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If large organisations are less efficient: - why do they survive? - if they survive despite all, why do we permit them? If the market was regulated to set a

by jbert 18y ago

If large organisations are less efficient: - why do they survive? - if they survive despite all, why do we permit them? If the market was regulated to set a cap on the size of a single company's workforce (or some other metric, perhaps market capitalisation), we'd also avoid the 'too big to fail' problem we have at the moment. Not to mention quasi-monopolistic practices like large chains killing off small local competitor with an externally-funded price war (then raising prices once the competition disappears). Is it that we need the largest companies for some large-scale activities (chip fabs, aircraft manafacture), or that they can be efficient at scale (fast food, wal-mart)? Would the world/market be a better place if companies were forced to fission at a certain size?

davidw 18y ago
> why do they survive? http://en.wikipedia.org/wiki/The_Nature_of_the_Firm http://en.wikipedia.org/wiki/The_Nature_of_the_Firm I would really like to see more analysis of what structural differences point towards the lots of smaller firms that pg sees, and whether this is a short blip in time, or a long term trend. Also, I hate to dredge up that ugly topic "politics", but currently, in the US, if you or your firm fail, that's great in terms of opening up space for others to try, but a little scarier in personal terms, with regards to things like health care. Long term, who knows how things like that will play out.
- jbert 18y ago
  Nice link and info, thanks for that.
llimllib 18y ago
> If the market was regulated to set a cap on the size of a single company's workforce (or some other metric, perhaps market capitalisation), we'd also avoid the 'too big to fail' problem we have at the moment. I don't think either of the metrics you mention would solve the "too big to fail" phenomenon. The fact is that "too big to fail" is a misnomer, which has actually been used to represent the concept "too connected to fail". I.e. it is not Bear's/AIG's pure size that prevents us from allowing them to fail, it's the connectedness that they have in our financial system, which depends on a web of millions of transactions per day between every large bank. Then, if a big bank were allowed to fail (not that I'm endorsing this theory), that would cause a cascade effect where banks started charging higher rates for those millions of transactions, which would cause less of them to happen, which would cause even higher rates, etc. etc., ending in a completely broken financial system where each bank wanted too much money for each of the many transactions they depend on to exist in their current form. So, I don't think that limiting the size of companies in the financial sector would prevent the "too big to fail" phenomenon by itself. Which doesn't mean it's not a good idea; just that I think that particular example doesn't suport the idea that well. (edit: and read Coase, like davidw's comment suggests :)
retyred 18y ago
this entire "lots of small firms are the future" meme is probably just wrong. paul graham knows a lot about websites but very little about the rest of the economy. show me the ten person company that can produce the equipment to generate and transmit electricity. or food production. where are all the ma and pa grocery stores? and banking...we have fewer banks now than ever and the number is still dropping. and PCs...making a PC is easy....so what happened to the 10,000 strip-mall PC makers? show me real examples outside of the web industry that this theory is even remotely correct
- nazgulnarsil 18y ago
  I have to disagree. it is true that the only reason we see small companies in the tech sector is that it is a young market that is still changing. but this change will continue, all indications are that tech will only change faster in the future. this means that the tech sector will perpetually act as if it were a new market.
- evgen 18y ago
  Music production. Video production. Any industry where the capital costs are low, or where a small group of niche specialists can add a significant multiplier to the value chain are candidates for this sort of effect. As more industrial tasks are farmed out to large companies that specialize in flexible production it is possible that you will see this show up in industries that are currently have strong vertical integration. For example, ten people can't mass-produce a car. Ten people can provide spcialized bodywork and personalization of a mass-produced car. Ten people could probably design and oversee the outsourced manufacturing of discrete components in the car. Ten people could probably manage a company that deals with other small firms to create bespoke vehicles based upon mass-produced frames and engines. As you increase the specialization and make more parts interchangeable it is possible to decentralize and distribute a production chain to the point where a large collective of ten person companies can provide a higher-value good at a lower per-unit cost than a single large company. Certain activities will always need large, high-capitalization organizations, but it seems that more and more of these companies and factories are being forced to become more flexible and nimble which is leading to a point where a larger and larger part of your world can be serviced by smaller teams than by large enterprises.

by jbert 18y ago

davidw 18y ago

> why do they survive? http://en.wikipedia.org/wiki/The_Nature_of_the_Firm http://en.wikipedia.org/wiki/The_Nature_of_the_Firm I would really like to see more analysis of what structural differences point towards the lots of smaller firms that pg sees, and whether this is a short blip in time, or a long term trend. Also, I hate to dredge up that ugly topic "politics", but currently, in the US, if you or your firm fail, that's great in terms of opening up space for others to try, but a little scarier in personal terms, with regards to things like health care. Long term, who knows how things like that will play out.

jbert 18y ago
Nice link and info, thanks for that.

llimllib 18y ago

> If the market was regulated to set a cap on the size of a single company's workforce (or some other metric, perhaps market capitalisation), we'd also avoid the 'too big to fail' problem we have at the moment. I don't think either of the metrics you mention would solve the "too big to fail" phenomenon. The fact is that "too big to fail" is a misnomer, which has actually been used to represent the concept "too connected to fail". I.e. it is not Bear's/AIG's pure size that prevents us from allowing them to fail, it's the connectedness that they have in our financial system, which depends on a web of millions of transactions per day between every large bank. Then, if a big bank were allowed to fail (not that I'm endorsing this theory), that would cause a cascade effect where banks started charging higher rates for those millions of transactions, which would cause less of them to happen, which would cause even higher rates, etc. etc., ending in a completely broken financial system where each bank wanted too much money for each of the many transactions they depend on to exist in their current form. So, I don't think that limiting the size of companies in the financial sector would prevent the "too big to fail" phenomenon by itself. Which doesn't mean it's not a good idea; just that I think that particular example doesn't suport the idea that well. (edit: and read Coase, like davidw's comment suggests :)

retyred 18y ago

this entire "lots of small firms are the future" meme is probably just wrong. paul graham knows a lot about websites but very little about the rest of the economy. show me the ten person company that can produce the equipment to generate and transmit electricity. or food production. where are all the ma and pa grocery stores? and banking...we have fewer banks now than ever and the number is still dropping. and PCs...making a PC is easy....so what happened to the 10,000 strip-mall PC makers? show me real examples outside of the web industry that this theory is even remotely correct

nazgulnarsil 18y ago
I have to disagree. it is true that the only reason we see small companies in the tech sector is that it is a young market that is still changing. but this change will continue, all indications are that tech will only change faster in the future. this means that the tech sector will perpetually act as if it were a new market.
evgen 18y ago
Music production. Video production. Any industry where the capital costs are low, or where a small group of niche specialists can add a significant multiplier to the value chain are candidates for this sort of effect. As more industrial tasks are farmed out to large companies that specialize in flexible production it is possible that you will see this show up in industries that are currently have strong vertical integration. For example, ten people can't mass-produce a car. Ten people can provide spcialized bodywork and personalization of a mass-produced car. Ten people could probably design and oversee the outsourced manufacturing of discrete components in the car. Ten people could probably manage a company that deals with other small firms to create bespoke vehicles based upon mass-produced frames and engines. As you increase the specialization and make more parts interchangeable it is possible to decentralize and distribute a production chain to the point where a large collective of ten person companies can provide a higher-value good at a lower per-unit cost than a single large company. Certain activities will always need large, high-capitalization organizations, but it seems that more and more of these companies and factories are being forced to become more flexible and nimble which is leading to a point where a larger and larger part of your world can be serviced by smaller teams than by large enterprises.