There is now a consensus among scholars that humans left Africa and spread around the rest of the world as late as some 80-100 000 years ago. By passing today’s Red sea they, generation by generation, moved into Asia, Europe, America and the Pacific. Some 12 000 years ago agriculture and more advanced societies started to develop on the Eurasian continent. We got written language, viruses, management skills, weapons and trade. The next big development step came with the start of the industrialization era. Trade, science, engineering, transportation and specialization enabled an astonishing growth in wealth. And as can be seen in the graph below, the growth of the world economy is ever increasing.
Through globalization, rapid growth is now not only limited to a few western countries. Instead almost all people of the world can today benefit through longer and healthier lives and increased freedom. As indicated in the table below, the number of people living in extreme poverty (below 1 USD/day) has declined in poor countries from 40 to 18% in only 25 years!
The biggest decline has been in the populous countries China and India. But since 1995 also the 700 million people of Africa show progress. Albeit small and fragile, the continent as a whole has a growth rate of 3% over the last 12 years.
This global economic development has meant drastic improvements in key development factors such as infant mortality rate, primary school enrolment and life expectancy. Maybe a bit less known is that the wealthier countries also have lower number of deaths due to genocide and war. The number of deaths due to war is today at its lowest point since before the Second World War. Also, studies show that citizens in wealthy countries trust each other more. So the pursuit for wealth is a greater thing than being able to afford a new flat screen TV!
We now know for sure that competition is a key factor for all development. We have learnt through history that governmental policies that curb competition (such as plan economy, corporativism, high entry barriers or trade protectionism) all have devastating impact on the wealth creation. A global study, the World Economic Freedom Report, show a strong correlation between economic freedom of a nation and its growth and wealth. (3) Where competition is allowed to flourish, lives get better.
We also know that specific industries that, for whatever reason, have weak competition, show slower productivity improvements than industries under competition. For example, in Sweden, both the construction industry and health care services showed negative productivity developments during 1995 to 2002. The construction industry is dominated by a few large players and the health care sector is predominantly run as a governmental monopoly. Industries with high productivity development are all subject to fierce international competition: Telecom services, Agriculture, Chemicals and Automotive. (4)
Competition drives wealth creation since all companies acting under competitive pressures need either to find new ways to do the same thing to a lower cost. Or they need do new things to get away from the competition. Hence, the peer pressure drives innovation in all areas of the companies notably within product development and supply chain management.
So the world is getting a nicer place with high speed. And we now know that competition is one of the most important forces needed to enable this revolutionary development. So what is the connection to purchasing? Are we as purchasers doing anything more than bringing home the products and services to the company we work for? Yes we are! In fact we have reasons to be very proud. During gloomy days we shall remind ourselves that we actually contribute a big deal to creating a better world. Purchasing is all about creating and exploiting competition. While doing it in the interest for the companies we work for, we at the same time make sure that they industries we buy from continue to innovate and increase productivity. Also, by doing a good job, we increase the competitiveness of our companies which fuels further competition within the industry and drives wealth creation. So by deselecting low performing supplier in favor of high performers, we contribute to a stronger society.
1. Angus Maddison Contours of the World Economy and the Art of Macromeasurement 1500-2001 and; The World Bank
2. Chen & Ravallion 2007, World Bank 2006a
3. World Economic Freedom report 2008
4. Groningens produktivitetsdatabas; OECD
