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Tuesday, August 08, 2006

The Death of Distance

What is behind the "death of distance," and what prevents developing countries from taking take advantage of it? Here's Brad DeLong with an answer:

The Box That Changed the World, by J. Bradford DeLong, Project Syndicate: It is 40 feet long, 8.5 or 9.5 feet high, and eight feet wide. It carries up to 29 tons in its 2,000 cubic feet of recommended available space – goods worth roughly $500,000 (or more) when sold at retail. It, and what it carries, can be transported in a month anywhere in the world where there are suitable harbors, railways, locomotives, flatcars, truck tractors, diesel fuel, and roads.

It is the modern cargo container, and it is able to move non-fragile, non-perishable goods from any modern factory with a loading dock to any modern warehouse anywhere in the world for about 1% of retail value. Indeed, it can be transported for a marginal cost of perhaps $5,000...

All of this has happened since 1960 or so. Back then, the costs of international trans-ocean shipment for most commodities could easily amount to between 10% and 20% of retail value. The cargo container has changed everything. ...

The world is certainly not “flat,” as the New York Times columnist Thomas Friedman believes. But, in an economic sense, it is extremely small for non-perishable, non-fragile goods. Every modern factory with outgoing volume large enough for container traffic and a suitable loading dock is next door to every modern warehouse with similar features.

Yet it is not the whole world that is so small, but only that part of it that is attached to the global container-handling network. Areas that lack the necessary infrastructure are still far away from the global trading system...

For example, if your electricity is unreliable, so that you can’t count on being able to pump the diesel into the truck tractor, you are not attached to the network. If the volume of your production is too small to fill 2,000 cubic feet of space headed for a single country, you are not attached to the network.

Likewise, if the money to fix your roads was embezzled, so that nobody wants to risk their tractors on them, you are not attached to the network. If your courts function so badly that few outsiders are confident that what you say is theirs really is theirs, you are not attached to the network. ... If your entrepreneurs cannot build organizations at container-scale without attracting politically well-connected extortionists, you are not attached to the network.

For any poor segment of the world economy, getting attached to the global container network is an immense opportunity. But it is an opportunity that requires that everything – infrastructure, scale, public administration, governance, and foreign knowledge of your production capabilities – work just right. ...

Many have written about how telecommunications technology is bringing about the “death of distance.” Indeed, nowadays, you can talk to anybody, anywhere. But it is the cargo container that appears to have brought about a more effective and – so far – more significant “death of distance.” For, in a commercial sense, at least, the goods we ship across oceans still far outweigh the words we chatter around the world.

    Posted by on Tuesday, August 8, 2006 at 07:31 AM in Economics | Permalink  TrackBack (0)  Comments (7)

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