How Not to Mobilize for a Pandemic
Definitive scenarios and requirements for medical diagnostic equipment, personal protective equipment, supplies, and personnel have not been established
Efforts are being made to bring on new producers of sophisticated equipment
Existing sources are trying to expand production and are placing new orders with their supplier base and new suppliers are placing orders with some of the same suppliers
Hospitals are desperately short of safety equipment and time is of the essence
The Pentagon hasn’t shipped ventilators because nobody told them where to send them
States are competing against each other (and with FEMA and foreign users) to purchase essential medical equipment, such as ventilators
Manufacturers don’t know who the highest priority end users are and are uncertain who they should ship to
Some producers and suppliers are price gouging
A method is needed to provide exchange of technical information and coordinate orders for components between existing and new producers of complex equipment
Parts and end product supplies from overseas are particularly uncertain.
Domestic producers of essential safety gear are selling masks, gloves, gowns, and other equipment overseas because the Federal government never told them not to
Possible new production sources are reluctant to begin production because they aren’t sure the market will still exist in 6 months to a year
Sixteen tons of medical safety equipment was shipped to China at the beginning of the crisis because no requirement had been established to keep it in the US
All of these issues can and should be addressed through the use of the Defense Production Act (DPA). This paper briefly discusses some of the issues and identifies a few specific issues in the current response to the corona virus emergency.
Briefly, the uses of the DPA could include:
A. Under Title I of the DPA
1) Ordering companies to produce necessary gear. This is the authority that gets the most attention and is the one President Trump supposedly cited to get GM in the business of making ventilators. This is the “nuclear option” with the DPA and always has been – and should be – rarely used.
2) Placing high priority orders at the front of the line. The DPA allows the government to say “our orders go to the head of the line.” It can also say “that stuff you’re producing for nondefense (in this context, Covid-19 expenditures count as “defense”) uses, uh, actually, we need that.” This authority would apply to the people making end products (ventilators, masks, etc.) and their suppliers, all the way down to the people who make the production equipment and basic components. A priority order is a powerful tool -- in the right circumstances it can significantly reduce lead times. It is a primary reason why the Federal government should be taking responsibility for expanding production of necessary equipment: whereas the State of New York can be outbid by another state – or a foreign buyer – the Federal government can issue a priority rating that requires the supplier to send all its production for federal use.
3) Coordinate and orchestrate production. This is the most important potential use. In one place, the government "czar" (that was what they called them in World War II) could determine requirements, identify production sources, locate the bottlenecks and figure out how to open them, coordinate delivery of parts and supplies to the highest priority producers, and coordinate purchases and delivery to the highest priority users. It would eliminate the confusion and inefficiencies with every state and hundreds of hospitals each trying to get their order placed and would eliminate the price gouging. One source of orders, and the deliveries go to the highest priority user. Sadly, our current effort is the opposite of this philosophy: multiple people (Mike Pence, Jared Kushner, Admiral Polowyzik, Peter Navarro, the director of FEMA) in charge; the president not only refuses to set requirements, he attacks (some) governors for expressing requirements.
4) Restrict hoarding. The president can take steps up to quite literally designate the maximum quantities people may possess of materials that are in short supply and prevents price gouging.
B. Under Title III of the DPA
5. Guaranteeing a market. Some producers have questioned whether the buyers will be there if they gear up production. With qualification and production lead times, new producers must assess the risk that the crisis might end just as they are gearing up production. Title III of the DPA can be used to give production guarantees or loan guarantees; these guarantee the government will be a purchaser of last resort if markets don't materialize. (This would have been perfect if the GM problem, as reported, was GM's uncertainty whether there would be enough buyers.)
C. Under Title VII
6. Industry-government coordination. The government can authorize creation of voluntary agreements, where industry and government can sit down and discuss requirements, supplies, production bottlenecks, schedules, etc., with little fear of antitrust concerns, The authority is a little cumbersome, but it's there. It could be invaluable in helping get new suppliers up to speed by sharing technical information or helping multiple producers of the same product coordinate their lower tier orders so they don’t overload a single supplier.
Most important, though, these authorities only help if the federal effort is coordinated. The Thursday task force briefing suggested that authority is split between Peter Navarro, Jared Kushner, vice president Mike Pence, the director of FEMA, and Admiral Polowyzik – and perhaps every governor and every hospital administrator in the country. This approach continuing chaos and endless production delays.
In addition, these authorities necessarily imply that markets aren’t working and that only the federal government can coordinate resource decisions. Admiral Polowyzik’s statement at the April 2 task force briefing that he was delivering supplies to commercial distributors and that “I’m not there to disrupt a supply chain” defeats the whole purpose of DPA controls.
Appendix A: Gearing up Production: the 1973 tank surge
I spent years studying the industrial mobilizations for World War I, World War II, and Korea. Because of the surprise of Pearl Harbor, people often say "we weren't ready for WWII." Actually, we were very ready for WWII, we just weren't ready for Pearl Harbor. They started gearing up pretty seriously (both manpower and production) in mid-1940. It's true they converted auto industries to production of tanks, bombers, and other things, but this was a year-long process, at best.
Finding new sources is certainly one way to increase production of vital equipment. But whether the effort is to develop new sources or to expand production with existing sources, there is formidable planning challenge. With no top-down management, each buyer has a hunting license to seek supplies and producers at all levels from end product to component have no idea who the high priority end users are. All this work – qualifying new sources, expanding production at existing sources, expediting production, attacking bottlenecks, delivery to high priority end users – must be coordinated and the DPA provides the necessary tools.
An anecdote from 1973 illustrates the problem. During the 1973 Yom Kippur war, the entire US political and policy structure agreed we must do everything to support Israel. They were literally pulling tanks off the front lines in Europe, flying them to Israel, and they were basically driven off the C-5A and straight into battle. Everyone in Washington – Congress, President, DoD, intelligence – bought into this and Congress agreed "buy back our front line tanks as soon as possible -- double the orders, we’ll write the check.." The purchasing agents went to the prime contractor and he said "no sweat, we can put on a second shift, but you might want to talk to this foundry in West Virginia, the people who make our turret casting.” And the foundry said "we're already running all out, put it in line; 24 months." And DoD said "but we have the highest DPA priority rating" and the foundry said "so does everything else on the order board, we'll get to you when we can." And that was that. This illustrates what happens when you try to gear up. It's not easy.
When that supply shortage happened, the mobilization management infrastructure (the Army, Commerce, and FEMA’s predecessor agency) had an effective emergency planning and control program. It's complicated to orchestrate production and much of the Korean war management infrastructure still existed in 1973. In fact, even 18 years later, during our 1991 deployment of a half million troops for Operation Desert Storm, these authorities were broadly understood and the management structure still existed to handle the demands of a large troop deployment, including the new production to support those troops. These skills have atrophied in the government and will need to be regenerated. But the DPA still provides a lot of authority and could be a very powerful tool in the fight to gear up production of necessary equipment. And the type of coordination discussed here is essential to an effective response.
Appendix B: Controlling Production in World War II
The mobilizations for World War II and Korea have been studied extensively and at least for the next 40 years, the lessons learned from these efforts continued to guide current planning efforts. Some lessons underline the ineffectiveness of our current response.
The fatal flaw in all materials control, production control, or priorities methods that preceded the Controlled Materials Plan was that they could not correlate materials supplies with priority users. Priority ratings provided a “hunting license,” but the authorization to go out in search of materlals provided no guarantee that materials would be available – or that the holder of a rating would limit his purchase to the required amount. (Leon Reed and John Starns, Evaluation of the Controlled Materials Plan, Department of Commerce, 1987.)
According to the most thorough postwar survey of production controls, the CMP had five objectives. Four of them directly shine light on our current situation. These four purposes were:
To assure a balance between supply and demand (we don’t know either)
To schedule production for each approved program to achieve maximum, balanced output (total anarchy in the purchasing and supply process)
To obtain that balance by a coordinated review of military, export, and essential civilian controlled materials requirements (none of this is being done)
To maintain continuing control over production and the distribution of materials to support that production (not being done). (David Novick, Wartime Production Controls, Columbia University Press, 1947.)