as labor, equipment, and other inputs, to reduce unit cost. Further discounts could result from increasing the unit size of equipment and buildings or the volume of production and the volume purchasing of inputs, such as raw materials. Establishing specialized management procedures to increase worker productivity also increases return to size. Returns to scale, therefore, is a measure of the change in output resulting from a proportionate change in all inputs.
However, there are diseconomies when the long-run average cost increases. At this point, further increase in scale or size will not contribute to productivity and is discouraged. Causes of rising costs include poor managerial skill, difficulty in coordinating a large workforce dispersed over a large geographic area, and increasing need to travel. The first problem, poor management, would adversely affect any operation but would be magnified in large systems that are dispersed over a large area. The difficulty in effecting cohesiveness among geographically dispersed operations is a significant challenge for managers. Site visits are a remedy, but their effectiveness in achieving operational cohesiveness is not a guaranteed outcome. The cost of travel to distant sites adds to long-run average costs. Thus, diseconomies of scale result when the proportionate change in output is less than the proportionate change in inputs.
External economies and diseconomies occur when the industry as a whole expands. The positive results of industry expansion could lie, for example, in improvements in the labor market, in the establishment of new industries that produce byproducts from wastes produced by the first operation, or in investment in research. A growing industrial sector encourages new recruits to obtain the required training to enter the labor market and create a pool of trained workers to sustain the human resources needs of the enterprises. Under conditions of growth, the quality of worker skills will improve as training programs and institutions scale up and improve their curricula to meet labor demands.
External diseconomies include increase in the cost of inputs unless there is proportional decrease in demand for the inputs or an increase in the supply of the inputs. The long-term effect of decrease in demand of the inputs could be a severely diminished supply and increase in price as producers scale down. The better option for stabilizing or decreasing cost of inputs would be to increase supply to levels that meet existing demand or exceed demand to dampen any tendency to raise the price of the inputs. Studies of agricultural enterprises have found that the mix of inputs will change as the size of the enterprises change.
The notion of economies of scale can also be applied to organizational structures, and indeed, bureaucracies and large corporate structures are by nature complex systems that are predicated on centralizing functions to effect economies on human resources and fixed overhead costs. However, there has been a change in the perception of large organizations. "Big" is no longer seen as contributing positively to the purpose and productivity of an organization. The result has been downsizing, or terminating not only the line workers but top management as well by government agencies and blue chip corporations. In addition to downsizing, changes have been made in the structure of large corporate organizations to decentralize such functions as accounting and marketing, which were traditionally centralized, and assign them to specific product lines. A third organizational change has been the establishing of subsidiaries that form conglomerates under a holding company. These restructuring efforts by corporate organizations are predicated on size reduction to promote efficiency and worker productivity.
Public organizations are not as results oriented. The attempts to reorganize or "reinvent" government by both the executive and legislative branches of government have been almost solely motivated by a desire to downsize "big government" in the interest of cutting budgets and are not predicated on making government operations more efficient. Hence, although the size of public organizations and the quality of their operation have not been evaluated, a "lean" government appears to be equated with efficient delivery of government services to the public.
The ultimate centralization of public services will be possible in the future with the use of computers programmed to interact with the public. The use of electronic equipment to handle and respond to routine public requests, such as license and permit purchases, through a system totally devoid of human interaction, offers a potential for government personnel to be reduced to a handful of technicians. The requirement in this scenario shifts input requirements from human resources to information.
ROSE T. PFUND
Kay, Ronald, 1981. Farm Management: Planning, Control, and Implementation. New York: McGraw-Hill Book Company.
Doll, John P. and Frank Orazem, 1978. Productions Economics: Theory with Applications. Columbus, OH: Grid Inc.
EDUCATION POLICY. The process by which governments formulate strategic directions and initiatives in respect of education and schooling.
No other single issue in education has been so uniformly, profoundly, and readily grasped by governments around the world in the last decade, as the place of edu-