5 ms·

I think that the differences between the two models can be attributed to the difference between the cost of human labor in the two countries. Everything mentio

I think that the differences between the two models can be attributed to the difference between the cost of human labor in the two countries. Everything mentioned in the Ecuador example is labor intensive: private sector busses driving around plentifully, moving laborers just parked next to the furniture market standing around waiting, many small proprietorships in close proximity haggling over prices, etc. The big box model is better in the US where labor is very expensive. The "bazaar" model is better in Ecuador where labor is much cheaper.

Ar-Curunir 6y ago
The big box model in the US just outsources the labour involved in producing goods to countries where that labour is cheaper; it's not like any of the big manufacturers of anything manufacture locally in the US.
- tomrod 6y ago
  Mostly, yes.
marcus_holmes 6y ago
Labour costs are a factor only when trading internationally or across markets. Within a single market, they're not so relevant. In this case, everything is cheaper. The furniture is cheaper, so there's less money to pay people with. So the proportion of costs for labour is about the same. Assume 10% of the cost of the furniture goes to paying people - in the USA that's a larger number than in Ecuador, but still 10%. It doesn't really affect the model. I think the real difference is the consolidation of the supply chain in the US (and other developed economies). In the US, the first "big box" stores were able to squeeze savings from the supply chain and offer lower prices. Customers liked that, bought more, and soon every furniture store had to either go very up-market or adopt the same strategy. A few decades and a lot of acquisitions later, and the entire new furniture market consists of half a dozen completely vertically integrated superstore chains, plus a few up-market retailers. The second-hand market is not so consolidated. The article doesn't say whether they were buying new or second hand furniture. It'd be interesting to find out why the second-hand market isn't subject to the same market forces. How come there isn't a few large second-hand furniture stores?
- treis 6y ago
  > Assume 10% of the cost of the furniture goes to paying people - in the USA that's a larger number than in Ecuador, but still 10%. It doesn't really affect the model. It makes everything bigger. Instead of a couple guys with a pick up truck making one delivery at a time it's a couple guys with a big box truck making multiple deliveries. Instead of one shop keep with their tiny shop you have one big shop. That scale allows efficiencies which drives down the labor per unit.
  - marcus_holmes 6y ago
    agreed, but that's not driven by high labour costs. That's driven by scale, which is a product of consolidation and vertical integration. The big box store has (let's say) 20 deliveries a day to make, because it's serving a larger proportion of the market. So it becomes worth buying a big box truck and hiring a couple of guys to make all those deliveries. The small retail store has (presumably) fewer deliveries to make, so they don't do delivery themselves. So the delivery is done on a case-by-case basis by the couple of guys in a pickup truck. If the small store has more sales and more deliveries, it will eventually become worth them hiring a truck and drivers, and offering delivery to their customers. Again, not limited by labour costs, but by scale and vertical integration.
- marcosdumay 6y ago
  > Within a single market, they're not so relevant. The relative cost of labor and capital is a defining property of any place.
  - marcus_holmes 6y ago
    yes, but within that place, they're not so relevant
    - marcosdumay 6y ago
      Yes, they are. The ratio is relevant within the place, even in insulation. That ratio basically determines the economy productivity.
duxup 6y ago
I read something once that indicated that the industrial revolution started in Europe and didn't really hit places like China as early because China had a huge amount of cheap human labor and Europe had less. It was proposed that the lack of cheap labor is what drove people to find efficiencies. Granted I'm not a historian so I can't verify this claim, but it was an interesting dynamic.
- marcosdumay 6y ago
  The Industrial Revolution happened on England in a time when labor was plentiful relative to the usual rate. There was a run away into the cities happening.
- toomanybeersies 6y ago
  I've been told (also with no references to cite) that this was also one of the reasons why Rome didn't industrialise, they always had a plentiful supply of slaves, so there was no demand for machinery to replace them.
- btilly 6y ago
  That is a nice "just so" story that simply doesn't fit the facts. Europe had many points in its history where labor was dear. For example wages went up after the Black Death because so many workers had died. Why did the Industrial Revolution not happen then? Where and when it did happen, the https://en.wikipedia.org/wiki/British_Agricultural_Revolution https://en.wikipedia.org/wiki/British_Agricultural_Revolutio... preceded it. Meaning that lots of laborers were displaced from fields (particularly due to enclosures) and forced to move to cities. This lead to an excess of labor in the cities, not a shortage. The evidence is rather better that the progress of science and technology simply hit an inflection point with the invention of things like the steam engine (factories could be put anywhere) and the spinning jenny (machines could make cloth far cheaper than it had been). In a society which already had a free market bent (it was not an accident that The Wealth of Nations came out of the same time and place), these things were seized upon, imitated, and further innovations proceeded apace. The spread of the Industrial Revolution afterwards was dependent upon the spread of the necessary skills, the investment of capital, and the building of supply chains. Which meant that what started in England spread to places in closest contact with her. Namely the United Stated and Continental Europe. And then only slowly spread elsewhere.
bitcurious 6y ago
I actually think there is a bigger motivator for differences is cost to enter. Consider this: in the US the biggest cost of a furniture store is the land. When you compare the cost of starting a Quito-style "no guarantees" store vs. an American style "customer is always right" store, the difference is negligible. You see this also in the US real estate market - "luxury" real estate is overrepresented, because the difference between building with nice appliances and marble vs. cheap appliances and particle board is a trivial percentage of total build cost. So if you're going to develop real estate, or open a furniture store, or a restaurant, or almost anything else in the US, you usually go for the "nice" version because it's a marginal expense. This swings the other way too - because the relative risk of opening an American-style store in Quito is greater, you end up with disproportionately high prices, often approaching those of the West. Disclaimer: I said "Quito" but the above is based on my experience with another city in a developing nation.
- r8ru4rbfhfu 6y ago
  Real estate is a messy example though because the supply is heavily restricted for what are ultimately aesthetic reasons. There's always going to be more average earners than exceptional earners and both need homes, but if you restrict the available supply of developable land with things like height limits and zoning then of course builders are going to prioritize the luxury markets.
throwaway9d0291 6y ago
> Everything mentioned in the Ecuador example is labor intensive: private sector busses driving around plentifully I don't think this is a result of cheap labour but rather increased efficiency of routing due to a less spread out city: > with a bevy of signs—up to a dozen—in the front windshield listing major destinations: neighborhoods, universities, other landmarks A bus that does this in most American cities would need to drive quite far and make a large number of stops, as everything is far apart from everything else. In non-American cities, things are usually more concentrated, so a single bus route can reach more stuff in less time. More stuff in less time = more trips completed per unit time = more money for the driver = more drivers. I think another way you can think of it is as an evolution of Uber/Lyft's ride-sharing services. If you ran such a service you might find that there are common routes. At that point drivers could drive those routes repeatedly and advertise them through the app. But why bother with the app when you can just put signs outside?

Ar-Curunir 6y ago

The big box model in the US just outsources the labour involved in producing goods to countries where that labour is cheaper; it's not like any of the big manufacturers of anything manufacture locally in the US.

tomrod 6y ago
Mostly, yes.

marcus_holmes 6y ago

Labour costs are a factor only when trading internationally or across markets. Within a single market, they're not so relevant. In this case, everything is cheaper. The furniture is cheaper, so there's less money to pay people with. So the proportion of costs for labour is about the same. Assume 10% of the cost of the furniture goes to paying people - in the USA that's a larger number than in Ecuador, but still 10%. It doesn't really affect the model. I think the real difference is the consolidation of the supply chain in the US (and other developed economies). In the US, the first "big box" stores were able to squeeze savings from the supply chain and offer lower prices. Customers liked that, bought more, and soon every furniture store had to either go very up-market or adopt the same strategy. A few decades and a lot of acquisitions later, and the entire new furniture market consists of half a dozen completely vertically integrated superstore chains, plus a few up-market retailers. The second-hand market is not so consolidated. The article doesn't say whether they were buying new or second hand furniture. It'd be interesting to find out why the second-hand market isn't subject to the same market forces. How come there isn't a few large second-hand furniture stores?

treis 6y ago
> Assume 10% of the cost of the furniture goes to paying people - in the USA that's a larger number than in Ecuador, but still 10%. It doesn't really affect the model. It makes everything bigger. Instead of a couple guys with a pick up truck making one delivery at a time it's a couple guys with a big box truck making multiple deliveries. Instead of one shop keep with their tiny shop you have one big shop. That scale allows efficiencies which drives down the labor per unit.
- marcus_holmes 6y ago
  agreed, but that's not driven by high labour costs. That's driven by scale, which is a product of consolidation and vertical integration. The big box store has (let's say) 20 deliveries a day to make, because it's serving a larger proportion of the market. So it becomes worth buying a big box truck and hiring a couple of guys to make all those deliveries. The small retail store has (presumably) fewer deliveries to make, so they don't do delivery themselves. So the delivery is done on a case-by-case basis by the couple of guys in a pickup truck. If the small store has more sales and more deliveries, it will eventually become worth them hiring a truck and drivers, and offering delivery to their customers. Again, not limited by labour costs, but by scale and vertical integration.
marcosdumay 6y ago
> Within a single market, they're not so relevant. The relative cost of labor and capital is a defining property of any place.
- marcus_holmes 6y ago
  yes, but within that place, they're not so relevant
  - marcosdumay 6y ago
    Yes, they are. The ratio is relevant within the place, even in insulation. That ratio basically determines the economy productivity.

duxup 6y ago

I read something once that indicated that the industrial revolution started in Europe and didn't really hit places like China as early because China had a huge amount of cheap human labor and Europe had less. It was proposed that the lack of cheap labor is what drove people to find efficiencies. Granted I'm not a historian so I can't verify this claim, but it was an interesting dynamic.

marcosdumay 6y ago
The Industrial Revolution happened on England in a time when labor was plentiful relative to the usual rate. There was a run away into the cities happening.
toomanybeersies 6y ago
I've been told (also with no references to cite) that this was also one of the reasons why Rome didn't industrialise, they always had a plentiful supply of slaves, so there was no demand for machinery to replace them.
btilly 6y ago
That is a nice "just so" story that simply doesn't fit the facts. Europe had many points in its history where labor was dear. For example wages went up after the Black Death because so many workers had died. Why did the Industrial Revolution not happen then? Where and when it did happen, the https://en.wikipedia.org/wiki/British_Agricultural_Revolution https://en.wikipedia.org/wiki/British_Agricultural_Revolutio... preceded it. Meaning that lots of laborers were displaced from fields (particularly due to enclosures) and forced to move to cities. This lead to an excess of labor in the cities, not a shortage. The evidence is rather better that the progress of science and technology simply hit an inflection point with the invention of things like the steam engine (factories could be put anywhere) and the spinning jenny (machines could make cloth far cheaper than it had been). In a society which already had a free market bent (it was not an accident that The Wealth of Nations came out of the same time and place), these things were seized upon, imitated, and further innovations proceeded apace. The spread of the Industrial Revolution afterwards was dependent upon the spread of the necessary skills, the investment of capital, and the building of supply chains. Which meant that what started in England spread to places in closest contact with her. Namely the United Stated and Continental Europe. And then only slowly spread elsewhere.

bitcurious 6y ago

I actually think there is a bigger motivator for differences is cost to enter. Consider this: in the US the biggest cost of a furniture store is the land. When you compare the cost of starting a Quito-style "no guarantees" store vs. an American style "customer is always right" store, the difference is negligible. You see this also in the US real estate market - "luxury" real estate is overrepresented, because the difference between building with nice appliances and marble vs. cheap appliances and particle board is a trivial percentage of total build cost. So if you're going to develop real estate, or open a furniture store, or a restaurant, or almost anything else in the US, you usually go for the "nice" version because it's a marginal expense. This swings the other way too - because the relative risk of opening an American-style store in Quito is greater, you end up with disproportionately high prices, often approaching those of the West. Disclaimer: I said "Quito" but the above is based on my experience with another city in a developing nation.

r8ru4rbfhfu 6y ago
Real estate is a messy example though because the supply is heavily restricted for what are ultimately aesthetic reasons. There's always going to be more average earners than exceptional earners and both need homes, but if you restrict the available supply of developable land with things like height limits and zoning then of course builders are going to prioritize the luxury markets.

throwaway9d0291 6y ago

> Everything mentioned in the Ecuador example is labor intensive: private sector busses driving around plentifully I don't think this is a result of cheap labour but rather increased efficiency of routing due to a less spread out city: > with a bevy of signs—up to a dozen—in the front windshield listing major destinations: neighborhoods, universities, other landmarks A bus that does this in most American cities would need to drive quite far and make a large number of stops, as everything is far apart from everything else. In non-American cities, things are usually more concentrated, so a single bus route can reach more stuff in less time. More stuff in less time = more trips completed per unit time = more money for the driver = more drivers. I think another way you can think of it is as an evolution of Uber/Lyft's ride-sharing services. If you ran such a service you might find that there are common routes. At that point drivers could drive those routes repeatedly and advertise them through the app. But why bother with the app when you can just put signs outside?