Tuesday, April 14, 2009

Economies of Scale (oranges)

We use the term "economies of scale" to extol the benefits of large corporations. If I want to be an orange salesman, it is theoretically better for me to be able to buy and sell many oranges, especially if selling oranges requires special knowledge or equipment. If it costs $10,000 dollars to buy one orange picking machine, then only people that grow and sell lots of oranges will be able to afford it. If you can buy two machines for $18,000 or three for $25,000, etc., then it makes economic sense that the work of orange selling should remain with those who can afford many groves and many machines. Ditto if you pay labor to pick your oranges. If you only have one picker, you've got to treat him well. After all, this guy knows a little something about the orange business and you develop a close relationship with him since he's you're only picker. Throw a few of his friends in there and the costs per picker drop. After all, these pickers may not know as much about the art of orange picking and as their numbers increase they become more expendable. You can pay them less and devote less attention to each. If one drops by the wayside, it is no matter. 1 of 100 is only 1%, 1 of a 1000 only 0.1%.

If the economic logic is followed, then oranges should be picked by those with the money for large monotonous groves and expensive machines and access to cheap, fungible labor. This helps us all. The pie is bigger. We have specialized orange production, so now oranges are cheaper for everyone and everyone who is not growing oranges can spend their time specializing in some other task. In short, the term "economies of scale" indicates that economies improve when the scale is greater.

We must ask ourselves, however, which economies are we measuring? What scale matters?

If the foremost goal of humanity is indeed to increase the mythical pie of economy, then by all means, we should scale until we can scale no more. Bigger government, bigger business, bigger banks. The more we take advantage of economies of scale, the better off all will be.

But is that true? If the mythical pie is increased does this necessarily mean all are better off? And how do we measure this anyway? By mean income? Median income? Access to health care? Average life span? Happiness surveys?

Realities are dependent on the scale in which we conceive them. If we are constantly focused on the so-called greater good of growth growth growth and economies of scale, we lose sight of the economies on the ground level--the economic relationships between and among people. That is what we are after all: people.

Try looking at the world from a bird's-eye view. Or a nation or a state, even a city. Can you see much about the way people really live? The waking and the sleeping, the eating and the relieving, the enthusiastic desire to improve life or the apathy of hopelessness. The human being must be our greatest untapped resource. We have spent so long with our heads in the sky or comparing numbers on a spreadsheet that we have lost sight of this. Perhaps it is time to readjust our scale and decide just what it is we mean to measure. Time to break the soil and plant our own orange trees.

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