Assertions for increased centralization, more involvement from the EU, and greater globalization are common in mainstream media. The idea is that global coordination, governance, and leadership will address crises like climate change, environmental destruction, pandemics, and the AI threat.
But is this really the case?
Maybe we have no choice but to accept more centralization, globalization, control, and surveillance to prevent various threats from endangering the world?
At the same time, we have been experiencing more centralization and globalization. The locus of decision-making has moved upward from the localities and the majority of the people to distant central planning bureaucrats - a process that has been going on for decades. When the Swedish vote on the EU took place in 1994, another principle that must be familiar to admirers of the EU - the principle of subsidiarity and the idea it promotes, that decisions should be made as close as possible to the people they affect - is often disregarded as useless, as irrelevant.
At the same time, there seem to be more crises than ever: violence, transportation and other organizational problems, water, energy and fiscal concerns, refugees and population deformations, climate change and other disruptions. It almost makes one wonder if all this centralization is leading us astray.
Could centralization be part of the problem rather than the ultimate solution?
Why Centralization May Cause Rather Than Prevent ProblemsWhy Centralization May Cause Rather Than Prevent Problems
There are several reasons why centralization might actually be problematic. Though few seem interested in such questions today, or perhaps are too timid to voice their concerns, this hasn't always been the case. In this short essay, we'll highlight four reasons (though there are several others):
- Political Failures (Buchanan et al.)
- Local Communities & Skin in the Game (Ostrom and Taleb)
- The Local Knowledge Problem (von Hayek)
- Governance by Sociopaths (Hare)
James Buchanan, who won the Nobel Prize in economics in the 1980s, once said: Politicians and bureaucrats are also self-interested, rational individuals, and they will always seek to maximize their own utility, just like any other individual. Buchanan's work was primarily on rent-seeking and political failure, where political intervention in market failures only exacerbates the problem. It is a situation in which a firm uses resources or money, such as lobbying, to influence legislators or decision makers to enact favorable laws and/or regulations, rather than using the resources to produce more. This leads to regulatory capture, and the more centralized the decision, the greater the negative externality from rent-seeking.
Elinor Ostrom, awarded the Nobel Prize in 2009, found that local communities where people had influence over rules and regulations, as well as the handling of violations, were much better at managing common resources than centralized bodies. Nassim Nicholas Taleb's concept of "skin in the game" supports this finding, suggesting that outcomes improve when decision-makers are directly affected by the consequences of their decisions.
Friedrich von Hayek, awarded the Nobel Prize in 1974, demonstrated that central planning cannot account for all relevant information. The information needed for economic planning is inherently distributed and will never be fully available to a central planning committee or even an AI. Human systems are complex, not just complicated, and this complexity leads to central planners often making wildly inaccurate, sometimes catastrophic, forecasts. This is an argument for relying more on factors outside of models in decision-making.
From the perspectives of Buchanan, Ostrom, Taleb, and von Hayek, it is hard to believe that today's bureaucrats are best suited to manage and price climate risks. The insurance industry, with its long history of risk pricing and "skin in the game," offers a stark contrast to today's planning bodies, which lack these critical attributes.
Instead of Preventing Fools, We May Be Enabling MadmenInstead of Preventing Fools, We May Be Enabling Madmen
A more troubling conclusion is that centralization often transfers power to individuals who may not be suited to wield it. Psychologist Robert Hare once remarked, "Not all psychopaths are in prison - some are in the boardroom." Many people have long known that those who are ruthless and willing to undermine colleagues can rise quickly within organizations. This observation has become increasingly recognized in academic circles in recent years.
As a result, you are more likely to encounter individuals with narcissistic and sociopathic traits as you move up the status hierarchy. If working in large organizations (such as the European Union or Congress) or large corporations is seen as high status—which it generally is—then increased centralization leads to more governance by individuals with unflattering Dark Triad traits.
Decentralization as a SuperpowerDecentralization as a Superpower
The opposite of centralization is decentralization. While many people recognize that decentralization can be a powerful asset in the business world, we need to remember that it also applies to the economy and society as a whole. It's crucial to do so before another major, potentially disruptive, shift is imposed on us.