Scale Matters

What do Spain, Japan and Croatia have in common? They are all suffering the consequences of industrialitis. Industrialitis is the inevitable malaise brought on by the failure to understand our economy as a function of our society, which mastaassizes into disease with the concentration of political power.

Business is actually a function of society, it is fundamentally dependent on the political process to create the conditions for commercial success. Businesses need legal systems, infrastructure, academic research and a host of other supporting conditions in order to operate successfully. It follows that businesses coalesce around political structures, and the level of which political power is concentrated is the level at which commerce is most successful. For the last century political power has been concentrating at the national level, and it is businesses that operate at the national level that get the most attention from national politicians. Some of this is a self reinforcing cycle, but once it has started it is certainly a self-perpetuating structure, mostly innocent but inevitably corruption also accompanies decision density concentration.

The true nature of human society is not adequately or properly represented in the concentration of political power at the national level, nor do national scale businesses harness the full economic potential society. Human scale politics and economics start at the local community and build up from there, and that’s how we need to arrange our political and economic structures if they are to serve the humans that comprise the society.

Spain, Japan and Croatia all have different problems, but they are all symptomatic of industrialitis, and their politicians are grasping for industrial-scale solutions, when what they really need to do is to rightscale their politics. In each case, the hollowing out to local and regional economic activity has followed concentrations of political power to the national level.

In Japan the result of their industrialitis is the loss of rural sustainability as commerce has focused in national and global scale clusters, necessitating economic migration to the cities where those businesses are located. Large-scale businesses are capital intensive and naturally gravitate towards geographic concentrations for their operations, a tendency that is only constrained by limits to market access. This is not a failure of the businesses, it is a natural outcome of their capital intensity. The national Japanese government has tried to employ national-scale solutions in an attempt to maintain the economic and social viability of its rural regions: top-down infrastructure projects, and subsidies. In the former, the national government allocates funds to build or improve infrastructure in rural areas, which results in temporary construction booms without sustained commercial activity. In the latter, a very commonly prescribed remedy in countries with industrialitis, the national government attempts to persuade industrial-scale businesses to do what is not in their self-interest, by providing subsidies and other financial incentives to locate some part of their operations in a region that they would not choose to be in, if left to their commercial instincts. Subsidies have the pernicious effect of corrupting the politics, the market and the businesses that accept them, and only further exacerbates the incentive for businesses to build and maintain political influence. It probably never even crosses the mind of most national politicians that the effective and sustainable solution to regional and local economic self-sufficiency is to devolve political power down to the regions and communities.

In Spain there is an employment crisis, with national unemployment at 20% and youth unemployment running at 64%. This symptom of industrialitis, caused by the concentration of financial capital at the national and supranational levels, is the result of a busted property and construction boom. The failure to develop local and regional economic activity independent of centralized, external capital has left the entire economy at risk, now that the global financial crisis has caused the flow of capital to evaporate. The national government sees itself as saving the regions by bailing out regional banks, but it is really just doing debt collection for national and international banks – everyone still has to carry the debt burden, but without the local and regional economic infrastructure to maintain commercial activity and employment. It probably never even crosses the mind of the average national politician that they need to devolve political power down, to get their economy working and make their society sustainable.

In Croatia people are coming out in spontaneous and leaderless protests against the failure of 20 years of “market capitalism” to deliver any improvement in their lives. The reality is that the national government has been concentrating political and economic resources at the top, while waiting for an even bigger entity, the EU, to rescue them by bringing large-scale businesses to their economy. In the meantime economic policy has consisted only of selling public assets to large, and largely foreign, businesses, further impoverishing their ability to develop internal, localized, self-sustaining economic activity. Their legacy of 20th century Communist centralized planning probably contributed to the failure to develop a more diverse economy, but the failure to devolve political power was the root cause.

When the Industrial Revolution started it developed on top of an existing economy that had local and regional fabrics, but during the last century the codevelopment of large-scale industrial commerce and national political concentration has led detrimentally to an almost exclusive focus on enabling national, and increasingly global, businesses. Many, and far too much of, modern societies have become dependent on the prosperity generated by large-scale industrial businesses, and the large-scale service industries that support them. We have neglected local and regional development in favor of an almost exclusive focus on national and international structures. But the reality of human society is multilayered, wherein each person lives in a community, that is part of a region, that comprises some part of a state; and that natural truth of our existence has to be reflected in the way we organize our power structures and economic fabric if we are to develop sustainable human societies.

This weakness in the sustainability of our societies is not confined to Japan, Spain and Croatia; it is ubiquitous and pervasive around the world. Until we acknowledge the multilayered nature of our human condition, we will not make the adjustments to our political structures necessary to enable more deeply rooted and broadly-based economic fabrics.

If Japan devolves political power to their rural regions, those regions will develop the marketplaces and infrastructure that enables local businesses to meet local needs. If Spain and Croatia did the same they wouldn’t be so dependent on external financing to provide employment for such large percentages of their populations. Every society has sustainable economic potential in the needs and wants of its population, but in order to to develop that potential into prosperity each society has to enable marketplaces at each level of social organization (local, regional, national, etc) where needs can be met by willing providers at freely floating prices. The Industrial Revolution spawned the capital revolution so that the creation and recognition of value was not constrained by physical representation, and this revolutionary development allows for accelerated prosperity in non-capital-intensive micro economies, just as it does in large-scale, capital-intensive ones.

A sustainable economy is: multilayered, scale appropriate enterprise operating in free markets, fostered by universal service societies that enable marketplaces for local, regional, national and international commerce. The prerequisite for a sustainable economy is a multilayered, scale appropriate free democracy.

Scale matters. We cannot look to industrial-scale businesses to satisfy local micro needs, anymore than we can expect national politics to satisfy local community aspirations. We humans are multidimensional beings, living in multilayered social configurations, and only a structural organization of power and commerce that reflects those realities will serve us and enable us to develop sustainably.