Why is efficiency still king in business?
I’ve only taken a couple of basic economics classes in my time, so I certainly wouldn’t dare call myself an expert on the subject. That said, I have a sinking suspicion that no one else is either – including the people who portray themselves as such. Which is a problem, if you think about it, because we’ve got this enormous group of people running around making claims that they can’t possibly reasonably make.
To me, it often appears that economics is to politics as religion is to philosophy. Economics and religion both require a lot of guesswork that rarely holds up to scrutiny, but people who believe in each still cling to them because the alternative – admitting that they don’t really know – appears far worse. I’m sure there will be those that disagree with me, but I find it hard to dispute that in both fields evidence based answers are not always held with the highest regard
For instance, I rarely hear anyone in the media ask this question: why should we assume that efficiency is better for businesses? Since the Industrial Revolution began it seems that the pinnacle of a successful business is to produce the best product at the cheapest cost. On its face this is a hard goal to dismiss. It’s common sense, right? Well, not really.
In a closed system like a town, city, or any other relatively small region the standard of the best product at the cheapest cost can take a small business to great heights, employ many people, and make life better for everyone involved. But on a much larger scale I don’t think the same holds true, because as a business grows it will employ fewer and fewer people relative to what it produces.
A company of a 100 might be able to make 100,000 widgets – or 1,000 widgets per person. But a company of 1,000 might be able to make perhaps 2,000,000 widgets – or 2,000 widgets per person. If demand across the board is for, say, 10,000,000 widgets, then while it’s true that 5 large companies are more productive than 100 small companies, those 5 companies actually employ 5,000 fewer people. What are those people to do?
This is a very simple example, but I hope you understand my point. As long as new business are being created to re-employ the people that more productive companies don’t need anymore things can stay relatively balanced. But when technology begins to move so fast that the unemployed people can’t find jobs because no companies need them anymore we have a problem. So I ask, wouldn’t slightly less efficiency be better sometimes?
Seriously, we all want cheap stuff; but when that comes at the cost of millions of people out of work, wouldn’t it be better to buy a little bit less stuff that’s slightly more expensive and higher quality because it takes a few more people to make it? I guess in the end, I don’t really know – which is perhaps the difference between me and all those economists after all.