Economy of Scale - Failed

[LeftHander]

Economy of Scale is like a ponzi scheme. Consumers keep putting investments into giant retailers, mortgage and investment banks, food producers, autos etc...and the money they spent appears at first glance to have a adequate return. We get surprising levels of luxury, technology and quality on the cheap.

But now we see that the ponzi scheme fell apart and that the alleged profit wasn't really there once the debt was added up. The over expansion of retail giants, the consolidation of banking into major "too big to fail" national banks have all reached the limit.

Economy of Scale is not sustainable and above all it is an oxymoron. Economy used to indicate small and efficient, now it is equated with large centralized distribution and manufacture with purchasing power of volume. What it is did was devalued the wholesale market and puffed up profit. Businesses were hungry for moving millions of dollars of cash into investment vehicles rather than returning that investment to the local community like a small business would.

Economy of scale has failed not only on it not being sustainable but it failed our society and culture. We have been homogenized and given less choice...goods come streaming from a handful of overseas producers.

It has come to an end. Only the small will survive Great Depression II. If you want to invest in rescuing the banks and businesses then they should be broken up into smaller units. Because economy of scale suffers diminishing returns the larger it gets until a single point of failure can cause disaster.

[Skink]

1. Henry Ford understood capitalism.

Perhaps nationaization/socialism should be the norm for the coming decades. This time the punch bowl must be taken away for some time. Not jsut until another bubble can be found.

[LeftHander]

2. I think we popped the last bubble....

Real Estate...the greedy, bigger is better mentality ruined it.

[goforit]

3. These monopolies need to be broken up.

[readmoreoften]

10. By who?

Politicians who get funded by monopolies? Hmmm. Capitalism pretty much interferes with democracy once it reaches a certain point.

[BuyingThyme]

4. From where are you getting "Economy of Scale"?

[LeftHander]

5. Economics....

Pretty common phrase....

http://en.wikipedia.org/wiki/Economies_of_scale

People will have a hard time accepting my statement that this method ultimately leads to failure.

[BuyingThyme]

6. Economies of scale is not a method.

It's simply the reality that the per-widget cost of producing widgets is cheaper when you produce more than one.

[anigbrowl]

11. Yes...because your statement makes no sense

Economies of scale don't lead to failure, they just describe how your costs vary with scale. Mindlessly growing your operations can lead to failure, because economies of scale are not the sole determinant of business success. I see what you're trying to say, but you went sort of overboard in saying it.

Big is not always beautiful, but neither is small: for example, if you're developing a piece of technology, your development costs are likely just as high for a small volume of production as for a large one, so you'll have to price the product higher to become profitable, and maybe lose sales to a similar but cheaper product that was produced on a larger scale.

[ljm2002]

7. I think economies of scale are real...

...but I also think the idea is taken too far, and extrapolated to mean "economies of scale" == "bigger is always better".

The fact is, beyond a certain size, the economies of scale give way to the burdens of bigness. The operation becomes more complex and harder to manage. When an operation gets big enough, it is hard to find any one person who is minding the store -- all the executives are out for themselves. In the case of large financial companies, bigness becomes an end in itself.

So while the idea has some merit, it needs to be examined for each case, not taken as a given that "bigger == better".

IMO.

[LeftHander]

8. Certainly true....but in some respects do we need it?

If something costs a little more or provides less profit for a business is this not better than failure?

I think key too is your point that execs are too often making the decisions with themselves and shareholders in mind first...rather than the overall health and viability of a company.

People who lead that have masses of wealth will make decisions to mass more wealth.

So they took perfectly capable solid companies and mangled them into 1/4ly profit machines with no vision.

[ljm2002]

9. I agree with your basic point...

...that old "economies of scale" canard is pulled out in all sorts of situations where it really means "the bigger we get, the better it is due to economies of scale".

Whereas the reality is, there are limits to economies of scale, beyond which you really see dis-economies of scale: more complexity and bloated management layers and administrative costs.

I think there is probably an ideal scale for different sectors. Certainly, an automobile manufacturer is not going to be successful at too small a size. But on the other hand, if they become too large, then other factors come into play and efficiency suffers.

What we have now, though, is huge corporate interests trying to convince us that "bigger" is synonymous with "economies of scale". And that is simply wrong. In general, I think that we should not have so many huge behemoths, that it tends to squash innovation, homogenize everything, and feed into a system that has us flying vegetables halfway around the world just because we can. But I digress... :-)