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Growth Theory and the Arabian Horse
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August 27th, 2012

Growth Theory as an economic concept is relatively new. Authored in the early 1980's it made its introduction with the far-reaching changes of the booming computer/electronic era.

Relative to the Arabian horse, Growth Theory is an approach to economics that seeks to explain (and ideally, hopes to predict) the rate at which 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 specific and incidental price inflation. An example of this is the sale of the occasional horse to the Middle East, Europe or where ever a surplus of wealth lands it. Although, specifically encouraging, this type of transaction has little relevance to the general Arabian horse community's actual economic growth.   More specifically it is directed to the economics of the segmented breeding in hand/halter discipline and a particular individual and/or family/sire line.

In the last decade, the Arabian horse business has shown sizable quarter-to-quarter and year-to-year fluctuations in its 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 industry economy. They do not take into account the fact that, in the previous decade the product, the Arabian horse was STILL reeling from the effects of being over produced and adversely affected by taxation changes, negative public imaging and strong internal dissension.

Although the tax changes were impactful to the entire national equine business community, the Arabian horse was especially affected, simply because of the lack of awareness of the potential effect it would have on its business aspect. While the individual Arabian horse breeder held the ultimate responsibility of understanding and adapting to these economic changes, our "parent entities", the old IAHA and the Registry, failed miserably in their responsibility to inform, educate and implement an adaptive program to protect the sanctity of its business solvency. This was a clear indication of a lack of both an applicable business sense and a more connected concern for its membership. Shame on them... and shame on us for not taking charge when we should have!

Utilizing Growth Theory concepts, we can attempt to build macroeconomic (generalized) models out of microeconomic (specific) foundations. The macroeconomic "top-down" approach can, then, provide a generalized analysis to the growth trends of the Regional, National and/or International Arabian Horse communities. Out of microeconomic foundations (those specific to the individual/private entity or specific club/organization), we can develop a "bottom-up" analysis of the individual components that, when combined, create a generalized impression. To astutely understand the part is to allow for a useful understanding of the whole!   This concept is so simple yet so conflicting when applied to a fragmented membership and leadership.   But until we understand what makes each "fragment" tick we will not move to general prosperity within the Arabian horse breed.

Again, macroeconomics focuses on the movement, fluctuation and trends in the Arabian horse economy as a whole, and in microeconomics the focus is placed on the dynamics that affect the decisions made by individual breeders, specific strains and sire-lines and the more specific disciplines of involvement.  The important thing to understand is that the factors that are calculated by macro and micro will quite often have an effect on each other. That is where we as a business "community" have failed!

An interesting aspect to economic growth is that the old belief that growth could only be generated by a change in the savings rate (a reduction of expenditures and cost expense) has proven to lead to economic stagnation. This old and archaic belief was the result of the relative restrictions imposed by the earlier eras' lack of technical/promotional capabilities. The effective use of the internet changed the way we promote, causing a need for highly knowledgeable and innovative campaigns. The fact is, outside of the county you live in the old standard concepts of marketing your Arabian horse products are DEAD!

Unfortunately, this belief of reduction of expenditures and cost expense was the idealistic business approach seen in the AHA's restructuring of the mid-2000s.This affected personnel cuts of AHA Staff and venue changes for our National Shows. While this is, certainly, a practical approach, it is conducive to contraction and NOT conducive to expansion and growth!

You can NOT save your way to prosperity! Usually when a business begins to feel economic pressure its first reaction is, naturally, to cut expenses. Pragmatically, this can accomplish an almost immediate form of financial relief: less expenditure.  The problem with this is that this method does NOT provide any long-term improvement. What it actually does is restrict improvements; many that could have increased revenue producing potential.   So, the prevailing effect is that you have saved money rather than generated more money!

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 its 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 "economy-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.

One premise of business principle suggests that continuing and sustained success is an indication of a business' ability to astutely and quickly adapt to positive industry trends. But maximum success can only be reached and sustained through the innovative authorship of industry adopted trends. Be the leader!

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 (2001  - 2011) we will be able to determine a more realistic approach to what HAS happened and how we can correct its further decay and remedy its return to general health... and even prosperity.

When we can see a statistically 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, and how they affect the long term growth performance.    Also, the political effects of variations in long range economic growth rates are, often, significantly different from the political effects of the "spikes and fissures" and "peaks and troughs" we note in the shorter term business cycle.

Let's face it: every business has its highs and lows!   But when the business cycle's "trough" is where your specific entity exists, and there seems to be no help in site, even the most stalwart make adjustments.   Your prosperity is the result of how and where you fit in the short term economics of the long term product!

And, relative to political effects, theorists state, according to the new growth theory, that "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 anabsolutely 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 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 its aesthetic beauty, is 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 is no objective or 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.

If the desire for the power to control is a grand motivator, then politics is Growth Theory's ONLY detractor or deterrent.