Nails, Pencils, and Chains by Vicki
For want of a nail, a shoe was lost;
For want of a shoe, a horse was lost;
For want of a horse, a rider was lost;
For want of a rider, a message was lost;
For want of a message, a battle was lost;
For want of a battle, a kingdom was lost;
And all for the want of a horseshoe nail.
Wikipedia says that
proverb is many centuries old. It’s usually repeated as a
cautionary tale. Do all your tasks well, keep everything clean and
neat and well-maintained, don’t get sloppy, or bad things will happen.
But it can also be read another way: a little problem that no one
noticed, that very few people even could have noticed, leads to a big
problem for everyone.
That’s a metaphor for coronavirus, of course: a tiny particle causing
a worldwide disaster. But it’s also a metaphor for any other
obscure or invisible problem with a big future impact.
Hold that thought; we’ll come back to it.
Leonard Read wrote a marvelous little
essay entitled, “I, Pencil” which explains that nobody on this planet knows
how to make a pencil. Such a simple thing, an ordinary yellow Number
2 pencil, and nobody knows how to make it? Indeed, as the essay
explains, it’s true. Someone knows how to select the right tree for
the wood body of the pencil, and then chop it down and haul it to the
mill. Someone else knows how to saw the tree into planks of the right
size to make pencils from, and then cure them so they lie straight.
Another someone knows how to find the right plant to tap for the
rubber to make the eraser. Another someone knows how to find the ore
to make the steel to make the sheet metal to make the little clip that
holds the eraser on the end of the pencil, but by the time you
actually get that clip you’ve gone through several more someones.
Another chain of someones mines the clay and graphite, mixes them
together, extrudes them into little rods and bakes them in a kiln to
make the pencil leads. Yet another someone knows how to mix all the
chemicals to make the yellow paint, and a bunch more someones know how
to make all those chemicals.
Someone knows how to drive all the trucks that bring all these parts
to the pencil factory, and someone else knows how to schedule them so
the right parts arrive at the right times in the right numbers. And
finally, someone knows how to run the machine that puts all these
parts together and pushes out finished pencils. This is all
simplified, of course — there are thousands of people involved, if
not millions — but you get the idea. Everybody involved knows his
little piece of the process, but nobody actually knows everything it
takes to make a pencil.
Leonard Read wrote this essay to explain how a centrally planned
economy could not possibly work: if no one even knew how to make a
pencil, then certainly no one knew how to make all the goods and
services for an entire society. My point is slightly different: there
are “horseshoe nails” all through the supply chain, and it’s
impossible to know where they all are.
The “supply chain” is the name that’s been given to the whole system
of industrial production. For every product on the shelf in a store,
there’s a long chain of inputs and processes required to make it.
This is a bit misleading, because it’s not just a linear chain. For
any given product, it’s more like a funnel. For the economy as a
whole, it’s a web. You can think of a certain bolt as an end product,
with a supply chain that produced it. But that bolt is itself part of
the supply chain for thousands of other products, from golf carts to
The supply chain handles small disruptions all the time. If one
distributor can’t ship bolts when you need them, you can call another
distributor with a different stocking strategy. If nobody has those
particular bolts, perhaps you can use a longer bolt, or one made of
stainless steel rather than galvanized. Someone may have an emergency
stock that they’ll let you have for a price. It may cost more, but it
may be worth it to you. If it’s not worth it, you’ll just have to
wait until the right bolts are in stock again.
Larger disruptions are harder to handle. Sometimes these are caused
by supply constraints. When OPEC restricted shipments of crude oil in
the early 1970’s, it caused a worldwide economic slowdown. A few
years ago, floods in Thailand wrecked most of the world’s factories
that produced disk drives for computers, and sales of new computers
basically halted for months.
Other disruptions are caused by changes in demand. Many American
readers will be aware of recent shortages of personal weapons and
ammunition. The production rates for these items are relatively
constant, but fluctuations in demand due to various events have caused
dramatic changes in availability. More recently, the worldwide demand
for N95 masks and similar medical supplies rose drastically almost
overnight, causing global shortages.
Factories are marvelously efficient at mass production, but factories
take years to build. Even minor changes take months. If someone with
a spare injection molding machine had decided in February to start
making N95 masks, the molding dies to make the masks might be ready
right about now. And those dies themselves are a product with their
own complex supply chain required to make them. The molding machine
will eventually need spare parts, each of which has it own supply
chain. The trucks that bring the raw materials and take away the
finished masks need their own spare parts, each with its own supply
chain. Without all of that and more, the masks won’t get made.
What concerns me is the complex, overlapping, interlocking, unknowable
nature of the supply chain. It’s robust, up to a certain point, but
if enough links are broken, the whole chain will fall apart. And,
just like nobody knows how to make a pencil, nobody knows which links
are critical. To mix metaphors, those links in the supply chain are
the horseshoe nails.
There are a lot of jobs that have been deemed “essential” in the
current situation, and a lot more that have been deemed
“non-essential.” Some of those non-essential jobs are in factories,
which are shut down and not making more stuff. Any stuff we’re using
from those factories is coming from inventory.
Ever since we started practicing “just-in-time” and “lean production”,
inventories have been thin. We’re burning through them now. Nobody
knows when we’ll run out of something that’s absolutely essential for
something else, which in turn is key to making something everyone
needs, five or ten links down the chain. Nobody knows because nobody
can know. It’s the pencil problem. And because it takes time to
start up each factory in the chain, by the time anyone notices the
missing horseshoe nail, it will be too late. The whole supply chain
will crash, like a human body going into shock, and more people will
die than would ever have died of Wuhan fever.
It turns out that, on a long enough timescale, almost every legal job
that touches “stuff” is essential, and that timescale is not as long
as some politicians seem to think. Most of the jobs that touch money
are essential, too, because stuff doesn’t move without matching moves
of money. Most of the rest are essential as well, if only for the
mental health of the workers in the first two categories. People are
people, not molding machines.
The authorities who are making decisions about “essential jobs” don’t
understand this. The doctors may have the best available
understanding of the effects of the virus, and the best will in the
world, but they also have tunnel vision. Their recommendations show
how to keep the most people from dying of coronavirus, but don’t take
into account that their recommendations could cause more people to die
from something else. The politicians giving the orders generally
don’t understand the pencil problem, much less the problem of
horseshoe nails in the supply chain. And if things don’t change
before the inventories start running out, the missing horseshoe nails
might end up being the nails in our coffins.