Charles Hugh Smith raises the question of how much of the U.S. economy consists of the actual output of goods and services, versus the friction entailed in producing them. As a small example, he cites a physicians’ group that includes ten doctors — and twelve billing clerks.
The larger and more hierarchical institutions become, and the more centralized the economic system, the larger the total share of production that will go to overhead, administration, waste, and the cost of doing business. The reasons are structural and geometrical.
At its most basic, it’s an application of the old cube-square rule. When you double the dimensions of a solid object, you increase its surface area fourfold (two squared), but its volume eightfold (two cubed). Similarly, the number of internal relationships in an organization increases as the square of the number of individuals making it up.
Leopold Kohr gave the example, in The Overdeveloped Nations, of a skyscraper. The more stories you add, the larger the share of floor space on each story is taken up by ventilation ducts, wiring and pipes, elevator shafts, stairwells, etc. Eventually you reach a point at which the increased space produced by adding stories is entirely eaten up by the increased support infrastructure.
The larger the scale of production, the more it must be divorced from demand, which means that the ostensible “economies” of large batch production are offset, and then more than offset, by the increasing costs of finding new ways of making people buy stuff that was produced without regard to preexisting orders.