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July 28, 2006
A Vibrant Economy of Niches
Glenn Harlan Reynolds, author of An Army of Davids and Instapundit, explains why so many smaller businesses are thriving while some larger businesses can't get out of the way of their own size:
. . . Lower costs of doing business, and lower costs for customers to find sellers and vice versa, mean that the minimum efficient scale for many enterprisers is quite small. This lets all sorts of niche markets flourish that couldn't exist back in the old days.
. . . the other day I spoke to a couple of brewers. They make their living at a local brewpub, and they seem to do pretty well. They also like their work a lot, and they noted that ten or fifteen years ago there were hardly any jobs like theirs. There still aren't a whole lot, but there are now several brewpubs and microbreweries in most towns of any size, each employing brewers. Another case where small-scale production and employment are offering opportunities that didn't exist just a few years ago, though in this case it owes something to consumer tastes as well as to improved technology.
Now, it's possible to make too much of this trend: Most people won't make a living off of eBay, and it takes an awful lot of breweries to employ as many people as a single auto plant. But all these different niches add up, and it's also virtually inconceivable that all those brewers could be laid off at once, while it's quite common for everyone in an auto plant to suddenly wind up out of work.
It seems to me that while big enterprises will always be with us, we're going to see a much more vibrant small-business (and even micro-business) sector over the next decade or so. I also suspect that neither the culture, nor the people who purport to measure and manage the economy, are really up to understanding the impact of this trend.
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