The Power of the Community: Part 1: Economies of Scale

This will be part of a series of posts investigating why the community may be the ideal scale for tackling many of the worlds problems.
This first post will deal with economies (and diseconomies) of scale. Specifically, I will seek to underline why solutions on the scale of the individual, building, business, etc are economically inefficient and why solutions on the scale of federal governments or the world governing agencies are equally inefficient and ineffective. I'll start with economies of scale (factors that reduce unit costs by virtue of an increase in size).
It seems to me that the biggest drivers of economies of scale are the ability to use a smaller set of tools and infrastructure relative to the number of goods you produce or services you provide. Let's say everyone in a certain population wants flour, and has relatively cheap access to wheat. One solution would be for everyone to buy a small tabletop mill and produce their own for their own consumption. Each person wants a pound of flour per week and each person will spend one hour per week griding their own stock of wheat for flour in their own table top mill. It turns out that this is a rather expensive proposition because that mill will be going unused for the remaining 83 hours of the week. If, instead, 40 people banded together to buy a single tabletop mill, and took turns using it at a central location, they will each be able to mill their own flour for 1/40th the cost. This is more economically efficient, but those 40 people have to also invest time going back and forth to that communal location, there may be some wait time, and some of the people may not be as quick as others at operating the machine. These factors allow factories or manufacturing centers to take advantage of the next level of economies of scale by putting the means of production into the hands of fewer people who can schedule their operation of the tools, and free up extra time and resources for the rest of the people who want flour.
Economies of scale also pertain to making things phyically bigger. Let's say you want to make gadget X, that requires the acuisition and assembly of 10 discrete parts. Let's say the assembly time is independent of size. It takes a worker 10 minutes to assemble gadget X regardless of the size. While the costs of those 10 constituent parts may be linearly related to thier physical size, the labor cost of their assembly is fixed. So if at size A, gadget X costs $2 of parts and $2 of labor = $4, at size 2A, gadget X will cost $4 of parts and $2 of labor or $6. The cost per unit size has thus dropped from $4 to $3 as the size is increased from A to 2A. This is why it makes economic sense for the people involved in making flour to be working in a larger facility with bigger equipment, and is the driving force behind any bulk discounts you see at the grocery store.
Economies of scale deal mostly with material and labor efficiency of production (although in energy, there is also a better thermodynamic efficiency of production at larger scales. Larger devices and plants are able to operate with fewer heat losses for the same reason that a bucket of boiling water will take longer to cool than a thimble full of boiling water. With fewer heat losses, more heat energy can be converted to useful forms.) On the other hand, diseconomies of scale are forces that tend to make larger operations less efficient than smaller ones. These forces are mostly beureaucratic in nature. Wikipedia has a great article on diseconomies of scale. In bullet form, paraphrased from Wikipedia are the countervailing forces of diseconomies of scale:
- Duplication of Effort: "... General Motors, for example, developed two in-house CAD/CAM systems: CADANCE was designed by the GM Design Staff, while Fisher Graphics was created by the former Fisher Body division. These similar systems later needed to be combined into a single Corporate Graphics System, CGS, at great expense. A smaller firm would neither have had the money to allow such expensive parallel developments, or the lack of communication and cooperation which precipitated this event."
- Top-Heavy Companies: "The more employees a firm has, the larger percentage of the workforce will be "management". A company with a single worker doesn't need any managers...Managers are necessary to manage a large, complex company, but should be considered a "necessary evil" as they also reduce overall productivity. Also note that higher level managers get higher level pay, and thus cost the company more than their numbers would indicate."
- Office Politics: "For example, a manager might intentionally promote an incompetent worker knowing that that worker will never be able to compete for the manager's job. This type of behavior only makes sense in a company with multiple levels of management."
-Isolation of Decision Makers from the Results of their Decisions: "...If a single person makes and sells donuts and decides to try jalapeño flavoring, they would likely know that day whether their decision was good or not, based on the reaction of customers. A decision maker at a huge company that makes donuts may not know for many months if such a decision worked out or not. By that time they may very well have moved on to another division or company and thus see no consequences from their decision."
-Slow Response: "In a reverse example, the single worker donut firm will know immediately if people begin to request healthier offerings, like whole grain bagels, and be able to respond the next day. A large company would need to do research, create an assembly line, determine which distribution chains to use, plan an advertising campaign, etc., before any change could be made. By this time smaller competitors may well have grabbed that market niche."
-Inertia: "This will be defined as the "we've always done it that way, so there's no need to ever change" attitude...refusal to consider change, even when indicated, is toxic to any company, as changes in the industry and market conditions will inevitably demand changes in the firm"
-Public and Government Opposition: "Such opposition is largely a function of the size of the firm. Behavior from Microsoft, which would have been ignored from a smaller firm, was seen as an anti-competitive and monopolistic threat, due to Microsoft's size, thus bringing about public opposition and government lawsuits."

The lesson to be learned from these two countervailing forces is that there is often an optimal size to businesses (or to organizations like government). To the extent that businesses exist to solve problems pertinent to the public good (which is increasingly not the case as a business gets bigger and bigger!), it could be reasoned that there is an optimal size to all businesses and operations that falls somewhere between the individual and the mega-corporation/federal government. Federal beuracracies are one of the most oft-cited reasons for republicans demanding a smaller federal government, and at least for this reason, they are justified. This does not prove that the community is the right scale for such organizations, but it at least provides the conceptual framework for the argument that I intend to make that optimal problem solving requires a balance of scale.