A Shift Toward Specialization: Higher Transaction Costs Due to Free Speech

Truthfully, I think being politically correct is wrong. Plain wrong. But not because I don’t want to call Asians, “Asians” instead of “Orientals” or whether to say “Blacks” vs “African Americans”, but because of transaction costs that are established by actions such as too many people mistaking social miscues and slangs as derogatory actions. Furthermore, activist groups, who establish legal action and/or civil disobedience, also establish high transaction costs because the cost of performing an activity increases with more resistance.

So, what’s my point? It’s simple. At the way society is moving, the cost to transfer information, assets and pretty much anything will significantly increase, unless we stop being such pompous, uptight elitists. Take the plight by activist groups to the building of a new skyscraper. The first stage would be public protests and petitions with hundreds and thousands of people. Usually petitions and protests create planning delays & bring in legislative & court expenses. If there is a public appeals process, it could create an even further delay.

That seems to make sense for a good cause, right? We should be able to express how we feel, and if the particular legislation exists, we should be able to execute, modify or help appeal it. However, after some point, it gets out of hand. If we protest, change and/or “PC” everything, the marginal costs (scheduling, budgeting & opportunity cost) will be so great that it will exceed the additional marginal revenue in the long-term, creating a non-profitable situation, thereby stunting growth and maintaining status quo.

So, what’s outcome of this all? Specialization. The only way around these higher transaction costs is infinitesimal-ize each of these larger operations into a large number of broken down pieces that specialize in a bunch of different things. The reason for this specialization is that information costs with the growing internet will highly decrease the cost of information in developing countries. Therefore, large companies don’t have comparative (or absolute) advantage because they’re too large and by definition not allocative or technologically efficient.

For example, a large skyscraper might now be run by an umbrella company A. ¬†However, company A hires company B to handle all legal matters. Company B hires company C (specialities of laws in state landmarks)¬†and D (other areas in the city where MC = MR for transaction costs). Company E, F, G, H all have specialized parts in planning, demolition, construction & quality control (I’m sure they have something like this now, but it’d probably be broken down further). Since transaction costs are so high, if it’s broken into the above 7 different transactions (slightly higher cost due to time delay but a lot lower due to specialization & informational costs), you’d end up with a smaller transaction cost due to specialized parties dealing with each facet of the transaction cost (opportunity cost included) that may have slowed you down before.

Is this testable? Probably. How do we find out the degree of the shift? It would probably take a group of Monte Carlo simulations for confidence testing on different industries, global vs domestic dynamics, online vs physical stores, etc, which would only provide a hypothetical situation based upon regressed values and statistical validation. The key points are that if political correctness & activist groups continue to head down these self-destructive paths, the global economy will need to further shift its infrastructure towards lower informational costs, specialization, & finding the trade-off between marginal returns and costs. Don’t let me tell you what will happen. Figure it out for yourself!

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