The supply shock, its cause, and the shift to sustainability

The chip crisis is the first climate disaster-related shortage on a civilization-wide, global scale. But it's just the tip of a massive supply shock wave.

The other day my LED panel for my webcam setup broke. On Amazon, the delivery time for the replacement was three months! You’ve probably had similar experiences lately — or heard analogous anecdotes. Unfortunately, we are in a unique phase in economic history: a supply shock. Many things are no longer available. Or, if they are, they’re not as immediately available as we’re used to. Therefore, the prices of many goods rise substantially: housing, cars, energy, and gadgets, as in my case. What’s happening here? 

The short-term reasons are Corona-related. The pandemic has literally thrown global supply chains out of sync. Factories and retailers in Western economies are eager for finished goods, raw materials, and components from longtime suppliers in Asia and elsewhere. This is demand from the economies that are mainly past the pandemic shutdowns. In many Asian countries, however, lockdowns and other coronavirus-related restrictions still prevail, limiting their ability to meet demand.

The bad news is that the supply crisis has an even deeper, long-term cause.

Take chips, for example. The world can’t get microchips right now. Our automotive clients in Germany are massively cutting production. In this case, a supply shock means that the supply chain breaks down despite high demand. There are three factories that produce the most chips in the world. The factory in Naka, Japan, probably caught fire due to surges in the power grid. The Texas plant was hit by a historic snowstorm that knocked out power for days. And finally, the Taiwan plant was hammered by the worst drought in half a century — and microchip manufacturing requires vast amounts of water.

The tip of a massive supply shock wave

The chip crisis is the first climate disaster-related shortage to hit us on a civilization-wide, global scale. We would probably still have enough microchips in a world with stable temperatures. In that scenario, factories wouldn’t have blackouts or be so parched that they wouldn’t have enough water. Wolfsburg, Ingolstadt, Stuttgart, and Munich would still be producing around the clock.

But chip shortages are just the tip of a massive shock wave. Fundamental things in our lives, such as steel, cement, food, and water, are not the focus of supply concerns at the moment. But they are already becoming more expensive. Prices will continue to rise because everything has been artificially too cheap for so long — especially energy. Energy prices are skyrocketing now. The prices will continue to grow in the long term because energy is still highly undervalued at the moment. When you buy gasoline, who pays for the pollution, the carbon emissions that heat the planet? Right now, nobody does. But in the future, somebody will have to. We’re going to have to use that money to rebuild all the cities, plants, and factories that have been destroyed by floods, fires, droughts, and epidemics. 

The dirty truth is that our civilization is still dependent on fossil fuels for about 80% of its energy. Since the beginning of the industrial age, our economy has externalized these costs. It passed the costs on to “future generations”: aka all the people who will one day have to clean up the oceans and the skies, reforest the woods, and bring the animals back to life. And they will have to do it while finding ways to make things like steel, cement, food, and glass without destroying the planet we live on.

We must fix all of this

Well, we are now that “future generation.” We must fix all of this. 

We need to live up to our responsibility and look at our contribution to a sustainable world. So Accenture has put Sustainability at the top of the agenda. We have to think about what we can do to use our digital capabilities to contribute to a Circular Economy and for a world in which we give at least as much as we take.

There are a lot of details to discuss, but the building blocks for the solution are super clear:

  1. A high and predictably escalating price for carbon. This will disrupt all business models that pollute the atmosphere and create massive new opportunities.
  2. A commitment to put an equivalent amount of carbon back in the ground as your nation has historically emitted. 

A shift in design

When we were growing up, we were sometimes told that the world is the way it is and that you can only live your life in this world. It would be best if you didn’t hit the walls too hard. And instead, try to make it good with your loved ones, have a little fun, and save some money. But we can no longer afford not to run into walls. We have to change our perspective. For this, it helps to be aware of one elementary truth: everything around us, what we call our everyday life, was invented by people who were no smarter than us. So we can change it, and we can influence it — if we have the right attitude.

Mark Curtis has already shared a few ideas about this at NEXT last month. He called for a shift in design from the previous user-centric to a life-centric paradigm. We will discuss many more ideas at Fjord’s conference on “Sustainability and Circular Economy” later this week.

If we do not pivot to a sustainable economy, we will increasingly have to pass on the real costs of our environmentally harmful manufacturing methods to the products. As a result, prices will continue to climb, increasing inequality and deepening divisions in society. And we know all too well the political price we must pay if that happens.

Matthias Schrader is the founder of the NEXT Conference. Since 2018, he has led Accenture Interactive in Germany, Austria, Switzerland, and Russia.

Photo by Nathan DumlaoHire on Unsplash