20 Comments

Dr. Hanson,

Have you looked into Ecology's adaptive cycle for a blueprint to what happens next?

http://alexbrands.tumblr.co...

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After establishing an effective monopoly in one field a corporation can diversify to continue growing, which is exactly what Google seems to be doing with their autonomous cars, google glass, etc...

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"there are diminishing returns to larger and larger corporations"

So? When you are an investor who already owns a profitable large corporation you can either expand the corporation, or buy other corporations, either way you are increasing the size of your organization. Size may very well become a problem beyond a certain point but the people who make the decisions have incentives to keep growing their organizations nonetheless because they will still get richer, just more slowly than before, even if overall society looses potential productivity. I guess it's just another reason to be worried about the plutocracy.

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I think we do, the organisational challenge pre-digital was mostly physical scale, ie more stores, more machines, more employees. That doesn't translate so well when scaling, for example, a development team.

Just compare the theoretical limit on employees working in the assembly line that GM could have in 1950 vs. the theoretical limit that Google will have.

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Past trends are no guarantee of future trends. But without some good concrete reason to think otherwise, that is the way to bet. We have no good reasons to think the size tradeoffs are much different for "digital" firms.

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Aren't you essentially saying that the future economy (ie digital era) will have firms that to hold the same characteristics as those that were useful in the industrial era?

The Poshke paper can be read to be saying "poor countries don't have large firms since they have not yet gotten to the stage in their industrial development to maintain these and therefore people can't work for them".

This does not mean that as our technological development continues, we will continue to see larger companies, since the development required to go from poor to rich (centralise and massify) is different than that required for a rich country to continue growing (there are diminishing returns to larger and larger corporations).

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The population of the world is moving from a pyramidal shape to a more rectangular shape. However, organizations maintain their pyramidal shape.

Hence ceteris paribus (i.e.keeping unemployment rate, age of retirement, etc the same), a more rectangular shaped population should mean more number of smaller firms and lower average firm size. (If you honestly account for self employed people/contractors as a firm of 1)

Another thing that works against larger orgs is the greater uncertainty that comes with more dispersed science and knowledge. Why keep more people on your payroll, when you don't even know what is going to happen over the horizon?

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Perhaps they predicted faster change than we've seen, but the long term trend has clearly been in that direction.

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Schumpeter, Galbraith and Burnham were writing about the displacement of entrepreneurialism by managerialism in the early/mid 20th century. They're generally considered to have been disproven by events. Do you think they've gotten a bad rap?

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But how does density affect those factors?Density probably increases income by making it easier to achieve economies of scale (please let me know if this is wrong).I have no idea how it affects smoking and exercise, or if that's even known.

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Firm size has consistently increased as comm, info, and computer techs have improved.

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Dr. Hanson,

If the level of communications and information processing technology is inversely related to information cost, then the cost advantage of intra-firm production over inter-firm contracting should decline as technology improves.

An anecdote: A few years ago I wanted to create a commercial website. I was able to solicit bids from programmers across the globe and contracted with one person in India and a small company in Russia. The cost to me of negotiating the contracts and monitoring their work was reduced by the internet to far below the cost of hiring employees to do the same work.

I believe Moore's Law will tend to increase the independent contractor/employee ratio and thus reduce average firm size.

Comments/criticism are welcomed.

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"if you control for poverty. In the U.S., at least, higher population density seems to be positively correlated to life expectancy."

The correlation probably stems from the higher average intelligence and younger age of city people.

"Seems to be true in China, too: [...]"

Rural people in China are lucky to have a functioning toilet while major parts of Chinese cities look very futuristic.

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If capitalism survives big firms will indeed rule the world, not something to look forward to if the sci-fi movies from the '70s and '80s are any indication...

As to organizations, it's all about how you define an organization (big firms are often losse conglomerates).

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There's another name for this phenomenon. Its called parasitism.

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interesting data-- I'd like to see a study that explicitly looks at population density controlling for other factors, though; this one has numbers, but they aren't analyzed or discussed so it's unclear what they mean.And data is from '86 to '94, so an effect that first manifests around '92 isn't going to show up.

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