Free-Market Miracle: From Sri Lanka to Wal-Mart
Wal-Mart Had to Master Low Costs before it Could Offer Low Prices
JANUARY 01, 2003 by RALPH HOOD
Filed Under : Spontaneous Order
Ralph Hood is a writer in Huntsville, Alabama.
Having spent much of my adulthood in the aviation industry, I belong to the Greater Northern Alabama Lying Pilots’ Coffee Drinking and Tale Telling Society. We meet erratically and unreliably, solely for our own entertainment.
One member, Don Langford, flies freight all over the world in huge airplanes.
Recently, Don told a brief story that illustrates the very essence of the free market, Adam Smith’s invisible hand, global trade, just-in-time distribution, and why Wal-Mart has thrived. It also makes my 1960s economics professors at Clemson University look like clairvoyant sages.
Seems Don flew into Sri Lanka one day in a Boeing 747 to pick up a full load of freight, consisting solely of boxes upon boxes of locally made luggage. As Don pointed out, a 747 full of luggage is a bunch of bags.
Once loaded, Don and crew flew the luggage to Luxembourg–about six hours, even at 747 speeds. That was the end of Don’s duty day, so he hung around about three hours and caught a ride back to the states on another freight 747. Guess what the cargo was? That same luggage from Sri Lanka, now headed for Huntsville, Alabama.
It took about ten hours to fly from Luxembourg to Huntsville, and the flight–complete with Don, the new crew, and the luggage–arrived in mid-afternoon. By then, Don was one tired fellow, so he slept the sleep of the dead until the next morning.
Now, here’s the wonder: Don arose the next morning, went to Wal-Mart and bought a piece of that very same luggage. The inspection tag from the factory was dated one day before Don picked it up in Sri Lanka. Wal-Mart trucks had met the airplane the previous afternoon, taken the luggage to the Wal-Mart distribution center in Cullman, Alabama, unloaded it, sorted it, reloaded it onto different trucks, and delivered some of it to the retail store in Huntsville, where they checked it in and put it on the shelf, all within less than 24 hours. Don bought the bag for $39.95!
Wouldn’t Adam Smith have loved that story? Just think of all those people in all those places–each working for his own gain–guided by the invisible hand to get that luggage to buyers in Alabama. It is a modern example of Leonard Read’s famed pencil story. Think of the people around the world who participated–the riveters who built the 747; others who pumped oil from the desert, transported it to a refinery, then delivered the resultant jet fuel to Sri Lanka, where it was stored, filtered, and pumped into the airplane by still other people. Think of the laborers in Sri Lanka and those who loaded and unloaded the luggage in three continents, just so it could be purchased in Alabama.
And to think–all of those people, working independently, made an income from that $39.95 piece of luggage. It boggles the mind.
Just in time? When people tell you that Wal-Mart got rich with low prices, remind them that Wal-Mart first had to master low costs, including just-in-time distribution. Global trade? It’s here now.
My economics professors at Clemson? They taught me in the early 1960s that all public transportation starts by carrying rich people, then moves to carrying the masses, and finally to carrying freight. They said the same would happen with airplanes. I thought they were nuts. They were right.
And ain’t the free market wonderful?