Here’s Diane Swonk in The Passionate Economist: Finding the Power and Humanity Behind the Numbers
Jim Annable had valuable insight into the reasons behind restructuring. He drew heavily from Nobel Prize—winning economist Ronald Coase’s work from the 1930s that argued that the economies of scale associated with large firms justified their existence, even under perfectly efficient market conditions. Jim then combined that work with research done in the organizational behavior arena to argue that large firms, even in an efficient macro economy, could be breeding grounds for gross inefficiencies at the micro level. [pg. 65]
My review of the book criticized it as not very passionate. I will say that Swonk’s intellectual admiration for Jim Annable is passionate, and I think deservedly so.
I think the idea here is standard – firms get big because of fixed costs, and then inefficient because they can slide from marking up over marginal cost to marking up over average cost.
The follow-up quote is sharper still:
Jim even had a term for the inefficiencies that were inherently built into large corporations, “surplus dissipation,” which was used so much that people in the bank never knew it was a phrase that he coined himself. They just seemed to accept it as gospel. [pg. 66]
That’s a keeper.
