F— ECONOMIC SCIENCE AND STATISTICS 145 



justify the expenses of holding stocks. This possible source of ineffi- 

 ciency is essentially a problem of scope — the thesis being that a firm has 

 widened the ' scope ' of its transactions too far. 



§ 5. The Industrial Scope. 



An industrial plant may occupy a certain site and consist of a certain 

 size, but the scope of its activities may yet be uncertain. The problem 

 of scope is more familiar under the title of integration, if it is clearly 

 understood that integration refers to any joint performance by one firm 

 or plant of several separable transactions, whether this joint performance 

 occurs by reason of combination of firms, through extension of a single 

 firm's activities or always existed. The policy of industrial firms is 

 constantly concerned with questions of scope or integration. Shall a 

 new process be taken on to continue processes already performed ; shall 

 a new product be turned out from the materials already used for existing 

 products or for the sake of a market already tapped ; shall an auxiliary 

 service be provided within the firm that is now purchased externally ? 

 These are questions in vertical, lateral and diagonal integration that an 

 entrepreneur or Board of Directors constantly find themselves asking. 

 Sometimes the question is in the opposite direction of disintegration, and 

 the firm may decide on a policy of specialising in a comparatively few 

 processes or services or a policy of standardising a comparatively few 

 products. Policies of broadening or narrowing the scope of a firm may 

 be quite independent of policies for increasing or decreasing its size. 

 Employing the same number of men or producing the same value of goods 

 a firm may reduce the number of its lines and, though not changing its 

 size, may thus narrow its scope. Such a policy would increase the scale 

 of production of the standard lines retained. It is this scale of production, 

 not size of firm or plant, to which the economists' laws of increasing or 

 diminishing returns refer ; so that it is not till we consider scope that 

 realistic inquiries link up with elementary economic theory. The terms 

 some of us learned at Cambridge may now at long last be realistically 

 employed. When an industry by reducing scope goes in for general 

 standardisation and large-scale production of standard lines then external 

 economies arise to increase returns. When a single firm or plant by 

 reducing scope goes in for particular standardisation and what I have 

 ventured to call large-scale operation ^^ of standard lines, then internal 

 economies arise to increase returns. If only, alas, there were more 

 realistic research into the truth of these hypotheses ! The material, I 

 believe, is there in the current records of British firms who have intro- 

 duced mass, bulk, or batch production. 



Now such a policy of narrowing scope is being widely adopted by 

 British industry, and often constitutes the core of rationalisation schemes 

 whether or not sponsored by the State. The Redditch needle trades 

 have, for instance, adopted a narrowing of vertical scope so that each of 

 a series of plants specialises in one process ; the paper and, I believe, 



*' Economic Journal, December 1934. 



