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News & ArtsThursday, December 15, 2011
Economy The Importance of Bigness
Posted by Charles Mudede on Thu, Dec 15, 2011 at 7:55 AM
One of the things I'm going to repeatedly post about next year is the importance of bigness. I feel we live in era that sees big things (banks, industry, corporations, government) as bad. Smallness is viewed and championed as the ideal state that an entity should be. Smallness is more down-to-earth, more communal, more Main Street. Big is bad old Wall Street. But here is the problem with this thinking: Nothing serious can be done without bigness. For one, bigness has a wealth of what the economist Ha-Joon Chang calls "institutional memory." This is why a small firm or enterprise in the Third World cannot compete with a corporation like Boeing—its memory is too tiny. A developing country will never fully develop if its memories are small. Bigness is ultimately about cooperation, and cooperation (coordinated by central planning) is much more useful and social than scattered networks.
Before I go any deeper into this, lets dip into this passage from a wonderful essay by Matthew Stadler, "I Think I'm Dumb."
I THOUGHT THE Rem Koolhaas manifesto 'Bigness' was not only intriguing and infuriating, but also would likely be common-ground for everyone involved with the 'Bliss' conference. My notes on the manifesto were as follows: First I wrote, 'I live next to the biggest building in the world' which is true, and I'll make a drawing of it here so you can see how huge it is. It's about thirty miles from my home in Seattle. I'm not sure how they calculate its bigness, I think it's the cubic footage inside, but there are postcards all over Seattle and Everett, the city where this building is, saying that it's the biggest. It's part of Boeing's factory for making airplanes. It really is huge, and thirty miles isn't far from my house, because the freeway goes there directly. Everett is actually a kind-of northern extension of Seattle, I mean it's hard to tell where one ends and the next one starts.This is just beginning.
1
Bigness at its best can lead to a willingness to part with small things, and a good sort of pride that says, 'We are too large and successful to tolerate this kind of pettiness, nor have any excuse to do so.'
2
"This is why a small firm or enterprise in the Third World cannot compete with a corporation like Boeing—its memory is too tiny. "
Man, with these kinds of analytical thoughts, you missed your calling as an investment researcher.
Man, with these kinds of analytical thoughts, you missed your calling as an investment researcher.
3
Good Morning Charles,
Wasn't it E. F. Schumacher that remarked "Small is beautiful"?
I don't have a problem with Bigness being inportant. But "smallness" has great value too. I don't see either as inexorable economically. I do believe in necessary changes to capitalism. Yes, excess should be reigned in. On the other hand, ALL should see the big picture but ALL should dwell on the small as well. It's tricky. After all "Less is more". :)
BTW, I recommend Milan Kundera's "Smallness". It's novel I read many years ago.
Wasn't it E. F. Schumacher that remarked "Small is beautiful"?
I don't have a problem with Bigness being inportant. But "smallness" has great value too. I don't see either as inexorable economically. I do believe in necessary changes to capitalism. Yes, excess should be reigned in. On the other hand, ALL should see the big picture but ALL should dwell on the small as well. It's tricky. After all "Less is more". :)
BTW, I recommend Milan Kundera's "Smallness". It's novel I read many years ago.
5
If a little bit of big is good, then a whole lot of bigness must be even better, right?
It's hard to reduce this point such that it's useful for more mass media consumption, but the reality is that there is an optimal point of bigness beyond which greater bigness does more harm than good.
Sure, "more harm than good" is a subjective standard. Or, more specifically, a subjective mix of quantifiable values (price/cost, profit, quality, innovation, functionality, risk, safety, etc.)
Are corporations (ie, "bigness") good? Yes. They're responsible for enormous gains in living standards. Often, there is added utility from greater bigness.
The tipping point beyond which greater bigness is a negative is in proportion to the complexity of it's product or service?
Large passenger aircrafts? Yeah, there's probably only room for 2 or 3 global competitors. Airlines, media corporations, and banks have all probably consolidated into bigness beyond which is optimal.
So, when people talk about "smallness". In practice, what they're really talking about is a pushing back on an industry that's beyond it's optimal "bigness point".
It's hard to reduce this point such that it's useful for more mass media consumption, but the reality is that there is an optimal point of bigness beyond which greater bigness does more harm than good.
Sure, "more harm than good" is a subjective standard. Or, more specifically, a subjective mix of quantifiable values (price/cost, profit, quality, innovation, functionality, risk, safety, etc.)
Are corporations (ie, "bigness") good? Yes. They're responsible for enormous gains in living standards. Often, there is added utility from greater bigness.
The tipping point beyond which greater bigness is a negative is in proportion to the complexity of it's product or service?
Large passenger aircrafts? Yeah, there's probably only room for 2 or 3 global competitors. Airlines, media corporations, and banks have all probably consolidated into bigness beyond which is optimal.
So, when people talk about "smallness". In practice, what they're really talking about is a pushing back on an industry that's beyond it's optimal "bigness point".
6
Lovely essay, but it seems that if you are aligned with this thinking you must forget your hatred of cars. As he says, a car is simply another place that consumes energy to perform its purpose, in which good and bad things happen. That it's a mobile and not a stationary place is irrelevant.
7
Right. And that would be why Microsoft developed the newest, best, and most popular products over the past 15 years and small startups got no traction, I assume?...
Big things have inertia, Charles. They don't adapt easily. And we live in a dynamic world. Which is why big institutions seem stagnant, inflexible, and stuck in the past: they are.
Big things have inertia, Charles. They don't adapt easily. And we live in a dynamic world. Which is why big institutions seem stagnant, inflexible, and stuck in the past: they are.
8
@5 For efficiency's sake there should only be one airplane producer, The People's Air Works. The banking systems will be unnecessary for money, but the purchase tracking ability of the credit system will morph into supplying needs before they are recognized.
9
@8 The closest thing to The People's Air Works is otherwise known as Airbus, which regularly has its ass handed to it by Boeing. Alas, Airbus provides an effective competitive counterbalance to Boeing. Who knows, there might one day be a Chinese counterpart to that equation.
11
Charles
I look forward to this, and to responding with at least one post referencing Jane Jacobs and her insight that Bigness (large cities) enables littleness (small groups and their interests can thrive only due to the bigness that surrounds them).
Bill
I look forward to this, and to responding with at least one post referencing Jane Jacobs and her insight that Bigness (large cities) enables littleness (small groups and their interests can thrive only due to the bigness that surrounds them).
Bill
16
No entity should ever be so large that a single person can't understand fairly easily. If that ever happens, it should be a collection of smaller things guided but not controlled by a bigger thing.
Big isn't the enemy. Complex is.
Examples:
1. International Engineering Firm. Each city is run as an individual company. Corporate office exists only to handle identical tasks among offices - say, CAD standards, the financial department, etc. The top level can easily be understood, the bottom level can each individually be easily understood. The benefit of large is some cost savings from reducing redundancy, but also from shifting work around. When a single city goes through a slow point, in the short term work can be shifted from other cities that have too much work. This works.
2. Most Massive Companies. Shareholders don't understand much of what happens inside of a company. They tell executives what to do. Executives don't understand much of what happens in the actual factories. They make big decisions that affect everybody based on what their shareholders want. Managers of factories don't understand the reasons for executive decisions, and do their best to meet mandates from up high. Factory workers that do understand their trade are pissed on by everyone and do their best not to be crushed by rolling waves of power from up high. This does not work.
Big isn't the enemy. Complex is.
Examples:
1. International Engineering Firm. Each city is run as an individual company. Corporate office exists only to handle identical tasks among offices - say, CAD standards, the financial department, etc. The top level can easily be understood, the bottom level can each individually be easily understood. The benefit of large is some cost savings from reducing redundancy, but also from shifting work around. When a single city goes through a slow point, in the short term work can be shifted from other cities that have too much work. This works.
2. Most Massive Companies. Shareholders don't understand much of what happens inside of a company. They tell executives what to do. Executives don't understand much of what happens in the actual factories. They make big decisions that affect everybody based on what their shareholders want. Managers of factories don't understand the reasons for executive decisions, and do their best to meet mandates from up high. Factory workers that do understand their trade are pissed on by everyone and do their best not to be crushed by rolling waves of power from up high. This does not work.
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