Separate or overlapping groups?

The traditional view of the voting public seems to be something like the first figure, with a left, right, and center, or more generally, a pro, con, and undecided. The center or undecided may move about, while the two extremes remain fixed. A more general view is that the public consists of a large variety of opinions that coagulate to the well-defined pro and con, and a third group that is not committed to either island.


































The first figure is that of the three groups, the second figure is the illustration of the undecided group moving con, or right if you must.


































The third figure shows the summation of the three groups into the general populace, and the fourth shows what happens when they move con or right.

I still maintain that the left-right axis is still too simplistic a view of almost anything, but this is a simple model to which I plan to refer in future posts.

Paying attention to the politician behind the curtain

In response to a post Kos put up on the Cato blog, many writers pointed out that the corporations he fears are mostly that large because of, not in spite of, government. What none or few have stated is how government has aided and abetted corporations. The answer is that they have given both legal and financial aid, especially by spreading risk and cost in transportation, communication, and energy, but also in other areas.

How has the state (or states) done so? And how do these influence the size and scope of industry?

1) Legal:
a) Incorporation, protection from liability. Tempting to say that this would shield owners from lawsuits, but it is at least a little likely that the system has created entities that are large enough to draw lawyers. In other words, the size of corporations invites lawyers; if they were smaller, the legal profession would not have started using industry as a pinata*, and that part of the legal system would not have grown as large as it has.

b) Rights of way. In my experience, there are Democrats particularly and a few nondenominational real-estate-agent-slash-city-commissioners that think that this is one of the most useful aspects of government because it addresses the market failure of The Holdout Problem. The holdout interferes with the efficient operation of railroads and highways, the former being a favorite of the post-industrial left and the latter being a subject of dispute that involved David Friedman and Steve Kangas, in which David questioned whether the problem was as serious as it was claimed.

This is interesting, since the industrial left saw Railroad Tycoons as evil embodied. They moved on to embrace the Good Roads Movement as the antidote. Now, they condemn the roads and want more light rail transport, showing how conservative the Left has become. It is only the libertarians adopting the radical position of wanting to turn roads into pay-per-use roads (public/private is almost inconsequential). It is the Left now advocating eminent domain to take over houses for shopping malls. Governor Bill Richardson, D-NM, is involved in both of these issues: advocating light rail and vetoing anti-Kelo legislation.

In the most egregious cases, states and the federal government granted not just rights of way to land which still had to be paid for, but land titles free and clear. That is more of a financial than a legal aid, and is covered below.

c) Regulatory cover. This is the primary reason for which railroads decided to bring the federal government into play in their domain. The states wanted to enforce a myriad of local rules, so railroads wanted the federal government to come in and trump those rules. Complying with one set of rules is cheaper than many, giving an advantage to a few larger rail systems than many small ones. Furthermore, once someone is compliant with federal law, it becomes more difficult to claim that they should have done something differently. Further, a single regulatory board is easier to capture than multiple boards. And once an oversite agency is captured, it is easier to pass laws that restrict competition. This is not a clear-cut issue: many of the states' laws existed to promote the interests of local political entrepreneurs. As I recall, Cincinatti had something like 14 railroads coming into it, but they were not allowed to tie together or exchange freight cars, so everything (freight and passengers) had to be unloaded, carted, and reloaded to the great delight of hoteliers, teamsters, and porters.

d) Patents - I'm ambivalent about this, but thought I should include it to be thorough. Yes, granting patents is a government support for certain industries, especially the early communications industry (AT&T). However, at the time the patents started to fall, the communications industry started to take off like gangbusters (see, for example, this white paper).

e) Charter for lottery: This is not exactly something that would come up as a problem in a libertarian or anarchist environment. You want to run a lottery, go ahead. But this is something I've come across in early railroad histories.

2) Financial
a) Land grants (railroads) - As promised above, the state and federal governments granted land to railroads outright. With the transcontinental railroads, the land was granted in a checkerboard pattern, and the rails sold some of theirs to finance the building of the road. Other railroads may have received outright grants of the whole line (I'm thinking here of the Erie and other canals which may have been granted land outright, but I could be wrong). The exception is the Great Northern, but even they started out with a state land grant to the St. Paul and Pacific, which failed before Hill acquired it.

b) Other financing - The Union Pacific was given government loans which they had to pay back. This is what most people think of when they think about subsidies to Rails in the 19th century. The government loaned money to the Union Pacific, leading to all kinds of shenanigans, such as building pointless spurs to increase mileage (they were financed by mile built), and kickback schemes that led to the Credit Mobilier scandal. Of course, it's entirely possible that this was as harmful as useful to the actual operation of the rails. The Great Northern was the most financially stable of all of them, owing to the fact that it built up the railroad's customer base as it went. The Union Pacific was said to be like an apple tree without branches, though that overlooks the useless branches.

c) Tax and other breaks? - I'm not sure what example would be most appropriate here, though I believe there may have been some related to the creation of the early rail and communications networks. Perhaps not -- the federal government was much smaller and was funded differently back then. Modern examples might include the breaks given to SUV owners, especially in Arizona for alternative fuel-powered vehicles, or those given to hybrid owners and thus securing a greater market share for those technologies instead of diesel (which are capable of burning biomass fuels). My turbodiesel gets the same gas mileage as a Prius (49 mpg last tank), yet they get a break and I don't, which is just a microcosmic example of how government policy picks winners.

d) Infrastructure: Roads - Roads are provided without charge at the point of use, giving the automobile industry a competitive advantage over rail. Surprisingly, most roads prior to the railroad era were toll roads, many of which were private (see for example, Ben Klein's list of online papers, especially Private Roads: Learning from the 19th Century, and Gabriel Roth, Roads in a Market Economy). After the rail era, the Good Roads movement and then the car companies themselves went on to advocate government spending on road infrastructure at the expense of other modes. There was even a myth that GM had bought up the electric tram companies in order to force them to use GM's buses (related in Kirkpatrick Sale's Human Scale), but this is disputed.

e) Infrastructure: Armed forces - The Great Northern didn't receive funding or land from the federal government, but they did receive some protection from or bargaining power with Indians when going through one of the reservations (the Nez Perce, IIRC). The shipping industry received substantial aid from the Navy as early as Jefferson's war on the Barbary pirates (1805, though not a resounding success: at that time we still free-rode on Great Britain the way the rest of the world does on us at present). And of course the oil industry receives some benefit (though it's not as substantial as the Left thinks it is) from the Army. Without the US Army, settlers would have had to negotiate their way across the west, and it is doubtful whether things would have turned out quite the same way.

f) Risk - The corporation was essentially a form of risk relief for business owners. Without it, they might still have purchased insurance. Incorporation is a less expensive way of building a large company. However, Carnegie and Rockefeller both built rather large concerns without incorporation (a limited liability partnership and a trust).

Discussion

The transport sector benefits from those in a multitude of ways. The Navy protects shipping and the Army protected the transcontinental railroads and the telegraph lines (though both were also known to use private security, also). The owners were able to take on risky ventures by sharing the risk with bond holders, stock holders, employees, passengers, freight shippers through incorporation, and with citizens generally through regulation, infrastructure, eminent domain, and so on. The federal government made grade crossings a problem of roads rather than the railroads, and then built the automobile roads securing the spreading of risk among citizens. The transcontinentals were the recipients of federal land grants and bonds (except for the Great Northern), while all railroads were probably recipients of state land grants and maybe a few state bond issues. There were certainly cases where local, state, and federal governments have exercised their right of eminent domain for the rails and later for cars.

The communication sector benefited from patent protection and then from right-of-way grants. AT&T was shielded from competition from 1914 to 1984, 70 years during which they had no competitors and were encouraged to build out a large system. The modern system benefited (very little) from DoD (DARPA) investment into the original Internet, which still rides on some of the original AT&T-era infrastructure (MCI was permitted to build out a long haul long distance system that became the backbone of a large share of the Internet traffic).

The energy sector, as I have been arguing (see my comments on the Environmental Economics blog and here), has also benefited from similar support. Like AT&T's Vail, early electricity entrepreneur Samuel Insull agreed to accept government oversight in exchange for protection from competitors. Undoubtedly, the incorporation helped them to grow as public stock companies, and most cities as well as other levels of government will invoke eminent domain in order to run utility lines according to the desires of the electric power companies. Electric utility companies benefit the most from the regulatory cover afforded to their pollution, being the main contributor to CO2, SO2, and Hg pollution. They undoubtedly have received a number of tax grants. REA enforced the idea that rural areas should be powered by AC grids, not local sources (e.g. the windmills that used to dominate the pre-FDR landscape). Today, the system is huge, vulnerable (to terrorists as well as natural and system failure disasters), and inefficient. AC was technically superior to DC for transmission, but not necessarily for local use. Even still, some 67% of electricity is wasted as heat at the plant or in transmission and distribution, which makes me wonder about possible diseconomies of scale in that industry.

Counterargument

Given that all of these are true, one question with two parts remains: How important were these effects really? The first part is, how much did the federal and state aid really come to in terms of percentage of private actions and finance? The second part is, how much of an effect did that have relative to how things might have been without it? If it is not clear to what extent the government contributed to the rise of the transportation and communication companies, it is even harder to determine to what extent they in turn led to the rise of subsequent industry. To what extent were they relying on rails, for example? Singer and Ford built tidewater factories and used ships and barges. Perhaps that is implicitly included in the argument because government aided water shipping in one form or another?

Even if I concede for the sake of argument that the transcontinentals were entirely paid for by the US government, does that mean that industry would not have risen to the size it has today? I see very little contribution to the Industrial Revolution coming out of California. I furthermore doubt whether the California consumer market was that large, which was an argument against funding the transcontinentals in the first place (the real reason for funding them was not economic, but political: keep California on the side of the Union). So even if they hadn't been built, I suspect that many things would have gone as they did. In fact, the country remained quite regional at least until the WWI era, so there is reason to doubt the government financing had that much effect. Most industry was located in the Northeast, and things remained that way until just within the past 70 years, so I find some doubt as to whether the transcontinental railroads built in the 1860s, 140 years ago, had that much effect.

McCormick moved his works from Virginia to Chicago almost 16 years after first demonstrating the "Virginia Reaper". How much did they benefit from the train and telegraph? I'd say not much. since he was obviously moving closer to his market. Perhaps they would have grown regional building facilities rather than national facilities, but the business would have grown with or without the railroad and the telegraph since it was a product that could be horse-drawn by design. The same is true of other industries, such as the automobile: there were many manufacturers before consolidation of Chevrolet and then GM, and even after. Perhaps they would have stayed regional until later, but is it possible that they still would have consolidated? What about the bicycle, a favorite of the neo-luddite movement -- why is the bicycle not included with the other predecessors of The Modern? It was built regionally, and served as a forerunner to the automobile – how did the railroads permit the rise of the bicycle, and then lead to the consolidation (if there has been one)? Not only did bicycle manufacture introduce metal stamping, but it gave people the idea that a personal transport was both feasible and desirable. Indeed, Ford's first vehicle was a quadricycle.

I think we tend to overstate the impact that certain industries had because we are judging from our perspective rather than the perspective of those times. Horses didn't disappear the moment the railroads appeared, and railroads didn't disappear the moment the automobile arrived. Although many railroads were started in the 1840s for the purpose of getting coal from the Appalachian hills to urban centers, the railroads themselves didn't switch to coal from wood until the last quarter of the 19th century. People used to write letters even after the telegraph. It has only been in the past 20 years (perhaps the last 10 or even 5) that instant ordering from stock has been adopted in the retail business, so how much benefit were we getting even from the phone? At one time, consolidation in the rail, then the steel, and then the oil industry had the country in an uproar. Today, those are minor industries.

Without incorporation, a cottage industry in personal liability insurance may have permitted similar advances. However, the costs would have been more internalized with the private insurance. Such insurance actually exists today: personal liability for doctors, nurses, and other professionals. I think stories about these costs driving doctors out of practice because of lawsuits should be discounted: the other possibility is that they are driven by interest costs (when rates fall, the insurance companies raise prices to keep profits steady) or by doctors trying to make a case for political action on their behalf. And here again, why is the insurance industry so consolidated (is it?)? Is it because of laws or economies of scale?

Kevin Carson offers a broad perspective of the traditional view of bigness here in the form of a draft chapter of a new book.

As to whether Democratic or Republican administrations abet corporations more -- as massive not passive argues (via the Mutualist blog) -- that's a puerile debate. For one thing, as I've repeatedly tried to get people to understand, the president only controls 1/3 of the mechanisms of the government. For another, Gabriel Kolko should be required reading for people interested in this kind of thing. Nevertheless,

• Civil Rights Act of 1866 - Johnson, R
• Civil Rights Act of 1871 - Grant, R
• Civil Rights Act of 1875 - Grant, R (boy, those Republicans sure were pro-civil rights!)
  
• Interstate Commerce Act (1877) (creating regional rail cartels) - Cleveland, D
• Sherman Antitrust (1890) - Benjamin Harrison, R
• Federal Reserve Act (1913) (made the government the lender of last resort and created a banking cartel) - Wilson, D
• Clayton Antitrust and Federal Trade Commission (both 1914) (requested by business organizations to quell stiff competition) - signed by Wilson, D
• Jim Crow Laws - Almost entirely created by Southern Democrats who dominated state legislatures and governorships, but made federal by Wilson, D (man, this guy Wilson is a really evil guy, eh?)
• National Industrial Recovery Act (1933) (attempt to cartelize all industries, based on Mussolini's corporatives) - Roosevelt, D
• Connolly Hot Oil Act (1935) (attempt to cartelize oil industry by establishing regional cartels) - Roosevelt, D
• Civil Aeronautics Board, (1940) (creating air transport cartels) - Roosevelt, D (man, this guy Roosevelt is really pro business, eh?)
• Civil Rights Act of 1957 (notably filibustered by Strom Thurmond (D)) - Eisenhower, R
• Civil Rights Act of 1960 - Eisenhower, R
• Clean Air Act (1963) - Johnson, D
• Civil Rights Act of 1964 - Johnson, D
• Clean Air Act (1966) - Johnson, D
• Civil Rights Act of 1968 - Johnson, D (Wow, what a great president. As a Democrat, he also would keep us out of an Iraq-like quagmire)
• Clean Air Act (1970) - Nixon, R
• OSHA (1970) - Nixon, R
• EPA (1970) - Nixon, R (hmmm, this Nixon guy sounds like he meets all of the standards of a Democratic activist, and he got out of Viet Nam)
• Clean Air Act (1977) - Carter, D
• Superfund (CERCLA) (1980) - Carter, D
• Natural gas deregulation (1978 and 1980) - Carter, D
• Transportation deregulation (1980) - Carter, D
• S&L deregulation (1980 and 1982) - Carter, D and Reagan, R (wow, this Carter guy sounds really pro-business with all this deregulation!)
• Superfund Amendments and Reauthorization Act (SARA) (1986) - Reagan, R
• Clean Air Act (1990) - Bush, R
• Civil Rights Act of 1991 - Bush, R (this Bush guy is a real left-wing go-getter, eh?)

Just looking at recent scandals,

• WorldCom scandal, 1999-2002, prosecuted 2002-2005, received no-bid contract with DoD in 2003 (bonus - what legal loophole created the opportunity? Hint: It wasn't something that would normally be thought of as pro-business, or pro-white-owned business, anyhow)
  
• Enron scandal, 1990s to 2001, prosecuted 2002-2006
• Tyco, 1993-1999, prosecuted 2004
  

and corruption and bribery prosecutions of

• Dan Rostenkowski (D)
• Webster Hubbel (D)
• Jim McDougal (?)
• Jim Guy Tucker (D)
• Hazel O'Leary (D)
• Mike Espy (D)
• Ron Brown (D)
• Tom Delay (R)
• William Jefferson (D)

You could go on for a long time with lists like these and probably never find a trend. I still find it hard to believe that anyone believes that people can be found either innocent or guilty, pro-business or populist, on the basis of the letter that comes after their name.

* How the devil do you put in non-English characters so they can be read by other browsers? Neither Word nor Writely seem to use generally accepted letters.

Working Smart? Or Rather Neither, Really.

According to its jacket, Working Smart, by Slaughter and Parker, is a "Union Guide to Participation Programs and Reengineering". This book is only of value to dyed-in-the-wool union activists; there is little or nothing here for either workers and little for people interested in state-of-the-art manufacturing practices. I am careful to distinguish between unionists and workers, since their objectives are not always the same: crisis and antagonism pay for union activists, but nobody likes to work in that environment. The authors also seem to be careful to make the distinction: after all, it is not a "Workers' Guide". (I'm no fire-breathing anti-unionist, either)

Working Smart is a fun-house view of lean manufacturing. There is a rough 1:1 correspondence to the actual theory in much the same way as any good parody approaches its target. The phrase "management-by-stress" is frequently (but not always) used in place of "lean" or any number of other, related, or similar theories. This is a cheap rhetorical trick that mostly gets in the way of meaningful discourse. They use other such tricks, such as referring to the removal of wasteful motion as "speedup" as if improving an operation was in any way similar to increasing the speed of the assembly line, especially in an operation where the assembly line is intentionally run at a fixed rate (the takt time) dictated by consumer demand. Learning new skills is called "deskilling" because it creates generalists rather than specialists.

I would also point out that although there is little here for people interested in lean and related practices and theories, they do make a strong point about safety. Bill Waddell has pointed this problem out and noted that Toyota has a long ways to go to catch GM on the safety and repetitive motion injury measure, so it isn't as if the lean consulting community is unaware of the problem. Unfortunately, those points are mostly constrained to the automotive industry, so it isn't clear that the point carries beyond that industry. At the same time as Toyota grapples with that issue, it should be noted that most lean practitioners recognize injury as another form of waste. To that end, Womack et al describe in Lean Thinking the case of FNGP of Michigan, where productivity increased over 1000% (10-fold) at the same time their "OSHA reportable accidents and Workers' Compensation costs both declined by more than 92%." Health issues impact the bottom line. Indeed, some lean consultants have suggested that the GAAP accounting practices be scrapped and replaced with something that counts worker education and skill (human capital) as an asset to put some meaning to the oft-repeated catch-phrase, "Our workers are our greatest asset".

Most of Working Smart is illogical and contradictory.

• Sometimes they complain about uselessness and even evil of teamwork, other times they complain that management doesn't let them participate in interesting and challenging teamwork activities often enough. On one hand, they claim that everyone is taught about teamwork, but then complain that it is never applied after that initial phase because management has already determined work procedures. At other times, they say that participation in teams results in sharing work secrets with management at the peril of your own job. Which is it: management isn't interested in your opinion or management learns too much from your participation, teams never meet or they are used to extract information? Incidentally, the preference that management set the system up at the beginning with strict work rules is one of the essences of Taylorism, which is alternately denigrated and embraced, as I will discuss in detail below.
• Management is simultaneously stupid (with such gems as "Management is notorious for being unable to see past the end of its collective nose") and so incredibly devious that they can formulate fantastically convoluted mechanisms by which to cheat workers out of money, time, and health without anyone noticing their real goal - workforce domination for the fun of it. Or is it workforce elimination? A friend of mine summarized this kind of thinking by saying that some people believe that management would spend $1 to screw someone out of $0.10.
• NAFTA is evil because, as they say, "no one argues that American workers can compete with Mexican wage levels", but later, "U. S. workers are a bargain, compared to those other developed nations". So which is it: competition with Mexico works against US workers, or against Mexican workers?
• Monopoly is bad, except when you are talking about union workers, and then it is "taking labor out of competition". Competition, it seems, is bad between workers. Unless you're talking about nonunion or foreign workers, in which case see above.
  
• At one point, Parker and Slaughter tell a story about how workers are given training to do time & motion studies and then ridicule the use of such "experts", but at other times they themselves engage in social and psychological analysis (claiming, without support, that certain tests have cultural bias), critiques of management theory, critiques of design engineering, and critiques of quality control theory with even less apparent training then management gave them on time and motion studies.
  
• They ridicule the application of Deming's definition of quality by pointing out that the consistent McDonald's product would be quality (it is, if you understand the goal is to produce a reliably consistent product no matter where in the world it is, and millions of people seem to agree), but later they use the same definition to defend the Fiero ("[GM Plant managers] were celebrating what was then the highest weekly quality rating in GM's history - 138 out of 145"). Nobody, but nobody, ever believed the Fiero was a quality vehicle. After all, it had a Pontiac logo on it.
  
• Their heavily distorted "history" makes Howard Zinn look like a clear-eyed scientist in search of truth: apparently, the deregulation signed by Carter was Reagan's fault, they apparently have never heard that Davis-Bacon and Jim Crow laws were laws and not corporate policies, and government regulatory agencies like the CAB and ICC were not exactly unfriendly to the industries they regulated.
• They routinely assert that workers should stand up for their "rights" when they mean "privileges of seniority in a closed union shop".
• In the good old days of unionization (as they put it, from the end of WWII to the 1970s, or roughly the period in which Sloanism dominated), "Unions won the ability to set standard wages and benefits in unionized industries. In return, unions gave the employers the right to control the organization of work, to introduce technology, to change the product, and to accumulate capital through growing profits." Damn nice of them to give management something to do, and also damn nice of whichever God deposited a fully developed industry over whose output they could bargain. But elsewhere in the book, management is overstepping its bounds by setting up the organization of work without consulting teams, introducing technology to lay people off, changing the product to make it easier to manufacture, and (gasp) accumulating profits.
  

The most egregious error in the book is that the examples of "lean" enterprises are NUMMI, GM, Saturn, a Mazda plant funded by the State of Michigan, USPS, The Health Care System, universities, and some Baby Bells. Of all of those, the only one even close is NUMMI; the rest were probably chosen not because they were advanced lean practitioners, but because they were unionized. Bill Waddell refuses to have anything to do with publicly traded companies like GM and the Baby Bells because they have all adopted the Sloan/DuPont/Brown management principles by way of GAAP (another topic I will discuss in detail below). And let's be honest: citing the United States Postal Service or the byzantine private/public mess called the "health care system" as an example of lean management is just as nearly either ignorant or dishonest as one can be, almost as bad as citing Bill Clinton (a career politician), Robert Reich (a career academic and politician), Lee Iacocca (a political entrepreneur), and Lane Kirkland (a union boss) as "gurus of competitiveness" (as they call them) and citing Clinton's Council on Competitiveness and Paul Krugman as "reengineering gurus" who use "macho and violent" imagery (yeah, really - it's in there!).

One result of this error is that they talk repeatedly of how management uses lean processes and reengineering to make it easier to outsource and introduce automation, yet these are the diametric opposite of what Toyota does. Toyota is famously conservative about the introduction of technology. By outsourcing, Parker and Slaughter mean forcing single supplier systems to stock parts for Just-In-Time pull, but Toyota keeps dual suppliers and works with them to introduce real JIT methods into their operations. As a result, many Toyota First-Tier suppliers have expanded their business by supplying to Toyota's competitors, while GM, Ford, Delphi, and all the rest of the Sloanist, GAAP, Taylorist producers keep laying off, outsourcing, and automating their way to oblivion. Only about 12 pages out of 315 are occupied with Japanese companies, but Japan itself is not universally lean as they imply - Toyota stands out even there.

Taylorism

Slaughter and Parker exhibit a complete lack of understanding what Taylorism is, or what is wrong with it. They speak disparagingly of Taylorism by way of claiming that lean is "super-Taylorism". To them, the essence of Taylorism is the time study, the use of a stopwatch and experimentation to find the "one best way". To students of Taylor, however, Taylor's theory of Scientific Management only partly depended on the time study. If time study was the only thing ever advocated by Taylor, we would likely have never heard of him since it was merely an application of common sense and the most obvious tool to the problem of high volume manufacturing. Taylor placed much more emphasis on clear delineation between workers and management (managers think, workers do), and between different functions of management. The first is evidenced by this quote from Principles of Scientific Management:

Now one of the very first requirements for a man who is fit to handle pig iron as a regular occupation is that he shall be so stupid and so phlegmatic that he more nearly resembles in his mental make-up the ox than any other type.

Taylor's devotion to Division of Labor is due to his overweening application of the principle that he gleaned from Adam Smith's description in Wealth of Nations. After "scientifically" determining the exact division, though, Taylor permanently fixed the job classifications. He advocated departmentalization, rigid work rules, and rigid job descriptions.

But that is exactly what Slaughter and Parker advocate: rigid work rules, rigid work classifications, bureaucratization. They ridicule the training of workers as time study engineers, preferring instead Taylor's system of industrial engineers who have to petition the union for permission to do time studies. They deride workers who participate in team activities as "apple polishers", an implication of collusion with "the enemy" and another recurring rhetorical trick. They protest shopfloor communication and the blurring of distinctions between jobs (they point out that "A [desirable] relaxed attitude - 'I am just doing my job, I don't need to pay attention to anyone else's job' - makes the [lean] system inoperable"). They protest the blurring of job categories as "deskilling" as if learning to do more than one job requires less skill. They protest the blurring of the distinction between management and labor on the basis that team leaders should only participate in "management activities" and not in the actual work. When disputing the claims that management and labor have common goals, their adoption of class warfare rhetoric might make sense if they were distinguishing between owners and workers, but the modern, publicly traded corporation is run by hired management. The real distinction between that hired management and hired labor cannot be one of class; it is rather the arbitrary distinction given to it by Frederick Winslow Taylor.

[Aside: By maintaining strict classifications and rules and resisting team problem solving, workers are able to hide aspects of their job and thereby maintain a bargaining chip. Kaizen encourages them to reveal this secret knowledge, making it easier to document those secrets, eliminate custom work, and train new workers. This is interesting from a transaction cost economics POV, as it illustrates on one hand a principal-agent problem, and on the other hand the difficulty of making contracts in the presence of opportunistic behavior.]

Sloanism and GAAP

The second problem Slaughter and Parker run into is a result of their acculturation in the GM system, where the Taylorism is codified by Sloanism. Waddell and Bodek persuasively argue in Rebirth of American Industry that GM and companies based on its management principles will never fully grasp or be able to apply lean management theories because of the accounting rules they use. In Rebirth, the single most valuable point is that a company's accounting system sets their definition of profitability, and that everything else about the company flows from that definition. The Sloan system was largely based on DuPont's view of the operation and Brown's implementation of an accounting system based on DuPont's opinion.

To put it in perspective, it is valuable to compare the original Ford and the Toyoda family values to the GM values. Henry Ford and Kiichiro Toyoda both owned a manufacturing concern and made money by manufacturing things. DuPont owned a group of companies that manufactured things, but he had two options for making money: he could manufacture things or he could break the organization up and sell it off by piece. Therefore, he and Brown devised a system designed always to be ready to sell off.

In their system, multiple divisions were organized in the "M Form" corporation in which each division was independently evaluated as a cost center. They looked at it as "islands of cost awash in a sea of profit". Each division "sold" its product to other divisions (for example, Fisher "sold" bodies to the assembly plants). When you take in inventory, that's an asset; when you produce it and make it the next division's inventory, that's a profit; everything in between is a cost. Further, cost is divided into two categories: fixed and variable. The fixed cost is the cost of management and the plant operating costs. The variable cost is the labor. If a plant has high variable costs and little profit, it can and should be sold off in the Sloan/DuPont/Brown system. That system was ascendant in the 1950s, when GM was the mother of all corporations in the post-WWII era, and the structure was embodied in the Generally Accepted Accounting Practices (GAAP) which is today accepted by all publicly traded stock companies. In other words, if you don't follow those practices, you open yourself to civil and criminal procedures by shareholders suits, criminal prosecutors, the SEC, and the IRS.

So it should be no surprise that when union activists look at GM's application of lean theories they find a facade and little else. The accounting system in place in almost all public companies will force them to the same conclusion: eliminate labor because it is a cost, don't worry about inventory because it is an asset. GE took this to its logical limit: keep the name, sell off the manufacturing capability, put all of your effort into marketing and financing. The result today is that GMAC and GE Capital are the most profitable divisions of those companies. The MBAs in charge were baptized in the GAAP and Sloanist M-Form corporation theory; they eliminate variable costs (labor) by investing in specialized automation or by outsourcing it.

And Toyota is beating the crap out of them with people and relatively low-tech, general application machinery.

Quality Control

Slaughter and Parker also demonstrate a complete lack of comprehension of what is meant by quality. Their preferred definition is, "A degree or level of excellence". It is completely resistant to quantitative analysis. What degree? What level? At what price? If it has any degree or level, it meets their definition. Is the Mercedes 560 SEL a quality auto? The Honda CVCC? Although their prices are radically different, consumers would agree that each was a quality vehicle, but at different prices. Would the CVCC be considered quality at the Mercedes price? No.

They put that in opposition to the standard definitions from Crosby and Deming which both come to nearly the same thing: conformance to requirements or reduction in variation. Slaughter and Parker ridicule that because the specification may be bad. According to whom? The customer? Then the specification is bad and should be changed, which Crosby and Deming both note. That this aspect of both writers' theories is intentionally neglected by Slaughter and Parker is either indicative of their ignorance or a deliberate attempt to imply that Crosby and Deming were too stupid to realize what might happen if you made something perfectly which nobody wants to buy.

But if the specification is good, how do you know if you are delivering it? This is the critical question which is never, ever addressed in Working Smart, and in fact problems with that oversight surface several times. They cite an example from Crosby's Quality is Free in which the fictional managers take their drawings to an outside machine shop to see if the parts can be made there. When they can't, the managers realize their drawings are wrong, and that the only reason anything was getting out the door was that their in-house machinists were custom-fitting everything together. Rather than note the obvious problems, Slaughter and Parker marvel over the fact that Crosby's fictional managers realize that they don't control the design (recall that Slaughter and Parker imply that this is one of the few things that management should control, if even that). They think that the plant ought to congratulate the workers on their superior skill instead of fixing the problem.

For people inexperienced with actual manufacturing, it might help to illustrate why they are wrong, and not even just by a little. Say you have three parts in an assembly. In the design, the parts fit together perfectly. In practice, the parts don't fit together because of errors in the prints, wearing tools, wearing dies, change in heat treatment or painting, etc. After individual part fabrication, final assemblers put them together, but since they don't fit they have to be adjusted (at additional, unplanned time and cost). One assembler files A to fit, one B, and another C. They make the assemblies work, but filing B may seriously compromise the strength of the assembly and subject it to early failure (nobody thinks to measure this because the people concerned with designing, building, manufacturing, and marketing are all compartmentalized). Furthermore, repair parts will never fit into the assembly consistently because no two assemblies are alike, even if all of the repair parts are (which is, by now, to be doubted). The Working Smart point of view is that the filing is great and demonstrates the skill of the workers, though they inexplicably forget to question the skill of the design engineers as in other places in the book; they never address the additional costs; and they completely overlook the impact on product life and perceived value by consumers, which they otherwise always go out of their way to blame on management. Perhaps, as people who probably buy into the Broken Window Fallacy, they figure that if they put out defective units, consumers will have to buy more, thus helping the employment of union workers at plants where this is actually the business plan. This is a result of the GM assembly theory: make a lot of them real fast to keep the unit labor costs down, count the finished but defective products as inventory (assets), and then fix the problems afterwards. Then marvel at the way Toyota takes market share, blame the pension plan, sell off Delphi, lay off 10,000 more workers.

Norm Bodek tells in Rebirth about an experience he had on a GM line: an inspector was going through a stack of doors to see if they met spec. They had been batch produced into stock (the system preferred by Slaughter and Parker to increase slack time), and he asked how many would be out of spec after the one he was inspecting. "Oh, maybe a thousand or so," came the answer. He asked what would be done about the problem - would it be corrected? "I would notify the die press people to make the necessary adjustments on future doors to correct the problem; then the new doors stamped would meet the exact specifications." He asked about the doors already stamped. "They are normally not too bad, not that much out of sync. When they get to the assembly line the worst thing they might do is use a rubber hammer to make them fit properly into the car." Think about that the next time you buy a product that isn't "too bad, not that much out of sync." Hey, maybe the door doesn't shut right, so maybe you need to use a rubber hammer to adjust it. Still, at least the car has "a degree or level of excellence", even if that degree or level is not very high. While you're doing that, and marveling at the skill of the workers as Slaughter & Parker would have you do, also marvel at the toll on a worker's wrists as he does this a thousand times a day. No wonder they need breaks, huh? And just in case you think I'm just being flippant about that, I actually met a Harley-Davidson engineer back when Harley was coming back from the old every-sled-comes-with-its-own-oil-drip-rag days who told me he had only about 2 or 3 guys who could manually adjust shafts with a hammer, and they were all developing repetitive motion injuries.

But it isn't just Bodek that finds such bizarre notions of work and quality. Slaughter and Parker explain their preferred version of a good job when quoting a NUMMI employee who used to work at the GM plant at that location:

The best job [at the GM plant] used to be material handling. Because what did you do when you walked in the morning. [sic] The first thing you do ... is stop at the newspaper stand and pick up a paper, right? Then you get on your truck and you scout the line and you look for a place to stack material. And you put on eight hours, 16 hours, if you could put on 16 days of material you would do it -- because what's the next thing you do when you stack the line? You went to the satellite area, got a coffee, and you read your newspaper and you didn't have to do anything anymore.

What does this [NUMMI] plant do? Every 60 minutes we are stocking the line. The people who are in material handling now -- they are working eight hours a day.

Relaxation time is the goal of the Slaughter and Parker system, so inventory is preferred and overstaffing is the goal. They have completely bought into the Sloan/Taylor theories of management. I wouldn't count on getting much of a flow experience from working there. Slaughter and Parker relate this story as an example of how mean the NUMMI management was. The lesson you are to take from this is that the GM/UAW way of doing things was to stockpile WIP everywhere so people could get paid to read papers work in a low stress environment. Now, how was it fair that some people got this easy job and others didn't? Well, if you are either senior or connected in the union, it is your right. Those mean bastards that took over, they thought that maybe it was a good idea to only produce what was needed in order to eliminate waste, uncover defects before thousands of defective copies were made, to cut the amount of time required to deliver an order without requiring expediters and speedup and overtime, and to actually get eight hours of work from everyone for eight hours of pay. The horror, the horror.

But to return to our three workers and the three piece assembly, by measuring, we may find that there is a continuum rather than a simple binary distribution of "obviously defective" and "obviously usable". Over time, we may find that the arbitrary tolerance threshold between pass and fail is either too tight (we are going to unneeded expense to get within tolerance) or too loose (parts may be usable, but wear quickly and give our products a reputation as unreliable). The Working Smart way of dealing with this problem is ... well, they never address or even acknowledge the problem, an indication of how woefully uninformed the Working Smart authors are about quality control theory (though that doesn't stop them from criticizing it). They live in a world where a product either has quality or doesn't. Sometimes they imply that quality is designed in, or that workers fix the design flaws on the fly. Whichever it is, it is inexplicable and amorphous, like pornography for Potter Stewart. They apparently never realize that it cannot be both "designed in" and "fixed on the fly" simultaneously; the two are mutually exclusive. Yet that is how they would achieve quality if allowed to run things. Or fail to achieve it. But what would you expect when the principle critics of lean have been brought up in the culture of GM and the UAW?

Summary

There is a side point about downsizing and lean. Parker and Slaughter imply throughout the book that the goal of lean is to reduce the number of people required so they can be laid off, which of course is always the goal when applying the Sloanist principles implicit in GAAP. Had the authors looked for counterexamples, though, they might have made a case for a different management approach that workers reading their book might have found useful and interesting. But since their purpose is to introduce FUD, they were never going to look for or find counterexamples. It is possible, despite what you might think after having read this book, that a manufacturer might take the people freed up from the efficiency improvements in one production line and create another and expand output. They might even have to do so because the new efficiency may allow them to drop their prices and increase market share. Lean Thinking cites the example of a unionized bumper manufacturer subcontractor to Toyota in North America - oops, I can see why Parker and Slaughter wouldn't want to discuss that - that expanded their output and payroll dramatically. Toyota is expanding market share and employment while GM and Ford (the anti-lean) are shrinking - oops, let's not face that fact, either. Nowhere in the book do they talk with employees from Toyota's nonunion plants in North America. And what about Wiremold, Danaher, Pratt & Whitney, etc.? Examples abound of how they did more with fewer, and then used the workers freed up to expand business and in fact increase their pay. [Aside - My criticism of Womack, Jones, et al, is that they imply that everyone can have the same results, but if everyone applied it, everyone could not expand market share. Slaughter and Parker raise this point in exactly one sentence, from what I can remember.]

The result is that Working Smart is a one-sided, distorted, childish view of the theories underlying lean and related manufacturing techniques. By avoiding any mention of companies whose adoption of lean has improved the lives of workers, i.e. by choosing only those industries where lean has worked in spite of or perhaps to the detriment of the union hierarchy (the union hierarchy, not the laborers themselves), they cheat their readers out of the opportunity to learn about something they might like to experience. This is a book whose sole purpose is to undermine any attempts by a manager or management to introduce or sustain a culture of innovation or teamwork. It is argumentative (it even features a chapter in which they point out the inconsistencies between, say, Crosby and Deming as if any branch of organizational theory must be completely consistent), it encourages the worst of unionism (featherbedding, rigid work rules, and classifications to thwart management), and it encourages deliberate troublemaking for no other purpose than to make trouble and maintain an environment of conflict.

[Another aside - Kevin Carson sees it differently. I respect Kevin's take on this. I believe that lean is amoral: it can be used for good or bad, e.g. GM probably has found a system for eliminating more jobs. And we certainly have seen lots of people use the slogans without getting the message. But I also believe that it is potentially valuable, especially as lean is exactly the type of system Kirkpatrick Sale tries to describe as a means for producing goods locally from generalized machinery as discussed here and it is exactly what Amory Lovins and Paul Hawken see as the productive mechanism in Natural Capitalism, which I reviewed here.]

Something to Like about Human Scale

This is the last in a series of impressions of Kirkpatrick Sale's Human Scale. The others were mostly criticisms: Part I, Planned Obsolescence, Part II, Mass Production = Expensive and Low Quality, Human Scale Part III - Self Sufficiency, and Part IV - Rational ignorance and irrationality.

I am always mindful of the difficulty faced by people who have a vision of the future and wish to see us get there. There are two problems: one is in developing and describing the Vision and in convincing others of its validity. The other is in describing the means by which Change from the present condition to the future Vision will take place. They are separate problems, each with its own difficulties. A Vision, such as Human Scale, is usually Utopian: he is arguing that nearly everyone will be better off in nearly every way. There is nothing inherently wrong with that, except that I find that such Visions usually gloss over the likely problems.

Readers who like Human Scale will also probably enjoy another book, A Pattern Language: Towns, Buildings, Construction, by Christopher Alexander et al. A Pattern Language answers the question of what Human Scale is: not just buildings, but communities, businesses, neighborhoods, etc. Sale seems to gloss over questions of what is or is not Human Scale; apparently, silicon or more exotic semiconductor materials used to make photovoltaic energy systems and the inverters, storage batteries, and other microelectronic control systems are okay, but add a hard drive, keyboard, monitor, and Internet connection, and now you have something that Sale would like to smash with a sledgehammer. He never explains the difference in general terms that one might be able to apply, say, 100 years in the future when we might have such questions. Incidentally, A Pattern Language is organized so that you can enter and browse randomly rather than sequentially, which I find to be more accessible than Human Scale, which tends to define its terms as it goes and thus requires the reader to move sequentially forward through a rather long but otherwise easy read. Both books share visions of local governance: small communities, about 10,000 or so. I find this to be completely harmonious with the libertarian value of decentralization.

Few libertarians have problems with local government: police to protect against crimes against person and property (murder, assault, theft, fraud), traffic ordinances, courts, streets, parks, schools. Perhaps some of these things could be managed better with quasi-private mechanisms such as user fees for schools, waived on the basis of income, while modest user fees for parks ($0.50 a visit or $5/year for a pass) would keep vandalism down and allow the park to pay for its own upkeep while providing an exact measure of how popular and useful it was. As for the other things that the federal government does for us, well, it just isn't the case that we need them. As in this post, the federal government did little if anything to help the unemployed that local governments weren't already doing. And before the "Progressive Era" of the early 20th century, people dealt with problems of health insurance, sick benefits, unemployment, long term disability, survivors benefits, and the like, all privately, as David Beito details in From Mutual Aid to the Welfare State: Fraternal Societies and Social Services, 1890-1967. The federal government turned those private programs into patronage programs to buy the votes of everyone foolish enough to think they were getting something for nothing. Since the same government now controls the education system, few new voters know that such things ever existed.

Local government means people vote on things they understand and can monitor and with which they probably have some interaction. Local tradeoffs are personal: pave a road or build a new library, pay lower taxes or get more services. Either is just as likely to benefit the people paying for it. In contrast, federal tradeoffs are unknowable: build a bridge in Alaska, or a tunnel in Boston. Relatively few people are likely to benefit from those things, much less understand what they do or whether they are done economically or even well. Everyone thinks their own Congressmen is relatively clean and all the others are pork dealers. Sale seems to share this distrust and even dislike of large government.

Unfortunately, Sale barely touches on a subject in which he seems in complete agreement with an argument David Friedman makes in Machinery of Freedom: that defense from external aggressors is perhaps the hardest problem for an anarchist (how Sale, who favors democracy in both personal and civic life, got to be known as an anarchist is beyond me though). Sale's answer is that small, no-growth, stable villages are not likely to be attacked because there is nothing they have that is worth stealing. Perhaps, but that doesn't mean that external aggressors will note that, or that they will understand that they can't have the thriving village's golden eggs if they kill the goose. Brutes have always thought that they could easily steal and emulate the success of capitalist societies: Mussolini, Stalin, Hitler, and Mao all seemed to think that they could have the advantages of the West by centrally planning to do so, and for generations their apologists promoted their planning systems. As the war with and between the totalitarians was coming to a close, Schumpeter (Capitalism, Socialism and Democracy) was writing that entrepreneurship was outdated and that economies could be managed, while Hayek stood up nearly alone to warn people that markets were not chaos just as the British were preparing to make their ill-fated march down the road to nationalization, with Keynes leading an intellectual vanguard and Attlee preparing to take the command of the state from Churchill. If it weren't so tragic, it would seem almost comical that people voted to go down the same path as the broken societies with whom they just warred.

I also enjoyed reading Sale's account of alternative work organizations. His emphasis was on two kinds of organizations: all-encompassing communitarian societies exemplified by kibbutzim, 19th century and 1960s communes, Amish and Mennonite communities, and peer-group firms, exemplified by the Mondragon group. I might add to this the United Defense Aberdeen plant, described in Rebirth of American Industry as a a group of self-directed teams who manage their own hiring, firing, promotions, schedule, training, and quality. I am fascinated with alternative work organizations (as evidenced by this series of posts), but am unconvinced by Sale's enthusiastic but one-sided description of such places (detailed in the prior posts).

As an enthusiast of alternative and/or renewable energy systems, I cast a jaundiced eye on those aspects of modern, Western organization and culture which have developed around the decidedly non-human scale aspects of the petrofuel industries and find myself sympathetic to Sale's discussion of energy, food, waste, and transportation (four separate chapters). As I have written before, I believe that if people had not gone along with Samuell Insull's self-interested theories about natural and regulated monopoly, and had instead let the utilities compete while consumers were still autonomous and not dependent on so-called "cheap" electricity, then we would today have a more decentralized system in which conservation was at least as important as reliability and ..., well, bigness. Similarly, if the various states and then the federal government had not gotten into railroads, or if the populists had been able to differentiate between business or technical entrepreneurs and political entrepreneurs, we would today have a society in which rails, trolleys, and bicycles were at least as important as the almighty automobile. But that wasn't the case: indeed, as I complained last time, when you allow people to move decisions out of the economic realm and into the political, where it costs nothing to vote, they are just as likely to vote for politicians (and through them, their patrons) who promise cheap transportation and cheap energy.

In fact, by moving such decisions into the democratic realm, you make it even harder to deal with large, complex issues of external costs because of the accusations: if you are against giving land and capital to railroads, you must be against railroads and progress. If you are against regulating railroads, you must be in the pocket of the trusts. If you are against subsidized roads, you must be against freedom to travel and confirmed in the pocket of the railroad trusts. If you are against regulating electricity companies, you must similarly be in their pocket. Why, everything the government does is in the interest of the people, so in so opposing, you must be against people! Here again, Bastiat had already encountered and ridiculed such silliness:

Socialism, like the ancient ideas from which it springs, confuses the distinction between government and society. As a result of this, every time we object to a thing being done by government, the socialists conclude that we object to its being done at all. We disapprove of state education. Then the socialists say that we are opposed to any education. We object to a state religion. Then the socialists say that we want no religion at all. We object to a state-enforced equality. Then they say that we are against equality. And so on, and so on. It is as if the socialists were to accuse us of not wanting persons to eat because we do not want the state to raise grain.

By leaving such issues as electricity in the private realm, it makes it much easier to then point out the problems of pollution since you aren't simultaneously fighting both the externality producer and the bureaucrat or politician who must defend the subsidies and enact the regulation to control the effects of the subsidies. What you end up with is the mess Al Gore proposed to address the impact of sugar subsidies on the Everglades. There, the Army Corps of Engineers drained the swamps and built levees and other systems to "reclaim" the land for "small, family" sugar farmers (all US sugar farming is actually controlled by only about 4-5 small families). Then, the government guaranteed floor prices for domestic sugar, thus making sugar more expensive than high fructose corn syrup to the benefit of both the sugar cartel and "small, family" corn farmers and their former representative, Bob Dole. Then, without intentional irony, Al Gore proposed to tax sugar and use the proceeds to restore the Everglades. At any point in the growth of these labyrinthine systems, a critic finds that there are entrenched interests with which to fight, and the more the complex it becomes, the more difficult it is to address the root cause without getting crossways with one of those powerful interests. If the sugar farmers had tried to drain the swamps themselves, the problems would have been obvious and the whole affair never would have happened.

Another area in which I think I am in agreement with Sale: the education system is in need of a massive overhaul (my last post on the subject was here). It is based on outdated methods codified in the distant past. First, the school calendar was based on the agrarian culture in place at that time, 150 years ago, and today those schools are silent except for on the practice field from 4 in the afternoon until 7:30 the next morning, and for 1/4 of the school year between May and late August. Then, school texts were scrubbed of anything that offended anybody, reducing them to pablum and a thin gruel. In part, that happened because of the quest for economy of scale, and the interaction between book publishers, the state, and citizen watchdog groups as detailed in The Language Police. Sale cites statistics similar to those found in Andrew Coulson's Market Education: The Unknown History: "In 1950 there were 139,000 elementary schools in the U.S. - 60,000 of them small, one-teacher affairs - serving an enrollment of 21 million children. By 1975 there were only 79,000 schools, barely a thousand of them one-teacher size, although the enrollment had risen to 32 million." Sale cites similar consolidation statistics for high schools and universities, and that was in 1980. Since then, Ross Perot leveled the charge that the only reason schools are as large as they are is so that eventually you can get 11 guys good enough to win a state football championship (it is still a mystery to me, no matter how many song lyrics Bill Waddell quotes, why people can play soccer and baseball in private leagues, and in Europe all teams are clubs separate from the schools, but Americans need to spend vast sums of school district money on football and basketball teams). Since then, Ted Kennedy wrote, and George W. signed, the No Child Left Behind Act, which consolidates all schools into one big district on the principle that everyone has to pass a test that determines federal funding. That act was the culmination of decades of consolidation, was written by a Democrat, and under W. the federal spending (which is only 8% of the total education spending) has increased by far more than under any president in history (Clinton wasn't even close), Republicans still claim they are for small government, and Democrats continue to "blame" the president for the "lack" of spending while ignoring their own role and the basic problem: size. Meanwhile, our students are enrolling in remedial education in record numbers.

All in all, I would recommend Human Scale to both classical and modern liberals; there are consequences of largeness of which we should all take heed. I doubt if modern conservatives would find anything of interest here. But while I am interested in discovering the underlying causes of the size of particular groups or industries - for example, is there an actual scale economy benefit or a distortion caused by a feature in the Internal Revenue code? - , Sale is more interested in describing a future in which everything is considerably smaller without examining how things got big. I find that a little disturbing, since his favorite remedy, direct democracy, is at least a little likely to be the cause rather than the solution, especially of the largeness of government which he rightfully fears.

Human Scale Part IV - Rational Ignorance and irrationality

This is a review of Kirkpatrick Sale's Human Scale, continuing from Part I, Planned Obsolescence and Part II, Mass Production = Expensive and Low Quality, and Human Scale Part III - Self Sufficiency. So far, these have all been critical, but next I plan discuss what I liked about the book and its ideas.

Rational ignorance and irrationality

As someone who believes that the value created by private property and free markets is vastly underrated, I am frequently confronted with claims about the psychological biases and failures that prevent capitalism from behaving as efficiently as the atomistic competitive environment of freshmen microeconomic theory (see Failure Part I: Market Failure). However, I am amazed at how infrequently such people turn this analytical technique on their own preferred solutions. It should be - but is not - well known that biases and failures also pervade political systems with similar results (see Failure Part II: Government Failure).

The similarity between libertarians and socialists (especially of the Marxist variety, though they frequently fail to appreciate the differences within their own ranks) is that both find fault at the nexus between corporations and government. The difference is that libertarians believe the solution lies in limiting government power while the socialists believe in limiting corporate power. I take the side I do because political power is force. Sam Walton cannot make you do anything in the true sense of that phrase; he can drive hard bargains, but only if he appeals to the legislature can he obtain the legitimate use of force against you.

Despite this, we have Kirkpatrick Sale advocating the same mechanisms for managing business as we currently do for managing the federal government (theoretically, at least). Democracy is a means of simultaneously economizing on decision-making transaction costs and externalities. We could eliminate externalities if we followed a rule whereby we only made decisions by unanimous consent, but we would rarely make a decision. A dictator has no decision-making transaction costs, so he can make a decision at the drop of a hat and create massive external costs to everyone else. Neither of those is satisfactory. It is also the case that none of them necessarily leads to efficient outcomes, nor does any of them honor the Nozickian side-constraints of recognizing moral principles like free speech. After all, Socrates was condemned for his exercise of free speech by the first democracy, one which Sale appears to admire.

Does anyone who has ever worked with a wide variety of people actually believe that all of them could be as effective as both supervisor and laborer? I have seen supervisors, engineers, and outspoken technicians who would be terrible managers because they lack the combination of technical and social skills, and I have seen terrible technicians who have been successful politicians. Who doubts that such problems would be manifest in worker-run companies? One of our greatest challenges at my workplace right now is to get the older workers to develop some interest in the newer, high-tech stuff. They would prefer to stick with the older equipment even as they can see its use dwindling and the writing on the wall. Yet they refuse to acknowledge reality. Who believes that such people would not abuse a democratic decision-making process to stall beneficial change because it would push them out of their comfort zone? What would become of them? If allowed to prevail, they would create stagnation everywhere. If not allowed to prevail, in a society such as Sale describes, they would essentially be condemned to death, since if kicked out of one commune/town, they and their reputation would not be easily accepted into another. In the current regime, in which authority relation dominates most organizations, they are either told what to do or asked to leave, where they easily make their way into another organization (anonymity is a feature of our larger-than-human-scale society; anonymity holds advantages as well as disadvantages). But why would they behave that way in Sale's envisioned society? The answer is simple: votes cost nothing - why wouldn't they act that way?

Here, Sale suffers from the time at which his book was written, as the late 1970s were indeed a time of disillusionment. Jimmy Carter, the technocrat whom Sale rightly sees through, may have been a brilliant individual, but that brilliance perhaps also led to his determination that one man or cabinet could micromanage incredibly complex bureaucratic operations. Carter was not elected, though, on the basis of his vision, but rather because he wasn't the man who pardoned Richard Nixon. Nixon may have been the man who got us out of Johnson's SE Asian quagmire, but Johnson's other quagmires - the War on Poverty and Medicare - were proving to be just as disastrous and more expensive at the time Sale was writing. The fact that Nixon withdrew from Viet Nam also did not erase the cynicism with which he and Henry Kissinger ran foreign policy, or with which he ran domestic policy. The feminist movement was beginning to founder and split at the time. Large cities were crumbling as they wavered between the old method of iron-handed crackdown on crime and the new method of throwing money at underlying social problems. New regulatory agencies were forcing factories to close faster than the results of new technologies solved environmental problems. The Japanese automobile industry was taking market share; people were beginning to believe that maybe Soviet Communism wasn't evil, perhaps it was just different, and that thought was depressing to everyone else. Everywhere you looked, the American system was being declared dead. Thankfully, until just recently, things haven't been as depressing. The Sagebrush revolution that was rolling at the time Sale wrote brought Reagan and his "get government off our backs" rhetoric, but also more expansion in federal power. Personally, I would credit the end of the malaise to the economic expansion that came about in both the 80s and 90s, and to the extent the government helped that expansion, to the deregulation measures signed by Carter.

From our perspective, many of the predictions Sale made in that era seem silly, even laughable. Solar power was then and is again today said to be inches away from achieving the breakthrough necessary to make it economically viable. Even today, people make claims that show they haven't even begun to understand the issues with making solar competitive (see, for example, the debate in the comments to this post at environmental economics blog). Communes grew out of the 60s, but collapsed in the 70s and 80s as the Boomers grew up and got jobs. The Zionist kibbutzim movement collapsed when Israel was secured. Sale mentions the success of Amish and Mennonite societies as indicators that his democratic communities could thrive, but largely ignores them. Why shouldn't he? After all, few people receptive to his core argument are going to be enthusiastic about joining a strict religion, eschewing all modern conveniences, and living on rural farms. And, ironically, Wal-Mart is today one of the favorite Amish places to shop.

All of these provide adequate evidence to me that simply allowing people to vote on everything under the sun is never going to be sufficient to bring about everything claimed by proponents of this approach. People remain ignorant of things that do not interest them or they do not understand, but that does not prevent them from voting on those very issues. Further, people are beset with all manner of biases and irrational motivations. When they apply these to personal decisions with economic consequences, they either learn a lesson or they don't, but they alone pay the price. When they apply these biases and irrational choices to political consequences, they may pay little or no price to make the decision, and may see only the problematic outcome without being forced to recognize the problematic system that led to it.

The workers may all vote that everyone gets the same pay. The vote costs nothing to most. The outcome costs some a little in the short run. The fact that everybody prefers to be the dispatcher and nobody wants to learn to do the hard skills (engineering, welding) matters very little at first. Later, when the older skilled workers leave and they can't hire any replacements, and they gradually falter in competition with the fabrication house in the next town over that didn't go democratic, it dawns on them that something is wrong, but the vote is by now long forgotten and the practice of equal pay is tantamount to a commandment from The Deity. And this competitive problem is attributed not to the logical outcome, but to the evil and greed of the factory that didn't succumb to such hyper-democracy, and to the system in which it was created.

When some worker is unsatisfied with the manner in which his factory is being run, he may still retain the freedom in Sale's world to go away and start his own business. But in a small community where people are allowed to vote both on workplace issues and community issues, how will he be able to acquire the materials, land, buildings, and machines necessary to start this new workplace? Perhaps he wants to try a new technology, one which the Saleists believe is not "Human Scale". After all, Sale himself is all over the map on the issue, having recently reveled in the destruction of the personal computer (Wired, Interview with the Luddite), but having endorsed photovoltaic cells which benefit from the same semiconductor technology. How does he determine which is good and which is bad? If allowed to vote on the allocation of resources within a community as he advocates, it seems that the choices would not be based on technical considerations, but largely on the force of rhetoric and personality.

Voting your way to freedom without considerable side-constraints on the process is a chimera. While Sale makes a nod in the direction of consensus instead of simple majoritarian voting, he does not emphasize it, but that seems to me to be the obvious first step. A second would be to acknowledge a new Bill of Rights, similar to that embodied in the Constitution, but with greater emphasis on the articles that seem to be forgotten (like the Takings Clause in the Fifth Amendment). I'm not sure Sale would endorse it, since he seems to be no great fan of private property. Democracy is a means, not an end. It sometimes works toward poor ends, as the darker inhabitants of The South before 1863 could confirm.

Human Scale Part III - Self Sufficiency

This is a review of Kirkpatrick Sale's Human Scale, continuing from Part I, Planned Obsolescence and Part II, Mass Production = Expensive and Low Quality. Although I have started with criticisms, I do eventually plan to get to what I liked about the book and its ideas.

Self sufficiency

This idea seems to be very poorly thought-out despite being a major theme throughout the book. The few times it has been tried in recent history, it has with few exceptions been an unmitigated disaster, resulting in either failure or widescale terror and dictatorship. That alone is not enough to condemn it, since Sale's premise is that few things work on a large scale, and many things simply work better on a small scale. However, it is worth considering whether or not things that fail that badly on a wide scale will not also lead to similar problems on a small scale. What, after all, is the defining line between "wide" and "small"?

The concept of self sufficiency guided some of the worst dictatorships known to man. One of those, achieving its power through democratic means, and the other two, which were brought on with widespread support and - later, after they lost that support - were defended as pro-labor, managed to kill more people than were lost in the two world wars of last century. Two of them could be said to be responsible for those wars. In their terminology, they referred to self sufficiency, autarky, and lebensraum. I am of course talking about the communist dictatorships of the Soviet Union and China, and the National Socialist regime of Herr Hitler. But it is actually larger than that, since "self sufficiency" was also the guiding force behind Imperial Britain, France, Belgium, and Germany under the Kaiser, whose clashes eventually sparked WWI. When self-sufficiency through trade within an empire - the colonizer and the colony - failed, Germany and Russia turned to autarky, the idea that you should create entirely within your own country the markets, sources, and consumers of every agricultural and industrial product.

Perhaps we could argue that self-sufficiency on a large scale leads to intractable problems having to do with large scale agriculture, industry, transportation, and government necessary to make it work. Fine, but I am arguing that some of those problems would be true no matter on what scale you attempted it. On a single family farm, I simply would not have both manufactured goods and food. I would have to trade. In a community in the American Southwest, I would certainly not have enough of either food or manufactured goods. Most places are not blessed with a wide variety of iron ore, reliable energy sources, lead, technical know-how, and so on. There are issues of both absolute and comparative advantage that lead us to trade for mutual benefit. And on this point, Sale himself eventually backs into the position that trade would be okay:

Self-sufficiency would probably mean the loss of Iranian caviar and Polish hams and French fraises-des-bois, not to mention in most cases Idaho potatoes, and Wisconsin cheeses and Florida oranges, except insofar as any particular community would feel it necessary to establish trade relations for such things or itinerant traders would find a market for them.

and later,

I think a small town can without much difficulty provide for virtually all material needs on a household or community level [... b]y networking, where necessary, with other communities. With judicious linkages with nearby towns -- a sharing on a municipal level like the sharing on a personal level -- a community could enlarge its economic possibilities and diminish its manufacturing requirements without necessarily sacrificing its self-sufficiency. [the apparent emphasis in the original is due to the fact that this is a section heading]

But these nods to trade don't seem remarkably different than what we have now with the exception that Sale declares them to be different. Actually, I am overstating that and will return to this in a future post.

For another view of self-sufficiency - and I hate to beat this dead horse, but the parallel seems so striking - we have the lean literature on local production. In Lean Thinking, Womack et al discuss the travails of the simple aluminum soda can. From the mine to the smelter to the rolling mill to the can maker alone takes several months of storage and shipment time, yet there is only about 3 hours worth of processing time. A good deal of aluminum smelting is done in Norway and/or Sweden, where widely available hydroelectric power makes aluminum production from alumina very cheap and relatively clean. From there, the cans are shipped to bottlers where they sit for a few more days before being filled, shipped, stored, bought, stored, and drank. All told, it takes 319 days to go from the mine to your lips, where you spend a few minutes actually using the can. The process also produces about 24% scrap (most of which is recycled at the source) because the cans are made at one location and shipped empty to the bottler and they get damaged in transit. It's an astounding tale of how wasteful the whole process is, yet still results in a product that - externalities aside - costs very little to the end user. Could this type of thing be done locally? After all, every town is awash in a sea of used aluminum cans, and the reprocessing cost is much lower than the original processing cost (which is why Reynolds and ALCOA buy scrap aluminum).

Taking this problem to the obvious conclusion, Bill Waddell and other lean consultants have been trying to convince manufacturers that if they would only fire the MBAs and actually learn to manufacture, they could do so much more cheaply locally than they can by offshoring their production. Labor costs simply aren't the deciding factor, no matter what the local Sloan school is teaching: American labor may be more expensive then foreign labor, but it is also more productive. Further, all of the (chimerical) gains to be made from going to cheaper labor are likely to be lost in shipping costs. Think of that flotilla of shipping containers on cargo ships between here and Asia as a huge warehouse on the ocean, warehouses that not only charge rent, but also for fuel.

But what about following Sale's model and establishing self-sufficiency within a local community, and therefore banning trade (around which he tiptoes despite leaving the backdoor open to it)? First, we would almost certainly see the rise of small monopolists in place of the hard-nosed competition between large concerns that we see today. The local computer manufacturer would offer nowhere near the head-to-head competition (and its benefits) as we get from Dell v. H-P; the local fuel industry would not see the vicious competition between BP, Shell, ExxonMobile, and others; as a guitar player, I would have to settle for the product of the local luthier instead of a shop where both his and the products of Peavey, Fender, Gibson, and others vie for my hard-earned dollar. A couple of weeks ago, we went to a local farm to buy chile; it was going for between $0.50 and $1 per pound (self-pick vs. pre-picked), versus the $0.50-$0.55 per pound at the local chain supermarkets including Wal-mart (all of which, by the way, sell local products as demanded). Was it worth the extra fuel to drive out there? Not to mention the externalities (fuel-use, road congestion, etc.)?

Second, the few examples of communities cited by Sale as having succeeded in self-sufficiency are no more impressive. He begins with a paean to paleolithic communities: I think we might consider that after the nuclear winter that knocks a few billion off the planet, but not before. I have long been a fan of Amish and Mennonite communities, but Sale's treatment of them does not seem to consider the cultural ties that bind them, ties that most of us would not gladly assent to after lifetimes outside those communities. He mentions the communitarian experiments of the 19th century and tries to argue that they were not failures. "Perhaps the most useful examples [...] are the American communes of the nineteenth century and the British New Towns of the twentieth." Here, he lists Bethel, Missouri (founded by a Methodist minister, lasting from 1844-1880); Hopedale, Massachussetts (according to the town history, it was bought up by "idealists who wanted to combine biblical individualism with social responsibility and religious liberalism" and went bankrupt 15 years later); a community (unnamed in Human Scale, but it was Ripon, Wisconsin) founded by the Wisconsin Phalanx (a group of Fourierists) that imploded in a dispute; the Oneida colony (who believed they could bring about "Christ's millennial kingdom"); and so on. They were financially successful for a few years, about the same length of time as a Fortune 500 company, for example, but none lived past a generation. He doesn't mention the Owenist community of New Harmony, which was well-funded by its industrialist founder, populated with hand-picked citizens committed to their ideals (Owen coined the term "Socialism" and later provided inspiration to Marx and Engels), and a complete failure. He briefly mentions the kibbutzim, which sprouted out of the pre-Israel Zionist movement, peaked in the 1970s and collapsed afterwards as it seemed that Israel was going to survive without the privation demanded of the kibbutz dwellers.

In the end, Sale advocates as much self-sufficiency as the inhabitants see necessary, but admits of the benefits of trade. This alone gives us no clear rules to guide us.