Size
Perhaps it is almost axiomatic at this point, but smaller governing structures are more efficient than larger ones—both among state governing bodies and their private counterparts.
Take a quick look at the World Economic Forum’s list of the top five most efficient governments, which is currently topped by Singapore, Qatar, Finland, Hong Kong, and the United Arab Emirates.
This is true even at companies thought to be effective: For example, I, Malcolm, was hired for a managerial position at Google. What position? The system couldn’t figure that one out. After waiting for nearly half a year for Google to find me a job after extending a formal offer, I quit out of frustration. Google is typically thought of as being uniquely efficient for its size, but even this paragon of innovation can barely function when contrasted with smaller companies. While this effect is annoying, it benefits innovation by giving small businesses a means of competing with economies of scale that would otherwise grant large companies a perpetual advantage.
Further reading:
- For an analytical breakdown of this phenomenon by the European Central Bank, see: Public Sector Efficiency: An Internal Comparison.[[78]](#_ftn78)
- To peruse the counter-perspective, see two detailed articles by Ed Noelen: “Quality of Government, Not Size, Is the Key to Freedom and Prosperity” and “They Go Together: Freedom, Prosperity, and Big Government” in which Noelen essentially argues that personal freedom increases with government size—where personal freedom is defined only by education, health, and personal safety (a correlation that disappears when one controls for quality of governance and GDP). From our perspective, the core piece of evidence this analysis does not take into account is the absolute—rather than relative—size of a governing body (e.g., the U.S. has a bigger government than Finland in absolute size, but this analysis would show it as having a smaller one). Even with Noelen’s dataset, the trends he shows reverse once absolute size is taken into account. In other words, after a governing body reaches a certain critical mass of staff or wealth under management, it begins to see a steep decline in efficacy.
At the expense of allowing our personal politics to shine through, this effect is why large governing structures are so fundamentally terrifying.
**Large governing structures lead to inefficiency. Inefficiency leads to scarcity. Scarcity leads to desperation, evil acts, and even larger governing structures. Through this process, larger governing structures inevitably lead to evil. A governing structure will only be able to address a social problem with efficacy if some artificial constraint limits that structure’s size. This is why socialism works in small countries, communism functions smoothly in small communities like kibbutzim, and communism works really well in very small units like your family. Yes, the cliché American family is basically a microscopic communist government. What healthy family unit does not operate under the axiom: “From each according to his means to each according to their needs?”**
As Yoda might put it: “Large governments are the path to the Dark Side. Large governments lead to inefficiency. Inefficiency leads to scarcity. Scarcity leads to fear. Fear leads to anger. Anger leads to hate—and hate leads to suffering.” Aaaand that is why the megacorp Disney can’t consistently make a good Star Wars movie.
Why do large governing structures inevitably lead to inefficiency? Outside of the cancer problem already discussed, there are two core factors at play—factors we’ll call the “square cube law of governance” and the “bleed amelioration problem.”
In their paper “Slowed canonical progress in large fields of science”[[79]](#_ftn79)Johan S. G. Chu and James A. Evans note:
“The size of scientific fields may impede the rise of new ideas. Examining 1.8 billion citations among 90 million papers across 241 subjects, we find a deluge of papers does not lead to turnover of central ideas in a field, but rather to ossification of canon. Scholars in fields where many papers are published annually face difficulty getting published, read, and cited unless their work references already widely cited articles. New papers containing potentially important contributions cannot garner field-wide attention through gradual processes of diffusion. These findings suggest fundamental progress may be stymied if quantitative growth of scientific endeavors—in number of scientists, institutes, and papers—is not balanced by structures fostering disruptive scholarship and focusing attention on novel ideas.”
Chu and Evans found that “when the number of papers published per year in a scientific field grows large, citations flow disproportionately to already well-cited papers; the list of most-cited papers ossifies; new papers are unlikely to ever become highly cited, and when they do, it is not through a gradual, cumulative process of attention gathering; and newly published papers become unlikely to disrupt existing work.”
The Square Cube Law of Governance
In biomechanics, the square cube law explains why animals and cells cannot exist beyond a certain size. In technical terms, it states that as an animal scales up in size, components like muscular cross sections must increase by the square of the scaling factor while the animal’s mass must increase by the cube of the scaling factor.
In other words, if you made a person ten times taller than a normal human, they would weigh 1,000 times as much as a normal human and every square inch of their giant bones would have to support ten times the weight.
The relevance of this biological law to governing bodies is related to heat transfer and specifically the chemical processes required for life to generate and diffuse heat in order to maintain a temperature range conducive for function. As an animal scales up in size, its surface area increases at a dramatically lower rate than its volume, meaning each inch of surface area has to diffuse more heat. (As an example, a one-foot cube has 1/27 the volume and 1/9 the surface area when compared to a three-foot cube.)
Why is this stuff relevant to governments? Recall that in biology, unused energy is generated in the form of heat. In governments, unused energy is shed in the form of money, time, and/or labor. Even with zero corruption, every new aspect of a governing structure needs to interact with all the other aspects and all those interactions require new people to manage them, new rules, and new experts in those rules. While a government composed of two units has a single line of interaction that must be managed, a government composed of four units has six lines of interaction that must be managed.
In nature, this complication can be mitigated. For example, if you put an animal in water, heat—as well as the structural integrity of support systems—is less difficult to manage. This enables oceans to harbor organisms above the normal size possible on land, like a blue whale.
What sorts of contexts or environments might allow governments to more easily function despite their large size? Theoretically, one could create a social structure that mitigates the flaws inherent to human nature. Unfortunately, this only really works in cultures with a fascist level (to an American) of conformity and adherence to authority (see: China) as well as a disgust for personal wealth displays (see: The Law of Jante in Nordic countries).
Note: The Law of Jante characterizes nonconforming, unusual, or personally ambitious behavior as unworthy and inappropriate and is a driver of social interaction in Nordic countries, allowing groups to function with a greater level of socialist infrastructure than other countries can handle. As a world perspective, the Law of Jante is antithetical—and borderline abusive—from the perspective of an American mindset. This explains why some systems work in Nordic countries that would never work in America.
The Bleed Amelioration Problem
To understand this problem, compare the average corruption of a nation’s congressman with that of its president. The average president is dramatically less corrupt than the average congressman and if Congress were 20 times larger, the average congressman would be even more corrupt.
As the number of people participating in a governing unit increases, the system’s ability to single out and neutralize bad actors decreases. This is due to four confabulating factors:
- Detection becomes harder as the number of players increases.
- Motivation to expend energy to fix a bleed decreases as the number of players increases.
- Personal responsibility for problems decreases as the number of players increases (see the bystander effect).
- The ability to replace bad actors with equally competent and influential players decreases.
Why is it so difficult to find competent people? Simply put, competent people are just not that common—a challenge anyone who has run a company is oppressively aware of.
An additional factor compounds the problem: Factionalization increases in step with size. The more players there are in a system, the more “team membership” begins to matter more than individual competency (e.g., Voters typically vote along party lines rather than in favor of competence or lack of corruption).
Note from the Research: The bystander effect cited above involves humans expressing less empathy as more people are present. Essentially, the more people there are present to observe a terrible thing happen to someone, the less likely it becomes that any individual will step in and intervene—likely because they feel less personal responsibility. This is why people feel less personally responsible for immoral action when operating within a large group of people (such as the United States’ House of Representatives or United Kingdom’s House of Commons).
How to Optimally Approach Large Governing Body Design
How might we address this problem? If we must create a governing structure within some large corporation or country, do we break it into pieces and have those pieces function autonomously?
Breaking governing structures into autonomous pieces only kind of works for two reasons:
- Large, central governing structures between these individual units will initially be created for situations in which there is a strong size advantage (as with the military or in foreign relations) and situations in which less variance is highly desirable (like economy management and monetary practices).
- It is virtually impossible (without military conflict) for smaller governing units to take power back from the larger, central governing structure under which they are nested. This means that over a few hundred years, power will consolidate with a single governing unit. Basically, it is nearly impossible for a small thing to take power from a big thing while it is easy for a big thing to take power from a small thing.
The negative effects described above can be ameliorated by lowering the overall number of humans operating within any governing body involved. Fortunately, this is more possible today than it was in the past. Whereas in the past, governing bodies were forced to use humans to execute most elements of their function, we now enjoy technology that enables algorithms and machines to do most of the required legwork.
We personally keep our organizations lean and efficient by, whenever possible, avoiding direct management layers (people responsible for overseeing work performed by other people) and automating as much as possible. Our employees are almost entirely focused on value creation, rather than bugging other people to do their jobs.
Minimizing human involvement enables organizations to do very big things without becoming big (and inefficient, corrupt, etc.) themselves.
This solution is not without potential drawbacks. Should larger organizations eliminate excess human involvement to the fullest extent possible with current technology, they may become more efficient in a way that stifles long-term progress. The present inefficiency of large companies acts as a “shadow tax,” preventing them from completely crowding out small players more likely to be run by people with new ideas.
While in rare instances it makes sense to do so, there are two strategic reasons why governments don’t break up monopolies with greater frequency. First, many economic spaces—typically those with high startup costs and huge economies of scale (e.g., search engines)—engender the creation of something called a “natural monopoly.” Breaking up a company in these industries makes no sense and decreases efficiency as such spaces will return to a monopoly shortly after the breakup in the absence of heavy, ongoing government interference. Second, breaking up monopolies may hobble some of a nation’s strongest multinational actors—its large companies—which would in turn reduce the nation’s global power. If one nation in a global economy keeps breaking up its companies, it will ultimately empower the large companies of its geopolitical rivals.
As management becomes increasingly easier to automate, a “wealth tax” on companies would yield a more elegant solution than monopoly busting. A wealth tax of this sort would scale based on the company’s value, as measured by its stock price (or the price of comparables in the case of private companies). This would artificially weigh down dominant players, making it easy for innovative newcomers to compete.
By designing this pro-competition policy as a wealth tax rather than a progressive, scaling tax on profits, large companies would have greater difficulty evading it (a progressive tax would need to be independently determined for each industry). Besides, markets are better at efficiently judging the true value of a company than measures of top-line revenue, which would require criteria that vary from industry to industry. This policy allows monopolies to exist while somewhat tempering their ability to smother innovation. This policy would also prevent a problem common in innovative industries in which VCs flood a company with money, allowing them to sell their services below cost, as doing so jacks up those companies’ valuations.
While aggressive taxation on corporations is typically a strict negative, natural monopolies yield an exception as companies enjoying them don’t accelerate innovation or meaningfully improve citizens’ lives (rather, they are monopolies merely due to an accident of the markets in which they find themselves). The one downside to a wealth tax on large corporations is that it may disadvantage a nation’s largest corporate players on the world stage as they must compete with foreign counterparts that operate without hindrance. This could be mitigated by not only waiving taxes on companies’ foreign profits, but also giving them a domestic tax break that scales in step with the amount of money repatriated.