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Malcom McLean, containerization and entrepreneurship

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Abstract

Does the entrepreneurial market process reflect an equilibrating or disequilibrating tendency in the allocation of resources? We address this question by utilizing the case of Malcom McLean, who pioneered and introduced container shipping to international trade. We argue that Schumpeterian and Kirznerian entrepreneurship are distinct, yet complementary activities that drive the market process towards an equilibrating tendency. By realizing containerization as a lower cost method of shipping goods internationally, we argue that McLean acted simultaneously as a Schumpeterian and Kirznerian entrepreneur, illustrating that these two notions of entrepreneurship are different segments of the same equilibrating market process. Containerization had a disruptive effect on previous methods of ocean shipping, but its adoption was introduced through an act of arbitrage, namely by redeploying existing resources, such as cranes, ships, ports, and storage facilities from lower-valued uses to perceived higher-valued uses. In the process, McLean was able to realize previously unnoticed profit opportunities by correcting previously existing inefficiencies in intermodal transport.

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Notes

  1. See Langlois (1992), Baird (2000), Foss and Klein (2009), and Piano and Rouanet (2020) on the overlapping distinctions in the Austrian tradition and the transaction-cost tradition of market process analysis.

  2. The erosion of transaction costs, regulatory barriers, and other inefficiencies in the market process is further illustrated in the case of lighthouses and lightships in England prior to the nineteenth century (see Candela and Geloso 2018, 2019, 2020).

  3. On the relationship between profit-seeking and uncertainty, see also Alchian (1950).

  4. See also Boettke and Coyne (2003, 2009) for a thorough exposition of this distinction between Schumpeterian and Kirznerian entrepreneurship in the context of economic development.

  5. The exception to this is Levinson ([2006] 2016).

  6. To reinforce our point, Hummels cites North (1968) as evidence of how economic historians “have documented how technological change led to substantial reductions in shipping costs from 1850 to 1913” (emphasis added; 2007: 131). However, North argued the opposite. As he states, the objective of his paper was “to identify as precisely as possible those sources of productivity usually lumped into the general category of technological change. The conclusion which emerges from this study is that a decline in piracy and an improvement in economic organization account for most of the productivity change observed” (emphasis added; 1968: 953).

  7. Hummels (2007: 141) comes close to making this distinction in his discussion of direct shipping costs (storage, port labor, and fuel) and indirect shipping costs (time spent idle in port). However, Hummels’ “indirect costs” seem to represent production costs, rather than transaction costs. Moreover, the cost of storage associated with holding inventories corresponds more directly to transaction costs, since in a world of zero-transaction costs, holding inventories would be unnecessary. On this point, see Hutt (1939) as well as Alchian (1969).

  8. When McLean first attempted to expand his containership route to Puerto Rico, longshoremen in San Juan protested for four months and did not unload the ships until McLean agreed to use union-approved twenty-four man longshoreman gangs to unload containerships – even though the role of the longshoreman was obsolete in the process. (Levinson [2006] 2016: 77)

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Acknowledgments

We would like to thank Peter Boettke, Christopher Coyne, Caleb Fuller, Vincent Geloso, Louis Rouanet, and an anonymous referee for their insightful comments and feedback, all of which much improved earlier drafts of this paper. Any remaining errors are entirely our own.

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Authors and Affiliations

  1. Mercatus Center, George Mason University, Buchanan Hall D119, PPE 1A1, Fairfax, VA, 22030, USA

    Rosolino A. Candela

  2. Angell Snyder School of Business, Ottawa University, Ottawa, KS, 66067, USA

    Peter J. Jacobsen

  3. George Mason University, Buchanan Hall D134–9, PPE 1A1, Fairfax, VA, 22030, USA

    Kacey Reeves

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  1. Rosolino A. Candela
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Correspondence to Rosolino A. Candela.

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Candela, R.A., Jacobsen, P.J. & Reeves, K. Malcom McLean, containerization and entrepreneurship. Rev Austrian Econ 35, 445–465 (2022). https://doi.org/10.1007/s11138-020-00529-2

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