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Why breaking up Ikea prove Marx was wrong

by | 18th, January 2012

WHAT’S the problem with Ikea? Should it be broken up? And why does it prove that Marx was wrong?

Anders Dahlvig, the flat-pack pioneer’s boss from 1999 until 2009, said IKEA faced the prospect of slowing growth and rising costs. He said the chain had struggled under his watch to come to terms with its scale and develop the processes required to manage a company with £20bn of revenue and operating in 41 countries.

Mr Dahlvig said it had taken his 10 years at the helm to introduce benchmarking disciplines but that he had underestimated the “forces” within IKEA opposed to the changes and had left with the job “only 50pc there”. Instead, he argued that IKEA’s octogenarian founder Ingvar Kamprad and his three sons, who own the company through a Dutch foundation, should consider splitting the business in three.

“Let’s say we cut Ikea in three pieces – one in North America, one in Europe and one in Asia – everyone do their own product development; their own supply chain. Their own thing,” said Mr Dahlvig.

What has this to do with Marx being wrong?

Well, Marx said that a market based economy would invetiably lead to monopoly. For there is something called economy of scale and thus businesses would just, as they grow larger, become more efficient. And that more efficiency leads them to grow some more, and the feedback loop keeps going until every industry has just the one company in it: a monopoly.

But as we see here, there’s also diseconomies of scale. As a business grows larger it becomes harder to manage, more difficult to maouvre, and thus becomes less efficient.

Quite where it all plays out depends upon the specific industry, the specific technologies in play. But for almost all industries the diseconomies will mean that nimble young upstarts can still get into the market and thus we don’t move to monopoly. There are others where that economy of scale might, possibly, mean monopoly.

The problem with Marx’s inevitable move to monopoly supply is that we can’t really seem to see any where global monopoly is the efficient scale. Those diseconomies seem to kick in well before that.

 



Posted: 18th, January 2012 | In: Money Comments (13) | Follow the Comments on our RSS feed: RSS 2.0 | TrackBack | Permalink