Unbelievable efficiencies

How about we start a business today. This very hour. We should have our first sales by this evening.

Sure it can be done. Thanks to computers and the worldwide web.

In some ways these have created what economists used to dream of: Supreme efficiencies in our market places.

The brilliant economist Milton Friedman held up Hong Kong as an example of an efficient marketplace. The territory had precious few taxes. Precious few regulations, licences, restrictions. In other words, people were extremely free. To buy and sell. And to negotiate prices and terms. Hence the title to his best-selling book and TV series “Free to Choose.”

Our electronic marketplace is even more efficient than Hong Kong was. And Hong Kong was one of the most free economies on earth.

Imagine starting a business in the non-electronic world. A shop. You need to get permission. From zoning authorities. From health departments, perhaps. From fire inspectors. From various bureaucrats. In Mexico these approvals can take a year. In many of our communities they can take six months. You will face - and must pass - inspections periodically. You will need to provide access to the disabled.

Once you open you will or may face restrictions. To your signing. To your hours. To your advertising.

Imagine starting a business on eBay. Hundreds of thousands have. And they needed so little time to do so. And they faced almost no restrictions.

I know a group of folks in a nearby village who drive to the nearest Salvation Army clothing store every Monday. They paw through the latest arrivals, buy them and resell them on eBay.

In your shop you will buy goods and display them at the price you feel is fair. Maybe people won’t like the products. Or the prices. Or your location. They will communicate this to you. But this may take months to sink in.

You may cut the prices for a while. When the products don’t sell, you may change lines. You may move your shop. Eventually, you will sort out what works and what doesn’t. In a way, your customers will have told you what you need to do to do business with them. But this communication was slow and ponderous.

Meanwhile, over at eBay these folks get the message maybe in hours. Or minutes. As some eBay people have discovered when they accidently put the wrong price on items.

This makes for efficiency in the marketplace that economists of old could not believe.

The electronic marketplace is so incredibly huge and efficient that a lot of manufacturers have or will change their structures.

Consider the car company. It installs XYZ stereo systems in one of its models. Drivers hate the systems.

Used to be this information would creep back to the car company by camel. Nobody dumped their new cars back on dealers and demanded their money back. Not when the problem was merely the radio.

Car companies had to conduct surveys. Had to wait until letters came in from their customers. Or from their dealers. After buyers complained to them.

Today they get the complaints instantly. And, the web gets filled with thousands of complaints and comments. Put a lousy radio in your car today and the world knows about it within days.

Computers and the web have given extraordinary power to consumers. And to sellers who need to get information out to prospective buyers.

All of this adds up to unbelievable efficiencies in our electronic market place.

From Tom ... as in Morgan.

For more columns and for Tom’s radio shows (and to write to Tom): tomasinmorgan.com.

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