What Walt Disney Understood About Comparative Advantage

Disney

One of the interesting things to analyze from an aerial view is the difference between how strategies are taught in the classroom and how they are executed in reality by those with real world experience. For instance, in business schools across America, students are taught that it wise for a company to take on debt in a low interest rate environment if it can earn higher returns on capital with that money when adjusted for the interest rate payouts. Of course, old-school operators understood that you cannot go bankrupt if you do not owe anybody anything and tended to eschew debt in good times because it could turn into a noose that drains cash flow in bad times.

An education in “comparative economics” offers a similar divergence between how things work in theory compared to the real world. In textbook economic theory, you are supposed to focus on what you do best and outsource production to anyone who can produce the same good at a higher quality and/or cheaper price that you can (i.e. if one entity has a “comparative advantage” over another in a particular area, you should hire them to fill that need for you).

However, a guy Walt Disney completely ignored the economic teachings of comparative advantage when constructing Disneyland and relied on minimal outsourcing and created countless departments in-house that could do the creation itself, even if it came at a higher cost. Why did Walt Disney do this? Because Walt Disney understood that anytime you outsource production and need to rely on others, you are transferring power to them, and by extension, giving them a form of control over your own happiness. If I own a furniture store and hire a box company to make shipping boxes for my goods, I am in turn relying on them to meet my needs. A problem arises if one of two things happen: What if they do not deliver as promised? What if, over time, they recognize their power over you, and as the sole box-providing alternative, raise prices to reflect this reality?

Walt Disney structured his life in such a way that he did not want anyone else to have direct control over his happiness. After an employer seized the rights to Oswald the Rabbit from him, he basically said, “Screw it, I’m doing everything by myself!” for the rest of his life.

Applying this lesson to our own lives, we need to be careful about whom we outsource necessary parts of our lives to in the name of short-term convenience. The second you rely on someone else to meet your needs, you are by extension giving them control over your happiness. Be careful when you put yourself into those situations. Disney got burned big time outsourcing to others, and he spent the rest of his life making sure he was the master of his own domain, even if it came at great cost to himself.

As a short-term tool, the rules of comparative advantage make sense because they improve your life in the short term. The risk to you is that such an outsourcing may lead to long-term dependence. Take a look at your own life. Determine who and what you are dependent on to be happy. Ask yourself if you are content with the amount of power that others can theoretically wield over from you. If you don’t like your current arrangement, take deliberate steps to gradually change the status quo in your own life over time. You can be like Disney and take charge of your own life. Hopefully, you’ll be able to do it without getting burned first.

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5 thoughts on “What Walt Disney Understood About Comparative Advantage

  1. Will says:

    Your articles are always an interesting read! This particular writing reminds me of the problem Apple is having with Samsung. If I am correct I think Apple relies on Samsung to make a few of their products (iphone, ipad, ect). By having a competitor or 3rd party make products Apple is at a disadvantage.

    1. Tim McAleenan says:

      Sure thing. We can even take the comparative advantage logic and extend beyond financial capital to power in general. We all bring something difficult to the table that makes us appealing to others: some people are sought after because they are intelligent and can solve problems, others because they are physically attractive to look at, some because they are witty and emotive & know how to make other people feel good, others because they have money, and so on.

      We've all seen people suck up to Person X at a party because he's rich and perceived as powerful. Well, if he lost his money, some of those fawning friends might disappear.

      We've all seen the whipped guy with the hot wife who is completely powerless in the relationship and does her bidding. Well, if she put on twenty pounds, he might be more assertive in the relationship.

      The best example is athletes. Think about the posse and entourage the big namers have during the prime of their careers. Those guys tend to disappear once the money is gone and the limelight for Athlete X fades.

      The moment you rely on someone to meet your needs (be it an employer to give you money for your labor, a lover to satisfy you, etc.) you are giving that person/entity power over your ultimate happiness. With the stakes that high, it's worth being cognizant of those dynamics.

  2. Waterbuffalo says:

    "The moment you rely on someone to meet your needs (be it an employer to give you money for your labor, a lover to satisfy you, etc.) you are giving that person/entity power over your ultimate happiness. With the stakes that high, it’s worth being cognizant of those dynamics."

    Yes it is. Such great advice on this site! From a strategic perspective, it is prudent to consider the power advantage in so many aspects of life.

    It could happen with annuities also. Imagine giving $250K to some insurance company with the promise that said company will give you a lifetime of retirement income. Too much power for one entity to have over me. Especially when a perfectly good alternative is to buy a stake in the top 25 corporations on the planet and collect the passive income from them. Sure the board at any one of those corporations could cut or eliminate the dividend, but history shows that they don't often do that – and even if one did, the other 24 would still pay (and increase) their dividends. That is a better power dynamic than the annuity for my money.

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