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"How We're Heading Back to the Future

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I'm always the optimist who sees our current economic restructuring as positive making it ripe for entrepreneurs, visionaires who're willing to take a chance on themselves rather than bemoan changes which were set into motion 50 years ago.

"How We're Heading Back to the Future

By Glenn Harlan Reynolds

"Set the wayback machine for 10,000 B.C. What does the world look like?
Except for cave bears and saber-tooth tigers -- both pretty much extinct by this point anyway -- the scale is pretty small. The biggest human organizations are band- and tribe-level: At most, a few hundred people, but far more often a few dozen. The line between work and play is pretty blurry. Some things are clearly work, and some things are clearly play, but many are in-between and people go from one to another as circumstances dictate, not according to a schedule. Agriculture hasn't been invented yet, though people brew beer from wild grains, and are starting to notice that if you plant the seeds they'll come up in the same place next year, making it easier to brew beer. (What, you think people invented agriculture for bread?)

 

What material possessions exist are homemade, except for a very small amount of stuff purchased from itinerant traders carrying a few rare luxuries. Children aren't sent off to school, but hang around the adults as they go about the business of the day. A few activities, like big-game hunting, are off-limits to the kids, but in general they grow up quickly, and are a part of what goes on.

 

Even in these caveman days, there's plenty of technology around. Humans are tropical animals, and without technologies like fire and clothing most of the world would be off limits. Finely wrought flint tools are capable of impressive feats (how do you think those saber-tooths and cave bears became extinct?) but there aren't any machines as we'd understand them. Probably the most sophisticated device in general use is the spear thrower. The biggest organized human events are mass hunts and the occasional clan gathering. They're limited in size and duration because you can't feed that many people by hunting and gathering in one place for long, and it's hard to store much food: It goes bad, or it's eaten by vermin.

 

Fast-forward a few thousand years and not all that much has changed. Advances in agriculture and organization make some difference: More people can live closer together, thanks to the higher efficiency of farming over hunting and gathering, (though because farming is hard work, those people are usually worse-nourished and harder working than the hunters and gatherers). There's still not much in the way of sophisticated machinery. There are tools a caveman wouldn't recognize, but nothing he couldn't figure out in a few minutes.

 

Things stay pretty much this way, in fact, until the Industrial Revolution. Agriculture, written language, and metals allow big empires to organize large numbers of people, but not very efficiently. Doing things on a large scale is usually less efficient than cottage industry, because coordinating all those people is so much trouble. You can build big things, like the Pyramids, or the Great Wall of China, but at enormous cost, and only by making people choose between hauling bricks or being killed.

 

But the Industrial Revolution changed things. Improvements in organization, communications, and machinery meant that it was often much more efficient to do things on a large scale than on a small one. Adam Smith noted this in his famous description of a pin factory in The Wealth of Nations.

 

Division of labor allowed large groups to be organized in ways that were actually more efficient than smaller groups, or collections of individuals acting independently. Big machinery allowed big jobs to be done, but because the machinery itself was big it could only do big jobs efficiently. When the smallest efficient steam engine is big enough to power a whole factory, it doesn't make sense to use it for anything less: the cost is the same, but the return is smaller. Thus the "minimum efficient scale" turns out to be pretty big. And you need a lot of capital for these big operations, which had its own implications, financial and otherwise.

 

Most of the developments of the 19th and 20th Centuries followed this pattern. You can't run a railroad as a family business. The same is true for steel mills (the Chinese Communists tried, disastrously, with their "little steel" program, but learned better) and, after the very earliest days of the automobile industry, an auto factory -- outside of a few shops serving NASCAR, or very rich car collectors, people don't build cars one at a time any more.

 

Big organizations doing big things: It's the story of the 19th and 20th Centuries. In fact, it was so much the theme of those centuries that it's easy to forget what a departure this was from the rest of human history. But it was a huge departure, brought about by the confluence of some unusual technological and social developments.

 

And it was a mixed bag. On the one hand, it made people in industrialized countries a lot richer. On the other hand, it created a lot of social strain, as traditional ways of living were disrupted by the new ways of doing business.

 

William Blake's "Dark Satanic mills" weren't as bad as they're remembered today -- if they had been, people wouldn't have flocked to them. Or maybe it's fairer to say that, bad as they were, they were still better than life as a subsistence farmer. But they were very, very different.

 

Parents and children were separated. Husbands and wives were separated. "Work" became something separate from the rest of life, and itself became different. An old-style blacksmith made a plowshare or a sword from beginning to end. A worker in Adam Smith's needle factory, or Henry Ford's automobile factory, performed a single repetitive task with no real connection, emotional or intellectual, to the overall product. And although factory workers did much better economically than peasant farmers had done, their share of the proceeds was trivial compared to that of the people who financed and ran these large capital-intensive operations, people who became known as "capitalists."

 

This led to talk about worker "alienation," and the problems that resulted from separating labor from ownership of the means of production. This was the foundation of Marxism, and of efforts -- universally disastrous -- to replace capitalists with government-controlled capital in communist countries. Government replacements for free-market capitalists were, if anything, more rapacious, but much, much worse at actually producing wealth. Much of the 20th Century was spent in making this clear in various unfortunate and frequently lethal ways.

 

But even in capitalist countries, people were unhappy to a degree, though at least they were richer and didn't have to worry about gulags. The large-scale operations hit their zenith at mid-century, with American business revolving around huge entities like General Motors and IBM. Economists like John Kenneth Galbraith began arguing that big corporations were protected from failure by their size, and that the kind of massive organization and information-processing available to these huge concerns meant that smaller businesses couldn't possibly compete. Bigger was better, and the managerial class "technostructure" that ran these big corporations would be the real source of power, without having to worry about crude things like profits.

 

This turned out not to be the case. Even as Galbraith's book was appearing, the seeds of change were taking root. The New Industrial State came out in 1966. The year before, in the 35th anniversary issue of Electronics magazine, Gordon Moore had first proposed "Moore's Law" -- essentially, that computing power was doubling every year-and-a-half, and would continue to do so for the foreseeable future.

 

It was a while before the impact of this trend on Galbraith's formulation became obvious, but the growth of cheap computing power has already undercut the importance of big organizations in many, many areas. That cheap computing power is now being coupled with cheap manufacturing -- including, increasingly, what Neal Gershenfeld calls "personal fabrication," in his book, Fab: The Coming Revolution on Your Desktop - From Personal Computers to Personal Fabrication. (I wrote about that last week) But even without the kinds of progress that Gershenfeld describes, manufacturing, including custom manufacturing, has gotten cheap and versatile enough to neutralize many of the advantages that large organizations once held.

 

For activities that, ultimately, are about processing information, the computer revolution itself has drastically reduced the minimum efficient scale. A laptop, a cheap videocamera, and the free iMovie or Windows Movie Maker software (plus an Internet connection) will let one person do things that the Big Three television networks could only dream of in Galbraith's day, at a tiny fraction of the cost. The same laptop with a soundcard, a couple of microphones, and software like Acid, Cubase, or Audition can replace an expensive recording studio. Change the software and it can replace an office full of Galbraith-era accountants with calculators, pencils and paper, or even with access to big 1960s mainframe computers. This observation is commonplace now, of course, but its implications for Galbraith-era economics have gotten somewhat less attention. It's not just that fewer people can do the same work, it's that they don't need a big company to provide the infrastructure to do the work, and, in fact, they may be far more efficient without the big company and all the inefficiencies and stumbling blocks that its bureaucracy and "technostructure" tend to produce.

 

Those inefficiencies were present in Galbraith's day, too, of course. People have been making jokes about office politics and bureaucratic idiocies since long before Dilbert. But in the old days, you had to put up with those problems because you needed the big organization to do the job. Now, increasingly, you don't. Goliath's clumsiness used to be made up for by the fact that he was strong. But now the Davids are muscling up without bulking up. So why be a Goliath?

 

That is the question that many people are asking themselves, and as technology moves toward smaller, faster, and cheaper approaches in man, many areas we're likely to see an army of Davids taking the place of those slow, shuffling Goliaths. This won't be the end of big enterprises, or big bureaucracies (especially, alas, the latter) but it will represent a dramatic reversal of recent history, toward more cottage industry, more small enterprises and ventures, and more empowerment for individuals willing to take advantage of the tools that become available. In some ways, the future may look more like the distant past than the recent past. It's not surprising that it may also seem to operate on a more human scale."

http://www.techcentralstation.com/061505B.html

Entry #41

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