The Declining Cost of Distance

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The Declining Cost of Distance

During the Industrial Revolution, the nature of technology created changes in where businesses operated and where people lived.  With mass production as the dominant paradigm, manufacturers located their factories close to harbors and railroad lines so they could reduce the time and cost of shipping their goods. 

Workers left farms and migrated by the millions to the cities that sprang up around these factories, and as the workforce swelled, the demand for land in the urban areas drove real-estate prices higher.  Small apartments and small houses on small lots at high prices became the norm. 

For employers, distance equaled dollars.  The farther a company needed to ship its goods, the higher the costs.  And for employees, proximity came at a premium; the closer that workers lived to the factory or the company headquarters in the city, the more they had to pay in rent or mortgage payments.

Meanwhile, as retailers opened stores in the cities to serve the “huddled masses,” their wide selection and relatively lower prices driven by economies of scale forced small neighborhood shops to close their doors.  However, at distances of 25 miles or more from cities, the lower demand from the sparse populations meant that big retailers often couldn’t succeed with the same business model (at least, until Walmart came along with a low-cost model and finally made it work).

Today, as the Digital Revolution unfolds, it is literally changing the landscape.  Each of the forces that propelled the growth of cities and discouraged people and businesses from locating far from the nation’s urban centers is now being reversed by the powerful impact of digital technologies.  The result will be a new approach to spatial economics, or the cost of distance. 

Consider these four revolutionary shifts:

  1. Because of 3D printing, manufacturers no longer need to locate near transportation hubs. Small satellite facilities can be located closer to the end-user, jobs can be outsourced to local 3D printing shops, or customers can purchase digital designs online and print their own products in their homes.  The cost of moving digital goods is now zero.  Even physical goods can be delivered at low cost by drones.
  2. Because of teleconferencing technologies and ubiquitous Internet access, office workers no longer need to commute to offices in cities...

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