Sunday, October 16, 2005

Anti-Economies

It's economics 101: Economy of Place and Economy of Scale are the driving forces behind our global economy. But are there opposing economies to each of these fundamental forces? Hey, anything's possible. Imagine a world far, far away, before people knew about positrons...

Economy of place is the concept that some things are more efficiently done in certain places--to use the classic example, it would be just plain silly for to try to grow grapes for Port in dreary England when they grow so nicely in Portugal. Lumber is more ripe for the logging in Oregon than it is in Kansas. So what's the "anti-economy of place?" Well, that would be the Economies of Independence and Diversity.

Economy of scale is the concept that it is more efficient to do lots of one thing rather than trying to do a little of everything. You can specialize and stratify and apply all kinds of fun economic terminology, but bottom line is, if all you do all day is draw out wire into push-pins, you're going to get pretty good at it. But if you only had to draw out wire into a push-pin when you need a push-pin (can't remember the last time that happened to me), you will probably be very slow and inefficient in their manufacture. This is economy of scale--and it applies even better to things like microprocessors and flu vaccines than push pins. So what's the "anti-economy of scale?" That would be the Economies of Simplicity and Ontogeny.

Economy of Independence: There is a certain, undeniable efficiency of not depending on things beyond your control. If Lampedusa's primary economic product is capers, and if they depend on a strong market for capers to be able to purchase other fundamentals like food, clothing, shelter, etc., then they may reap the advantage of economy of scale, but they certainly also incur the disadvantage of diseconomy of dependence. Their prosperity--that is, the value of their economy of scale production--is dependent on the fickle demand for their one product. In addition, the diseconomy of dependence also demands that they incur increasing transaction costs for all the products that they must import...

Economy of Diversity: There is also a certain, undeniable efficiency found in diversity. No two environments are the same, no two sets of initial conditions are the same, and therefore there is no single solution to these diverse problems. While paying an architect to produce just one home design and then duplicating that design across endless tracts of land is efficient due to economy of scale, it is also inefficient due to failure to exploit economy of diversity. Every home site is slightly different, with different sun exposure, microclime, prevailing winds, views, etc. Not to mention that every occupant has different needs. The efficiency of designing each home to meet the exact demands of its site and occupant is an example of economy of diversity.

Economy of Simplicity: Economy of place and scale create massive information processing burdens--that is, the burden to coordinate the production of specialized elements (economy of scale) and distant elements (economy of place). The larger the hierarchal organization, the greater the percentage of its effort that must be dedicated to internal information process, command and control, etc. While small localized production faces diseconomies of place and scale, it also reaps economy of simplicity: One guy going out to check his chickens doesn't have to allocate much of his time to HR concerns, vision statements, planning meetings, etc. He just goes out and checks his chickens. So while his time may be less efficiently spent, he spends nearly 100% of his time on that task. In a major corporation, let's say Tyson, a significant portion of their cumulative time is spent on tasks other than their direct production of chickens.

Economy of Ontogeny: Finally, while spending your entire life attaching button B to sleve hole A may be amazingly efficient from the perspective of economy of scale, it isn't exactly fulfilling. It might even make you go insane. This isn't just whining--our genetic ontogeny creates certain inflexible limits on the tolerances of human activity. These limits are murky and far-reaching, but one pretty clear example is that a person who gets to make an entire shirt will enjoy better mental health than someone who just attaches button B--and from a purely economic standpoint, that superior mental health makes them a more efficient, more reliable, longer lasting human asset. It may seem like an insensitive analysis, but the point is actually quite humane: keeping people happy will also make them more economically efficient. So even if it comes at the cost of economy of scale, economy of ontogeny may be worth the cost...

The bottom line here is that there are very real diseconomies intractible to the "standard" economies of scale and place. I certainly don't have hard numbers to prove that one outweighs the other, but it is at least a starting point to recognize that there is a coutner-weight--something that is normally ignored. It's great to buy organic produce and socially responsible mutual funds, but until "normal" economists are convinced that it actually makes more sense to be less hierarchal--with less narrowminded focus on economy of place and scale--it will be difficult to affect any real change in our economy of hierarchy...

4 comments:

Christopher said...

Jeff,

LOL... Do "people" even listen to "normal" economists? How many financial institutions and business enterprises contribute to a potential economic policy based upon game theory? I'd be willing to hazard a guess...

Are most entrepreneurs interested in building a sustainable economy founded upon principles anchored in basic human well-being? Are most economists, for that matter? Are most human beings?

Human greed is an accretion of ignorance and hopelessness, systemized and bureaucratized, which allows those at the pinnacle of this hierarchy of wage-masters/slaves, to spend their lives in relative luxury. Greed is a meta-narrative, a meme of staggering proportions, with roots buried deep within the human animal. I do not think it will ever be completely destroyed. That being said, I feel that greed can be harnessed to propel this ship of fools farther on its way. I am not cynical. I love humanity and I love life. However, if it isn’t money that people want more of, then it’s realization or enlightenment. We can not escape the drive to be, always becoming other than that which we were.

As trees grow so will hierarchies. As grass grows so will rhizome. There is a war waged within that is not meant to be won, only appreciated. Once truly appreciated it is ancient history. We are all fighting ancient history.

ARE YOU READY TO RUMBLE?!!!

Thanks. I just needed to rant. Maybe there’s a moral in there somewhere. I don’t know.

I read your posts regularly and I am always interested in reading more. Thanks for all your hard work.

Christopher

Adam said...

hey jeff - thanks for another interesting and thoughtful post. I took an engineering degree and barely needed an English course much less something as irony tower as an economics course save for a vapid treatment of 10 year payback in plant design but that is not the point. have you looked into any of the efforts out there looking into ways to evolve the analysis past the balance sheet? here is one that I found quickly - http://www.globalpolicy.org/socecon/develop/happy.htm

also, if you have any accessible info on price of retail energy versus wholesale, I would love to hear your thoughts(e.g. crude oil costs versus price at the pump).

anyway, I also really enjoyed the fisking of "anonymous" as it related to the chavez post! see you next time in portland...adam

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