Transparency

So one of the outcomes of the unfortunate series of events from my last post has been a discovery of Stephen Schneier's excellent blog, Schneier on Security, and a subsequent gaffe on my part. In one of his posts, he linked to an article written by Naomi Klein for Rolling Stone in which she warns of the panopticon currently being built in China with technology being developed by defense contractors in the US. My gaffe was to react to the author's identity and to scan the article for the earmarks of a Naomi Klein piece: half-truths and wild assertions. I found my quarry: first, in that she refers to China, a police state if there ever was one, as an example of a free market, and second, that the alarmist article is riddled with examples of ongoing criminal activities in this totalitarian world, a paradox or irony which she fails to note. Besides those two drawbacks, I find that her alarmism may not be without foundation.

Which is one of the reasons why I find comments like Bernard Yomtov's comment in this thread so meaningless. Yes, there are probably libertarians (Kevin Carson's "vulgar" libertarians) who are more interested in lower taxes and repeal of motorcycle helmet laws than they are in issues like indefinite incarceration on the basis of secret evidence. But the libertarian community with which I am most familiar (a) does not suffer from that affliction, and (b) is more likely to see civil rights as a continuum in which the differences are of degree as well as of kind [1]. Tune in to Radley Balko's blog for a few weeks, see kids arrested and choked for skateboarding, see no-knock drug-war raids turn into murder of innocents, see kids taken from their parents on the slightest pretexts (see below).

In related articles, I see that Kevin has a similar reaction to Naomi in this essay reviewing her The Shock Doctrine [2], and I also see where Schneier makes a good point regarding transparency in this article in which he reviewed David Brin's The Transparent Society, revived on its 10th anniversary. He says,

If I disclose information to you, your power with respect to me increases. One way to address this power imbalance is for you to similarly disclose information to me. We both have less privacy, but the balance of power is maintained. But this mechanism fails utterly if you and I have different power levels to begin with.

An example will make this clearer. You're stopped by a police officer, who demands to see identification. Divulging your identity will give the officer enormous power over you: He or she can search police databases using the information on your ID; he or she can create a police record attached to your name; he or she can put you on this or that secret terrorist watch list. Asking to see the officer's ID in return gives you no comparable power over him or her. The power imbalance is too great, and mutual disclosure does not make it OK.

Which brings me to one of the points of interest I have had with respect not only to corporate security policy, but to large organizations in general: one of the basic problems is the establishment and maintenance of transparency. How are decisions arrived at? Who has the decision authority? What is the basis of a decision? How may the decision be appealed?

This is the genius of Open Source: you don't like it, ultimately, you could change it yourself. But more importantly, Open Source embraces Eric Raymond's reformulation of Claude Shannon's reformulation of Kerckhoffs' principle: a system that is based on the assumption that the enemy -- who could be MegaSoft or the state -- has the code (but not the key) because the code is freely accessible (and therefore subject to close scrutiny) is more secure than a system whose operation is a closely held secret. This same principle would seem to apply to anything that someone would want to do, whether a company or a state, whether developing code or a new chemical or passing a farm bill or budget.

Another aspect of transparency: authority and responsibility must lie at the same locus. Remove one and leave the other and you end up with an irresponsible despot and/or powerless bureaucrat. Most large organizations are filled with both, sometimes the same person acting at different times in different capacities. That is what lies at the bottom of one of the threads undertaken in this post: a mistake by a parent leads to the detention of the child even though everyone at every stage acknowledges it is the wrong thing to do (original story here). In that case, the system is transparent to neither the victims nor to the perpetrators, the latter who don't even know how to appeal a decision they would like to appeal but nevertheless feel compelled to enforce.

Transparency seems more easily achievable in smaller organizations and in less hierarchical organizations. It isn't a slam dunk: presenting a grievance to a single individual with authority may get you further at less cost than attempting to convince the majority of a democratic body. This was the subject of Madison's Federalist X essay: the tension between the need to thwart the "violence of faction" while maintaining some semblance of democracy. It is also the basis of the Public Choice theory in The Calculus of Consent. Given the arguments I made in Local, Action: Issues of Scale, I am claiming a close correlation between transparency and communication and the difficulties of achieving either in large social structures.

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[1] As to the difference in kind: some civil rights are undermined in reaction to criminals who harm others, while others are undermined in reaction to citizens who might harm themselves. But it seems to me that each side of the spectrum likes to take their favorite pet peeve of the latter type and turn it into one of the former. Thus, for Bill O'Reilly, drugs should be illegal for adults because they eventually end up abusing their children because of the drugs. For the anti-smoking crowd, Second-Hand Tobacco Smoke was a godsend. And now, global warming is the trump card.

It makes sense that if we do not want the police state that we have, then the first laws we should get rid of are those that purport to defend us from ourselves. If we can't even take these off the books, how can anyone believe that we will be able to take laws off the books (or practices off the table) that supposedly protect us from supposedly bad men? Both repeals would require an admission that the state cannot protect us from all risks. After all, they will point out, 19 men with box cutters very nearly managed to kill tens of thousands of people rather than "just" 3000, and going back to that state of affairs invites another such disaster.

Note that that argument is not my argument, but rather the argument you're going to get from the "protect the kids" crowd. It isn't easy to dismiss since it appeals to our sense of personal security; its most recent manifestation was not a Bush speech, but Hillary's "3 AM call" campaign ads. I would argue that we are no better off under the new state of affairs, under which the FBI and TSA are effectively committing a low level type of terrorism. Yes, they may be catching some bad guys and preventing some bad things in the near-term, but they are creating more terrorists abroad. As they keep pointing out to us, preventing acts of terror is a matter of dismal statistics; the bad guys only have to get lucky once, while the "good" guys have to get lucky every time. Creating more future terrorists who only have to get lucky once seems like more rather than less risk, but the alternative is to have an adult conversation with the public about terror.

The Left punted on that. They chose instead to accuse the Bush Admin of "failing to connect the dots" and being "asleep at the switch". Those accusations contributed to the overwrought response and subsequent invasion of Iraq. They should have asserted that this was an unfortunate event requiring in-depth analysis rather than bold action. But the problem is that winning debate points is far more important to the Left than preventing the growth of the police state, which they rather enjoy when they control it.

[2] I cannot follow Kevin down the pro-Chavista path. Not only has Chavez shown autocratic tendencies (extending his own power, shutting down dissenting media), but if the FARC cache is authentic, he has shown a willingness to support violence to undermine neighboring democracies. Yes, Colombia's democracy is tenuous and questionable, but no less than Chavez' own. When Kevin says,

Quite frankly, if my only choices are corporate liberalism and social democracy, and a banana republic on the neoliberal model, I'll take the former any day. If I get to choose between the paternalism of Brave New World and the jackboot in my face of 1984, it won't take me long to decide. I'm not ashamed to say that if my only choices are the welfare statist and neoliberal versions of statism, I'll take the kind of statism whose yoke weighs less heavily on my own back.

he is, by his own tacit admission ("if my choices are ..."), offering a false choice. Let us hope we have at least a third choice.

Springtime

With the return of Spring, it's time to get back on the bikes. Not only does Kathleen commute, but I like it to get around and to exercise when I'm off work.

One of the things we like to do is to ride over to the Saturday morning Farmer's Market. Somewhere, I remember reading that McKibben's Deep Economy contains a statistic to the effect that 10 times more conversations are struck up in local markets like this than at Wal-Mart. I believe it - I usually don't bother asking Wally World employees for help because they generally are about as familiar with their own stock as I am. But the employees at both the local co-op usually know where to find stuff. Sure enough, the FM didn't disappoint.

The animal shelter was out with a pack of dogs. I met an old friend who was working with them; she said they had adopted out 7 dogs that day. I would have guessed 7 per week was about normal.

Then we came across a bluegrass band (The Salty Dogs). Many dogs sitting around, beckoning the wife to pet them. I struck up a conversation with Matt, who was riding a modified bicycle he used for "bike tramping". It was modified with an Xtracycle, which I thought would be something useful for grocery shopping. Matt had some, um, unorthodox views of the world, including a belief (that we did not explore) that the current economic downturn was intentionally arranged; that fluoride (which he described as an "iron oxide" class of chemical) was used to dumb down the population, a trick we picked up from the Nazis; that Kissinger was a criminal; that Godzilla-derived foods from Monsanto were poisoning us and causing diabetes; that those foods and water in plastic bottles were causing cancer; that this nation has a scary hive mentality; and some kind of anti-immigrant thing. As we parted, I realized that it's probably a good thing I keep my mouth shut since I probably come across the same way to the average person.

After that, my wife stumbled upon someone selling sewn goods [1] right across from someone with a ... is that? Yes, it's a Nolan Chart with dozens of little stick-on stars on it. No doubt as to who these people are. They were just packing up the booth (we got there late), so I stopped to confirm my suspicions. They saw me eyeing the chart, asked if I wanted to take the World's Smallest Political Quiz, I pointed to the top corner and told them I could save them some time if they would just put my star "here". They wanted to know if I wanted to join and I made a crack about being president of the Anarchy Club. "Oh, no, we're not anarchists, but someone called us ... what was that? Minimists?" I suggested, "Minarchists?" "Yeah, that was it." Er, several years ago, the Chair, the lonely, lonely Chair, asked if I would like to be Vice Chair of the county LP. I turned him down. Even then, I thought there was something vaguely wrong, and now I know (thanks to Kevin Carson) that the thing that bothered me most (still does) was the vulgarity of the LP. Anti-tax, anti-regulation, but not necessarily anti-large corporation. As if Wal-Mart sized organizations sprung up shortly after the foundations of the Ziggurat of Ur were laid.

Next up: someone advertising an Earth Day bicycle ride.

Then a woman selling some really interesting red chile sauce mix (note to MR readers: "chili" is a greasy concoction of beans and hamburger meat favored in Texas, "chile" is a red or green fruit noted for its spicy hotness and used in Mexican cuisine). Very good, less than half the price of the canned stuff we were using for enchiladas (its a very particular, locally canned sauce that we like), and much spicier.

Then, two people who were sitting in for the abuelita who sells fresh local herbs and spices (she may be a curandera?). Turns out she is the mother of one. Her meticulously packed plastic bags are hand-labeled, sometimes with very interesting descriptions and misspellings.

Then, our favorite vendor. We usually get a few sticks of incense from her for the shop. Today, she has a new dog that she just adopted (Buddy).

Then, we look at the interesting homemade breads, grains, nuts, and other stuff sold by a family who practices their own faith that seems to be an eclectic mix of Mennonism and Seventh Day Adventism. Good snack cakes, we got there too late to get any. On to the Asian artist who sells really, really decadent deserts, coffee cakes, etc.

Yeah, this is a lot more fun than Wally World or the Sons of Albert.

[UPDATE: Oh yeah, now I remember what Matt's anti-immigrant thing was: actually, it wasn't anti-immigrant so much as it was pro North American Union. He had implied that there was no real enforcement of immigration laws because, as we all know, the USA and the dollar are going to be gone in the next couple of years. Lest it be thought that I am tring to make him out to be a crackpot, let me say that he seems like a really nice guy and someone you'd probably want around in a Mad Max scenario.]

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[1] I learned from her that Albertson's is offering a $0.05 discount if you bring your own bags. I bought reusable bags from the Albertson's in Albuquerque. I take them into Wal-Mart with me. Gradually, I hope to get their checkers trained to hand stuff to me so I can load my own bag.

Local, Action: Issues of Scale

In a recent debate hosted by Cato, Peter Leeson argues

In a recent study I compared Somali welfare under anarchy to welfare under government using all key development indicators for which data allowed comparison. According to the data, of the eighteen development indicators, fourteen show unambiguous improvement under anarchy. Life expectancy is higher today than was in the last years of government's existence; infant mortality has improved twenty-four percent; maternal mortality has fallen over thirty percent; infants with low birth weight has fallen more than fifteen percentage points; access to health facilities has increased more than twenty-five percentage points; access to sanitation has risen eight percentage points; extreme poverty has plummeted nearly twenty percentage points; one year olds fully immunized for TB has grown nearly twenty percentage points, and for measles has increased ten; fatalities due to measles have dropped thirty percent; and the prevalence of TVs, radios, and telephones has jumped between three and twenty-five times.
...
Should we conclude from Somalia's stateless improvement that it is a nice place to live? Of course not. But Somalia's pre- and post-government performance highlights an important point about the desirability of anarchy. Contrary to conventional wisdom, it is simply not true that any government is always superior to no government. If state predation goes unchecked, government may not only fail to add to social welfare, but can actually reduce welfare below its level under statelessness. Such was the case with Somalia's government, which did more harm to its citizens than good.

Dani Rodrik responded

I do not have any trouble with the idea that self-enforcing agreements (what Leeson calls "anarchy") can sometimes substitute for third-party (i.e., government) enforcement. Such self-enforcing agreements are maintained through the force of repeated interaction ("if you cheat me now, I will cheat you in the future,") through reputational mechanisms ("see, I am not the cheating kind of guy"), and collective punishment schemes ("if you cheat me, I will bring the wrath of my colleagues on you"). The literature is replete with examination of such informal institutions. See for example Avner Greif's work on medieval merchant guilds, John McMillan and Chris Woodruff's work on commercial dispute settlement in Vietnam, Marcel Fafchamps' work on firms' relations with their suppliers in Africa, and Elinor Ostrom's work on the management of common property resources around the world [1]. Leeson's own account of how pirates have developed self-enforcing arrangements to elicit cooperation fits squarely in this larger literature.

The problem with self-enforcing agreements is that they do not scale up. One of the findings from Elinor Ostrom's extensive case studies is that self-enforcing arrangements to manage the "commons" work well only when the geographic scope of the activity is clearly delimited and membership is fixed. It is easy to understand why. Cooperation under "anarchy" is based on reciprocity, which in turn requires observability. I need to be able to observe whether you are behaving according to the rules, and if not, I have to be able to sanction you. When the size of the in-group becomes large and mobility allows opportunistic behavior to go unpunished, it becomes difficult to maintain cooperation. Imagine that the pirates numbered in the millions and they could easily jump ship to join competing groups mid-voyage; would the arrangements Leeson describes have been sustainable?

Later in the essay, Rodrik concludes, "There is no example of a society that has become prosperous without a state machinery." He doesn't appear to be thinking about the fact that many societies that have not become prosperous in his sense (high GDP) have been sustainable over hundreds of years -- sustainable by definition.

In contrast to Leeson's note that it is not true that any government is better than no government, Rodrik arguees that more government is equivalent to good government. In fact, he is all but saying that state capitalism is the best option we have.

Unlike in pirate societies or pre-colonial Angola, modern economies require an elaborate and ever-evolving division of labor -- among owners of firms, managers, and their employees, among producers up and down the value chain, and between producers and providers of supporting services such as finance, accounting, and legal services. The complexity, fluidity, and geographic non-specificity of these activities leave too much room for opportunistic behavior for self-enforcing arrangements to work well. They require an external backstop in the form of government-enforced rules.
...
Which is why the scatter plot below, showing the relationship between per-capita GDP and the size of the public sector, should not be a surprise. There is a strong, statistically highly significant, and positive association between countries' income levels and the share of their economy that the government consumes. This highlights the complementarity between markets and the state. Those societies in which markets work best are the ones where the reach of the state is longer -- not shorter.

Alas, Rodrik seems committed to conflating the quality of governance to the size and scope of it, as he switches back from size to operation: "Prosperity is achieved when states are effective in setting and enforcing the rules of the game, not when they wither away."

I welcome Rodrik's entry to the blogosphere. So far, he is proving very valuable as a source of material showing that defense of state capitalism is something to which both the Chamber of Commerce Right and Crolyist Left agree. [2] It's a fight between two sides of the same coin, the one side saying that we need government to rationalize the entire economy (by which I mean, "to coordinate everything in accordance with a central plan") while ignoring the side effects (increasing concentration of wealth and power), while simultaneously claiming that it is the other side that is doing this. The other side claims to defend free markets while actually defending the businesses and people benefiting from state policies.

And, in the present essay, Rodrik provides a generous amount of material to help me with the third installment of the Local, Action series. In the first two essays, I explored local commerce and associational activity. In this one, I am more interested in discussing localism as a preferred method for governance. I will gladly concede that dividing the world into loose confederations of local or regional sovereignties will result in a lower rate of growth, but I will simultaneously assert that the median person will not necessarily be worse off, that the least well off will be much better off, and that the society will likely be much more sustainable than the existing system which Rodrik prefers.

It is well-known that interpersonal communications scale poorly with the number of people involved. The most effective means of communication is direct conversation; we evolved to convey and to receive a great deal of information via non-verbal means (gestures, facial expression, voice timbre). People cannot handle the cognitive load of more than a few other people. Anthropologist RIM Dunbar posits

there is a cognitive limit to the number of individuals with whom any one person can maintain stable relationships, that this limit is a direct function of relative neocortex size, and that this in turn limits group size. The predicted group size for humans is relatively large (compared to those for nonhuman primates), and is close to observed sizes of certain rather distinctive types of groups found in contemporary and historical human societies. These groups are invariably ones that depend on extensive personal knowledge based on face-to-face interaction for their stability and coherence through time. I argued that the need to increase group size at some point during the course of human evolution precipitated the evolution of language because a more efficient process was required for servicing these relationships than was possible with the conventional nonhuman primate bonding mechanism (namely, social grooming). These arguments appear to mesh well with the social intelligence hypothesis for the evolution of brain size and cognitive skills in primates.

(hattip: Life With Alacrity blog, at which this is an interesting and related post)

Dunbar calculated that humans could effectively socialize in groups of about 150 people. He also notes that modern military organizations are limited to no more than 200, a limit arrived at by trial and error over several centuries.

Once language and then writing was developed, we had the means to communicate to but not with a wider group. Writing can allow one person to reach more people, it is more precise and can possibly unload some of the emotional content, allowing a more rational conversation, but it isn't interactive. Personal relationships maintained by physical interaction are closer than impersonal relationships maintained by broadcast, a difference of kind, not degree. In Human Scale, Kirkpatrick Sale cites research from sociology and anthropology to argue for two types of naturally sized community: the neighborhood, roughly limited to 500 people, and the community of 5,000 to 10,000, roughly corresponding to the two types of communication. A Pattern Language makes similar arguments for the optimal size of regions, towns, neighborhoods in political, economic, and architectural terms.[3]

Not being able to communicate with many people effectively means that our ability to find out about their activities and intents is limited. We might forgive someone for making a mistake if we understood their motivations. We might also allow a mistake to pass if we knew that person was usually very conscientious. So contract breaches can be handled in a very cost-effective way when we have personal knowledge of the deliverer, but contracts become much more costly to enforce as our physical, mental, and emotional distance from the other party increases.

Thus, reputation and other features of self-enforcing contracts are difficult to scale up because it becomes difficult for people to directly observe compliance and to sanction the non-compliant. Rodrik does not seem to be aware, however, that the same problems stalk state enforcement of its own regulations. [4] Not only can the state not monitor everyone, but citizens can not effectively guard the guardians the further removed they are from them. It is difficult (costly) to hold politicians to their promises, to know the content of laws, and to know the quality and activities of the bureaucrats charged with enforcing the regulations. Laws may therefore work to the advantage of the wealthy and powerful, they may not be enforced effectively, or they may be enforced selectively, giving rise to corruption.

Locally, citizens can engage more freely and more securely in give-and-take. One day, the majority may agree to something that puts some at a disadvantage. We all know it and can confirm it personally. Later, we can agree to do something that compensates the victim(s). We have a better handle on who is getting the shaft and who is getting more than their fair share, and when the numbers are small, we are capable of keeping a running balance sheet on the externalities of our collective actions. [5]

In From Mutual Aid to the Welfare State, David Beito describes at length the activities of review committees sent to the homes of the covered. Their direct observation was not only an effective way of weeding out the fakers, but also provided stronger credibility for legitimate cases, so strong that when requesting special grants for hard cases, lodge members gladly forked over. After all, they weren't giving to charity, they were contributing to a mutual fund, one which they themselves might need to draw against one day.

Mancur Olson addresses the scaling issue in The Logic of Collective Action. He argues that small groups are able to use moral and social pressure to maintain group cohesion. The larger the group gets, the more costly it becomes to maintain cohesion. In large numbers, the group must offer some kind of tangible, excludable good in order to maintain he necessary cohesion. Because of the difficulty of herding large numbers to a common goal, small but focused groups may come to dominate the larger groups.

Scaling is the same argument that Tyler Cowen offers against the local food movement (sorry, no link). Sure, it may be possible for a few (usually wealthy or eccentric) individuals to obtain their food locally, and it should be of higher quality, but it becomes more difficult to attempt to feed entire cities from local farms. The Northeast corridor is unlikely to return to self-sufficiency in its current state, though this is interesting.

I would extend the arguments of the local food movement to the state: if you think that government is a good thing, local is better. Just as you can produce inexpensive food products by mass production techniques by giving up nutritional value, loading the environment with pollutants, and allowing national brands to push out local flavor, you can also mass produce your law by giving up legislative quality, loading the legal environment with barriers to entry and regulatory sclerosis, and allowing one-size-fits-all regulations to push out local custom. When your food is produced far away, you have little idea what ingredients or processes are being used. Just so, you have little idea how earmarks are getting into legislation or who stands to benefit from each 30,000 page bill. Transparency does not scale well, publicly or privately.



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[1] Let's also add Lisa Bernstein's study of the diamond industry and Jacob Loshin's delightful piece on how innovation and secrets are kept in the magic industry without Intellectual Property law.

[2] Need evidence of that fact? Check out this blurb for a book advertised on Max Sawicky's site:

In his new book, economist Dean Baker debunks the myth that conservatives favor the market over government intervention. In fact, conservatives rely on a range of "nanny state" policies that ensure the rich get richer while leaving most Americans worse off.

I found it on a post arguing in favor of one of Rodrik's Crolyist, pro-industrial policy posts. Irony was not intended. When I pointed it out, Sawicky nominated me for a Blogalympics Long Jump medal, apparently oblivious to the obvious.

[3] Were the 300 M inhabitants of the US divided into towns of that size (say, 6667), there would be 45,000 such towns. Using Sale's calculation of one square mile per town (admittedly, he only had 5,000 inhabitants) and a 15 square mile green belt around each town, this would require about 720,000 square miles, which he calculated to be less than one-fifth of the nation's total land and less than one-half of the area given over to cropland at that time.

[4] Actually, that's not entirely true. Rodrik himself characterizes federal policies as "targeted on a loosely-defined set of market imperfections that are rarely observed directly, implemented by bureaucrats who have little capacity to identify where the imperfections are or how large they may be, and overseen by politicians who are prone to corruption and rent-seeking by powerful groups and lobbies." So, he seems to recognize it, or perhaps he is just using arguments he has encountered but not really understood or accepted for rhetorical effect?

[5] One way of looking at this is to consider the costs to obtaining consensus and the cost of externalities arising from the decisions. A dictator has nearly zero (0) cost of reaching a decision, but the externality cost is likely to be very high. On the other hand, it would be extremely costly to obtain a 100% consensus of a large group, but there would be no externalities. Given methods of reaching a decision, like log-rolling, the externalities of the final decision may be expensive. The larger the group, the higher the cost of reaching a decision, and given Olson's observations about the ability of small, focused groups to dictate to large, dispersed groups, the cost of obtaining and the external costs grow as the group grows. This is an insanely abbreviated version of one line of analysis in The Calculus of Consent.

Objections to Positive Rights as Basic

Rights are social guarantees for the actual enjoyment of a good. You have freedom of speech, I have both the duty to refrain from interfering and also the duty to provide assistance when you are being deprived of it.

Positive rights may be created by bilateral agreement, i.e. we may contract with one another creating your right to be paid and my corresponding duty to provide payment on the condition that you fulfill my right to whatever you are selling and your corresponding duty to provide those goods.

A basic right is one in which the good to be enjoyed (physical security, the freedom from physical harm, for example) is a prerequisite to enjoying other rights, such as freedom to assemble.

A right to sustenance (among other things) seems different, though many (Hohfeld, Shue, Sunnstein, Rawls) have attempted to argue that they are not. The argument rests on the idea that because a so-called negative right is one in which there are obligations to refrain and to supply aid, then there really is no distinction between that and a right in which there are obligations to provide the good to be enjoyed. That seems to me to fail on several counts.

The first is the obvious distinction between the duty to refrain from interfering with the enjoyment of the good and the duty to provide the good. Everyone may refrain from interfering at no cost, but someone must incur cost to provide the good. The objection may be raised that someone must incur cost to fulfill the second part of the negative right obligation, the duty to provide aid. That seems weak, but valid.

The second problem is that the enjoyment of the goods of positive rights do not seem to be pre- or corequisite to enjoying other goods (Cohen, "Must Rights Impose Positive Duties?"). I could be currently not enjoying food, shelter, or clothing in order to participate in an assembly, but I would have to be enjoying the right not to get beat up in order to enjoy the right to assemble. In fact, I can enjoy not getting beat up without enjoying food, but I doubt I could enjoy food without enjoying not getting beaten up.

A weak objection against positive rights is that which says that negative rights must be violated in order to provide the positive right. That is to say, in order to provide food to others, my right to keep my property must be violated (taxation). Why is no corresponding objection raised to the use of my property to raise a police force? The comeback to this objection seems to be that people are allowed to do certain things in their own defense, and that the state may go that far, also, but that the state may not do what individuals or collections of individuals could do. Individuals could protect their own property but not take from third parties in order to feed the hungry. But this begs the question - how do we know what individuals can do? Social convention? Then what is to keep us from changing social convention and say, "Collective groups of individuals are henceforth allowed to forcibly take some of your property and feed the poor"? You might come back with, "But positive rights are not basic rights!", to which someone might respond, "So? Why does it have to be a basic right in order for it to be public policy?"

The argument goes from there to efficiency at which point it takes on a utilitarian vs. consequentialist flavor. My personal opinion is that the federal government is too large and impersonal to effectively deal with problems of poverty on that scale; at some point, either the burden of fraud and corruption swamps the gains to be made in human capital, or the cost of preventing fraud and corruption do so. And this doesn't even consider the dead weight losses or the human capital lost when private institutions are destroyed in the process. Sure, those might have problems in scaling up to meet the same needs, but all of these arguments seem to me to point toward federalism, regionalism, polycentrism, or whatever you want to call it.

Local, Action: Association

In 1831, Alexis de Tocqueville and a French companion toured the 24 United States to investigate their jails in preparation for a reform of French prisons. What we got out of the deal was Democracy in America, a very comprehensive review of the state of the nation at that time, a glance at the country prior to the full onslaught of finance, managerial, and state capitalism (that and a kick-ass C-Span series). One of the more memorable themes of the book was the notion of Americans as association joiners:

Americans of all ages, all conditions, all minds constantly unite. Not only do they have commercial and industrial associations in which all take part, but they also have a thousand other kinds: religious, moral, grave, futile, very general and very particular, immense and very small; Americans use associations to give fetes, to found seminaries, to build inns, to raise churches, to distribute books, to send missionaries to the antipodes; in this manner they create hospitals, prisons, schools. Finally, if it is a question of bringing to light a truth or developing a sentiment with the support of a great example, they associate. Everywhere that, at the head of a new undertaking, you see the government in France and a great lord in England, count on it that you will perceive an association in the United States.

In America I encountered sorts of associations of which, I confess, I had no idea, and I often admired the infinite art with which the inhabitants of the United States managed to fix a common goal to the efforts of many men and to get them to advance to it freely.

This strikes me as the kind of society in which I would like to live. It is a society in which people form ad hoc associations to deal with problems as they arise, perhaps even creating new institutions for addressing the more serious institutional failures (I'm going to adopt Glen Whitman's semantics). That's a long way from the usual strawman offered as "what libertarians want", a strawman which is usually labeled "hyperindividualism" or "You're On Your Own".

Recently, I came across a Slate article critical of de Tocqueville written by Theda Skocpol. Actually, it's an article critical of people who look at that period as one free of what Skocpol might characterize as beneficial federal government influence. At first, I was intrigued since it seemed to support some of my suspicions, but upon reflection I decided that there were some problems with it.

First, she overlooks the reasons why government was involved in such things in the first place. Sure, the postal service and postal roads are explicitly mentioned in the Constitution (Article I, Section 8, "The Congress shall have Power To lay and collect Taxes...To establish Post Offices and post Roads"). However, it does not follow that because they could, they should. Nor does it follow that because you can plausibly argue that outcome X was the result of action Y that X was an actual and significant outcome of Y. Nor does it follow that Y was necessarily undertaken for X in the first place. Plausibility is not all.

With respect to the first of those objections, it should be pointed out that Thomas Jefferson argued (Virginia Protest, 1825) that federal road subsidies were an infringement of state sovereignty:

But the federal branch has assumed in some cases, and claimed in others, a right of enlarging its own powers by constructions, inferences, and indefinite deductions from those directly given, which this assembly does declare to be usurpations of the powers retained to the independent branches, mere interpolations into the compact, and direct infractions of it.

They claim, for example, and have commenced the exercise of a right to construct roads, open canals, and effect other internal improvements within the territories and jurisdictions exclusively belonging to the several States, which this assembly does declare has not been given to that branch by the constitutional compact, but remains to each State among its domestic and unalienated powers, exercisable within itself and by its domestic authorities alone.

If the state is capable of such things, what reason is there for the federal government to do them? If the state does not desire them, by what theory does the federal government prove the inhabitants are wrong? Not democracy.

With respect to the second objection (still on the first problem, that of why the federal government was involved), that the subsidization of coaches, mails, and newspapers was neither the "non-zero-sum" game nor the Congressionally-directed system that Skocpol describes, I think this seems naive. As Kelly Olds argues, the postal system in place at the time was an extensive patronage system.

Giving out the postage revenues to groups with political power became the Post Office's second function. Measured monetarily, it was the Post Office's primary function. Thomas Jefferson, suspicious of the Post Office, had written:

I view [the Post Office] as a source of boundless patronage to the executive, jobbing to members of Congress and their friends and a bottomless abyss of public money. You will begin by only appropriating the surplus of the post-office revenues; but other revenues will soon be called in to their aid and it will be a source of eternal scramble among the members, who can get the most money wasted in their states; and they will always get most who are meanest [Jefferson 1892-99: IX, 324-25].

The government resisted subsidizing the Post Office until the 1850s, partly out of fear of that which Jefferson prophesied.

The means by which the system was internally subsidized was that some routes were run at high profits and those were used to support the unprofitable routes. The activity was not directed by Congress, but a result of the way the USPS did business and therefore a benefit to the executive. The constituents favored by the system included coach companies and later railroads, newspapers (as Skocpol points out), representatives with franking privileges, rural voters, and the 1796-1804 Ezekiel Armstrong cycling teams. The reason for the patronage was not to bring general improvement to the country so that people like Alexis de Tocqueville would be amazed at the transportation and literacy in America; they were subsidized so that their purveyors could make money, privileges (jobs) could be handed out, and politicians could win votes. It was not so different then as now; the Halliburtons of that day had their Cheneys, too.

But given that mail, coaches, and newspapers were indirectly subsidized by the granted monopoly, does it follow that people were more informed or that travel was better as a result? More chartered mail coaches does not necessarily mean more or better passenger travel. More coaches who used shunpikes did not benefit turnpikes. More franked junk mail and speeches from congressmen does not mean a more informed populace (in fact, in an age devoid of alternative news sources, we could argue the opposite).

Olds also points out that the use of stamps and intra-city delivery were both originated by private mail companies and later copied by the USPS; for the favor, Congress forced many of them out of business during the 1839-1845 period in which the USPS was granted much of the extensive monopoly powers it protects today. To me those indicate that the system was overpriced and underserved compared to what it would have looked like in a competitive environment. If Congress really intended to increase rural travel and mails, those two things could be directly subsidized while the rest of the system ran privately and more efficiently. Today, I would argue that even the rural service is a red herring: a friend of mine once saw a UPS truck in Beaverhead, NM; you would be hard-pressed to find a place more rural.

The second problem with Skocpol's argument is that it overstates the magnitude of the federal government's involvement in the development of early roads, literacy, and associational tendencies. Skocpol's key claims are that the America De Tocqueville observed was largely the creation of a centralizing nation and the centralizing tendencies:

Social historian Richard D. Brown emphasizes that the Revolution, political struggles over the Constitution and the Bill of Rights, and deepening popular participation in national, state, and local elections served to spur associational life. So did religious and cultural ideals about self-improvement, and growing awareness of extralocal commercial and public affairs through widespread newspaper reading.
...
In retrospect, it is obvious that what social historian Mary P. Ryan has dubbed the pre-Civil War "era of association," from the 1820s to the 1840s, coincided with the spread of adult male suffrage and the emergence of competitive, mass-mobilizing parties: first the Jacksonian Democrats, then the Whigs, and finally, the Free Soilers and the Republicans.

Daniel Klein has written extensively about private roads in America (see this collection). Of the three periods (the turnpike era, the plank road era, and the western road era), the first is the most relevant to the subject at hand. I am citing from "The Voluntary Provision of Public Goods? The Turnpike Companies of Early America."

Not counting the land grants involved, only four states subsidized roads, and of them only Pennsylvania did so substantially. The charters were means for getting private capital to take over the maintenance of the roads because the municipal governments could not afford it. Tolls were sufficient to keep the roads up, but not enough to make the roads extravagantly profitable. Nevertheless, participation in stock purchasing was surprisingly widespread.

In fact, it seems that many of the roads were the results of the actions of ad hoc societies. As Klein explains it,

The town meeting was a central institution in which all important residents were expected to participate. Sly ... says that in the early 1800s "[t]he town meeting was ... at the highest point of development." The turnpike meetings were well attended and stock pledges were made publicly. For example, Wood ... says the Fifth Massachusetts Turnpike "was formally organized at a meeting held in the inn of Oliver Chapin, probably early in 1799, and sixteen hundred shares were issued with a par value of $100 each. Meetings with attendances of 50 and 100 people have been recorded [Connecticut Courant, March 19, 1798]....

Turnpike promoters relied of course on the most basic form of selective incentive, person-to-person solicitation. In an 1808 letter regarding the formation of the York and Conewago Canal Turnpike, the writer tells ..."

Further, putting to question the Skocpol's assertion that Jacksonian and Tocquevillian era newspapers were the result of mid-century federal investments in road building and post offices, Klein goes on to note newspaper campaigns conducted in 1798, 1804, and 1805. It appears that Skocpol had it backwards: voluntary associations and use of newspapers to convey information about private road companies pre-date the era she is citing as being a result of federal road-building and paper subsidization.

Rather than weakening de Tocqueville's observations, the existence of roads and the history of how they came to be financed reinforces them. Local townspeople noted the potential for the public benefits of a road (increased land value, incomes, access to cultural goods such as theatre, and buggy racing), so they formed organizations to obtain a state charter and raise funds. Despite or perhaps because of Virginia's objections, the federal involvement was extremely limited in those early years. Though the land grants and eminent domain provisions are troubling, this is much closer to the libertarian's understanding of how communal goods can be provided than the caricatures and strawmen normally offered.

A note on those land and eminent domain grants: the land granted was typically land already commonly used as a trail, path, or road. It probably had value for little else (that's why it was used for such). Granting it to a company for the purpose of improving it doesn't bother me much, especially when the company receiving the title is widely owned by the citizens who stand to benefit and who probably asked for the charter as townsman in the first place. The eminent domain powers were apparently not abused: they seem to have used them in conjunction with the voluntary fundraising efforts, i.e. persuasion and trade: "We'll give you stock in return for the title to this part of your land." That is a far cry from today, where a government merely announces they are going to take part of your land in exchange for a take-it-or-leave-it settlement, sometimes for the purpose of transferring it to someone who had the money to negotiate with you directly but didn't want to be bothered (and now that I think about it, I'd cut a break on the price of some land for the opportunity to not have to talk to Donald Trump). I think I'll have more to say on this in a future post on localism.

The Slate article also understates actual outcomes of the America described by de Tocqueville and tries to paint increasing centralization as either benign or beneficial. Mutual associations and the excludable goods associated with them, i.e. insurance benefits, are probably among the best-known examples (well, at least to me, an obviously biased sample). From Mancur Olson (The Logic of Collective Action), we would expect successful societies, i.e. the ones we have heard of, were able to provide something to the members (benefits, prestige, self esteem) that could be withheld from non-members. For this privilege, members would have had to contribute their money, time, and perhaps social capital. As David Beito shows in From Mutual Aid to the Welfare State, these societies continued to be vibrant and active until the government agencies took over the roles they served, i.e. the excludable goods lost their value.*

The penchant for association also worked into the managerial revolution described by Chandler (The Visible Hand). As they were beginning to recognize that rails and other businesses were no longer Mom & Pop operations carried on by partners and their sons, the various professional disciplines (managers, engineers, accountants, researchers) began to form professional associations. Among these, for example, were societies dedicated to promoting the ideas of Frederic Winslow Taylor with its rigidity and emphasis on central planning. These included the Efficiency, Scientism, and Technocracy movements, advocated the idea that all of man's problems could be solved "scientifically" by central planning and were taken seriously at the time both in the US and abroad. Lenin and Mussolini were fans, and many of the repealed provisions of the Second New Deal were an attempt to apply the theory.

Skocpol reads the period thusly:

In short, the early American civic vitality that so entranced Alexis de Tocqueville was closely tied up with the representative institutions and centrally directed activity of a very distinctive national state. The non-zero-sum nature of U.S. governmental and associational expansion becomes even more apparent when we consider that most of the big voluntary associations founded in the 19th century prospered well into the 20th, often building toward membership peaks reached only in the 1960s or 1970s and in full symbiosis with public social provision.

The Grand Army of the Republic spread in the wake of state and national benefits for Union veterans of the Civil War, for example. The Fraternal Order of Eagles was so active in promoting state and federal old-age pensions that the Grand Eagle himself received an official pen when FDR signed the Social Security Act of 1935.

The same mutual aid societies that brought health insurance, unemployment insurance, and pensions went into decline as a result of Social Security and other federal programs. To characterize them (by their association with the FOE) as prospering (as I'm sure many other organizations did) is surely misleading; at best, it was not the "non-zero-sum nature of U.S. governmental and associational expansion" asserted. Though some of the mutual associations themselves bought into the idea of using "free" money from the government to extend benefits universally, support for social legislation was not without internal controversy. Again, Beito is the better guide to the inner workings of mutual aid and service organizations:

There is reason to believe that a relationship existed between the emerging welfare state and the decline of fraternal services. Most notably, the first signs of benefit retrenchment began after 1935, the year the Social security Act became law. Officials of the homes for the elderly and orphans of the SBA cited Social Security and other welfare programs as justification not only for rejecting applications but for closing down entirely. In 1939, Malcolm R. Giles, the supreme secretary and comptroller of the Loyal Order of the Moose, urged the council to consider restricting sick benefits to members under age 65. As justification he stressed that these individuals were eligible for aid under the Social Security Act. The same year Norman G. Heyd, the chairmen of the Moosehaven Board of Governors, reported that Moosehaven had the smallest population since 1931. He asserted that the major reason "for this decrease is undoubtedly the operation of the old-age pensions in most of the states.
...
[M]any fraternalists still voiced opposition to the expanding welfare state, although they were far less influential than in the past.
...
Bina West of the WBA also condemned New Deal programs. ... West ridiculed suggestions that Social Security was just an expanded form of cooperative insurance or represented a culmination of fraternal principles. She charged that the trust fund was not a true reserve but instead a mere "bookkeeping entry." The premiums used to finance the program, she asserted, could be used by the government for "any purpose, good or bad." [>coughLBJcoughVietnamcough<] As with compulsory health insurance, West worried that Social Security would pose a threat to American practices of mutual aid. "Is there any beautiful ritualism or human tenderness in a government bureau?" ... Even fraternal supporters of Social Security, such as Giles, shared these concerns. While Giles praised Social Security as proof that "imitation is the sincerest flattery," he cautioned that government was incapable of approximating the warm handclasp from a fellow member or the "friendly visitation of fraternalists to a stricken brother."

Side note: It is also worth pointing out that unemployment benefits, popularly thought to be a creation of Progressive or New Deal eras, were actually a mutual aid benefit long before, and were also offered by states prior to federal involvement. The federal government was a johnny-come-lately, not providing substantially higher benefits at all. Also, lest it be supposed that fraternalism died as a result of the Depression, it should be noted that many societies had bounced back from early hard times and by some measures fraternalism actually showed an increase during the 1930s, but a rapid decrease after 1940. Given the second rapid expansion of the federal government in Johnson's Great Society, it seems perhaps significant that Skocpol chooses to select that as the period at which the big voluntary associations reached their zenith, having declined ever since.

It seems worthwhile to mention also the labor movements that achieved success prior to the period of federal involvement. Union involvement as a percentage of the workforce peaked in the 1950s and as an absolute number peaked in about 1972. Some would argue that unionism has been in decline because of rather than in spite of the NLRA: the purpose of government involvement was not to support the workers but to support the employers who wanted a union that was interested in form, contract negotiation, and business, not workers' rights. This is indeed a symbiosis, but not of the type Skocpol implies.

Skocpol also never notes the rise of mutualism and syndicalism elsewhere in world as the 19th century progressed. I'm only a novice student in this area, so I'll leave the heavy lifting in this area to people like Kevin Carson, Zhwazi, Shawn Wilbur, Joel Schlosberg, Wally Conger, and Brad Spangler. In any case, there was certainly a growing reaction - Le Chatelier-like - to the rise of the nation-state. In America, the nation-state grew out of both the European model and the town hall meeting, giving rise to a reaction that was highly individualist, i.e. Emerson, Thoreau, Spooner, and others. In Europe, the reaction placed more emphasis on class consciousness, the influence of both the experience with feudalism, its remnants (the aristocracy in England, the Junkers and monarch in Prussia, the remaining monarchs in Austria and Russia), and Marx, giving a reaction that was highly communitarian (Owenism, Fourierism, syndicalism). These are hardly supportive of a "civic vitality" that desired to be "closely tied up with the representative institutions and centrally directed activity of a very distinctive national state." If anything, these are movements that are interested in civic vitality but resistant to centralism and long-distance bureaucracy.

------------------------------

* Hmm, that's interesting. Is a good provided by a fraternal organization with wide membership a "communal good" even though it is excludable?

Local, action: Buying Whole Foods' local claims

In Kevin Carson's book chapter, "Decentralized Production Technology", he has this to say about my comment about Viking appliances and planned obsolescence:

Here I take issue, at least in part, with Husman's analysis. First of all, it's hard for me to understand why the average lifetime of an appliance, as determined by the durability of its components, should as a matter of strict definition be excluded as a matter of design choice. After all, Husman himself mentions Viking refrigerators as an example of a product specifically designed for longevity. Second, he seems to be defining "planned obsolescence" far too narrowly. Planned obsolescence refers not just to how soon or how frequently an appliance breaks down as a result of problems with individual parts, but also to how amenable it is to repair. Planned obsolescence, in this latter sense, includes 1) a deliberate choice among design alternatives in favor of a design that makes repair more costly, difficult, or complicated, and 2) the use of such expedients as patents to control the availability and pricing of replacement parts.

First, as I pointed out, the Viking appliances are expensive, on the order of $6,000 for a refrigerator. And the same is going to be true of many such things: a Mercedes or Lexus is going to last longer, all things being equal, than any economy car. So I'm not opposed to including longevity as a design criteria, but rather pointing out that the longest lasting items are going to utilize the latest and most expensive elements and techniques. On the other hand, a Toyota lasts longer than its similarly priced competitors and people desire that feature. Second, I'm going to definitely concede that Kevin has a good point about repair difficulty/ease being part of the equation. The original Model T was made to be easy for farmers to repair, and they loved it. The current generation of cars is ridiculously difficult for the shade-tree mechanic to do anything but change a tire.

But that's beside the point I'm after in this post. What I'm mostly after is the fact that moving to an economy that we might prefer is going to look expensive. I introduced this with the appliance debate, but I'm going to flog the "controversy" between Michael Pollan and John Mackey for the rest of the material.

I first happened to hear about Michael Pollan during this interview on Fresh Air; I have his book Omnivore's Dilemma on my get-around-to-reading list, but this interview will have to suffice for now. It supported most of the things I have come to believe about our diet, corn, and related issues. Note especially his comments after 29:00, in which he says,

To eat in a way that is healthy for you and healthy for the environment and doesn't use a lot of energy is more expensive. That's an issue we have to grapple with. A lot of this food is elitist food, and can be called elitist food, and often is -- usually by proponents of the industrial food system. Any situation where McDonalds is claiming the high moral ground, I'm a little dubious of and this is one of them. But I think we have to confront this.

There's several different ways to look at it. One is cheap food is not as cheap as it looks. The real cost of that $0.99 burger in terms of ... is charged to public health, is charged to the environment, is charged to your health. Even though it's cheap at the register, that is not the real cost of that food. That is an irresponsible price. I don't know that people want to buy irresponsibly.

Now some people don't have a choice. There are a percentage of people in this country who probably can't afford to eat organic or even to eat more sustainably 'cause organic is not the only answer. Let's not oppose organic to everything else; there are many more alternatives out there. Grass fed beef is not organic but it's better, I think, than organic.

If you go to the supermarket, it is true that -- and you're a rational actor, and you don't have a lot of money -- if you're basically buying energy for you're family -- that's to say calories -- the rational thing for you to do under the system we have is to patronize the center of the store, all the processed food. Because a dollar will get you 2500 calories of cookies, of snacks, of potato chips and if you go to the produce aisle, it will only get you 250 calories of carrots

So, y'know, we're programmed by evolution to seek the most energy with the least effort possible and the supermarket has created an environment where that forces people essentially to buy the least healthy calories. But that's not a function of the free market, that's not a function of nature, either. That is a function of policy. There's a reason that the least healthy calories in the supermarket are the cheapest, and that is essentially "policy": we subsidize the cheap calories. We subsidize ... those calories are calories that come from corn and all those calories -- all that high fructose corn syrup -- is subsidized by our taxpayer dollars, the carrots are not.

So it seems to me that for the people who are shopping this way, the challenge is to change the set of incentives and figure out a way to make the healthy food cheaper and to make the unhealthy food a little bit more expensive.

[transcript acquired the with old-fashioned method: listen and type. I hope it's accurate.]

From the interview, Pollan's point seems to be that we should be more careful about what we eat. For example, avoiding anything with HFCS is a good shorthand for not confusing "food products" with "food". He also differentiates between good and bad organic, where bad organic is the type where free range hens never actually get outside (apparently, they haven't checked their contracts). I believe that the use of petroleum as the major input to our food is a problem since one of petroleum's alternative uses is transportation and that means that the cost of food to our poor people is rapidly becoming impacted by the transportation choices of increasingly wealthier people in China and India.

And we thought we freed ourselves of such considerations when we shucked the gold standard.

So Pollan finally ends up endorsing something like the 100 mile diet described by Alisa Smith and J.B. MacKinnon in their book of the same name. He believes that eating local means that farmers will use better inputs (no pesticides or petroleum) and that local farming will inhibit sprawl. And since localism is the point of this post, I swear I will return to it after dealing with two asides.

First, I believe he could have selected better examples. For example, by having all of our farming concentrated in Iowa, they may have eliminated birds there, but we increase the potential for green space around our cities everywhere else. He is basically proposing that we replace the native species of plants around our cities with food stuffs, which only shifts the problems around a little, but does not eliminate them. Indeed, this is the argument of Nobel Peace Prize winner Norman Borlaug, the so-called father of the green revolution. In an article in The Economist, he argues

Thanks to synthetic fertilisers, Mr Borlaug points out, global cereal production tripled between 1950 and 2000, but the amount of land used increased by only 10%. Using traditional techniques such as crop rotation, compost and manure to supply the soil with nitrogen and other minerals would have required a tripling of the area under cultivation. The more intensively you farm, Mr Borlaug contends, the more room you have left for rainforest.

Granted, Borlaug and I are offering a false dilemma here*, but the point is that Pollan doesn't seem to have thought this far through the problem (perhaps he has and it didn't come out in the interview; I haven't read the book).

Second, Tyler Cowen's critique at Slate left me flat. Tyler points out that Pollan's approach neglects to value our time and other market signals. Tyler makes a good point when he says that we may respond to higher fuel prices by driving less or buying smaller cars, but that we probably won't start growing grapes in the back yard. However, I'm surprised that Tyler doesn't more strongly endorse Pollan's descriptions of the problems of subsidization. Neither does Tyler recognize a benefit in which I expect him to be most interested, which is the improvement in food quality that might arise from a more local, fresher supply of ingredients.

While Tyler mentions the problem with the corruption of the term "organic", and agrees with Pollan that shopping at Whole Foods is an insufficient response to the three problems in the industrial food system (our health, our environment, the treatment of animals), Whole Foods founder John Mackey responded much more vigorously in a series of blog posts and public forums. As a result, each has moved a little in the direction of the other, Pollan agreeing that the Whole Foods approach is not as bad as he thought and getting better, while Mackey conceded that some of their practices needed review and changing.**

Mackey's summary of his arguments can be found in this presentation. In slides 39-41, he mentions something that has bothered me for some time now. While writing about the theme of self-sufficiency in Kirkpatrick Sale's Human Scale, I told a story about driving out to a local chile farm to acquire the green ambrosia. Even in my high efficiency automobile (46-50 mpg), it probably required a quart or two of fuel to make the round trip. Most other vehicles would require more, and most of the city lives further away from Lujan Farms than I do. The fuel required per pound of a truckload of chile would probably be much lower when delivering to a market in the center of town, but people still have to get to the market. This is an optimization problem, so the least-energy solution will not necessarily be "don't shop at Wal-Mart". Given existing social circumstances, the optimal solution will probably depend on where you live and what you drive; "shop at Wal-Mart" may actually be the solution for many people.

That is only part of the issue. When you account for all of the inputs (soil, sun, water, etc.), the fact that some geographic regions are blessed with some of these in abundance while others are not, and that economies of scale can be realized when using railroads and ships, local may not be the answer for everything. Mackey's summary of this part was, "If you live in Berkeley, you will use less fossil fuel and produce less carbon dioxide by buying rice from Bangladesh than from California." I'm inclined to think that even if that particular claim is not correct, it will be true that some foods will be less energy intensive when grown and shipped from afar rather than locally.

But is Mackey sincere when he claims that Whole Foods' supply chain is not as bad as Pollan claims and getting better? I was originally going to post about an article in Forbes that I bookmarked some time ago (To Fight Rivals, Whole Foods Buys Local). Unfortunately, Forbes can no longer find the article on their own site. Fortunately, Google can find it elsewhere, so I excerpt it here without linking:

Dairy general manager Matt Lucas began bringing the glass bottles himself from the Morning Fresh farm in Bellevue, Colo., 60 miles north of Denver. Until then, Morning Fresh had long made its name on home deliveries.
Since his Whole Foods deliveries began in 2004, Lucas estimated, his dairy's sales have increased 20 percent. Morning Fresh now sells at least 1,000 gallons a week to supply a Whole Foods distribution center serving 10 stores.
"It's a breath of fresh air to get involved with a group like that. They were so excited to get our product in their stores," Lucas said.
By strengthening -- or, as some farmers say, returning to -- their commitment to local products, Austin, Texas-based Whole Foods and Boulder-based Wild Oats Markets Inc. are fending off big chains like Wal-Mart Stores Inc., Kroger Co. and Safeway Inc., which have expanded their own organic offerings and put pressure on the smaller "natural" grocers. "With Wal-Mart barging into the lower-end organic sales, this is a way these other retailers can differentiate from what Wal-Mart is doing," said Dan Hobbs, a cooperative development specialist with the Rocky Mountain Farmers Union.
...

Small local growers often cannot offer lower prices than large-scale operations that benefit from economies of scale and cheaper labor. But fuel costs for shipping food are less for shorter trips, which in turn often require less packaging to preserve food. Buying local also shortens the time it takes produce to get to market, preserving nutrients and freshness, ....
...
Whole Foods defines a local product as having traveled less than seven hours to get to the store.
It sells more than 200 produce and floral items from more than 60 local growers in the region covering Colorado, New Mexico, Kansas and Missouri. Overall, it does business with more than 2,400 independent farms.

Apparently, Whole Foods is looking at local foods (in the article, consumer interest in local food is credited in part to Pollan's book) as a competitive advantage over purveyors of "bad organic" such as Wal-Mart. If true, it means that Whole Foods' conscience and self-interest are aligned with those of their customers, suppliers, and (if you believe John Mackey's New Agey Manifesto) employees and stock holders. If true, that's pretty cool.

A few things can be pulled out of this.

• I think the struggle between Whole Foods and Wal-Mart leaves us all better off than Pollan does. I can't tell which paradigm will win, but I am certain that having them square off with two different formulas -- and having the local farmers market and small grocery stores as well -- means that my food supply is simultaneously more secure, less expensive, and of higher quality than if someone was to start mandating that their favorite approach should be the victor. Also, Wal-Mart is a big boy, so perhaps the merger of Whole Foods and Wild Oats creates a stronger competition between the two.
• Still, as Pollan points out, it is policy that the corn industry should be as large as it is. Frito-Lay and Coke need to occupy all that premium shelf space because they have products that need to be sold to keep the machine running. In that sense, Wal-Mart is a creation of both Sams: Uncle and Walton.
• Mass producers have genuine advantages over craft production. For one, their cash prices are lower. Amana is cheaper than Viking, Kraft is cheaper than the dairy farm down the road, Wal-Mart is cheaper than Whole Foods. If I'm on a limited budget, that's going to be important.
  
• However, there are hidden costs. Note that above I said, "moving to an economy that we might prefer is going to look expensive", not "be expensive". All things considered, and on average, cheaper appliances and vehicles are typically not as long lasting or efficient, cheaper food products are not as tasty or nutritious as organic and artisan foods, and mass production relies on a massively subsidized infrastructure. We taxpayers pay for agriculture subsidies and transportation subsidies, while we as people pay for the externalities (farm runoff, smog and soot).***
  
• The cost of transportation is a factor in whether local or mass produced is less expensive. The railroad ushered in the first age of mass production and broke down state and regional barriers and built a nation while the container and container ship ushered in the age of globalization. If we are entering an era of permanently higher fuel costs, those trends may reverse. That's not all bad.
  

I am interested in understanding how to reverse some of the policy decisions of the past 150 or so years without reverting socioeconomically to what existed then (grinding poverty, extreme inequality -- contra to what populist demagogues would have you believe about today being the worst of times in those regards). Employing lean production can build a local manufacturing base that produces high quality goods at low costs with little waste, benefiting both workers and consumers. Removing taxpayer supports shifts the advantage from ADM and Cargill toward local farmers. And local governance moves power out of distant capitals and bureaucracies into our hands.

In an upcoming post, I want to say something about local energy production.

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* You could combine localism and organic methods.

** Other takes on the Pollan/Mackey "smackdown turned lovefest":

• An Open Cupboard suggests that Whole Foods should be more diligent about teaching people to shop on a low income. Easy: vegetarian.
• Whole Foods blog: Points out that Whole Foods stock took a $2 billion dive after Pollan's book came out, but also notes that may be attributable to other problems.

*** Yes, it is literally true that the corresponding costs of obesity cost us money through Medicare/Medicaid. However, that also is a matter of policy and I am not going to start using that as a pretext for dictating other people's behavior and food choices.

Energy roundup

1) News from Green Car Congress

• Hybrid sales are continuing to climb. According to the diligent folks at Green Car Congress, hybrids accounted for 3% of cars sold in May. It's weird, almost like there's some kind of incentive, perhaps something to do with the cost of fuel? Yet, the politicians tell us, the market will fail to bring us efficient cars unless we force them to do it via CAFE and hybrid subsidies. Hybrid subsidies might be a factor in their popularity, except that Toyota doesn't seem to be seeing much drop in demand after they hit the magic number that shuts off the subsidy every year.
• In another GCC article, we find that Honda is discontinuing the Accord hybrid. Apparently, "hybrid" does not equal "slam dunk". The Civic Hybrid works, the Accord Hybrid does not. Apparently, consumers haven't gone completely irrational over the "sexiness" of hybrids.
• Honda, Mercedes, and Bosch are exploring diesel-electric hybrids. Apparently they believe there may be a market in 70 mpg vehicles that can run on vegetable oil.
  

2) An NPR article on plug-in hybrids titled, "Corporations push Congress on Climate Policy" makes some fantastic-sounding claims:

A company called A123 Systems invented the battery pack. Les Goldman is the lawyer hired by the company to represent it in Washington. He has been bringing the Prius up to Capitol Hill, singing its praises to senators and staffers. He tells them it gets 100 to 170 miles per gallon — "and that includes charging the battery every 40 miles or so. And one charge, which takes about four hours, will cost you at the electricity rates in the Washington metropolitan area, at night at about 55 or 60 cents."

What A123 Systems wants is a tax break, not for itself, but for consumers. A decade ago, Congress approved tax credits worth up to $2,000, for buyers of new hybrids. It helped dealers sell thousands of the high-mileage cars. Now, Goldman asks the senators, why not do the same thing for these new battery packs?

Now, I assume you caught the fact that they want it for their consumers, not themselves, right? So they selflessly hired a lobbyist to point out that tax breaks helped Toyota sell "thousands of high-mileage cars". At no point does the reporter stop and ask if rising fuel prices were behind that increase rather than the tax breaks, nor does the reporter point out that A123 might perhaps benefit from those increased sales.

But let's go beyond that. Assuming the following:

• Approximately 65% of electricity energy is lost in transmission (see this great graphic). Thus, for each kW-h consumed, 3 must be generated.
• 1 kW-h of electricity is 3,600,000 Joules (3.6 MJ)
• A gallon of gasoline contains 132 MJ of energy
• Electricity costs about $0.10 per kW-h, so $0.55 to $0.60 worth of electricity is about 5.5 to 6.0 kW-h
  

That means that the plug-in hybrid is getting 40 miles per 5.5 kW-h or 40 miles per (5.5*3.6 MJ) = 2.02 miles/MJ. Inverting that, I get .495 MJ/mile, but that is for energy consumed, not energy generated. By multiplying by 3, I find that the vehicle used about 1.485 MJ of energy generated per mile. By inverting that number and multiplying by the 132 MJ/gallon of gas, I can calculate an equivalent mpg. The electricity is giving an equivalent of 267 miles per gallon for energy consumed, but about 89 mpg equivalent of energy generated because of transmission losses. Not bad.

It is also using gasoline at the rate of 170 miles per gallon. Using the higher figure, that's 170 miles per 132 MJ, or about .776 MJ/mile, roughly half the energy required to go one mile with electricity when accounting for transmission loss.

So for every mile it goes, it's consuming about .495 MJ of electricity used or 1.485 MJ of electricity generated and .776 MJ of gasoline. By adding those, I get the total average energy usage per mile. The combined efficiency -- accounting for transmission loss -- is about 58.5 mpg. That's not much more significant that what I can get in my car (50 mpg on the last tank).

Also, gasoline at $3.5/gallon is equal to $0.095 per kW-hr, or slightly cheaper than what I am using for the cost of electricity (diesel currently happens to be a much better deal at $2.70/gal).

So, instead of serving as a panacea, plug-in hybrids shift the fuel from oil to coal, natural gas, or nuclear, and shift the costs from your cheaper gasoline bill to your slightly more expensive electricity bill. Coal is reputed to be dirtier; it also happens to be burned somewhere other than in your own neighborhood. As you might guess, electric companies are behind some of these efforts to promote plug-ins.

Of course, if you were to install a wind or solar generator at the house, the electricity would be "free", but then again the sun and the wind usually aren't very effective at night when the car is parked. And, as I noted near the end of this article, some people are trying to get something for nothing by plugging their electric vehicles in at work. So here are two predictions/suggestions of what we may see in the next few years if fuel prices stay this high:

• Employers providing charging stations at worksite parking areas for charging employees' plug-ins. Install solar panels on the shelters and you increase your "green cred" while simultaneously providing shaded parking and "free" recharging. Sell extra power back to the grid (net metering) and make that unused space pay its own rent.
• Coin-op meters at large parking facilities for car charging. The coin-op serves as both parking fee and recharge fee. It would be nice if they would allow debit/credit/Paypal transactions, too.
  

3) Regarding the previous post on the news that Congress is considering a measure to block states from enacting more stringent measures: this poses a tactical problem for a decentralist. On the one hand, I'm against turning over all decision-making to a large and growing central decision-making bureaucracy and would much rather see local communities working to preserve their environment. On the other hand, opposing the federal/national Leviathan means protecting the paternalist busybody living next door. It puts you in the position of fighting for local decision-making, and then fighting against those decisions. Geez, I guess that's what Jefferson meant by, "The price of freedom is eternal vigilance." But at least I can meet my neighbors and reason through these issues. And when locals make decisions that help some and harm others, they know the score and can compensate them on the next go-round; when large nations make decisions, the far-flung citizens have little idea who is harmed or benefited, so they will remorselessly slam the same scapegoats in every round.

4) Department of Duh: The Worldwatch Institute claims that photovoltaic (PV) costs are set to decline 40% by 2010. Until just recently, as I noted back in July 2006, PV costs were rising. My guess is that consumer demand driven by both high fuel prices and worldwide government subsidization was driving the trend. Since then, the rise seems to have flattened out and even tipped the other way. If the WI predictions are correct, then Julian Simon should be calling WI founder and perpetual Malthusian doomsayer Lester Brown from the grave to say, "See? Told you so."

40% is a substantial reduction. As I noted in this post, PV is only economical under certain circumstances, but a 40% drop in prices certainly opens that up.

So why "duh"?

Well, if you know that the price is set to drop 40% in the next three years, why would you buy now? And if it is set to drop due to market supply and demand factors (which is arguable, see below), then why would you subsidize it? In fact, if many people would defer planned purchases just a little while, the over-production would create an inventory problem and drive prices down even faster.

Note from the WI report that the primary driver behind the supply increase is the money pouring into China from capital markets. Are they investing because they all believe in Peak Oil, in reducing carbon dioxide emissions, or in capturing some rents through programs like California's Million Solar Homes? If the latter, can this really be said to be a drop "due to market supply and demand factors"?

"Well, no matter" say the Big Government Greens, "whatever it takes to get there. As long as we get to screw Big Oil in the process."

How do you suppose Big Oil got that way? Hint: Among the biggest sellers of solar panels are little mom & pop companies like Shell and BP. Baptist, meet thy Bootlegger.

Running on glue and tar

My wife and I have been discussing where the world is going to go in the post-Peak Oil era. I for one am optimistic, but concerned about the transitional period. I think that we (humanity) will develop a variety of responses to the problem(s), and that we will be better off in the end, but I am concerned about the rate at which the transition will occur. There may be upheaval and pain in the interim, regardless of who is in the White House or what policies we follow to get there.

In the comments on Matthew Yglesias recent post on gouging, we see a response to higher fuel prices that I think is indicative of lazy, uncreative thinking. Simply keep piling on one supposed remedy after another. This is creative thinking in much the same way that fixing your mistakes after rushing through a job is productive work. (for my previous thoughts on gouging, see here, here, and here).

Some things seem to escape the attention of people who think like this. For example, the crimes committed by a gas station owner can be determined by looking at his prices compared to his competitors' as follows:

• higher: gouging
• lower: predatory intent
• equal: collusion

In this environment, it might be worthwhile to keep a lawyer on staff, nicht war? And since the laws are subject to change, a lobbyist might be useful. If everyone has to have lawyers and lobbyists, that creates a competitive advantage for larger businesses. I think I can assume that people who are against gouging are also against large businesses, so why don't they understand or acknowledge these problems?

---------------------------------

Then, I was reading about heterodoxy, Cowen, and Veblen, looked up Veblen, got side-tracked by Giffen Goods, and finally came across an essay in The Nation by Sasha Abramsky entitled, "Running on Fumes". He raises the idea that gasoline is a Giffen Good, one that poorer people will come to spend more on even as its price rises because they are locked into it.

Sasha says,

Indeed, the very fact that some commentators, such as the Cato Institute's Jerry Taylor, so glibly assume (or, at least, assumed pre-Katrina) that an oil price shock can be painlessly absorbed shows just how invisible the country's poor have become to much of its pundit class.

Since Taylor's offending comments are neither quoted nor referenced, I can only guess that Taylor said something like, "let the price mechanism work" in response to calls for price controls. The month prior to Abramsky's piece, Taylor wrote about fuel prices in NRO. I would recommend reading both before proceeding with the rest of this post.

Back?

It is of course debatable whether the price mechanism will work well with regards to energy. In the comments on James Hamilton's Peak Oil in America post, Stuart Staniford claims that recent empirical research indicates a short-term price elasticity of -0.05. An older survey indicates that the long term price elasticity is around -0.8 and the short term is around -0.2. In any case, this is for a general population, not the poor, so it is only indirectly relevant to the point. If these two articles can be taken as accurate, the indicated decrease in elasticity (magnitude) indicates that it will be harder to curtail gasoline use as price goes up than it was in 1979-1983; I would assume that it would be harder for the driving poor, but perhaps not so much for the urban poor who have access to other options. (I graph oil use vs. oil price here, but have not updated it since October 2005. Note how much reduction was achieved 1979-1983.)

Near his conclusion, Mr. Abramsky claims that the decline of the rural area about which he is writing is preventable, but

prevention involves the sort of innovation the Bush Administration, besotted as it is with laissez-faire triumphalism (not to mention oil-industry campaign cash), has been reluctant to embrace.

Did you just experience a self-administered lacto-nasal enema upon reading -- in a single sentence -- that the Bush Administration favors laissez-faire policies and that laissez-faire and oil-industry campaign cash are not mutually exclusive?

Indeed, this seems to be common in discussions of gouging, Peak Oil, current pricing, and related issues. Are Mr. Abramsky and the commenters on Matthew Yglesias' blog really claiming that the oil industry enjoys laissez-faire trade policy? That seems so absurd on its face that I cannot believe it needs rebuttal.

The oil industry came of age in the Progressive Era. Oil production had steadily increased and prices decreased for the entire history of the industry through the antitrust prosecution of Standard Oil. As the automobile caught on and demand heated up, Progressives were excited to be able to subsidize a competitor to railroads. Then, as the US got involved in World War I, businessmen eager to be freed from antitrust regulation jumped at the invitation to participate in the Commodities Section of the Petroleum War Services Committee and the Oil Division of the United States Fuel Administration. Dominick Armentano points out in Antitrust and Monopoly, that A. C. Bedford, president of Standard Oil of New Jersey, was appointed as chairman of the War Services Committee. Their experience of cooperation and "supervised competition", and the concurrent worldwide embrace of central planning (think about what was happening in Russia, Germany, Italy, and even England in the period between wars), paved the way to the corporative-creating National Industrial Recovery Act. When that was struck down, the Connally Hot Oil Act of 1935 was passed without hearings to maintain stability in the oil industry. It allocated state production quotas and provided a means to enforce restrictions on interstate transshipment in excess of those quotas.

The military has been tied in to oil production or at least the Middle East arguably since Eisenhower placed troops in Lebanon in 1958 and Kennedy defended Saudi interests in 1963. More recently, in 1980 Jimmy Carter announced the Carter Doctrine, stating that the US would defend its oil interests there. You have the obvious Bush wars since then, with Clinton lobbing a few bombs and establishing bases in Saudi Arabia in between.

In addition to regulatory and military support, we also have regulatory intervention and distortion. As James Hamilton has pointed out, one reason for the increase in gas prices during the tight markets in 2005 was the fact that the national market is segmented by EPA requirements and refineries cannot easily switch between the various boutique fuels favored by - you guessed it - Mr. Abramsky's fellow travelers. Finally, we have people who insist that we need to increase gas taxes so that we, like Eurotopia, will have gasoline prices near $10 per gallon.

Any guesses as to whether The Nation favors those higher fuel prices? I searched for "carbon tax" on their site and got 78 hits; the first one says, "A carbon tax would be simple --" The author goes on to add that

And as Charles Komanoff of the Carbon Tax Center argues, at least part of the proceeds of the tax could be rebated to poor and middle-income households through the income tax system, neutralizing any inequities. The unrebated balance could be used to subsidize alternative energy research and production. Given the historical successes of government funding of basic research in computing and medicine, there's every reason to believe the products of this work would be very promising.

Another two-fer: not only do we learn that the simple tax now has lots of other little simple ancillaries, like using the simple income tax system to rebate for gas, but we also discover that the government's funding of basic research has a proven track record. They don't explain exactly how we figure out the difference in rebates between subway-riding New Yorkers and rural Californians, so perhaps it is not as simple as they first insist. Nor do they actually compare the government's track record in conducting research to anything else, like privately funded applied research. Now, I think it's possible that government gives the private sector a good run in basic research, but recall that the human genome was first decoded by a private company in 1/10 the time and budget as that proposed by a government agency. But the private sector is much better at applied research, which is what was meant by "subsidize alternative energy research and production." So they call for applied research based on the government's track record in basic research? Nice sleight of hand.

--------------------------------------

A greater protest must be registered over Mr. Abramsky's nearly complete silence on the century of other Progressive policies that have pushed the poor out of town and into the oil-based lifestyle. Once again, we can refer to Gabriel Kolko's Railroads and Regulation and The Triumph of Conservatism for an understanding of the politics underlying regulation in the Progressive Era. The tongue-in-cheek, short version is that competition was largely working for everyone except the capitalists themselves. Competition was forcing costs down so far that they were all headed for bankruptcy, so they tried cooperative arrangements. When those failed, they turned to the federal government to act as the cartelizing agent. Though Kolko doesn't specifically address it, it is easy to see that the electric power industry faced the same logic of high capital costs, low marginal production costs, and the resulting expansion, competition, system building, bankruptcy, and "need" for regulatory intervention. This eliminated the "destructive competition" in rails & utilities by constraining competition and innovation. The whole point of regulatory oversight was not consumer protection, as the unsophisticated, narcissistic state-worshipper would have you think, but rather stabilization for the industries so they could go back to peace, quiet, and regular dividends. That is why deregulation and people like Craig McCaw and Michael Milken were so upsetting to AT&T in the 1970s and 1980s, and why electric utilities are so resistant to deregulation today.

The same public who first wanted to give land grants and rights of way to railroads and canals in order to get rid of private turnpikes, and then wanted to constrain railroads because the average voter didn't understand the logic of the capital-intensive industry they had spawned, and now didn't like the fact that their regulations created a de jure cartel, wanted roads. They joined the Good Roads movement and fought for public subsidies for bicycles and then cars. When Louis Brandeis brought Harrington Emerson to the stand in the 1910 Eastern Freight Rate Cases to argue that every industry could be rationalized with and every consumer benefited by Taylor's Scientific Management, the public caught the bug for the Efficiency Movement and Technocracy Movement. They wanted to centrally manage everything. The goal was, as Herbert Croly put it, to produce "Jeffersonian ends with Hamiltonian means".

As outlined above, the Progressives in WWI and FDR's cabinet in the Depression and WWII supported a state-industrial oil policy to further rationalize oil production and distribution. In conjunction with the Good Roads and subsidization of the automobile (which gave rise to the Golden Age of manufacture and its corresponding anomie and unionism which many Progressives yearn for), the stage was set for moving out of high density urban areas and to the suburbs.

The push to suburbia has also been helped over the years with some uniquely Progressive policies. Rent control in New York City, for example (I once read that poverty-stricken Walter Cronkite lives in a rent-controlled building). The aforementioned utility subsidization, including the TVA and REA, which replaced farmer-owned windmills with investor-owner utilities. More recently, to "preserve their character" (a euphemism for "preserve their property values"), many cities (bastions of Right Wingerdom, like San Francisco) have banned urban development, forcing people out of town to find affordable housing. To pay for a wide variety of programs, some of which used to be privately provided by the working classes for themselves, cities have raised property and sales taxes (Santa Fe, for example: there's a reason you need to make $10/hour to live there, and it mostly has to do with California millionaires moving into the City Different; most of them are not exactly Goldwater Republicans). While the upper and middle classes were leaving the city to live in clean, quiet neighborhoods, these policies were all pushing the poor even further out of town.

In the specific case Mr. Abramsky addresses in his essay, the size of those towns probably needs to be smaller. They were dependent on mineral extraction and timber, both repeatedly attacked by people like Mr. Abramsky, but probably not by Jerry Taylor. Indeed, it's probably a safe bet that when people like Jerry Taylor raised the issue about the impact of stopping resource extraction on the workers, people like Mr. Abramsky glibly dismissed it, saying that the economy could easily absorb the jobs lost. But I will go further than either of them and point out something both should agree to (if they want to be logically consistent with their probable core values): continuing to live in a non-agricultural rural area is inherently energy intensive, and we should not continue to subsidize it if we really think Peak Oil is a concern.

I recently came across a site (probably something on Gristmill dealing with global warming) that claimed all of the skeptics of (Kyoto?) never provide any suggested solutions of their own. Does Mr. Abramsky offer a suggested solution for the poor people he exploits for his article? He offers a vague mention of mass transit, a system that works well in high density areas like Europe and the Northeast Corridor, but probably not in Northern California. He seems to imply that George Bush is personally responsible for the lack of mass transit despite the fact that ridership is higher than it was under Clinton.

Abramsky makes a quick offer to help them pay for oil, thus furthering the addiction that has them in this situation in the first place, and contributing to a 150 year legacy of trapping people in a state-underwritten prison. The latest insult in that legacy has been the ethanol subsidy, a Carter-era program with bipartisan support for all the wrong reasons: it reduces imports, it supports "family farmers", and it is "renewable". First used to replace lead (Pb) and reduce pollution, it actually increases certain types of pollution. The subsidies for "family" corn farmers mostly end up in the pockets of ADM. And the renewability, touted by Progressives, is having growing implications for poor people. As I noted in my review of Joshua Tickell's From the Fryer to the Fuel Tank, "Some bio-cheerleaders ... claim that a large scale shift to biofuels won't affect food prices, but that is almost certainly wrong. The amount of land required to make a dent into our petro-fuel usage would easily require both the fallow fields and some land currently used for food production. Demand up, price up, QED." Given recent headlines, I'm going to claim prescience, but I think every clear-headed person could figure this out on their own. Even Noam Chomsky figured it out in hindsight.

Finally, Abramsky also mentions the possibility of subsidizing efficient vehicles, something that has been going on for several years with mixed results*. In other words, we get some paeans to Progressive programs and a demonstration of how much good Mr. Abramsky can do with other people's money to prove that he cares. Some of his explanations are wrong, some suggested solutions are demonstrable failures, and one at least will probably make things worse (subsidizing oil? Really?!). At no time does Abramsky recognize or even seem to be aware of the contribution of his intellectual predecessors to the creation of the problems of today's poor. Instead, he turns the tables, claiming that those problems were caused by people like Jerry Taylor and policies like laissez faire and implying that anyone who doesn't accept his vaguely defined solutions is responsible for the misery and possibly death of the poor. "Laissez faire means you don't care."

Now, Mr. Abramsky is correct to question the effect on the poor, but he has come to exactly the wrong conclusion. His essay is nothing but rhetorical sleight of hand intended to impugn Jerry Taylor and anyone who dares suggest that the price mechanism is a better mechanism than any other so far identified to coordinate oil supply with oil demand. Mr. Abramsky is like George Washington's doctors who kept letting his blood, and upon remarking how sick he appeared -- probably the result of too much blood letting -- tried more blood letting.

Note that I did not say the price mechanism is the best means. Again, thinking negatively (what is that? perhaps not what you think), there may be a solution of which I have not heard yet, but until then the price mechanism is the least worst solution. Price controls are predicted by theory to create shortages, and the theory is confirmed by empirical data. A shorthand way of explaining this is the gas lines in the 70s and in Baghdad today. Surely, if the poor need gasoline, then some at high prices is better than none at any price? Ridiculing the least worst answer, or insulting the person who acknowledges it, is like accusing your doctor of murder for informing you that you will inevitably die.

Furthermore, Mr. Abramsky never seriously looks at the total effect of the price mechanism. It not only curtails demand, but it stimulates supply. Note the implications of this chart in The Economist, from the article "Venture Capitals". Furthermore, note an idea from this episode of Nova: "If you look at companies, like SunEdison, who are helping retailers put up solar panels on their roofs, you're suddenly seeing a linkage of the capital markets -- which have traditionally been very reluctant to get into solar energy -- with the retail sector. That's how you do things in America. You link the technology to the capital, and that's where the rubber hits the road." In America, the capital markets respond to a problem, while in other countries, the politicians respond. The former have to spend their own or their clients' money and are held accountable, the latter not so much.

"So what", you might say, "I don't care who produces the solution, so long as there is one. And so long as it benefits the least well off."

Well, here's so what. I'm vaguely familiar with the theory of functionalism. It says that institutions exist because a society needs them; institutions serve a purpose, a function. When I first heard of it, I immediately thought that it seems circular and lacks a mechanism to describe change; this appears to be an ongoing criticism of the theory. In any case, proponents of this theory use it to justify the existence of government agencies: obviously we must need them if they exist. If you evil bastard libertarians abolish some of those agencies, people will suffer.

That is true as far as it goes. It doesn't go far enough, though. There are two problems with it.

First, I have always believed that there are two problems faced by people who desire change: one is describing a desirable and reasonably realistic future. That is what I like about Kirkpatrick Sale. The second is to describe the path, how to get from here to there. The problem with simply saying "abolish such-and-such program" is that it doesn't describe what we reasonably expect to replace the functionality of that program or how the private institution that replaces the program will spontaneously evolve. For one thing, we don't know what it will look like or how it will evolve: if we did, we'd be in favor of planning. For another, "spontaneous" does not mean "instantaneous", and "evolve" does not mean "appear out of thin air".** So they are right to think that people would suffer if all we were saying is "abolish such-and-such", but we aren't: we are saying, "abolish such-and-such and allow some time for a better solution to evolve." Clearly, though, we need to do a better job of understanding and then explaining how institutions evolve.

The second problem with the functionalist-statist analysis is that it is usually based on an ignorance of history. Remember, if the existence of an institution implies a need for it, what answered that need before the government agency? This is a problem with the change mechanism in functionalism - if the agency sprung from nothingness, either the need must not have existed before, or the agency didn't spring from nothingness. So how does functionalism account for how or why would such a change occur? No answer seems to be forthcoming (but I admittedly have only a kindergartener's view of functionalism). In many cases, though, the solution to the riddle is that a private institution answered the need until it was co-opted by the government. As David Beito has documented, that was the case with much social insurance. The victor (the government) also gets to write the history and teach it in the schools it owns, so few people know about institutional arrangements that probably haven't existed for generations.

Let me bring this full circle.

Sasha Abramsky and others are claiming that laissez faire is not the answer to the problems posed by high gasoline prices for poor people, they are claiming it is the problem. I'm going to consider this patently false until someone can successfully convince me that oil policy is and has been laissez faire. Even stipulating to that claim, though, their recommended solutions of subsidizing the addiction would only prolong the problem and -- given that agencies rarely die once created -- would make the problem worse if oil prices should fall. They are refusing to face the possible fact that this area of California, like the Corps of Engineers' New Orleans, should not be as heavily populated as they were in the cheap-energy past. However, had laissez faire actually been practiced instead of the heady policy brew we have endured for the past 100+ years - regulating railroads and utilities, protecting them against innovators, encouraging suburban expansion, promoting efficiency in energy production at the expense of efficiency in distribution, reliability, and end use, then perhaps the poor people described in Mr. Abramsky's story wouldn't be locked into the lifestyle they are. People like Mr. Abramsky spent taxpayer money on the system that got them into this mess, now he has 100 ideas on how to spend more to keep them in the manner they have come to expect: poor, dependent, and hopeless. Ecologists refer to this approach of endlessly proposing the same solutions to the unintended consequences caused by an earlier round of similar interventions as "parachuting cats."

Given the power to enact their vision, they would systematically destroy every last vestige of spontaneous, private order in an effort to build community values. But such governments have a tendency to collapse of their own weight. When they do, the survivors look around and note that the community was kept together only by the fear of the increasingly necessary police state. There is no community spirit in such a place. Look at what the inhabitants of Russia have been enduring after the collapse of their system. Listen to this article on NPR about the lack of community values in Albania. No, really, listen to it. Generations of socialist theory have wiped out everything they knew about civil society. In America, de Tocqueville marveled at the Association phenomena; in Russia, people wished for their neighbors' barns to burn down.

That is why I prefer private to public institutions. I don't believe in market "magic"; too often have I been a disappointed consumer. Private solutions may not be perfect, but neither are state institutions. Too often have I also stood in DMV lines.

Cooperatives and associations are more democratic than an agency run by career bureaucrats. Furthermore, even Hirschman now acknowledges that Voice works only when Exit is a viable option. As a result, on average, private institutions are flexible and responsive and will evolve; public agencies are rigid and arrogant and will stagnate.***

Nobody resents an association they neither belong to nor pay for, even when that institution stands for something they loathe, but everyone hates paying for those parts of the government they oppose (agriculture? military?). Those who oppose democracy distrust private organizations and vote to suppress them (think Red Scare, Alien and Sedition, Palmer Raids, Radio Caracas Television). Those who genuflect to democracy cannot understand why people would vote for what they would call "undemocratic" programs and politicians. To comfort themselves, they develop theories of conspiracy, brainwashing & propaganda, or false class consciousness. They then begin to support politicians who promise to thwart those poor demented creatures, the opposition; in the end, the democrats line up to vote for the fascists, who proceed to replace private institutions with state institutions. The democrats are surprised when the anti-democrats take control of the machine and use it in surprising ways, perhaps even contrary to its original intent.

A public policy and agency require no imagination or creativity; simply - and I mean simply - propose a blunt mechanism for addressing whatever problem vexes you, then either declare victory or ask for more money and authority. The clever politician does both at once. Opponents can always be demonized as unpatriotic, asocial, and dangerous. A private institution requires work, creativity, conviction, persuasion, and innovation. It promotes civic values. Think Wikipedia, an institution created by libertarians (yes, Virginia, Jimbo Wales is one of those people). That is why I think that government is the intellectually lazy man's solution, and why it endangers the poor man whom he seeks to save.



* Yes, the Prius is great, but I get 46+ mpg with my non-hybrid. Somehow, the powers that be decided that hybrid was better than diesel, even though diesel fuel can be made easily from waste oil and renewable oil. I would argue that this is rather short-sighted, but not atypical. Also, several years ago I remember reading about the skyrocketing price of Suburbans in Arizona due to a shortage of them; apparently, the state was subsidizing a version with an alternative fuel modification (LNG or propane), but you could still run it on gasoline, so people were driving in from out of state and taking ownership of a friggin' Suburban at taxpayer expense for the purpose of saving gas. Personally, I think that if there is a role for the government here, it is to fund an E-prize as Lovins et al describe in The Oil Endgame. Remember, however, that the E-prize is named after the Ansari X-prize, a privately funded prize that has been moderately successful.

** In case you think I'm exaggerating about the strawmen used by anti-libertarians, look at what this says about libertarianism: "Libertarians believe (like Marxists believed back when there actually were Marxists) that if the government just shriveled away, a paradise would naturally spring into existence." Spring? It took hundreds of years to kill some institutions that themselves had to evolve over hundreds of years; only a fool would think they could be replaced overnight. Similarly, only a fool would think that "stroke of the pen, law of the land" equates to "problem solved". They are generally surprised to find out about "unintended consequences". Other than that, Midas' claim that things claimed by libertarians have never existed exposes the breathtaking ignorance of actual history usually found in people who read only popular history books. He could try starting with Homage to Catalonia or The Machinery of Freedom and work his way up from there.

*** Size is also important: I will take a small, decentralized public institution to a large corporation. Centralization and the distance between the top of the hierarchy and the end users or customers are also factors.

Giving you your opinion

Reading The Oil Drum, I noticed an ad for billionaires John and Teresa Heinz Kerry, billed as "Today's new environmentalists and their vision for the future."

"Whenever we've had systemic and sustainable change in this country, it's because the grassroots has been ready... Top-down activity from the government cannot take root unless there's bottom-up acceptance. ... I think we're at that moment right now."

-- Teresa Heinz Kerry

Hmm, where have I heard that before?

"The popular will cannot be taken for granted, it must be created."

-- Herbert Croly

"When I want your opinion, I will give it to you!"

-- Stereotypical drill instructor

Stand by to have your opinion force fed to you. Reminds me of something Kevin Carson put up a while back: whenever someone says, "Did you know ...?", you should immediately note that you still don't.

Absent from school: Pigou

Let's just stipulate that the use of fossil fuels creates negative externalities. Whether these are supporting terrorists and despots, pollution, AGW, or simply underwriting a lifestyle that cannot be sustained forever, I am indifferent. In any case, this is the case made for public intervention in that market. There are two main responses: One is to subsidize or mandate alternative energy, the other is to raise taxes on fossil fuels with the desired result of shifting investment from fossil fuel exploration and extraction to alternative energy research and development. The former is thought to be the worst approach for a variety of reasons, including the argument that the government is a poor decision maker, that it leads to rent-seeking by interested parties (like ADM lobbying for ethanol from corn), and that it shifts money from taxpayers to political entrepreneurs with lots of deadweight losses in between (spending on lobbyists), whereas the latter merely raises the costs of fossil fuels, possibly buttresses state coffers (allowing us to pay for public goods like defense), and does not put the government in the place of solution-picker.

That sounds plausible, even if you might pick at some of the details and ultimately argue that the best solution would be to get government out of either punishing or rewarding any industry. Let's just say that that is a standard wonk description of the problem and solutions.

So let's look at an industry that has some parallel: public education. In this case, the schools should be providing public goods (literacy, numeracy, critical thinking skills, and other skills that Jefferson would argue are critical for the proper function of a democracy), but are widely regarded as having underproduced them. This is apparent whenever the left demands more spending or when the right demands more accountability. Very few will argue that it is perfect the way it is, and usually when they do, they always come back with, "but it could be improved" (usually with more money). My analogy turns on the idea that overproviding a public bad is similar to underproviding a public good. I also believe, but do not intend to prove here, that public school problems are institutional in character: that they will always underprovide no matter how much money you spend on them in the same way that pollution is always overproduced no matter how expensive oil is in a free market (those of you anti-free marketeers please note, however, that the efficient amount of pollution is not 0 and that the heavily regulated soviet industries tended to pollute even more).

The two responses analogous to those above for fossil fuels would be to subsidize the alternative or to change the price structure on the failing industry to make the alternative look more attractive. The former exists as a policy choice in the form of vouchers, charter schools, and mandatory testing; they are at least as controversial in education policy as alternative energy subsidies and mandates are in energy policy. The Pigovian tax response does not currently exist: it would consist of charging more at the pump schoolhouse. In other words, charging tuition for public schools.

Take a few breaths and allow the shock to wear off before continuing.

I propose that we start charging a moderate, nominal tuition for attendance at public schools. I think this can be made palatable to all political parties except the rabid left and religious right. To the former, who think that all education should be free, I simply point out that it is not and cannot be truly free; someone must pay for it because buildings and equipment must be built and maintained and teachers should be compensated fairly; to the extent that the wealthy are made to pay for it, they will be interested in controlling it; and they have many ways to exert influence in the large, complex state that y'all prefer. The "free" universities in Europe are not as successful as those in the US (see Figure 9 in this, our higher per capita spending results in a better healthcare education system according to this), and the European systems are under tremendous pressure to start charging tuition because the current system is underperforming. The problem for the religious right will come up below. To everyone else, I think you'll find that I can address your concerns.

First, I have no more problem with making the tuition means-tested than I do with providing relief for the poor on fuel taxes (ah, funny how you forgot to be indignant on *that* point, eh?). In fact, it's easier to bring in your 1040EZ and get a waiver at the schoolhouse than at the pump, where it must be done with something like the EITC. Many public school systems already have a mechanism for charging tuition for out-of-district students (not alway to the student: sometimes to the sending district).

Second, I'm talking about nominal tuition: $100 - $500 per year per child. Not the full value, just a little. And I'm not advocating reducing the public expenditure on public schools. A school with 1000 students (the average high school in the US has about 752) will suddenly find itself with an additional $100-500k per year for facilities and teachers. Neat, huh?

Third, schools could charge whatever they decide locally. Schools in wealthy districts would charge more than schools in other districts. This would decrease the pressure on legislatures to equalize spending (more tends to get spent in wealthier neighborhoods now), and poorer schools would therefore find it easier to get more public spending sent their way. And to the extent that the wealthier schools would charge and spend more, and therefore be better, poor enrollees would be better off at those schools (remember, I favor making the tuition means-tested, so they can free ride, same as now).

Fourth, I believe that we should be more circumspect about the subsidies we provide for breeding. If you are concerned about fossil fuels and the environment, you should be at least as concerned about the pressure of population on the environment. And for those of you on the right: how far are you willing to take this "personal responsibility" idea? Isn't it a little unfair that people with no children have to subsidize those of you who do? Why should married couples enjoy both income tax breaks and subsidies for raising their children? You don't want to pay for the pill, condoms, or abortions for other people? Fine, but why should we pay for your refusal to use the pill, condoms, or abortions? Let's face it: the two-income family depends on the public school-as-babysitter as much as an institution of learning, and that in turn subsidizes the culture of conspicuous consumption. Incidentally, contrary to popular myth, people on public assistance tend to have fewer than the average number of children, while people who vote Republican are known to have more children than those who don't. "Free" public schools are an example of a public institution that disproportionately supports those who complain most about the taxation that pays for it.

Fifth, to the extent that schools charge some tuition, they make it possible for alternatives to rise up in a similar way a carbon or fossil fuel tax directs makes research into alternatives possible. If a school charges $500 per student per year, and a competing private school or tutor charges $1000 per year, the difference is more palatable than between the "free" public school and the private school. You get similar results to voucher and charter school plans, but

• without the vouchers that "divert" resources away from public schools (they don't in per pupil terms, if you do the math),
  
• without setting up situations where the state may be sending money to religious schools and charlatans,
  
• without therefore putting the state in the position of certifying schools to receive vouchers,
  
• without having to repeal the Blaine Amendments,
• and without giving the state an opening to start killing the independence of private schools with onerous regulations.

Questions?

UPDATE: Apparently Tyler Cowen has reached the same conclusion:

I would be happier with vouchers if we were starting from scratch in designing educational institutions. And while I agree with Jane that children have a positive right to an education, I think the out-and-out laissez-faire option doesn't get enough attention. Keep the public schools we have, but make them charge tuition.

Electric Utility economies of scale

I have been trying to get this right, so this may just be another unsatisfactory article in a series (others here and here).

Let's suppose that in the late 19th century, you are using kerosene to light and coal or some other fuel to heat your house. In comes Mr. Tesla and his alternating current and Mr. Edison with his electric lamp. Suddenly, you are able to get the same benefits at a lower price. In a complete analysis, we might have to account for the energy required to refine the kerosene, and the resources required to mine the coal and oil in order to get a complete comparison, including externalities, but they were probably roughly equivalent.

The big advantage there was the price, and that was made possible by economy of scale of using large generators and large distribution networks. By economy of scale, I mean that the cost of producing your consumption plus that of your neighbors was lower when using one large generator than each of you using a small generator. A small generator would cost you not only the fuel, but the upkeep and depreciation, both of which are buried in the price of retail electricity.

Over the intervening years, however, we began using the electricity for more than just the light and heat. The number of variety of appliances exploded; it is thought that the small electric motor was as important to the late industrial revolution as the steam engine was to the early revolution since it freed workers from the line and allowed them to be organized in different ways. Small appliances were thought to free people - especially women - from the drudgery of household work, since now machines could wash, dry, wash dishes, store large amounts of perishable food and eliminate the need for a daily trip to the grocery store, etc. The television became the primary form of entertainment, replacing the local pub, lodge, or club.

At some point, then, the economy of scale exploded to more than just a simple replacement of what had gone before (light and heat). Huge generation capacities were built and then overtaken, forcing utilities to build ever larger plants farther from the cities that use the power; transmission systems became intercity and then interstate; and the cost of electricity fell as never before as the utilities, with their high fixed cost of capital and low variable cost, sought to pay for the capacity rather than the actual marginal cost of power delivery.

At last, it has gotten to the point where the transmission facilities are sometimes several hundred miles away, and the system is built to run at high capacity so that the heat and line losses are now the overwhelming feature of the system. The plants run mainly on coal and nuclear fuel, both of which create enormous externalities. There is now a diseconomy of scale: many smaller plants and shorter, less complex distribution systems would be more efficient than the behemoths now operating, but it would force us to grapple with the pollution, noise, and infrastructure to transport fuel in and waste out.

How did it get this way? Where were the regulators?

The problem is that the regulators helped make it this way, contra Kos. Just as the electric utility business was getting started, the main player asked to be regulated. Samuell Insull worked with Nikola Tesla to create the industry as it exists today. At the time, Tesla invented a generator that created the alternating current electricity while Edison was still trying to sell everyone on direct current electricity. The problem with direct current is that you lose power to line losses, so that over very long distances, there is very little power left. To get enough electricity down the line for the end user, you have to elevate the voltage at the near end to dangerously high levels. That meant that the brightness of your lights and the safety of the system depended on where you were relative to the generating plant. Tesla's breakthrough idea was that alternating current was a more efficient way of moving electricity over long distances because you can use transformers to increase and decrease the voltage. Power equals voltage times current, and power lost as heat equals current times line resistance squared. To maximize power delivered as a percentage of power generated, run the voltage on the line high so the current and therefore line loss is low, then use transformers to drop the voltage at the user end to something safer. From a safety standpoint, it would be better if you had low voltage direct current in your house, but from an efficiency standpoint, it would be better if you had a large AC generator supplying all of the houses.

Insull saw the advantage of Tesla's system, commercialized it, and began building or taking over distribution systems. In the popular literature, he is characterized as becoming concerned over the possibility that someone might monopolize the electricity industry. It sounds very altruistic to be so concerned with the plight of others, but it must be emphasized that he volunteered to become a regulated monopoly rather than a state-owned industry. With the cooperation of the state, he eliminated any potential competition (along with a great deal of real competition). In most states, the mechanism by which this is accomplished is not a clause which says, "A monopoly is forthwith granted to ...", but rather by a clause which rather innocuously states something like (from the New Mexico Statues Annotated, 62-9-1)

A. No public utility shall begin the construction or operation of any public utility plant or system or of any extension of any plant or system without first obtaining from the commission a certificate that public convenience and necessity require or will require such construction or operation. This section does not require a public utility to secure a certificate for an extension within any municipality or district within which it lawfully commenced operations before June 13, 1941 or for an extension within or to territory already served by it, necessary in the ordinary course of its business, or for an extension into territory contiguous to that already occupied by it and that is not receiving similar service from another utility. If any public utility or mutual domestic water consumer association in constructing or extending its line, plant or system unreasonably interferes or is about to unreasonably interfere with the service or system of any other public utility or mutual domestic water consumer association rendering the same type of service, the commission, on complaint of the public utility or mutual domestic water consumer association claiming to be injuriously affected, may, upon and pursuant to the applicable procedure provided in Chapter 62, Article 10 NMSA 1978, and after giving due regard to public convenience and necessity, including reasonable service agreements between the utilities, make an order and prescribe just and reasonable terms and conditions in harmony with the Public Utility Act to provide for the construction, development and extension, without unnecessary duplication and economic waste.

So, without defining "public convenience", "public necessity", "unreasonable interference", "unnecessary duplication", and "economic waste", all competitors must stand in front of the public utility commission and prove that their new plants, systems, or extensions are necessary and convenient, but don't interfere, unnecessarily duplicate, or waste. Invariably, they fail the tests. Further, since any competition is unnecessarily duplicative (what is necessary duplication?), potentially economically wasteful (sometimes they go out of business), and probably afoul of the other provisions, it's unlikely that you could ever find competition to be lawful.

Other actions by the state over the past 100 years have only strengthened the power of the electric power industry. In the Depression, Roosevelt eliminated the nascent wind power industry by introducing the Rural Electrification Administration (REA). He also put government directly into the market by starting the Tennessee Valley Authority (TVA). These two reinforced the economy of scale, overbuilding, and the interdependent network architecture of the industry. After World War II, the Department of Energy was created to both promote and to regulate nuclear power, a clear conflict of interest which led them to first convince utilities in the 1950s that nuclear was the safe way to expand in the post-war boom, and then to change the requirements and increase the prices after the utilities made the commitment. Later on in the century, when it was thought that all this coal-generated power was fouling the air and water, Congress solved the problem with a nod to the interlocking constituencies of the coal-fired power generators, Eastern coal mines, and coal miners unions, requiring a technological solution to the problem (flue scrubbers) rather than allowing them to choose the low-cost option (low-sulfur Western coal), keeping the older and less efficient plants online, and ironically resulting in more sulfur dioxide emitted than if they had chosen a more market-like approach (the one that finally surfaced in the 1990 act, with its Coasian cap-and-trade sulfur market). Even more recently, we saw the nearly incredible result of California's pseudo-deregulation, in which the state left its role as referee and entered the market as a player. California became the middleman between the producers and the consumers, artificially held consumer prices down while demand soared. This led to rapidly mounting costs and eventually to rolling blackouts. Since the difference between the price and the cost was born by the state, they pumped millions of taxpayer dollars into Enron, and then had the chutzpah to blame the free market!

I hold out the hope that the decentralizing capacity of solar and wind energy is destabilizing to these entrenched political-industrial interests. Thus I read things like this interview (hattip: Mutualist Blog) with Travis Bradford, author of Solar Revolution: The Economic Transformation of the Global Energy Industry with hope, but also with a good deal of skepticism. Typical of all such journalism, the Alternet interviewer and commenters commend Bradford for sounding like techno-optimist Amory Lovins and not like Doomslayer Julian Simon, of whom they have probably never heard except in disparaging tones. Like Lovins, et al, in Natural Capitalism, Bradford seems to be arguing that technorevolution will happen and should happen simultaneously. To the extent that something will happen, why agitate for it? It's like encouraging people to breathe. To the extent that it should happen but might not, I see little in the interview to indicate that Bradford or many of the commenters are aware of the technical problems with solar. The "thoughtful" solution to the drawbacks of any one solution (wind, solar, geothermal) seems to be that we will have an integrated system of geothermal and wind to provide the base generation (and probably nuclear and coal for at least the next 100 years), with additional wind and solar to provide the peak generation, but this doesn't bring forth visions of an environmentally benign, decentralized or anarchist utopia.

For one thing, there is the problem that alternative energy is only "on" for part of the day. This means that you need some way to obtain power at night, when it's cloudy, or when it's not windy (if you're depending on wind). The two normal solutions for this are batteries and grid tie. Between the chemicals and processes required to produce polysilicon and other photovoltaic architectures, and the chemicals used in batteries, these aren't exactly the environmentally benign technologies we've been led to believe. The Alternet commenters mention Copper Indium Gallium Diselenide (CIGS) - what are the chances that those are surface deposits that can be mined in an environmentally and democratic way and that they don't require vast quantities of caustic chemicals to process? Then there is the problem of grid tying: yes, if you run a standalone system (in the neighborhood of $50-100k for the average household, with battery and PV cell replacement every 10-30 years), you don't have to coordinate with anyone else. For us mere mortals, grid tie is a less expensive alternative. It also requires a massive effort to centrally coordinate the decentralized grid: standards, inspections, licensing, legislation, etc., plus there is the fact that it requires the existing, centralized generation and distribution system to operate. Kirkpatrick Sale thought the electric grid was too large, too complex, and therefore too fragile back in 1980 when a few central utilities were tied together, so just imagine how much more complex when every house is tied to it and we are all billing one another for generation and use.

There are two passing references to Howard Hayden's Solar Fraud; Why Solar Energy Won't Run the World: one says that he assumes prices stay constant, the other that he has ties to the nuclear power industry. Neither addresses his criticisms, which I will try to summarize in a future post.

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.

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.

Human Scale Part II - Mass Production

This is a review of Kirkpatrick Sale's Human Scale, continuing from Part I, Planned Obsolescence. Again, Although I'm sympathetic to the overall thrust of the argument, I think there are a few problems that don't seem to be entirely fatal flaws. In fact, I think libertarians and leftists alike should enjoy it since much of it is aimed at that nexus between corporate and government that we love to hate (what is the best word or phrase for that, anyhow?).

Mass-production = expensive and low quality

This is another theme that runs throughout the book, though in some places Sale contradicts himself on the expense part of the argument. On the quality side, Sale usually poses a false dilemma between low quality mass production and high quality artisanship. He is wrong to imply that mass production means everywhere and always "low quality".

Because of this bias, he not only makes wild generalizations, but also misses some specifics. He claims "In a contemporary handcrafted shirt, for example, which is always made out of natural fabrics, there are at least thirty stitches to the inch rather than the ten or twelve stitches found in factory-mades, and shell buttons instead of plastics." This isn't even close to accurate, according to my source, who actually used the word "lie" when asked about it. 30 stitches per inch would on the one hand be commensurate with embroidery, which is not the same as a seam. At the same time, using stitch counts that high would make the article less reliable because it would create a weak point. In fact, commercially made garments are usually much better than homemade, though I would not dare claim that to be always and everywhere true. It is simply a myth that commercial apparel production means low quality, exploitive, and non-sustainable industry; dispelling that myth is a topic to which a book and a whole blog is dedicated (see previous link).

Human Scale (1980) was written without reference to how badly the Japanese production methods (especially those of Toyota, but also Honda) were beating American mass production methods at the time. That became obvious through both of the 1970s oil crises, and is becoming a factor again today. What Sale failed to appreciate is that the Japanese method (derived more from Fordism than from Taylorism, and almost diametrically opposed to the Sloan method that Sale is almost certainly thinking of as "mass production") allows the production of higher quality articles at lower prices.

In another section, Sale claims that a small number of people could locally manufacture all or most of the products we use today. He does so by listing 13 major industries and the number of people in an average size factory in each. He either does not realize, or does not wish the reader to realize, that each industry does not manufacture all of the products within that category in a single factory. Thus, for the electrical appliance industry, he only lists one factory, though the industry consists of washing machines, dryers, stoves, refrigerators, irons, clocks, stereos, telephones, faxes, lamps, toasters, mixers, coffee pots, food processors, grills, and so on. The metal industry includes steel mills, aluminum works, copper works, etc. You can't use generic miners to mine copper, steel, coal, bauxite, iron, lead, tin, silica, tungsten, and so on - you have to have different miners for each mine, especially since all mines are not likely to be located within one county. His calculations are surely off by an order of magnitude. This is misleading, but it can be salvaged in a way that Sale least expects.

In the chapter entitled Lucca's Law, Sale makes his case for going "Back to the Pleistocene!" (an EarthFirst! slogan). It demonstrates how little he actually understood what was happening in manufacturing (especially automobile) at the time. He says that self-sufficiency could be achieved "[b]y using general instead of specialized machines" and in another passage in which Sale describes necessity as being the mother of invention, but self-sufficiency as the grandmother, he talks about using general factories gearing up to make production runs first in one type of product and then another:

For certain high volume items - nails, say, or pencils - it would be possible to get mass-production efficiencies by gearing a plant for a month or two to a single product, which would then be stored and used as needed, and then retooling it to make some other allied product for a month or two. This would never be quite as cheap and efficient as straight-through mass production, of course, but it would enable the total community manufacturing capacity to double and triple and more, and thus to multiple the number of goods with the same limited number of manufacturing workers. [emphasis added]

That passage comes long after he talks about the number of workers in each, but this new twist about each type of appliance comes much later, almost as an afterthought, by which time he drops the talk of the numbers of people required. Taiichi Ohno would laugh himself silly at the thought of someone toying with the idea 20 years after he had perfected it. Ohno's development of Toyota's Just-In-Time method was born exactly out of such circumstances, when Toyota was a small, intimate factory in a beaten country and could not afford the variety and number of machines used in such places as Ford and GM. Ohno pushed, and Shingo later perfected, the idea of Just-In-Time by using Single Minute Exchange of Dies (SMED), making a mockery of a month-long changeover. The idea is to use general machines (e.g. presses) in specialized ways (different dies for each stamping) and to vary the product mix on the assembly line so that you make some of every product every day.

The Sale method (the slightly modified Sloan/GM method) would require extensive warehouses to store the mass-produced production runs (since you run a year's worth of production for those two months and have to store it for the remaining 10 months). If problems were discovered months later, the only recourse would be to wait for the next production run (months later). If too many light bulbs were made, or designs were changed, all those bulbs would be waste. And of course you can forget about producing perishables this way. The JIT method would be to run a few lightbulbs, a couple of irons, a stove, and a refrigerator every hour, switching between them as customer demand dictated. No warehouse needed, just take it straight to the customer. If problems are discovered, the next batch can be held until the problems are solved, and a new batch will be forthcoming later in the shift or during a later shift. If designs or tastes change, there is no waste because you only produce as customers demand. Sloanist mass production can't do it because it favors large batches and local optimization, but JIT favors small batches and global optimization.

So, long after he has argued that mass production is inefficient, he casually acknowledges the logic of mass production and then genuflects at the principles of the Toyota Production System before prostrating himself before the very worst example of mass production (Sloanism and GM). I think that his unfortunate bias against manufacturing blinds him to the fact that - unless we are prepared to return to hunting and gathering - ultimately humans have to make stuff in order to survive. Given that, it seems that it would be best to discover the underlying principles for efficient (low waste) manufacturing instead of ridiculing them.

Human Scale Part I - Planned Obsolesence

Having just finished Kirkpatrick Sale's Human Scale, I thought I might post my impressions. Although I'm sympathetic to the overall thrust of the argument, I think there are a few problems. Perhaps they are just with this book and the fact that some of it is dated. In any case, they don't seem to be entirely fatal flaws, but should be noted nonetheless.

Planned Obsolescence

This is a minor thread that runs throughout the book, usually in the background. It is one of Sale's fundamental assumptions about state capitalism. In one case, he describes the Century light bulb, about which I have already written. In other cases, he writes about the planned obsolesence of appliances such as refrigerators, with the implication that they are built that way to force you to buy more often. Let's take the lightbulb first.

The Century bulb is still running today in a firestation in Livermore, CA (the webcam is here). The bulb is never turned off, and for good reason: most (99%) lightbulbs don't burn out in normal operation, they pop during the first few milliseconds of being turned on. The current inrush creates a heat differential and therefore rapid and uneven expansion of the filament, causing it to pull itself apart. Thus, if you never turn it off, you never have to risk turning it on cold. The Century bulb itself is somewhat special, too. At 4 W, you can barely see it even when the other lights are off. This is so because the filament is huge.

You could obviously make bulbs last longer through a variety of techniques: thicker envelope, thicker filament, better evacuation, electronics to control the inrush current. The question is whether the changes are worth the extra cost. One $0.50 bulb every 2 years is no more economical than a $1 bulb every four years. Indeed, as the price of most goods declines in terms of the amount of work required to earn the money to buy them, even that simple comparison works out in favor of the shorter bulb over time.

The other claim - that appliances could be made to last longer but are intentionally not - is based on two mistakes. The first is based on a misunderstanding of statistical quality control (SQC). We can, after analyzing lots of appliances over time, figure out that an appliance will fail in a predictable manner. The failure probability looks like a bell curve. From that, we can say that Refrigerator X will last on average Y years. From this, people will infer that the refrigerator was designed to fail in Y years. In a sense, it was, since the refrigerator was designed within certain constraints: existing technology, cost points, market demand, competitive expectations, cost of inputs including capital and materials, etc. The end result of those design choices is a refrigerator that lasts, on average, Y years. But the direction of causality is from the design to the durability, not from a selected goal of durability to the design. This is a misapplication of statistics, and is usually committed either out of malice or ignorance. I'll assume Sale does so out of the latter.

The other mistake is the idea that people should design 50 year refrigerators (or whatever). Keep in mind that you can, right now, buy outstanding appliances from companies like Viking. They are very expensive. At the same time, keep in mind the fact that technology is changing and that the rate of change is increasing. Given both of those, why would you want to pay extra for something that will be overtaken by scientific and engineering - not design - obsolescence within a few years? The examples are mind-boggling: a car radio of a few years ago does not have as good reception, disc capability, or perhaps even cassette playback capability; the incandescent lightbulb has been overtaken by the CFL and is about to be overtaken by the LED; a state-of-the-art computer from 1990 won't even begin to approach the capability of a modern computer for most of the modern applications (such as the internet, USB, etc.); the most economical and reliable car from 1975 won't even touch the most economical and reliable modern car for either of those measures or for safety (remember when airbags were only available on high-end Mercedes?). So why would anyone pay a premium for that which they could have in the future at a deep discount? Now, Sale would probably claim that all of those are examples of products designed to function within the state capitalist system, but what about that panacea of solar panels? The efficiency was pitifully low in 1980 (when Human Scale was written) - were they planned to be obsolete? Isn't it good that the efficiency of commercial units is as high as 20% today? They have lab experiments returning 30% efficiency - don't you want that in the future?

State-corporate nexus

There should be a single term that describes the nexus of corporate and government interests. Many socialists, libertarians, mutualists, anarchists, and otherists will agree that a large share of our problems comes neither just from corporations (though also from them) nor just from government (though also from them), but particularly from the clash or alignment of interests, the nexus between them. While Marxists look for the dissolution of corporations, libertarians generally advocate for the reduction of the government sphere since, of the two, the government is the more dangerous. Each has its own power, but government is the only true wielder of force, violence, and coercion, and the corporation only accesses that through the state. The state can always access economic power through coercive taxation.

The most obvious case of that nexus, that of corporate welfare, is universally denounced by both citizens and politicians, but ubiquitously practiced by both major political parties (or both wings of the single major party, if you prefer). Less obvious cases are those regulations which appear to work against corporate interests, but actually serve to further some at the expense of others; for example, Wal-Mart's recent support for an increase in the minimum wage in order to keep their competitors at a disadvantage. We are all also familiar with sweetheart deals and no-bid contracts.

It is therefore unfortunate that there is no satisfactory, pithy, accurate, succinct single word that conveys the idea of the nexus itself. A few that come close, or that address the problem lack the precision (and concision? is that a word) are:

• Corporate welfare - This is an outcome, not a description of the phenomenon.
  
• State capitalism - It misses because it exploits dual nature of meaning of "capitalist" and somehow implies a link between capitalism and its opposite. Sometimes that is the intent of those using it. In case the reader is unaware, capitalist means both someone who makes a living on the rent of money (capital) and someone who advocates laissez faire economic policy. Ted Turner is the former but not the latter, I am the latter but not the former. By saying, "Ted Turner advocates thus-and-such, and Ted Turner is a capitalist," it is sometimes intended to imply that capitalists of the latter type favor the kinds of things that Ted Turner favors, which is silly.
  
• Corporative - This is a little obscure and archaic, but it comes close. After all, capital exists even in a communist society, though it may be underutilized, but corporations are a legal fiction, an offspring of the state. Corporatives in Italy (and for a time in America) were essentially guilds organized for the purpose of self-regulation. They were allowed to issue licenses to participate in their particular industry, to set maximum and minimum prices, and to negotiate with the labor guilds. It has the added benefit that the idea was successfully implemented by Mussolini and FDR, thus underlining the fact that such ideas are limited to neither the traditional left nor the traditional right (overlooking Mussolini's Marxist upbringing for the moment).
  
• Regulatory Capture - Another outcome, but a successful neologism would have to capture this aspect of the nexus, something that Corporative misses. Regulatory capture is the idea that regulated industries will soon gain control of the regulating body by one means or another. This is thought to be an unfortunate corruption of the regulatory system that can be prevented by righteous voting, but the history is such that it seems to be a natural but unintended consequence. The best background reading on regulatory capture are Gabriel Kolko's books, The Triumph of Conservatism: A Reinterpretation of American History, 1900-1916, and Railroads and Regulation, 1877-1916. In those books, Kolko, a self-described socialist historian, argues that the supposed triumphs of the Progressive Era were exactly the opposite, that in fact the legislation that was supposedly written to contain the trusts over their protests were in fact requested by them in order to suppress competition. That was especially so for the railroad industry, which tried for years to stop the competition-driven rate reductions that were driving them all into bankruptcy first by cartelization then by regulation. Even this fails to capture the other aspect of capture, which is that regulated industries have concentrated interests in the outcome of regulatory rule-making processes, while the public's interests are diffuse. There is a public good problem which leads to rational ignorance on the part of voters and legislators. As a result, the regulated industries manage to influence the outcomes by a variety of means, including trading company officers to the regulatory boards and vice versa.
• Rent seeking - This would seem to capture some of the ideas above (corporate welfare and regulatory capture), but rent-seeking isn't restricted to businesses or governments. An employee who withholds critical information to maintain his job security is a rent seeker.
  

Perhaps we should follow the German example and simply graft words together, such as commoninterestofcorporationandgovernment? Combinationofeconomicandpoliticalpower? Paternalcorporativelink? Seriously, "corporative patronage"?

The Military Origins of Quality Control

While reading Foucault, I found myself constantly asking, "by who?" Foucault's themes include the regulation and disciplining of people, but he never seems to say who is driving the trend. It was surreal - like reading a history of Europe written by Jim Garrison. Garrison, you may recall, was the real-life prosecutor played by Kevin Costner in Oliver Stone's JFK. According to his book, upon which the movie was largely based, the conspiracy included Castro-haters, the New Orleans mob, and dozens of other actors all the way up to Johnny Carson of Tonight Show fame. I'd guess over half the country must have been involved (in which case the assassination was merely a recall vote).

But I digress.

One of Foucault's themes was that the regularization of people for economic production began in the 18th century military, specifically the French army. In Discipline and Punish (from The Foucault Reader, p. 210), he says,

If the economic take-off of the West began with the techniques that made possible the accumulation of capital, it might perhaps be said that the methods for administering the accumulation of men made possible a political take-off in relation to the traditional, ritual, costly, violent forms of power, which soon fell into disuse and were superseded by a subtle, calculated technology of subjection. In fact, the two processes -- the accumulation of men and the accumulation of capital -- cannot be separated [...] The disciplinary pyramid constituted the small cell of power within which the separation, coordination, and supervision of tasks were imposed and made efficient; and analytical partitioning of time, gestures, and bodily forces [EH: Taylorism?] constituted an operation schema that could easily be transferred from the groups to be subjected to the mechanisms of production; the massive projection of military methods onto industrial organization was an example of this modeling of the division of labor following the model laid down by the schemata of power. [emphasis added]

For readers referred here from the Mutualist Blog, it is worth pointing out that Hounshell credits Lewis Mumford of having traced similar themes.

Surprisingly, that is also where my tale of Quality Control begins. Quality control and mass production had its origins in the French Army, jumped to North America in the Revolutionary War and its aftermath, and finally culminates in Fordism and Taylorism. At that point, it gave birth to the statistical science of QC in the 1930s which made its way to Japan in the post-war era. WWII also gave birth to continuous improvement, which also migrated to Japan in the post-war era. Both of these movements came back to the US in part through the US Navy, though also clearly through the automobile industry. Finally, some of the ideas which had taken hold in the military culminated in a document which - though abandoned by the US Army - became influential on European industry and finally became the bureaucratic nightmare known as ISO 9000.

For the first part of this, I will draw largely upon David Hounshell's excellent From The American System to Mass Production: 1800-1932. In it, he describes the French origin of the idea that if the parts of weapons were made interchangeable, they would be more economical to make to make and easier to repair. According to Hounshell, French General Jean-Baptiste de Gribeauval "has been convincingly identified as the principal originator of this plan, which in fact had been known for a long time in France as "le système Gribeauval." It seems that Gribeauval had provided patronage to a certain Honoré Blanc to attempt to produce uniform musket locks. Ultimately, he never succeeded, but his friend, an American by the name of Thomas Jefferson, sent Blanc's ideas and memoirs to War Department Secretary Henry Knox. A second channel for the introduction of the idea was through French engineer, artillerist, and de Gribeauval student Major Louis de Tousard. After serving under Lafayette in the Revolution, Tousard joined the Corps of Artillerists and Engineers where he began teaching. He eventually wrote two books: one a proposal for a military school which he sent to the new Secretary of War, James McHenry, who used it as the "blueprint" for West Point, and the other on military principals which became the standard textbook for military officers. Hounshell says, "The importance of Tousard's book, as well as his informal teaching of officers in the Corps of Artilllerists and Engineers, cannot be overemphasized." He summarizes,

Thomas Jefferson's enthusiasm for Honoré Blanc's experiments with the manufacture of interchangeable musket parts and the influence on the American military of the rationalism of General Gribeauval and his followers firmly established the intellectual and institutional basis for the rise of the American system of arms production. The pure rationalism of "system and uniformity" provided an adequate incentive for the pursuit of this goal. The United States War Department soon found the idea of interchangeability irresistible, and through its own armories and through private arms contracts it encouraged and supported attempts to achieve this end. Eventually the War Department demanded interchangeability. Ordnance officers elevated the idea of interchangeability to an ideal and helped to transform it into a reality. [emphasis in original]

Still, despite legends about contractor Eli Whitney's invention of the method (as evidenced by the Wiki entry, which I will soon correct), Whitney himself never actually achieved it either. Arms manufacturers worked at the idea at the federal armories in Springfield and Harper's Ferry without much success. Finally, an inside contractor machinist named John H. Hall worked out the final solution in the 1820s. Drawing on the work of his predecessors, especially Simeon North and his use of a master model, Hall worked out a system of gauges and jigs or "rational fixtures". The real trick was to keep close watch on those gauges to make sure they are still in specification or tolerance. We can see in this the basic science of statistical quality control, the science of figuring out how much error is acceptable. Hounshell takes this story all the way to the pinnacle of mass production, the Ford system for manufacturing the Model T. In the remainder of the story, it is astounding how many companies thought to have developed components of mass production - especially Singer and McCormick - first brought in machinists trained in one of the arms manufacturers to show them how to obtain regularity.

The other side of this story begins when W. Edwards Deming learned of statistical process control from Walter Shewhart. After applying the methods to the 1940 census, Deming was brought to Japan by Gen. Douglass Macarthur's Japanese Occupational Force to help with the 1951 census. While there, he was invited to teach statistical process control methods to the war torn economy there. What is little appreciated, however, is that Macarthur also had access to legions of instructors from the Training Within Industry (TWI) service to help teach modern methods to the Japanese.

TWI was a program created by the War Manpower Commission of the War Department for the purpose of helping manufacturers cope with the fact that they were being asked to ramp up production at the same time many of their employees were being enlisted or drafted into the Armed Forces. TWI consisted of 4 programs: Job Instruction, Job Methods, Job Relations (and another version of this for union officials), and Program Development. Together, these taught what would be recognizable today as standard work and continuous improvement or kaizen. That the Japanese programs brought back into vogue in the US had an American origin is not well known, but also beyond dispute. Maazaki Isai says in Kaizen: The Key to Japan's Competitive Success, "It is well known that the initial concepts of statistical quality control and its managerial implications were brought to Japan by such pioneers as Deming and Juran in the postwar years. Less well known is the fact that the suggestion system was brought to Japan about the same time by TWI (Training Within Industries [sic]) and the U. S. Air Force. In addition, many Japanese executives who visited the United States right after the war learned about the suggestion system and started it at their companies." In the intro to Donald Dinero's Training Within Industry: The Foundation of Lean, John Shook writes about a time when he was working for Toyota when he "protested to my Japanese colleague, declaring that the program as configured just wouldn't do and required radical revision before being unleashed on the NUMMI workforce." His colleague, Toyota Master Trainer Iaso Kato, "stormed out and fetched from a back room file a yellowed, dog-eared, coffee-stained copy of the English-language original training manual, just as he had received it .... To my absolute amazement, the program that Toyota was going to great expense (including retranslating from Japanese to English) to "transfer" to NUMMI was exactly what the Americans had taught the Japanese decades earlier. Of course, it was JI, the Job Instruction module of TWI. Toyota still used it in 1984 and continues to use it today ...." These same points are made in Jim Huntzinger's article, "The Roots of Lean; Training Within Industry: The Origin of Kaizen ". To bring it full circle, the American Society for Quality says that the term "Total Quality Management" was first used by the U.S. Naval Air Systems Command around 1984 "to describe its Japanese-style management approach to quality improvement." (incidentally, most of this paragraph is plagiarized from my own edits from Wikipedia, so I will warn anyone trying to confirm these with an independent authority that those entries in Wikipedia are highly influenced by my own research ~~~~).

The final promised tale is that of the evolution of Army quality specification MIL-Q-9858 (1958). This standard was soon adopted by NATO as AQAP-1 (1969). That in turn was adopted by the British Standards Institute as BS 5750 in 1979, which in turn became the basis of the original ISO 9000 standard in 1987. Thus we have a direct line of descendancy from an American military standard to a protectionist European an international industrial standard in about 30 years. From my understanding, it is just about impossible to fail a certification inspection because they are done by for-profit consultants. As a result, the automotive industry has established their own variant, QS 9000, because they need actual standardization and not lots of paperwork and paper tiger certifications.

Upon realizing that history, my initial response was - in Greg Mankiw's terms - to update my priors in response to this information. Confirmation bias should push me to believe "market good, government bad", but to the extent that I think quality control is desirable (and there are good reasons to believe so: for one thing, quality control means less waste, a very green attitude and confirmed by the chapter on lean production in Natural Capitalism) I have more data to support an alternate hypothesis, "markets not perfect, government usually not always bad". My second response was to realize that the world is both more complex and less complex than normally thought: more complex in the sense that there was global influence long before the present "globalized" era, since these ideas originated in France more than 200 years ago, were perfected in the US between 120 and 100 years ago, were exported to Japan 50 years ago, and are currently being reimported from there; and less complex in the sense that Americans who claim credit for the Industrial Revolution are probably less wrong than their supposedly more cosmopolitan and less chauvinistic neighbors think them to be. My third response was to start to rethink my earlier easy dismissal of Foucault. My fourth was to start integrating this knowledge with what I have gleaned out of Human Scale: that mass production has gone hand-in-hand with the rise of the militarism and the centralized state. Correlation, not causality, but curious correlation nonetheless.

technorati tags: "W. Edwards Deming" "kaizen" "TWI" "Training Within Industry" "ISO 9000" "Michel Foucault" Foucault

Moving the burden, not relieving it

I just finished Gordon Tullock's Public Goods, Redistribution and Rent Seeking. I stumbled across it in the local Community College library and was surprised they would have something like that. I have to say that although it was an easy read, I was not impressed at all. It looks as if nobody edited it, as it was filled with inappropriate commas, words dropped, and extra words added.

As far as the contents go, the first third used "externality" in such a way as to stretch the definition beyond anything useful or even recognizable. The last third mostly goes over the ground covered in The Calculus of Consent, which he co-wrote with James Buchanan (a fact which he reiterates about six times). I therefore only found one chapter, in which he argues that charity and altruism have a biological basis, to be educational.

However, there was a table elsewhere in the book which contained something I had not previously known: during the Depression, the federal government merely took over the payment of unemployment pay from local counties, but did not significantly increase it. This information is derived from research done by Stanley Liebergott (the citation is for American Economy: Income, Wealth and Want, 1976).

Year	% of earnings of common labor
1850	22
1860	26
1870	24
1903	23
1929	31
1940	28
1950	29
1960	28
1970	29

I suppose this resonated with me all the more because I am about 1/3 of the way through Kirkpatrick Sale's Human Scale, where he is making the argument that the nature of government is to increase its own size with little in the way of a balancing benefit to the populace.

As I recall, Mutual Aid societies, as discussed in David Beito's From Mutual Aid to the Welfare State: Fraternal Societies and Social Services, 1890-1967, paid out much more to those who purchased private unemployment insurance. The difference is not that the government aid is free and the Mutual Aid insurance is not, but that the latter is more transparent and has better (more effective and economical) controls against abuse. Private insurance also carried no stigma, since everyone understood that you were only getting back that for which you had already paid rather than getting a free ride on "someone else's dime" (which is in fact not true since presumably anyone laid off was already paying taxes). And, in Sale's language, mutual aid is on a more human scale because most society members knew one-another.

Broken things

A few weeks ago, at our traditional lunch place, they were installing a new point-of-sale (POS) terminal during the lunch rush. Weird, but ... whatever. The next few days, it seemed to be working okay, but it was hard to tell because they frequently have new people at the register and they train them on the job during peak hours. This week, they seemed to be having problems with the new touch screen - I'm going to guess it needs to be calibrated. Maybe POS stands for something else? The strange part was that the two women who work there were both playing with the thing, but not fixing it. They don't strike me as having any technical skills. Where in the hell was the manager? Why weren't they or he looking for a technician? The first day, okay, you're just trying to get through it, but by Day 3, something is wrong.

Although there isn't much for me in McDonald's, there are occasions when that is my only option. It's almost a joy, as a manager, to go into the McD's and see what new practice they are adopting. If you look inside the window, you can see recent time figures for drive-ups, and some andon-style displays that show warning conditions and goals. They recently added a second window so that now you pay at one and receive food at the other. This speeds things up so fast that fewer people go inside, and they cut from 4 registers to 2.

Furthermore, they switched to a practice I prefer at a fast food place: they give you a cup and you have the task to fill it at the soda machine. That's a neat way of making every customer a temporary and unpaid employee. It effectively doubles the productivity of the teenager tasked with gathering your order. I like it because I get the exact mix of ice and soda, and I can change my mind at any time between the time I order and the time I fill.

And I am going to guess that this Mickey D's doesn't break in new, untested equipment during lunch rush, they have procedures and protocols for getting broken things fixed in a certain
amount of time, or calling someone else who can, and that the manager is actually helping to deal with the problem. Obviously, the employees at the snack bar are used to getting no support, and the manager doesn't know or care about the problems. Time to find a new place to eat lunch, I think.

My complaints reminded Kathleen of this at Panta Rei, about a lean Korean cafeteria. Mmmm, a variety of vegetarian cuisine served without problems.

Kaizen, learning, and coordination

Yesterday, I was starting a 5S campaign in my office; it began with cleaning up my collection of diskettes. Yes, I have an awesome collection of 5-1/4", 3-1/2", CD, and DVDs; some of them are labeled, and some of the labels even make sense. Some of them contain private information, and some of them I can't read, so to make sure, I decided to destroy them.

With a stack of about 60 diskettes in front of me, I began to dismantle them and realized that I had a process in need of improvement. One piece at a time was disappointingly slow. Wait, not only slow, but highly variable. There are 5 steps in the process:

1. Remove the sliding door.
2. Pry the cartridge open
3. Remove the disk
4. Pop the hub out
5. Stack the plastic disks for shredding
   

Of these, #2 was the cause of most of the variation because some diskettes are different than others. So I processed a batch through #1 so I could work on the technique #2. (Ack! Batch processing? Only to increase the cycle time on #2 so I could study it.) Once I had that down, I realized that there was no more workroom on my desk, so I cleaned it up and prepared to start anew. At that point, I realized I should add another step:

6. Throw the scrap away

I pulled a wastebasket around the corner and started over, one piece at a time. I can now dismantle diskettes without thinking about it in a smooth process that takes less than 10 seconds, and I can do this at my computer workstation immediately after I check the contents. Because the waste goes immediately into the garbage, I can essentially process indefinitely (or at least until the trash needs emptying).

The problem here was the variability of the second step, and I was not doing it frequently enough to really understand it. Therefore, I altered the standard process in order to isolate the problem, developed my technique, and returned to the process. This is what happens when people in a workgroup tackle similar problems: each person applies his own knowledge and experience to a process and finds small tweaks to it. There's nothing new or unique about that; that's what Hayek was describing about the use of knowledge in society.

Organizational learning = standard work + experimentation + communication

Kaizen is the formalization of the last part of that:

Organizational learning = standard work + (experimentation + communication)
= standard work + kaizen

As Ohno says, standard work instructions cannot be written from behind a desk: you must go to the factory floor. From there, you can see what is really happening. But the supervisor can't also do the work, or he would not have the time to work on other supervisory tasks (hiring, timesheets, etc.). Someone must conduct the experimentation, and the workers themselves are closest to the activity. If each worker does his own experimentation and develops his own solutions, you would no longer have standard work, so there must be communication vertically and laterally.

As I have said before, kaizen is a formal process for disseminating knowledge in a business setting, and is therefore addressed to reducing transaction costs within a firm. Kaizen is a process, not an event, so it is said that Lean is management of processes, not outcomes. The outcome is the goal of the process.

These things are true whether you are talking about people working together within a group, or across organizational boundaries. In fact, it is when people are working across boundaries that kaizen has the most potential. Within a group, it is easy for the supervisor to set priorities and to maintain focus on the process. Across groups, even if everyone agrees to the intended outcome, it is difficult to coordinate priorities. That is especially true on temporary projects. Production and sales may have divergent views about delays and costs, with one considering them to be necessary and unavoidable while the other one sees them as deadly and unreasonable. Kaizen serves as a formal coordinating focal point, to which the team members can appeal to their supervisors for higher priority. The kaizen activity trumps local concerns or at least calls for alignment of local priorities with the priorities of the kaizened process.

One final note: the learning is not effective if there is no standard work. Everyone "doing his own thing" is chaos, and chaos is not a good way to run a business if you want happy customers. Hayek's point was that chaos does not exist in society even in the absence of central planning because a coordinating mechanism exists: price. Mine is that chaos will not exist in a business if management emphasizes standard work, but this is not enough if you also want to improve. To improve, you must have a formalized method for experimentation and communication, and kaizen is the best one yet devised.

lean management
project kaizen

Approval authority: Tragedy of the anti-commons

Reading something about lean in a service organization the other day, I recognized something that probably everyone who has ever dealt with a large bureaucracy has probably encountered. In the story (sorry, I can't find the link), they had a design approval process that required something like seven sign-offs. Each person had approval authority, but added little or no value to the process. The form went from out-basket to in-basket, where it might sit for as much as 2 weeks because someone was on vacation. This is the muda of overprocessing. The corrective action after a kaizen blitz (kaikaku) was to remove a few of the signers from the chain altogether, and to change some of the signers from approval authority to advice. For me, this only reinforces my theory that the real secret to lean is to identify and remove transaction costs.

Many of you familiar with environmental economics are probably familiar with the Tragedy of the Commons, for which the best known essay is Garrett Hardin's. The basic example is an ancient village in which all land is held in common (that is to say, not owned), but each farmer owns his own livestock. Even after the combined herd is grazing past sustainment, it is worth while to each farmer to introduce another cow to his own herd. Farmer A benefits by one cow, though the whole village may suffer by the combined loss of 1/10th of a cow from farmer B, another 1/10th from farmer C, ... and so on for the other farmers. The village is one cow better off (farmer A's), but 11/10ths of a cow worse off (the reduced weight of cows belonging to farmers B-L), and so there is a net loss for the village even thought there is a net benefit to A. Seeing this, B will repeat it, as will C, and so on until they ruin the land and destroy their prosperity. In fact, one of the problems in this scenario is that any farmer practicing conservation will end up being a net loser because he can't capture the gain from his action. The solution is to divide the land up among the farmers; each can ruin his own or manage it effectively as he sees fit. Conservationist farmers are able to capture the gains from their practices, and farmers who don't practice conservation either end up either copying the successful practices or going out of business and selling to the others.

The Tragedy of the Anticommons is the mirror image. The phrase was coined by Frank Michelman and popularized by Michael Heller in an article in the Harvard Law Review in 1998. In that article, he pointed out that there was no developed theory of the anticommons. James Buchanan and Jong Joon picked up the gauntlet in their JLE (2000) article Symmetric Tragedies: Commons and Anticommons. Whereas the Commons problem results in overuse of a resource, the Anticommons results in the underuse of a resource. In Heller's article, he focused on the lively business of street kiosks in Moscow, right in front of empty storefronts. The stores were empty because so many people have to sign off on the use of them.

But why do I believe that lean is uniquely capable of dealing with this? Underused resources are a red flag for lean practitioners. People waiting for work, or work waiting for people, reduces the speed of the operation. Furthermore, if you are trying to get approval to change an existing product, it must be because you recognize a problem with it. The longer you wait on approval to change the product, the more defective products you are producing. Another muda! Everyone recognizes the problem of approval authority delays, but they were considered necessary under the command and control management practices before lean. As I've said before, lean's primary means of reducing transaction costs is to push the decision-making down to the level where people have the necessary information. That necessarily means removing approval authorities, or better yet, placing emphasis on reducing the approval time and placing it where it belongs.

lean manufacturing
muda
transaction costs
tragedy of the commons
economics

Is Lean Production Hayekian?

I had a eureka moment earlier this week: Lean Production is Hayekian in both a macro and a micro sense. In the macro sense, this management theory evolved in an intensely competitive environment and came out on top. In the micro sense, Lean solves the knowledge problem within the corporation.

Producing complex machines (system of systems) requires lots of information gathering. In the Classical model, economists imagined a society of small, atomized producers in contractual agreements. For example, obtaining part A (brakes) would look like this:

• Send out a request for bids for A
• Response from supplier #1: I make A' (like A, only different)
• Is A=A'?
• If no, then change design to accommodate A'?
• If no, then change A' to A?
• Bid based on quantity, price, quality, duration of contract, other considerations like adjustment to demand, etc.
• What about competing bids and bidders: How does A' compare to A''? What if better design, higher price?
  

All of these are costs incurred just to get to the point of agreeing to a transaction, i.e. they are transaction costs. In "'The Nature of the Firm" (1937), Coase suggested this as the basis for creating a corporation in the first place: reducing transaction costs. Instead of going out for bids for these parts, firms will either grow the ability to do the work internally or buy a manufacturer outright, and then dictate design and cost to that department.

Exit the Classical model and enter the model of early mass production: Ford. Ford's vision was a completely vertically integrated system, which he realized in the Rouge plant. Ores and other raw materials came in one gate, cars went out the other. Ford was a genius, but he was also paranoid and insisted on centralizing all decisions in himself. This meant that one man, Henry Ford, had to have his hand in design, production, sales, marketing, finance, and everything else it took to make an automobile empire. The result: they made one model (the T), and they made it in every color you wanted as long as it was black. When Ford's mental faculties began to decline, so did the company.

Alfred Sloan at GM solved Ford's problem. He introduced decentralized centralization (or is it decentralized centralization?), a huge bureaucracy designed to solve the knowledge problem within the corporation by breaking it up and only dealing with aggregates. GM was (and is) a group of autonomous divisions managed "by the numbers"; they attempt to obtain economies of scale by sharing parts across platforms. Sloan graded each division chief on yield (number of cars) and quality (number of cars without defects), but that gives them the wrong incentive: managers move production lines quickly, fix problems in post-production, and keep huge reserves to prevent hold-ups. The central office decides how many of each car to make, then they make it dealers' problem to get rid of them.

While they solved the problem that Ford had - that no single person could possibly absorb, sort, analyse, and act on the information required to coordinate all the company's activities - the GM bureaucracy creates a huge overhead of specialists and a new knowledge problem. In the GM system, design engineers work with marketers, but don't know manufacturing, production engineers know manufacturing but not customer complaints, and industrial engineers are brought in to bridge design and manufacturing. The top knows whether each division is meeting its goals (whether the goals are appropriate is another question), but the left hand doesn't know what the right hand is doing, so they have to hire more hands to pass the information around. Thousands of faceless, third assistant headlight bezel design engineers have to put cover sheets on hundreds of thousands of TPS reports - didn't they get the memo?

Lenin's adoption of the dominant structure in America in 1918 (Taylorism and Ford-like centralization) turned out to be a ruinous decision from which Russia has yet to recover. If Schumpeter (Capitalism, Socialism, and Democracy, 1942) had been right about there being no significant scientific discoveries left to make, and that the only thing to do was to manage the economy scientifically (a gross oversimplification, I know), it's quite likely that the GM model, which was ascendant if not dominant at the time, would have been adopted. We would have had "corporatives" in another guise.

Fortunately, Schumpeter's observation about "creative destruction" was to prove his most lasting, and it was about to be illustrated in a way that hasn't completely run its course, even today. A Japanese engineer for Toyota by the name of Taiichi Ohno solved both the Ford and the GM problem with a set of brilliant insights, made necessary in part by Japan's post-war poverty (what is it they say about necessity and invention?). He developed a way to distribute decision-making at the lowest possible level, giving every floor worker the means and the directive to stop the assembly line when they saw the need. He also set up a system where downstream operations - starting with the dealer - initiate upstream activity by demand pull. Finally, designers, marketers, and factory floor technicians work together to solve customer complaints, adopting new accessories and features as needed. Toyota's cars are less costly to make in part because they design manufacturability into them. The central office provides guidance on strategic relationships and strategic investments. Today, the Toyota Production System (TPS) is the dominant paradigm. (The historical description of Ford, GM, and Toyota presented here is condensed from Womack, Jones, and Roos' The Machine That Changed the World: The Story of Lean Production)

Researcher Steven Spear says of Lean manufacturing,

"The products and services characteristic of our modern economy are far too complex for any one person to understand how they work. It is cognitively overwhelming. Therefore, organizations must have some mechanism for decomposing the whole system into sub-system and component parts, each "cognitively" small or simple enough for individual people to do meaningful work. However, decomposing the complex whole into simpler parts is only part of the challenge. The decomposition must occur in concert with complimentary mechanisms that reintegrate the parts into a meaningful, harmonious whole."

Note the similarity with Hayek's observation in The Problem of Knowledge in Society:

"Today it is almost heresy to suggest that scientific knowledge is not the sum of all knowledge. But a little reflection will show that there is beyond question a body of very important but unorganized knowledge which cannot possibly be called scientific in the sense of knowledge of general rules: the knowledge of the particular circumstances of time and place. It is with respect to this that practically every individual has some advantage over all others because he possesses unique information of which beneficial use might be made, but of which use can be made only if the decisions depending on it are left to him or are made with his active coöperation. We need to remember only how much we have to learn in any occupation after we have completed our theoretical training, how big a part of our working life we spend learning particular jobs, and how valuable an asset in all walks of life is knowledge of people, of local conditions, and of special circumstances. To know of and put to use a machine not fully employed, or somebody's skill which could be better utilized, or to be aware of a surplus stock which can be drawn upon during an interruption of supplies, is socially quite as useful as the knowledge of better alternative techniques. And the shipper who earns his living from using otherwise empty or half-filled journeys of tramp-steamers, or the estate agent whose whole knowledge is almost exclusively one of temporary opportunities, or the arbitrageur who gains from local differences of commodity prices, are all performing eminently useful functions based on special knowledge of circumstances of the fleeting moment not known to others."

It was upon reading Spears' comments that I realized that Lean is Hayek writ small. And large, as tiny little Toyota prepares to overtake big, bad GM (here, here, here, etc. - what the hell do you have to hit these guys with to get it through to them?).

Am I going too far in drawing an analogy between central planning and free-market states and between old-style mass-production and Toyota lean production? In both cases, central planners are remote from information and problems. They suffer from the fact that even if everything relevant could be communicated to them, there is too much information for one person to absorb the minimum information necessary for one person to make sound decisions. The GM (mixed economy) model is more successful than Henry Ford's was (was, not is: Ford has supposedly seen the Lean light) because it moved slightly toward decentralization, but it sets up a bureaucracy of specialists and bad incentives. Worse, central planning treats employee/citizens as cogs in machine, justified by the thought that "what's good the company is good for them". The central government/management is in an adversarial relationship with the citizens/workers. On the other hand, the Toyota/market system puts decision-making with those who have the best information, it eliminates specialists and their regulations, it allows more spontaneous decision-making by autonomous groups, and encourages cooperation among citizens/employees, among suppliers/trade partners, and between employees and the company.

That begs the question - why not make employees completely autonomous? One answer is that citizens in a market economy have complete autonomy about what to do, how to do it, when to do it, indeed whether to do it, but you cannot run a company nor raise capital on that management philosophy. Under TPS, employees have no autonomy in the short run about what to do, but in the long run they (in their role supporting the designers/marketers) may decide that disc brakes are less valuable than regenerative braking systems in some future model. Lean requires absolutely no autonomy in the short run about how to do it work because standardized work is necessary to process understanding and improvement, but in the long run, teams are required to improve methods constantly. Finally, Lean dictates when actions are performed by the pulling mechanisms (kanban).

So, what about the other question begged by my analogy - can you run a country like a lean company? I would say "no" for several reasons. First, a society is not the same as its government (witness current conditions), whereas a company may be closely identified with its governing board, executives, etc. Second, a company (especially Toyota) is an entity born of cut-throat competition whose goal is to gain 100% market share. No government wants that, and no society should want it. Third, a company has a few specific inputs and outputs, while a country has potentially unlimited inputs and outputs (Japan and Hong Kong have been surprisingly productive for countries with virtually no natural resources). Fourth, employees leave every day, and are (in general) compensated fairly, while citizens are largely stuck in their country 24/7, compensation and taxes vary widely and sometimes unfairly.

Finally, I'd like to suggest an area for possible research. The Lean company still exists to minimize transaction costs compared to the condition in the idyllic, atomized society of small craft manufacturers, but Lean production succeeds because it serves to minimize transaction costs on use and distribution of knowledge within the corporate context. You don't have to fight to convince someone that you know a better way or that it should be adopted, nor do you have to fight to find out who has that kind of knowledge: the people who need or have that knowledge are already working together. That leads me to wonder if there is a theory of minimum possible costs, or a theory of The Perfect Corporation? If so, you could measure against that instead of your competitors, much in the same way you can calculate theoretical limits of quantum efficiency and then gauge semiconductor design against those. Lean may be better than GM which was better than Ford which was better than craft fabrication, but there may be a next generation more efficient than Lean, and such research might indicate how much more efficient a productive process could be.

lean production
lean
hayek

Government standards

Consider this innocuous quote from this article about organic certification:

"Currently, 'certified organic' indicates that the farming methods employed were verified by one of the approximately 40 private or state certification programs nationwide. Genetically engineered foods cannot be currently labeled as 'organic.' [emphasis added]

"Many certifiers are concerned that the proposed USDA federal regulations will make it illegal for them to uphold stricter standards than what the USDA allows. Currently, organic standards vary among certification boards. California and Oregon have tough standards, while several states such as Illinois, have vague or nonexistent standards."[emphasis added]

Government standards have a tendency not only to drive out private standards, many of them tougher and in vigorous and useful competition with one-another, but they also have a tendency to become co-opted by precisely the industry they are attempting to regulate for the purpose of limiting competition. Private standard-makers tend to go broke when they let this happen to themselves. I don't want to spend too much time on this, as it has been adequately covered elsewhere, but I do want to point out a few reasons why I wouldn't want to rely on government standards.

The FDA systematically attempts to limit Type II errors -- errors when a dangerous drug is released as safe -- but in so doing they make more Type I errors, preventing safe drugs from reaching the market. Type II mistakes will kill consumers and damage a company (see Merck's recent experience with FDA-approved drugs), Type I mistakes will allow consumers to die and cost drugs makers money, but neither one has any effect on the FDA. If they make too many of the latter, nobody gets excited but libertarians, and if they make too many of the former, they simply ask for more money and power.

Considering the FDA's long history of errors, they have never seen anything but expansion. Saccharin was once thought to be so dangerous that they were tempted to ban it, but stopped because the dieters of America were too politically powerful. Later, it turned out to be dangerous only to male rats. Silicon breast implants have never been linked to disease by any peer-reviewed study, but the FDA commissioner's word was all it took to kill Dow-Corning and its life-saving hydrocephalic shunts. The FDA has no concern for its own reputation as a reputation provider because it has a legal monopoly on its role. But even more pernicious is the fact that the FDA brooks no competition on its role of information gatekeeper. It doesn't allow, for example, advertisement of off-label uses for drugs, many of which become more important than the original application. You as a consumer are not allowed to consult other, more stringent standards, or other more permissive standards.

The other main problem with government acting as reputation-maker is that the likelihood of it becoming co-opted over time approaches 100%. The FDA and several other agencies are accused of having become too lax all the time, probably because it may sometimes be true. While it's tempting to conclude that this is the result of the current Administration's closeness with business, that is misleading. In fact, the previous administration faced the same accusations with some of its regulatory obligations. 100% of the corporate scandals in recent years occurred during the previous administration's tenure, yet were prosecuted during this one, so both sides are guilty, primarily because career bureaucrats hold the real power.

Of course, co-opting theories make the poor assumption that the standards weren't created for the regulated industry in the first place. Gabriel Kolko has done yeoman's work in documenting the history behind the FDA, the ICC, and other regulatory bodies (see his provocatively-title Triumph of Conservatism and Railroads and Regulation). All you really need to know is the fact that they are granted the power to regulate minimum prices to realize that the regulations are meant to help the regulated industry. That, I think, is exactly the problem when it comes to the government getting involved in establishing and enforcing standards with respect to sweatshops: there are protectionist unions and companies willing to work together to keep foreign competitors out and to keep new domestic competitors from arising.

Hayekian response

For background on what I have to say here, I recommend Hayek's essay, "The Use of Knowledge in Society," American Economic Review, XXXV, No. 4, September, 1945, pp. 519-530.

Taking these accounts into view:

• By way of MarginalRevolution, the Washington Times reports that Walmart had 45 trucks full of food and water before Katrina made landfall, "$20 million in cash donations, 1,500 truckloads of free merchandise, food for 100,000 meals and the promise of a job for every one of its displaced workers," and "mini-Wal-Marts in storm-ravaged areas, handing out clothing, diapers, baby wipes, toothbrushes and food. With police escorts, it delivered two truckloads of ice and water into New Orleans. It is shipping 150 Internet-ready computers to shelters caring for evacuees." Why weren't these guys in charge instead of a failed horse association chief?
  
• There is this story about Canadian Frank Stronach from Kevin Drum.
  

  "This improbable dream involves airlifting evacuees from the devastation of New Orleans to the pampered world of Palm Beach, Fla. -- a vision that involves rich American whites from gated communities opening up to desperately poor American blacks and even includes the construction of a new mobile-home community in Louisiana for more than 300 victims of hurricane Katrina.

  "And so far, he's pulling it off."

• Finally, by way of Crooked Timber, we have this story about Hyatt.

  "A convoy of food and supplies provided by Hyatt hotels in Atlanta and Houston arrived at Hyatt Regency New Orleans on Wednesday of this week."

The comments at Crooked Timber include a claim that you can't scale this up. But of course you can! How do they think the people of New Orleans get their food every other day of the year? Seriously, the problem is that you can't scale a mass exodus up very well, and that is one of the problems with over-reliance on a big, overarching, grand planning agency like FEMA was reputed to be. Keep in mind that there is probably no perfect solution to a problem like this, since (A) some people were bound to die anyhow, and (B) by the time you have enough resources to respond perfectly, you need to have something like a standing army whose sole purpose is to sit around and wait and then respond, but the last thing I would recommend to anyone is to empower bureaucrats with a charter like, "Make sure you have enough wasted reserve manpower and materiel." The scale of waste would be breathtaking.

There is, however, one off-base comment at CT that claims they are underfunding FEMA in order to undermine it in order to shut it down. How does underfunding lead to bad decision-making such as this? Or turning back the Red Cross. Or the Democratic Congressman's story I heard on NPR about how he couldn't get through with water and Florida Troopers? Or the local government's failure to use buses? Or turning down use of Chicago fire and rescue? It's not like people don't know about these decisions. The problem wasn't with underfunding, it was with poor management at every level from federal to ward.

In fairness, FEMA had become an entitlement program ... for the wealthy! And it displaced local spending. And it was headed by political appointees - no surprise there. In contrast, though, Clinton's FEMA head James Witt was a construction company owner, then an elected judge, then tapped to be director of Arkansas Office of Emergency Services by then-gov. Clinton, then FEMA head, then made cabinet member (because people liked getting money from FEMA, so it seemed like a government program that "works") seems to have been competent though prodigal.

FEMA, like many federal "solutions", displaces local problem-solving by absorbing resources to itself, denying resources and authority to others (taxpayers, local and state government), claiming to be the dependable solution of last resort, failing to deliver, and then exerting arbitrary regulatory power to protect itself from criticism, blame, and liability, and using its failure as proof of its lack of power and funding. Of course they claim to be underfunded - is there a single agency which doesn't? And of course advocates repeat this claim - especially for an agency whose task is to respond to disaster and whose proactive mission is to mitigate risk: there will never be a 0 risk situation, so they will always claim FEMA is underfunded.

A hurricane is a great big problem. If Hayek is right, lots of people working on small pieces of the puzzle will solve it more efficiently than a central authority. From that standpoint, FEMA is an idiotic idea. On the other hand, lots of people working the puzzle without coordination are likely to duplicate effort and overlook some problems. In a market, the price mechanism solves this coordination problem, but there is no price mechanism here.

Let me suggest this, though. I know that some insurance companies offer kidnapping insurance for South-bound travellers. I also know that some search and rescue operations are starting to charge wayward hikers for their services, and you can get rescue insurance. Is anyone providing disaster insurance that includes rescue attempts?

Knowing I have insurance, I may want to stay inside the evacuation area. That creates a moral hazard problem that they may be able to solve by requiring that you follow the instructions of authorities. Then there is the problem that I may be with a lot of other people who want aid or rescue. On first glance, I think that they should rescue the others, too, in the interest of marketing themselves. On the other hand, that may lead to free riding. So maybe you present bills to everyone and sue them according to the likelihood of collecting a settlement (in other words, poor people get a free one).

Conceptually, I don't think this is much different than bounty hunting. I buy insurance; maybe I buy a lifetime policy at $1/month (especially if I live in San Francisco), or maybe I pony up $1000 at the beginning of hurricane season for term insurance if I live on the Gulf Coast. They equip me with a transmitter. When a hurricane is predicted to hit my area, or when an earthquake hits, they fly in immediately after the storm passes and look for me and all of their other customers. Now multiply this by thousands of insurees and insurers. Exit FEMA.

UPDATE: Don't know why I hadn't thought of this earlier, seeing as how I was on the verge of it. There's no need for the insurance company to come looking: they need only put out a bounty on the insured, and professional bounty hunters will come looking. Who do you think is more motivated to find you, a deputy at $50k per year, or Dog at $50k per head?

Effect of terrorism on transit

I have been wondering ever since 9/11 what the effect of terrorism was going to have on mass transit. Planes and trains are vulnerable because the results can be spectacular and the casualties can be high - both very important for terrorists looking to draw attention. Palestinian bombers targeted bus stations, too. Even in the absence of terrorism, the threat raises the cost of using mass transit because of intrusive searches and inconvenience of additional security precautions (the convenience is usually one of the biggest assets of subway systems).

On the other hand, when mass transit is a terrorist target and cars are expensive (especially in dense cities), people still have other choices like walking and cycling. It looks like that is the preferred solution in London at the moment. I wonder if this would be the opportune time for the owners of Segway to go public? And what other transport ideas would be a good investment?

How about a hydrogen-powered motorbike?

Executive feedback

A common perception among user and fan sites is that they are providing the feedback, but company executives aren't listening. Could that be changing? Apparently, a VW executive (Len Hunt, VWoA) has been lurking the VWVortex forum and finally posted a comment (via Autoblog). So take heart, Fashion-Incubatistas.

Centralization of news collection? Nah!

The next time you hear someone pull out Ben Bagdikian's Media Monopoly (or the exciting New Media Monopoly, published in 2004) as evidence that we are being kept in the dark, think about this: I just checked in on the BoingBoing post about the London attacks and found links to multiple blogger, Flickr, and wikipedia information sites. The wikipedia entry has already (1830 MST) been edited over 2500 times by dozens (hundreds?) of editors the world 'round, including a number of critiques (such as "how do you know?") that keep the "reporters" on their feet and the reporting accurate. It even includes a translation of the claim for credit. How exactly is Big Media preventing us from getting this, Ben?

And as far as Gary Trudeau's recent "critique" of bloggers goes, I'd say this about puts a nail in that coffin, too. The only advantage the journalists seem to have is their official credentials that give them more access, but we should remember that some journalists blog, too. Where exactly, Gary, does the term "journalist" come from? Could it be simply someone who keeps a journal? And in what substantial way is that better than or even different from a regular blogger? I mean, other than the fact that a blogger isn't backed by a Big Media giant?