Coronavirus pandemic exposes fatal flaws of the 'just-in-time' economy

JIT - Just-in-Time, idea was developed in 1960-1970s in Toyota-Japan. It is a methodology aimed primarily at reducing times within the production system as well as response times from suppliers and to customers.

Credits : Just-in-Time

The idea of just-in-time (JIT) marked a radical new approach to the manufacturing process. It cut waste by supplying parts only as and when the process required them. JIT eliminated the need for each stage in the production process to hold buffer stocks, which resulted in huge savings.

The coronavirus outbreak, which was first detected in China, has infected people in 185 countries. Its spread has left businesses around the world counting the costs.

Global shares hit sharply downward. The FTSE, Dow Jones Industrial Average and the Nikkei have all seen huge falls since the outbreak began on 31 December. The Dow and the FTSE saw their biggest quarterly drops in the first three months of the year since 1987.

The COVID-19 pandemic has exposed some of the downsides of the "just-in-time" economy - a defining feature of capitalism during the past three to four decades.

What is Just-in-Time Economy?

Source : www.abc.net.au This chart uses a logarithmic scale to highlight coronavirus growth rates. Read our explainer to understand what that means - and what we can learn from countries that have slowed the spread.

This phrase is used to evoke an economy defined by a lean - and at times mean - philosophy and approach to everything from production to employment, and a financial system enmeshed with it.

The term "just in time" was popularised in the 1980s and 1990s to describe a system of production and a management philosophy which aimed to cut costs and eliminate waste by procuring and delivering everything just when it's needed - or "just in time".

Toyota was a leading proponent of "just-in-time production" - its factories and supply chains engineered from the 1970s so that components arrived just as they were needed for assembly.

Avoiding the costs of holding inventories and warehousing was a key part of the strategy. This required the development of sophisticated logistics to manage often global supply chains to ensure "just-in-time delivery".

All good - until supply chains are disrupted, as they have been in the pandemic that has hit myriad businesses from tech giants such as Microsoft, Apple and Samsung, through to the makers of critical medical supplies.

That's prompted a reassessment by some of the Federal Government's leading right-wing 'hawks' such as the chair of the parliamentary joint committee on intelligence and security, Andrew Hastie, who find themselves in unlikely alliance with the protectionist left - all advocating more resilient supply chains insulated from the prospect of global disruption and a rebuilding of domestic manufacturing capacity for critical goods.

Just-in-time workforce

There's less attention given to the "just-in-time workforce" - which the economic fallout of the virus has exposed as another vulnerability.

Casualisation, labour hire, self-employment in the so-called "gig economy" and zero hours contracts are all manifestations of a "just-in-time workforce", where the worker becomes an economic buffer, absorbing the risk of variations in demand.

In response to recessions around the world in the early years of that decade, employers who'd been stuck with fixed labour costs when demand and revenue fell responded by cutting back their ongoing workforces.

A core of ongoing employees was surrounded by an expanded periphery of part-time, casual and contract labour who could be upsized and downsized as required.

For business, there is an obvious cost advantage in being able to tailor work hours by the day and by the hour to meet demand.

Like widgets on the assembly line, workers are sourced and delivered "just in time".

The just-in-time workforce also shifts power from labour to capital: people in insecure jobs are less inclined to speak out, push back or unionise.

Business groups like to argue that the flexibility is a two-way street - and it is the case that some workers do enjoy the freedom that gig work or temp work offers - but there's no denying that in aggregate it represents a massive shifting of risk from capital to labour.

In effect, the risk of variations in demand has been shunted on to working people, who in turn face increased financial risk as they try to navigate bills and mortgages without security of employment or income.

Just-in-time household budgets

It's contributed to the rise of "just-in-time" household budgets where people live hand to mouth, with more than a quarter of households (ex. Australians) reporting they have less than a thousand dollars in cash savings.

In good times, this is a risk to individuals and their families. In bad times, as the COVID-19 pandemic demonstrates, it can quickly become a systemic risk.

According to Dick Bryan, an emeritus professor of political economy and co-author, "People who are absorbing the risks of business now become in their large numbers a systemic risk for the overall economy".

"Because people aren't working, people aren't spending and people can't pay their bills, then we find a big cascading of insolvencies running through the economy."

Australians Official estimates showing that nearly 800,000 Australians lost their jobs in the space of a week or so as the crisis hit were a stark illustration of how quickly the "flexible" workforce can become collateral damage, with their loss of earnings threatening to unravel the economy and financial system. In fact situation is same in many other countries .

The lack of a buffer for many businesses in the just-in-time economy has also been brought into stark relief, with so many enterprises utterly reliant on short-term cash flow, with few resources to fall back on.

Although its motivations may have been humane as well as economic, the Government really had little choice but to drop its opposition to increasing the dole and instead double it in response to the COVID-19 jobs shock.

Likewise, its reluctant decision to subsidise wages (even though many casual workers have no access to this safety net).

Just-in-time finance

Without that intervention and similar measures from governments around the world, there is no doubt we would have seen a catastrophic financial system meltdown, because alongside the just-in-time workforce, we also have a just-in-time financial system.

Just about every payment, from mortgages to utility bills, has been bundled up into financial securities that are sold and traded around the world.

Securities backed by utility bills have come to be seen as a near risk-free investment — more secure, according to some, than Treasury bonds — but if the steady stream of secure repayments were to dry up, these securities would plummet in value with disastrous consequences.

Mike Rafferty of RMIT, is of the opinion that if every household were to stop paying its utility bills, the financial system would collapse and it would only take an unexpectedly high share of households to renege on payments to push the system to the brink.

No surprise then that, in the United States, banks are reportedly preparing to garnishee peoples' economic stimulus payments from the Trump administration to pay debts.

Despite this, so far, the systemic risk from precarious work in a financialised world is barely featuring in the political debate.

On the contrary, business is demanding more labour market deregulation and "flexibility" on the other side of the crisis to build productivity and revive the economy.

There's a saying in economic circles that we learn the lessons of the last crisis just in time for the next one. Or too late, as the case may be.

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Source: www.abc.net.au, www.bbc.com