One Reason That We Have Nutella

Inside a jar of Nutella you might have a little bit of the Ivory Coast, Turkey, Malaysia, the EU and the US. Processed in the EU, Turkey, Russia, Australia, North or South America, the cocoa and hazelnut spread is then shipped to 100 (or so) countries.

Seeing Nutella’s global supply chain, I recalled my random encounter with former Treasury Secretary Lawrence Summers. He was just walking by when I asked him, “What is the most important economic idea to teach my students?” Without missing a beat, he said, “the power of the market.”

In this 2 minute excerpt from Free to Choose, economist Milton Friedman (1912-2006) uses a pencil to explain the power of the market. Saying that the market’s prices provide the information and incentives that connect thousands of people from places like Washington, South America and Malaya, he describes a pencil’s global supply chain.

So, I guess we could say that the power of the market is the reason that Nutella exists.

Sources and Resources: Conveying considerable data on supply chains for goods and services, including Nutella, the December 2013 OECD paper, “Mapping Global Value Chains” is excellent. I also suggest taking a look at Adam Smith and Milton Friedman for their market ideas and David Ricardo on comparative advantage to see how global supply chains increase the world’s productivity. And, you might enjoy this econlife post on the Nutella crisis at Columbia. Finally,  H/T to Quartz for alerting me to the OECD paper.