Archive for January 13th, 2011

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.