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That's the problem with central planning. When you look from the top down, every gain seems tiny. But small businesses would know if a chair was underutilized,

That's the problem with central planning. When you look from the top down, every gain seems tiny. But small businesses would know if a chair was underutilized, and it would be sold in 10 minutes; let alone a whole building. Taken over the whole economy, these efficiencies are a big deal, and arguably account for the success of market economy over centrally-planned economies.

runako 13y ago
>> small businesses would know if a chair was underutilized, and it would be sold in 10 minutes Right-O, no waste in small businesses. The smaller the business, the more efficient. Hence ever-smaller businesses are gaining a growing share of the economy. (In fact, the opposite is true.)
- jeffdavis 13y ago
  "Right-O, no waste in small businesses. The smaller the business, the more efficient." I didn't say that; no need for the sarcasm. The answer is somewhat complicated. Small businesses have an advantage because the information flow between directly involved parties and decision makers is very short; possibly the same person. They can notice an inefficiency and correct it immediately, rather than needing some kind of permission or authorization (which is inherently a slow way for information to travel because it involves other people). They can also seize opportunities quickly for the same reason (which may involve changing prices or making a non-traditional deal). Large businesses can get economies of scale, although I think these are dramatically over-emphasized. Producing one marginal unit may be cheaper up to a point, but eventually the next marginal unit becomes more costly than the last (because there becomes so much demand for the inputs that it increases the price). That's the nature of the supply curve. Often, businesses that deal in huge volumes and have great economies of scale are medium-sized or even small. Of course, there are some industries where economies of scale are crucial and only large businesses or governments can really operate efficiently. Large businesses have greater political influence and more ability to work in a regulated/political/government environment. This is perhaps their greatest advantage. I'd be interested to see the numbers you have about the share of the economy powered by small/medium businesses. Is it a long, consistent decline, or more of a local minimum?
  - runako 13y ago
    >> I didn't say that; no need for the sarcasm. Fair enough. To be fair, you did overstate the point a bit; I'm sure we will all walk into a small business today that could do with one less chair. :-) >> I'd be interested to see the numbers you have about the share of the economy powered by small/medium businesses. Is it a long, consistent decline, or more of a local minimum? There's a lot of research out there on this. I don't have the time to dig up much more than this: http://www.sba.gov/sites/default/files/rs390tot_0.pdf http://www.sba.gov/sites/default/files/rs390tot_0.pdf Note that in 12 years, small businesses lost ~6% of their GDP contribution to larger businesses (table 5). In 2010, small business share of the economy fell below 50% for the first time ever (http://www.businessweek.com/articles/2012-02-16/small-businesss-shrinking-gdp-contribution http://www.businessweek.com/articles/2012-02-16/small-busine...).
    - jeffdavis 13y ago
      Interesting, thank you. I wonder what is causing that decline? A more libertarian type might say that the increasing power of government is driving small business out through various types of intervention. Evidence would include the ever-increasing share of GDP made up by government spending. This would be countered by the fact that you can still start most kinds of businesses with remarkably little federal involvement aside from taxation. Someone more inclined toward central planning might say that the information age is making central planning more effective. Evidence would include companies like amazon that have amazing reach. That would be countered by the observation that there are still a lot of small businesses that sell through amazon and set their own prices; and amazon has many robust competitors for each product they sell.
- crusso 13y ago
  If business success were all about efficiency then you might have a point. It has a lot more to do with critical mass, especially as we make it more and more difficult to start and run small businesses through excessive regulation while favoring large campaign donors that can have legal barriers-to-entry constructed by their paid-for representatives. https://news.ycombinator.com/item?id=7390736 https://news.ycombinator.com/item?id=7390736

runako 13y ago

>> small businesses would know if a chair was underutilized, and it would be sold in 10 minutes Right-O, no waste in small businesses. The smaller the business, the more efficient. Hence ever-smaller businesses are gaining a growing share of the economy. (In fact, the opposite is true.)

jeffdavis 13y ago
"Right-O, no waste in small businesses. The smaller the business, the more efficient." I didn't say that; no need for the sarcasm. The answer is somewhat complicated. Small businesses have an advantage because the information flow between directly involved parties and decision makers is very short; possibly the same person. They can notice an inefficiency and correct it immediately, rather than needing some kind of permission or authorization (which is inherently a slow way for information to travel because it involves other people). They can also seize opportunities quickly for the same reason (which may involve changing prices or making a non-traditional deal). Large businesses can get economies of scale, although I think these are dramatically over-emphasized. Producing one marginal unit may be cheaper up to a point, but eventually the next marginal unit becomes more costly than the last (because there becomes so much demand for the inputs that it increases the price). That's the nature of the supply curve. Often, businesses that deal in huge volumes and have great economies of scale are medium-sized or even small. Of course, there are some industries where economies of scale are crucial and only large businesses or governments can really operate efficiently. Large businesses have greater political influence and more ability to work in a regulated/political/government environment. This is perhaps their greatest advantage. I'd be interested to see the numbers you have about the share of the economy powered by small/medium businesses. Is it a long, consistent decline, or more of a local minimum?
- runako 13y ago
  >> I didn't say that; no need for the sarcasm. Fair enough. To be fair, you did overstate the point a bit; I'm sure we will all walk into a small business today that could do with one less chair. :-) >> I'd be interested to see the numbers you have about the share of the economy powered by small/medium businesses. Is it a long, consistent decline, or more of a local minimum? There's a lot of research out there on this. I don't have the time to dig up much more than this: http://www.sba.gov/sites/default/files/rs390tot_0.pdf http://www.sba.gov/sites/default/files/rs390tot_0.pdf Note that in 12 years, small businesses lost ~6% of their GDP contribution to larger businesses (table 5). In 2010, small business share of the economy fell below 50% for the first time ever (http://www.businessweek.com/articles/2012-02-16/small-businesss-shrinking-gdp-contribution http://www.businessweek.com/articles/2012-02-16/small-busine...).
  - jeffdavis 13y ago
    Interesting, thank you. I wonder what is causing that decline? A more libertarian type might say that the increasing power of government is driving small business out through various types of intervention. Evidence would include the ever-increasing share of GDP made up by government spending. This would be countered by the fact that you can still start most kinds of businesses with remarkably little federal involvement aside from taxation. Someone more inclined toward central planning might say that the information age is making central planning more effective. Evidence would include companies like amazon that have amazing reach. That would be countered by the observation that there are still a lot of small businesses that sell through amazon and set their own prices; and amazon has many robust competitors for each product they sell.
crusso 13y ago
If business success were all about efficiency then you might have a point. It has a lot more to do with critical mass, especially as we make it more and more difficult to start and run small businesses through excessive regulation while favoring large campaign donors that can have legal barriers-to-entry constructed by their paid-for representatives. https://news.ycombinator.com/item?id=7390736 https://news.ycombinator.com/item?id=7390736