Adam Smith states, ‘As by means of water-carriage a more extensive market is opened to every sort of industry than what land-carriage alone could afford.’ Seacoasts and navigable rivers saw industry subdivide, improve and prosper. This advance in logistics opened up new markets and fostered economies of scale.
DEFINING IDEA…
The more we exploit nature, the more our options are reduced, until we have only one: to fight for survival.
~ MORR IS K. UDALL, AMERICAN POLITICIAN
Although Smith doesn’t mention ‘economies of scale’, this is what he refers to. The improvements in transportation gave industry many benefits, including greater efficiencies and cost savings made possible by expansion.
Smith asks, ‘What goods could bear the expense of land-carriage between London and Calcutta?’ The answer was, and remains not many. It is evident from his writings that he saw transportation by water as a significant improvement to industry. I wonder what he would make of air-travel today?
Opening up new markets and seeking appropriate savings are all part of modern business - but at what price? What cost to those being exploited and paid a pittance for their labour in countries far from where the goods will eventually be sold? What cost to the environment as the carbon footprint of those economic decisions continues to pollute the planet? What cost to land plundered for profit without regard for future generations?
In the 1930s, US industrial farming came of age. Escalating cereal prices attracted profiteers to a traditional small-scale, family-run business not exactly known for its excessive revenue opportunities! In 1931, Hickman Price abandoned his $50,000 salary from Fox Film Corps in Hollywood to buy up 25,000 acres in the Texas Panhandle. Two hundred and fifty mobile maintenance units kept twenty-five silver combines working round the clock and hundreds of trucks ferried the wheat to market. This was ‘farming’ on a scale previously unseen, with devastating consequences. For a start, the inevitable over-supply depressed prices and sent many, including Mr Hollywood, broke. Worse still was the environmental consequences of removing the prairie grass to make way for acres of wheat when droughts and twisters destroyed the land. On 14 April 1935 an estimated 300,000 tons of flying dirt darkened the skies, from east Colorado to Washington DC. Five days later, Roosevelt’s soil conservationist Hugh Bennett implored a Congressional Committee to restore the integrity of the prairie grass before it was too late, pointing to the sullied windows of the Capitol, ‘This gentlemen, is what I’m talking about. There goes Oklahoma.’
Smith was excited about the possibilities for business as transportation opened up new markets and made it possible to transport and sell excess goods to new locations for additional profit. But it must be tempered. Perhaps it’s time for modern business to adopt the Hippocratic Oath stating, ‘First Do No Harm’.
HERE’S AN IDEA FOR YOU…
If your business is being squeezed on price, consider changing your competitive strategy. You will never compete with large business on price alone, so find an alternative way to differentiate yourself. What other aspects of your product or service could you emphasise in order to create a competitive edge? Perhaps you could draw potential customers’ attention to environmental credentials or craftsmanship.