Meanwhile Kansas City had begun its rise. We are told that the trail that brought cattle from Texas was diverted to Kansas City from St. Joseph because St. Joseph's rather conservative city fathers didn't care much for cow dung and rowdy cowboys. In any event, from its start, Kansas City was marked by a boisterous Western touchfar from the genteel French and Southern traditions that had shaped St. Louis. There was no "old" money; in fact, for a while, there wasn't much new money either. But local energy and talent made their mark. The city began to grow, under the leadership of men who were more interested in getting rich than anything else and who, once they had made money, kept putting it back on the line. Kansas City didn't have Washington University, the Post-Dispatch, the St. Louis Symphony, the Brooks Brothers and Social Register of its older rival, or even the gracious old homes that marked Portland and Westmoreland Places in St. Louis. But it had something that is a lot more important for people who are poor and have to make a living: A high rate of economic growth and the jobs that come with it.

The contrast between these two cities is blurring. Kansas City has built a new cultural life, which it was proud to show off during the Republican convention. St. Louis has awakened to the peril, and downtown building is booming; the city seems likely to make it, although it has some way to go to catch up to Kansas City.

St. Louisans are proud of their traditions, and they wonder why the other city has fared better. The fact that Kansas City has had a more active entrepreneurial class is an important part of the answer. Not even the most cultured, exciting, and diverse city can survive without a talented business community, which devotes its energies single-mindedly to growth and which renews itself from one generation to another. Keeping that community alive and well, and making sure that its members continue to fulfill the function for which capitalism rewards them, is the foundation on which all else rests. The history of these two great river cities underlines the lesson.


"The Scout," a statue overlooking downtown Kansas City and the Gateway Arch in St. Louis.




Scale in


The Case of
Consumer Goods

Barry A. Stein and Mark B. Hodax

Center for Community Economic Development
Cambridge, Massachusetts


Competitive Scale in Manufacturing: The Case of Consumer Goods


CDCs frequently face difficult decisions centering on the selection of business ventures. The least problematic part of that activity involves decisions to support or take over established businesses, whose ability to survive is usually fairly evident from observation and analysis of past and present performance. When, however, a CDC decides to launch a new business venture (specifically, a manufacturing plant) it is entering a realm of more complexity and uncertainty. What follows is a description and application of a technique that abstracts certain information from available economic data and that can help reduce risks to some extent.

We will look, specifically, at venture scale, the significance of which, especially in the CDC context, is neither obvious nor universally agreed upon, except perhaps for two points: first, businesses are likelier to succeed, as well as to employ more people, if they are launched at or above a certain level that depends on their chosen market: second, big plants cost more than small ones. This suggests a need to achieve a balance, yet information that would be helpful is difficult to obtain.

Despite the fact that larger firms or organizations are more powerful, have more options, and may in general be better placed to capitalize on opportunity, size alone is not the sole determinant of venture success. Many businesses that are small by any standard do very well indeed, often generating a handsome income for their owners. Many more that are not quite so effective manage nevertheless to survive and at least provide someone a modest living in addition to the intangible benefits of having a "business of one's own. "

Decisions about venture size are particularly important in the case of manufacturing industries because of their capital-intensive nature. CDCs have been more prone to invest in manufacturing than have individual minority entrepreneurs, or, for that matter, small businesses in general, and the manufacturing ventures established by CDCs have generally been

larger (mean employment of 26) than minority manufacturing enterprises (mean employment of 8).' For these reasons, this paper focuses on manufacturing ventures, though the general considerations and approach are more broadly applicable.

In the discussion that follows, we will touch briefly on the significance of venture size on competitive feasibility, particularly given the special concerns of CDCs. After describing a technique for estimating the size of new plants that are entering specific markets, we present the results of the technique as applied to consumer goods manufacturing industries (the reasons for selecting this sector will be discussed later) and an extension of their application in order to determine the market sizes associated with those new plants. While it is no guarantee of success to know what others have done in circumstances similar to those we face, the absence of such information eliminates even the possibility of learning from such experiences.

The Significance of Size in Manufacturing

The relationship between size and efficiency (the microeconomic, costminimizing efficiency associated with profitability in a competitive market) has been the subject of discussion for some time. There is assumed to be a widely held belief in the correlation between efficiency and size, whatever the truth is in fact. Thus, Hollander refers to such views as "commonly held stereotypes," Schumacher remarks, "We are generally told that gigantic organizations are inescapably necessary,' Dahl mentions [The] conventional argument that giantism is necessary in order to take advantage of the economies of scale," and Nader writes of "[The] conventional ,,2 wisdom that efficiency requires giant corporations. None of these authors personally accepts the dictum that large size is essential for efficiency, but all believe that the views they hold are exceptions to the general understanding.

If that is so, we must look for the rationale behind the proposition that large size equals efficiency. One reason is that such ideas are either explicitly or tacitly supported by recognized authorities, even though this sometimes occurs as the result of a simplified view of the issues

involved. For example, Schachter and Dale, in a supplementary economics text, make the following statement:

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