What Walt Disney Understood About Comparative Advantage


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.

Originally posted 2013-08-16 21:03:37.

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