Our Central Problem: Not Enough Decentralizing

Posted on Dec 24, 2012 | One Comment

The aim of U.S. policymakers has consistently been economic stability. Unfortunately, argues New York University’s Nassim Nicholas Taleb in today’s New York Times, the harder we try for it, the farther afield we get.

The government has “kept interest rates low, shored up banks, purchased bad debts and printed money,” Taleb writes, but this has “not only let deeper problems fester, but also aggravated inequality.” 

What’s more, Taleb adds, we’ll continue to face unforeseen crises unless we do two things: create accountability and, most important, start decentralizing governance. “In decentralized systems, problems can be solved early and when they are small,” Taleb suggests. “And when there are terrible failures in economic management—a bankrupt county, a state ill-prepared for its pension obligations—these do not necessarily bring the national economy to its knees.”

Peter Drucker, who likewise saw the risk of governments aiming to be gods of “stability,” would doubtless have agreed with much of Taleb’s thinking. Indeed, Drucker’s descriptions of post-bubble Japan are eerily reminiscent of the circumstances now faced by the United States.

When the bubble burst in the early 1990s, the bureaucracy could not get Japan’s economy going again,” Drucker wrote in Managing in the Next Society. “It poured unprecedented amounts of money . . . into attempts to raise stock prices, real estate prices, consumption and capital investment, all without any effect.” 

Photo credit: Emilio Kuffer

Photo credit: Emilio Kuffer

Meanwhile, the idea of decentralization would also have appealed to Drucker as an answer for economic stagnation. It’s a remedy easy to miss, however, because debates over economics are often dominated by fiscal and monetary theories rather than questions of organizational structure. “Terms like centralization, decentralization and diversity are not terms of economics,” Drucker noted in Post-Capitalist Society. “They are management terms.”

But they are vital management terms for our age. Society today “has to be decentralized,” Drucker wrote. “Its organizations must be able to make fast decisions, be based on closeness to performance, closeness to the market, closeness to technology, closeness to the changes in society, environment, demographics, knowledge, which must be seen and utilized as opportunities for innovation.”

And that applies as much to government as to other entities. “Government suffers from doing too much and too many things,” Drucker asserted in The Age of Discontinuity. “Government, to be effective and strong, may have to learn to ‘decentralize’ to the other institutions, to do less in order to achieve more.” 

What do you think: How much would greater governmental decentralization help prevent future economic crises?

1 Comment

  1. Bryan
    December 29, 2012

    Government has continued to grow in size to the detriment of the public. Decentralization would certainly help segments try different avenues to come up with solutions that may improve effectiveness and efficiency ( i.e. think of 3M and its decentralized approach to running its busenesses and operations. It has many different businesses within the company; each operating on its own for the most part and being responsible for pulling their own weight. The competition for resources brings the best ideas and products to the surface. Our government institutions lack this competitive nature and are generally stagnant, ineffective, and inefficient.).

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