GM is hemorrhaging cash and wants to merge with Chrysler. Banks are buying and dying like lottery-winning centenarians.  GM and Chrysler say a merger would make for a stronger, more competitive company. The buying-banks argue that they’ll be in a better position to lend if they buy up all the dying-banks. Good strategic moves, all around, right? Bigger companies means fewer competitors and economies of scale– synergy. No. That’s not strategy.

Strategy isn’t arbitrage. Take the big record labels, for example. They exist because distributing a record to the market was expensive– and they controlled distribution. Because of economies of scale, they were able to get a lower unit cost. Low unit cost + wide distribution = music for the masses. Then, in the struggle between art and commerce, commerce won: they sucked the life out of the music biz. Bob Lefsetz puts it quite well:

“Major labels depended on Mariah Carey, who was built for a system that exposed product on MTV and Top Forty radio to a captive audience with few alternative media choices.  To try and sell a ubiquitous twit today is like selling Corvairs, it’s just not going to happen.” 

Then, to make matters worse, they went on a buying-binge and gobbled up all the traditional competition. But they didn’t create any value, they just moved some numbers around. And they missed a big strategic threat: I can record a song on my computer with a couple hundred dollars worth of gear and upload it to any number of places. Seriously low unit cost and wide distribution. The labels aren’t competing with each other, they’re competing with little ol’ me. Big is not necessarily a strategic advantage anymore.

Before Al Gore created the Internet, we needed big companies to sort through the myriad ideas, pick out the best for the most people, and distribute those good & services. We ended up with some pretty bland stuff from big faceless corporations that treat us like moo-ing masses. But I think we’ve crashed into the law of diminishing marginal returns– economically and socially. Now we want to know and be known. And with tools like Google, Facebook, and Twitter, we are the filter. With the help of our friends, we decide what’s best for us. I wonder if, as a society, we’re done with growth for growth’s sake. Leave it to a company like IDEO to lead the way (paraphrased): don’t limit your ROI measurement to dollars and cents. Ask “what’s your social impact?”

So, back to cars & banks.  I can’t make a car in my garage. But GM can’t make one profitably either. They should look at what Honda and Toyota have done: no unions, just mutual respect between management and labor. J.P. Morgan is now the largest U.S. bank… but if I call them, I still have to press 13 keys to talk to a real human being. It’s time to start measuring the human impact. Big does not make my life better. The small things, the micro-interactions, that build up over time are much stronger than big because they’re based on mutual respect and support.

As E.F. Schumacher said way back in 1973: “[I am] small, and, therefore, small is beautiful.”