Economies and Economies of Scale

A brief thought:

When an economy operates locally, everyone in it enjoys some measure of power. But when an economy operates globally, only a select few ever rise to a level of power.

That seems backward, but when you look at the increasing disparity between the haves and have nots in America 2010, it makes perfect sense.

by Dan Edelen

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26 Comments

  1. David
    Posted February 1, 2010 at 7:41 am | Permalink

    I think it’s very true, and also applies to governance…Consider your local government, and how much power has been handed over to the Federal level. How much local authority, for instance, does your school board really have? The lion’s share of your tax money goes…where? Just like the lion’s share of what you spend on food, gas, clothes, goes…where?

    • Posted February 1, 2010 at 11:27 am | Permalink

      David,

      If you are a school superintendant of a small local school system, when the district merges with another smaller district, that other superindent job goes away. This is true of so much business today, especially as things concentrate in cities. It means that fewer people are employed in good jobs, and it also means that the fewer employed at those top positions demand ridiculous amounts of pay, essentially arguing that they are doing the job of ten people so they are worth it. But why not just have ten people, then? It would put more people to work and keep the gap between the ultra-rich leaders and the rest of us from continuing to grow wider.

  2. Posted February 1, 2010 at 11:07 am | Permalink

    There’s a tension, don’t you think? If not for some things produced on mass scale, the masses wouldn’t have affordable access to them. On the otherhand, large scale production, national and global leads to oligarchy. Perhaps corporations should be banned from merging.

    • Posted February 1, 2010 at 11:22 am | Permalink

      SLW, look at jobs. In 2007, my wife applied for a marketing job in Dayton and was told that 3,000 people had applied for that job! That’s insane. But that’s what happens when a society concentrates work into one large area. Too many people have to compete for select work. That doesn’t happen when your economy is more localized. Now make it all globalized and it gets even worse (and more chaotic, since smaller numbers of people simply CANNOT do a better job should they end up replacing a large number of others. It’s that myth of productivity. Honestly, American workers are about as productive as they can be, but can any of us say that our interactions with companies are better? No, in fact they are much worse. The only company I routinely deal with that has a human being answer the phone on the first ring is L.L. Bean. It didn’t used to be like that.)

      • Jim D
        Posted February 2, 2010 at 1:37 am | Permalink

        Dan, I struggle with your one comment about the productivity of American workers. Last week, I was doing some analysis of powders at Folgers in New Orleans. We grabbed afew hundred samples over the course of a batch to analyze the process. We then had to break down those samples to triplicate analysis-sized samples. Finally, we performed four different analytical tests on these samples, and recorded the results in Excel for analysis. Four of us (myself, my partner, and two engineers from Folgers) worked five hard, tiring days of 12-14 hours to get all this data. While we worked, about 10 plant operators per shift sat in the control room watching computer screens and chatting about the Saints win and where they were going to party during the Super Bowl. Why didn’t they help us to make our jobs easier? They were union, and it was not in their job description. if the plant engineer asked them to do any work on the sampling or testing, a grievance would have been filed against him.
        I compare this to startups I have done in Mexico City and Beijing. In both cases, the workers bent over backwards to help me with sampling and analysis. They were just happy to have such a great job with P&G. They put American workers to shame.
        In the US today, companies are forced to merge and look for economies of scale. Labor unions, overburdensome government policies and rules, and the second highest corporate tax rate in the world all force companies to look for other ways to save money — and gaining an economy of scale helps significantly.

        • Posted February 2, 2010 at 7:38 am | Permalink

          Jim,

          Just quoting the studies. They routinely show that Americans are the world’s most productive workforce. I guess we can all cite exceptions. I know I can.

          That said, productivity slipped recently, and the speculation is that people are maxed out. Too many individuals doing the work of two or three (laid-off) co-workers. That’s the speculation. YMMV.

  3. Posted February 1, 2010 at 11:29 am | Permalink

    You already saw my “blog post response,” Dan, but I figure I ought to share with the rest of the class. ;)

    If you toss Dunbar’s number into the equation, I think it all makes sense.

    When the scope of the economy is, say, 50-250 people, then (generally speaking) each person is able to maintain a relationship with each other person in the group. These connections keep us “in the loop,” which is absolutely necessary for one to retain that measure of economic power.

    When the scope is increased to over 5 billion people, there will be only a very few who are able to forge and maintain a sufficient number of relationships to key players. Those few become the key players, and it’s only by their maintaining those relationships (or by being pursued by other key players) that they retain their power and influence.

    So I don’t think it’s necessarily a matter of “local vs. global” – even “local” economies tend to devolve into oligarchies once the total population grows beyond about 1000 residents.

    • Posted February 2, 2010 at 8:06 am | Permalink

      Travis,

      The Amish make it work. So do a lot of others.

      • Posted February 2, 2010 at 11:58 am | Permalink

        Which Amish are these?

        The ones I’ve seen have, to a large extent, been forced to (at the very least) continue moving west for affordable land. Those who remain in places like Lancaster County, PA are by and large being forced to prostitute their cultural distinctives for tourists’ dollars.

        The Amish make it work, but only so long as the “global economy” doesn’t move in next door.

        • Posted February 3, 2010 at 9:02 am | Permalink

          Travis,

          I can’t speak for Lancaster. I know that the Amish communities in Holmes County (near my in-laws) and Adams County (near me) in Ohio make it work. And yes, there is always some level of tourist-iness, but I don’t believe that must destroy cultural distinctives. I mean, how does one flee that tendency to make people different from the rest of society into entertainment?

  4. Posted February 1, 2010 at 2:36 pm | Permalink

    Fascinating. But one question……Would the smaller, local businesses have enough capital to support larger companies that employ huge numbers of people, many of them in specialized areas. So, if somene wants to have a specialization they must move far away? Or woudl there even be any of these types of jobs? In other words, would each smaller area have such specalizations? I am thinking of large hospitals, car makers, etc. But, perhaps I don’t know what your definition of “small, local” is.

    • Posted February 2, 2010 at 8:13 am | Permalink

      Diane,

      I’ve thought about this issue and it comes down to a few things:

      1. The biggest need for large companies that are the sole resource for massive, group-made projects really are in transportation. A company like Boeing can’t exist on a small scale. That said, the major reason for such companies is to fuel globalism. If you’re not fueling globalism, then what is the need?

      2. When you look at the history of innovation, it almost always occurs on a very small scale. In other words, small outdoes big most often.

      3. Cottage industry in England prior to industrialism was ridiculously successful and did raise all boats. Industrialism swept it away, though, in part by industrialism’s novelty.

      Our memories are each very short. We forget how people used to get by.

  5. Posted February 1, 2010 at 6:46 pm | Permalink

    We western consumers put a lot of emphasis on prices. We prefer to pay less for the products we buy. (I’ll ignore the question of whether we REALLY need those products anyway!) Therefore we are all too willing to buy products made in the “third world” by employees who are paid pitifully for their labour.
    We take advantage of the cheaper prices while refusing to submit OURSELVES to the conditions endured by those whose sacrifice makes it possible for those cheaper prices.
    Products made locally are priced more highly because local workers will not accept the pay conditions imposed on exploited “third world” workers.

    We want the cheaper prices but then we are horrified when local jobs are cut because manufacturing is moved “off-shore” where costs can be cut through reduction in labour costs.

    We don’t like the parts of “globalisation” that negatively impact our lives but we are also not too keen on losing those parts that see beneficial. Unfortunately the benefits to us are often at the expense of someone else.

    Where possible I always prefer to support the local business and keep the local “small guy” in employment.

  6. Posted February 1, 2010 at 6:53 pm | Permalink

    Further to what I wrote above, where local isn’t possible, “fair trade” goods are an increasing option.

    Dan,
    what you wrote above relates a great deal to the disappearance of community where each of us takes some responsibility for those around us.

    I think it also relates to things you have written before about the attitudes in the church relating to the use of our resources and how the early church took far more responsibility in looking after those of their number who were in need.

  7. Posted February 2, 2010 at 8:13 am | Permalink

    Tim,

    Yes, it is most definitely a community issue.

  8. Posted February 3, 2010 at 8:43 am | Permalink

    Dan’s World! Dan’s World! Party time! Excellent! ;-)

    Fret not, my friends. In Dan’s World, there would be no Wal-Mart, or Home Depot, or Lowe’s, or Best Buy, or McDonald’s, or any other national chain. Instead, every local community would have local mom-and-pop stores and restaurants. Local stores would stock locally made products, and only locally made products, and local restaurants would serve locally grown food, and only locally grown food.

    This nationwide network of local communities would be agrarian-based, of course, because local residents would live in intentional community, where they would share their locally manufactured products. There would be little to no need for families to redundantly purchase so many items. Also, these products, in Dan’s World, would be manufactured to such a high level of durability, there would be few jobs in manufacturing or repair, because products would rarely break.

    All jobs would have morning hours in Dan’s World. The workweek would be less than forty hours per week, not by law so much, but because there would be no need to work that much. After all, in Dan’s World, where thrift, frugality, and share-and-share-alike are intentional community values, the demand for manufactured goods would be very low.

    What about other services? In Dan’s World, we would return to the days of telephone switchboard operators, so more people would have steady work. UHF/VHF, with a smattering of channels, would replace HD and cable, because although cable linemen make a livable living in the real world, no one wants to deal with 800 number helplines when service inevitably goes bad. Plus all programming, except for national news, would be local, brought to you by community theater. Even national news would be anchored by local anchors. More local jobs that way!

    How else do you think Dan’s World would differ from the real world? :-)

    • Posted February 3, 2010 at 8:45 am | Permalink

      Oh, yeah, there’d be no more Internet as we now know it. We’d go back to dial-up bulletin board services and FIDOnet! :-)

    • Posted February 3, 2010 at 9:00 am | Permalink

      Poet,

      Sounds good to me!

      • Posted February 3, 2010 at 9:03 am | Permalink

        But replacing the Internet? That’s just crazy talk! :-)

    • Posted February 3, 2010 at 9:02 am | Permalink

      Huh. Now that I think about it, Dan’s World would be humble and kind of nice. People would have to grow much of their own food, which would keep our minds on the land. In a manufacturing-based world, it is easy to forget how tenuous our hold on life is. Atlanta recently was so threatened by a long-term drought, officials were discussing the possibility of evacuating the city. Then the next year, the city was flooded.

      Locally manufactured goods of a very high durability would give locals a creative outlet without their creativity being turned into assembly-line monotony. Builders would have to brainstorm how to design and manufacture a good without having to manufacture the same thing every day, day in and day out, for a larger market. And by deemphasizing televised entertainment, local arts could flourish without artists developing delusions about performing on national and global stages.

      Dan’s World! Dan’s World! More time to party! Locally excellent! :-)

  9. Milton Stanley
    Posted February 3, 2010 at 9:42 am | Permalink

    What you posit is true not only for financial economies but pretty much any kind you can imagine in which proficiency grants power. In my little corner of the world I may be, say, a great athlete, painter, or fiddle player; but in the big wide world of Joshua Bell, Thomas Kinkade, and the Manning brothers, I’d be a nobody. From what I gather, in generations past local talent in these and other areas was recognized and celebrated; today not so much.

    • Posted February 3, 2010 at 10:48 am | Permalink

      Milton,

      Excellent point. More people can be hailed for what they do. And that’s the way it worked for a long time. The handful of people who could beat you were scattered far and broad. Today, we bring them all together.

      Think of the Olympics. The fourth place speedskater is blazingly fast and would smoke nearly everyone anywhere else. But bring him to the Olympics, and there’s three guys faster than him—and perhaps only by as much as a couple feet over the course of 5,000 meters. Problem is, that fourth place guy ends up going home and doesn’t really get the respect he deserves locally because he failed to medal on the world stage. That’s really sad. Yet we now repeat that story a million times daily in all sorts of endeavors because everything is globalized. In a way, we’ve trivialized those who would have had accolades 125 years ago.

      Worse, look at all the business leaders we hold in high esteem who run megacorporations. They write books about how they did it. Yet if the book The Black Swan is to be believed (and increasingly, that book reads like genius), most of them are where they are by merely being in the right place at the right time, not because of unique skills. The vast pool of likely candidates for that job is so full, competition is ridiculous to the point of almost being luck of the draw. That would not happen on a local level. The number of qualified candidates would not be so thoroughly weeded out by insance competition and “luck.”

  10. David
    Posted February 3, 2010 at 11:00 am | Permalink

    Naturally your home would be made of locally grown materials, and of course we’d walk everywhere, because how in the world could one produce a locally-made car? Horses and carriages are nice and all, but horses require a lot of room, not to mention a lot of food, which requires more land. Cities would disappear, because population density is limited by agrarian supply and demand. Ohio is already the most densely populated state in the nation, so look for an exodus.

    “Locally-produced” can only get one so far. While a good share of what is produced for the US market is useless, there is also something to be said for the productivity that does exist. What is missing is something pretty basic: Humanity. When production is coupled with compassion, then there are changes.

    For example; could anyone say that a chicken processing plant is humane? We have them to improve productivity, reduce costs, and maximize profits. At the same time it dehumanizes the workers (as exampled by the numerous reports of cruelty that come from the plants) and reduces overall food safety.

    Some time in the future, Christ will rule over an Earthly kingdom for 1000 years. That kingdom will be peopled by sinful man. I wonder what it will look like?

    • Posted February 3, 2010 at 11:08 am | Permalink

      David,

      I’m not the anti-Tim Keller. I’m not advocating we eliminate cities, only that we revitalize local economies and stop looking to the cities for all our answers. Smart people can reverse some of the flow. But it’s hard and too many aren’t up to the work. That’s the problem.

    • Posted February 3, 2010 at 7:22 pm | Permalink

      There are clear complications when “locally produced” goods are being championed. Of course every community is not able to manufacture its own cars.

      But what about local bakeries?
      I once worked for a food company that made a practice of buying out small businesses, including local bakeries, with the intention of closing them down and centralising production. This was all well and good for their financial profits but they helped to destroy thriving local businesses, putting people out of work and they removed sources of FRESH produce and replaced it with a product that required long distances of transportation. The product also became homogenised with all local character removed. Varieties that regional communities had grown up with were abandoned and replaced with products whose most important feature was their ability to be safely transported great distances

      Who does this benefit apart from big business?

  11. Posted February 3, 2010 at 4:31 pm | Permalink

    In “Dan’s world” we would lose a lot of the “blessings” that we westerners love to claim were provided by the Lord.
    However, in most cases those “blessings from the Lord” are really the thorns and weeds that choke out the word and prevent a fruitful outcome.

    I think in “Dan’s world” we would have a lot less trouble with those weeds and thorns that we prefer over God’s truth and God would be more likely to be given priority in our lives. That is why the gospel is spreading more effectively in “third world” nations. They don’t have the “blessings” of Wal-Mart, McDonalds and similar “national chains” to compete for their time and money.

    Looking back at my own childhood – my family used to spend time together out doors. We’d be taken to parks and have picnics. We’d be involved together in various sports and games.
    These days a day out for a family is a trip to the local mall where they spend all day wandering through shops and eating in crowded food halls. Some malls even provide roller coasters and other rides to make it a “perfect day out”.

    How things have changed.
    How PRIORITIES have changed!

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