America's Supply Chains Are Too Efficient. What We Need Is a Resilient Economy | Opinion

What is the difference between the efficient supply chains that fuel modern economies and the crippled supply chains reminiscent of failed states? Not much, if you ask parents with newborn babies.

Over the last several months, parents scrambled to find infant baby formula after the provisional closure of a production plant in Michigan. Relief is finally on the way: After I sent a letter urging him to act and introduced bipartisan legislation, President Joe Biden has invoked the Defense Production Act to boost baby formula supplies, and the Michigan plant will soon restart. Nevertheless, shortages will continue for some time. That means less nutrition for infants, higher costs for parents and continued uncertainty.

Supply chain disruptions are always an inconvenience, one that Americans are becoming increasingly familiar with. But in this case, they could mean life or death. And our society's relentless drive for efficiency is to blame.

Efficiency is important, of course. It drives down consumer costs and makes products available across our vast country. But efficiency without resiliency is a recipe for disaster. Those Americans whose grocery stores went bare during the Texas blackout last winter or couldn't find masks during the early months of COVID can testify to that.

baby formula shortage
Shelves normally meant for baby formula sit nearly empty at a store in downtown Washington, DC, on May 22, 2022. - A US military plane bringing several tons of much-needed baby formula from Germany landed on May 22, 2022, at an airport in Indiana as authorities scramble to address a critical shortage. SAMUEL CORUM/AFP via Getty Images

The sad truth is that for years, politicians, corporate CEOs, shareholders, and consumers alike have ignored the need for resiliency and redundancy. There was a naive belief that major, long-term supply chain disruptions were a relic of the past. There was an assumption that because computer algorithms could ensure goods arrived "just in time," there was no need to plan for a "just in case" scenario. And now we are experiencing the consequences.

A combination of factors brought us to this point. First, efficiency became king when America transitioned from an economy with robust manufacturing to one dominated by service and finance. 30 years ago, foreign cheap labor and government subsidies made manufacturing less profitable in the U.S. As a result, under pressure to cut costs, industries began sending their factories and jobs abroad, a trend accelerated by our government's "normalization" of trade relations with Communist China in 2000.

At the same time, our tax code encouraged companies to prioritize stock market gains over productivity and security. This schooled corporate elites to avoid investments in workers, equipment, and facilities and to churn out short-term financial gains to shareholders instead.

Why didn't we have enough masks or ventilators on hand for a pandemic? Why didn't we have a buffer stock of baby formula? Because, as Professor Willy Shih of Harvard Business School explains, "Lower inventories, less cash tied up—these things make investors happy." These things also make Americans more vulnerable.

It will take more than expanded inventories to make our economy more resilient, though. With supply chains stretched around the globe, we are vulnerable to the whims of other nations. Russia's invasion of Ukraine, China's lockdown of Shanghai—the list of international events impacting our markets goes on. It's an unsustainable situation, one that we must end by bringing critical supply chains back home.

This will mean creating federal incentives for domestic industry through tax policy and robust federal guarantees. It will require eliminating tax preferences for unproductive corporate behavior like stock buybacks. And it will necessitate government action when foreign subsidies lure American jobs and production overseas.

This isn't just about having goods on shelves, though that is important; it's a matter of national survival. Large power transformers, for example, are key to America's electric grid, but it might take "months, if not years" to build replacements. Having robust domestic manufacturing and a reserve stockpile could mean the difference between bad and catastrophic in the event of a future crisis.

Building a more resilient, productive economy is also about creating more stable, well-paying jobs, which have become a rarity in the U.S.—jobs that provide dignity, create space for families to grow, and foster real community.

These things cannot be quantified on a spreadsheet or summarized on a quarterly return. But they are foundational to the common good. And public policy should always seek to advance the common good, even if it makes us a little less efficient in the process.

Marco Rubio, a Republican, is the senior U.S. senator from Florida and chairman of the Senate Select Committee on Intelligence.

The views expressed in this article are the writer's own.