Thursday, December 23, 2004

Hierarchy and Central Planning

It seems rather odd that, for all of its expressed disdain for centrally planned economies, capitalism is founded on the pattern of hierarchy -- itself an example of central planning.

Hierarchy is most simple defined as a pattern where one or more entities are being operationally controlled by a ruling (arkos) entity. It is, at its very core, a pattern of central planning and control. Traditional economics has long dealt with this apparent inconsistency of doctrine by stating that economic organization, below a certain level, is called a "firm"-- and is treated as a monolithic entity, thereby obscuring its centrally planned nature. Above the level of the firm "free-market" forces are presumed to be at work which facilitate the use of price to efficiently manage the masses of information in the market... and the sermon goes on. Let's take a look at these two separate economic levels--the "Firm", and the "Firm-Complex"--and see what is really going on:

The firm is a purely centrally-planned economic entity. At a certain size--a single employee, or a half dozen workers skillfully led--the firm represents the efficiencies of central planning at a small scale. Hierarchy--or central planning--creates initial efficiencies through central command and control, stratification, specialization, etc. However, it does not need to grow much beyond a handful of employees before the burden of information processing placed on the central planner (boss) exceeds that individual's capacity to efficiently process information. At larger sizes, more and more of the resources of a firm must be allocated to deal with this ballooning information-processing burden. And no amount of resources allocated to information-processing and analysis can make the firm process information perfectly. Just as US economists criticized the Soviet economic planners for their inability to replace the price mechanism, large firms cannot adequately cope with their own information processing burdens. Today, with the increasing horizontal and vertical integration of multi-national corporations, this information burden (and the resulting inefficiencies) is even approaching the scale of the problem that faced Soviet economists.

Beyond the firm, in the "free market", individual firms repeatedly and successfully lobby government (itself a centrally-planned "firm") to exert centrally-planned influences on the economy. Defense contractors lobby for contracts--this is pure central planning, as the Joint Chiefs of Staff certainly don't represent a true picture of "market" demand. All forms of political pork--all political spending and economic regulation, period--represent central planning of the economy above the level of the firm.

So... our "free market" economy is really anything but. Any economy that is based on the pattern of hierarchy will always be centrally planned. It may have multiple centers, even competing centers, but this very centralized nature will incur all of the inefficiencies of central planning.

The real difference between the central planning of the US economy, and the central planning of the Soviet economy is that--at least in theory--the US centrally plans for the concentration of wealth and the Soviet economy centrally plans for the distribution of wealth. Both do so rather inefficiently, due to central planning, and due to the fact that there remain (or in the case of the USSR, remained) conflicting voices within their own planning structure. But because both systems opted for the use of the pattern of hierarchy as their fundamental organizational mode, both systems are clear-cut cases of central planning and its related inefficiencies.

Is there any hope to escape from the inefficiencies of central planning, from the exploitation, reduction in freedoms and inequality that always accompany it? In my opinion, if hierarchy is at the root of the problem, then the answer will lie in the opposite mode of organization: rhizome. Only an economy grounded upon countless, independent but interconnected nodes can exist without succumbing to hierarchy. Many people have asked me: what kind of solution to these problems do you envision?? What would that economy look like? I have tried to create a solution to our problems that is scale-free and implementable immediately. I will begin a series of posts shortly to explore exactly that question:

What will the society of Netopia look like?

Stay tuned to find out...

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