Thinking Big

Size suddenly matters again, and bigness is taking its lumps across the political spectrum. Conservatives who hate bigness (in government) are joined in this by liberals who hate bigness (in firms). But people have always liked to think that small is beautiful, as E. F. Schumacher put it. Perhaps there is even an evolutionary basis for this, since humans no doubt developed in clannish little groups very different from the vast anonymity of modern society.

Big things make big targets, and now that bewildered taxpayers find themselves in the position of bailing out the nation's largest financial institutions (and these are very large indeed), it's been suggested that if an institution is too big to fail, it's too big to exist.

It's not a bad sentiment, but we might as well face the fact that bigness is here to stay, fueled by things conservatives like (competition, efficiency) as well as things liberals like (universal affluence, regulation). The increasingly global nature of commerce practically mandates it, as does the scale of modern life. Organizational size has made possible the amazing affluence that defines 21st century life in advanced countries, and as affluence grows elsewhere so too will the scale of institutions. Regulations can constrain size, sometimes detrimentally, but people often overlook how effective regulations can be at promoting bigness. From an essay about cheap food in history:

...mandatory meat inspection, pure food laws, and food safety regulations had the unintended consequences of encouraging bigness and elevating barriers to new firms. The historian Harvey Levenstein notes, for instance, that pasteurization laws led to a rapid consolidation in the milk business: "In Detroit there were 158 milk dealers when the pasteurization law was passed. Within three months the number declined to 68."

This is not to say that small isn't beautiful. I love living in a small town. Small businesses are vital, creative and flexible. In short, small can do lots of things big can't, and there will always be room for it, especially since the digital revolution. Just don't pin your hopes on doing away with bigness any time soon, in finance or anything else (wait'll we get national health insurance). It's the next big thing, and in the modern world it always will be.