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The crisis of optimal scale and the transition to an economy of scope

photo of Michel Bauwens

Michel Bauwens
18th April 2013


Republished from David de Ugarte of Las Indias:

(the original has links to supporting material)

“A key result of what we’ve worked on for the last year has been understanding that technological development has reduced the optimum scale of production continuously since the end of WWII, and that the way financial capital has defended itself to maintain its place in the economic system has gutted the better part of the productive community and brought on the current financial crisis. This underlying economic and historical movement points, over the medium and long term, towards two possible outomes (decomposition — that is, the simultaneous destruction of state, market and social cohesion — on the one hand, and the transition towards a P2P mode of production on the other).

But having a medium and long-term perspective doesn’t free us up from fighting today’s battle. And today, in every difficulty local industry has, in every challenge faced by those faced with keeping production and jobs around, the crisis of scale appears again… and we need to learn from it.

The reduction of optimal scales not only puts Big Capital and Big Business in check by reducing their efficiency, it first affects small companies that remain anchored in average technologies. We see it every day, it goes like this: you have a business that has a very specialized process within a large production chain (i.e., automotive). The prices drop for the machines you do your work with, and at the same time, the machines themselves are are ever more specialized, improving quality but useful for a smaller and smaller range of products. If you’d chosen to keep producing with multiproduct machines that were less specialized, your situation would have become difficult in recent years. Obviously, as the price of specialized machines falls, your buyer will be more and more tempted to include them directly in its chain, eliminating its dependence on you and gaining quality in its components.Which is to say, capital being less important can, paradoxically, damage the smallest players, if they’ve let the bonanza years go by without innovating or developing their product or good. The trend is towards, and opportunity is in, reducing scale and increasing scope. Optimal scales are reduced “by themselves,” as an effect of technological evolution, but finding the way to increase scope depends on each person, and on a whole range of strategies, from customization to the incorporation of design, and from internationalization tothe development of new products. And, as the the crisis shows, there’s not too much time ahead to do it. Those who haven’t done it already are having a hard time.Examples of those who are able to get out of the trap also emerge every day. What needs to be clear is that the industrial world is no longer the calm waters of “business as usual.” And, no, it’s not the “fault” of Chinese manufacturers and their (less and less) low salaries. What they produce are commodities, without much value added. Things that machines make with less and less human support. If you want your industry to survive, you have to rethink it with the logic of the new world: distributed networks, knowledge, conversation… To begin, the Internet and free software. An example from today: maritime drones — Nat pointed out the other day that this new industry would create 100,000 jobs in the U.S. alone over the next ten years.

In this context, the horsemeat scandal has turned out to be very revealing… and not just for us: as the weeks pass, analysis that points to excessive scale and its dangers started to become commonplace. Once again, the solution is not in enclosure, or in falling into localism and under-scaling, thereby losing productive capacity, but rather in substituting scale with scope. And this is done with disintermediation on the one hand, and a global and democratic conception of productive subjects on the other. That is to say, Internet, Internet and more Internet to allow direct relationships, chains with fewer links and more global responsibility. Yes, like “fair trade,” except taking it seriously, as part of the business and how it’s organized.

Today, the ones who have understood these possibilities best are not the giants who seek the recentralization of the Internet. Rather, they are the family businesses on the periphery. Just today, analysts from the big financial funds were complaining that they can’t deal with the small Taiwanese tech companies (which, in case anyone didn’t know, pay their workers salaries that are similar or a bit better than Spanish tech companies). It’s simply that they won’t let themselves be bought out: they live passionately in a model of relationships where the personal is important, and they continue making enough money to maintain themselves and continuously invent new things. We could give similar examples in Latin America, some in Africa, and even in the US. Putting up barriers to financialization and the destruction of the productive community also has to do with the business model and the logic of relationships.”

Conclusions

The current crisis of capitalism is fundamentally a crisis of over-scaling, and is prodded on by the fact that, while over-scaling creates inefficiencies, it also creates rents, and the beneficiaries of those rents have access to power. The combination is dramatic. However, the degree of reduction of optimal scales is so great that, for the first time, the emergence of small-scale organizations can represent an alternative global production model. But, for this to happen, it would take two things: new models of relationships and scope.

Which is to say, promoting a new model of relationships needs social conversation, and therefore, networks and the Internet, just as organizations need them to be able to continue providing value to what they produce.”

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One Response to “The crisis of optimal scale and the transition to an economy of scope”

  1. Øyvind Holmstad Says:

    I wrought an article about this subject some years ago:

    - Anti-Pattern Capitalism: http://permaculturenews.org/2010/11/25/anti-pattern-capitalism/

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