David R. Henderson  

I, Coffee

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Ken Minogue's last essay... My Superintelligence Skepticis...
For instance, even the relatively simple GVC [global value chain] of Starbuck's (United States), based on one service (the sale of coffee), requires the management of a value chain that spans all continents; directly employs 150,000 people; sources coffee from thousands of traders, agents and contract farmers across the developing world; manufactures coffee in over 30 plants, mostly in alliance with partner firms, usually close to final market; distributes the coffee to retail outlets through over 50 major central and regional warehouses and distribution centres; and operates some 17,000 retail stores in over 50 countries across the globe. This GVC has to be efficient and profitable, while following strict product/service standards for quality. It is supported by a large array of services, including those connected to supply chain management and human resources management/development, both within the firm itself and in relation to suppliers and other partners. The trade flows involved are immense, including the movement of agricultural goods, manufactured produce, and technical and managerial services.
This is from UNCTAD, World Investment Report 2013, p. 142.

HT to Timothy Taylor, aka The Conversable Economist.


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COMMENTS (5 to date)
david writes:

It rather undermines the I, Pencil allusion that the paragraph takes place as part of a decidedly Coase-flavoured discussion on how a company may best exercise centralized influence over the global value chain.

When Leonard Read was writing in 1958, the intermodal container had only just been invented, in 1955. I don't think he foresaw the degree of centralized optimization and financialization that would occur over the next few decades. The days of large companies shipping goods across oceans in the vague expectation that it would sell 'on the dock' are long since over.

Does anyone wish to challenge my earlier assertion that no single person on the face of this earth knows how to make me? - well, certainly there are many, today, because we have had five successive decades of standardizing commodities so that we can exchange them more easily, and standardizing procedures so that we can finance them more easily.

That is why anyone writes 250+ page summaries of value-chain governance to begin with: because there is something to sensibly govern; a visible hand, not an invisible one, at least within the bounds of the corporation.

David R. Henderson writes:

@david,
I'm tempted to answer your point after the quote from Leonard Read, but I think there's a pretty obvious answer.
Does any other commenter wish to explain to david why this does not undermine Leonard Read's point at all?

Don Boudreaux writes:

david (not David Henderson):

Is there a single person who knows all that there is to know in order to produce a single shipping container - that is, to produce it from scratch? Is it even possible for one person to know all that there is to know to produce such a container? Is it possible for all of that knowledge to be contained in one place and processed and understood by a single mind?

Same question for, say, the fuel that powers the ocean freighters that carries that shipping container from port to port, and for the clothing that the merchant marines wear during their voyage on those freighters, and the navigational equipment used to guide those freighters, and for..... the list is practically endless.

Since Don Boudreaux has beaten me to the barrel with the fish, I'll just say that Howard Schultz wrote a very good book, Pour Your Heart Into It explaining how Starbucks was built.

Informative, as well as entertaining. Any MBA students out there would do well to read it.

david writes:

@Don Boudreaux

Of course there is. The Bureau International des Conteneurs will be happy to inform you of your local representative. They set the standards. As another possibility, China International Marine Containers, a single company, makes 90+% of the world's containers using those standards.

But I don't think you merely want to know whether a single actor can know what standardized parts and machines to buy to put together a container, since that answer is trivially true today. I think you are misinterpreting Read's Hayek-flavoured argument to make it true-but-meaningless.

Of course nobody knows how to make a container if you had to smelt the steel yourself. But nobody makes containers by smelting steel themselves to begin with. The point Read was trying to make was that, at least in the world of 1958, you had to rely on the local knowledge of your suppliers and your retailers. The knowledge existed somewhere, but not in any form legible to a single mind, and that was Read's point. You were a slave of the decentralized market on the dock, and governments trying to shake off this market were pursuing a foolish hubris.

But today, you don't have to, and the market is wonderfully centralized.

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