Thread by @ProfPaulPoast

Global supply chains are a mess.

What to do? World War I offers a lesson.

[THREAD]

This @latimes piece offers a great primer on the current delays in the global supply chain. #COVID19 is partially to blame, but supply chains were a mess before the pandemic.
latimes.com/business/story…

A key culprit is that many supply chains were set up for a "just in time" supply model coupled with "on demand" delivery expectations. So no "wiggle room".

https://twitter.com/ChadBown/status/1448763427430731786

Another cause is a lack of information sharing by the ports -- distributors can't know that there is a problem until it's too late. This is a long standing issue (consider that this tweet on the issue was from 2018)

https://twitter.com/LBBizJourn/status/989899642602012673

And then there is simply a shortage of workers: from unloading at docks to driving trucks.
msnbc.com/the-11th-hour/…

All these issues were present before #COVID19. But the pandemic exacerbated them due to changes in consumption behavior and disruptions in production/distribution (read: shutdowns).
clevelandfed.org/en/newsroom-an…

When I see the above list of supply issues, I immediately think, "hmmm...we've seen something like this before."🤔

Not "we" specifically (it was 100 years ago), but the global economy: World War I and the market for foodstuffs (and coal and raw materials)

By early 1915, it was clear that the war was resource intensive. The European allies -- 🇫🇷🇬🇧🇮🇹 -- were going to need a host of resources: munitions, raw materials, and food. LOTS of food.

And "food" mostly meant wheat, which was important for soldiers & civilians.

This was captured in various government propaganda posters

Though they were "allies", each government wanted to make sure they fed their *own* soldiers and own civilians.

Each ally was scared of bread lines in THEIR OWN country!

Talk about a cooperation problem!

So each ally was competing with the other to secure wheat. And the best source to buy wheat? 🇺🇸

But problems immediately arose.

First, they were all bidding against one another. You can imagine what that was doing to the price of wheat.

The below figure shows what the price of wheat did on the Chicago Board of Trade over the course of the war (data from @stlouisfed)

Second, even after a government secured the wheat, it had to ship it to Europe. There simply weren't enough ships..

...and the ships that were available were subject to being sunk by German U-boats.

This resulted in freight costs shooting through the roof!

Addressing this problem required coordination and information sharing, big time!

The allies had created "coordinating bodies" early in the war, such as the Commission Internationale de Ravitaillement (in August 1914).

But this was just a talk shop, and the allies had no obligations regarding what was said or done.

Each ally would simply INFORM the others: "hey, we're purchasing wheat in Chicago, okay? Good!"

By and large, this arrangement was okay for 🇬🇧 (it had the most ships and money).

But 🇫🇷 was feeling more pressure to do something (maybe because the fighting was on their soil)

Along came Etienne Clementel, who became French Minister of Commerce in December 1915.

He, his "right hand man" Jean Monnet (yes, THAT Jean Monnet -- 🇪🇺), & Monnet's British counterpart, Arthur Salter, worked to find a "better" solution.

As Monnet wrote in his memoir...
amazon.com/Memoirs-Jean-M…

...the existing system was a mess:

"For a whole year this divided purchasing system had been operating in a spirit of competition that encouraged international speculation. To put an end to this situation had become vital."

The solution? A strong International Organization!

As Monnet wrote:

"To use the opportunity to try out a new method of co-operation had become possible. I persuaded Clementel that with so good an opportunity he should play for high stakes. The British wanted rapid results: we wanted a lasting organization"

And Monnet & Salter thought that the wheat shortage emergencies made it the perfect "test case":

"Salter and I thought that the first test case for Allied co-operation should be wheat, where there had already been a very unsatisfactory attempt at joint organization"

But Salter had to convince his superior, Walter Runciman (a cabinet member and President of the British Board of Trade), that the time was now to try a new approach.

Fortunately, Runciman was already hearing the same message directly from Clementel (as shown in this letter from the Runciman archives).

So Allied officials met in late November 1916 to negotiate and sign the "Wheat Executive" agreement.

The Wheat Executive was an organization based in London with three 1 British, 1 French, 1 Italian.

Critically, the executive had “full authority to meet Allied needs regarding the purchase and sharing of those grains subject to inventory, and to arrange for their shipment.”

In other words, it was an ALLIED organization. It made all wheat purchasing decisions for the ALLIES as a whole.

As Salter described it in his memoir:

Reflecting on it later, Monnet fully recognized the significance:

The Wheat Executive was so successful that, a year latter, the Europeans and Americans would use the Wheat Executive as the model from creating the Allied Maritime Transport Council (AMTC), which would facilitate ALL supply purchases and transport for the allies.

What does all of this mean for the current supply chain issues?

In a word: cooperation.

In two words: international organization

Global supply chains can't be left to the "good planning" of individual companies and the regulations of individual governments. The modern global economy requires the equivalent of the "Wheat Executive" for the sake of coordination and information sharing.

Back in May, @AtlanticCouncil proposed that 🇺🇸🇯🇵 take the lead on this effort. Could they play the roles played by 🇬🇧🇫🇷 100 years ago? If so, who will be the equivalent of Salter and Monnet?
atlanticcouncil.org/in-depth-resea…

If governments don't take such steps to improve global coordination, then I suppose there is another benefit (h/t @TheOnion)
theonion.com/white-house-wa…

In sum, current shortages are due to long standing issues with global supply chains. #COVID19 now, like World War I 100 years ago, shocked an already fragile system. The solution, then and now, lies in international politics -- creating international organization.

[END]

P.S. All of the information regarding World War I is based on an exciting project I'm working on with @rosellacappella on how allied economic cooperation during the "Great War" set the foundation for institutions that govern the current "Global Economy"