I Pencil and the Japanese Supply Chain

March 17th, 2011

One of the first things I read in law school was I Pencil, an essay that describes how a pencil, such a simple item, can only be assembled based on inputs from countless source across the globe driven by the invisible hand. There is no “master mind” that creates it. People take for granted how interconnected our society is, and how all aspects of our lives are premised on free trade and exchanges. This article from the Times about the disruption in Japanese supply chains reminds me how people forget this principle. Even American auto manufacturers, who compete with Japanese auto manufacturers, cannot thrive without receiving various parts from abroad.

And that has left many overseas customers and trading partners in something of an information vacuum, unsure how soon the effects of any supply-chain disruptions would make themselves felt — and how long they might last.

Even General Motors, a company that might seem to benefit from disruptions to Japan’s auto industry, finds itself in a period of watchful waiting. For one thing, the new Chevrolet Volt plug-in-hybrid from G.M. — whose sales could conceivably benefit from any production snags in Toyota’s popular made-in-Japan Prius — depends on a transmission from Japan.

Mark L. Reuss, G.M.’s president for North American operations, said Wednesday that he did not yet know whether his company could count on an uninterrupted flow of that Volt component from Japan.

“We just don’t know from a supply standpoint; there’s so many great things that come out of Japan for the whole industry,” he said, speaking to reporters after a speech at the University of Detroit Mercy.

With all the hullabaloo (and gazillion dollars) for GM to build an “American” electric car, we should never forget that significant portions of the vehicle are manufactured overseas.

I quote now from I Pencil.

I, Pencil, simple though I appear to be, merit your wonder and awe, a claim I shall attempt to prove. In fact, if you can understand me—no, that’s too much to ask of anyone—if you can become aware of the miraculousness which I symbolize, you can help save the freedom mankind is so unhappily losing. I have a profound lesson to teach. And I can teach this lesson better than can an automobile or an airplane or a mechanical dishwasher because—well, because I am seemingly so simple.

Simple? Yet, not a single person on the face of this earth knows how to make me. This sounds fantastic, doesn’t it? Especially when it is realized that there are about one and one-half billion of my kind produced in the U.S.A. each year.

Pick me up and look me over. What do you see? Not much meets the eye—there’s some wood, lacquer, the printed labeling, graphite lead, a bit of metal, and an eraser.

There is a fact still more astounding: The absence of a master mind, of anyone dictating or forcibly directing these countless actions which bring me into being. No trace of such a person can be found. Instead, we find the Invisible Hand at work. This is the mystery to which I earlier referred.

The lesson I have to teach is this: Leave all creative energies uninhibited. Merely organize society to act in harmony with this lesson. Let society’s legal apparatus remove all obstacles the best it can. Permit these creative know-hows freely to flow. Have faith that free men and women will respond to the Invisible Hand. This faith will be confirmed. I, Pencil, seemingly simple though I am, offer the miracle of my creation as testimony that this is a practical faith, as practical as the sun, the rain, a cedar tree, the good earth.