By Colin Read
Supply chains worldwide, and perhaps especially in the United States, can be described as BC or AC. Before COVID, malls thrived, grocery store shelves were stacked, and our local parking lots were full of cars with Quebec license plates. The Amazon Effect was starting to wear on local shopping, but not in an existential way. Then, COVID hit.
COVID did not revolutionize the supply chain. It merely accelerated an inevitable reorientation. Perhaps the term “supply chain” is a bit misleading. Evolutions in our economy go far beyond how firms are supplied with their factors and how they bring their products to market. For a hundred years, our economy has been moving away from the share of agriculture and manufacturing in our economy. These categories have gone from about 75% of what we buy to less than 25%. Now, services represent our greatest share of purchases.
With the Internet, and with the acceleration of services delivery over the Internet out of COVID necessity, our economy has more than ever received many of our services virtually. Medical visits, education, banking and insurance, and entertainment are increasingly delivered over the Internet, and more people work from home virtually than ever before. The supply chain for services is now significantly virtual. This reality has modified both where people can live and what people buy locally. The Amazon effect adds to the ability to service our consumption needs no matter where we live. We purchase more than ever, but we now purchase differently.
A more productive way to understand the evolving economy is to ask ourselves what must be purchased locally. Some goods may be purchased at a distance or locally, so, with better delivery, and perhaps even autonomous delivery someday soon, what shall be left locally are those items and services that are necessarily local.
This leaves construction, some public services, vehicle repair, and such services as restaurants, public gatherings, massages and dentists, and similar services that require direct human contact as the types of industries for which demand remains robust as our economy evolves.
The line is becoming increasingly unimportant between goods and services as services increasingly dominate our purchases. The new mantra ought to be necessarily local or deliverable.
The expansion of the scope of what can be delivered is also liberating. If many goods and services can be delivered anywhere, and many jobs can be performed anywhere, our necessarily local industries will thrive in those areas where people want to live. These locations that are attractive to people will provide good quality of life, affordable housing and low taxes, and access to amenities. Local production such as construction should thrive in these locations.
But, some local production is necessary wherever people choose to live and for whatever their reason. Some local industries remain strong because they only depend on people.
Meanwhile, other local industries require new people. New construction fits this definition. The moral of the new economy is that strategic planning must now ask questions rarely pondered before. First, to what degree is the location of an industry essential to serve a market? Second, to what degree does the local industry rely on population growth or can rely on a significant, if perhaps even shrinking population base?
In the days in which population always increased and most products were necessarily purchased locally, these questions were not important. Now, though, the supply chain has taken on dramatically new forms. How we strategically incorporate changes in the supply chain has become an existential issue. Dr. Colin Read is a professor of economics and finance at SUNY Plattsburgh’s School of Business & Finance. You can read his weekly blogs on the economy at www.everybodysbusiness.online.