“Growth Theory”… as an economic concept is relatively new.     Authored in the early 1980’s it made it’s advent with the booming computer/electronic era.    

 Relative to the Arabian Horse… “growth theory” is an approach to it’s economics that seeks to explain (and hopes to predict) the rate at which it, as a business, will grow over time.       It expresses and emphasizes the concept that an approach designed with knowledge and innovation can have a clear impact on the long term growth rate of the Arabian Horse economy.

Economic growth is usually measured as the annual percentage rate of growth in one or more of a business’ income accounting aggregates.     This would include the three major income generating aspects of the Arabian horse “industry”; breeding, training/showing and general sales.     This, also, takes into account appropriate statistical adjustments to discount the potentially misleading effects of price inflation.    An example of this is the sale of the occasional horse to the Middle East.  Although, specifically encouraging, it has little relevance to the general Arabian Horse community’s  actual economic growth. 

In the last decade, the Arabian Horse “business” has shown sizable quarter to quarter and year to year fluctuations in it's economic strength.    Economic growth theorists might tend to analyze and explain the variations in the longer-term trend as an indication of a continuing recession.    Others might suggest that these fluctuations are indications of the industry’s adjustment to new formulas and adaptations that will strengthen an otherwise recessive economy.    They do not take into account the fact that, in the previous decade (1986 to 1996) the product… the Arabian Horse… was over produced and adversely affected by taxation changes, negative public imaging…AND strong internal dissension.    Although the tax changes were impactful to the national equine “business” community… the Arabian Horse was highly affected, simply, because of the lack of awareness of the potential affect it would have on it’s business aspect.     While the individual Arabian Horse breeder held the ultimate responsibility of understanding and adapting to these economic changes… our “parent entity”, the old IAHA, failed miserably in it’s responsibility to inform, educate and implement an adaptive program to protect the sanctity of it’s business solvency.      This was a clear indication of a lack of both business sense and general concern for it’s membership.

Growth theory analyst attempt to build macroeconomic (generalized) models out of microeconomic  (specific) foundations.     This is in contrast to the old belief that growth could only be generated by a change in the savings rate: reduce expenditures and cost expense.    While most small farms tend to follow the macroeconomic approach, maximizing attention to the more general “downside” expenses such as utilities, labor and maintenance expenses, large farms tend to concentrate on the more specific “upside” or profit amount.    Where macroeconomics serves it’s obvious purpose… a more aggressive approach to the details necessary to reach a maximum profit potential… as seen with microeconomics, pays the bigger dividend.      Certainly the degree of difference in the size of the farms suggests the relevance of how the “law of diminishing returns” affects an owner’s choice of a more generalized or more specific approach.     Growth theory brings specific ideas into the more conservative and generalized programs.    The approach of one breeder and another depends on their perception of what method of "econo-management" they prescribe to.    I will use the word "prescribe" rather than "subscribe" because of the fact that most Arabian Horse involvements make decisions that are relative to and motivated by their economic abilities, and not their desires or even good judgment.   Quite often, because of the economic condition of their environment, the prescription calls for a much more conservative and cautious “pill” to swallow.   The side affect is that, most often, inappropriate and/or unsound business decisions are made.

A concept of business theory suggests that enduring success is an indication of a business’ ability to readily adapt to positive industry trends.     But, maximum success can only be reached and sustained through the innovative authorship of industry adopted trends. 

 If we take the decade of ’86-’96 and consider it as the period of “influential  change” for the future economics of the Arabian Horse as a viable business, and go directly to the most recent decade (1996 – 2006) we will be able to determine a more realistic approach to what has happened and how we can correct it’s further decay and remedy it’s return to general health.

Now that we can see a statistical based pattern we can evolve our predictions from a decade’s evaluation of  “growth theory” to a more practical short term approach of “business cycle theory”.     What will bring the recessive cycle back to prosperity?     The solution is to understand the differences between the principal influences on short-term growth rates contrasting the long term growth performance.   Also, the political effects of variations in long range economic growth rates are, for the most part, significantly different from the political effects of the spikes and fissures we note in the business cycle.  And… relative to political effects… theorist state, according to the new growth theory… “objective limits” do not exist, and “psychological limits” are not linked to economics. The only threat comes from “political limits”.         Current political topics represent a real threat for the future of growth because of the rising hostility against perceived inequalities and the increased role of control.     As I have stated:  The only threat comes from “political limits”.       

This is an, absolutely, interesting and extremely relevant concept!  

Objective limits… or real or genuine limits, are NOT present.     There is nothing that is standing in the way, objectively, that will curtail the forward progress… nothing.   There are NO “real” reasons why the Arabian Horse should not expand as a practical interest for MANY more people.

Psychological limits… are NOT present.     We all understand that the emotional and passionate magnetism that the Arabian Horse creates, with it’s aesthetic beauty, are extremely powerful.    With the right approach to the presentation of an appropriate imagery… the psychological incentives will exist.   

If we consider the fact that there are no objective & psychological limits… then we must conclude that the only two limiting factors affecting progress are acts of God, or… politics.     I would like to believe that God has more important concerns.

                               The desire for the power to control is a grand motivator…  politics is “growth theory’s” ONLY detractor or deterrent. 

The overpopulation factor has been improved by the process of “natural attrition”… reducing the supply of breedable mares and serviceable Show Horses.     The “demand” aspect can be developed by creating a product that is of proven high quality and an environment that is more suited to the natural optimism that was the original “reason” for the, now disheartened, mare owner’s involvement to begin with.     When we observe the total equine industry’s economy it will show us significant quarter-to-quarter and month-to-month fluctuations in its economic growth rate.     The problem is, most of the industry’s outspoken economic observers analyzed the smaller variations in the long term trends as an average rate of economic growth or decline.   Also, they focused on the small percentage of isolated entities that appeared to be strongly successful.     They did this over a period of over a decade (1986-1996).     The disaster this created was that a false image of well being and a pending perception of a return to prosperity was created.

As I have stated before… the short term ups & downs of the business cycle have dramatic effects on popular perceptions of the Arabian “business’” economic well-being.     This is important to note:  The difference between a nation’s economic recession, affecting hundreds of thousands or even millions of people, and the recession of the Arabian Horse “business” is easily understood when you consider that, relative to the Arabian Horse, most of the affected were still in an actual earning position from their “real” jobs & businesses.     This caused an economic “lag” that softened the negative effect on many of the most vested aspects of the Horse business… causing a lack of effective strategy and urgent action in remedying the condition.

Over the longer duration, the less significant increases or decreases in the trend rate of economic growth will have much more profound and enduring effects on economic production and on the resulting value of the Arabian Horse, as a product.    Basically speaking, the gradual deterioration of the business aspect is more easily seen when you compare it’s condition on an annual basis for a longer period of time.    The longer the declining trend rate continues (on a steady line) the more reluctant the participants are to continue or develop an initial involvement.     During the period known as the “golden age” of the Arabian Horse, beginning in the mid 1970’s, the growth rate of the Arabian Horse excelled with enormous escalation.      The period beginning with the 1986 tax reform legislation showed a gradual, but, steady decline affecting the value of the equine as a business.      The unfortunate fact that this was allowed to happen for such a long stretch of time was a clear failing of our leadership’s understanding and/or exercising it’s fiduciary responsibility.

 But if the Arabian Horse “industry” had been able to retain only a percentage of the average growth rate it enjoyed from the early 1970’s to 1986 and carried it over throughout the last two decades to the present… it might have been able to maintain it’s status as “the” leader among the entire equine community.    It had a superior appreciative value and stature as the “elite” breed.     Even a 10 percent retention of it’s general community value would have been significantly felt.    That means that the income of the average Arabian Horse breeder/marketer in 1986 (and every single year thereafter) could have been more than 10% higher than it actually turned out to be.    This 10% would have had an enormous impact on the general well-being of the entire Arabian Horse community.    Think of where & how this would have affected YOUR Arabian Horse involvement.   The failure of IAHA leadership and other major vested entities to prevent this decline in the trend rate of economic growth has plunged Arabian Horse “economics” into it’s downward slip.     Some “authorities” feel that this was not the case… because they do not care to acknowledge and accept blame easily.     The “peeling off” affect of the less economically stable small breeder, small trainer and the less economically prosperous exhibitor was not a leadership concern, until well in the 1990s.

It is just as simple as this:   If… the Arabian Horse economy had somehow managed to retain just a percentage of it’s previous growth, the income of the average Arabian Horse involvement, could have been enough to supply much more incentive to continue with existing programs and encourage the potential new investor to the Arabian and not another breed or participation.    It is as simple as looking at that 10% differential as the distinction from showing a profit or showing a loss.

We can better understand this business “deficiency” when we look at the economist’s principles of; “the laws of diminishing and increasing returns”.     According to the classic theory, “the law of diminishing returns” is the following:      "When increasing amounts of one factor of production are employed in production along with a fixed amount of some other production factors, after some point the resulting increase in output of product becomes smaller and smaller".    Relative to the Arabian Horse, in the United States, the “law of diminishing returns” represents the declining value of the Horse, as a product, in proportion to the cost of producing and developing the Horse as an effectively marketable product.    Costs continue to grow, while marketable value of the product decreases.     This condition can, only, be improved if the quality of the product is legitimate!    And…the quality of legitimacy becomes relative to it’s involvement within a useable & appreciative demographic.   This cannot be improved by attempting to advance the “general” economics of the entire Arabian market, but, by creating & strengthening a “specific” aspect or group.    By concentrating on a more specific aspect, the condition of many “peripherals” (breeders, services and supply entities) will, also, have an increase in economic strength and stability.   One solid and effective…step at a time!   

A simple example… of the workings of the “law of increasing returns”  in equine business is:   A particular breeder produces a certain number of horses as determined by the number “he” can market successfully.    Successfully, meaning a satisfactory selling price as a result of an acceptable amount of work and effort.     If the breeder varies his approach by adding a conditioning/grooming person, but otherwise does everything the same, he can increase the number of horses being prepared for sale.     If he adds two grooms (rather than just one), he can, probably, get still more horses prepared per year. But the increase in horses sold, by going from one groom to two grooms, is probably smaller than the increase he gets by going from no groom to one.     This is referred to as “diminishing marginal returns”.     “The law of diminishing returns” expresses that:   The investment in increased productivity, at a certain point, will not sustain a comparable increase in profit and the marginal returns to each following increment of labor input get smaller and smaller and, ultimately, turn negative.   Once business production tips the balance from profit increase to profit decrease… it changes to “diminishing returns”.      Growth theory emphasizes the practices of knowledge and innovation as a method that can veer the usual and predictable production from the commonly predictable to a condition of improvement… increasing returns.   

Generally speaking, there is an interesting and relevant concept that states that if all other things are being held constant… the lower the price of a good (or service), the greater the quantity of it that will be demanded by purchasers at any given time.     This is referred to as “the law of demand”. 

                                 A definition of the word “demand” is:   The willingness and ability of the people, within a market area, to purchase particular amounts of a product or service. 

This works well for tomatoes & potatoes and turkeys at Thanksgiving, but, has little reliability with the Arabian Horse.    For this to work, you have to have a continuing “desire” to acquire the product.    I was fortunate, a few years ago, to be able to attend a series of guest lectures on marketing economics at UC Santa Barbara.    One of these lectures was profoundly relevant to the recessive condition of the Arabian Horse “business”!   The lecturer spoke of many general concepts explaining the variable ratio of “supply & demand” and how this notion is too often generalized and misunderstood.     The words he used most frequently to determine the true value of a product’s marketability was the term… ”buyer’s willingness”.     While the afore mentioned word “desire” is valid in most product marketing… when we look at the Arabian Horse, as a nonessential/recreational product… we can understand that, while a strong desire may be there, the “willingness” to spend is most often controlled by a realistic and more logical assessment.     When all the peripheral expenses are, for instance, tied into the uncertain price of gasoline, the willingness to purchase will be diminished.    The desire is still strong and present, but… the willingness to execute to that desire is absent.    Product pricing is generally lowered to accommodate, either, the surplus of product, or, the lack of the consumer’s “willingness” to buy the product.     Relative to the Arabian Horse… in many cases, we must nurture the desire of  the complacent buyer to the point where it develops into a comfortable willingness to commit.

                coupled with the power to do so.     In the past decade, nine
                out of ten purebred Arabian mare owners… made the decision

                compelled to breed their mare.    

        Next month:   

             The application of practical "Growth Theory" concepts to the "small" Arabian Horse Breeder.