Economies of Scale

Question

Something that we generally see on earth is economies of scale. Large companies can be more efficient as they are producing massive amounts of the same thing. This can easily be seen if you look at the cost of something like a new mobile phone and then consider how much it would cost you to have someone design and build something equivalent as a once-off.

What are the limits on this though? We already ship things all around the world but once we develop interplanetary and interstellar travel will that still be the case? Could we conceivably see planets which run cheap production lines mass producing components that are then shipped to all other planets, or does the increased cost and time of shipping mean that each planetary economy would mostly run independently from the others?

I realize the answer will change considerably depending on just how hard and expensive space flight is. Lets say that we do have FTL travel and while it still takes a few days to reach other planets in our solar system it only takes a few months to reach another solar system entirely.

Answer 1

Really, since you are setting the universe, it is up to you to "tune" (how fast and cheap is space travel, or how big and flexible demand is, for example) it up to decide if it is appliable or not; I will just point out issues against such specialization.

• Transport cost: As bookeater already stated.

• Transport throughput: As more and more produces are sent through the space, space in cargo ships becomes increasingly difficult to book, and expensive.

• Transport time (1): Your produce may not be well suited to spend a few months in a spaceship, with that all that void and space radiation and that.

• Transport time (2): Your product may be subject to seasonal changes, and may be not that predictible. Of course, you may quite predict when winter/summer clothing will be needed, but maybe you won't know what this year fad is at Coruscant until it is too late to create the clothes. A local clothes designer at Coruscant will know before, and will have their clothes in the market in time for the season.

  The same applies also for consumer technology, your brand new iPhones 5000 would arrive just in time for everyone to be excited by the new announcement of the iPhone 5001.

• Transport time (3): A commerciant asking you for a 1.000.000 worth of credits in alzymenes (and paying 50/50), will have to borrow/have available 500.000 to send to you for almost half year (assuming three months of travel for spaceships) and that is not counting production time! If he pays a local supplier, maybe he will pay a little extra for each unit but he will have to pay less interest for the loan.

• Legal issues: The above commerciant may prefer to buy to a local producer because, if the alzymenes end up a little too much depolymerized, he knows where he can sue to get his credits back.

• Not really that scalable: If you have a production line that can produce 100K cars a day, you may want to produce 100K cars/day to get the maximum ROI. You may invest a little and get it to produce 150K cars/day. But at some point, You produce, say, 150.001 cars/day, you will need to setup an additional production line (or invest as much as that in the original line to get additional improvements). At that point, unless you are sure your demand would be high enough to justify the inversion, it makes sense just to produce less, even if it allows small producers to get into the market.

• Supply: Your local industry provides enough raw material for just 100K cars a day. If you want to increase production, you must purchase raw materials abroad (so you get the "transport cost", "transport trhougput", and "transport time" issues again, but in reverese).

• Politics(1): Buying governments may not be happy if a sensitive sector is enterely dependent of foreign commerce; even if relations between customer and provider governments are good, a war (even with a third party) might make commerce impossible and leave them vulnerable.

• Politics(2): As more and more of the industrial production of the provider is geared toward selling cars, the more that planet depends of commerce to get all other kind of supplies ("Dutch disease"). The local government may step in to diversify the economy, in order to:

  • ensure themselves an alternative export market in case the first one "flops".

  • again, get some self-sufficiency in strategic sectors (food, medicines).

Answer 2

Independence it is.
An inter-system economy is not going to happen, unless teleportation becomes cheap and safe, creating a single economic zone across the universe. And maybe not even then.

Even if FTL or some such becomes economic, there are other factors:

Getting products off, then on-planet carries a prohibitive (energy) cost.
This eliminates everything but epic mark-up goods. For example, getting one space shuttle in orbit burns up about 1,735,601 kg of propellant at a payload of 22,700 kg (1.3%). One space shuttle mission can cost as much as $500 million dollars.

Environmental contamination, bad as it is cross-continent on earth, potentially destroys planetary ecosystems.
One or two catastrophes later, you will either have a taboo or ultra careful procedures. Some background can be found here and here.

What may develop are out of gravity production centers but those will usually be tied to the "local market", or in-system.

Answer 3

Economies of scale are usually written with assumptions of very linear trends. They tend not to hold up in chaotic systems where there are smaller niches like whirlpools of oppertunity.

One place we already see diseconomies of scale is in goods whose deliver time is hopelessly unpredictable. In the world of organ running--- I mean professional organ transportation, there is a remarkably short period of time between knowing when an organ is available and when it needs to be delivered. In this little corner of our world, there is no economy of scale. Organs are often transferred on private jets chartered from small companies, simply because they can manage the unpredictable schedules better than any large carrier. Sometimes the organs are brought from hospital to plane by a different company than actually manages the charter plane.

Answer 4

Planets would specialize production if they had local resources which made production of that item advantageous. For instance, a water-based planet would be more likely to export something which requires a lot of water to produce than a desert planet. Same for minerals vs. gas giants. A water plant could product hydrogen gas through electrolysis, but they would likely make far more money producing luxury crops than mass molecular hydrogen for fuel. Similarly, a gas giant could run hydroponics labs which create "gas giant wine", but this would be foolish compared to just running a molecular hydrogen export refinery.

Planets may also specialize to fill niches. Two green planets may be able to grow crops equally well, but may diversity where one grows grains and the other grows fungi because direct competition is less profitable than specialization. They may even terraform their planets to directly optimize production, which would increase the cost of producing non-synergistic goods. While any planet could grow mushrooms in a cave (even an artificial cave), not every planet would expend major resources to develop new varieties and engineer designer mushrooms. But a planet terraformed as a mushroom haven would do this to maximize profits.

Transportation cost can be mitigated with a space elevator, but inter-planetary transit time is a bigger problem.

Some planets may specialize for sensitivity and political reasons. For instance, one planet may specialize in harboring criminals because other planets are simply happier to outsource the running of prisons and the accompanying security. Some planets may be chosen as exclusive military bases for strategic or secrecy reasons. And some may be chosen as undeveloped oases by people with a certain philosophical bent.

So the question is not so much: "Would economies of scale justify inter-planetary specialization?", because the answer is: "in a few cases." The real question is: "What are the set of reasons that planets would specialize?" And these are legion.

Answer 5

Without intervention (or environmental & cultural impacts), I see no reason why a planet wouldn't ramp up their production of an item in demand, if they have the materials, technology and coordination to do so.

Planet Mikey has huge volumes of naturally occurring cheese. In addition, it has the workforce, technology and ability to massively produce cheese products and ship them efficiently to planets who are great at manufacturing pizzas, sandwiches and so on. Why wouldn't the Planet ramp up the production, unless there were trade blocs, etc. or environmental issues with the practice?

I don't see the practice changing, but then again, you're talking very far into the future, and I just used a cheese-is-a-mineral example.

Answer 6

Even now, on Earth, Economies of Scale don't make sense longer term, what we're really seeing is labour being outsourced to a cheaper location. Cities for example, struggle massively hauling all the foods, goods, utilities into them and waste and and excess humans out of them. In an interstellar setting, this perhaps means some slave colonies on outer planets in barely habitable settings,cheaply producing for the rich 'central' worlds. What is best overall, is local ecosystems - if everything is produced locally, it means no dependence on external system and fragile interplanetary freight. Self-replication and robots assembling (a'la 3D printing) everything would also mean no point in Economies of Scale and the only thing that would need to be transported would be any imbalance of base ingredients (elements). This of course could also be portrayed as one corporation holding keys to the replicator machines or something similar.