3 ms·
"Bigness often cuts against innovation." The term the author needs is "diseconomies of scale." Economies of scale is unquestionably important for increasing va
by lend000 7y ago
"Bigness often cuts against innovation."
The term the author needs is "diseconomies of scale." Economies of scale is unquestionably important for increasing value production and economic growth. However, if economies of scale is a positive feedback signal, it is diseconomies of scale that acts as a negative feedback signal, keeping the economy in equilibrium by recycling the old companies that fail to innovate and adapt back into the market, and providing opportunities for smaller, more innovative companies to gain a foothold before they achieve economies of scale. You see diseconomies of scale in companies that have multiple groups working on the same product, lack of oversight and skewed incentives, and overall organizational incompetence that often stems from complacency in a once innovative company.
This is where rent-seeking and regulations come into play. Having legal scale enables less innovative companies to get into the business of lobbying and regulating themselves. Most companies that are not completely dominant in the absence of government want to be regulated in certain ways, because it helps entrench them, such as Telcos, defense contractors, "software" consultancies like PwC, etc.
I've observed that your average Joe will immediately think a regulation is good for "the people" and bad for "the company" without context. In reality, it's important to determine if it's a good regulation: i.e., one that charges a proportional cost or mandates an antidote to an externality on society.
If the regulation instead creates occupational or corporate licensing requirements, or really is doing anything besides addressing the externality, you will most likely entrench the bad actors, add some inefficiencies for paperwork, possibly create other unintended consequences, and accomplish nothing.
- clairity 7y ago> "'Bigness often cuts against innovation.' > The term the author needs is 'diseconomies of scale.'" diseconomies of scale, like economies of scale, are systemic characteristics that change (somewhat predictably) with size. stagnation resulting from bigness is a self-inflicted dysfunction that is independent of size (that is, it doesn't only happen when companies get big). and multiple groups working on the same product might not be a dysfunction at all. it could just be risk mitigation (that only a large company can afford). my point isn't so much to disagree, but to redirect. organizational dysfunction increases as companies get larger because of "coordination neglect" (it gets harder to keep all the initiatives pointing in the same direction as communications channels necessarily multiply with size). but risk socialization strategies at large companies leading to things like "too big to fail" bailouts really chap my hide. those companies should go bankrupt--not out of business, but reorganized, with the execs replaced, their compensation clawed back, and possibly sued for malfeasance. the bigger you are (or equivalently, the more power you have), the bigger the consequences and the more important it is to face justice from wrongdoing, the exact opposite of the direction we're headed right now in the US (e.g., recent presidential pardons).
- krtong 7y agoI've never heard the term diseconomy. Sounds to me like Tragedy of Commons. > stagnation resulting from bigness is a self-inflicted dysfunction that is independent of size (that is, it doesn't only happen when companies get big). A book with a strong argument why this MIGHT be incorrect is called, "Big Is Beautiful" by Michael Lind, who argues that productivity, research and development stagnate when companies get as big as google, but relatively medium sized companies like BMW (I did say "relatively") have solid research and development and productivity that can't be found in smaller businesses. The book also gets into why some of the mythology of America like "small businesses are the backbone of America" and "It's good thing that so many people work for themselves" are probably false. Either way it's a good one to read alongside "The Curse of Bigness" by Tim Wu. Also this article goes into almost no detail by what he means. No fault of the author, it's just a lot to go over. I haven't read this author's book personally but another book I recommend on this subject is Michael Lind's "The Land of Promise: and Economic History of the United States."
- thaumasiotes 7y ago> stagnation resulting from bigness is a self-inflicted dysfunction that is independent of size (that is, it doesn't only happen when companies get big) How could stagnation resulting from bigness happen to a company that hadn't gotten big?
- comicjk 7y ago"Big" is relative. If a company starts falling apart as soon as the founder can't personally manage everyone, it has a disease of bigness, even though it's still small on some absolute scale.
- rhizome 7y ago>The term the author needs is "diseconomies of scale." The author already has it: https://twitter.com/matthewstoller/status/908765906175692800 https://twitter.com/matthewstoller/status/908765906175692800 https://twitter.com/matthewstoller/status/1023918847487889410 https://twitter.com/matthewstoller/status/102391884748788941...