Power to the People

(Part 2 of a two part post)

As I noted yesterday, the great compromise between labor and business ushered in an era of record prosperity and stability for the industrialized west.  It expanded opportunities for the lower classes, gave most people access to education, health care, and a functioning social welfare net, all while allowing businesses to prosper, expand, and innovate.   After the ideological battles of the first half of the 20th century, the success of the second half is astounding.

Yet we are in crisis.  Most industrialized states have government debt of 60% of GDP or more, while private and corporate debt is often three times as high.   So much debt in every sector of the economy cannot be sustained.  The cheap credit bubbles that led us here have burst, and it’s still possible that we are at the start of “Great Depression II.”   Moreover, the crisis is global, and the economic re-balancing it entails could breed instability and conflict.   The 65 year run of prosperity and stability in the industrialized world could be nearing an end.

So how do we prevent that from happening?  First and foremost is to avoid sacrificing ‘the great compromise.’   The compromise had two aspects.   First, the workers got true opportunity to succeed and have their children live a life better than theirs, thanks to a social welfare system that guaranteed the basics and protected worker rights.    Second, capitalism and markets could function, allowing businesses to innovate, profit and grow, thus yielding a materially prosperous society.    Now both the left and the right risk going beyond the terms of the compromise, and thus endangering it.

The left risks expanding governmental power and social welfare guarantees to the point that they do not only assure equal opportunity and basic needs, but are used instead to shape and mold outcomes.   The right runs the risk of going beyond the terms of the compromise by empowering big business to begin exploiting again — this time third world workers via globalization.   If production shifts to the third world, the short term benefit of lower prices for us is offset by long term problems of economic sustainability.   The middle class will shrink, the number of workers will decline, and less profitable and productive service sector jobs will dominate.   Working class opportunity will fade, and you’ll end up with a bifurcated society of the very wealthy and a large and relatively poorer lower middle class.

But how do we prevent the compromise from fraying at the edges, with both the left and the right breaking its terms until they set up a crisis that comes equipped with its own ideological holy war?   How do we avoid the kind of instability that marked the first half of the 20th Century?   The answer may be surprising: devolve power.  Give localities, states, and regions more money and control of policies and regulations.    Give people more power over big corporations and financial institutions.

This is possible because now even small towns have access to data and information that used to require central bureaucratization.   With resources, a state or county could run a health care system or aid for poor families in a way that used to require more central control.   The problem with central control is that bureaucracies are bad at adapting to particular circumstances.   They thus require ‘standard operating procedures’ that work adequately well most of the time, but rarely at an optimal level, and sometimes creating absurd Kafkaesque outcomes.   Bureaucracies are also very conservative, and do not adapt well to change — not a good attribute in this era of rapid and unexpected change.   All this makes bureaucracies inefficient and expensive.

If this could be localized, money could be spent more efficiently as local idiosyncrasies are taken into account.  The staff would be better able to adapt policies to fit individual cases that don’t fit the norm.    Broad guidelines could come from above, but everything from qualifying income levels to the amount of aid could be related to local prices and contexts.   Moreover, people would be empowered to define what problems should be addressed and even develop alternate solutions.   Before the digital age, this was simply beyond the scope of local or even state governments.    Not any more.

One can imagine the central state (or for the US, the federal government) shrinking over time, as more power and resources are given to states, while state governments would devolve more power and authority to the locals, something Jerry Brown already proposes for California. Thus while many programs might be reduced or eliminated, there would be more local control over the specifics of how this would happen.   The social welfare side of the great compromise could be made sustainable even in lean economic times.

The same logic could apply to big money.   Big corporations and financial institutions often have more power than most sovereign states.   They lack the protections of sovereignty, but also the burdens.   They are immensely powerful, and can use that wealth to manipulate political outcomes and circumvent both governments and markets.   Their flaws, as with the flaws of big government, come from too much centralized power and too little transparency and oversight.

Just as the left has to question its devotion to big government, the right has to recognize that big business is not somehow pure and uncorrupted just because its not government.   Centralized power acts like centralized power, whether its a government or a corporation.    The key here is to open up and democratize corporations — with the effect of altering them as much as the radical devolution of government power would alter the state.

Right now corporations are assumed to be responsible only to their shareholders, with their primary job being to maximize profits.  Yet in the US, at least, corporations are considered “individuals” before the law, like any citizen.  But while we tell our children that citizens have responsibilities, and we aren’t to just selfishly try to enrich ourselves with no regard for morality or others, that is precisely what we say corporations are supposed to do.

What if corporate decision making bodies, such as boards of directors and executive committees, had to include members of the public who represent the interests of communities, workers, environmentalists, and others.   The idea is that corporations need accountability and transparency just as governments do; big government and big business are more alike than different.    The choice to relocate in Vietnam would depend not just on the bottom line, but also the impact on the community.   Confidential information would now be open to the public (something Wikileaks like developments will cause anyway).

Since businesses are global, the difficulty would be in defining the relevant communities here, simple geography won’t suffice.   Over time the digital age may prove this less problematic than it seems to those of us still living with a world view shaped in the 20th Century.   Diverse populations can be brought together in communities rather easily, as Facebook illustrates.    Corporations will still generate profits, innovate, compete in the market, and remain capitalist.   They will simply be run with broader accountability, reflecting their responsibilities to both shareholders and the larger public.

In short, a radical rethinking of both government and business can save the ‘great compromise’ and bring us an era of continued prosperity.   It is premised on bringing the old slogan “power to the people” to life.    Real power, power over governments and large corporations, will be held in part by people in local and regional governments, now capable of getting information and acting on it thanks to the dramatic transformation of social, economic and political life caused by the information/internet revolution.

Imagine.

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  1. #1 by renaissanceguy on January 15, 2011 - 2:32 pm

    Good post. Very thoughtful and thought-provoking.

    You wrote, “So much debt in every sector of the economy cannot be sustained. ”

    True. I wholeheartedly agree.

    You also wrote, “The left risks expanding governmental power and social welfare guarantees to the point that they do not only assure equal opportunity and basic needs, but are used instead to shape and mold outcomes.”

    I think we’re beyond risking it. It is clear that it is the goal of many on the left. It has been the general trend since at least the War on Poverty started, if not before.

    You also wrote, “The right runs the risk of going beyond the terms of the compromise by empowering big business to begin exploiting again — this time third world workers via globalization.”

    Ah, but the left and right both have a hand in empowering big business. The left do it by regulating and taxing small businesses literally to death. There could not be huge corporations in an economic climate in which many small businesses were competing fairly and freely against each other.

    And I think that the left is in a quandary when it comes to globalization. They claim to want to help developing nations, but providing jobs is one of the best ways to do that. They, it seems, are the ones who talk most about a “global village.”

    You wrote, “This is possible because now even small towns have access to data and information that used to require central bureaucratization.”

    I do not understand. Long before there was access to data, local governments handled much of what the national government now does. You write as thought the national government always provided benefits and services to people.

    The earliest schools in America were administered by the town, the county, or a local district. Eventually states made public school free and mandatory, and they set some guidelines for them. They set more and more guidelines and created state boards of education. Then, farther down the road, the national government got into the picture. The Education Department was created, grant money was tied to compliance with national guidelines, and some now talk of a national curriculum for all public schools.

    The same is true with aid to the poor. That was something that towns and counties used to administer. Eventually state governments took over, and then the national government got into the middle of it. My mother still remembers a poor farm run by her town that provided food and shelter to needy peopel in exchange for work.

    You don’t need access to data to do these things. You just do them.

    —–

    As for big business, I have already made on comment. Now I’ll make another.

    The only way to accomplish the goals that you suggest for weakening the power of big business is by force. Once you apply force, you no longer have freedom. What right do you or anyone to take over a business and run it according to your ideology?

    I do not like big business, either. That’s why I said that we need more economic freedom. In a free economy, there are lots and lots of small businesses competing freely and fairly, and it is difficult, if not impossible for any one company to become huge. As soon as it does, somebody else will sell a better product, or a cheaper product, or one with more prestige.

  2. #2 by Scott Erb on January 16, 2011 - 7:38 pm

    I think once we got into the 20th century the economy and society grew in such complexity that functions that could be done in towns and localities became more efficiently handled from a central state. In the US towns still generally handle education and a lot of things like that, but the elements of the great compromise — social welfare guarantees in exchange for labor peace and acceptance of markets — required more centralized control. Now, I think that control can be devolved.

    I don’t think taxes are a major expense for most businesses — they’ve been getting rates cut and other breaks for sometime. I think high labor costs is the big reason they out source. Breaking centers of centralized power — be it by big business or big government — means the people having to exercise power, or force via law to hold those with power accountable. Because when they have the economic clout, that is the ability to exert tremendous force, accountable only to the market (only to those with wealth, whose business they want). Physical force is the crudest and in some ways least effective method of force. So yeah, power and force area always present, The goal is to democratize its use, and make sure that the use of power is transparent and accountable to the people.

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