Size Matters

This is my first blog post and I wanted it to be a firm statement of what I believe. With that in mind, I want to entitle this post “Size Matters.” What I mean by size is in the business sense “scales of economy.” Meaning that a bigger company will be able to produce goods and services at a great cost savings and therefore at a bigger profit. However, the caveat attached to this idea is usually “all things being equal.” I heard that with Adam Smith’s free trade arguments. I did not agree with him and I do not agree with economies of scale because big and small are never equal.

A farm growing tomatoes on a thousand acres cannot produce the quality of taste that a small farm can with its tomatoes. They do not compare well. To produce a tomato to sell the large farm must pick tomatoes early and let them ripen on the truck or in the train traveling to market. A small farm can pick at the peak of ripeness and at the pinnacle of flavor and sell it to the consumer. No comparison exists because they are not equal, you can taste the difference.

Big almond farmers in California have achieved economy of scale in their farms. With thousand and thousands of acres to be picked and with a very short window of opportunity to pick them, the farmers leave tons of almonds on the ground covered with tarps. They put in chemicals to retard spoilage so that they can be picked up later. Hence the USDA’s new rule of pasteurizing almonds. Big boys are selling rotting almonds and people are getting sick. Fix the symptom but not the disease. Smaller farms would mean a more manageable approach to this issue, however, our society laughs at small.

In the eighties, I remember laughing at the silliness of a Soviet model that built big factories to produce the goods for military and civilians alike. How foolish we thought it is much easier to hit one plant than 50 of them. Crippling their economy with one blow would be easy. Do you see the parallel?
We have recently seen in our country the turmoil of bank and mortgage companies that have made bad decisions and have expected the taxpayer to bailout those bad decisions. (Which I suppose means we privatize gains and socialize losses in our brand of capitalism) I have heard the expression lately “they are too big to fail.” Meaning that we have to save them or the country will be plunged into an abyss that we will not soon emerge. How like the soviet model we laughed at in the 80’s. With one blow, we have crippled our own economy with our fascination with big.

Banks have hidden losses off balance sheets until too big to hide. With that revelation the stock market reeled. Think Enron. (The conservative republican bigwigs cry for the repeal of Sarbanes Oxley because it is too costly. How worse would the blow have been with the accounting profession “policing” themselves.) The very people who think large is great will now bail out large banks but ignore the fact that small banks are fine, for the most part. The small banks are still lending money and still making money. How can that be, you ask. Well, I think it is because of anti-economies of scale. Small means friendly and limited loss, big means corporate philosophy of short-term gains over long-term thought. With that kind of thinking, we get free trade and the thought that all things are equal.
Size does matter.

Think small!