We live in a world where a 60-second earthquake in Taiwan can nearly shatter the American economy. We live in a world where an epidemic in China can threaten America’s ability to build cars and aeroplanes. We live in a world where the shuttering of a single factory in England can deprive Americans of half the nation’s supply of flu vaccine.

Consider the earthquake that slammed through Taiwan on September 21, 1999. Few Americans paid much notice that day, when the news flashed onto their computer screens or was broadcast from their car radios. The reports were dramatic enough. The quake had registered 7.6 on the Richter scale, buildings had toppled and others were on ½re, electricity was out, and so too most transport. By the time the Taiwanese had cleared the rubble, the death toll would hit 2,400.

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Yet, with the obvious exception of anyone who had family or friends on the island, most Americans showed little concern that Monday afternoon, the second-to-last day of summer. Judging by the nightly newscasts that week, Americans were much more interested in North Carolina, where Hurricane Floyd had dropped 28 inches of rain, or the introduction of Ford’s new supersized SUV, the Excursion, with its 44-gallon gas tank.

One man who did notice the quake was Willem Roelandts, CEO of the semiconductor design firm Xilinx. Awakened by a call from his office in San Jose, Mr Roelandts sat up in a hotel room in Tokyo staring at his television set, watching live feed of the disaster. For a few hours, he thought he was witnessing the first act in the collapse of the world economy.

Xilinx’s business is to design and manage the production of highly specialised semiconductor chips for manufacturers around the world. This gives Mr Roelandts a view into one of the nexuses of today’s global economy. He knows which companies use his firm’s chips, how they use those chips, where those chips are manufactured, and what are the alternatives should anything happen to the firms that actually build the chips to Xilinx’s specifications.

And herein lay the problem that day in September. Almost all such manufacturing was done by only two firms in Taiwan, which had located most of their capacity in a single industrial park. Mr Roelandts therefore knew that any severe disruption of commerce in Taiwan had the potential to cause economic damage on a scale far greater than most conceivable terror attacks. And he knew the semiconductor business was not the only industry where work has been hyperconcentrated on the island. “There is not an electronic product in the world,” he says, “that does not contain a Taiwanese component.”

Such specialisation and concentration is increasingly found in every production system in the world, from automobiles to medical devices, from petrochemicals to aerospace.

The shock wave from the Taiwan quake hit the American economy within days. Although the quake’s epicentre was far from Taiwan’s main industrial centre in Hsinchu, and although key plants reported only slight damage, the week-long break in the island’s electrical and transportation systems meant production could not take place and that what little inventory existed could not be shipped.

The first Americans to feel the effect of the quake were therefore workers at factories that depended on components made in Taiwan; within days, thousands of manufacturing employees were sent home from assembly lines from California to Texas. The next Americans to feel the quake were investors. As Wall Street began to make sense of the disaster, traders quickly offloaded stocks of some of the biggest American electronics firms, with Dell, Hewlett-Packard and Apple among those that fell furthest.

Last of all, Americans felt the quake as consumers. By Christmas, shoppers faced shortages of everything from laptop computers to Furby dolls to Barbie Cash Registers, all of which had been hit hard by parts shortages. The overall figures were dramatic. The one-week shutdown in Taiwan cut world output of electronics by 7% below predictions, just in the month of October, and disruptions continued well into the new year.

Even so, Americans were able to count themselves lucky. The problems they experienced were small compared with what might have happened had the quake been stronger, had it been centred closer to Hsinchu or Taipei, had it more severely damaged power plants and transport facilities. The warning, however, was clear. Our corporations have built a global production system that is so complex, and geared so tightly and leveraged so finely, that a breakdown anywhere increasingly means a breakdown everywhere, much in the way that a small perturbation in the electricity grid in Ohio tripped the great North American blackout of August 2003.

Our corporations have built the most efficient system of production the world has ever seen, perfectly calibrated to a world in which nothing bad ever happens. But that is not the world we live in. Not only is human civilisation riven routinely by earthquakes and hurricanes, but so too is it shattered by wars and acts of terror and simple human error. Which means it is only a matter of time until we experience our next industrial crash, perhaps one much worse than any we have yet known.

Today’s outsourcing has created something that is entirely outside of all our previous experience as a nation. Traditionally, companies that outsourced work tended to hire suppliers located nearby, usually within a few miles of their main factory. But the global communications and transportation revolution has in the past few years enabled companies to hire suppliers located not simply on the far side of town or the far side of America but on the far side of the earth. And inspired by ‘just-in-time’ production strategies, these companies have often linked these scattered operations together far more efficiently than was true even when they were all within the walls of the vertically integrated factory of yore.

In other words, even as they were designing a system that set American workers more and more into competition against one another and with workers overseas, America’s corporations were simultaneously tying the American nation to many other nations whom we do not know well nor much trust.

This new and intimate interdependence with other nations was forged not in the name of love. It was almost literally manufactured in the name of efficiency. Today’s border-busting interdependence was stitched together not by trade ministers toiling fitfully in the hotel ballrooms of Geneva and Rio and Bangkok, nor was it stitched together by a tweedy cabal at the State Department working with the Brylcreemed internationalists of Bonn and Tokyo. Rather, it is the product of a handful of visionary industrialists who first figured out how to explode their factories and spread the constituent parts around the globe.

This hyperinterdependence of nations is not a product these industrialists intended to produce; many do not even understand what it is they have produced. Yet the visceral connections they have forged with other nations have changed our lives profoundly.

One point of [End of the Line] is to show that the factory we thought we knew, and the corporation we thought we knew, no longer exist. The vertically integrated corporations of the 20th century have, for the most part, been taken apart and blended together to the point where it is increasingly hard to tell one from the next. In place of a collection of distinct individual companies, we increasingly see a global production ‘network’.

In essence, the Fords and IBMs and Xeroxes of America have mixed their constituent pieces together with each other, and with pieces of companies like Nissan and Sanyo and Phillips and Siemens and Samsung and TSMC. The result is a system of production controlled by no one of these companies nor any one country. On the contrary, it is a system into which all participating nations increasingly mix their technology, and their capital, and their labour, and from which all receive products.

Viewed in the abstract, as for instance by an economics professor at the University of Chicago, the result is truly a wonder of efficiency. Viewed by the average investor, the global production network seems the very quintessence of the rational use of capital.

Viewed from the checkout line at Wal-Mart, through the eyes of the consumer, the global production network appears to be a veritable conveyor of wealth.

Unfortunately, judged from any other conceivable facet of the American citizen, the new global production system appears to be nothing short of a disaster. The taking apart of the ‘modern’, 20th-century corporation has precipitated a slow-motion collapse in America’s pension and healthcare insurance systems. It has put an end to the traditional role of the corporation in forging communities of workers. It has dramatically shifted power over wages and work environment away from the average employee and toward the investor. It has undercut the ability of elected representatives to regulate business activities, be it to promote safety, or a cleaner environment, or more fairness in society. It has eroded the power of entrepreneurs to maintain the value of their investments or to bring new ideas to market. It has eroded the freedom of workers to shift from one job to another. It has eroded the freedom of the US to act in ways contrary to the wishes of a growing list of foreign nations on which we depend. It has undermined much of the stability of the system itself, in terms both of investing in future economic growth and even of simply sustaining present levels of activity.

Of all these points, the last one is perhaps the most counter-intuitive. Why, after all, would the corporation, if it truly is more powerful and more free than before, accept a vastly greater degree of risk? Yet the answer to this question is quite simple, if we look in more detail at how the nature of the corporation has changed. As we will see, power over the production system has shifted away from companies that view themselves primarily as manufacturers and producers into the hands of companies designed mainly to trade in the production of others, and which have never had any reason to identify, track, and limit risk in the production system. The most clear example of this is the rise of Wal-Mart, a firm able to exert immense power over almost any company whose products it sells.

But this shift also explains the secret of the success of ‘manufacturers’ like Dell Computer and Cisco Systems, which to a large extent simply package up components manufactured by other companies. This new focus on selling the work of others also increasingly describes the operations even of traditional heavy manufacturers like General Motors and Boeing, which in recent years have off-loaded many of their plants, machinery, and work onto suppliers, from whom they buy what they used to make.

Through most of the last century, the safe functioning of any assembly line was the natural responsibility of the managers at the vertically integrated corporation that owned the line. If your revenue depended on the efficient and steady use of the machines and workers who made up a manufacturing complex, it was only rational to devote a lot of effort to ensuring that there were no breaks in production.

One of the prime attractions of outsourcing lies right there, in the fact that hiring other companies to handle the hard work of manufacturing also entails the ability to shift responsibility for managing risk to these companies. Unfortunately, most of these suppliers, which are under near-constant pressure to cut their costs, have responded quite naturally by outsourcing much of their own work to other companies farther down the chain. And so on.

The result, when outsourcing has spread widely and deeply enough through any industrial system, is that many responsibilities are not so much shifted from one company to another as from one company to no company.

Another way to understand what has happened is to look not at the process of outsourcing but at the network of production that results naturally from any system-wide outsourcing. In a sense, any such network can be viewed as common property that belongs to all the companies that rely on it. Yet, as is true of all common properties, such a production network obviously belongs to none of the corporations that use it. In a networked system of production, no-one is ultimately responsible for ensuring that the system is safe. Nobody looks for risk in the system, nobody analyses risk in the system, nobody seeks to lessen risk in the system, nobody accepts any liability for risk in the system. If anything, the nature of competition results in a race among users to exploit the common system most effectively.

In today’s global production network, nobody walks the line. No-one even understands where it leads.

Barry C Lynn is a fellow at the New America Foundation in Washington, DC.

Copyright © 2005 by Barry C Lynn.

From the book End of the Line by Barry C Lynn, published by Doubleday, a division of Random House, Inc. Reprinted with permission.