Spanning the Chasm

THE ROLE: The Bridge promotes trade by reducing physical, social, or temporal distance. The most effective ones spot opportunities between disconnected individuals and groups. Bridges also understand that they must have something to offer each side from the get-go.

Trading Between the Bungalows

Early in World War II, the Germans captured a young British soldier named R. A. Radford and sent him to an Italian Oflag, a prisoner of war camp for officers. The camp, like other Oflags, was run in accord with the Geneva Convention, which meant, among other things, that the prisoners didn’t have to work to earn their keep. The captors took care of the prisoners’ basic needs, and in addition the captives received occasional parcels from the Red Cross—packages consisting of canned beef and salmon, milk and butter and cheese, even small luxuries like cigarettes and chocolate. A few lucky prisoners received private care packages as well.

Like kids at home after trick-or-treating, officers began trading their rations. Some of the soldiers, for example, were Sikhs and didn’t eat meat, so they would gladly exchange a tin of beef for some jam and margarine. Nonsmokers readily traded cigarettes for food. And just about everybody, including smokers without dietary restrictions, had varied personal preferences that created gains from trade: whenever two people wanted to trade, both would be better off.

This makeshift economy was the picture of cooperation. Before long, though, middlemen entered the picture. There was, for example, the Urdu speaker who capitalized on his knowledge of the language to buy beef from the Sikhs and resell it to others. And there was a story going around about a priest who wandered from bungalow to bungalow, trading this for that, until at the end of the day he had managed to turn a tin of cheese and five cigarettes into a complete parcel in addition to his original cheese and cigarettes. There’s a perverse echo of the biblical loaves and fishes story here—as if the priest performed a miracle, not to feed the multitudes but to fatten himself.

It makes sense that the anecdote of the itinerant priest spread through the camp like a legend. Since he didn’t produce any new goods, many people can’t see where the surplus came from—so it looked to many as if something untoward was going on. To those used to zero-sum thinking, as many of us are, it looks as if the priest stole something or conjured it through black magic instead of earning it fair and square.1

We know all this because R. A. Radford was not only a soldier and a POW but also a trained economist. After his release, he wrote about his camp experiences in an academic paper that’s become a classic in the economics literature and required reading in many an econ course.2 Radford was interested in several aspects of life in the camp’s simple, enclosed society—from the emergence of commerce without labor to the rise of cigarettes as the coin of the realm. But you sense, reading his paper, that he was particularly intrigued by the middlemen, who aroused curiosity but did not quench it: probably sensing the public’s hostility toward them, the middlemen tried to keep a low profile.3

There is something iconic and deeply true about the story of the itinerant priest even if its repeated retelling distorted some of the details. The story conveys the essence of the middleman I call the Bridge. First and most important, the Bridge connects one island of people to another, spanning otherwise disconnected social networks. Radford, who had experience in several POW camps, explains that a typical Oflag—consisting of 1,000 to 2,500 prisoners—was divided into a bunch of bungalows, each with about 200 residents. In the camp with the trading priest, he writes, “we did not visit other bungalows very much and prices varied from place to place.” In moving from bungalow to bungalow, then, the middleman could engage in a simple arbitrage, shrewdly exploiting the price differences across barracks.

Contrast this lively trade with the absence of a middleman: if people could trade only with their own bunkmates, they’d limit their market and fail to capture their goods’ full value. Think of a bungalow with only vegetarians, for example, where dozens of tins of beef go to waste. By bridging the various bungalows, the middleman dramatically reduced such inefficiencies. Helping the captives get more of what they wanted for what they didn’t want as much, the middleman created value and profited personally by capturing some of the value he created.

The world of the bungalows is so artificial that it may appear to have nothing to do with the real world of business. Yet its lessons apply all around us because versions of these bungalows are everywhere: in theory, of course, we are usually free to trade with anyone and everyone we want, but in practice our choice of direct trading partners is quite limited.

Most obviously, we are separated from others by geography, which has always held potential for great gains from trade and posed substantial trade barriers. The potential is great because two starkly different lands have quite different things to offer each other. Think, for example, of the frozen ponds of New England, where ice is so abundant it can be had almost for free, and the arid cities of India, where before refrigeration ice was so scarce that only royalty had ever seen it. The potential for profit was immense, but so were the impediments, the great distance raising the risk that much of the ice will melt on the long journey, thus evaporating any profit. It took a bold merchant, the “Ice King” Frederic Tudor, to bridge the divide. Think, too, of the silk traders and spice merchants who traveled across vast distances along the Silk Road to bring exotic goods from East to West. Within a single nation, too, geographic differences have always created gaps that were best filled by middlemen: it was middlemen who brought grains and fruits and vegetables from farms to cities and middlemen who took factory goods in the opposite direction.

The frictions of space have shrunk over the centuries—technol- ogies like railroads, canals, container ships, and airplanes have made travel faster, cheaper, and safer. Physical distance is still important, but even more important is social distance, those gaps that separate people even when they live just a few miles apart.

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