centralized capitalism, corporate profits, Corporatism, decentralized capitalism, economic ecosystems, effectiveness, efficiency, Hayek, human capital, human dignity, Indiana University Kelley School of Business, local economies, modern complex societies, Schumpeter, social capital, sustainability
Over Thanksgiving break, a vandal scrawled the following graffiti across an exterior wall at Indiana University’s Kelley School of Business:
It may be a convenience for a graffiti artist to use “capitalism” as a monolithic term – just as “socialism,” “communism” or “anarchism” are treated in the same fashion – but it is indeed small minded to maintain this monolithic treatment within serious discussions. There is – surprise – more than one type of capitalism, and the time to discuss the alternatives has arrived, now.
The arguments against (centralized) capitalism are numerous, and the examples of the dysfunctional nature of centralized capitalism – as it has emerged over the past couple of centuries – are readily found. But I remain supportive of (decentralized) capitalism because I believe there is something intrinsic in the nature of humanity that desires recognition for one’s efforts.
Sadly, this “recognition” has been translated by centralized capitalism to mean one’s salary, but that is a very empty translation. We can live in trendy neighborhoods, drive expensive vehicles and join the exclusive clubs but at the end of our lives, on our deathbeds, we realize we were just another anonymous gnat on the ass of the universe. The world, at large, does not know us, appreciate us, or can even comprehend what in the hell we actually accomplished while manipulating spreadsheets on our computer monitors. Centralized capitalism – with the exception of the very few – renders us anonymous, insignificant, and isolated.
Decentralized capitalism holds the potential to render us valuable, as being significant, as holding meaning… within a local community, within a local economy. I may be nothing more than the village butcher, baker or candlestick maker, but I provide an invaluable service to the local residents of my neighborhood or village. I am recognized for my work, and the value I bring to a community. Such recognition, value and sense of dignity cannot be bought with a paycheck.
Often my writings on decentralizing economic structures are attacked as mere simplistic yearnings for the past. But this is little more than a weak attack launched by underdeveloped thinking attempting to dismiss, out of hand, the argument for decentralized economies. As F.A. Hayek asserted in The Constitution of Liberty:
This path is still blocked… by the most famous of all fashionable arguments, namely, that ‘we cannot turn the clock back.’ One cannot help wondering whether those who habitually use this cliché are aware that it expresses the fatalistic belief that we cannot learn from our mistakes, the most abject admission that we are incapable of using our intelligence. (Chapter 18)
Such underdeveloped thinking did not stop Robert Hollinger, who teaches philosophy at Iowa State University, to write in his book, Postmodernism and the Social Sciences, “The notion that all was wonderful in some real or imagined Gemeinschaft , or could be in a new one, and that things have been going downhill without one is little more than a nostalgic longing for something that never existed.” Hollinger continues: “Even if there was ever such a Gemeinschaft, its feasibility and desirability in the modern world, with all the attendant complexities and diversities, is by no means obvious.”
In pushing back on Hollinger’s characterization, it should be recognized that 1) There were never any halcyon days in American history, not even at the height of America’s democratic-republic era in the early 19th century; 2) This essay does not suggest a “return” to such days, whatever a “return” may imply; 3) Small-r republicanism does argue for a decentralization of political and economic structures because we have a “modern world, with all the attendant complexities and diversities.” After 150 years, the trends in centralizing our political and economic systems in America, and the unceasing attempts to fine tune these systems so that they will properly function one day, have not worked, nor will they ever work. Repeating the same means while expecting different ends is the classic definition of stupidity, and so we’re pursuing what…?
Rather, modern, complex societies fare better when regulation of political and economic systems starts at the local community, whether that community is a neighborhood in a vast city, or a small town in a rural setting. Treated as a series of interlocking entities, such a society creates structures and institutions on a human scale, allowing individuals to engage socially, politically and economically; personal responsibility emerges and self-regulation supports a functioning legal system; veering from heavy-handed and impersonal oversight emanating from their government or employer, individuals instead find a dignity for their existence, a social space free of intrusions on personal liberties, and a contentment that surpasses the false promises of an increasingly fierce and competitive struggle to exist, an ugly reality that has emerged due in large part to depersonalized, centralized institutions.
Regulatory systems will never be dispensed with, but we could certainly make an in-depth examination of what could be decentralized in light of the political and economic systems that may, in parallel, lend themselves to decentralization.
On a pragmatic basis, a local economic system should be thought of as an ecosystem, with as many of the attendant producers of daily goods and services as possible located within that ecosystem. The goal, although never entirely obtainable, is for an economic ecosystem to be self sustaining. Certainly the basics of food, shelter and clothing can be localized and repeated as often as necessary. In this manner, multiple middle-income jobs arise throughout the aggregated local ecosystems of a country.
For an example, the idea of localized clothing production opens the door for many more fashion designers to find gainful employment, and provides a chance for their creations to take life. To compete with global labor markets, local clothing entrepreneurs need to produce smartly, re-conceptualizing manufacturing here in America by supplying, for instance, commercial sewing machines to numerous individuals willing to sew piecework in their homes (An accompanying rise in demand for commercial sewing machines would also ensue, creating a multiplier effect). This reduces the need for large, centralized factories, which usually raise capital requirements for upstart manufacturers. Piecework may not pay as well as other jobs, but costs such as commutes and childcare are reduced or eliminated, thus freeing household budgets and increasing household wealth beyond the sum on the check.
I hesitate to use agriculture as an example for as soon as I do, some naysayer steps forward and accuses me of promoting a return to an agrarian economy, which is not my intent. Nevertheless, the example lends itself so well to discussing decentralizing economic structures and creating sustainable economic (and environmental) ecosystems that I will delve further into the topic.
It would be far more desirable to see 100 farmers – using sustainable and intensive methods – working 50-acre farms (producing equal or higher yields than current industrial agriculture methods, and researchers from the University of Michigan and Michigan State University have ascertained this assertion), than one farmer working a 5,000-acre farm.
On such large acreage, it is very difficult to maintain proper soil tilth. In the Midwestern U.S., not only are topsoils thinning despite industrial “no-till” techniques, but the soil is devoid of any long-term nutrients such as nitrogen, phosphorous and potassium. Microbial activity in the soil is an absolute necessity, which turns the hard clay under the topsoil into humus (tilth). Good tilth also reduces the need for large amounts of fertilizers, and sustainable farming is all about maximizing the use of on-farm outputs by returning them as on-farm inputs, thus lowering costs and improving soils.
With elevated unemployment numbers, such a conversion to smaller farms would not only increase the self-employed in our example from one farmer to 100 farmers, it would also help slow the population migration to large cities, and revitalize dying rural areas. The multiplier effect would create a return of local businesses to small towns, a necessity to support those additional 99 farmers.
Our economic problems today, as seen in the agrarian example, is that we have become so damn efficient that we are no longer effective. There is nothing to suggest that capitalism must live at the margins of efficiency; it is simply a mode of operation that was arbitrarily decided by those at the top to enable quicker wealth accumulation. There is nothing stopping us, as a society, from deciding to become more effective. And yes, profits are still possible, just not at the unsustainable levels sought after today. Lower profit margins demand smarter management, something that has become increasingly rare.
A decentralized economy would require, by its nature, more firms working at lower profit margins. This translates to the need for high-percentage increases in better management personnel, personnel who could not hide ineptness behind layers of bureaucracy or office-politic maneuverings, but who would be held personally accountable for their performance. This is an idea that is anathema to many, and represents a very real barrier to decentralizing economic structures. Personal responsibility has all but died in multinational corporations, but this allows criminals and corporations to survive for another day.
Of course, not all economic structures lend themselves to decentralizing. For instance, we could not, due to scales of economy, return to a multitude of automakers such as we had in the 1920s. But those industries that lend themselves to decentralizing are more numerous than a cursory thought might otherwise suggest.
A democratic republic (that structure America followed until 1865, at which point it devolved into a lesser democracy, and since 1980 a plutocracy) is a living, breathing collection of individuals working out the complexities of daily life within human-scaled systems and institutions. A democratic republic is not a solution, but a framework for finding solutions. “Freedom,” Hayek wrote, “necessarily means that many things will be done which we do not like” (The Constitution of Liberty, Chapter 2) It is a messy, roll-up-the-sleeves engagement to find answers with educated allies and opponents alike. The smaller the scale of these efforts, the easier it becomes to accomplish meaningful ends.
Hyperindividualism (see Humans as Commodities, formerly The Dignity of Humanity paper on Google Drive) plagues us today, and we have lost the ability to engage personally and meaningfully, which breeds partisanship and gridlock not only in institutions such as Congress, but between individuals as well. Most of our political and economic activity is tied up in dealing with means, not ends. The subsequent waste of political, economic, human, and social capital grows rapidly and in the final analysis, very little is accomplished with so much motion masquerading as work, all the while our heavily centralized capitalist system slides into oblivion. Joseph Schumpeter framed it this way in his 1942 work, Capitalism, Socialism and Democracy:
Since capitalist enterprise, by its very achievements, tend to automatize progress, we conclude that it tends to make itself superfluous – to break to pieces under the pressure of its own success. The perfectly bureaucratized giant industrial unit… ousts the small or medium-sized firm and ‘expropriates’ its owners.… (Chapter 12) 
Aiming for the establishment of decentralized economies is not to suggest a dismantling of globalized markets: Realistically, this is unobtainable, at least in the immediate future (yet as it stands at present, globalization heavily depends upon fossil fuels for its continued existence, a tenuous basis at best when looking into the future). Any idea of a complete deconstruction of global markets would be undesirable, for this surely hampers the use of local businesses competing in global markets, i.e., the “lobal” economy. Decentralized capitalism, however, most certainly could arrest the self-induced decay of centralized capitalism… by re-establishing small- and medium-sized firms within local, regional, and lobal economies.
The alternative is to maintain the status quo which will segue into centralized capitalism eating itself. At this point we will witness ourselves grow thinner from starvation due to the continued precipitous growth in ineffectiveness or, more likely, witness social violence breaking out in waves, the scale of which human history has yet to witness.
“Fuck (Centralized) Capitalism” indeed. The seeds of discontent are starting to appear as small green shoots everywhere, and time does not favor an indefinite engagement with centralized capitalism as it exists today. It’s time to consider how capitalism, in a decentralized state, may find a way to survive.
 Gemeinschaft is defined as communities characterized by a moderate division of labor, strong personal relationships, strong families, and relatively simple social institutions. In such societies there is seldom a need to enforce social control externally, due to a collective sense of loyalty individuals feel towards each other.
 There will be those who, having read Schumpeter’s work, will state that such a demise of small- and medium-sized firms is inevitable, a part of the “creative destruction” process. Time and again, however, I am struck by how central capitalism’s intelligentsia buff their egos and believe their decisions and actions move mountains, yet become so passive when adopting such deterministic drivel.
As Berger and Luckmann framed determinism (“reification” is their term) in their 1966 book, The Social Construction of Reality: A Treatise in the Sociology of Knowledge:
Reification is the apprehension of human phenomena as if they were things, that is, in non-human or possibly supra-human terms. Another way of saying this is that reification is the apprehension of the products of human activity as if they were something else than human products – such as facts of nature, results of cosmic laws, or manifestations of divine will. Reification implies that man is capable of forgetting his own authorship of the human world, and further, that the dialectic between man, the producer, and his products is lost to consciousness. The reified world is, by definition, a dehumanized world. It is experienced by man as a strange facticity, an opus alienum (an alien work – ed.) over which he has no control rather than as the opus proprium (his or her own work – ed.) of his own productive activity. (Chapter II, Section 1, Subsection e).
In simpler terms, and more to the present point, we constructed centralized capitalism, and it is not beyond the pale to comprehend that we can damn well deconstruct it.
Does “creative destruction” exist in capitalism? Of course, but the term has lost its original intent and has become the latest manifestation of Herbert Spencer’s tired, inaccurate and adolescent phrase, “survival of the fittest.” Even Schumpeter, before he finished Part Two of Capitalism, Socialism and Democracy (wherein he discusses creative destruction), had second thoughts about using the term (from Chapter 14):
The capitalist process not only destroys its own institutional framework but it also creates the conditions for another. Destruction may not be the right word after all. Perhaps I should have spoken of transformation. (my emphases)
Indeed, reviewing the context of Schumpeter’s usage of the phrase “creative destruction” in Chapter 7 of his work, “transformation” better reflects his intent.