How market creating innovations made America great -II

    05-Jun-2022
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Anand Laishram
Thousands of jobs were created. Other industries such as the wardrobe industry also benefited tremendously due to customers buying more and more clothes. Industries that supplied the raw materials (such as the steel, cotton and wood industries) also benefited.
Another important entrepreneur in American history was Gustavus Franklin Swift. He made meat (especially beef) more affordable and accessible to the American public.
Swift changed the way beef was produced and sold. Prior to Swift, beef was produced and consumed locally. There were no economies of scale. This made the whole operation inefficient and the increased costs passed onto customers, thus making beef less affordable.
First, Swift decided to centralize all the butchering in Kansas City. Therefore, he could process a large amount of beef at a single location, thus allowing him to achieve economies of scale and reduce costs.
(Economies of Scale occur when increased output results in lower average costs).
Next, Swift had to find a way to distribute beef (fresh) from Kansas City to reach customers all over America. He decided to introduce railcars equipped with ice cooling, which were the first of its kind. He also sold ice cabinets to retail shops, where his beef would be sold.
Swift’s innovations allowed beef to be produced at lower costs and available to customers all over America. The increased affordability and accessibility allowed customers to consume a lot more beef.
Swift’s firm made hundreds of millions of dollars in the early 20th Century.
The last entrepreneur we will be studying is Amadeo Giannini. He revolutionized the banking industry in America. He was the founder of the Bank of America.
During Giannini’s time, banks didn’t lend to ordinary Americans. They only provided financial services to the wealthy elite.
Ordinary Americans were also woefully unequipped when it came to financial information.
Giannini decided to change that.
He created a bank to lend to the “little fellows”, as he called the general public. He offered loans of $10 to $300 to anyone who had a job. He charged a low interest rate of just 7 percent (considerably lower than all the other alternatives at the time).
This wasn’t enough for his bank to succeed. Therefore, Giannini came up with a number of business model innovations. Giannini invested in providing financial education to his customers and potential customers. He educated them on the benefits of banking. He created branch offices all over America, which was a novel idea at the time.  
Thus, Giannini broke the Affordability barrier (by offering cheap credit), Expertise barrier (by educating his customers) and the Accessibility barrier (by opening branch offices).
He lent to the immigrant communities (such as the Chinese, Russians, Mexicans, Portuguese etc.) in America, who were also excluded from the existing banking system.
Giannini also lent to undeveloped and nascent industries and companies, some of which became enormous successes. These included Hollywood, the Silicon Valley high-tech industry and the California wine industry. He also lent money to Walt Disney (including for the first ever full-length animated film, Snow White & The Seven Dwarfs) and provided initial funding for Hewlett-Packard (HP).
These entrepreneurs (and many more) who invested in Market Creating Innovations, broke down the barriers to consumption (Affordability, Accessibility, Expertise & Time) and allowed the general public to consume the products & services, helped create enormous wealth in America.
The wealth they created also allowed American democracy to succeed. Adam Przeworski’s research concluded that as citizens gain economic independence, political liberties and democratic freedom follow. Democracy becomes more resilient as per-capita income increases. According to Przeworski’s research, democracy becomes immortal when the per-capita income rises above $6055 (at 1990 prices) or $13400 today.
That the American democratic exercise has been successful may have more to do with the work of the entrepreneurs and innovators, rather than just the democratic system alone.
Thus, we can see how the entrepreneurs, such as Ford, Giannini and Singer (and many others), who leveraged the power of Market Creating Innovations, helped create the superpower that is the United States of America today.