The Box - Marc Levinson [11]
This book contends that, just as decades elapsed between the taming of electricity in the 1870s and the widespread use of electrical power, so too did the embrace of containerization take time. Big savings in the cost of handling cargo on the docks did not translate immediately into big savings in the total cost of transportation. Transportation companies were generally ill-equipped to exploit the container’s advantages, and their customers had designed their operations around different assumptions about costs. Only with time, as container shipping developed into an entirely new system of moving goods by land and sea, did it begin to affect trade patterns and industrial location. Not until firms learned to take advantage of the opportunities the container created did it change the world. Once the world began to change, it changed very rapidly: the more organizations that adopted the container, the more costs fell, and the cheaper and more ubiquitous container transportation became.13
The third intellectual stream feeding into this book is the connection between transportation costs and economic geography, the question of who makes what where. This connection might seem self-evident, but it is not. When David Ricardo showed in 1817 that both Portugal and England could gain by specializing in making products in which they had a comparative advantage, he assumed that only production costs mattered; the costs of shipping Portuguese wine to England and English cloth to Portugal did not enter his analysis. Ricardo’s assumption that transportation costs were zero has been incorporated into economists’ models ever since, despite ample real-world evidence that transportation costs matter a great deal.14
Economists have devoted serious effort to studying the geographic implications of transport costs only since the early 1990s. This new stream of work shows formally what common sense suggests. When transport costs are high, manufacturers’ main concern is to locate near their customers, even if this requires undesirably small plants or high operating costs. As transportation costs decline relative to other costs, manufacturers can relocate first domestically, and then internationally, to reduce other costs, which come to loom larger. Globalization, the diffusion of economic activity without regard for national boundaries, is the logical end point of this process. As transport costs fall to extremely low levels, producers move from high-wage to low-wage countries, eventually causing wage levels in all countries to converge. These geographic shifts can occur quickly and suddenly, leaving long-standing industrial infrastructure underutilized or abandoned as economic activity moves on.15
Have declines in the cost of shipping really caused such significant economic shifts? Some scholars doubt that ocean freight costs have fallen very much since the middle of the twentieth century. Others, pointing to the undeniable fact that countries trade much more with neighbors than with distant lands, argue that transportation costs still matter a great deal. The present work intentionally takes a nonquantitative approach in addressing these questions. The data on freight costs from the mid-1950s through the 1970s are so severely deficient that they will never provide conclusive proof, but the un-disputed fact that the transportation world raced to embrace containerization is very strong evidence that this new shipping technology