Fred Smith, FedEx Chairman

Benefits of Trade, Global Access – Frederick W. Smith Interview

FedEx founder and CEO Frederick Smith shares his views about what it takes to expand opportunity to more people around the globe.

Fred Smith, FedEx Chairman

Question: Much of this edition of Access Now focuses on trade issues. What are the connections between trade policy and the spread of Access?

Answer: I believe if you look at the history of the United States, the single most important element in the Constitution that guaranteed our prosperity was the Commerce Clause. The Commerce Clause said individual states couldn’t erect barriers to people trading between the states. That seems simple and straightforward today, but it was quite revolutionary in its time. Very wisely, the Founding Fathers put the Commerce Clause in the Constitution, and that was what allowed people to think about building canals to connect the frontier in Ohio with the East Coast and to build railroads. If there had been barriers and tariffs, all of that economic progress, that growth, would have never taken place. The record is very clear: When you give people access to more varieties of products and goods around the world, the pie expands and people’s living standards increase. It’s an essential part of Access to be able to buy and sell without restriction, to whomever you want to trade with.

Q: Why, then, do people and governments seem to revert to protectionist tendencies when times get difficult?

The benefits of trade are diffuse and general. The pain of trade is often local and particular. If I’m someone who is making a product and I have a competitor offshore arise and the pie is not growing—in other words, there’s not enough growth or the competitor has an advantage over me in terms of quality or cost or both—then I take the brunt of that while millions of Americans get the benefit of it. Also, in most democracies, there’s local representation. So, a manufacturing plant or another economic unit that’s disadvantaged by trade becomes very much a political issue rather than an economic issue. I think the argument that you have to put forward is this: No society in history has improved its standard of living without opening up markets. There is no example in recorded history of an economy being successful when it’s walled off from trading with other people, from having access to other products and, increasingly now, having access to other people’s ideas.

Q: Are there certain trade policies that you think require immediate change or attention if Access is going to keep expanding?

I think that the fundamental policy of the United States should be to have open markets so people outside the U.S. can sell their goods to this country; to insist on open markets for our goods so there is a minimum of friction in terms of trade around the world; and to establish some sort of protection for people displaced by trade shifts, giving them the ability to transition and retrain.

Q: Do you think the spread of Access helps small businesses in particular?

The smallest business in the world is the business of a single person. When I was coming out of college, I had a couple of friends who went to play in the National Football League. They had to have jobs on the side, because football didn’t pay enough to constitute a full-time living. Their “small businesses” were radically transformed by technology, allowing their talent to be seen not by 30,000 people in a stadium once a week, but to be broadcast to tens of millions of people. The net value of that talent was fantastically transformed. You can’t get a professional football player for $20,000 to $25,000 a year anymore. The market for their talent went from thousands of people per week to millions per week because of Access.

Q: Many nations are making big infrastructure investments in the wake of the global crisis. Which infrastructure investments do you think are most important to help Access keep spreading around the world?

Both hard infrastructure and data infrastructure are important. Telecommunications and transportation have been the two essential networks required for all industries to prosper. You might be a terrific farmer in the Midwest, but if your grain rots in the field, it doesn’t do you very much good. The development of rail and the interstate highway system allowed those products to get to market efficiently, quickly. Similarly, first the telegraph and then the telephone, and now the Internet and broadband communication—all are simply multipliers. Today, broadband communication allows you to communicate, to exchange ideas, to sell or source anything between any people on the planet. Now, one of the problems in the United States, at least in the public sector, is the fact that we’ve seen reduced government investment in infrastructure. That must be addressed.

Q: One of the stories in this magazine looks at a policy called a “feed-in tariff,” which gives businesses and individuals a financial incentive to produce their own electricity. What’s your opinion of policies like that?

I think it’s fine up to a point, because what it does is to drive the development of technology down to a price point where it’s competitive without those kinds of subsidies. Today, we’re flying these fantastic 777 airplanes around, and they’re the direct progeny of little fabric airplanes that were flown by Charles Lindbergh. That technology was subsidized by the U.S. government. Without those kinds of early incentives, it’s hard, often, to get technologies to the point where they become viable. The government did that for 15 or 20 years, and finally Douglas Aircraft Company built the DC3, which was the first airplane that could be commercially viable with just the revenues from paying passengers and a little bit of air express. It didn’t have to have the government subsidy. If you can see the trend line going in the right direction, if you know a technology has the potential to be cost-effective in the long run, I think it’s a very good thing for government to give people an incentive to use more of it to get to that sweet spot, where the scale of production allows it to be income-producing rather than income-using.

Q: What do you think governments should do or not do to ensure that we move faster toward renewable sources of energy?

A: There are several things. Number one, I think we need to modernize the United States’ electrical grid so that you can move power efficiently from its point of production. Increasingly, electrical power is renewable—hydroelectric, solar, wind or geothermal—and when you modernize the grid, you can then do a second major green thing, which is to move a lot of our short-haul, personal transportation to electricity rather than fossil fuels. We produce huge amounts of electricity every day that we don’t use, because all during the night, every hydroelectric, every nuclear, every coal plant continues to produce electricity when we’re asleep. Most of it can’t be stored. Well, once you start using electrical power in automobiles, guess what? It can be stored—in your automotive batteries. In fact, it can be sold back to the utility if you need it, using a little smart device. Because that power is so inexpensive, it would provide a significant incentive to reduce CO2 emissions and fossil fuel use.

I think a second thing is to focus on aviation as a real opportunity to transition, at least in part, to renewable fuel sources. There are about 250,000 gasoline or diesel fueling points in the world. There are only about 1,700 aviation fueling points in the world, so if you’re able to produce cost-effective, renewable fuel, transitioning aviation is easier. The aviation community is united in its desire to move to biojet and has substantial initiatives under way to develop fuels from algae, jatropha and camelina.

I think there’s real hope on the horizon in both of those areas.


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