With the onset of the COVID-19 Pandemic, global supply chains have found themselves in repeating rounds of shortages in necessary resources and materials. These intermittent problems have continued to affect most of the global economy off and on for months, leading Axios to write on November 12 that “Supply Chain Troubles Aren’t Going Anywhere”. Not exactly conducive to a positive outlook on the future. CNBC reported that the “big business bosses” are warning that these problems are “here to stay”.
For many living in the West (North America and Europe, predominantly), this will be the first time that they have had serious concerns over their store shelves being stocked with all the usual goods that they routinely buy. The sight of numerous “Out-of-Stock” signs awakens one to privileges a past reality you weren’t even aware you had. Grocery stores are usually emptied during certain extenuating situations, such as large snowstorms, but these types of shortages are always temporary and very localized. The “COVID-Shortages” are significantly more widespread, affecting many geographical areas, goods, and services all at once.
However, a moment’s reflection will reveal a striking question: why don’t these types of shortages happen more often? Why are shelves only empty during exceptional circumstances and not more regularly? If one takes the time to research and track the global supply chains for the products that we use on a daily basis, the number of transactions taking place, goods exchanging hands, and products moving from one place to another will boggle the mind. Just to follow the production and transport processes of relatively common goods like shoes or dairy products can be incredibly complex. The sheer amount of information that goes into the creation of these goods can be overwhelming for one person to absorb.
With all of intricacies and details of the production of these goods, how is it that shortages are so rare? After all, if one were to try and oversee these processes from beginning to end, it would take an inordinate amount of time and energy for a single individual to ensure that a shipment was to transition smoothly through the process of resources, production, transportation, and sale. For goods to fall seamlessly into the shopping carts of consumers without delay, there seems to be very little margin for error. Raw materials have to arrive, goods have to ship, and products have to be delivered all precisely when and where they are needed. Yet even in the face of this Herculean task, shortages are a relatively rare occurrence on markets.
How can this be the case? How is it that markets are able to organize production so effectively? The answer can be found in two qualities present within the market: freely determined prices and distributed information. Prices give the entrepreneur the information that he needs in order to determine how he should allocate his resources. If the price for one of the goods that he produces increase, this is the consumer transmitting to him that he should direct more of his resources into this line of production. If the costs of the inputs for a good he produces rises, this is the other entrepreneurs informing him that these resources are highly valued elsewhere and he should use them sparingly. Because of the existence of a price system, the entrepreneur has a method by which he can evaluate and adjust his production to the wishes of consumers.
In addition to the price system, entrepreneurs also make use of their specialized knowledge in order to effectively allocate resources to create goods and services. Entrepreneurs, by virtue of their production in a specific industry, become individual experts in the details and intricacies of that industry. Because of their unique position of oversight and responsibility of these production processes, they accumulate unique knowledge of how these processes operate and how they are best carried out. In order for the entrepreneur to derive profit, he must utilize this knowledge to streamline his firm’s production and make it as efficient as possible.
In a free market economy, there is no single entity overseeing entire production processes as is the case in a socialist economy. As counter-intuitive as it might sound, this is beneficial, not detrimental, to the productivity of the market. A decentralized system of production allows for entrepreneurs to utilize their knowledge individually, as opposed to having to follow the dictates of a central planner. The knowledge necessary for efficient and cost-effective production is dispersed in the minds of individual entrepreneurs, so production is best carried out by these entrepreneurs.
These two factors, the price system and the knowledge of entrepreneurs, create an environment that punishes and minimizes shortages in the economy. Prices communicate to entrepreneurs the desires and wishes of consumers, and the knowledge the entrepreneurs have give them to tools to precisely carry out these orders. The result is an economic system that gives entrepreneurs the tools that they need in order to efficiently bring goods and services to market. This does not mean that shortages will never occur on a free market, as unexpected occurrences (such as a worldwide pandemic, for instance) happen from time to time, but these shortages will rarely be chronic in nature. The market rewards those that satisfy the wishes of consumers, so those entrepreneurs that are unable to prevent shortages from occurring for their products will be replace by those who can. An economic order of laissez-faire gives the entrepreneur the tools he needs to efficiently produce and sell his goods to prevent shortages, and rewards those who are able to do so.
Those who live in free market societies are often unconscious to the benefits of such a system, as the COVID-19 shortages demonstrate. The ability to go out and purchase the goods that you want, at the places you want, at the time you want to have them is commonplace today, but would be seen as a miracle throughout most of history. Banal luxuries abound under a market system, but these should not be ignored or forgotten. The shortages from the COVID-19 pandemic will abate soon enough, but they provide a valuable look into a world without markets. Those in the West experience a level of privilege, “capitalist privilege” as it were, that is easily overlooked when it is present, but impossible to miss when it is absent.
