Guest Post: Integration

The following is a Guest Post from one of the Alternate Economy’s Newest Members.  Our first aim is to create a discussion.  By talking about how we can make this a reality, we will make this a reality.  Please visit http://mindmindful.wordpress.com/2011/11/20/aspiration-right-effort/ to see her blog.

The world needs dreamers and the world needs doers. But above all, the world needs dreamers who do.

– Sarah Ban Breathnach

 

Y’all don’t know just how wonderful to me it is that the AltEcon came my way ………. it is an instance of synchronicity, for sure! You are exactly what I have been seeking, though I don’t know if I could’ve described it. I feel privileged & graced to be able to become a part of The Alternate Economy — what a grand social & economic experiment! ((I use the word ‘experiment’ because I feel that there will be enough varied creativity among the 250,000+ to be able to adjust, readjust, etc to everything that comes our way.)) Plus, I need help in being a “doer”, so I’m counting on y’all!! haha

Anyway, I did a bit of investigating online and I found this economic analysis of the competiveness of the barge industry on the Mississippi River, from 2005.  Tristan had challenged me to come up with some information on the transportation system after I had mentioned that river access for intracontinental shipping is important.  The article is examining the question, “Perfectly Competitive or Oligopolistic?” (say THAT 5 times fast, haha) in order to determine whether public funding assumptions are working out. THAT’S not why I think this is interesting for the Alternate Economy, though.

I think this study is illustrative of some of the issues involved in getting into an industry & working within it.  (I use this example, because I am the one who mentioned barges & the Port of Catoosa, near Tulsa, OK, USA.) So, peruse this, if you will; the salient points are highlighted. THEN, there are some comments & observations following…………………. This study is in econ-speak, & is a bit dry. So, I abstracted the major points.

*** “Oligopolistic” (for those who don’t know; I had to look it up!!) means a few entities own & control most of an industry. They are not perfectly competitive, but rather work in tandem to further secure their hold on the industry. The media, telecom, corporate agriculture etc are good examples.***

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“The Mississippi River System Barge Industry – Perfectly Competitive or Oligopolistic?”

http://www.waterprotectionnetwork.org/sitepages/downloads/ProjectsInTheField-Reports/BargeIndustry-PerfectCompetitionorOligopoly.pdf

ANALYSIS

• the dry cargo (grain) barge industry on the Mississippi River in 2005 was considered to be tightly to moderately oligopolistic

• the liquid cargo barge industry ………………………………..  tightly oligopolistic

• 5 companies own 86% of total number of barges operating on the Mississppi River

• the barge industry has become more concentrated than in the study from the 1970’s

• at 2 different periods, a large over-production of barges occurred (based on projections that didn’t pan out) & there were only the existing barge companies to buy them —–> ability to get into the industry & capacity for existing companies to expand/contract is restricted

• ethanol production has reduced  farm product shipment downriver (primarily corn & soybeans); these commodities are used in upriver ethanol production ———–> market conditions favor increased concentration in the barge industry

• the number of barge companies declined; the size of remaining companies increased

• it is projected in 2005 that the capacity of the barge industry will continue to decline

• as number of barges & barge firms declined, barge rates increased sharply; this is offset slightly by increased fuel costs

• market is non-competitive (NOT increasing number of barges as rates increase)

• it is estimated that fleets will continue to decline, as barges age out of their economic life (c 30 yrs) BARRIERS TO ENTRY

• there are/will be fewer & larger customers (consolidation) in order to keep up w/large geographical outreach needed

• “It is no longer possible to buy a $200,000 used barge, and with free access to the river, compete successfully with the large integrated barge firms dealing with large integrated customers.”

VERTICAL INTEGRATION

• controlling raw material supplies & shipping to optimize prices & profits in the marketing chain

• forward & backward integration — buying/controlling the raw supplies & the making/selling/use of the barges, the subsidiary services (stevedoring, storage, etc) & the carrying capacity

•this kind of consolidation further increases barriers to entry into the industry

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Now, again, this is just illustrative of what it might mean to be involved in any industry, & work within it. And here are some things to think about:

• This analysis is specific to a particular industry, related to a particular question. But, many industries are highly concentrated like this. I’m thinking especially of the media/communication industry –> so many newspapers, radio stations, magazines, etc with fewer & fewer owners. (As I’m sure y’all know, this warps, constrains, slants the message coming from them.)

• Barriers to being competitive within any of these oligopolistic industries are high.

• As others in AltEcon have mentioned, owning SHARES of companies, & especially majority shareholdings, probably will allow us to exert our ideas, wishes, aims most effectively within these big industries………..

• We want to invest in our own small businesses too, right?

• And in the industries in between?

Multiple strategies are best:

• We would need a team or department of the bank to investigate, research, manage, etc all investment opportunities — in the large, oligopolistic industries, & in the small biz start ups, & all the things in between.

• (((FYI, being an angel investor is MY personal dream (see my blog post http://wp.me/p1zocx-vn))).

• I have no doubt that AltEcon will attract many kinds of people, with many kinds of skills, with many kinds of experiences. We will need some of them to be banking, finance, investment sorts ………… In the U.S., this is “Wall Street”, & –esp. right now! — is not well thought of. Surely, though, some of those wheeler dealers want to use their skills for something other than soul-sucking greed! Such abilities & knowledge will be needed in our economy of generosity & love — these are specialized, somewhat esoteric skill sets.

Just some thoughts………………………

– by: Shala Blackburn

http://mindmindful.wordpress.com/

 

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