the ports with more goods than ever before, they’ve had to wait in lines for as long as four to six uncompensated hours before they can access a container and get it on the road. If they get in the wrong line at the port, they literally

can’t get out, surrounded by other trucks and doomed to waste more time. Many ports don’t even provide bathrooms for waiting truckers, because they aren’t port employees.

According to a 2019 study by the Labor Center at the University of California, Berkeley, the median annual pre-tax income of Alvarez and his fellow port truckers, once their expenses are factored in, is a munificent $28,000.

“We have no health insurance,” Alvarez says. Like the majority of port truckers, he’s an immigrant who doesn’t qualify for Medicaid. “When I need to see a doctor,” he says, “I drive [not in his truck] to Tijuana.”

Perhaps one-fifth of port truckers actually are independent contractors; nearly everyone else is, like Alvarez, misclassified as independents. Over the past decade, dozens of lawsuits from misclassif ied drivers have resulted in judgments affirming that they’ve been misclassified and awarding them compensation from the companies that misclassif ied them. XPO recently paid a $30 million fine to a large number of its drivers.

But neither XPO nor any of the other fined companies have stopped misclassification. It’s cheaper for them to pay a fine than to pay their drivers a living wage.

Not surprisingly, given the long waits and meager rewards, a lot of drivers have simply stopped showing up. According to Gene Seroka, the executive director of the Port of L.A., fully 30 percent of the port’s 12,000 drivers no longer show up on week-

days, a percentage that rises to 50 percent on weekends. Once the waits exceed six hours, as they now sometimes do, drivers would run the risk of exceeding the 11-hour federal limit on trucker workdays if they then were to actually get a load—which means the port must turn them away, and they’ll have spent an entire workday for no pay at all.

And you wonder why the supply chain isn’t working very well?

The plight of the port truckers may seem extreme, but the plight of the great majority of long-haul truckers is dismal as well.

It wasn’t ever thus. Until 1980, long-haul truckers were generally employed by regulated companies whose routes and rates had to pass muster with the Interstate Commerce Commission. Under the terms of the 1935 Motor Carrier Act, the ICC kept potential lowball, low-wage competitors out of the market. Drivers were also highly unionized, under a Master Freight Agreement between the Teamsters and close to 1,000 trucking firms. For which reasons, truck driving was a pretty damn good bluecollar job, with decent pay, livable hours, and ample benefits.

The Motor Carrier Act of 1980 changed all that, scrapping the rules of the 1935 act so that startups, charging far less than the pre-1980 rates and paying their drivers far less as well, f looded the market. Facing that competition, established companies dropped their rates and pay scales, too. By 1998, drivers were making between 30 percent and 40 percent less than their pre-1980 predecessors had made. According to the Bureau of Labor Statistics, following the steep decline in wages in the decades after the 1980 deregulation, trucker income has flatlined for the past 20 years. The median income of long-haul truckers who are employees was roughly $53,000 in 2018; for FEB 2022 THE AMERICAN PROSPECT 35

contractors, it was $45,000—though drivers in both groups had to put in many more than 40 hours per week to reach these totals.

After 1980, the share of long-haul drivers who are contractors increased as well.

Of those contractors, the Berkeley Labor Center reports that over one-quarter are misclassified, too (including the drivers for FedEx and Amazon). Like the port truckers, long-haul independent contractors also have to wait, unpaid, in pandemic-lengthened lines to pick up their loads, so that their hourly wage often falls below the legal minimum. Nor have the legacy companies that have allowed their workers to retain employee status, with the notable exception of UPS, maintained their unionized status.

With wages plummeting throughout the industry, the thousand companies that had been party to the Master Freight Agreement with the Teamsters in 1980 had dwindled to a bare five by 2008. Fully 57 percent of truckers were unionized in 1980 (nearly all with the Teamsters). A threadbare 10 percent were union members at the turn of the millennium.

Not surprisingly, the supply chain in long-haul trucking suffers from the same ailment as port trucking: no-show-ism. The American Trucking Associations estimates that the nation needs 80,000 more longhaul truckers to move its goods in a timely fashion, and that by 2030, that shortfall may double to 160,000. Confronted with jobs that take them away from their families and require long hours for low pay and scant if any benefits, America’s truck drivers don’t stay truck drivers for very long. A 2019 study by University of Minnesota economist Stephen Burks and Kristen Monaco of the Bureau of Labor Statistics found that the annual turnover rate of long-haul truckers is a breathtaking 94 percent. And this, I hasten to point out, was before the national quit rate reached new highs in 2021.

The combination of fewer drivers and more goods to be moved has slowed delivery times on the interstates no less than on the port-to-warehouse runs. Phil Levy, an economist who measures such things for a San Francisco–based logistics company, says that before the pandemic, moving a shipment from L.A. to Chicago took on average ten days; it now takes 22. Returning the empty container from Chicago to L.A. used to take 20 days; now it takes 33.

And you wonder why the supply chain isn’t working very well?

36 PROSPECT.ORG FEB 2022

What happened in 1980 that led to the transformation of trucking from a regulated industry with a willing workforce to a deregulated, dysfunctional mess whose workers bail after a year or less on the job?

In the largest sense, the story of the progression from the 1935 act to the 1980 act is a story of the decentering of workers from liberalism’s concerns.

In the first couple years of Franklin Roosevelt’s presidency, the chief concern was to arrest the deflationary downward spiral that had diminished production, incomes, prices, and employment. Its first stab at a solution was a kind of worker-friendly cartelization: creating production and pricing codes and standards for industries and granting workers the right to collective bargaining. Unbridled competition in a deflationary time, FDR’s advisers believed, only produced a race to the bottom.

In 1935, the Supreme Court killed this strategy, declaring the National Industrial Recovery Act unconstitutional. A few interstate industries, however, had been regulated long before the NIRA—notably the railroads. In 1935, Congress preserved and revised rail regulations, and as interstate trucking was beginning to supplement the railroads, devised new legislation to ensure that trucks wouldn’t be racing to the bottom, either.

Hovering over their considerations was an unprecedented outbreak of trucker militancy. In 1934, truckers in Minneapolis had gone on strike, waging a prolonged battle with their employers and, eventually, the police, at whose hands several strikers were killed. In the process, their job action ballooned into a general strike—following which, their employers collectively agreed to recognize their union (the Teamsters) and grant many of their demands for decent pay and hours.

So, the Motor Carrier Act of 1935 combined the spirit of the “First New Deal”—the regulation of commerce, and of interstate transportation in particular—with the “Second New Deal,” the pro-worker policies to which Roosevelt turned after the Court had struck down the first. In 1935, the New Deal also enacted the National Labor Relations Act, giving workers an unambiguous right to collective bargaining, and the Social Security Act as well. It embarked on the massive public-works programs of the WPA, in which millions of the unemployed were put to work building, among other things,

highways and byways. A number of more progressive unions broke away from the hidebound AFL and began organizing the factory workers whom the AFL had shunned.

The Teamsters remained in the AFL, but inspired by their Minneapolis brethren and enabled by the NLRA, embarked on organizing campaigns that increased membership from 75,000 in 1933 to 370,000 in 1939. In 1933, according to a study by University of Wisconsin economist James Peoples, a flat zero percent of intercity truckers were unionized; by 1948, 80 percent of them were Teamsters.

One Teamster staffer who played a supporting role in the Minneapolis general strike was a young Jimmy Hoffa. A lesson he took from that strike was that organizing on a citywide basis was more effective than a shop-by-shop approach, and given that truckers were routinely crossing city lines in their daily rounds, and increasingly crossing state lines, too, Hoffa applied that lesson to his hometown of Detroit, then all of Michigan, then all the Midwest, rising in Teamster ranks with each expansion of the Teamster membership. Harvard University labor expert John Dunlop hailed Hoffa’s “area contracts” as a strategic advance in labor relations.

Once Hoffa assumed the Teamster presidency in 1957, he embarked on a hitherto unheard-of innovation in American labor relations: bringing all the nation’s long-haul truckers under the terms of one master contract. Over the next seven years, constantly traversing the country, he schooled his members in the logic of sweeping, multi-employer contracts. In 1964, having convinced his far-flung locals that establishing nationwide standards for generous pay, health insurance, and pensions was a good idea, and having persuaded 800 long-haul trucking companies that the 1935 Motor Carrier Act ensured that they could raise their rates to cover these labor expenses without fear of

The story of trucking deregulation is a story of the decentering of workers from liberalism’s concerns.

Jimmy Hoffa spent seven years persuading Teamster locals and 800 trucking companies to sign the Master Freight Agreement.

AP PHOTO

being undercut by competitors, he signed the National Master Freight Agreement with representatives of those companies.

Every one of the approximately 450,000 Teamster long-haul truckers (close to half of all truckers in America) was covered by the contract. The New York Times termed the agreement “one of the most significant developments of the postwar period.”

Then, in 1980, it all fell apart.

By 1980, not only had the 1930s specter of deflation all but vanished from American memory, but the very real specter of inflation stalked the land. The spike in prices came chiefly from the oil shock of Middle Eastern nations raising the cost of their universally needed commodity. The rising costs of fuel hiked prices across the transportation sector, not because airlines, railroads, and trucking companies sought to raise prices but due, rather, to the oil shock.

Still, all three industries were regulated in ways that largely forbade them from cutting other expenses—like, say, the cost of labor, particularly inasmuch as all three were heavily unionized. In short order, all three became targets for

deregulation—the airlines in 1978, rails and trucking in 1980.

But the deeper causes of these deregulatory drives lay in the changes to the nation’s political economy. Popular revulsion at the Watergate scandal, paradoxically, pushed Democrats to the right. They gained 50 new House members in the 1974 and 1976 elections, largely from middle- and upper-middle-class districts they hadn’t ever carried before. Most new Democratic members of Congress, labeled “Watergate babies,” faithfully represented their constituents’ politics: liberal on social issues, moderate to center-right on economic issues. Business interests increased their contributions to those officeholders who’d determine their future: the Democratic moderates.

One prominent House Democrat—Tony Coelho from California’s Central Valley— launched a major initiative of raising campaign funds from Wall Street and other corporate interests, which fed the coffers of many of his colleagues.

The new breed of Democrats—personified by such figures as Gary Hart, Paul Tsongas, Jerry Brown, and President Carter himself—had no particular affinity for

organized labor. Most of the Watergate babies represented districts with insubstantial union membership. As Carter’s economic adviser, the pro-deregulation Alfred Kahn once said, “I’d love the Teamsters to be worse off.”

Moreover, labor at the time was personified by such cigar-puffing old white guys as AFL-CIO President George Meany, who had led the mainstream of labor in its support for the Vietnam War, and spearheaded its opposition to those Democratic candidates who’d opposed the war or emerged from such newer social movements as second-wave feminism.

And if there was one union that the New Dems found especially repulsive, it was the Teamsters, widely known for its occasional violent tactics, its links to the Mafia, and, at the level of presidential politics, its support for Republicans. (To fend off Justice Department interest in their own doings, the Teamsters had provided funds to keep the first tranche of Watergate convicts from fingering higher-ups, and continued to back Republican presidential candidates for years thereafter.) Worse yet, the Teamsters were seeking to undermine the organizing efforts of one of the few unions the New Dems supported— FEB 2022 THE AMERICAN PROSPECT 37

Cesar Chavez’s United Farm Workers—in hopes of supplanting them in the fields.

Two other transformations boded ill for labor generally and the Teamsters in particular. First, the rise in inflation undercut the claims of government’s ability to manage the economy, and with it, the hold that Keynesian economics, with its de facto emphasis on boosting employment and worker interests, had on the economics profession. Regulation came to be seen as a driver of inflation.

Second, with mainstream labor largely abandoning any efforts to organize the unorganized (disproportionately women, people of color, and the poor) and opposing many of the initiatives of feminists and civil rights activists, much of the left had come to view labor as a part of the corporate establishment. The rising consumer movement of the 1970s, spearheaded by Ralph Nader, sometimes found itself butting up against labor, as it did when Nader gave congressional testi38 PROSPECT.ORG FEB 2022

mony in favor of airline deregulation. Those efforts were led by liberal lion Ted Kennedy, with the assistance of his chief aide on such questions, future Supreme Court Justice Stephen Breyer. In 1980, even as he was challenging incumbent President Jimmy Carter for the Democratic nomination, Kennedy joined forces with Carter to move trucking deregulation through Congress.

That year also saw Congress deregulate much of the rail industry, but railroads were in horrible shape and clearly needed some kind of remedy. Roughly 20 percent of the nation’s rail lines were owned by companies then in bankruptcy, and the 1970 bankruptcy of the Penn Central line had been the largest to date in the nation’s history. [See Matthew Jinoo Buck’s “How America’s Supply Chains Got Railroaded,” in this issue.] Trucking, by contrast, was thriving—but somehow, it fell to the deregulatory chopping block, too.

As it became clear that deregulation was likely to pass, the Teamsters found themselves devoid of a strategy to stop or mitigate it. They weren’t a union that rallied its members to political causes (their support for candidates was almost entirely financial) and, having been expelled from the AFL-CIO for corruption, they had few allies within labor or without.

One ploy, alas, remained. On January 10, 1979, Teamster Vice President (and soon to be President) Roy Williams and mob-connected Teamster pension fund honcho Allen Dorfman met with Nevada’s Democratic senator (and chair of the Senate Commerce Committee) Howard Cannon in Cannon’s Las Vegas office to discuss how he could kill the pending legislation. FBI wiretaps of subsequent phone conversations of Williams and Dorfman had included comments indicating that Cannon had suggested he might be able to sink the bill if the Teamster pension fund

NOAH BERGER / AP PHOTO

At the Ports of Los Angeles and Long Beach, more than 7,000 truckers are misclassified as independent contractors, per one analysis.

Drivers deserve a political economy and legal superstructure that takes the rights of workers seriously. let him take ownership of a six-acre Vegas lot the pension fund owned—an offer to which Williams had given his hearty assent. Williams and Dorfman were later convicted and did time for bribery, though Cannon, denying the allegations, was never indicted, though he did lose his subsequent bid for re-election.

In the end, Cannon either couldn’t or didn’t stem the rush to deregulation. With the strong backing of Carter, Kennedy, and even Dan O’Neal, Carter’s appointed chair of the Interstate Commerce Commission, the House voted by a 367-to-13 margin to pass a new Motor Carrier Act, repealing the industry’s minimum rate standards; the Senate followed suit in a 70-to-20 vote.

With deregulation in place, all it cost to enter the industry was the price of a few trucks. Thousands of drivers and small businessmen took the plunge. Alongside the small-timers, some mega-companies—most prominently, FedEx and, more recently, Amazon—entered the field, declaring their drivers to be independent contractors, though no one has ever seen a FedEx or Amazon truck used by its “independent” drivers delivering balls and bats to their kids’ Little League games..

Within a decade of 1980, as new entrants jumped into the industry, the number of truckers nearly doubled, from one million to two, most of them paid far less than their pre-1980 predecessors. Today, after competing to drive down earnings, that workforce has shrunk to the point that it can no longer keep up with the demands of its nation.

Ultimately, what doomed trucking as a decent occupation was more than the self-marginalization of the Teamsters, the estrangement of Democrats and progressives from labor, the increasing clout of business and declining clout of unions, and even the supplanting of the post–New Deal social order by a crueler neoliberalism. It was that in 1980, after 35 years of the postwar broadly shared prosperity that the New Deal had created, few if any could imagine

that American workers were on the verge of becoming downwardly mobile. A handful of union leaders—notably the United Auto Workers’ visionary president, Doug Fraser— warned it was beginning to happen. In the discourse of 1980, however, such voices went unheard and unheeded—and, though growing progressively louder, largely remained unheeded until the past decade.

So, how do we fix this mess?

To the extent that the pileup at the ports is the result, on the trucking side, of misclassification, the state of California is working hard to remedy it. Newly enacted legislation that took effect at the start of this year holds retailers (like Walmart and Amazon) liable if they use the services of companies that are repeatedly found guilty of misclassification.

The city of Los Angeles is also engaged in long-term litigation against the companies with warehouses at the port (that is, on cityowned land) that use non-union workforces.

Julie Gutman Dickinson—the attorney who, with backing from the Teamsters, has represented misclassified drivers in an unbroken string of successful lawsuits against those trucking companies—has long been frustrated, however, by those companies’ refusals, even after they’ve been compelled to make payments to those drivers in the millions of dollars, to shift to actually employing those truckers. In 2014, working on one such case, she had what she calls “an epiphany: What was it that restrains an employee’s right to have a voice on the job and to bargain collectively? Misclassification—it’s an inherent violation of the NLRA.” At the time, the National Labor Relations Board’s general and deputy general counsels, Richard Griffin and Jennifer Abruzzo, both Obama appointees, wanted the regional NLRB attorneys to make that case to the administrative judge, but the case was settled before it reached that stage. In 2019, the Trump-controlled NLRB, in its Velox decision, ruled that misclassification did not violate the NLRA. (The brief arguing that it did was written by Gutman Dickinson.)

But in a dissenting opinion, Board member Lauren McFerran argued that Gutman Dickinson was right: Misclassification did violate the nation’s labor law. Today, McFerran chairs the now-Bidenized Board, and Jennifer Abruzzo, the Board’s new general counsel, has sent a memo to the Board’s regional offices that will likely turn up cases whose particulars could enable both Abru-

zzo and the Biden-appointed majority to rule that a walking, talking, quacking duck is actually a duck, regardless of what its employer might contend. On January 19, Omar Alvarez and his fellow XPO drivers provided just such a case, asking the NLRB to rule that they are actually employees and thus entitled to a unionization election.

At the ports of Los Angeles and Long Beach, according to the Los Angeles Alliance for a New Economy’s Mike Munoz, the 50 largest trucking companies currently have more than 7,000 drivers whom they misclassify as independent contractors.

Should Abruzzo and then the Board rule that this violates the NLRA, the companies would be compelled to reclassify them as unionizable employees. By the same logic, the Board could find that the drivers for Amazon and FedEx, not to mention the rest of the long-haul drivers who are misclassified, could become employees as well—as could the drivers for Uber, Lyft, DoorDash et al.

The NLRB may be the nation’s best hope for ending the gridlock in trucking. In early January, two of Biden’s Cabinet departments— Labor and Transportation—unveiled a joint program to help unclog the current pileup, by increasing the number and accessibility of trucking apprenticeship programs, and lowering the legal (if not the safe) age for truck driving to 18. As more than 450,000 Americans obtain commercial driver’s licenses annually, making them easier to get when the problem is the nature of the jobs themselves doesn’t seem likely to make appreciable improvements.

But even if the NLRB is able to transform the gig economy portion of the transportation industry into a more rewarding, stable, and efficient employer-employee model, and if (a big if) the courts uphold such transformations, that still would leave the greater part of the industry—the part that’s not misclassified but is merely underpaid, overworked, and in constant and total flux—unchanged. What the drivers, and the nation that needs the goods that the drivers bring them, deserve and require is a political economy and legal superstructure that takes the rights of workers seriously. It may require the kind of upheaval that the Teamsters brought to Minneapolis in 1934—only on a far vaster scale—followed by regulations that improve job quality, to create an economy where trucking, literally and metaphorically, can again deliver the goods. n FEB 2022 THE AMERICAN PROSPECT 39

The Warehouse Space Race

With warehouse capacity at a premium, businesses try to get goods and move them out as global economic chaos disrupts long-held ideas about stocking stuff just in time.

BY GABRIELLE GURLEY The pandemic shattered the fine art of moving stuff from your fingertips to the front door. Purchases of food, household supplies, and over-the-counter medicines exploded when COVID-19 lockdowns spread across the globe. American businesses fought to keep up as the world’s most voracious consumers, propped up in part by stimulus payments and boosted unemployment insurance, traded in-person movies, sports events, and concerts for new clothes, armchairs, books, TVs, and other creature comforts that could be packed up and shipped to their homes.

This triggered severe strains at every level of the nation’s transportation and logistics system, with cargo buried on offshore ships, in stacked containers, at overflowing ports, and in creaking truck beds and railcars.

Many companies compensated for this by ordering “safety stocks”—additional inventory to guard against supply chain slowdowns, ensuring they’d have at least something to sell.

But this led to a new problem: finding a place for the goods once they finally trickled out of ports. The pandemic and the logistics mess exposed a long-standing issue: The United States doesn’t have enough warehouses, or workers to run them, to satiate Americans’ insatiable desires for new stuff.

This has led to a mad scramble for storage, 40 PROSPECT.ORG FEB 2022

a warehouse space race. Rents for renewing existing leases are at “nosebleed” levels, according to commercial real estate firm CBRE. Almost 96 percent of existing space in the U.S. is in use. Of the 190 million square feet of warehouse space under construction in 2020 across North America, almost half of it was pre-leased. Private equity firm Blackstone, which normally seeks riches in more high-flying deals, recently paid $2.8 billion for warehouse space to lease out.

The race for space heralds a massive transformation for the communities where new facilities land. Amazon has led a warehouse construction surge in rural towns and urban neighborhoods. There are boarded-up shopping malls to be converted, too. Large warehouse-seeking companies promise jobs, pocket tax breaks, and deliver noise, traffic, and air pollution while oblivious consumers sit somewhere else waiting for their cardboard boxes.

In addition, with death and the threat of it closing in every workday, warehouse workers have reassessed what it means to do physically and mentally debilitating manual labor, unappreciated by firms bent on paying them as little as possible now and aiming to replace them with robots later.

But one nagging question is, how did the country get caught so short? How were retailers so ill-prepared for the need

for more warehouse capacity, when we’ve known about the e-commerce surge for years? The answer lies with our corporate titans of conspicuous consumption, who are always thinking about how to refine the lean inventory management philosophies that have steered commerce for several decades.

In the 1980s, big-box retailers like Walmart embraced an inventory management philosophy that had already catapulted Japanese companies like Toyota into the first rungs of global manufacturers. In a sense, American retailers did an about-face, embracing concepts that auto companies rejected when W. Edwards Deming, an American engineer and New York University statistics professor, first proposed them before World War II. Deming went to Japan to assist with the postwar reconstruction effort, and continued touting his ideas. His “total quality management” philosophy rested on imbuing a company’s leadership goals with team-oriented approaches. Success meant that everyone, from assembly line workers to executives, worked on problemsolving strategies that could occur at any point in the production cycle. Workers observed problems in producing or moving goods as they developed and assisted managers in resolving them.

FEB 2022 THE AMERICAN PROSPECT 41

Amazon opened 300 ware­houses in 2020 alone, up from an average of 75 openings a year.

Impressed, Toyota executives sought out Deming to refine the company’s inventory precepts into what became known as the “just-in-time” logistics system (later the Toyota Production System). Just-in-time prescribed that component parts should be acquired for manufacturing only when required to complete that unique part of the process. This allowed a company like Toyota to save on warehouse space, for starters.

Just-in-time “is not black-and-white, it’s a continuum in the sense that just-in-time doesn’t mean zero inventory,” says Ravi Anupindi, a professor of operations, research, and management at the University of Michigan’s Ross School of Business. “It means sufficient inventories such that you have smooth sailing; the flip side is you can have too much inventory to hide the problem, so [the question is] how do you gradually show a cycle of improvement to keep reducing inventory and keep removing the problems.”

Toyota’s interest in staying lean in its manufacturing process migrated to Walmart as a desire to stay lean in its distribution of finished goods. Innovations like the barcode gave retailers a better understanding not only of the number of computers or coats sold but also when and where demand was the highest. This served as a transfer of economic power from manufacturers to large retailers like Walmart. Keep42 PROSPECT.ORG FEB 2022

Almost 96 percent of existing warehouse space in the U.S. is in use. ing a warehouse well stocked with products “just in case” of a bump in demand lost out to the notion of keeping inventories low and dispatching goods as orders for replenishment came in, that is, just in time.

One primary impact of this philosophy is that it requires fewer warehouses. Inventory sitting around gathering dust is seen as a cost to a retailer; they have to pay rent for the warehouse space. It shows up as a liability on the balance sheet. Inventory moved just in time to store shelves can be sold quickly. Maximizing profit meant predicting precisely how much inventory would be needed at a given time, and only ordering that much.

This is an incredibly lucrative strategy for the handful of sophisticated companies that can manage it. But just-in-time requires consistent, predictable supplies. And the only thing the pandemic has supplied

consistently is a cascade of global shortages.

A perfect example of the shortsightedness of just-in-time logistics can be seen in Abbott Laboratories’ decision last summer to destroy millions of BinaxNOW rapid COVID tests, which are in such short supply now.

The reason? Demand for testing at that time was going down, and waiting around until it ticked up again would mean storing the tests, and paying for that storage, in a warehouse.

Where Deming advised, “It would be better if everyone worked together as a system, with the aim for everybody to win,” Walmart and other big-box stores opted for a cafeteria approach to just-in-time, picking out the cost-cutting features to boost profits and grossly devaluing the people toiling in warehouses for low pay and poor benefits.

“Just-in-time is hard to implement in practice because a lot of companies are going for efficiency and they mistakenly think of the line workers as a cost rather than a source of problem-solving,” says Senthil Veeraraghavan, a professor of operations, information, and decisions at the Wharton School of the University of Pennsylvania.

“They get into this situation of cutting costs, cutting staff, cutting inventory, bringing it down as close as possible to zero,” he says.

“Firms then suffer problems because they have lost experienced workers who could solve those problems.”

E-commerce, with its direct shipments to consumers, represents “a fundamental shift” in warehouse logistics, according to Anupindi. A warehouse that supplies retail stores has different expectations for workers, technology, and equipment than an e-commerce fulfillment center that ships packages to homes. Walmart has distribution centers that supply to stores and different distribution centers that ship to individual walmart.com consumers.

Unlike retail stores, where customers interact with employees, most people opening their cardboard boxes have little idea about the harms other people suffered to get their orders into those packages. COVID-19 in particular has pushed warehouse workers over the edge and into the Great Resignation.

Warehouse work is a backbreaking way to earn a living. Walmart normalized punishing daily regimes and low wages, purposely siting warehouses in rural areas far

from highways to keep pay at rock bottom, and frustrating union organizers. But if Walmart stepped up maltreatment of warehouse workers, Amazon has perfected what Courtenay Brown, an Amazon fulfillment center worker, called the “high-tech sweatshop” in testimony before a Senate Finance subcommittee this past December.

“Amazon is the innovator in not just warehousing but a lot of sectors,” says Sheheryar Kaoosji, executive director of the

Not Even a Superhero Could Fix Global Supply Chains The comic book industry halted production in 2020 and a supply chain crisis bubbled in 2021, hitting retailers and fans alike.

By Jarod Facundo World War II and 9/11 couldn’t halt comic book production; COVID did. In 2020, as the world flipped on its head, even comics couldn’t evade a concentrated economy’s bursting fault lines. Diamond Comic Distributors—the industry titan that distributed Marvel and DC Comics for a quarter-century—shut down operations in April 2020 for nearly two months.

While distribution eventually restarted, the industry has continued to suffer lags. Entering the third year of the pandemic, frustrations run deep among comic book enthusiasts.

Paloma Deerfield has worked for more than five years at Vault of Midnight, a comic book shop in Grand Rapids, Michigan. Her favorites include X-Men, Saga, Demon Slayer, Jujutsu Kaisen, and the indie comic publisher Boom!

Studios. It’s disappointing, says Deerfield, “not being able to stock the shelves the way we want to.”

Buyers and sellers alike are feeling the impact not only from comic book

distribution delays, but also from a shortage of bags and boards—the materials used to preserve collections in mint condition.

At BCW Supplies, an Indiana-based company that provides over 900 hobby accessories for collectors and retailers, backing boards are processed in their Indiana facility, while plastic bags are produced in their China factories, according to marketing manager Ted Litvan.

T h e p a p e r i n d u s t r y ’s significant price increases, explained Litvan, are due to higher demand outside of the collectibles industry. In early 2021, Amazon and other e-commerce giants snatched up the majority of the world’s cardboard supply. The cost of producing corrugated cardboard tripled last year too. For imported goods, meanwhile, “the ports are a mess,” and BCW can no longer predict when a shipment will be available for final delivery.

The supply chain is worsened by every aspect of shipping being more expensive. When cargo arrives at ports, BCW must transload their goods from cargo containers to separate intermediary locations, and then long-haul-truck the products to their Indiana facility. The transloading model is more expensive and differs from the intermodal model, which keeps products in the same container from start to finish.

As the proliferation of e - commerce stripped sentimentality out of virtually every shopping experience, comic book stores managed to remain exemplars of nostalgia and wonder. But for retailers, the inability to keep comic books and hobby accessories in stock makes it hard to keep the momentum going. “You wanna get [comics] in people’s hands, but you can’t,” said Deerfield. “People have holes in their collections. It’s a bummer.” n FEB 2022 THE AMERICAN PROSPECT 43

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to stop treating people like robots. California is the first and, so far, the only state to tackle the tyranny of warehouse algorithms that set the pace for human work.

As of January 1, large warehouse employers must provide workers with production quota metrics, and rules prohibit terminations based on quotas that interfere with a worker’s meal or rest breaks. The legislation also empowers state agencies to investigate “algorithm-enforced quota systems.” New York and Minnesota are also looking into similar measures.

“Amazon workers in the warehouses will be able to find out what their production standards are, and what algorithm is governing them, and if I think it’s unreasonable, well, guess what, I can join together with my co-workers and do something about it,” says Doug Bloch, political director for Teamsters Joint Council 7, which represents Northern California and Nevada workers in transportation and logistics and other sectors.

Flying from the Northeast to Los Angeles, about 30 minutes before landing at Los Angeles International Airport, planes glide

STEFAN PUCHNER / PICTURE-ALLIANCE / DPA / AP IMAGES

Warehouse Worker Resource Center, which organizes non-union workers.

“Keep up with a certain rate or else you don’t get called back tomorrow.

This is starting to bleed over into drivers, how many packages they can deliver in a day or an hour. It’s really starting to become something that’s going to be endemic.”

Amazon designs its warehouses to keep people moving, limiting connections that could serve as a spark to coordinate grievances or foster unionization, according to Kaoosji. To optimize how its “industrial athletes” navigate the warehouse floor and complete tasks, Amazon warehouses are multiple football fields long. Cameras monitor workers scanning items. Roving managers prod people who fall behind and fire people who can’t keep up. Rotating shifts minimize interactions between individuals.

Many of Amazon’s non-union warehouse workers are temporary employees hired by subcontractors, putting distance, if not responsibility, Amazon warehouses are between Amazon and its warehouses. increasingly dominated by Amazon doesn’t want these jobs to “mobile drive unit robots” be permanent landings; the company that lift boxes and bins. sees them as a pathway to a better, non-Amazon job. A case in point: A recent pany to change its ways, though ultimately National Labor Relations Board order it’s aiming for warehouses with the lowdirected Amazon to hold a new election est number of humans possible. Amazon on unionization at its Bessemer, Alabama, dove into automation a decade ago, acquirdelivery center. But most of the workers ing Kiva Systems, a robotics company. Its who voted the first time around, a Wall warehouses are increasingly dominated by Street Journal investigation found, have robots that lift boxes and bins. GeekWire reported that the company has 350,000 already quit.

The pandemic has forced a new reckon- “mobile drive unit robots,” a 75 percent ing on Amazon’s warehouse practices. A increase over two years ago. wage hike to $18 an hour has failed to slow The pandemic has only accelerated autodown the mass exodus from these fester- mation across the warehouse sector, and ing places. COVID outbreaks are rampant the C-suite is highly motivated to phase in facilities, yet Amazon, now the world’s out people. After all, they get sick; they largest retailer, has been penalized a pal- can’t work 24/7; they complain or foment try $500,000 for hiding outbreaks from rebellion by agitating for unions. Yet robotCalifornia warehouse employees. OSHA ics engineers have not yet come up with has Amazon in its sights after an early- robots with fine motor skills, to pick out December tornado touched down on an large numbers of items that robots can’t Edwardsville, Illinois, Amazon delivery discern, as well as scan and pack them. station, killing six workers. Questions have And a recent report from software maker been raised about why workers were kept Lucas Systems found that 99 percent of on-site despite the tornado warnings, not warehouse operators expressed difficulty allowed to have cellphones on them, or did using artificial intelligence effectively. For not have emergency shelter appropriate for the time being, retailers like Amazon are storm conditions. stuck with people.

Bad press has not persuaded the comSome state governments want Amazon

Every $1 billion in new e-commerce sales requires one million square feet of new warehouse space. over the Inland Empire and its acres of nondescript buildings. “It’s warehouse city,” says Yossi Sheffi, director of MIT’s Center for Transportation and Logistics. “Warehouse after warehouse, flat roof after flat roof.”

From that vantage point, it would seem like there are enough warehouses to move all the consumer goods that Americans want on the same day or, better yet, in a couple of hours. But there really aren’t. CBRE estimates that the U.S. alone needs 330 million more square feet of warehouse space to meet e-commerce demand into 2025; to meet total demand, another firm, JLL, put that number at one billion. (According to CBRE, every $1 billion in new e-commerce sales requires one million square feet of new warehouse space.)

Amazon has pursued a blistering pace of warehouse expansion for years. According to a Consumer Reports investigation, Amazon opened 300 warehouses in 2020 alone, surpassing its previous average of 75 per year in each of the four previous years.

Moving inventory means bigger warehouses approaching one million square feet or more, as well as smaller facilities to speed up “last mile” package transport in metro areas, so that Amazon can live up to its promises of rapid delivery.

Amazon’s land rush has pushed its bigbox competitors off the sidelines. Companies like Walmart, Target, and Costco are all jockeying for warehouse space, in a reversal of the just-in-time mindset. Base rents rose nearly 10 percent in the first half of 2021, according to CBRE. Walmart announced the construction of two million square feet of space in Tennessee and Utah in December.

Accelerated warehouse construction predates the pandemic, but the current demand has sent the industrial real estate market, which has long been the “bad stepchild” of the real estate sector, into the stratosphere for at least five years, says Mark Dlott, a

senior vice president the Apex Commercial Group, a Dayton, Ohio, commercial real estate firm.

In October, Amazon announced a one-million-square-foot fulfillment center built on a former golf course in Canton, Ohio. While Ohio Gov. Mike DeWine and local officials hailed the project, neighbors didn’t know much about the plans. (Amazon appears to court secrecy about new warehouse projects with innocuous names like “Project Tarpon” and “Project Cyprus,” both in Florida.) One Canton resident who lives across the street from the site told CBS19 News in Cleveland, “It’s going to be a hassle; I would’ve preferred the golf course stayed there.”

Golf courses seem to be sought-after locales. Opponents of a 2.6 million-squarefoot Amazon fulfillment center proposed for a Hudson, New Hampshire, golf course have filed a lawsuit against the town. So far, jobs have greater appeal than open space in the Rust Belt, says Dlott, the Ohio real estate executive. “Manufacturing centers are trying to claw their way back to being relevant, that’s what are you seeing, with communities being receptive to these huge facilities.”

Elsewhere, Consumer Reports found that Amazon sites its urban warehouses in low-income African American and Latino neighborhoods that contain large swaths of industrial-zoned land and are less likely to have the resources to fight a company bringing air and noise pollution and truck traffic and “crappy jobs,” as Bloch, of the Teamsters, calls them.

These are the drawbacks that have soured Northern California communities on megawarehouses. San Jose rejected a proposed six-football-fields-sized Amazon distribution center. Contra Costa County introduced a temporary moratorium on new “Amazon style” development or expansions in North Richmond. The politics have shifted. It’s not just some progressive elected officials, the Sierra Club, and the Teamsters warning about the downsides, but the residents themselves. “Part of the reason why people are saying no,” says Bloch, “is that we’ve seen what happened when we said yes.”

One of the reasons these tensions between communities and warehouse interests are spilling over is that our cities weren’t built for the e-commerce revolution, either. The just-in-time philosophy helped to dictate fewer warehouses, and fewer of the attendant harms to workers and the environment

from them. Now that companies are scrambling to build more, there are few places for them that make sense. Yet insufficient warehouse capacity risks more supply shortages and higher consumer costs—persistent supply chain disruptions already cloud year three of the pandemic. The lack of reserve inventory means that almost no goods are really safe from being out of stock.

These uncertainties may have effectively suspended just-in-time, at least in the short term. Many companies, especially smaller ones, have staked their businesses on stockpiles, that is, “just-in-case” inventories. But inventories are only part of the story. The pandemic is prodding businesses to revisit the connections between manufacturers and suppliers and between affected customers, according to Sheffi of MIT, who explores some early lessons learned in his book The New (Ab)Normal: Reshaping Business and Supply Chain Strategy Beyond Covid-19.

“Just-in-time is not going to go away anytime soon, or maybe ever, because it’s just too good,” Sheffi told the Prospect. One of the keys to post-pandemic resilience is what he calls “smart globalization.” “I’m not saying get out of China or Southeast Asia. But think about distributing your purchasing power.”

Such a shift could mean that some manufacturing returns to the U.S. and that nearshoring to Mexico increases. But how the warehousing sector evolves depends on how the pandemic peters out, and where demand ends up. Large retailers have the resources to build redundancy into their warehouse networks to mitigate against both local and global supply shocks; however, new pandemics and extreme weather events pose threats to many smaller businesses that cannot make comparable investments.

Amazon’s expansion plans are already galvanizing cities and towns to push back against more community-destroying, carbon-spewing mega-warehouses, a disturbing trend that recalls Walmart’s destruction of local business districts with superstores in the 1990s. The pandemic has enabled Amazon to stoke even higher levels of consumer mania. The blatant disregard for worker health and safety, the dizzying rate of warehouse construction, and the willingness of many public officials to bow down to it all are symptoms of a deeper societal malaise.

None of that matters, though, as long as the titans of conspicuous consumption find places to pack and ship your stuff. n FEB 2022 THE AMERICAN PROSPECT 45

Big the

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Business Games Supply Chain

The disruptions, and the subsequent circumventions, have accelerated Amazon and Walmart’s takeover at the expense of independent retailers.

BY ROSE ADAMS Grocery store owner Jimmy Wright spent months stocking up for the holiday season.

Since the beginning of the pandemic, he had struggled to maintain inventory at his sprawling store in east Alabama, and as the holidays approached, he anticipated that annual favorites—hams, gingerbread men, pies—would be in short supply. To prepare for the shortages, he began stockpiling products in early November, spending $70,000 on top of the $250,000 he usually devotes to inventory. The investment paid off: Wright’s Market entered the holiday season with goods that were sold out elsewhere, like cream cheese and cranberry sauce.

But this was a bright spot in an otherwise bleak couple of years. Since the pandemic began, manufacturing slowdowns, worker shortages, and volatile demand have dogged the grocery industry, forcing grocers to find new ways to stock their shelves. “We’ve just had to be creative,” Wright said. “When a product was there, we’ve had to try to buy all we could buy.”

Customers still frequent Wright’s Market, which is located five minutes outside of downtown Opelika, a small city of 30,000 that borders Auburn University.

But Wright, who has run the market since 1997, said it’s never been so hard to stock up on inventory, and that the process of simply getting supplies overwhelms his employees.

“My meat department man will start at

about 3:00 every afternoon on the phone, and it takes him until 6:00 each night to call suppliers and see who’s got this, who’s got that,” Wright said. “It takes him about three hours every day, when it used to be maybe 30 minutes before.”

Nearly every industry has suffered shortages from supply chain backups since the first COVID-19 outbreak in early 2020.

Each link in the supply chain has frayed, and even though Americans spent more on goods since the pandemic than ever before, the snarls have inflated the costs of production and shipping.

Small businesses in particular have paid a steep price. A study by the Federal Reserve found that about 800,000 small businesses closed in the first year of the pandemic, about 200,000 more than the annual average. Restaurants, toy stores, booksellers, indie clothing brands, and hardware stores have strained for over a year to meet rising consumer demand. “I have a product that’s been on back order for over 500 days,” said John Ciferni, who owns Tarzian Hardware, a 100-year-old hardware store in Brooklyn, New York. “There are some products that are just gone, and you just have to find something else.”

Big-box stores, however, have circumvented many of the bottlenecks. Amazon, Walmart, and other giants have maintained their inventory by expanding logistics operFEB 2022 THE AMERICAN PROSPECT 47

ations and striking deals with suppliers, allowing them to get products quicker and cheaper than their smaller rivals. Though the maneuvers keep consumers happy, small businesses have suffered: They wait longer for goods, pay more for shipping, and lose business as customers flock to big-box stores.

The rapidly consolidating market has broader implications. As the biggest players eliminate competition, workers earn less and communities lose key services.

“The conventional thinking of the last 40 years is we don’t need small-scale producers and distributors because bigger is much more cost-effective,” said Stacy Mitchell, co-director of the Institute for Local SelfReliance. “But it has drained the life out of local communities and created a kind of despair across many parts of this country that are struggling.”

Smaller retailers simply cannot compete with their bigger rivals in a supply chain scramble. A case in point: Giants like Walmart, Home Depot, and Dollar Tree have chartered their own cargo ships to sail to smaller ports like Houston, Texas, and Everett, Washington, avoiding weeks-long waits at the heavily trafficked ports of Los Angeles and Long Beach. Walmart repurposed a vessel that usually carries grains in order to deliver toys to a dock outside the Los Angeles port last fall. Home Depot, whose executives jokingly pitched the idea of chartering a ship last spring, later hired several vessels to transport plumbing tools, holiday decorations, and other items. Between November 15 and December 20 alone, nine ships chartered by retail companies docked at U.S. ports, compared to zero during the same period in 2020, according to ocean freight analyst Steve Ferreira.

Large companies also carved out strategies to accelerate processing after the freight ships dock. Walmart has rented space for “pop-up” container yards near ports in Los Angeles and Savannah, Georgia, dedicated to getting their goods out. Dockworkers segregate Walmart containers, and truckers move them to their yard, so they don’t get intermingled with the dogpile of goods destined for other retailers.

One major retailer isn’t new to the world of ocean freight and transportation logistics: Amazon. The e-commerce giant obtained a license in 2016 to buy and sell cargo space on container ships traveling from China, and since then, it has transported over 48 PROSPECT.ORG FEB 2022

200,000 containers across the Pacific, per Ferreira’s numbers.

Amazon has also been building its own shipping containers since 2018, giving it a boost amid a container shortage. While other retailers now pay up to $14,000 to ship a container from China to the U.S.—eight times the pre-pandemic cost—Amazon can rely on its own 53-foot units for both international shipping and domestic delivery.

Amazon was well prepared for the supply chain logjams, not just because of its experience in ocean freight, but because of the billions it has invested into expanding its logistics footprint. In 2021, the company opened its first freight airport in Cincinnati and added 11 long-haul cargo planes to its fleet of 85 domestic air freight carriers. The new cargo planes avoid the ocean supply chain snarl entirely, flying directly from China to the U.S. The year before, it added 1,000 last-mile warehouses. And its fleet of delivery trucks to homes and businesses continues to grow dramatically.

Amazon is also well on its way to dominating domestic shipping: In 2020, the company shipped 21 percent of all U.S. parcels, more than FedEx, according to the Pitney Bowes Parcel Shipping Index. By early this year, Amazon expects to be the largest private package delivery service in the U.S. It won’t be long until Amazon eclipses the U.S. Postal Service. “Only the spam mail will come on U.S. Postal, but the rest will come from Amazon,” said Gad Allon, a professor at the Wharton School of Business.

Building a logistics empire isn’t cheap.

Amazon has shelled out over $100 billion on shipping since 2018, and in the fourth quarter of 2021 alone, CFO Brian Olsavsky projected that Amazon would spend $4 billion on logistics, from growing its freight and shipping operation to hiring seasonal staff. The company has invested heavily in its workforce: Amazon has hired about 700,000 workers worldwide since 2018— nearly doubling the head count in less than three years.

This spending spree, coupled with rising supply chain costs, has eaten into Amazon’s profits, but profits can be found in other ways. Ultimately, Amazon seeks to expand its reach into each platform and service that enables commerce. Already, Amazon acts primarily as a retail platform rather than as a retailer: It makes most of its sales through third-party sellers on Amazon Marketplace, and it collects an exorbitant amount in fees

Smaller retailers simply cannot compete with their bigger rivals in a supply chain scramble. by acting as a freight forwarder, advertiser, and delivery service for its sellers. “It might be that in a few years from now, Amazon may not carry any inventory, if anything.

It will just do all the transactions beyond that,” said Allon.

Amid the supply chain disruptions, Amazon’s growing logistics operation has pressured third-party sellers to import their merchandise through Amazon’s global shipping service. Third-party fulfillment is lucrative for Amazon; the Institute for Local Self-Reliance estimated in December that the tech giant now takes 34 cents out of every dollar of their seller partners’ revenue, up from 19 cents in 2014. That cuts significantly into sellers’ operating profits. In addition, the service gives Amazon access to a seller’s pricing and supplier data, which Amazon has used in the past to sell competing products. But given the current constraints, sellers don’t have much of a choice.

“If Kim Jong Un had a container, I might take it, too,” Lights.com owner David Knopfler told Bloomberg. “I can’t be idealistic.”

Amazon and other retail giants have been gaining market power for years, but the pandemic has accelerated their growth.

While small businesses shuttered in 2020, the world’s 50 largest companies expanded their global reach, accounting for 28 percent of the world’s gross domestic product, a study by Bloomberg found. Between fiscal years 2020 and 2021, Walmart’s net sales worldwide jumped 7 percent, the company’s largest increase since 2007, while Home Depot saw the biggest surge in sales revenue it’s seen for at least 15 years.

Unsurprisingly, these trends spell danger for mom-and-pop shops. Not only do small businesses lack the resources to charter boats or planes and overcome supply chain slowdowns, but many lose out when consumers change spending habits and begin to do all their shopping online. “What COVID did is accelerate consumer trends to the

online space about ten years or so quicker than what the industry expected. So we’re kind of playing catch-up,” said Chris Jones, a senior vice president at the National Grocers Association.

While many small businesses stayed in the black throughout 2021—thanks in large part to the spike in consumer demand— shifts in consumer patterns could give big corporations even more leverage. Small businesses have little hope of attracting online customers outside of Amazon: Amazon products come up first in Google’s search results, and over 60 percent of Americans seeking to buy a product online begin their search on Amazon. The jump in online shopping during COVID will likely continue post-pandemic, driving traffic to Amazon.

“People don’t start using e-commerce and then go back,” said Jason Murray, a former vice president at Amazon for nearly 20 years who now runs a logistics startup. “Anytime in e-commerce you see a transition [to online shopping], it tends to stick.”

Every holiday season, Wright’s Market offers its customers deals on seasonal favor-

ites. Before New Year’s Eve, the store’s promotional flyers advertised hog jowl, a traditional Southern New Year’s dish, for only $1.49 per pound. For Christmas, Cook’s Ham was $1.69 per pound. The promotions allow the store to buy products from major brands at a discount, and many of Wright’s seasonal deals remain year after year. Each Thanksgiving and Christmas, for example, the store advertises Duncan Hines Cake Mix, the most popular brand of cake mix in the area. In exchange, Wright pays $1.13 per box, down from the usual price of $2.20.

But customers can find the same cake mix at a nearby Walmart for $1 all year round. “I can’t even match their prices without losing money,” Wright said. “We may get a promotional price on an item once every quarter, maybe. Some of the big-box players, some of the dollar chains—they’re getting promotional pricing every single day of the week.”

Food suppliers have little choice but to comply when Walmart demands low prices.

Although it’s not classified as a grocery store, Walmart, along with its subsidiary, Sam’s Club, is the largest grocer in the

country. In 2019, the company controlled nearly a quarter of the grocery industry, while Kroger, the largest supermarket chain in America, controlled less than 10 percent. Walmart has even more power in more rural areas. A 2019 report by the Institute for Local Self-Reliance found that the company raked in more than 50 percent of grocery spending in 203 markets nationwide, including one out of every three non-metropolitan markets.

Walmart’s dominance gives it bargaining power suppliers can’t resist. For years, the company has pushed back against price increases and charged its suppliers fees for late deliveries. As the supply chain snarls tightened resources, Walmart has made even more demands.

In late 2020, the company sent a memo to its suppliers announcing that in early 2021, vendors who didn’t complete 98 percent of Walmart’s orders on time and in full would be fined 3 percent of the order’s cost. Walmart had already instituted fees for late or lacking deliveries in 2017, but its new rules—which increased the threshold from 70 percent completion to 98 percent

Amazon expects to become the largest private package delivery service in the U.S. by early this year.

FEB 2022 THE AMERICAN PROSPECT 49

completion in some cases— shocked Walmart’s suppliers.

Unable to miss deliveries or raise prices on Walmart, suppliers have had to hike up prices on smaller businesses to compensate. “Price increases have been coming in nonstop for the last three months,” said Mike McShane, an executive at URM Stores, a Washingtonbased food co-op that distributes food to independent grocery stores. “There’s probably ten to twelve increases coming on a daily basis.”

Walmart isn’t the only retailer that has siphoned off suppliers. In a call with investors in November, Home Depot’s president Ted Decker boasted about the company’s special relationship with its vendors.

“We’ve been very pleased with responses from longterm supplier partners and in some cases, supplier partners saying, ‘We can’t service the industry. So we’d rather focus on the best partner,’” he said.

Many manufacturers have for years adjusted their businesses to cater to bigbox players, something that the supply chain mess is exacerbating. For example, major toy makers have raised the amount buyers have to purchase from them annually in order to keep their account. Mattel currently requires businesses to buy a minimum of $20,000 worth of products a year—a price that’s too high for many smaller businesses. Fundamentally Toys, an independent toy store in Houston, Texas, typically buys $10,000 worth of Mattel toys per year, so after Mattel increased its annual minimum, its owners decided to close the store’s Mattel account in 2021. Already, Fundamentally Toys had struggled to sell its Mattel inventory at competitive prices. “We really can’t compete on Mattel products with big-box stores because they sell them for just a little more than what we pay for them,” said Cliff Moss, the store’s manager.

The market consolidation of today harks back to the Gilded Age, when a handful of monopolies dominated the economy.

50 PROSPECT.ORG FEB 2022

Small businesses enhance communities like Opelika, Alabama, home of Wright’s Market.

Nineteenth-century corporations amassed power in familiar ways: John D. Rockefeller’s Standard Oil, for example, first bought up competing oil refineries, and then cut costs by streamlining its production and logistics processes. Standard Oil used its purchasing power to strike deals with railroads, which would transport its oil for a discount. The company’s tactics enabled it to undersell its competitors, but once it monopolized a local market—by 1900, it controlled 90 percent of all U.S. oil refineries—it raised prices on consumers.

Public pressure to reel in Standard Oil and other monopolies prompted Congress to enact the first federal antitrust legislation.

The Sherman Act, which passed nearly unanimously in 1890, forbids competitors from conspiring to fix prices or rig bids that restrict competition in interstate or international trade, and prohibits companies from monopolizing a service through “unreasonable” methods. Although the law’s unspecific wording allowed many monopolies to evade prosecution, the legislation did lead to the breakup of

Standard Oil, reviving competition in the oil industry.

Congress later strengthened the Sherman Act with a second law in 1914, the Clayton Act, that banned mergers threatening to reduce market competition. And in 1936, Congress passed the Robinson-Patman Act, which barred vendors from selling products to preferred customers for a lower price.

The Robinson-Patman Act finally gave the government leeway to crack down on the special deals major retailers forged with suppliers. Between the 1940s and the 1970s, the government rigorously enforced the legislation: In one seminal case in 1948, the Supreme Court ruled that Morton Salt had violated the Robinson-Patman Act when it sold a product at a discount to five chain stores that could afford to make larger orders than smaller businesses.

But gradually, these laws have been defanged. Beginning in the late 1970s, a new school of thought from conservative economists at the University of Chicago reframed the goal of antitrust law. Its purpose wasn’t to protect small businesses

and foster competition, the scholars argued, but to protect consumers from monopolistic business practices, primarily ones that drive up costs. This theory, called the consumer welfare standard, gave large corporations free rein, and has since permeated government and the courts. “Built into this ideology is the notion that bigger companies are inherently more efficient, and therefore, if your goal is to maximize efficiency and reduce prices, big is better,” said Stacy Mitchell. “Things that would have drawn scrutiny and prosecution at an early period are now considered as not just OK, but encouraged.”

The consumer welfare standard has made it exceedingly difficult for plaintiffs to prove antitrust claims. Now, in addition to proving that a company violated the Sherman Act, a plaintiff must also show that the defendant’s practices lessened overall output in an entire line of commerce. According to antitrust lawyer William Markham, the term “consumer welfare” is a misnomer, since the standard seeks only to protect a market from a substantial reduction in output caused by monopolistic or anti-competitive business practices. “The standard, properly understood, is not concerned with proving harm to consumers, but only with demonstrating a supposedly inefficient short-term allocation of resources in private markets,” said Markham. Meanwhile, federal enforcement of Robinson-Patman has waned to the point where it practically doesn’t exist as a legal matter.

The soaring costs of acquiring inventory we’re currently seeing in the economy have burdened small businesses even further, but the ways larger retailers are able to secure their own supplies compound the problem, creating a broader divide between the haves and have-nots.

Small businesses have had to center their business models around products or services

Unable to raise prices on Walmart, suppliers have had to hike up prices on smaller businesses to compensate.

customers would prioritize above cost and convenience. Many retailers have carved out niches. Wright’s Market specializes in meat, and sources some of its products from local meat processors. Many independent toy stores, including Fundamentally Toys, stock toys from smaller toy makers, which are often longer-lasting and more environmentally friendly than Barbies and Legos. In some industries, such as fashion and food, a movement toward ethical consumption and transparency has given newcomers an edge. But even when small retailers hone their specialties, they still have to work within a system dominated by big manufacturers and suppliers. “They’re embedded in a system that is highly consolidated and large-scale, so they’re always having to interface with parts of it that disadvantage them,” Mitchell said.

The elimination of small businesses doesn’t just threaten small-business owners. It also affects workers, particularly the working class. As the majority of U.S. markets have become more concentrated, wages have fallen between 15 and 25 percent, studies have shown. And while some labor rights advocates have previously supported big companies for offering higher pay than smaller ones, that gap has since closed. Now, the bottom 50 percent of workers at large corporations earn about the same as employees at smaller companies.

Independent businesses are also a necessary ingredient for a more nimble and resilient economy. In the face of pandemic shutdowns and supply chain madness, some local food systems have adapted more quickly than national ones. Small businesses quickly pivoted to meet customers’ needs, allowing takeout or hosting livestreamed classes.

A supply chain dominated by one manufacturer, distributor, or retailer is more likely to buckle because of a single challenge. While the Walmarts and Amazons of the world have managed to keep stocks robust, they have not been immune to shortages, and they’re always one disruption away from disaster. Paint suppliers, for example, have struggled to stock up on alkyd resin, a key ingredient in certain types of paint, ever since an Ohio facility that’s responsible for 30 percent of the material’s production closed after an explosion in April 2021.

“There’s an adaptation that happens when

you have diversity,” Mitchell said. “And the lack of diversity in our production and distribution system has hamstrung it in terms of being able to adapt.”

Locally, small businesses enhance communities. Their revenue is more likely to go back into the surrounding area, stimulating the local economy. When they close, not only does civic participation decrease, but locals are left without key products or services. In Opelika, Alabama, residents don’t have issues accessing necessary items, such as groceries. In addition to Wright’s Market, they can do their food shopping at Aldi, Piggly Wiggly, and an Asian specialty foods market, all within a five-mile radius of Wright’s. But residents of Hurtsboro, a town 30 minutes outside of Opelika, aren’t so lucky. Hurtsboro’s main street, once a bustling avenue, looks like a ghost town. One-story brick buildings line the street, displaying tattered awnings and the remnants of shop signs.

Hurtsboro wasn’t always so quiet. “When I was growing up here, the town was thriving,” Hurtsboro’s mayor, Vivian Covington, told the Prospect. “On a Thursday, you could hardly walk downtown. Now, it’s dead all the time.”

Hurtsboro’s small-business closures have hurt residents acutely. About three years ago, the area’s only independent grocery store closed, forcing residents to do their grocery shopping at Dollar General, which doesn’t stock fresh produce or meat.

Hurtsboro’s population of 600, along with its surrounding communities, now has to drive nearly 30 minutes to access a fullstock supermarket.

To help increase food access, the local government worked with Wright’s Market to open a mobile market in town that sells fresh produce and meat one day per week beginning in January. “Of course they would like to have a physical store down there,” said Wright, “but it’s just really difficult to make that work.”

The closure of small businesses, from pharmacies to toy shops to grocery stores, can lead to a town’s demise. As Wright put it, “When you start losing something like a grocery store, it just becomes a tailspin for small-town America.” n Rose Adams is a reporter based in Brooklyn, New York. She was previously a politics fellow at The Intercept and a local reporter covering New York City news.

FEB 2022 THE AMERICAN PROSPECT 51

Frackers Restrict the Flow and Raise the Price After a decade of flooding the market with cheap fossil fuels, investors have cut back on production.

BY LEE HARRIS

Following two decades of steeply rising corporate returns, Wall Street profits soared to extraordinary highs last year, despite inflation and the increased costs of securing and transporting goods. The stock market is thundering along, with S&P 500 earnings rising 45 percent in 2021, according to FactSet. As the economy has staggered back from the pandemic, investors have ridden rising prices to higher returns. (Higher public investment during the past two years also explains some of the extraordinary profits.)

“What we really want to find are companies with pricing power,” Giorgio Caputo, one portfolio manager, told Bloomberg. “In an inflationary environment, that’s the gift that keeps on giving.”

Stock buybacks helped retailers remit profits to shareholders. Best Buy CFO Matt Bilunas told investors on a November earnings call that the consumer electronics chain would spend more than $2.5 billion on buybacks in 2021 while hiking prices on appliances. “In most cases, we’ve flowed those prices on to the consumer,” he explained.

Brokers who string together strained supply chains have also seen swollen profits.

52 PROSPECT.ORG FEB 2022

The meat industry, which has shown some of the most dramatic inflation in the economy, is patrolled by a concentrated group of meat processing middlemen who buy low from ranchers and sell high to consumers at the grocery store.

Many bottlenecks in this special issue stem from domestic underinvestment, offshoring, or oligopolies’ multiyear strategy to roll up an industry. By contrast, the saga of the shale boom—underwritten by banker ebullience, cheap credit, and public support—is a story of homegrown misinvestment. After years of struggling to cartelize, collapsing demand in 2020 finally shocked the industry into a wave of mergers. By the following summer, the investors who bailed out distressed frackers saw their demands for lower production and higher profits (and prices) finally realized.

Commodity traders, who arbitraged across pandemic-induced dislocations and benefited from the volatility of fossil fuel commodities, are poised to further exploit bottlenecks in fossil fuels.

Vitol, the world’s biggest oil trader, distributed $2.9 billion to partners in just the first half of last year, averaging a $7 mil-

lion bonus per partner. That’s on top of $2 billion in payouts in 2020—the same year oil prices went negative. The pandemic-time profits weren’t a one-off. The private trading houses are gearing up for years of sustained higher profits, anticipating that the same chronic underinvestment facilitated by the fracking pullback will now deliver a “commodities supercycle.”

As lockdowns lifted and life resumed last year, oil supply lagged surging demand.

OPEC Plus, the expanded consortium of oil-exporting nations, ramped up quotas to meet a growing appetite, but inventories were low and production had idled. Prices nearly doubled over the year. Entering 2022, key OPEC producers like Nigeria and Russia are still underperforming relative to their allotments, though rising production from the United States, Canada, and Brazil—all of which expect to pump at their highestever levels this year—could lift supply.

The rise in energy prices has an outsize impact on inflation. Rising prices at the pump are a bigger attention-grabber than

aggregate figures like the Consumer Price Index, though that measure also gives energy a heavy weighting. While lagging energy production may seem understandable following the pandemic, OPEC producers’ slow ramp-up is only part of the story.

Investors in American shale oil—in the past, the most f lexible barrel available to global markets, playing a pivotal role as swing producer—have exacerbated the price spike by holding down production, compared with past runups, as demand resumed.

From 2010 to 2019, a whopping 80 percent of the addition to global oil and gas demand was met by U.S. production growth, according to Kevin Book, the head oil and gas analyst at ClearView Energy Partners.

That growth kept a lid on prices—and on profits, as many smaller players entered the sector. But as demand picked back up last year, shale oil producers postponed new expenditures, wringing out yield for their long-suffering investors. That delay, energy analysts say, drove most or all of the energy price increase last year.

That the shale boom contracted sharply in 2021, leaving consumers in the lurch, has been shrugged off by analysts as an overdue market correction. Gas output has dropped, “but with good reason.” Frackers are finally “learning to live within their means.” The shock concluded years of shoveling good money after bad. And anyway, others rightly point out, fracking must end due to its climate-heating emissions and toxic air pollution.

This indifference to fracking’s demise— reports of which may be exaggerated— ignores years of malinvestment in shale, driven by animal spirits and the kind of governmental support that renewable investors can only dream of.

“We produce more natural gas than ever before—and nearly everyone’s energy bill is lower because of it,” President Obama bragged in his 2013 State of the Union.

Hydraulic fracturing—breaking up shale to suck out oil and gas—roared to life under the Obama administration, which enthusiastically backed the natural gas boom in its tender years. Claiming energy independence as a victory for Democrats helped cement FEB 2022 THE AMERICAN PROSPECT 53

the industry as a bipartisan priority. While Obama also emphasized the transition to renewables in speeches, and with anemic federal grants under his recovery act (ARRA), his unequivocal backing of shale sent a strong signal to markets, helping launch a decadelong boom. Responding to that regulatory signal, Wall Street banks joined pension funds and regional banks around the U.S. shale patch in betting hard on new drillers.

Other unconventional fuels that developed over the decade require longer-term undertakings. Deepwater rigs and Canadian tar sands mines take years to open, but then produce steadily. Shale, however, is more capital-intensive, like a treadmill.

Drilling sites are quick to open, but output can fall off, meaning one site can require continuous cash infusions to hold production steady.

The firm landscape that emerged— i nc lud i ng ne w he av y w e ig ht s l i ke Anadarko, Marathon, Pioneer, and Chesapeake—was diverse compared to the long54 PROSPECT.ORG FEB 2022

Energy, like the tech sector, had been a growth industry for the 2010s. standing dominant oil companies, with the low barriers to entry leading to many small and midsize participants. The romance of the wildcatter striking out alone wasn’t entirely a myth.

All were eager, at the first sign of higher prices, to ramp up investment. OPEC would try to cut production, prices would rise.

Frackers would then ramp up capital spending and production, turn on the spigots, and prices would fall. The supply glut—and efficiency gains in the developing technology—left oil prices to plunge, as they did in the 2014–2016 collapse in oil prices.

For years, oil production f luctuated within the so-called “shale band”—between around $40 a barrel and $65 a barrel, the price above which shale producers aggressively ramped up production.

Frackers seemed to defy gravity. Even as profits failed to materialize, investor enthusiasm persisted. The logic was selfreinforcing: High debt burdens fueled the boom, as frackers would roll over their debts repeatedly, paying off old loans with new ones. Low interest rates helped, too. Investors were searching for yield wherever they could find it. A decade of quantitative easing made more investors willing to take risks on producers who were drilling with less regard to the profitability of their own internal balance sheets.

But low interest rates and public investment don’t explain the full story of shale’s multiple leases on life.

“One of the only reasons they got away with it was that the independence story moved hearts,” Book said. “The idea that

JAE C. HONG / AP PHOTO

Hydraulic fracturing, as seen in this oil field in California, boomed under the Obama administration.

The Meat Industry’s Middlemen Are Starving Families and Farmers How monopolization in the meatpacking and processing industry affects us all

MARTA LAVANDIER / AP PHOTO

By Ahmari Anthony According to data released by the Bureau of Labor Statistics, the consumer price index for meats, poultry, fish, and eggs increased 12.8 percent over 12 months, with the index rising 20.9 percent for beef and veal alone.

In September, the White House had already released a briefing identifying the true culprit— the four major meatpacking firms. According to U.S. Department of Agriculture data, the top four firms in beef, pork, and poultry own 82 percent, 66 percent, and 54 percent of the packing and processing industry, respectively.

These firms began the process of vertical integration around the turn of the century and since have managed to monopolize this critical aspect of the industry, which sits directly in between farm and table on the supply chain.

The briefing also noted that, during the pandemic, these middleman conglomerates have raked in record profits.

While consumers stretch household budgets and ration whatever meat does make it to their tables, farmers and ranchers are receiving less and less for their livestock and are unable to financially sustain their operations. But Joe Maxwell, co-founder and president of the advocacy group Farm Action, points to a historic lack of policy enforcement since the Packers and Stockyards Act—a century-old law that according to the USDA was “originally designed to protect poultry and hog farmers and cattle ranchers from unfair, deceptive, and anti-competitive practices in the meat markets.” The resurgence of this exploitation of farmers, ranchers, and consumers (and thus, the dire state of the industry at large) has economic impact far beyond that of the small family farms being squeezed out of the business every year.

“When we lose the farmer, or the farmer doesn’t have profitability, then that impacts every business in our rural communities. We talk about the hollowing out of rural America,” said Maxwell. “This extraction of all the wealth that can be taken off the farm extracts wealth out of that community. That farmer

tor Brian Deese, as well as farmers, ranchers, and independent processors to discuss the need for competition in the industry. On the same day, the Biden-Harris administration released their action plan to address this longstanding issue, which included solutions such as strengthening the Packers and Stockyards

doesn’t have the money to go down to the automobile dealership and buy a new truck.

They lose a farmer; they don’t go to the independent feed store anymore. These companies will begin to own the feed company. They begin to own the fertilizer company.”

In early January, President Biden held a roundtable with Department of Agriculture Secretary Tom Vilsack, Attorney General Merrick Garland, National Economic Council Direc-

Act, a new DOJ/USDA initiative to coordinate their competition-promotion efforts, providing additional support for workers and independent processors, and, most notably, expanding independent processing capacity with $1 billion in American Rescue Plan funds. Despite all of these efforts, it will take consistent work and considerable time to relieve the American public of the pressure from this choke point in the meat supply chain. n FEB 2022 THE AMERICAN PROSPECT 55

Cumulative Net Industrial Investment (As a Share of 2009 Capacity) 2009–14 40%

20% 10%

56 PROSPECT.ORG FEB 2022

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“It wouldn’t surprise me,” Book said. If you’re trying to raise alternative capital, he said, it would have to come from nations’ sovereign investment funds, private equity, or corporate investment. “Sovereigns probably weren’t interested. Private equity was probably more interested, although some of them got burned, and were also going to probably demand some pretty hard terms. But yeah—why not oil companies?

Of course.” (If big oil companies lent to distressed shale firms, some argue that move could raise antitrust concerns, since oil majors would have an interest in holding down production as oil prices rose.)

Fracking also received generous federal support during the pandemic. The Federal Reserve launched a Main Street Lending Program to provide emergency support to small and midsize businesses. Initially, that program wouldn’t have supported businesses as heavily indebted as shale companies.

But after Trump energy secretary and former energy lobbyist Dan Brouillette pushed on behalf of the industry, the Fed changed the program’s terms to let more heavily indebted companies get loans, and allow them to use the loan funds to refinance existing debt. Researchers have found that the Fed’s secondary market bond-buying program, meant to be sector-neutral, is dis-

CARLYLE GROUP ANALYSIS OF FEDER AL RESERVE DATA

ments into drilling, frackers were holding oil fields idle while raking in cash, sending payments back to investors in the form of buybacks or special dividends.

As prices marched upward into the fall, the industry’s newfound restraint held. Public shale companies clocked $4.1 billion in free cash flow—a measure of liquidity—in the first quarter of 2021. By the third quarter, consultancy Rystad found, they underspent by around $7 billion.

Only now are those companies bringing production back, and more cautiously than they used to. Rig counts are rising about one-third as fast as they did in the last few run-ups, according to Book. (The numbers aren’t perfect comparisons, because rig productivity also increased over that interval, but it’s a good proxy for level of investment.)

Of course, rising prices tempt investors and individual firms to drill harder. But collectively, they’re showing more restraint.

Some observers have asked how the industry achieved this newfound capital discipline. Fewer competitors and stricter restrictive covenants on production may have helped. Public information is scant, but some analysts have speculated that it was the oil majors that may have bailed out frackers—who in previous binges have driven down prices—at the bottom of the market, and mandated lower production levels.

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Already in 2018, markets were souring on shale for overpromising and underdelivering. Mergers increased, with executives, private equity investors, and corporate raiders like Carl Icahn citing disappointing profits as the impetus.

Energy, like the tech sector, had been a growth industry for the 2010s, said Andrew McConn, an oil and gas analyst at industry consultancy Enverus. As it matured, shale companies began looking to attract yield-oriented investors as opposed to the growth-oriented ones who’d been more tolerant of lower returns.

“At the beginning of an industry, if you treat shale like an independent industry, it’s good to have lots of firms that innovate and compete and grow,” McConn said. But that sentiment has changed as investors have become impatient with low returns and have sought economies of scale. “It’s just very simply a desire for profitability, a desire to pivot from the growth phase in the industry to distributions.”

That assessment triggered a spate of shale tie-ups during the pandemic. Three of the four quarters with the highest deal value for corporate mergers and acquisitions since 2012 occurred after mid-2020, an Enverus analysis found. In the second quarter of 2021, the sector saw more than 40 deals valued at $33 billion.

By last summer, shale strategy had flipped on its head: Rather than reinvesting more than 100 percent of new invest-

Energy

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9

America was winning its energy independence was just as persuasive in the 2010s as the idea that solar stocks, a decade before, were saving the world.”

The energy independence story was persuasive because it was true—even if unsustainable, both ecologically and economically. And the failure of frackers to stanch the supply glut was hardly a problem for end users of gas, who benefited from years of depressed prices.

But there was growing unrest among investors. “Half a trillion dollars was more or less set on fire, as producers chased more production, and in the process depressed the global price of oil. They never really made much money out of it,” said Rory Johnston, a commodities economist at the investment firm Price Street. “Any profits you could get out of shale producers were filed back into more investment, which is ultimately kind of self-defeating.”

proportionately tilted toward energy bonds.

As markets appear to turn on shale, it’s a good time to look back at the limitations of the boom. Between 2009 and 2014, investment in equipment for oil and gas field exploration accounted for a major share of all industrial investment.

Sleepy towns in Texas and Oklahoma and deindustrialized Pennsylvania were suddenly poster children for fracking. Cheap natural gas was said to be giving new hope to the Rust Belt. Many of those jobs, however, which never unionized, have evaporated as quickly as they appeared. Even more striking is how little America was able to capture knock-on economic gains from cheap oil, which did surprisingly little to lift growth. On the contrary: Along with slowing growth in China, the shale energy boom and resulting oil glut helped set off a commodity price shock in 2014–2015. A global slowdown ensued.

The past year also saw commodity traders expand their ability to inf luence energy prices, despite earlier efforts to limit their sway. During the tumult of 2008, the growth of ETFs and mutual funds helped push up commodity prices.

Gary Gensler, who was then chairman of the Commodity Futures Trading Commission (CFTC), decided to impose position limits to curb that speculation, with a particular focus on energy commodities like oil and natural gas. Those rules only went into effect over a decade later, however, under a Trumpappointed CFTC, at which point they had been seriously watered down by industry.

While the new position limits improve a trading environment that had previously lacked any guardrails, said Tyson Slocum, an advocate with Public Citizen and member of the CFTC’s Energy and Environmental Markets Advisory Committee, they will not achieve their goal of controlling excess speculation, since they actually expand the

By last summer, rather than reinvesting into drilling, frackers were holding oil fields idle while raking in cash.

ability of commodity exchanges to grant exemptions to traders. For-profit exchanges make money based on trading volume, so position limits, which would reduce trading volume, could lower their fees.

“The exchanges are for-profit companies. They are financially conflicted, here, and should not be in charge of calling balls and strikes, because they’re not a neutral umpire,” Slocum told the Prospect. CFTC Commissioner Dan Berkovitz echoed those objections in a dissenting statement on the flawed rule.

Political backlash to banks’ lucrative oil trading in 2008 also changed market structure. As Congress was negotiating a TARP bailout for top Wall Street banks, news emerged that a top trader at Citigroup’s Phibro trading desk had made so much money for Citi in 2008 that he was due a $100 million cash bonus. Under pressure, Citi sold Phibro to the shale firm Occidental.

As Wall Street’s turbulent romance with fracking was kicking off, foreign commodity trading houses—Swiss-based Mercuria and Glencore, Dutch Vitol, Singapore’s Trafigura—also saw a chance to step in.

Private commodity traders also took advantage of pandemic-driven supply chain dislocations, snapping up barrels of crude when prices went negative and orchestrating deals as shipping lines seized up. Trafigura’s profits—its highest ever—increased by 57 percent last year as the company hauled in $231.3 billion in revenue.

The pandemic wasn’t a one-off. Trading firms do best in conditions of market turmoil, so they’ve also done well in price slumps like 2015’s. Now they are preparing for a “commodities supercycle”: sustained high prices in materials. Even as they anticipate a renewables push into metals and minerals like lithium (for batteries), energy traders expect the surge will be greased by greater investments in oil and gas.

Trafigura is well placed to continue capitalizing on market dislocations due to “chronic under-investment,” the company says in its 2021 annual report. The co-heads of oil trading add in a note that the firm is especially well positioned given its vertical integration. “Trafigura is one of the few crude oil trading houses positioned to operate an integrated supply chain from wellhead to refinery, based on close cooperation between the crude desk and the in-house shipping team and the use of Trafiguraowned vessels or long-term charters.”

While real-world disruptions furnished huge opportunities for commodity traders, a handful of the biggest houses disproportionately nabbed those deals. For most trading shops, The Wall Street Journal reported, the sector’s bumper year ironically encouraged market concentration. For smaller commodities firms, “funding has rarely been harder to come by.”

Looking ahead, private traders and commodity bulls like Goldman Sachs are predicting years of elevated prices to correct for protracted underinvestment. Some of that profitable uncertainty will come from a politically erratic push into clean energy, where a new metals-based economy will need to be fed by heavy mining of minerals like copper and lithium.

Bulls are counting on a global shift toward green industrial policy, in fits and starts, to fuel the supercycle. Top trading analysts also cheerfully predict a broader end of austerity and a shift toward more public investment.

“When you stimulate low-income groups, you create the type of demand growth that’s behind commodity supercycles,” Jeff Currie, Goldman’s global head of commodities research, recently argued on a podcast about the commodity sector.

Cur r ie is bet ting that these t wo trends—the clean-energy transition and redistributionist fiscal policy—will drive a structural rise in demand, as people spend more on everything from gas to green appliances.

Although investors are re-entering shale more cautiously, traders are not treating the energy transition as a zero-sum pivot away from fossil fuels. On the contrary, they are especially bullish on rising oil prices, which Trafigura predicts will continue into 2022, “underpinned by general under-investment in new crude oil production.”

It’s not inevitable that commodity traders will make out like bandits in the coming investment bonanza. Their revenues depend on market fluctuations under volatile conditions. In theory, then, maximalist industrial policy that sends an unambiguous signal on clean-energy investment could decrease political whipsawing and put a damper on traders’ profits.

For now, however, the major commodity houses are still betting on a supercycle that repeats Obama’s climate-smoking energy strategy: “all of the above.” n FEB 2022 THE AMERICAN PROSPECT 57

Re-Engineering Our It’s time for a coherent national logistics system, regulating and coordinating what has been privatized. BY DAVID DAYEN

Since the supply chain shock hit the public consciousness last summer, we keep reading ubiquitous and premature media reports using the word “easing.” In November, the Los Angeles Times assured us, “Cargo Jam at L.A. and Long Beach Ports Begins to Ease,” as did Forbes. “Supply-Chain Problems Show Signs of Easing,” The Wall Street Journal added later that month. New York magazine even cobbled together “6 Signs That the Supply-Chain Crisis Is (Slowly) Ending.”

But despite another wave of these stories in December, celebrating Christmas presents getting into the hands of children, the delays, shortages, and rising shipping costs we’ve seen for nearly two years remain very much in evidence. Manufacturing CEOs believe snags will last through 2023. And retailers are raising their prices in anticipation: IKEA announced a 9 percent increase, while the biggest food manufacturers made plans for price spikes on everything from Campbell’s soup to Jell-O pudding.

Risks to the supply chain, established 58 PROSPECT.ORG FEB 2022

through decades of perverse policy decisions made by both parties, will always be with us, unless there’s a course correction. The biggest catalyst now is the strong transmissibility of the omicron variant, creating labor shortages and local lockdowns that hinder production and transportation. But because of how we built our supply chain, virtually any well-timed disruption can cut off a vital source of components or finished goods. It’s an engineering flaw, where single points of failure cascade all the way to store shelves.

You can make a credible argument that extreme weather drove more supply chain issues last year than COVID. Not only can flooding, hurricanes, cold snaps, and droughts reduce commodity supply through crops spoiling or lumber going ablaze, but they can generate power outages that snarl production, or storm surges that shutter ports and trucks.

And these will only grow in frequency and intensity as the climate heats up.

Meanwhile, because so much production is concentrated in individual factories, risks

have escalated. A fire at a Japanese semiconductor plant last March removed a chunk of global chip production at an already fraught time. A second fire in Berlin just after New Year’s hit a plant run by ASML, a Dutch firm that makes the machines that make most semiconductors.

The main chip fabricator, Taiwan Semiconductor Manufacturing Company (TSMC), sits on a contested island China claims as part of its mainland, and its status is precarious until that settles. And global production of raw materials is so razor-thin that political unrest in Kazakhstan, the world’s largest supplier of uranium, sent commodity prices soaring.

Pandemic or no pandemic, “supply chain disruptions will continue to happen both more frequently, and with potentially larger magnitude,” McKinsey’s operations co-lead Dan Swan told Axios in November.

You solve that only by rebuilding redundancy and resiliency. That means taking down the policy tyrannies that have forced reliance on faraway manufacturing

Supply Chains

plants, self-interested ocean shipping oligopolies, overwhelmed ports, deregulated trucking and rail systems, and retail giants and middlemen that see these cumulative problems as an opportunity to raise prices well above increased input costs. It means viewing the system as an engineer would, redesigning it for sustainability and strength rather than profit.

This is the dilemma for the Biden administration. The political need to get goods moving and logistics costs low is immediate, though its tools to do so are limited. Longerterm, structural fixes will do the job, but they will take years to mature. The administration must operate on both tracks, freeing near-term bottlenecks while building supply chains better to make them less vulnerable.

It’s in some ways a thankless task, but one that’s vital to our prosperity and our future.

There are plenty of easy options to make supply chains more efficient, low-hanging fruit that Port Envoy John Porcari and the Biden administration have targeted. This

includes the oft-threatened dwell fees at the Ports of Los Angeles and Long Beach that have succeeded in moving some cargo out, and the pop-up container yard at the Port of Savannah (which the White House funded) that freed up dock space and reduced the offshore ship backlog there from 30 to two.

The Port of Oakland is readying its own pop-up yard to give agricultural exporters easy access to containers.

As my colleague Robert Kuttner has reported, the biggest near-term challenge is the utter lack of coordination between different supply chain participants, making it impossible to know where cargo is and when it might reach its intended location.

Sharing the data, which customs officials have but which cannot be given to other agencies, would allow everyone to anticipate bottlenecks. Porcari has assembled industry executives in meetings, but hasn’t yet convinced them to give up what they see as proprietary information.

President Biden has also taken stabs at regulation, much of which came out of last

July’s executive order to promote competition in the U.S. economy. The Federal Maritime Commission has made it easier for cargo owners to file complaints against ocean shipping companies for unfair business practices, violations of shipping laws, and retaliation. The FMC is also auditing ocean shippers for overcharging on fees.

Federal officials have urged carriers to take more agricultural exports overseas, rather than stranding them at the ports because it’s more profitable to send empty containers right back to China. Congress can add teeth to that with legislation that would re-regulate the ocean carrier cartel for the first time in decades. The Ocean Shipping Reform Act of 2021 would increase the FMC’s authority to investigate industry practices, set minimum service standards on shipping contracts, mandate reasonable and transparent cargo fees, and require carriers to take exports in containers rather than sail with empties.

OSRA 2021 passed the House with 364 votes and is moving through the Senate. It FEB 2022 THE AMERICAN PROSPECT 59

would go a long way to breaking the power of a concentrated spoke of the supply chain. It’s made the shipping lobby quite unhappy—“It’s hard to imagine the chaos” if it passes, sniffed John Butler, CEO of the World Shipping Council—so it must be good for something.

While the White House is making it easier to obtain commercial trucking licenses— including by allowing teenage drivers to hit the road—the real action is happening at the National Labor Relations Board, which is looking at cases that might end worker misclassification. This could alter the parlous lives of truck drivers by turning them into employees, giving them the decent pay and benefits needed to actually stay in the industry. That alone would dramatically improve throughput at the ports and help raise living standards for workers.

The White House has also singled out large corporations for engaging in price hikes that have made inflation worse. For example, the president and administration economic officials have repeatedly made the case that oligopolistic meatpacking companies are buying beef, pork, and poultry cheap from farmers and ranchers, and selling high to grocery stores. The White House action plan for competition in meatpacking, including $375 million in grants to startup processing interests, is a bit thin. But stronger rules 60 PROSPECT.ORG FEB 2022

to prevent abuses from meatpackers, which are in process, and a joint project between the Justice Department and Department of Agriculture to take complaints from ranchers about industry abuses are both welcome.

The direction of the administration’s ire toward corporate profiteering is notable. The Federal Trade Commission’s Lina Khan has followed this by seeking information from dominant retailers, suppliers, and wholesalers on the impact of market concentration on supply chain disruptions.

The investigation seeks information about how big retailers, suppliers, and wholesalers managed supply chain disruptions and shortages, and what the impacts were on the industry and its competitors. This is really important: an unprecedented study into corporate power’s role in a societal problem.

You can’t fix what you don’t understand.

Still, the administration can go further.

If the FTC study does show large firms using their influence to command secret supplier deals, the agency can revive the RobinsonPatman Act, which is supposed to ban that activity. Aggressively enforcing anti-competitive behavior, including by breaking up dominant firms, would send industry a message that their schemes to outmuscle rivals are over.

Congressional re-regulation of ocean

shipping could be paired with new regulations on trucking and rail to ensure common-carrier status and improve the fates of workers in those industries. Better labor rulings could not only help make independent truckers employees, but give warehouse workers a leg up in unionizing workplaces without retaliation (a recent settlement between the National Labor Relations Board and Amazon will help in this regard).

Finally, there’s a strong need for investment at all levels. In December, the Department of Transportation gave out $241 million for needed port improvement, and that’s not part of the $17 billion investment from the bipartisan infrastructure bill, much of it earmarked for more dredging to allow bigger ships to dock. Technological upgrades for real-time data would be useful too.

Other investments would revitalize stateside manufacturing, something the administration has prioritized from the Biden presidency’s earliest days. Ultimately, the way to make supply chains durable is to diversify production, with good-paying jobs for American workers a nice side effect. But securing funding for such an investment is the real trick. The Defense Department’s $30 million investment last year in domestic rare earth mineral production is way too puny. The U.S. Innovation and Competition Act (USICA), which passed the Senate, would provide $52 billion for semiconductor production, and the Build Back Better Act currently foundering in the Senate has billions more for advanced manufacturing.

The overall goal is to re-create a coherent national logistics system, in which government regains the power to regulate and coordinate what has been privatized.

The supply chain disaster is an epic market failure, producing fragmentation and chaos.

A national system for moving freight has to be seen as a public good. As the several articles in this special issue have shown, government needs not only to re-regulate ports, ocean shipping, trucking, warehousing and rail, as well as to reduce dependence on so much offshoring, but to view all those elements as a systemic, engineered whole.

The Biden administration may have an unlikely partner in rebuilding domestic industry and restoring resilient supply chains: corporate America.

GR AEME JENNINGS, ANDREW HARNIK / AP PHOTO

John Porcari (left) and Lina Khan are two of the Biden administration’s most important actors on supply chain issues.

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One thing businesses constantly ask for is certainty. Usually, they’re doing so in an effort to extend corporate tax breaks. But supply shocks breed far more uncertainty than taxes. Manufacturers cannot produce and retailers cannot sell if they cannot lock in components and goods. The ambiguities make it hard to plan for the future. And many companies have finally recognized the dangers of a vulnerable supply chain, and have consequently thought twice about two of their dominant philosophies: rampant offshoring and just-in-time logistics.

Almost 90 percent of supply chain leaders in a McKinsey survey said they would opt for regionalization over the next three years. That means siting factories closer to customers, specifically to avoid supply chain instability. It’s already under way: Reshoring added over 160,000 U.S. jobs in 2020, and expectations are for 200,000 more in 2022. Suddenly, small towns in America are advertising themselves as likely locations for manufacturing’s return. A secondary option is “nearshoring”: locating facilities in Mexico instead of Asia, for example. The labor costs associated with reshoring and nearshoring are supposed to make it impossible, but with ocean freight shipping rates so high for so long, those concerns start to evaporate.

The biggest shift can be seen in semiconductors, where reliance on too few factories overseas has companies rethinking outsourcing at all costs. In November, Ford 62 PROSPECT.ORG FEB 2022

The growing threats to long, concentrated supply chains make reengineering away from a tightly interconnected system essential. announced a partnership with a U.S.-based semiconductor manufacturer to develop and produce chips for its own vehicles. A month earlier, General Motors inked its own deal with Wolfspeed, a New York–based manufacturer that makes silicon carbide devices for use in its electric vehicles. Samsung, the South Korean phone maker, is building a $17 billion chip fabrication factory in Taylor, Texas. U.S.-based Intel has invested nearly $100 billion into domestic factory production.

Even TSMC is building a fab in Phoenix. The U.S is expected to increase its share of the market for the most leading-edge chips by 33 percent between now and 2027, according to Counterpoint Research.

The ongoing chip shortage and expected federal investment are driving this. But it’s happening all over the world: There’s now a European chipmaking hub nicknamed “Silicon Saxony” in Germany. And it’s happening across inputs; car companies are moving

toward replicating Tesla’s insourced battery production, for example. Putting advanced manufacturing production closer to customers in an age of supply chain uncertainty is increasingly seen as good business sense, a wild reversal from recent years. Not every factory will suddenly move across the shore, but policymakers are beginning to agree that inputs critical to national security or public health should have some domestic capacity.

Self-sufficiency is trumping efficiency.

It’s also not lost on business executives that Toyota overtook GM as the U.S.’s bestselling automaker in part because the company stockpiled semiconductor chips. That’s remarkably ironic, since Toyota ushered in the era of just-in-time logistics and lean inventories decades ago. But companies are shifting mantras, from “just in time” to “just in case.” They have valued low costs at the expense of risk, and they have seen exactly what those risks yield. Increasing inventory provides a safety valve if supply chains fracture, that certainty businesses need.

Adding resiliency through onshoring, nearshoring, or expanded warehouse capacity will likely trigger a one-time increase in the price level. But given the skyrocketing shipping costs under the unsustainable old system, it’s not such a big difference, and transitioning now makes sense. It’s not a perfect solution: Many of these domestic onshore factories are locating in right-to-work states, and bad weather can happen anywhere (last year’s Texas deep freeze snarled the produc-

DOMINICK SOKOTOFF / SIPA USA VIA AP

General Motors, which makes Hummer electric vehicles in Detroit, is partnering to manufacture silicon carbide semiconductors domestically.

tion of raw materials in plastics, causing a global shortage). But the growing threats to long, concentrated supply chains make re-engineering away from a tightly interconnected system essential rather than optional.

Only one thing can block this momentum: the counterproductive forces of the status quo. Minutes from the Federal Reserve’s December meeting show that officials discussed raising interest rates faster than previous expectations. This would dampen investment and undoubtedly lead to layoffs; in fact, that is in general the goal, to sacrifice employment for price stability.

While cooling off the economy is often a difficult trade-off, in this case it’s particularly absurd, because it would do nothing

to solve the problem, something central bankers in their more candid moments fully realize. Andrew Bailey, governor of the Bank of England, told a European Central Bank panel in September that “monetary policy can’t solve supply-side shocks.” Tossing people out of work to try to get ships out of San Pedro Bay is absurd, especially because even if you get the ships out, you won’t sustain the demand to sell the goods.

Worse, weakening the economy would take away potential investment right when it’s needed the most. Businesses need and want to expand capacity right now, and making both credit and customers harder to obtain will lead to retrenchment. It would be fatal to fixing the supply chain problem

once and for all. Plus, higher interest rates will flow to consumer goods anyway, offering little relief for inflation.

The economy has not overheated; a few oligarchs got their hands on the supply chain and drove it into a ditch. Recent polling from Data for Progress shows that the public understands how offshoring and monopolistic profit-taking have driven inflation, and how reshoring manufacturing and re-regulating the price-gougers will beat it back. The public has better instincts than elite economists who were cheerleaders for the creation of a fragile supply chain system that broke with the slightest stiff wind.

We built this system, and we have the power to fix it. n

Voltage Valley

Building a domestic supply chain, Lordstown, Ohio, is becoming a hub for the electric-vehicle industry.

By Connor Bulgrin In December, General Motors and POSCO Chemical announced plans for a North American plant that can manufacture cathodes—an important component of electric-vehicle batteries. One of the plant’s first confirmed customers is Ultium Cells, a lithium-ion battery manufacturer in Lordstown, Ohio, partly owned by General Motors. This battery factory is destined to supply batteries to General Motors’ former Lordstown automobile plant, located right next door and soon to be jointly operated by Lordstown Motors and Foxconn. The 6.2 million-squarefoot facility will be used to manufacture the Endurance pickup truck, an electric vehicle that allegedly has 100,000 preorders from commercial customers, though there is compelling evidence that this figure is inflated.

The rush of new projects is a reprieve in Lordstown’s struggle against deindustrialization.

In late 2018, less than two years after autoworkers granted over $100 million in concessions to General Motors, the factory was abruptly shuttered, leaving Lordstown without its largest employer. Since then, the 3,300 laid-off workers have struggled to find meaningful work.

The arrival of electric-vehicle companies has brought a cautious sense of optimism to the town. Some have taken to calling Ohio’s Mahoning Valley the “Voltage Valley.”

Ultium Cells is hiring for 1,100 new jobs, though they are not well suited to the local workforce, who lack the knowledge of chemistry needed for manufacturing batteries. The company thus far is heavily relying on new graduates from nearby Youngstown State University.

The former autoworkers’ hopes, therefore, lie with the old General Motors plant. In the summer of 2022, it is set to fully reopen under the ownership of Foxconn, which has become the contract manufacturer for Lordstown Motors’ Endurance pickup. Lordstown Motors currently employs about 560 workers, but more jobs are expected once the plant opens for commercial production. However, autoworkers are concerned that job creation could be underwhelming, as electric-vehicle production requires fewer parts and assembly line workers than standard automobiles.

UAW Local 1112, which has represented the plant’s workers since the 1960s, is fighting to represent the workers in both the battery and automobile plants, but has received an ambiguous response from Ultium Cells and

Lordstown Motors. General Motors, which has a significant stake in both firms and used to employ members of Local 1112, has also been standoffish. One point of contention is whether the union will need a simple card check, where workers simply sign an authorization form stating they want a union, or a traditional vote to gain recognition. The union does have some powerful allies. Rep. Tim Ryan (D-OH) has expressed his hope that workers will have a seat at the table. And President Joe Biden’s Build Back Better bill proposed giving greater subsidies to American consumers who purchase union-built electric cars.

This is all contingent on Lordstown Motors’ ability to get production under way. The firm has already delayed delivery deadlines, seen a CEO resign over allegations of lying, and struggled to cope with supply chain issues, though its arrangement with Foxconn seems to have given it new vitality.

Foxconn’s other partner at the plant, Fisker, Inc., plans to produce over 150,000 electric vehicles annually beginning in 2024. While the future is uncertain, the electric-vehicle firms settling down in Lordstown provide hope for a reshored supply chain that is clean, green, and unionized. n FEB 2022 THE AMERICAN PROSPECT 63

PARTINGSHOT

By Francesca Fiorentini It was four o’clock and nearly dark out. Andy was still at socially distanced soccer practice. The toys huddled around the Little Tikes AM/FM radio, listening attentively.

Woody was worried.

“Dozens of tankers have been idling for weeks, with little sign that cargo will be unloaded,” said the news lady. “Many are full of toys from China, where 85 percent of American-bought toys are made.”

“Andy’s never getting his Transforming Batman Bat-Tech Batbot!” cried Woody, smacking the radio’s OFF button. “It’s been over a month since Christmas! He’s going to be devastated.”

“What were they saying about toys being made in China?” asked Rex, twiddling his T-rex hands nervously. “I was not made in China, wherever that is. I was made in Santa’s workshop.”

“You were made in China. We were all made in China,” said Buzz. The playroom gasped. Rex fainted, collapsing onto a barrel of monkeys.

“Guys, that is not the point,” said Woody, waving his twiggy arms wildly.

“Thousands of kids are without their toys because of the broken supply chain!”

“The what?” asked Mr. Potato Head.

“The broken supply chain! The backup in international shipping that’s exposed weaknesses in the global economy’s production model, not to mention the maritime laws that govern it!”

The toys looked down at the f loor nervously.

Woody lunged at Mr. Potato Head, holding his hands. “There could be Mr. and Mrs. Potato Heads sitting in those tankers!”

“Eh, let ’em rot,” Mr. Potato Head replied.

“They’re just Potato Heads now. These Gen Z spuds and their gender fluidity. They’ve stripped me of my title!”

“Well I like the change,” said Mrs. Potato Head, shaking a finger at her husband.

“We of all toys should know it doesn’t matter what parts you came with, it’s how you identify with them. Gender is a construct.”

Rex stood up and shook a couple of plastic monkeys off his tail. “Do you think that maybe 64 PROSPECT.ORG FEB 2022

Santa’s workshop partners with China, since the elves can’t handle all the workload?”

Woody jumped up onto the windowsill.

“Enough! There’s no time. We’ve got to unstick the supply chain!”

“How do you suppose we do that?” asked Slink.

Woody grabbed the Etch A Sketch and started drawing furiously. “Simple. All we have to do is reboot America’s manufacturing base, rewrite international trade laws establishing fair labor practices, end justin-time logistics to add reserve capacity,

“That’s it, Woody!” cried Buzz. “That’s a great idea. We have to go to war with the enablers: Disney. Who outsources all their toy-making abroad?”

“Santa!” cried Rex. “No, Disney. Who drives down workers’ wages lower and lower, all while Mar vel f ilms get longer and longer?” asked Buzz.

“Disney!” cried Mr. Potato Head. “I had to pee three times during Spider-Man!” Buzz paced behind the piggy bank: “Who keeps us working on sequel after

and break up the consolidated ocean shipping cartel!”

The playroom again fell awkwardly silent.

“There is another way,” Buzz said darkly.

“We can go to war with China.”

The plastic G-men jumped to their feet, tottering in joy. “Wooee boys!” the Sergeant hollered. “This is what we’ve been training for!”

“Oh get a grip, Buzz,” said Woody. “We’re not going to go to war with China. What would Disney think? China has the biggest movie market in the world!”

“And who is Disney?” asked Rex. “Our real creator,” said Mr. Potato Head.

sequel, but have you seen any more coins in your bank, Hamm?”

“No, Sir,” said Hamm. “Disney.”

Woody shook his head. “So what, you want us to go on strike?”

Buzz narrowed his eyes. “Yes, a strike. A drone strike. Disneyland.”

The playroom cheered. Woody sighed and pulled his hat over his head.

Buzz opened his w ings. “Let’s Go Brandon!” n Francesca Fiorentini is a comedian, correspondent, and host of The Bitchuation Room podcast.

JOE ROCCO

Toy Story: The Supply Chain

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What it takes to be back in school—and stay back

ventilation, to keep people healthy and keep kids in school. These esteemed health professionals, with decades of experience among them and knowledge of the latest research and practices, all stressed that the single most important step eligible children and adults can take is to get fully vaccinated (two shots and a booster)—for their own health, for the health of their families and communities, and to help the country finally turn the corner on this pandemic.

By Randi Weingarten, President AMERICAN FEDERATION OF TEACHERS

S

mall things sometimes have an outsized impact. That has struck me as I’ve visited with students and staff in public schools in recent weeks, particularly since the surge of the omicron variant. Ordinary activities—pre-K children playing side by side, students working on a group project, a teacher guiding students through a lesson on conflict resolution, and kids doubling over with laughter—left me with profound gratitude that they were doing these things together, in school.

Two years into the pandemic, these small signs of a return to normalcy don’t feel so little anymore.

Teachers are tired of being attacked by armchair critics for problems not of their making and out of their control. What kind of person blames educators—not the virus itself, or failures to contain it, or fights over masking and vaccines? Let’s be clear: COVID-19 is the enemy, not teachers. And not each other.

Never has “try walking a mile in someone else’s shoes” seemed like better advice. As the pandemic enters yet another year, omicron spikes and frustration soars, imagine yourself in the shoes of people buckling under the strains of this moment: The healthcare professionals who press through their trauma and exhaustion to care for and console patients during each grueling shift. Working parents living paycheck to paycheck, whose children’s school or daycare is closed—again. Young people who suffered the effects of isolation and now are anxious about re-entry. Teachers struggling to care for their students’ mental health, and their own.

The AFT recently held a virtual town hall about omicron and schools. Our guests—Surgeon General Dr. Vivek Murthy; Dr. Vin Gupta, a pulmonologist, public health physician and health policy expert; and Dr. Irwin Redlener, a pediatrician and the director of the Pandemic Resource and Response Initiative at Columbia University—strongly agreed that we must double down on effective strategies like vaccines and boosters, high-quality masks, testing and improved

We all need grace during these challenging times, and by showing grace to others we can experience it ourselves. Let’s pause to appreciate the “small” things that now fill us up—children playing blocks next to each other, or students laughing and learning together after so much of their lives has been online and on pause. And let’s insist on the precautions that have a big impact on health and safety—and practice those behaviors ourselves.

staff are covering for colleagues who are sick or quarantining, and they are scared of getting COVID-19 themselves or bringing it home to loved ones. The shortages of teachers are so severe that some districts are lowering standards for substitute teachers and imploring parents to pitch in.

Throughout the pandemic, teachers and school support staff have been working with parents to meet kids’ needs and build trust. Through this collaboration, along with resources for academic recovery and safety protocols, schools were able to reopen last fall. Even with new cases of COVID-19 averaging more than 700,000 per day for the first time, 98 percent of public schools in the United States were open for in-person teaching and learning last week.

Some schools have had to revert to remote instruction or temporarily close as a last resort because of COVID-19 outbreaks or staff shortages. Infectious disease experts like Dr. Michael Osterholm warn that the “viral blizzard” of omicron infections inevitably will lead to more temporary disruptions. In New York City and elsewhere, many parents are keeping their children home from school. But where best practices are in place—full vaccination, high-quality masks, good ventilation, regular COVID-19 testing, testing to stay in school after exposure, and a nurse in every school—it’s helping to keep children, staff and families safe and keeping students in school, in person.

Let’s be clear: COVID-19 is the enemy, not teachers. And not each other.

Teachers are supporting students in every way they can, while trying to keep everyone healthy. They are exhausted, overwhelmed, stressed and burning out. Teaching is one of the most highly vaccinated professions, yet with the extremely contagious omicron variant and breakthrough infections, school

Photo: AFT

Educators know that being in school is essential to children’s mental, social, emotional and academic well-being. Parents need their kids to be in school so they can work and live their lives. We are in the third school year affected by COVID-19; our nation needs our kids to be educated in school, where they learn best and can thrive. That’s why the AFT and our affiliates across the country are pressing for safeguards to protect students, families and staff.

Weingarten, right, with students at PS 157 in the Bronx on Jan. 5.

Follow AFT President Randi Weingarten: twitter.com/RWeingarten

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