I would expect an essay talking about smaller is better to discuss two things I didn't see there (although I'm pretty tired from having driven through the Alps, again):

* Coase and lower transaction costs. I think this generally favors pg's argument.

* Capital requirements for new companies. With internet startups, these are extremely low. Is this an anomaly that will disappear soon? Is it a new trend that will spread to other fields? Is anything else that has 'gone before' comparable to this field's low capital requirements?

One reality that perhaps should have been touched on in the essay is the effect of increased regulation on a field over time, which overwhelmingly tends to favor mammoth organizations.

We're already seeing this, of course. Bad laws have real consequences, and it often becomes politically impossible to repeal them. Sarbanes-Oxley has all but shut down the IPO exit. Consider what the expansion of 'know your customer' laws to online commerce might do to startup SaaS businesses, for example, when you consider the huge compliance costs. And there are a million ways to hamstring online startups in the eternal quest to 'protect the children.'

Coase's argument really applies to the ratio between internal and external transaction costs.

While we've certainly seen a decline in external transaction costs, I think we're also seeing a decline in internal transaction costs. This may eventually spell the demise of the hierarchically rigid organization if organizations become more internally flexible and democratic (this is certainly not yet the case), but as PG points out it won't spell the demise of large organizations per-se.

> Capital requirements for new companies.

Capital requirements for software companies might have gone down due to better tools and cheap hardware. However, it's gotten more expensive, and borderline impossible given the regulatory environment, to start any sort of operation that builds, grows, mines, or transports things. I'd bet it's more expensive to start a medical practice or an accountancy now than in the past, too.

I don't think enough people highlight how many startups depend on open source software to keep their costs low. Everyone knows it's the case, but it doesn't seem as highlighted when people talk about near-zero startup costs. Without Apache, PHP/Python/Ruby, MySQL, etc. etc. we'd all have to be buying webserver software, databases, frameworks, etc. or wasting a lot of time (and thus capital) rolling our own.

I think Paul's point is based on the fact that new technologies are coming along faster, and thus new industries are being born faster than ever before.

And as you say, "Young, fast-developing industries tend to produce rich ecosystems of startups".

These two points imply that the trend is to have many young industries (many more than there are old), and thus many many more startups than big companies.

Further, he mentions how new technologies are game changers. Big companies cannot adapt as fast as smaller ones, and therefore their "death-rate" will be higher.

At the end of the day, I think you're not taking into account the fact that the rate of technological innovation is accelerating. This fact is going to be a large cause of much social and economic disruption (a good thing).

I think the other piece that's missing is that the role of corporations in society has changed drastically. I don't think they're fundamentally for the same thing as startups in the modern world. Paul's essay mentions large companies being less successful in the immediate future, but I don't think they're playing by the same rules, fundamentally.

Perhaps the closest example I can think of here is the transformation that happened in both Christianity and Islam with the rises of the Catholic church and the Caliphate, respectively. At a certain point their religious function became incidental. They were by and large instruments which brokered in power and influence.

You can see a similar pattern in governments founded through populist revolutions based on ideologies as they've transformed into world powers. Liberty, as such, has for quite a while ceased to be the primary function of the US or French governments.

In the same sense, I believe that the modern trans-national corporation has ceased to be an entity that exists primarily for the propagation of products and services: they are also brokers of power and influence. There was a first colonial phase starting at the middle of the last century where corporations became powerful political influence outside of their own home territories and since the 70s or 80s they've extended to becoming powerful forces even within the machines of the modern super-powers. Drawing another analogy, what I believe the modern renewal of small companies is effectively a reformation akin to what's been seen in religious institutions, where there's a sense of things getting back to the ideals. I feel like it's still too early in history to see if this will be a fundamentally disruptive change, or merely a blip in the growth pattern. Again, history provides some examples there for example in the Wycliffe-ian or Hussite movements, which preceded the more dramatic changes of the reformation and counter-reformation (and before those movements themselves began creeping towards instruments of power). The real reformation may still be yet to come.

In addition to this trend in individual industries, there's also an underlying trend across industries. The emergence of organized VC firms to supply funding for new startups (regardless of industry) is evidence for it. The funding of new companies used to be more haphazard, because it was a comparatively rare event. Starting in the 1960s it became more common, and more deliberate.

VCs are an industry unto themselves: I agree that that implies a shift towards start-ups. My question would be: what's there to stop a shift in corporations' becoming merely comprised of much smaller modules? Google works by having many small clusters of teams working on big things, so they're able (in some cases, not all) to innovate as quickly as start-ups in their fields, but with the advantage of firm corporate backing. Not many large companies are doing the same, but what's stopping new corporations from forming specifically with modulation in mind? Or would you argue that a development like that is similarly higher-res?

Steve Yegge disagrees with your idea of Google's operations.

http://steve-yegge.blogspot.com/2007/06/that-old-marshmallow...

Maybe it's just the fact that I am a naive hacker-in-training, but can you interpret the story a little bit? It really bugged me the first time I read it, and still does.

In this podcast [1], Steve explains that this was a story of an Evil Manager who "slipped into" Google, and took a long time to be discovered. He suggests that he was fired after the story (although he doesn't say it outright).

In this interview, Steve also points out a point along the lines of the ancestor poster's - that Google encourages employees who are ambitious enough to start "startups within Google".

1. http://blog.stackoverflow.com/2008/10/podcast-25/

Forced to eat marshmallows == Suffering from overhead imposed by the management little at a time. It looks like no big deal when viewed individually... but quickly becomes nauseating in aggregate.

Also you can feel the helplessness that management creates perhaps inadvertently in the engineering team.

Actually the eating marshmallows thing is an allusion to having to eat the Google dogfood: there were new Google tools all the time that his team was forced to use.

I think this would help focus the discussion: Can you give me an example of any specific sentence or passage in the essay that you believe is false?

Here is one:

Large organizations will start to do worse now, though, because for the first time in history they're no longer getting the best people.

I believe this statement to be false. Sampling from my college class and my smart hometown friends, the most common careers are, in order: 1) Law School/Med School 2) Wall St. 3) Consulting 4) Government 5) Academia 6) non-profit 7) other large corporation 8) small business. Perhaps 1% are working for a startup.

This dominance by large organizations is historically weird. For most of American history, the goal of an ambitious person was to own his own business or farm. The really ambitious would aim to turn that small business into an empire. Statistically, the average firm size was far, far smaller in 1900, so most ambitious people would be working for small businesses. Anecdotally, my great-grand parents mostly ran a business or were self-employed. But my father and uncles were mostly "organization men", as are most of my peers.

I think relative to 1960, people today are more likely to work for small organizations. But the "organization man" economy of the 60's was a creation of the New Deal and World War II. We're still trying to unwind the consolidation of that era.

Ok, so you agree that since 1960 it's been true that large organizations no longer get all the best people. The question is whether before that ambitious people were drawn to larger organizations or not.

You have (accidentally I realize) selected a very anomalous time and place as your counterexample. In the first half of its history America was practically unique among richer countries in having huge amounts of unsettled agricultural land. So yes, in America between 1650 and 1850, a lot of ambitious people moved west to establish new farms. But broaden the scope to include the rest of the world, and the time to more than that 200 year window, and ask the question: did an ambitious person stay in his local village and farm, or did he leave to seek his fortune?

You can also approach this question from the other direction. Examine a large organization for its time (e.g. the British East India Company, the Medici bank, Cluny, the papal curia) and ask: were the people running it more or less ambitious than peers who'd stayed on the farm?

Either way you get the same answer.

It wasn't just the American west that attracted the ambitious. Sample from a time and place with healthy entrepreneurial capitalism and I think you'll find that ambitious people had a much greater inclination towards starting a business than they do today. Examples: every American city pre-1930, most of Western Europe between 1815 and 1914, the Netherlands post 1600, and Venice in the 15th century. Nothing like our modern "organization man" economy existed in these places. Ambitious, upwardly mobile people did not find safe jobs as managers. They did not rise to the top by climbing the ladder. They started workshops, built factories, and captained merchant ships. The British East India Company and the Medici bank were among the world's very first startups, and they were both highly successful. I'd also note that the Medici bank had fewer employees than a well funded silicon valley startup. And each of its nine branches was a semi-independent startup - kind of like your "pooled-risk management company".

Of course, in places without entrepreneurial capitalism, most ambitious people aimed to work for large existing organizations - usually the government, church, or military. Examples: France before 1815, the papal states, China for its entire history, the late Roman empire, modern Japan, and modern Europe.

It seems part of your thesis is: "For most of history, ambitious people sought to join large organizations such as the church, state, or army. But with the rise of entrepreneurial capitalism, ambitious people instead chose to start or join small, growth oriented businesses"

I agree with this part of your thesis completely. My point of contention is that I don't think entrepreneurial capitalism began in the late twentieth century. Entrepreneurial capitalism began in earnest around the 17th century, and peaked across the Western world in 1914. Then the world wars and the progressive movement almost completely wiped out entrepreneurial capitalism and replaced it with the civil service state/managed capitalism.

The rise of Silicon Valley is a step towards restoration, not a brand new innovation. Nor are venture capital firms anything new. It used to be that banks and angels were the primary sources of venture capital, see the Boston Associates for one example of many: http://en.wikipedia.org/wiki/The_Boston_Associates. But post-New Deal, banks were highly regulated, non-risk taking entities. The 95% marginal tax rates severely limited the supply of wealthy investors. The founders of Silicon Valley had to basically reinvent the wheel and call it a different name.

Ambition has too low dimensionality to describe the differences between farm founders moving west and the leaders of the industrial revolution. I agree with your essay though.

> the goal of an ambitious person was to own his own business or farm

Establishment elite have used government to pervert the risk-return relationship. You can get relatively low risk high returns as a doctor, for example, because the profession is cartelized.

http://www.2blowhards.com/archives/2007/02/risk_reward_and.h...

When I read the sentence "An ambitious kid graduating from college now doesn't want to work for a big company.", I stopped reading. Over-generalizations doesn't work.

I think you need one more piece:

Mature industry = chance for disruptive change = developing industry