For years I have been interested in travel to some of the more remote areas of Australia. Recently I bought an old (but tough) 4WD, and with my children Amy and William we set out for the Flinders Ranges, about 500km north of our home in Adelaide, to spend a few days camping and doing a little off road driving.
One day we visited Arkaba Station, a private property where for $35 we could spend a few hours on a self guided 4WD tour through the station. There was a mixture of terrains; creeks, some very steep (at least for me) and very rough roads. I was really an ideal trip for me, just right for my (very basic) 4WD skill level. We were the only ones on the track for the entire time, and the scenery was very nice, although I was focused mostly on the road. The kids really liked the steep bits and being shaken to pieces on some of the rough roads. They also spotted lots of wild life (Emus and Kangaroos, as well as sheep that are run on the station).
One section was covered with large rocks sticking out at all angles. Our speed was limited to about 5km/hr, and inside the car we were shaking and bouncing all over the place. We could have got out and walked faster. It occurred to me that this was probably a typical road for 99% of history, and that travel at walking pace (and being shaken to pieces if in a vehicle) was probably the norm. This must have made communications very difficult, expensive and therefore very rare.
Driving off road made me appreciate that a simple flat ribbon of bitumen that enables us to travel at highway speeds really is a miracle. The distances we can cover in a few hours on a modern road must have taken days 100 years ago using the poor roads and horse and carts of the time.
Roads as a creater of wealth
One question I have been thinking about lately is “where does wealth come from”. I mean, we all talk about economic growth, which to me means more money in a country/region as a whole, but if an economy grows, we all get richer, so where does the wealth come from? Who is pumping the money in? If we are getting richer, is some one else getting poorer?
Thinking about roads gave me a good example of wealth creation.
Roads allow us to move more efficiently, less effort is required than without them. The government took our taxes and invested them in this infrastructure, now it costs much less to get from A to B. The cost of travel has been reduced.
Lets look at an example. In 1850 Farmer Joe needs to travel a round trip of 100km. He uses his horse and cart and spends two days to travel. In those two days he cannot be doing any other work. Now in 2006 Farmer Joe jumps in his car and travels the 100km in 1 hour. He returns to the farm and can work for 2 full days (minus the 1 hour). That 2 days of extra work that Joe earns income from. This is additional wealth that has been created by the road.
The interesting thing is that no one else had lost anything to make Joe richer. It is a win-win situation. Communications infrastructure (the road) has created wealth, and no one loses.
What about the cost of the road? Well I am assuming that the government paid for this out of the same taxes Joe would have paid anyway. They just decided to spend the taxes on a road rather than a warship or new town hall or something. I am also guessing that the cost of the road is far less than it’s economic benefit to those who use it over the years.
Looking around at the people around me I notice that most of are much better off in a material sense that we were say 20 years ago. Much of the stuff we buy (especially consumer goods) is also much cheaper than it was 20 years ago. For example in 1989 I bought a VCR for $1100, I just bought a combined VCR/DVD player in 2006 for $150. Adjusting for inflation thats a cost reduction of about 15 times! Fifteen VCRs for the price on one.
Somehow, wealth has been created. We all have a lot more money. My mother tells my stories about “stretching” the food money to last until pay day in the early 70’s. Now our biggest problem is when are we going to get a flat screen LCD TV?
The only exception to this rule seems to be real estate. My theory here is that real estate prices have been pushed up by demand as people have enough discretionary money now to cover huge interest repayments. Real estate has soaked up excess wealth through the laws of supply and demand.
But I digress. The question I was looking into is “how is wealth created”?
The best answer I have worked out so far (worked out in discussions with several friends) is that: we all get richer as the cost of producing stuff is reduced.
So I think it works like this:
- Technology is developed that allows something to be produced cheaper than before. For example fertilisers make food production more efficient. Silicon chips lower the cost of electronics.
- This makes some product or service cheaper to deliver.
- So we spend less to obtain a given product or service, and have more money free for other things. Like flat screen TVs, or huge interest payments on your mortgage. Or sending our kids to expensive private schools.
Advancing technology is not good for everybody. Some industries get displaced. The development or roads and cars probably put a lot of the horse and cart industry out of business. This must have caused a small group of people a lot of distress, despite the huge benefit to a large number of other people. And yet the world is clearly a better place for having efficient transport.
It is also interesting to see what we do with our increased material wealth. Somehow soaking it up in big interest payments or mobile phone bills doesn’t seem right when there are 10,000 children dying each day from preventable disease. But thats another story. I am currently reading a couple of books on these subjects, and recommend them to you:
Communications Technology for Wealth Creation
I see a lot of parallels in physical communications assets like roads and communications technologies like VOIP and the Internet. They all let us communicate faster and better.
They are engines for wealth creation.
So reducing the cost of communications is a good thing. It lets us communicate faster and cheaper. Reduce the cost enough and maybe some kid in a disadvantaged country can make his first telephone call or obtain an education over the web.
So on balance I think “decreasing the cost of stuff” is a good thing. It is a mechanism for creating wealth. Like the example of roads, it can be win-win – wealth can be created like magic without disadvantaging a large group of others.
I must admit I find this pretty cool. It suggests that we can actually increase wealth (and the material well being of everyone on the planet) in a win-win situation. For us fortunate people in the 1st world this means more gadgets or a nicer house. For the less fortunate it means hope that one day they will be able to eat 3 meals a day and not die of Malaria.
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