Monday, February 25, 2013

What If ObamaCare, Too Big To Fail Banks and the State Are All the Wrong Sized Unit?

The State has monopolized all authority, giving it essentially unlimited power to make things worse.

I recently came across this excerpt from Preparing for the Twenty-First Century by Paul Kennedy (1993):
The key autonomous actor in political and international affairs for the past few centuries (the nation-state) appears not just to be losing its control and integrity, but to be the wrong sort of unit to handle the newer circumstances. For some problems, it is too large to operate effectively; for others, it is too small. In consequence there are pressures for the "relocation of authority" both upward and downward, creating structures that might respond better to today's and tomorrow's forces of change.
Though Kennedy (author of Engineers of Victory: The Problem Solvers Who Turned The Tide in the Second World War and The Rise and Fall of the Great Powers) is focused on geopolitical issues, this inquiry into the right and wrong sort of unit sizes appropriate to the challenges we now face also raises the larger question:

What if it's not just nation-states that are the wrong sort of unit, but also "too big to fail" banks, ObamaCare, the global corporation and every other large-scale, centralized organization?

Correspondent Mark G. stated the resulting hypothesis very succinctly: "We are exiting the era when large economic entities were the dominant form of human social organization."

If the Central State and the global corporation are losing integrity and control, it is not due to bad policy or mismanagement; more profoundly, they are the wrong unit size to address the emerging era's problems.

The State is too large to address most problems (actively making problems worse via Central Planning), and too small to address global challenges. The global corporation is too large to address the 90% of human life that isn't terribly profitable, and too small to resolve the implosion of the debt-dependent Status Quo.

The State has monopolized all authority, giving it essentially unlimited power to make things worse. Since the Status Quo in both developed and developing economies is at heart a crony-capitalist partnership of cartels and the State, the transnational corporation's authority ultimately flows not from the market but from the State that enables and protects its markets and margins.

In the larger scheme of things, what has happened is highly centralized concentrations of power, capital and authority have been expanding their control and reach for decades. Their growing unit size was once advantageous in terms of increasing efficiency, but now they have become the wrong sort of unit to address and solve the problems they have created or enabled.

Their utility has stagnated and is now in decline, following a classic S-Curve of rapid growth/high returns, stagnation/diminishing returns and decline/collapse.

Their very size and dominance inhibits solutions.

Correspondent Bart D. offered an ecological analysis of the dynamic:
the problem this causes is more akin to the problems of ecological 'monoculture'. That is: Monocultures are massively prone to catastrophic failures when conditions do not suit and thus require enormous amounts of inputs (including managerial expertise) than a diverse ecosystem/economy where if conditions (or management) cause some varieties to fail, there are others that will offset the losses. 
My point here is the size of the unit matters only in that you can fit more small-sized units inside a given system, thereby giving it greater diversity and thus greater adaptability across a wider range of circumstances. 
I guess it's like in a rainforest where when a huge and old tree collects all the sunlight up high ... then it comes down in a storm ... all the dormant seeds in the undergrowth now get a share of the light, germinate, grow ... then compete with each other for a share of the light until a single, large, old tree 'wins' and once again fills the entire space, stops the light reaching the forest floor, crushing all opposition. Well ... except the epiphytes that figure out how to attach themselves to the top of the tree and thus get a little light to live on. 
In 2008 the economic big trees were in fact blown down in a storm. But some meddling fools stood them back up and tied them in place and put them on life support instead of letting them rot away on the forest floor and allowing the flush of new growth take hold. Meddlers take note: you can't fight the change that nature intends on an indefinite timeframe.
Correspondent Jim S. noted the abject failure of these wrong unit sizes to manage systemic risk:
The “wrong unit size” can be carried further to the topic of "risk and risk management", with its goal of eliminating any and all risk (the Status Quo infrastructures being the massive derivatives and their insurance instruments, quantity unknown, but of suspected very poor quality). 
These are concepts inherently impossible to apply with adequate results as the world is structured. The Status Quo risk management system is known to be utterly flawed and vastly leveraged/overextended as the Western monetary, fiscal and welfare spheres currently demonstrate, and the wrong size of management unit is certainly applicable. Large or small in intent or scope of action, the world has failed, as it always has, at risk management.
Risk management and ecology are two sides of the same coin. A diversified ecology of many units and many unit types is intrinsically more resilient than centralized-authority monocultures.

I have long viewed today's State and its various fiefdoms as versions of the centralized factory model. Education, for example:

The solution is a decentralized system of many options and a spectrum of units and unit sizes:
The Nearly-Free University (November 15, 2012)

Since concentrations of centralized capital, authority and power does not relinquish control easily, if ever, the Status Quo will have to decay and implode before authority can be pushed down to more responsive, appropriate levels.

The solution is to push authority down to decentralized units of local, opt-in, collective-intelligence organizations that are much more diversified and better sized to respond to both local conditions and feedback and global networks of similar-sized units.

This essay was drawn from Musings Report 7 (2-16-13), The Wrong Unit Size. The Musings Reports are sent to subscribers and major contributors. More information can be found in the right sidebar. 

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart:

go to print edition1. Debt and financialization
2. Crony capitalism and the elimination of accountability
3. Diminishing returns
4. Centralization
5. Technological, financial and demographic changes in our economy

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Not accepting responsibility and being powerless are two sides of the same coin: once we accept responsibility, we become powerful.

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