Economies of scale surd

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With the price of oil going up, we’re starting to hear the familiar refrain about the evils of  “big oil“. It’s a relief from hearing about “big banks” and, during the health care debates, “big pharma” and “big insurance”. Of course, there’s always “big retail” (Wal*Mart) waiting to be the object of derision. I guess we don’t like “big”, except maybe “big government“.

It’s true that big institutions can cause big problems. It’s also true that, inside these big institutions, some people can enrich themselves unfairly. And we feel pretty powerless in the presence of “big whatever”.

But big institutions aren’t the product of some evil genius. They evolved over time, and for a very simple reasons. Some tasks absolutely require big institutions – think of building passenger jets. Other tasks benefit from economies of scale. Wal*Mart keeps consumer prices low. Exxon keeps the price of oil (and plastic and lots of other things) lower than they could otherwise be. Big pharma is necessary if we want miracle drugs. Big banks? I’m not so sure, but I bet we’d miss them if they disappeared and have a pain in our wallets.

There’s a lot of good that comes from being big. There are problems too, but the problems are easier to see than the benefits. We could limit the size of big institutions, but we’d almost certainly lower our standard of living. I’m not saying that bigger is always better, but when we start to rant about the problems caused by bigness, we should also consider the problems solved by bigness.


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