‘Growth through efficiency’ versus ‘Resilience to economic shocks’

The earlier research treats production reliability as a marginal or fungible property whose costs could be traded off against other organizational values such as efficiency, speed, and product performance. The reliability analysis of the 1980s and 1990s was quite different. It dealt with error and failures that have far-reaching, often unacceptable implications for safety, not just inside but also outside the organization. This is not reliability as a probabilistic property that can be traded off at the margin with other organizational values, but reliability directed toward a set of events whose occurrence must, as nearly as possible, be deterministically precluded. (Roe and Schulman 2008, 52 – 53)

For example, what economists termed “excess capacity” in efficiency terms high reliability researchers at times call “positive redundancy,” that is: sufficient requisite variety in terms of processes and options to ensure stability of outputs in the face of unpredictable or uncontrollable inputs. Economics, for its part, is a theory of substitutability, but high reliability posits nonfungibility after a point. At that point, nothing can substitute for the safe and continuous provision of the critical service, even during (especially during) turbulent times. Ironically, this is especially true for economic growth, which is not possible without high reliable contract law and regulations along with high reliably infrastructures, like large-scale water, energy and telecommunications.

These distinctions matter because current debates, centered around “resilience,” can muddle the analysis and follow-on implications.

II

By way of an example, consider what the report, Navigating Trade-offs in the Global Economy (Morris and Campbell 2025), lists as the first major trade-off:

TRADE-OFF A: ‘GROWTH THROUGH EFFICIENCY’ VS ‘RESILIENCE TO ECONOMIC SHOCKS’
There is a trade-off between promoting growth through economic efficiency and reordering supply chains as a means of securing economic resilience.

Building resilience in key sectors may require restructuring supply chains to reduce vulnerabilities to future trade disruption – whether from geopolitical causes such as the Russian invasion of Ukraine or US–China tensions, or from other causes such as the Covid-19 pandemic or climate change. A resilience- focussed approach could involve:

• onshoring (transferring production to the UK)
• near-shoring (transferring production to nearby countries)
• friend-shoring (transferring production to reliable allies or countries with equivalent values).

While it may not be feasible to move entire supply chains to the UK or its allies, the idea behind these approaches is to shift at least part of existing supply chains to reduce the risk of potential disruptions.

Each of the three approaches requires shifting supply chains away from where production can be done most cheaply. This makes supply chains less efficient. For instance, using tariffs on intermediate inputs to try to promote domestic manufacturing increases costs for these goods, which ‘cascade’ down the supply chain and result in cutbacks in production and price increases for consumers (see Kreuter and Riccaboni 2022). Similarly, one study suggests that friend-shoring may lead to a fall in global GDP of up to 4.6 per cent (Javorcik et al 2022).

On the other hand, proponents of resilience-based strategies argue that the reallocation of supply chains can reduce dependencies on unreliable partners and help to insulate countries from economic shocks. There is evidence in particular that the diversification of supply chains can help to reduce the negative impacts of shocks, while partial onshoring can also have benefits but comes with significant implications for economic efficiency (OECD 2023).

The trade-off between efficiency and resilience can be understood as a judgement about the risk of adverse impacts of economic shocks over time. Taking action to bolster resilience could have a short-run detrimental impact on growth by making supply chains less efficient, but it may prove economically optimal in the long run if it shields the UK from future economic shocks. Recent events – from the Covid-19 pandemic to conflicts and trade wars – have heightened policymakers’ alertness to future economic risks and therefore helped to ignite the current efficiency/resilience debate. The trade-off is most acute for goods that are foundational for future economic growth, such as semiconductors. This is because, on the one hand, they are likely to be strategically important – and therefore in need of protection from economic disruption – and yet, on the other hand, restructuring these supply chains will have wide network effects on other industries, with larger impacts for efficiency.

http://www.ippr.org/articles/navigating-trade-offs-in-the-global-economy

Let’s assume this argument is true as far as it goes. Clearly for the authors, both efficiency and resilience are in terms of risks, benefits and costs, and thus a trade-off between the two seems more than plausible.

But what if resilience-seeking and reliability-seeking are not the same thing? What if that reference to “reliable” in the above passage implies it’s actually “highly reliable supply chains” that are sought after–that is, supply chains that, again, ensure the safe and continuous provision of the critical service, even during times of disruption?

If it’s the latter, then the statement–“While it may not be feasible to move entire supply chains to the UK or its allies, the idea behind these [three] approaches is to shift at least part of existing supply chains to reduce the risk of potential disruptions”–falls short of what is actually sought by way of practice. Which is when on-shoring, near-shoring and friend-shoring diversify the portfolio of practices to ensure high reliability.

If the latter is achieved, then the phrase “‘Growth through efficiency’ versus ‘High reliability in the face of shocks'” is NOT a trade-off, but rather a confusion of different categories.