Centralization and the Problem of Knowledge
As Fredrich von Hayek noted, economic planners often have difficulty integrating the often critical on-the-ground knowledge of specific deals and opportunities into their planning. They will often miss where the market is going and as a result their plans either ignore the course of economic evolution in general, or actually stifle growth by diverting resources into areas that are no longer viable. While Hayek focused much of his attention towards dissecting the problem in the area of economic planning, and in general as a means to show the inherent weakness of socialist systems, we can also apply his ideas to decision making in general.
When an organization becomes so large that its leadership no longer has contact with the actual problems faced and must instead depend on information supplied by their subordinate ranks in order to make decisions, then that organization loses much of its adaptive capabilities in the face of new challenges. It has to increasingly depend on internal processes and standard operating procedures in order to function because decision making can no longer occur fast enough to deal with emerging dynamics, it must in essence become a machine operating along strict programing. In this context, the individual human being must be effectively stripped of his or her creative potential and be made to conform to the rigid rules and structures necessary for the machine to function. Deviations from those rules can cause chaos and decrease organizational efficiency and so are strongly discouraged, even when problems require those same deviations in order to be solved.
Thus over time, the organization ceases to be effective at responding to changes and eventually becomes bad at achieving the very tasks it was created to achieve in the first place. Corporations stop being good businesses; charities like the Red Cross can no longer respond effectively to humanitarian disasters, and public entities like the US Army stop being effective at fighting wars. Eventually these organizations exist only to perpetuate themselves, mostly for the sake of those employed by them at the higher levels.
The very critical problems that need to be addressed are thus neglected, causing ever more difficult public policy problems such as stagnant educational progress in the inner city, or virulent terrorism that seems to grow more violent every year.
In a system where rival organizations can compete or where strong oversight and accountability exist in the public sphere, the old legacy organizations either fade away or are forced to adapt.
Unfortunately, what we see today is that large legacy organizations, be they public or private, have found increasingly effective ways to perpetuate their existence and insulate themselves from the consequences of faulty decision making capabilities. We also see the emergence of a global elite; a transnational plutocracy of high level public servants, politicians, and corporate leaders who seem to have the magic ability to keep being appointed to leadership positions despite presiding over serious failures.
This would not be so bad if the organizations themselves would serve their respective purposes or at least be subject to competition from those who could, but not only do the elites protect themselves, they also prevent upstart or rival organizations from challenging them. In the corporate context this is done through the capture of regulators, either through direct lobbying or through hiring the very people who once ‘regulated’ them and hiring them for high paying executive positions. This ensures that very few high profile regulators will ever truly hurt the corporation, lest they be denied a future lucrative career in the private sector. Further, the lobbyists work tirelessly to create mountains of regulations to prevent small, nimble organizations from gaining market share while protecting the highly complex tax code that only those with access to high priced tax attorneys and accountants can exploit for maximum gain.
The left clearly understands this problem, but unfortunately their ideological commitments to societal salvation via large government intervention blinds them to the effects large government organizations have on innovation and decision making in the public sphere.
Take the Federal Government for example, and all its respective agencies. Through national politicians who always want to “do something” and who seek continual re-election via pork spending, we have national policy interfering with local initiatives. Federal aid and grants are given only to those states and localities that conform to what those in Washington deem appropriate. States take away authority from local school districts to manage their curricula to suit the particular problems they face, and in turn school districts take away flexibility from actual schools in dealing with the particular problems they encounter at the very local level. Hence we can go ahead and spend upwards to $20,000 per pupil yet end up with terrible graduation rates and troubling ignorance even in those who do graduate.
In order to supposedly be more effective and accountable, both large corporations and large government entities are making use of so called “big data” and analytics. Yet this cannot solve the local knowledge problem because you can never gather enough data and even if you could, there would be no way to analyze it. The programmers and algorithm developers can try all they want to make “smart” machines to figure it all out, but no matter how good the algorithms are, they are only as good as what the designers put into them, and because they are themselves detached from the dynamic local problems, there is no way for them to program responsiveness into a massive system. As soon as any ground is gained in analytics, the game has already changed and new programing needs to take place.
What we need is to decentralize power, to diffuse decision making back down to those who can actually identify problems and respond to them effectively, rather than just throw tired and useless processes at them. We need a society of people who are empowered to tinker and adjust constantly to emerging threats or problems. Before, with localities separated by large distances, this may have meant sacrificing national unity and efficiency, but today decentralization means the best ideas and practices can be copied and adapted to suit local environments almost instantaneously. If a school curriculum or class schedule is not working for a particular inner city school, it can search for successes in other inner cities and adopt those policies that work for its particular situation. It can keep doing that until it finds something that is effective. Parents can be involved and hold school administrators accountable without having to organize massive political movements or gather millions in campaign money to get the “right” candidate elected.
Those who are directly affected by a problem are therefore able to deal with it, using whatever means they deem appropriate, without having to defer to some higher authority or organization. Larger organizational structures will thus exist only to facilitate decision making at the lower level and to coordinate activity when necessary. Of course in order to do this we need to start trusting people again and stop believing the hype plutocratic elites try to sell us, both concerning their own abilities and the capabilities of the legacy organizations they serve.
No matter how many Harvard or Oxford degrees they hold, no matter how well-connected they are or how many ‘experts’ they have working for them, they can never do better than the guy or gal on the ground in dealing with the issues that affect them directly. Even the well-intentioned, the downright noble among them can’t overcome the knowledge problem and they often have nothing to lose from implementing bad decisions anyway. Nicholas Nassim Taleb likes to call it ‘skin in the game’ and while we have it, they often don’t; so why do we keep trusting them to solve our problems for us?
