Economies of Scale – A Modern Fairy Tale

We can argue that economies of scale are natural and an inbuilt element of modern commercial practice. Yet is this the case really? The idea is promoted since through the modern method of production, which is largely manufacture, once a template has been made many replicas can be produced. The expensive part of the process is creating the template in the first instance. Clearly a template which is used 10 times will constitute a higher percentage of the cost of production than if the template is used 100 times.

The same holds true for installations constructed to house the machine which will use the template. So far so good.

But the next part of the equation becomes more complicated. What of the raw materials used in the production. Again it would seem that economies of scale hold true. It is cheaper to transport 100 trucks of coal by rail than it is to transport ten times 10 trucks. But what of the people involved in the moving of the coal?

When the transport costs have been shaved to a minimum and 100 trucks are dragged along by a bigger engine, that is potentially ten times fewer persons employed. In turn this represents 10 times as many people now redundant and needing to draw on state benefits, or otherwise dwell in poverty, which may be derived from taxation on the large companies using the coal. This causes the executives of those companies to complain to government at the additional costs they have to pay. They have more clout with the government since they represent wealth in a nation. More clout than the unemployed who are seen, not as an asset to the nation, but as a drain on its precious resources.

The Romans knew this and created work to occupy the time and energy of foreigners who might otherwise have revolted and planned their over throw. When a ship arrived at port it would be unloaded on to lighters, smaller vessels which could carry the goods to the wharf, where they would be unloaded again, possibly loaded on to smaller river-going barges to travel far and wide to their place of consumption. Goods might be handled three or more times between the cargo ship and the shore. That is economy with a social conscience. Or at least caution.

Another aspect of the lie of economies of scale is in the dredging of resources from within the earth. The extraction industries themselves cause massive damage to the environment with immediate, and sometimes hidden, dangers to society at large. The Aberfan disaster in the early 1960’s is an example. The vast lakes of toxic waste from aluminium production is another. Less apparent is the creeping desertification of northern Chile from the Lithium mining industry which is draining aquifers and using all the available water to process its waste. Here we have something which is causing a change in climate with far-reaching, though in the immediate relatively hidden, effects. We can consider the exploitation of the forests the world over.

It would appear from these arguments that economies of scale refer solely to the immediate costs of a commercial system with no regard to the wider consequences and true costs, both social and environmental, that such production incurs. Someone once told me that the true cost of a 99p burger in MacDonald’s was several hundred acres of Brazilian rainforest. But, because my voice is not to be heard on media stations where the lie of economies of scale, the mantra of modern business, is repeated on an almost daily basis, it is unlikely to be heard above the clamour for attention so many are involved in making.

Author: Keith Armstrong

Dance teacher, writer, film-maker, educationalist, enthusiast.