TALES OF OUR TIMES: What Decides How Big Is Best?

Tales of Our Times
New Mexico Citizens
for Clean Air & Water

What Decides How Big Is Best?

The environment, which is everything on Earth, constantly struggles to find the right size for a system. A “system” means a set of parts that must work together as conditions change. The system could be a live animal, a corporation, an agency or a jurisdiction.
Systems have been tried in a wide range of sizes.  

Nature tried dinosaurs in different sizes. The pterosaur, a flying relative of dinosaurs, had a wingspan of 18 meters (60 ft.). By contrast, the wingspan of the World War II British Spitfire aircraft was only 11 meters.

The pterosaur, a.k.a. pterodactyl, is no longer found gliding and hopping about. It did not work so well in the scheme of things. Smaller species do better in a wider range of flying conditions.

Look at corporations. What is the right size for a corporation?

One cryptic answer is, as large as people and their methods can manage. Systems smaller than this can profit from getting larger. The principle at work is the “economy of scale.”    

Economies of scale are why decent diapers cost less at Wal-Mart than at a gas station.

Few people could afford a car until Henry Ford made lots of identical vehicles. TVs and cell phones grew the same way.

Economies of scale and more options help explain why the U.S. economy, even in downturns, works better than most others.

People and tools able to manage a large system make the U.S. food supply more dependable than the output of small systems, such as Somalia’s.

No size, large or small, works without flaw and good systems do not stay good by themselves. They always need attention, repairs and upgrades. In a word, they need constant managing.

People manage large systems the only way we know how, that is, by splitting up the areas of focus. This results in compartmentalized “silos,” also called “stovepipes.” The roguish terms describe sections, divisions and bureaus and their bad effects. These functional barriers are inherent in managing largeness.

Silos and stovepipes pop up as soon as something starts to get large. They are universal in clubs, companies and governments.

Managing a large system inevitably means depending on the performance of many people in it. How well others do their parts ranges from superb to awful.

As a system gets larger, its mix of people grows more typical of people in general. “Typical” is measured in traits such as political leanings, applied talents and a wide range of work habits.

Small systems allow more self-reliance. Smallness also restricts the scope of resources. A few people cannot supply all the parts a business needs.

Government fills in some necessary large components, such as safe drinking water, shipping ports, roads, levees, and the rule of law. We take these parts for granted, until something goes wrong in the large systems.

A phrase in the news these days is “too big to fail.” It means a company plays so large a part in the nation’s economy that the company’s stumbling poses a threat to the entire nation.

How does a company get to be too big to fail? It happens by adding economies of scale until the size is bigger than people can manage.

No one knows a priori how big is too big. But if we step back a ways, one menace is clear. Managers manage very poorly if they start to think what they manage is too big to fail.

Ironically, a manager’s pay depends on how large the venture grows. For some months or years, a bigger size boosts pay more than how well it works. 

This column wanders around the question of whether systems should be large or small. The excursion itself mirrors varied viewpoints on the subject.