No Minister

Failing to Scale

with 5 comments

It took only a few years for me to learn that in corporate environments a lot of things just don’t scale up, despite the fact that such corporations were scaled up versions of the small businesses they had once started out as, even if a hundred years ago prior to endless takeovers, buyouts and so forth.

Centralised accounting certainly scales, as does marketing, IT and a handful of other core functions. But even then there are limits, what test pilots refer to as “the envelope”, outside of which things start breaking down. Even those centralised things are built upon smaller clones of themselves in the corporation. And corporations often stagnate precisely because the small, inventive, creative parts of themselves get stifled or outright killed off.

In fact, one of the secrets to the creation of Silicon Valley and its fantastic wealth, lay in the fact that people inside existing corporations who had ideas that got flattened or ignored, were actually encouraged internally to leave and set up their own companies to develop their ideas, and where they weren’t encouraged they did so anyway as venture capitalism also grew to supply such start-ups with seed money. This “culture” took off, with one company after another spawning new companies:

With the backing of Fairchild Camera and Instrument in Long Island, NY, eight engineers from Shockley’s lab resigned, including Gordon Moore and Robert Noyce, to form Fairchild Semiconductor in 1957. Led by Noyce, Fairchild would eventually grow into the most important company in the history of the Santa Clara Valley after Noyce independently invented the Integrated Circuit along with Texas Instrument’s Jack Kilby in 1958.

And when I say I “learned” that’s only in terms of learning what specific things did not scale in corporations: even by my early 20’s I’d seen enough of life, let alone business case-studies and history, to understand the principle that big is usually not better, and often worse.

To that end, with Three Waters specifically in mind here in NZ, but also with the gigantic beast in the US known as the Federal government, I appreciated this brief “rant” in Ace of Spades, which I’ll re-produce here in full:

An oft-heard theme from preschool classrooms to corporate meeting rooms is that one should not be afraid of failure. Failure sucks and is a miserable experience – failure hurts – but it’s also the mechanism through which one learns. Failure is a great teacher, and makes you less likely to fail next time because you’ve learned from the experience. This is true, but there are limits to the concept. Sometimes failure is catastrophic.

The higher you are, the riskier failure becomes. If you’re running a small team in a corner of a large company to try to make something new and you fail, the results are unlikely to be disastrous. You might get fired and your staff might get fired, too, but the scale of the potential damage is fairly small. If you’re a senior executive who bets the business on something and that something doesn’t pan out, the entire enterprise can fail and everyone ends up fired with the owners holding worthless paper that used to be shares.

So it is with government and its failures and boy do we have a lot of government failures to consider. Fiscal policy has failed. Monetary policy has failed. Energy policy has failed. Medical policy has failed. War policy has failed. Border policy has failed. Drug policy has failed. Environmental policy has failed. Law enforcement has failed. Intelligence has failed (in every possible interpretation). Both domestic and foreign policy, writ large and in totality, has failed. Its failure across the board and at all levels.

Sure, some of it was probably not failure but rather was deliberate destruction, but that distinction is more important in the final reckoning than it is in the day-to-day reality. Malice or incompetence (or malicious incompetence, which I think is closer to the mark) is less important than the results. The results are similar regardless of the motivator. Poor is poor, sick is sick, dead is dead.

And those failures are increasingly catastrophic as more decision-making occurs in Washington D.C.. This isn’t just because of corruption, dishonesty, malevolence and incompetence, but because of scale. We have forgotten the valuable lesson of subsidiarity. Decisions should be made at the smallest workable scale, not the largest possible scale. A town imposing some insane and destructive policy destroys only the town. When Washington imposes some insane and destructive policy, it can destroy the entire country. Subsidiarity isn’t maximally efficient, but it is highly reliable. It’s expensive but robust. Its opposite – what we have today and will have more of tomorrow – is tremendously fragile. It isn’t even efficient because the government is populated with thieves, liars and fools (and often in combination).

Totalitarianism doesn’t and can’t work for this reason. Even assuming the starry-eyed sincerity of the totalitarians (a situation we most decidedly do not have), mistakes have perfect coverage and no one is immune from the totalitarians’ decisions. Failure not only stops being a good thing from which you learn, it becomes a constant threat and source of terror. This is compounded and made infinitely worse when the totalitarians are dishonest, lying, stupid psychopaths.

Centralization and incompetence, centralization and malice, and centralization and malicious incompetence are poisonous combinations.


Written by Tom Hunter

June 9, 2022 at 2:58 pm

5 Responses

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  1. Klaus Schwab Covid and build back better. Do we have any better example of the truth of that brief summary of wisdom. Far from a rant.

    Phil s

    June 9, 2022 at 4:02 pm

    • True, moreover, since Schwab has degrees in both engineering and economics you’d think he’d know better than to indulge in such global fantasies of control and direction.

      But he’s hardly the first such educated person to think that way.

      Tom Hunter

      June 9, 2022 at 4:07 pm

  2. Centralisation fails largely. Especially in IT, government, business. It has been, and is being, proven again and again before our very eyes.

    Pesch writes about an alternative, not really tried yet, but sitting in the box seat:


    June 9, 2022 at 5:19 pm

  3. Pesch- Catholic Economics, sure to be a winner with a certain religious minority.

    Written in an age when society was transitioning from a peasant based economy to a modern industrial complex.

    One of the main difference between the two was education for the masses. We dont need someone, or something to determine a fair wage for the worker…. the market does it for us. Elements of Marxism here in his theory.

    Like Marx, a priest who had never dirted his hands in an enterprise, and didnt understand the concept of “profit”. in an accounting or economic sense.

    The failure of most of these theories is that they think profit is the sole underlying driving motive for capitalism.

    Often profit, or a loss, is the left over, or derivative part, of making something like a widget, adding value and selling it to a willing buyer.

    If you havent read “The Lunar Men” by Jenny Uglow I suggest you dip into it.

    Adam Smith certainly got it right and it has stood the test of time.

    The Green Ideology, The Marxism and Liberalism of the Labour Party and their National in Name Only proponents wont stand the test of time. It maybe a generation but they will fail in time.


    June 9, 2022 at 9:12 pm

  4. RE the quoted “Centralization and incompetence, centralization and malice, and centralization and malicious incompetence are poisonous combinations.”

    No, that’s misleading and false. It’s not a case of “incompetence” at all, that’s for the ignorant stupid masses to believe it is …

    The “poisonous combination” is and always has been “The 2 Married Pink Elephants In The Historical Room” …

    Isn’t it about time for anyone to wake up to the ULTIMATE DEPTH of the rabbit hole — rather than remain blissfully willfully ignorant and play victim like a little child?


    June 10, 2022 at 1:08 am

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