Monday, May 16, 2011


Capitalism rewards the most efficient competitor.  Efficiency can loosely be treated as having the highest return for the investment (where maintenance costs, salaries, capital goods, and anything else necessary to operations are part of investment).

Our culture has long since stopped respecting that efficiency; we find a company that takes in 100 million a year while spending 99 million a year more impressive than a company which takes in 10 million a year while spending 9 of it; one has a return on investment a magnitude greater than the other, and it isn't the one we tend to focus on.  Billionaires are frequently better off investing their money in smaller start-ups than in expanding existing franchises; franchises are great and have their place, but they are low risk and low return; a place for businessmen looking for businesses to administrate, but not the place for skilled investors.

Sometimes size can create economy of scale - and this is a good thing.  This is the second concept of efficiency; size can bring about certain advantages.  Size -also- comes with disadvantages, however.  The bureaucracy necessary to accommodate that size decreases efficiency.  Perhaps more importantly, a large organization is less flexible; other, more capable authors on the subject discuss concepts such as corporate culture in describing this flexibility, but the end result is that, from a strict economic perspective, size has little natural sum advantage beyond inertial moment; the biggest companies still eventually die.

The third concept relating to efficiency is that of law - and this is where small companies get crushed.  Wal-Mart has real economy of scale here; it has lawyers on payroll and retainer to stay abreast of legal matters, and modifying its entry to accommodate wheelchairs or whathaveyou is a small expense in comparison to its income.  The Mom and Pop hardware store with an annual revenue of 200,000 and an annual profit of 60,000 can't afford lawyers to make sure they're staying in compliance, and probably can't afford to renovate their entryways to come into compliance anyways.

Wow.  An English essay.  Three supporting paragraphs.  God I've spent too long being "educated."  And that third really was an extension of the second, a definite sign of "education."

My point here comes to this: Capitalism itself carries no particular penalty OR benefit for being a large corporation.  Large corporations are large, a la evolucion, by virtue of having survived the worst economies could throw at them, and still being capable of expansion; they are the best of the best at what they do.  Being large gives them reserves when times get tough, true - but they can still die the same death as any small company.

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