Smaller Is Better

Trey and I each have a favorite beer. His is the Hexagenia IPA from Fall River Brewing, a small-batcher made with water from the same and you can only get your hands on it in Redding, California or thereabouts. My favorite, shit you not, is the DC Brau spring seasonal Yonder Cities, which is only around DC from Marchish to Junish (and may, I’m now discovering, have been discontinued). I have a hard time believing that, were both of them available everywhere, they’d still be our favorites.

 

Look at it though

Look at it though

First, because there’s a value we find in novelty, whether through regionality or seasonality. A quantifiable value and a big one, if you look at Starbucks pumpkin spice sales figures. Two, because I don’t think they’d be as good when they’d gone from small-batch to major distribution. Both halves of that thought are important, but I’m dealing with the latter.

Trey and I advanced the idea between ourselves, mostly in terms of craft beer, that it might be honorable to keep a company small. I don’t know if I can say ‘good’ out of hand, because by some metrics, it isn’t—you’ll make less money, for sure, and definitely fewer profits. More, there are some things you can’t do as a small firm—huge infrastructure projects, the really big machines; most of the stuff, in short, that Boeing and GE do. But in general, we thought, the more and smaller are the businesses that make up your economy, the better.

The brain trust

The brain trust

Let’s start big because that’s easiest. Semi and regional monopolies plague the US, many or most of them created by merger, buy-out, and Congressional award. The newly merged American Airlines Group is now the world’s largest carrier, and by some accounts second only to United in awfulness. Their combine with US Airways resulted in increased delays and cancellations, heralded the demise of free domestic checked baggage and the installation of ever more cramped seating (as well as massive reneging on agreements with their five unions).

Comcast and Time Warner are in many places the only options for internet service, and anyone who’s ever dealt with them knows that the connections they provide are shoddy, their tech support bad and overwhelmed, and the personnel doing home visits so overbooked as to be entirely unreliable.

Electronic Arts is the biggest name in video game publishing, and it got there by buying, cannibalizing, and closing smaller independent studios. Those who’ve been through or followed one of their disastrous recent launches, the out-and-out theft they’ve perpetrated through their digital distribution platform Origin, or was a fan of Westwood or Maxis or a myriad of other companies knows that quality always declined following the takeovers.

Part of this is unavoidable—classic economics tells us that a market becomes less efficient as it grows more monopolistic. The graphs won’t let efficiency maintain. The math won’t allow. But part of this is by design. Because there is one sense in which these megafirms are incredibly efficient: the creation of profit, profit which comes at the expense of the consumer (the passenger who can’t get where he’s going, the homeowner who pays orders of magnitude more for bandwidth that is orders of magnitude worse than what you can get in Lithuania, the poor sap who bought SimCity 5 on opening day and had his license to play unilaterally revoked when he complained that Origin wouldn’t let him play it) and at the expense of the workers (the ticket counter clerk who works an understaffed desk and serves a uniformly disgruntled clientele, the Comcast technician who has forty houses to hit and time enough for twenty, the salaried EA programmer who works triple unpaid overtime to push out a new release and gets laid off at launch). Executives and stockholders, though, make out.

Besides ruining the kickass symmetry

It's a one-two punch to democracy!

It’s a one-two punch to democracy!

Keeping firms small curtails the incentives that drive malfeasance, whether legal or moral. Publicly held companies have to (or their executives feel they have to) work towards maximum profit to appease stockholders. If your company isn’t listed on the NYSE, you can take a more qualitative view of things. It’s no pipe dream—Russian River, which brews Pliny the Elder and Pliny the Younger, has done it. Both of those beers are small runs and they sell out in days. You have to travel and camp to get a bottle. They could, no trouble, expand their operations into a dozen more states and make a killing. But the owners want to keep their bespoke beer bespoke. They aren’t buying yachts, but they’re doing fine, and their reticence to corporatize means they can plow revenues back into making great beer. There’s honor in that.

Not in their font choice, though

Not in their font choice, though

It’s true, though, that big corporations, in the end, often get us more stuff for less money. Leaving aside whether more stuff is a laudable goal (and it’s fucking not), large corps get it to us. Walmart’s the perennial example. One of its competitors, Costco, is a more ethical company hands-down: Costco pays its workers more even than the calculated living wage, affords them benefits, keeps prices down for its customers and pays its CEO less than $400k a year. But you can’t shop at Costco if you can’t afford a membership and you sure as anything can’t buy one roll of toilet paper there if that’s all you have the cash for. And you can at Walmart.

The bigger picture, though, is that Walmart and the economy it represents create the need for Walmart. Sam Walton’s firm has managed to insinuate itself across the nation by lobbying city councils and zoning boards on the basis of being an economic stimulus. A ‘job creator,’ in the dumbest turn of phrase America’s ever coined. But studies show us that Walmart depresses the local economies into which it arrives. While it feels more efficient for the consumer to find everything in one place, it is again really more efficient for the guys running the show. If you break Walmart back down into the dozens of small constituent stores it replaces, those diminutive outlets employ far more people for far more money. Ham for 90 cents the pound instead of a dollar seems like a bargain, right up until the places that paid you enough to buy ham go under and you’re stuck with shelves-full of Walmart-brand canned baloney.

Bonus: it's pickled!

Bonus: it’s pickled!

The degradation of the economy trickles down the line. Suppliers that would have made more money selling to mom and pop stores now have to make the same cuts to benefits and wages that Walmart has, and we end up with CJ Seafood enslaving migrant labor and both Walmart and a myriad of other US retailers letting thousands of Pakistanis burn to death in factory fires that cost-cutting refused to prevent.

I talk about biodiversity constantly for my job, what it is and why it’s important, with my kids and on the radio. An ecosystem with a robust variety of plants and animals is more resistant to climatic change, human incursion, and disease. A forest of one type of tree is devastatingly vulnerable to bark beetles, a region growing one variety of corn to weevils, etc.

An economy works more or less the same way. Small stores are less stable than megafirms, more vulnerable individually to one-off bad decisions, bad harvests, bad holiday seasons. In a market of small firms, barriers to entry are low and replacing small firms is easy.

Big firms may be harder to get sick, but when they weaken and die, it’s disastrous. The obvious example is the banking industry when Lehman Brothers went down, triggering a cataclysmic collapse of the system. Which, of course, looks now much like it did in 2007. If GM gets in trouble, it makes cuts, and the entire town of Pontiac Michigan disappears into a black hole.

When a company goes down in a company town, that’s it, that’s all she wrote, and when the company only half goes down, maybe that’s even worse, and you get the slow, grinding poverty that turns people into pobres, workers into the destitute, America’s industrial center into the Rust Belt.

It's Detroit

This is the face of an undiversified economy

Mexico has this problem in spades because of the likes of Carlos Slim and Telmex and Pemex and any other of the megamonopolies that make up all big services here. But Mexico also rounds out the other end of the bell curve—there’s no Walmart in my town nor in the majority of the rural reaches of this country, and most of the business here in Jalpan happens closer to the perfect competition ideal of classical economics than anything I’ve ever seen in the States.

You can’t turn back the clock. Big industry is here, punto. But craft beer in the US, Turkish Airlines in the Mediterranean, KIPP schools in the inner city, they’re proving that smaller is almost always better. And that smaller might be where we want to start moving.

2 thoughts on “Smaller Is Better

  1. Pingback: Bury the Lede | Another Peace Corps Blog

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