Supply chains around the world have been facing shortages in recent months due to several factors. However, book author and blogger Charles Hugh Smith argues that the shortages are actually intended to increase the profits of global companies. He adds that the shortages are designed to prevent potential competitors from entering the market and undermining revenue streams.
Smith notes in his Of Two Minds blog that not all scarcities arise from cartels limiting supply to keep prices high.
"Many of these scarcities can be traced back to the stripping out of redundancy or multiple suppliers of industrial essentials to streamline efficiency and eliminate competition," he writes. "Global corporations didn't go through all the effort to establish quasi-monopolies and cartels for our convenience. They did it to ensure reliably large profits from control and scarcity."
Smith argues that competition and abundance are "anathemas to profits." Thus, there is zero incentive to expand the number of suppliers and increase competition.
"Wide-open competition and structural abundance are the least conducive [settings] for generating reliably ample profits, while quasi-monopolies and cartels that control scarce supplies are the ideal profit-generating machines," he writes.
According to Smith, corporations have been relying on three major suppliers for critical components in their products to ensure that the supply chain doesn't encounter any hitches. But keeping these three suppliers in business means that orders need to be spread among them. "Nobody will keep a facility open if it's only used occasionally when the primary supplier runs into a spot of bother," Smith writes.
Smith points out that trying to compete with an established cartel that has captured regulatory and political mechanisms "is a foolhardy waste of capital." He also mentions that the barriers to entry are high and the markets are limited, making things more difficult. While many specialty components are required to make various products in the world, manufacturers only require a limited amount of these.
Shortages have been happening for some time now
A May 2021 report by Business Insider gave some examples of product shortages, including both food and non-food items. The resulting shortages have caused the prices of existing items to increase. (Related: Is the American food supply chain collapsing?)
Microchip is one of those products. Many consumers have scrambled to purchase products that use this component, such as electric vehicles and smartphones. But as more cars have entered production, the competition for chips has also increased – leading to many car manufacturers shutting down plants and redirecting labor to priority car models.
Fuel has also seen price increases, beginning in the summer through the winter season. According to the U.S. Bureau of Labor Statistics, fuel prices saw a 22.5 percent increase in March 2021 compared to the same period a year earlier. The ransomware attack on the Colonial pipeline in the East Coast and the Texas cold snap have contributed to those price spikes.
Smith notes in his blog post that U.S. corporations have spent $11 trillion buying back their own stocks over the past ten years.
"By all means, thank corporate America for squandering $11 trillion to further enrich the top 0.1 percent and insiders. Alas, there was no better use for all those trillions than further enriching the already-super-rich. The era of abundance was only a short-lived artifact of the initial boost phase of globalization and financialization," he writes.
"Now that the consolidation is complete, shortages make fantastic financial sense. We're all seated at the banquet of consequences flowing from stripping out redundancy and competition, and ceding control of supply chains to quasi-monopolies and cartels."
He concludes: "Scarcities are their source of profits and shortages are a permanent feature of the 21st-century global economy." (Related: Supply chain disruptions are getting worse as engineered shortages are designed to collapse economies.)
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