As loyal readers will have probably surmised, I try my best to capitalize on people that are smarter than me writing about the same concepts I write about. I’m relatively unknown as far as the
economics entire world goes, so cross-referencing what I write with more credible people signals my own credibility. Unless you ruin it by explaining the mechanism (but I’m pretty sure you get the gist if you spend any amount of time and/or energy reading Robin Hanson).
I suppose that the diminishing marginal product of labor concept could also arise because more employees mean more meetings, and we all know how productive the typical meeting is.
Now as anyone in the business world (except middle-managers and annoying marketing types) intuitively knows, meetings themselves have a steep diminishing marginal utility. Not only that, but it gets more complex. A lot of types of meetings have strong network effects. Thus given the proper resources, a single meeting attended by a large group of engaged people has a much larger marginal product than multiple meetings with few people. Furthermore, mirroring what Jodi said, I had this to say about the exponential explosion of interactions in a densely connected network (like a startup):
Now at this point, your company is (characteristically) disorganized. Your four departments come to you for decisions. As a founder, with your new product idea, instead of one connection, you now have to have meetings with marketing, finance, and customer service to ensure that they are all on the same page. You now have three meetings instead of one. Since you are becoming tired of being the focal point of information, you promote a head of each department, and instruct them to coordinate with each of the other departments (which they do…e-mail inboxes and conference rooms are full!). Now, you have an idea for your third-generation product…but you find something strange has happened. You have a meeting with marketing, but before you get the department’s “okay”, the marketing managers have to meet with finance about a budget. The finance folks have to estimate the customer service impact…and the customer service department needs to check with marketing to make sure their information is in line with brand imaging…you just went from three meetings to ten.
This exponential increase in the amount of meetings is caused by the increase in the density of your network connections. If you added merely one more department, the number of meetings would jump to 25. You have a bureaucratic quagmire. Small changes in one part of your network (marketing) have cascading effects throughout the network. Imagine if one department got held up during the development cycle…every one of your departments would be in gridlock. This is called complexity catastrophe. Densely connected networks become less adaptable as they grow. The existence of such phenomenon is the reason that the armed forces inflict such disproportionate costs on insubordination.
Networks are fascinating, and going forward with my education plans, I will be exploring the effects of network phenomena on the formation and evolution of human capital…which means I’ll be spending my days in fairy-tale land.