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November 22, 2021

Our Credentialed, But Maleducated, Elite Are Getting Introduced to Concentration Risk

Any small business owner knows that relying on just one supplier or one major customer exposes him to great risk. Most investors know not to put all of their nest egg in one company’s stock.

So how is it that our best and brightest leaders, with gilded pedigrees, and surrounded by graduates of the most prestigious universities, have all forgotten the timeless wisdom of the proverb “Don’t put all your eggs in one basket.”

We know the answer of course. Our elites are well connected people who are credentialed, yet dangerously maleducated. The risks from concentration and lack of diversification are completely alien to them. All they know how to do is follow the pack of their peers, who are also following the pack. It’s a shame, because ignoring the peril of concentration risk has put us all in a difficult spot.

The combined US market share of the adjacent ports of Los Angeles and Long Beach was 32% in 2020. No other West Coast port exceeded 5%, and there are plenty to choose from – Oakland, San Diego, Tacoma, etc. There are excellent reasons why LA / Long Beach is the busiest port in America, but relying on it for the majority of West Coast imports created a dangerous concentration risk. And now our supply chains are busted because that port is so crowded and overwhelmed (and strangled by red tape) that its processes have completely broken down. Wise people would not have assumed that all imports could flow through that port alone without there being serious risk of business interruption. But then, most of our business and political leaders are not very wise.

I wrote recently about how the US produced 37% of global microchips in 1990. It’s now down to 10%. Meanwhile, China and Taiwan now control 70% of the production. Throw in South Korea, and 91% of global microchip production is subject to interruption by China. Yet political and business leaders have championed outsourcing all this production to Communist China’s sphere of influence. They never once thought there were any risks from concentrating it there. But now with Covid and energy crises shutting down Chinese ports, plus various other supply chain bottlenecks, there is a catastrophic shortage of microchips in the US. It didn’t have to be that way. How did our leaders get their advanced degrees and never learn about concentration risk?

And irrespective of China, Principled Free Traders™ never once considered the possibility that shipping interruptions could occur if all American manufacturing was offshored and then concentrated in Asia. They sneered and mocked anyone who tried to explain that domestic sourcing eliminates many risks of a global supply chain.

Domestically, we have allowed a dangerous concentration of power in the hands of tech companies, which are our 21st Century utilities. Rather than taming them with anti-trust laws, we have allowed the FANGs to gobble up or squash any competitors. With their monopoly market shares, and the power to silence anyone they choose, their’s is a politically dangerous concentration. And we are now starting to realize that Monster Tech companies are openly loyal to China and contemptuous of the United States. That is terrifying.

Real leaders would start calling for a repatriation of manufacturing. Where imports are necessary, they’d back away from Asia and look more toward Latin America, Africa, and Eastern Europe, allowing easier access to Gulf Coast and East Coast ports. And as for Monster Tech, it is time for some good old-fashioned, carry-a-big-stick, Teddy Roosevelt-style trustbusting.

[buck.throckmorton at protonmail dot com]

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posted by Buck Throckmorton at 01:47 PM

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