Economic growth is an odd little thing

As ever we’ve those around us insisting that if we put all the really bright people into government then they’ll be able to plan our economy for us. Leave aside that we never do get all the really bright people in government, that idea of the planning doesn’t work either. The world, the economy, is too granular for any central body to ever hope to plan it.

Today’s example is at Inditex, the people who own Zara etc.

The world’s largest clothing retailer has posted a surge in profits after an investment in stock-tracking technology made Inditex even more efficient.

What stock tracking is that?

It reduced stock levels by investing in radio-frequency identification technology, which means that clothes in stores can be tracked via microchips and moved between shops to cater to demand.

The effect?

As a result, Inditex’s inventory costs fell by almost £200 million to €3.4 billion.

An expanding firm actually lowers its inventory costs? That’s a pure increase in human wealth. We now get more retail services for less capital allocated to the provision of retail services. This is an increase in the Solow Residual.

This also isn’t the sort of thing we’re going to gain from a state led bureaucracy. Sure, we might argue that we could, but do we? Does MoD use such stock tracking, the NHS? And if not, why not? Or, even, if they don’t, as they don’t, then we’ve just found an argument in favour of that profit motive, haven’t we? The incentive to apply new technology to increase efficiency.

Not that this basic thought is entirely new of course. Sam Walton’s great insight was how to tie barcodes at the tills into the stock ordering system back at the warehouses. That grew into Walmart. This capitalism malarkey does rather provide the incentives to increase efficiency.