COVID-19 is both a virus and a teacher. The virus bit, you know about. The teaching angle is the subject of this post.
We earn a living only by serving somebody else. Everyone in a market economy has a boss, from Company directors to the newly hired casual in the basement, from the small business owner to the freelancer. To do their job, they must organise inputs in some way to deliver outputs to the satisfaction of the end user. COVID-19 restrictions have disrupted those inputs, the production process and sales, drastically so in some cases. It makes not a jot of difference to the principle at stake whether you are the CEO of the world’s largest corporation, or just starting out in the basement on a casual contract. All that varies is the complexity of the process to be restored.
It is hard to think of a similar time in history when such rapid dislocation has been forced upon a country. Invasion, civil war, calamitous world wars excepted, has there been a comparable event? Hence the teaching aspect.
What is your supply line? What are your inputs? Complex raw materials from mining? Intellectual capital? Manual labour? Depending on the mix, the COVID-19 disruption could be large or minimal. How do you process those raw materials? In a factory relying on heavy haulage and machinery? In your brain or with your brawn? Who do you rely on to get your job done? How are sales made and products distributed? By using trucks, trains, service delivery, written opinion? Are those channels still there? Are there any buyers or are they suffering from disruption to their own supply lines?
Leonard Reed wrote an essay in the 1950s that has become famous called “I, Pencil.” If you haven’t read it, I encourage you to do so. It explains how no individual person can, or even knows how to, make a pencil. The complexity in the supply chain is vast and covers the globe. The production of a simple pencil, which you can buy in the local stationery shop for around $1 relies on an intricate web – the world wide web that existed before www dot com.
The web has been fractured by Government policy action in most trading nations and the longer the disruption remains, the less likely the web can be repaired. Supply lines, production processes, sales and contracts can be adjusted, theoretically, but in practice not if there are no longer suppliers to supply or buyers to buy.
Every individual person in the workforce is one tiny element of a vast array of networked relationships. Freedom of movement, specialisation, free trade and a sound currency are the necessary ingredients of a growing economic pie. Government policy restrictions have attacked three of these foundations. Politicians appear not to understand how wealth is created. It follows that they don’t understand how wealth is destroyed. Will they learn the lesson on offer?