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aspects, cutting the time spent on education in half. Moreover, as they can share equipment, the cost of equipment is also cut in half. Even input costs can probably be reduced as it is usually cheaper to buy in large quantities5.

The same logic that applies to the move from a one man company to a two man company applies also to a move to three or four persons as that enables further specialization in terms of learning tasks and sharing equipment and so reduces the cost of education and equipment per person. And it similarly enables even the purchases of even larger quantities, and so reducing the per capita cost further. This logic really applies to any expansion of quantities, and so is the basis of economies of scale.

What does this have to do with the issue of globalization? It is very much related to the issue of globalization as it expands the number of potential customers and so enables greater production volumes. If for example Swedish drug maker Astra (now merged with British drug maker Zeneca to form Astra Zeneca) could have only produced drugs for the Swedish market for a disease that affected 1% of the population then there would only be a potential market of only about 90,000. With such a small customer base, only very low research and development spending can be justified. If however Astra could sell in the European market, then the potential customer base would rise to about 5 million, potentially making research and development spending more than 50 times larger potentially profitable. And if it could be sold on the global market, then the potential customer base would rise to 67 million. Even if we exclude some countries that don’t respect patent rights or where people can’t afford it, we would still be talking about tens of millions of potential customers, compared to the 90,000 they would have if they had been limited to Sweden, enabling R& D spending several hundreds times larger to be profitable.

Note that this doesn’t just apply to R & D spending. It applies to all forms of fixed costs. The greater the market, the lower fixed costs per unit produced will be and as globalization means

5 It may be objected that discounts at large quantities is merely a sales strategy and so does not produce any economic efficiency gains. Yet this overlooks how large quantities increases the ability of sellers to gain from economies of scale and further makes demand more predictable.


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