Economies of Scale and Diminishing Marginal Return

In summary, economies of scale and specialization of labor have led to economic efficiencies in recent years, with improvements in finance, manufacturing, and science making Malthus's warnings seem implausible. However, as the supply of labor increases, there may be a synergistic effect on productivity that overcomes the law of diminishing returns. Nevertheless, as corporations become larger and more complex, they become harder to manage and hinder flexibility in the economy. The outdated educational model and increasing costs of living in densely populated urban areas also contribute to diminishing marginal returns. To counter this, it is necessary to rethink economic systems such as corporate government, education, housing, and transportation. The social problems of anomie and alienation resulting from increasing complexity and separation in supply chains
  • #1
John Creighto
495
2
Much recent economic efficiencies have come from economies of scale and specialization of labour.

Some 19th-century economists[who?] believed that improvements in finance, manufacturing and science rendered some of Malthus's warnings implausible. They had in mind the division and specialization of labour, increased capital investment, and increased productivity of the land due to the introduction of science into agriculture (note the experiments of Justus Liebig and of Sir John Bennet Lawes). Even in the absence of improvement in technology or of increase of capital equipment, an increased supply of labour may have a synergistic effect on productivity that overcomes the law of diminishing returns. As American land-economist Henry George observed with characteristic piquancy in dismissing Malthus: "Both the jayhawk and the man eat chickens; but the more jayhawks, the fewer chickens, while the more men, the more chickens." In the 20th century, those who regarded Malthus as a failed prophet of doom included an editor of Nature, John Maddox.[57]
http://en.wikipedia.org/wiki/Thomas_Robert_Malthus

but at what point is there diminishing marginal return. The more people we have the more tasks can be broken down into smaller and smaller units. Engineering goes from becoming a craft to an intellectual production job by automating it though work processes. This drains the creativity out of engineering until it becomes a soulless cog in the corporate machine. But the corporate machine is an artifact of the past. The more complex the work process become and the interfaces between disciplines there are, the more disconnected the people at the top become with what people do on the ground floor.

When corporations become too large, the job of the person at the top becomes less and less about making specific business and design decisions and becomes more about managing the culture which fosters the success of the company. A corporation becomes a cultural entity who's success is dependent upon not only the fundamentals of it's business but also on how well the corporate culture adapts to the technical and market realities. When this culture fails to promote good decisions the corporation fails and some times with drastic consequences that extend well beyond the company itself.

Corporate cultures are directed from the top down but at each level, from management to the ground floor their is further direction and a unique response. These responses aren't always positive. All companies have a cultural momentum and trying to change company culture to quickly can foster negative attitudes which will hinder the success of the company. Hence, to some extent corporations are inflexible and slow to adapt.

Cultural change often comes though fads. Fads are ideas which quickly propagate. Successful fads often provide people with what they think are easy answers and they are believable because they have sufficient commonality with the ideology of the social groups though which the fads propagate. Corporations embrace the fads as the new paradigms of success. Well a fad may embody some collective wisdom, it can also embody collective myths. Fads hider flexibility because they are bound to much common ideology. Additional because fads often oversimplify complex problems when taken to the absurd can have drastic results where people forgo common sense choices in the name of strictly following corporate policies and ideology.

Therefore while larger and larger corporations can better tackle larger enterprises by greater specialization and division of labour as their size increases they become harder and harder to mange, more ridged and slower to adapt. Large inflexible entities are the opposite of what we want in an adaptive innovative economy. Not only do these corporations hinder flexibility though their size but they create large barriers to entry for enterprises which are capital intensive.

There will become a point where this top down style of corporate government will become too unwieldy to handle the scale of future enterprises. Corporation size is not the only bottleneck to future productivity. Our educational model is severely outdated as well. We still heavily promote the institutions of university which are based on giving a broad educational foundation. This approach may help to provide innovation but it does not make people immediately useful in the highly specialized corporate world and this education comes to both students and governments at a great cost.

Additionally, greater specialization and division of labour requires people living at more and more densely populated urban environments. As people cram tighter and tighter into these areas the cost of living continues to increase and consequently the value of the specialized labour must also increase in proportion to avoid diminishing return. These increased costs are the cost of transportation, housing food and entertainment.

In conclusion, in order to counter the the diminishing marginal return of economies of scale it is necessary to rethink many of our economic systems. The systems we must rethink include corporate government, education, housing and transportation.
 
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  • #2
The problem isn't that marginal returns are going to diminish at some level of production. It is that the complexity of specialization and division becomes itself an increasing proportion of the drain on energy and other resources. Additionally, because increasing economies of scale makes it possible to produce greater quantities of more commodities, the complexity of everyday life and consumption increases, which propels the profit industry by always producing more scarcity - but the big picture is that enormous amounts of natural resources and energy are being used and individuals and systems are becoming increasingly interdependent on processes beyond their control.

The social problems of anomie and alienation that result from increasing complexity and increasing separation between nodes in supply chains should be a greater concern than Malthusian catastrophe. The economy destroys itself by engaging in a war of profit competition where any number of industries/businesses has sufficient control over certain nodes in various supply chains or everyday consumption to squeeze everyone else's budgets by demanding an ever-increasing share of GDP. Natural resource shortages are not strangling anyone but rather people are strangling each other in competition for the dream of controlling scarcity that no longer exists.

The scarcity that does exist is nothing more than a product of people trying to buy their freedom to get out of a rat race whose goal is to keep people working as long as possible in order to control them and create a collective culture of work that ensures an ample supply of services for people who no longer can imagine service-independence because they have come to take service-utilization as nothing less than a need and a lifestyle of constant consumption.

The old prediction that automation and industrial efficiency would result in the need to create arbitrary tasks to keep people busy has come true. Only instead of it being obviously useless tasks like one crew digging holes while another comes behind them to fill the holes in, it is instead a culture of short-lived fads and constant consumption of elaborate goods and services that waste labor and resources and keep people working on the next thing. The ability to let go of rationality and perform tasks independently of evaluation of their relative necessity or efficiency becomes a source of sanity. Only the solace found in conforming to various cultures of irrationality results in a docility of mind that makes people ripe for exploitation, which results in widespread cultures of abuse and corruption - most of which go unchallenged because they succeed by garnering widespread support on the basis of nothing more than fear to question what is popular.
 
  • #3
brainstorm said:
The old prediction that automation and industrial efficiency would result in the need to create arbitrary tasks to keep people busy has come true. Only instead of it being obviously useless tasks like one crew digging holes while another comes behind them to fill the holes in, it is instead a culture of short-lived fads and constant consumption of elaborate goods and services that waste labor and resources and keep people working on the next thing. The ability to let go of rationality and perform tasks independently of evaluation of their relative necessity or efficiency becomes a source of sanity. Only the solace found in conforming to various cultures of irrationality results in a docility of mind that makes people ripe for exploitation, which results in widespread cultures of abuse and corruption - most of which go unchallenged because they succeed by garnering widespread support on the basis of nothing more than fear to question what is popular.

What are you saying...that people don't need to wait in a line for the new i-phone or x-box? :eek: (not that I actually own either)
 
  • #4
John Creighto said:
What are you saying...that people don't need to wait in a line for the new i-phone or x-box? :eek: (not that I actually own either)

I'm not even talking about that superficial level of popularity. I mean more going along with every form of culture generally without evaluating the rationality of it in a general way. It's like when you're wasting loads of time and often gas going around to get different documents and fill in various forms as pre-requisites for some overly elaborate bureaucratic procedure, and you don't even think twice. Worse yet, people probably celebrate the amount of hoop-jumping required as a means to stimulate economic growth. Creating arbitrary work so more people can have more arbitrary jobs doing it to make more arbitrary income to consume arbitrary faddish material fixes, which in turn has the purpose of further stimulating more economic growth. And then, if this wasn't insane enough, people have to fight with and squeeze each other in a competition for who can get more and force others to take less. It's Sadomasochism in the non-sexual sense.
 
  • #5
In order to continue to innovate and improve our economies, we must find a balance between specialization and flexibility, as well as create systems that are adaptable to changing circumstances and promote individual creativity and productivity.
 

Related to Economies of Scale and Diminishing Marginal Return

1. What are economies of scale?

Economies of scale refer to the cost advantages that a company or organization can achieve when it increases its production or output. This means that as the scale of production increases, the cost per unit of output decreases. This can be due to a variety of factors, including the ability to negotiate better deals with suppliers, increased efficiency in production processes, and spreading fixed costs over a larger volume of output.

2. How do economies of scale affect a company's profitability?

Economies of scale can have a significant impact on a company's profitability. As the cost per unit of output decreases, the company can either maintain the same price and increase its profit margin, or it can lower its prices and attract more customers, leading to increased sales and profits. Additionally, economies of scale can also allow a company to invest in new technologies or expand into new markets, further driving profitability.

3. What is the relationship between economies of scale and diminishing marginal returns?

Diminishing marginal returns refer to the concept that as a company increases its input or output, the marginal benefit or return decreases. This means that there comes a point where the cost of producing additional units outweighs the benefits. Economies of scale can be seen as the opposite of this, as they allow for a decrease in average cost per unit as output increases. However, at a certain point, the benefits of economies of scale may begin to diminish, and the company may experience diminishing marginal returns.

4. How can companies achieve economies of scale?

There are several ways that companies can achieve economies of scale. One way is by investing in new technologies or equipment that can increase production efficiency and reduce costs. Another way is by expanding operations and increasing the volume of output, which can help spread fixed costs over a larger production volume. Additionally, companies can negotiate better deals with suppliers or streamline their supply chain to reduce costs.

5. What are the potential drawbacks of economies of scale?

While economies of scale can provide many benefits to a company, there are also potential drawbacks to consider. One potential drawback is the risk of overproduction, which can lead to excess inventory and storage costs. Additionally, as a company increases its scale, it may become more difficult to manage and control operations, leading to potential inefficiencies. Finally, economies of scale can also make it difficult for smaller companies to compete, potentially leading to market monopolies.

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