Turning Development Upside Down
A book about reforming relief and development

Sunday, January 16, 2005

Chapter 220 Wrong Scale

Wrong scale causes huge economic distortion

Schumaker's classic book "Small is Beautiful" made the case that scale was important. But the issue is much bigger than the case that Schumaker made. Big projects also create economic distortion that ripple throughout the economy. Keynes talked a lot about the multiplier and the accelerator affects of spending and investment in an economy, and if these are taken into account, big projects cause huge distortion.

There was a realization during the 1980s that scale was an issue. But it seems that the ORDA institutions concluded that scale had to be big, because the problems were so huge. It was a classic miscalculation and reflects the weak base of relevant information being used by the ORDA community and the

When I started to write “privately” about performance of development early in the 1980s one of the issues that I addressed the question of scale. I had become convinced that “big” projects were failing because of size, and the distortion that this size was bringing to the economy, the society, the private and government institutions. I talked a lot about “distortion” but never had a UN or World Bank staffer working with me who was willing to advocate for the importance of this issue.

When one does economic analysis combining engineering, economics and accounting, it is common to find that the equations describing "economy of scale" are more complex than typically taught in introductory economics. In fact, dis-economies of scale become dominant quite early on, especially when the economic environment is weak.


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