5 ms·

What he's missing is that scaling started working around 1900, when railroads started consolidating. Railroads were the first businesses that had overwhelming e

by Animats 11mo ago

What he's missing is that scaling started working around 1900, when railroads started consolidating. Railroads were the first businesses that had overwhelming economies of scale. No small co-op could possibly compete. Over the next century, more obstacles to scaling were overcome. Container shipping, freeways, cheap communications, mass market products and advertising, and computers removed the obstacles to scaling businesses up to planetary size. Why it's the Uneeda biscuit made the trouble, Uneeda Uneeda, put the crackers in a package, in a package, the Uneeda buscuit in an airtight sanitary package, made the cracker barrel obsolete, obsolete Obsolete! Obsolete! Cracker barrel went out the window with the mail pouch, cut plug, chawin by the stove. Changed the approach of a traveling salesman, made it pretty hard. Gone, gone Gone with the hogshead, cask, and demijohn, Gone with the sugar barrel, pickle barrel, milk pan Gone with the tub and the pail and the tierce. - The Music Man

sirponm 11mo ago
I'm so glad that you mentioned railroads because there is a great book, Railroads and Regulation by Gabriel Kolko about the capitalist anti-competiton regulation of the railroad industry that caused their concentration. If you wanna read about it, an essay about it is called "Big Business and the Rise of American Statism" inside of Markets Not Capitalism (freely available online). I'll summarize what it says tho: Every time big railroad magnates tried to form a cartel to fix prices, a smaller competitor would lower rates and steal all the customers; freight rates went wayy down in this time period. The big railroad owners (like JP Morgan's clients) lobbied for the ICC not to regulate them, but to regulate their competitors. They wanted the government to make price-cutting illegal (calling it rebates or discrimination). Regarding sanitary packages, the essay _also addresses this_: the big Chicago meatpackers supported regulations because the compliance costs were so high they drove small local butchers and slaughterhouses out of business. The "sanitary" laws were a weapon to kill local competition, not a way to keep food safe
- DiscourseFan 11mo ago
  But they did have the unintended consequence of keeping food safe.
  - sirponm 11mo ago
    Allegedly. And just so happened to create a massive cost barrier to competition from smaller companies.
    - IAmBroom 11mo ago
      There's a mountain of data gathered over decades behind that "alleged" assertion.
- sophrosyne42 11mo ago
  Before even railroads, the original manufactory boom that is commonly associated with the industrial revolution is the exact kind of case the other poster is alluding to when thinking of large economies of scale. I think Kolko is great to demonstrate that economies of scale aren't infinite, and in the absense of government intervention, market forces actively conspire to ensure firms shrink to their optimal size. But that also proves the flip side: firms will grow to their optimal size too. There is no economic reason to be suspicious of large firm sizes, and the political reasons inevitably hinge on some sort of mistaken assumption of the economics of the matter; anti-trust regulations advocacy is a perfect example of this.
  - Animats 11mo ago
    Kolko talks about that in the context of scaling social/charitable solutions.[1] There's a cite to Marshall, who talks about it in an industrial context.[2] But Marshall wrote in the days before computers and the Internet. There was a time when big companies had enormous clerical plants and corporate headquarters operations. Some paperwork and management operations scale O(N log N) or even O(N^2). At some point, corporate overhead became too large. But we got past that. Walmart, Amazon, Samsung, McDonalds, Starbucks, Foxconn, and BYD all have hundreds of thousands, or even millions, of employees, but don't seem to be hitting scaling limits. There may be an optimal size limit, but it's above planetary scale now. Computers have made this possible. This leads to monopoly or oligopoly being reached before any natural limit to growth appears. [1] https://www.jonkolko.com/writing/notes/13 https://www.jonkolko.com/writing/notes/13 [2] https://www.ebsco.com/research-starters/economics/economies-scale https://www.ebsco.com/research-starters/economics/economies-...
    - sophrosyne42 11mo ago
      I am not convinced it is above planetary scale, nor that these are monopolies. For one thing, all the companies you named have competitors, and no company has a distribution center or restaurant in the arctic. There are plenty of other more populated areas that those companies do not serve. Administrative work still requires overhead, and the internet does not remove that burden, otherwise companies wouldn't be scrambling to invest in AI which they expect to reduce this overhead. AI wont entirely remove the administrative overhead either; there are hard economic limits to the efficiency of a bureaucracy. But more to the point, consider what you're saying. Is the world, viz-a-viz these companies/services that you refer to, worse off than before the internet? Obviously not. In fact, it is substantially better, because higher economies of scale mean mass production for mass consumption. There would be no way you and I could converse this way on our phones without the hyper extensive scaling of production caused by capitalism. This calls into question the concern over scaling. Large scaling and less firms is preferable when they perform a social function. If co-ops were replaced by big business, this is something everyone should be grateful for. To go back to the industrial revolution example, there were a form of early mutualist co-op that dominated the non-farm market in the pre-capitalist era: the guilds. And the guilds had a stranglehold on handicrafts, apprenticeships, and all manner of specialized production. In order to increase guild profits, the guilds, through their noble patrons, regulated and limited production of all kinds, who was allowed to sell their craft, and all while being worker-owned. And yet these guilds were the true monopoly: they used legal privileges granted through lobbying to the kings to limit production and raise prices. Their products were exclusively for the wealthy and privileged. On the other hand, it was the capitalists that found a loophole in this system that condemned people to poverty and starvation: the mass production with unskilled labor by manufactories. And, through the manufactory system, they smashed the guilds, producing tons of goods for the everyday man, contributing greatly to the prosperity over and above the medieval system that we see today.
- rickydroll 11mo ago
  I would argue that consolidation happened because rail is a capital-intensive natural monopoly. It's easy to dominate a region just by buying up lines. Smaller lines couldn't steal customers from big players because no other lines were physically able to offer the same service. Trucking is another story. There, the highways are natural monopolies, and trucks are an over-the-top service.
  - sirponm 11mo ago
    [dead]
sirponm 11mo ago
Oops I forgot to respond to the other things you mentioned. That list of removed obstacles is technically correct, but it misses that those things were mostly subsidized 1. Regarding transportation, the interstate highway system and the containerization infrastructure (ports, dredging, naval security) were massive state subsidies to long-distance distribution. If Walmart had to pay the full property tax and maintenance cost of every mile of road their trucks used, their economies of scale would evaporate instantly. The state artificially lowered the cost of long distance shipping below the cost of local production. That isn't efficiency, but the taxpayer subsidizing the inefficiency of moving a toothbrush 3,000 miles. (Carson called these "diseconomies of scale") 2. The Uneeda Biscuit era of mass production created a crisis in that high fixed costs meant factories had to run 24/7 to be profitable, they couldn't wait for orders but had to force product onto the market. This required the state to intervene again via imperialism and arguably the creation of a consumer culture to absorb the surplus in the form of advertising and other means. 3. Computers are the most ironic part; Computers and CNC tools actually destroyed the rationale for the large factory, made it possible for a garage shop to produce with the same precision as a General Motors plant ("Homebrew Industrial Revolution" book by Kevin Carson again which in my mind is not one of his most defensible but it's still interesting). I would argue that IP was the main reason that small shops didn't take over. As physical capital costs dropped, the state ramped up IP laws (patents/copyrights) to protect corporate hierarchies from the decentralization computers should have caused. I think that Big Tech isn't Big because of hardware efficiency but because of the state-enforced monopoly on information
- gsf_emergency_6 11mo ago
  IP has subtle things going against it, which you should certainly analyze more.. eg University research teams have IP too, but no clear network effect (maybe even an anti-network effect?) To me the overall "anti-network effect" for Big Tech looks like the metatheory Krugman proposed to explain enshittification. The initial ramp up can come from proprietary code, hiring power, regulatory capture, branding, anything really, but especially a synthesis of all these https://paulkrugman.substack.com/api/v1/file/7510035f-d377-4c4b-8667-886246fbc927.pdf https://paulkrugman.substack.com/api/v1/file/7510035f-d377-4...
- 11mo ago

by Animats 11mo ago

sirponm 11mo ago

I'm so glad that you mentioned railroads because there is a great book, Railroads and Regulation by Gabriel Kolko about the capitalist anti-competiton regulation of the railroad industry that caused their concentration. If you wanna read about it, an essay about it is called "Big Business and the Rise of American Statism" inside of Markets Not Capitalism (freely available online). I'll summarize what it says tho: Every time big railroad magnates tried to form a cartel to fix prices, a smaller competitor would lower rates and steal all the customers; freight rates went wayy down in this time period. The big railroad owners (like JP Morgan's clients) lobbied for the ICC not to regulate them, but to regulate their competitors. They wanted the government to make price-cutting illegal (calling it rebates or discrimination). Regarding sanitary packages, the essay _also addresses this_: the big Chicago meatpackers supported regulations because the compliance costs were so high they drove small local butchers and slaughterhouses out of business. The "sanitary" laws were a weapon to kill local competition, not a way to keep food safe

DiscourseFan 11mo ago
But they did have the unintended consequence of keeping food safe.
- sirponm 11mo ago
  Allegedly. And just so happened to create a massive cost barrier to competition from smaller companies.
  - IAmBroom 11mo ago
    There's a mountain of data gathered over decades behind that "alleged" assertion.
sophrosyne42 11mo ago
Before even railroads, the original manufactory boom that is commonly associated with the industrial revolution is the exact kind of case the other poster is alluding to when thinking of large economies of scale. I think Kolko is great to demonstrate that economies of scale aren't infinite, and in the absense of government intervention, market forces actively conspire to ensure firms shrink to their optimal size. But that also proves the flip side: firms will grow to their optimal size too. There is no economic reason to be suspicious of large firm sizes, and the political reasons inevitably hinge on some sort of mistaken assumption of the economics of the matter; anti-trust regulations advocacy is a perfect example of this.
- Animats 11mo ago
  Kolko talks about that in the context of scaling social/charitable solutions.[1] There's a cite to Marshall, who talks about it in an industrial context.[2] But Marshall wrote in the days before computers and the Internet. There was a time when big companies had enormous clerical plants and corporate headquarters operations. Some paperwork and management operations scale O(N log N) or even O(N^2). At some point, corporate overhead became too large. But we got past that. Walmart, Amazon, Samsung, McDonalds, Starbucks, Foxconn, and BYD all have hundreds of thousands, or even millions, of employees, but don't seem to be hitting scaling limits. There may be an optimal size limit, but it's above planetary scale now. Computers have made this possible. This leads to monopoly or oligopoly being reached before any natural limit to growth appears. [1] https://www.jonkolko.com/writing/notes/13 https://www.jonkolko.com/writing/notes/13 [2] https://www.ebsco.com/research-starters/economics/economies-scale https://www.ebsco.com/research-starters/economics/economies-...
  - sophrosyne42 11mo ago
    I am not convinced it is above planetary scale, nor that these are monopolies. For one thing, all the companies you named have competitors, and no company has a distribution center or restaurant in the arctic. There are plenty of other more populated areas that those companies do not serve. Administrative work still requires overhead, and the internet does not remove that burden, otherwise companies wouldn't be scrambling to invest in AI which they expect to reduce this overhead. AI wont entirely remove the administrative overhead either; there are hard economic limits to the efficiency of a bureaucracy. But more to the point, consider what you're saying. Is the world, viz-a-viz these companies/services that you refer to, worse off than before the internet? Obviously not. In fact, it is substantially better, because higher economies of scale mean mass production for mass consumption. There would be no way you and I could converse this way on our phones without the hyper extensive scaling of production caused by capitalism. This calls into question the concern over scaling. Large scaling and less firms is preferable when they perform a social function. If co-ops were replaced by big business, this is something everyone should be grateful for. To go back to the industrial revolution example, there were a form of early mutualist co-op that dominated the non-farm market in the pre-capitalist era: the guilds. And the guilds had a stranglehold on handicrafts, apprenticeships, and all manner of specialized production. In order to increase guild profits, the guilds, through their noble patrons, regulated and limited production of all kinds, who was allowed to sell their craft, and all while being worker-owned. And yet these guilds were the true monopoly: they used legal privileges granted through lobbying to the kings to limit production and raise prices. Their products were exclusively for the wealthy and privileged. On the other hand, it was the capitalists that found a loophole in this system that condemned people to poverty and starvation: the mass production with unskilled labor by manufactories. And, through the manufactory system, they smashed the guilds, producing tons of goods for the everyday man, contributing greatly to the prosperity over and above the medieval system that we see today.
rickydroll 11mo ago
I would argue that consolidation happened because rail is a capital-intensive natural monopoly. It's easy to dominate a region just by buying up lines. Smaller lines couldn't steal customers from big players because no other lines were physically able to offer the same service. Trucking is another story. There, the highways are natural monopolies, and trucks are an over-the-top service.
- sirponm 11mo ago
  [dead]

sirponm 11mo ago

Oops I forgot to respond to the other things you mentioned. That list of removed obstacles is technically correct, but it misses that those things were mostly subsidized 1. Regarding transportation, the interstate highway system and the containerization infrastructure (ports, dredging, naval security) were massive state subsidies to long-distance distribution. If Walmart had to pay the full property tax and maintenance cost of every mile of road their trucks used, their economies of scale would evaporate instantly. The state artificially lowered the cost of long distance shipping below the cost of local production. That isn't efficiency, but the taxpayer subsidizing the inefficiency of moving a toothbrush 3,000 miles. (Carson called these "diseconomies of scale") 2. The Uneeda Biscuit era of mass production created a crisis in that high fixed costs meant factories had to run 24/7 to be profitable, they couldn't wait for orders but had to force product onto the market. This required the state to intervene again via imperialism and arguably the creation of a consumer culture to absorb the surplus in the form of advertising and other means. 3. Computers are the most ironic part; Computers and CNC tools actually destroyed the rationale for the large factory, made it possible for a garage shop to produce with the same precision as a General Motors plant ("Homebrew Industrial Revolution" book by Kevin Carson again which in my mind is not one of his most defensible but it's still interesting). I would argue that IP was the main reason that small shops didn't take over. As physical capital costs dropped, the state ramped up IP laws (patents/copyrights) to protect corporate hierarchies from the decentralization computers should have caused. I think that Big Tech isn't Big because of hardware efficiency but because of the state-enforced monopoly on information

gsf_emergency_6 11mo ago
IP has subtle things going against it, which you should certainly analyze more.. eg University research teams have IP too, but no clear network effect (maybe even an anti-network effect?) To me the overall "anti-network effect" for Big Tech looks like the metatheory Krugman proposed to explain enshittification. The initial ramp up can come from proprietary code, hiring power, regulatory capture, branding, anything really, but especially a synthesis of all these https://paulkrugman.substack.com/api/v1/file/7510035f-d377-4c4b-8667-886246fbc927.pdf https://paulkrugman.substack.com/api/v1/file/7510035f-d377-4...
11mo ago