[Dis]Economies of Scale and the Future

Many long years ago, a political science professor educated me to the law he termed the “revolution of rising aspirations.” By that, he meant that once people learned what was possible, they always wanted more. Once they had a bicycle, so to speak, they wanted a motor scooter, and then a car, and then two. The downside of rising aspirations is that, being aspirations, they’re insatiable. No matter how much most people have, they always aspire to more.

This tends to create problems in a modern industrial society, especially when combined with a mass-production society and “economies of scale,” where the more of a good is produced, the lower the unit cost [up to the limit of the equipment], and the more profit per unit [again, up to the limit of the equipment and assuming you can sell that many]. This structure leads to decisions that are often uneconomic for society as a whole as well as inappropriate.

Take hamburgers. A fast food restaurant must pay for the building, the equipment, the insurance, and the staff before it sells a single hamburger. And there’s very little difference in staff time and effort between creating a single patty hamburger and a triple colossal cheeseburger deluxe. Likewise the difference in the costs of ingredients is not nearly so great as the difference in the prices that the restaurant can charge. So… in terms of profits and pricing, the restaurant has every incentive possible to maximize the sale of its most expensive — and most caloric — burgers. Is this to the advantage of the health of the consumer? Is it the best use of resources overall for society? I’d say not, but it does maximize profits, and that’s the bottom line.

Now… apply that same model to automobiles. For years, everyone associated with the automotive field has known that “big” cars and SUVs had sometimes twice the profit of smaller and more efficient automobiles. Americans could get “more car for each dollar” spent on a large vehicle, and so long as fuel prices stayed low, the operational costs didn’t dissuade them, and the automakers made higher profits. As a practical matter, not everyone needs a three-ton SUV to commute one person to work, but the short-term profit motive, low gasoline prices, and production economies of scale resulted in American manufacturers concentrating on “big” cars. Then when the 1970s gasoline crunch and high prices came along, they were anything but prepared… and they lost market share, most of which they never regained even when big cars became popular again. Now, with the latest gas crunch, the gas-guzzlers are sitting on the dealer lots, and Ford has posted a quarterly loss of close to nine billion dollars, and Toyota looks poised to become the largest automobile manufacturer in the world.

Because people aspire to more, they want bigger hamburgers, bigger or more luxurious vehicles, and since bigger is easier and more profitable in an “industrial” economy than truly better or what is appropriate, more and more resources get wasted, because “economies of scale” don’t allow for great diversification. Yes, you can get a car in a range of colors, and trims, and limited and set accessories. Try getting a four-door, four-wheel drive, fuel-efficient, moderate-sized SUV with a stick shift. You can’t, not in the good old USA. That’s because economies of scale aren’t all that economical in meeting anything more than cosmetic ranges of choice. They’re a form of one-size-fits-all with cosmetic cover, and that’s not suitable for the future.

Why? Because over time, one size does not fit all needs and requirements — except maximizing profits. It’s also wasteful and inefficient in terms of resources, and those who espouse the approach are ignoring the growing problems facing the world today created by the unrecognized conflict between “economies of scale,” the revolution of rising aspirations, and the law of appropriateness.

For years, my wife has been irritated with various educational bureaucrats and politicians who mandate broad and sweeping policies and laws that are highly inappropriate to what she does. I’ve seen the same thing occur time and time again in environmental and economic regulations and in corporate planning. And most of it arises from trying to fit everything into the same mold, or as my wife puts it, failing to understand that “one size does not fit all.”

When an educational bureaucrat decrees that all classes taught in a university must have the same cost/credit hour efficiency, he demonstrates that fallacy of assuming one size fits all. Science classes need more equipment, and that’s more costly per credit hour than lecture classes in literature or economics or political science… or business. Many music classes require one-on-one instruction. They can’t be taught effectively any other way, and that’s “inefficient” because it doesn’t fit the old industrial/business model of economies of scale.

In nature, evolution has demonstrated over millions of years that there is an “appropriate” size for every ecological niche. If a predator gets too big for its prey, it becomes extinct. Prey that’s too large or too slow does as well. In nature, one size does not fit all, nor do aspirations that exceed one’s abilities.

Those are lessons that an intelligent species should learn, but will we?