Centralization and Decentralization

Centralization of decision-making has obvious advantages but also some serious catastrophic failure modes. How can the degree and extent of centralization be managed in a socio-economic system?


In designing a new socio-economic system, hopefully free from some of the built-in catastrophes of previous inventions, one important question relates to the centralization of decision-making. The opposite is decentralization, but there is actually a continuum of alternatives lying between these two extremes. The continuum extends in two dimensions, both in the degree of decentralization, meaning the level in a governmental hierarchy where decisions are made, and the scope of decentralization, meaning the number of different decisions that are being considered for centralization. The oversimplified answers are to centralize everything to the highest level or to decentralize everything to the lowest level, and like all simple solutions to complex problems, they are designed to ensure the built-in catastrophes will happen. To minimize them, something different is needed.

What goes wrong with centralization of decision-making? The same problems exist with any monopolization of control. The person or persons at the top, making the decisions, don’t make them well, and then everyone affected suffers from the choices. The first reason that centralized decisions might be poorly made is uncertainty. If the information necessary to make the best choice is not available to the decision-makers or their subordinates or advisors, then they are forced to make an arbitrary choice. If the decision-making were decentralized, there would be many different choices made, and after a period of time, the results of these different choices would be available for comparison. The best could be evaluated, and more information used for future iterations of the decision-making. This would imply that decentralization might be a good temporary expedient to use until the data was in and the best choice was clearly visible, but the counter to this is that conditions change, and therefore what constitutes best might change, meaning evaluation via decentralization is needed again. The conditions might not be the thing that is changing, but the alternatives might be, as new ones are devised and made available for widespread use. Thus, in a stable, unchanging situation, centralization might be a good decision from the single point of view of efficiency, but not otherwise.

The second problem with centralization of decision-making is the drive to uniformity when uniformity is not the best solution. It is easy for a centralized decision-maker to do some sort of evaluation and make a choice that will be implemented everywhere. However, this is based on the assumption that there is a universal best choice. What is best for one area or for one group or for one time might not be best for another area, group or time. This is referred to as the local conditions situation. For centralization to work well, there would have to be knowledge of how local conditions affect the outcomes of a certain decision, and that local knowledge would have to be available to the centralized decision-makers. Efficiency takes a hit here, as the evaluation of a set of alternatives would have to be done considering the variations in local conditions. Uniformity has a great appeal, as do all simple solutions, but it is often a totally false assumption that uniformity would produce the best results in all conditions. Even what is defined as best may differ when different locations, groups or times are considered, and if the definition of best varies, then uniform solutions cannot hope to achieve this local best except in fortuitous circumstances.

The third problem is actually a set of problems collected under one label, and the label is corruption. It is so much easier to have corruption in a centralized system than in a decentralized one, as a monopoly of control can be exploited by the individual making the decisions at the center of power. Corruption does not simply mean that the decision-maker takes some benefit in order to make a decision favoring a particular party. This is only one of the many facets of corruption, and perhaps the most well-known and appreciated one. However there are more. A centralized decision-maker can have a different agenda that the one appropriate to his position. The centralized decision-maker might have his/her own interests at stake, and therefore seek to have some benefits received for making a particular decision. The ways in which this could happen and even be disguised are manifold. But the agenda the centralized decision-maker has might not be oriented around maximizing his own benefits. After all, benefits are asymptotic in that more and more of something often produces less and less enjoyment and appreciation. They are psychological individuals who feel good about counts of things, but for many individuals, they obtain their enjoyment other ways and tilt their decisions according to these ways.

One is simply the human lust for power. The ability to control aspects of the lives of others provides enjoyment to others, and has for the entire history of humanity. This might explain the desire for the monopolization of decision-making, but it does not portray the whole spectrum of agendas that a centralized decision-maker might have. One is a hidden antipathy to some location or group. Decisions can be made which disfavor the location or locations or group or groups that the antipathy is directed toward. The more subjective the decision, the more that antipathy can be concealed.

The inverse is just as possible. Nepotism toward one’s family or friends might be fairly obvious, but nepotism toward some location or group, the opposite of antipathy, can also be easily concealed.

Furthermore, it does not have to be simply antipathy or nepotism which drives the decisions of a centralized decision-maker, it can be a preference for control of some particular aspect of the lives, of everyone affected or of some subset of the population. Decisions have side-effects, sometimes dramatic ones which in the long-term diminishments overwhelm any short-term benefits. A corrupt decision-maker can promote his preference of opinions by shifting the choices he/she makes. Over the long-term, these effects would be felt.

Self-benefit, antipathy, nepotism, and side-effects are not simply present in top-level decisions in a centralized decision-making arrangement; they can appear at any level. If decisions of a certain category are decentralized to some lower level, the exact same phenomena can appear at that level. It would not have the wide-ranging effect that a single monopolistic decision would, but it would still have a local effect. Preventing this might be seen as one justification for centralizing decisions. Local corruption is overridden by higher-level control. Unfortunately, the higher-level control is just as prone, or possibly more prone, to corruption. There are other means that a newly designed socio-economic system can mitigate corruption.

One is transparency. Transparency is easier to obtain at small local levels, where interpersonal contract is common. Knowing someone as an individual is more likely to reveal their tendency toward corruption than only hearing about a decision via some disseminated ukase. Establishing transparency at high levels of concentrations of decision-making power might be very difficult, and can be countered by having specialists at providing deceptive façades for the justification of all decisions. Investigation of such decision-making by other specialists, perhaps self-appointed ones, can be made difficult by the denial of access or simply by having a unified front of interface people, all of whom are familiar with the façades.

Thus, there are tremendous disadvantages to centralized decision-making, but there is one advantage that is similarly huge: efficiency. If the same decision has to be made thousands of times, as opposed to once, it stands to reason that the same level of attention and scrutiny to the details of the decision cannot be afforded. A centralized decision-maker can have a large staff devoted to a single decision, and even with this, the costs of making the decision once are much smaller than making it at the lowest level of governance. To make a decision properly, in a complex situation, there might be much academic or otherwise collected information and theories to be located and digested. It might be necessary to hire a specialist with a background in some certain area to review this data, and it might even be necessary to have a team appointed to do this. The costs of a decision are not the same at the lowest level and the highest level, as there is considerably more data to analyse when considering a decision that would be implemented on a very wide scale, but the costs do not scale up proportionally with size, perhaps increasing instead only logarithmically. It might well be that at the lowest levels, the cost of an objective decision are simply too high, and some subjective choices would need to be made. Perhaps the solution would be to copy some other location’s decisions, or to keep the prior decision barring some obvious failures, or to simply make a haphazard choice based on incomplete information and inadequate models and interpretations.

There are some clear antidotes to the poison of corruption and the poison of inefficiency. One is to make decisions at the lowest level where the resources would be available to make a thorough decision, perhaps not at the highest or lowest levels, but somewhere in the middle. The other would be to invent methods of ensuring transparency, and of training sufficient specialists that there is no shortage of people able to investigate decisions. Perhaps jocularly, another solution would be to raise everyone up in the society to expect corruption of various types to pop up everywhere, as well as inappropriate subjectivity. People tend to be raised in a trusting environment, without adequate warning and training for the situation that exists in the real world, and countering that some formal way might provide another mitigation for the problems of centralization and decentralization.

In the Valley Between Libertarianism and Communism

It seems that only extreme libertarianism and extreme communism are studied and expounded. This is an error, as there are many alternatives other than these two polar extremes.

Both libertarianism and communism have supporters and detractors, and all of these fine people have reasons for their opinions. But there does not seem to be many who think half and half of these makes a good combination. The two poles attract interest because of their implicit simplicity, and the ease with which they can be explained and justified.

Libertarianism, as we use it here, means there is minimal government interaction and individuals make agreements with one another to enable sharing of work, trade, and everything else. Communism, as we use it here, means there is maximal government interaction, and the government makes rules by which work, trade and everything else is conducted. Furthermore, libertarianism allows inequity in the extreme to exist, and communism does not allow inequity to a great degree.

Decision-making is decentralized in libertarianism, as each individual makes all the decisions involving himself. Decision-making is hierarchical in communism, as rules are made by whoever is doing governance, and then are implemented down the levels of a hierarchy. There are thousands of details in a society and this is no place to make long lists of what those details might be and how the two polar opposite social systems differ in each of them, but instead, something of a big picture needs to be obtained.

Two of the features of a socio-economic system that make a difference in its feasibility are motivation and disparity. Libertarianism tries to maximize motivation, so that each individual is responsible for his/her own future, and goes out trying to be maximally productive, thereby securing the most of society’s benefits for him/herself as possible. Communism tries to minimize disparity, so that those without much capability to fend for themselves, temporarily or permanently, are not deprived of society’s benefits. Strict libertarianism has the less capable being taken care of by the choices of the productive. Strict communism motivates the productive by training people to work hard to support the society as a whole and by exhorting individuals to be as productive as they can.

All societies from the earliest human hunter-gatherers to now have this dichotomy between self-interest and altruism, and somehow have to integrate these two impulses. All successful societies have a solution for this, and it might be a complicated one, as opposed to the simple ones included with the two polar extremes of libertarianism and communism. One solution is to have moral strictures taught to the young, with the expectation that the majority will follow them. The two categories of these moral strictures involve working hard, the motivation category, and taking care of the less capable, the compassion category. Different arrangements of these moral strictures are certainly possible and different ways of teaching them and enforcing them are possible.

One way societies enforce these moral strictures is by shaming and ostracising violators, another is by having specialists for enforcement who seek to locate those violators and pressure them or punish them. The point is not that there is only one way to have these two contrary impulses balanced in a society, but that there are many and choices can be made. There is no best way, only multiple options.

If you think of pure libertarianism and pure communism as unobtainable mountaintops, then in between these two peaks is a huge valley of possible ways of organizing a society, and all of existing and past societies are somewhere in the valley. Extremism in favor of either peak is amusing and entertaining, but doesn’t really work to solve any of a society’s problems. What needs to be done is the development of the means by which these two human impulses of self-interest, and pariochial interest, and altruism, widespread or narrowcast, can be integrated.

There is no best solution to amalgamating the two impulses, as the definition of best depends on personal preference, and that varies with the person and even with the experience of the person and even further with how the questions eliciting a preference are couched. Beyond that, the definition of best depends on what you do with the answers you get. If there is a headman, do you simply ask him/her? If there is an elite, do you simply ask them and average over the responses as much as possible. Do you ask all the adults, and define the adults as those over 30 or 40 or 50? There is simply no single answer.

Those whose thinking revolves around anecdotes can certainly find competing anecdotes to justify almost any point of view. Trying to extract some truth from anecdotes is chancy, as the anecdotes one hears is a tiny subset of possible ones, and the selection is subject to the biases of those who spread them. There is simply no simple solution to the design of a society.

Suppose you try to think of some metric to use. Perhaps persistence is a possible metric, and you want to come up with a social arrangement that will last for decades, or even centuries. You would need to consider the environment that the society lives in. Is it marginal, meaning that life-sustaining substances are in short supply, and you need to maximize the incentives for those who have the capability to obtain or produce them? Is it affluent, meaning that there is abundant life-sustaining substances, and the difficulties that arise come from the monopolization of them by those who figure out how to do that within the social arrangements that exist? You would want to find a choice nearer the peak of libertarianism for the first, marginal society, and one nearer the peak of communism for the second, affluent society. If the society drifts from marginal to affluent and back again, depending on the vicissitudes of weather, international relations, wars, external trade or what-have-you, you might need to make a flexible society.

If the society is extremely marginal, meaning there is much early death and disability due to shortages of critical substances such as food or water or shelter, the interactions of the society would have to be designed to preserve those who can obtain the most of these substances in the worst of the times, and to maintain their capability to obtain these substances both via provisioning them and by maintaining their spirits in a situation of great adversity. If the society is extremely affluent, it would be necessary to design in the moral strictures to prevent too much decadence and dissolution, which would lead to a self-limitation and social collapse. If the fluctuations were extreme, and the time scale of the fluctuations was within a human lifetime or even a fraction of it, the ability to adapt itself would have to be built in.

The design of a social arrangement can not be based in the fantasy of someone as to what they think they would like to live in. People’s specific preferences are largely conditioned by their experiences, or even what stories they were told as little children, or the preferences of those who raised them and taught them. While a person who has developed such a fantasy is not harmful, if they have the ability to influence others through persuasive writing, they could be quite misleading and if extremely persuasive, could cause social change that was not in the best interests, however that might be defined, of the society as a whole. The alternative is a careful, widely based discussion of social arrangements.

Besides persistence, living standards is often used as a metric for societies. One can define it in many ways, and many very different ways. Living standards could be the access to life-sustaining substances and activities of the majority, perhaps 90%, of the population. Living standards as a metric could be some number, denominated somehow, of the median individual or household or other living group. In defining living standards, there is a clear distinction between measuring life-sustaining substances, also known as necessities, and anything else. A society which has a huge amount of trinkets can be compared to one which has a robust inventory of food; which is the most desirable, or ‘best’, one?

Someone who is psychologically prone to altruism might seek to define living standards as the amount of life-sustaining substance received by the lowest 10% of the society, however this percentage might be defined. Someone who is psychologically prone to self-interest might seek to define living standards as the amount of trinkets, plus some measure of services if needed, of the highest 10% of the society. Neither is particularly dominating, and some middle ground can be found, but what?

People who grew up, having been deeply inculcated with some strong moral strictures, can use these moral strictures to help them define what would constitute the best possible social arrangements, and those who grew up to think of everything abstractly can continue to think of metrics and environments in which to evaluate them. This is the condition in the valley between the two extreme points of social arrangements. Once the simplicity of these unobtainable ideals is abandoned, the huge valley of options presents itself, without any clue as to where a definition of best might be found. Perhaps the first thing to do is to recognize this situation, and to realize that the deafening discussions of social arrangements can not lead to any results, as there are none. A huge number of possibilities can be utilized and comparisons are very, very difficult to find bases for.

Debt and Transparency

If one wishes to create a just deserts economic system in which benefits recieved are related to contributions made, then economic transparency is a must.

Debt is one of the many instruments that societies use to adjust the benefits that different individuals and groups receive out of the total production of the society, and it has some commonalities with the others and some differences. One of the commonalities is that it is used to transfer production benefits from one individual or group to another individual or group. Taxes, subsidies, fees, fines, wages, salaries, tolls, alternative remuneration, and many others share this trait. One can design a socio-economic system using any of them to adjust the allocation of benefits among the individuals and groups, and a change in one of them, for example, a revision of the tax rules, can be thought of having a primary purpose of taking some wealth or income from one subset of the population and delivering it to another subset. Of course there could be a three-way redistribution or a four-way, and while these are interesting, let’s just look at the simplest case.

Debt is a number on an accounting ledger. The movement of benefits occur when the magnitude of the debt is changed, or the interest on the debt, if there is any, is paid. If A owes a debt to B, if the debt is increasing, A is receiving some benefits accounted for by that, and B is losing some. If A pays interest on the debt to B, B is receiving some benefits and A is losing some. If the debt is forgiven, A is receiving some benefit and B is losing some. If the debt is paid off, B is receiving some benefits and A is losing some.

If there is some higher-order regulation going on in the society, so that, for example, the governance is seeking to have some influence on who gets benefits and who loses them, they can do so fairly directly by taxation, which is typically within the purview of a government. Taxation, positive or negative, of the payment of interest on a debt can be done, and was historically part of the US code for many years before being eliminated. It was negative during that period for the payor, and still is for mortgage interest. Taxation, like every other type of transfer of benefits, has side effects, in that individuals and groups adjust their behavior based on their total benefits, including both debt and taxation. It also, like every other type of transfer of benefits, is gamed by those involved with it to maximize their own received benefits.

Like wages and salaries, debt can be transparent or opaque. However, with wages and salaries, the side losing benefits, the payer of the wages or salaries, is likely to be obvious, except for some small fraction of the remunerated work done. The payees are also fairly obvious, but the amounts can be confidential. With debt, it is the custom that one side is transparent and one side is opaque.

When an individual takes out a debt from an institution, it is really a debt between that individual and the owners of the institution. For an individual taking out a debt for the first time, or even beginning the arrangements for an eventual debt, the individual would not be disclosing any other debts, as there would be none. However, as part of the process by which an individual demonstrates his ability to handle the terms of the debt, the individual taking out a debt is forced to reveal all his other debts, as well as economic information which might inform the potential creditors about the individual’s likelihood of repaying that debt or otherwise complying with the terms of the debt. This information is in the direction of transparency.

Despite this, there is no comparable transparency on the part of the grantors of the debt. If it is an individual, there is no block of information on this individual’s total loans or other financial information. Perhaps for the purpose of the immediate loan, this is not relevant, as if the loaning individual has the wherewithal available, then it is irrelevant to the debtor what the other financial conditions of the creditor is, unless there is something in the contract that makes it relevant, for example, allowing the loan to be called in under certain conditions.

For the purpose of a governance-wide understanding of the financial condition of the population they govern, it is relevant. Because there are multiple feedback loops which can severely distort the benefits distribution in a governed area, this type of information would provide governance and anyone else who wanted to know, for example investigative reporters, with some data to help them form their conclusions. To be more specific, if it was true than ten individuals owned almost all the debt in a large region, and this was unknown, then those in governance could not readily assess what might happen under different sorts of regulations relating to debt and its associated details. Having this level of concentration of ownership of debt would indicate that the feedback loops associated with massively unequal distribution of wealth and income had already taken hold. Specific remedies to this type of distortion of the economic landscape could not be done so easily.

What is the value that a one-sided type of transparency, in this discussion related to debt but generally applicable to all economic transactions, relationships and conditions? Is it of value to the debtor that his/her economic situation be laid open to scrutiny by anyone seeking to consider him/her as a potential recipient of a loan, and then of value to the creditor that his/her economic situation be completely concealed? Rather, both of these situations, where the informational advantage is solely on the side of the creditor, are of value to the creditor and of potential harm to the debtor. The real difference is not simply related to some individual transactions, but it is intimately related to the ability of those in governance, those who study economics, and those who are concerned about the long-term stability of the socio-economic situation to understand quantitatively and specifically, what the actual distribution of benefits within the society is, how these relationships are structured, and how they change. This information protects the status quo, as zero change is typically the default decision made or advised on in the absence of information sufficient to draw any conclusions. This, for individual transactions, a one-sided transparency or even a two-sided transparency to these particular parties damages the long-term stability of the society.

There could be objections to the concept of transparency on the grounds that many or most transactions are not between individuals, but between an individual and a group, such as a partnership, company or corporation, or between two such groups. The objection is non-substantial however, as there must be ownership rights of any such group that ultimately lead to individuals. A bank, as an example, is owned by its stockholders or partners, and by dissecting the fractional ownership of any group down to the individuals behind the group, clarity can be obtained for all types of transactions. Another objection might be to the fact that there are transactions between individuals or groups within one governance region and individuals or groups within another one. This also subsides under the condition that any transaction or contract must be with one region, either as it was stated as one of the conditions of the transaction or contract that one of the two possible regions was to be the legal home, or because, in the absence of such a stipulation, that the one in which the contract was concluded is the legal home. In the age of the internet and video communications, having the stipulation could be made mandatory for any legal transaction involving individuals or group from two distinct governance regions.

What actions might be taken by the governance region, once it was armed with all necessary information gained by such transparency conditions? First off, statements would be rephrased. Instead of: “Such and such a subset of individuals has too much debt”, the same situation would be “such and such a subset of individuals has granted too much debt and has amassed resources allowing that which are far beyond anything that could be accumulated by a just deserts socio-economic system and such and such other group has been loaned money by them in excess of what is reasonable for them to pay.” The one-sided statement lacks so much clarity that it would be hard for the governance to decide what to do in response to it.

Demands for privacy in this or some other financial areas sometimes revolve around the fact that financial information provides an advantage in negotiations. However, stated another way, it means that some parties, individuals or groups, might be deluded by their own assumptions, or mislead by another party, if there was not full financial disclosures by both parties to all transactions. To campaign for the right to delude and mislead is not the most promising course for a subset of people trying to gain favor from people involved with setting up a new socio-economic system. Neither is a cause for privacy made by the desire of some to conceal accumulations far in excess of what could be possible if earnings were made proportional or less to the amount of contributions, measured by the combination of time and talent and excluding secret information. Thus, it would seem that a socio-economic system based on just deserts principles would demand a high degree of economic transparency everywhere in the system.

Monopoly Taxes

Monopolies are ubiquitous in a socio-economic system, and should be treated from the first in designing such a system. This post discussed their variety and a means of taxing them so as to minimize the negative effects.

A monopoly is a corporation or interconnected group of corporations acting together who control a large fraction of the market share of some class of product. One could have a monopoly in a commodity, such as corn or steel or lithium, or a manufactured product, such as the works of Mark Twain or cell telephones or automobile exhaust systems, or even services, such as plumbing or visa applications or computer repair. These are examples of the class of products, or services, which could be affected by a monopoly. They could also be wide-ranging in scope, such as with a supermarket corporation which controls all imported food, not some individual food commodity, or a fossil fuel corporation, or a electrical energy corporation or many other examples.

Monopolies might be good as they could be more efficient than a myriad of other smaller companies which together met the demand for the product, or provide less expensive products, if they were able to use monopoly strength in the inverse direction, such as by demanding from non-monopolistic suppliers that they maintain low prices. They could have superior products, as if they demanded employees or subcontractors to have a high level of education and experience, as with electricians and doctors. They could have less environmental burden if they occupied less space with some centralized distribution network. Surely inventive public relations people from monopolies could come up with even more benefits.

Monopolies might be bad as they could raise prices and profits on the products they supply, as they were free from the effects of competition, or free to a sufficient extent such that their benefits outweighed their non-competitive pricing. There could easily be a time effect, with a particular monopoly using the benefits, as seen by consumers or clients, during the period of formation of the monopoly, and later a net deficit, as the profiteering from these same customers and clients became more and more dominant.

In a novel economic system, being designed to provide benefits across society, what should be the treatment of monopolies? If the government or governments in the jurisdictions being considered become involved with economics, they could well encounter monopoly situations, and may want to decide on some regulations. What to do?

There are two feedback loops involved here. One involves the growth of the monopoly. As it becomes larger, mastering a larger share of some particular product, the benefits may kick in, and its efficiency may assist in eliminating competition, simply by being more efficient or convenient for consumers and clients. The other effect that happens is that they obtain more economic power, such as saved capital, which may allow them to purchase their competition, or otherwise influence them to go out of business or merge. This can happen if monopoly effects occur in one geographic location first, allowing the amassing of capital, which is then used in another geographic location, and then another, enlarging the area where monopoly effects occur.

The second feedback loop is the typical one where the corporation begins to suborn the politicians involved in governance, so that any regulation to remedy the ill effects of a monopoly is thwarted before it is ever begun, as the corrupted politicians simply use their own public relations messages to obscure its existence or otherwise excuse their failure to take actions. Thus, two strong feedback loops serve to initiate and encourage monopolies to come into existence and grow and eventually take over the market for some product.

Infrastructure costs can assist in the formation and activity of a monopoly. If the initial costs of a transportation network, such as an airport or highway network, or a distribution pipeline, such as for water or electricity or information, or a collection system, such as waste disposal or a stock market, are very high compared to the remainder of the costs involved, no competition can afford to build a similar system, and if the infrastructure is owned by some entity that also provides services or products via the system, a monopoly is immediately in force, even without any other actions on the part of the provider. Thus there are two distinct classes of monopolies, one which is thrust into being by the necessary existence of a single network of something or other involved with a product, and another which arises without the aid of any item of infrastructure.

There may be other classes of monopolies which depend on the unique existence of some single item. For example, if there is only one known mine of a particular ore that has sufficient content of a particular commodity, and the mine is owned by one competitor, an instant monopoly exists. The same happens if the number of mines is plural, but they are all owned by one competitor, or one competitor makes covert arrangements with the owner or owners of the mines which will lead to the generation of a monopoly and the subsequent enlargement of profits for all those involved with that commodity. If patent or copyright laws disallow the use of some unique information, this is also an instant commodity.

Regulations, perhaps written by those politicians with close connections to the purveyors of a particular commodity or a service, which control the sales of it, might serve to create a monopoly. There might not even be a corporation involved in the commodity or service, just a number of individual purveyors who prefer to have entry into the group of those allowed to purvey the commodity or service limited to numbers which ensure high profits or costs to that limited number. Thus commodities can arise from limited and controlled supplies, which might be something as physical as a mine or something as intangible as regulations. This latter effect might actually be involved with improving the quality of the commodity or service, or might only be involved in giving the impression that the quality of the commodity or service is improved by the regulatory throttling of the supply. This is another effect of a monopoly that does not necessarily fall into the beneficial category or the malevolent category, but somewhere in between.

What should a socio-economic system do about such monopolies? They can only come into existence if the governance either organizes them or otherwise condones them, as with almost any other good or bad effect in the system. The socio-economic system has to work in such a way to foster monopolies for them to come into existence, and there may be multiple components of the system which have to be involved, such as finance or communication or regulation. It is necessary to go back to the goals of the socio-economic system to find out if monopolies, or a particular one, has a net benefit according to these goals. If unlimited inequality of benefits received is a goal of the system, support for monopolies would be the consequence of that choice of goal. If limitations on inequality of benefits received, distributed and consumed is a benefit, then some monopolistic arrangements might be negative in net benefit. Like everything else in a socio-economic system, the arrangements that are best are wholly dependent on the goals that are chosen. As noted elsewhere, fundamentals of the system are the allocation of benefits and their total quantity, and other goals that might be chosen, such as the ratio of manufactured products per total energy consumed, don’t have the tight connection with the population being served.

To solve the negative aspects of monopolies, government regulation can be utilized, where regulation might include both taxation and permissive or mandatory laws. Taxation is a flexible tool, as monopolies are usually involved with the provision of necessities to the population, and permissive and mandatory laws tend to interfere with it in a less gradual manner.

One form of taxation might be a simple tax based on market share. If a list of commodities can be created, and the data collection capability of the region is sufficient, market share by entity, corporation or partnership or anything else, can be calculated and a tax level on revenue or profit can be established to accomplish some aspect of the goal of both maximizing quantity of the product while ensuring its allocation is not too exclusive. Taxes on revenue is more effective as profit can be disguised very easily if management and ownership are not separated, as an individual can receive either a bounty based on fractional ownership, if that is not taxed too highly, or he could be granted a position within the entity and paid a large salary, if that is not taxed too highly. It must be remembered that human beings within a socio-economic system will incessantly game the regulations, so some ingenuity is needed to prevent the more obvious gaming tactics from being universally employed. Of course, corruption must be dealt with in this area as well as in every other area, where corruption is defined as the seeking of personal benefits by someone charged with promoting society’s benefits.

An example of a market share tax might be one on, say, the distribution of natural gas. In a region where there is only one supplier, meaning the whole region is supplied by a single corporation, there would have to be first the opening of opportunity for competition, by the ownership by governance of the means of distribution within the region and the delivery to the region. Then competitors might be taxed so that competitors with revenue under 10% of the total market share were taxed not at all, and a positive rate applied, related to higher market share. The rate would steepen as the market share approached 100%. The taxation rate curve as affected by market share would have to be chosen so as to encourage competition, in other words, to overcome the feedback effects of market share, which eventually tend to produce a monopoly and its excesses.

Any such taxation scheme would involve the definition of multiple quantities, such as the region served. And such definitions would affect the profitability of the corporations involved, and therefore would be subject to the possibility of corrupt dealing. Thus, some standards would need to be found that could be applied in default, with some requirements for special justification for deviations from the default standard. Like everything in a socio-economic system, complexity abounds.

Categories of Libertarianisms

Just defining what a particular socio-economic theory includes is difficult, when history has continued to generate more and more variations of the concept.

One of the problems of making up a new socio-economic theory is that words often associated with such theories are almost undefined, or have such a spread of definitions that using them leads to confusion. While each author using the word may have a clear definition, it differs from what was used elsewhere, meaning that comparison is difficult, typically a tedious exercise in figuring out exactly what each author meant by it. When there are multiple words needing such a explanation, simply keeping the different definitions straight is onerous. There must be a better way to use language in expressing concepts.

If a word is used to label a complex socio-economic theory, it seems to be a common practice to re-use the word when a second similar theory is constructed, even if the similarities are rather partial. Then some adjectives might be used to divide up these two somewhat similar theories, with the single-word label chosen to represent those attributes which are in common. This gets messy as well, as such theories typically cover all aspects of society, or as many as the author felt important or had time to cover, and the second and deeper levels of adjectival modification can be used to represent any subset of them. Perhaps a better way would be to label the theory by the name of the author, and in situations where there are mutual authors, one descending from another, or one modifying the work of another, or one extracting key concepts from another, just to give up in despair.

Libertarianism is one such word. It has been used since the seventeenth century to label a wide, wide variety of socio-economic theories. Some put capitalism and communism both under the umbrella, or more specifically, some varieties of both capitalism and communism there, with others outside. There seems to be no way to clean up the concept and make something quite distinct out of it, as there is such a long history of ideas and theories to which it has been attached. Scholars like to dissect the writings of previous creators of such theories, and show similarities and flows of concepts and the like. For the purpose of the creation of a new theory, histories of ideas like this are amusing, but might be distracting or even obfuscating.

Typically, almost universally, the authors of tracts or books on some specific, particular variant of a socio-economic theory are proponents of the theory. Otherwise they might be writing their missives for the purpose of gaining favor with those to whom benefits would flow if it were adopted, or justifying such a flow within an existing social arrangement. One either works for emotional benefits to oneself, or tangible benefits. Scholars might be writing dissertations on them for neither of these benefits, but to a career advantage that comes within an academic or similar circle.

Perhaps regrettably, I have no such benefits or feelings, and simply am trying to understand the essence of a socio-economic theory, principally for the amusement of seeing how ideas fit together and how a theory might be constructed out of them. It is sort of like having a set of Lego blocks as a child, and trying to make something out of them.

Two of the themes which often attract the label of libertarianism are individual liberty and a lack of government. These obviously conflict with one another, which is one reason why there are so many variations of libertarianism. When one writes in favor of individual liberty, there is an implicit list of things which can be done and a complementary list of things which cannot be done. For each of these actions which can be done, there may be consequences, and how they are treated needs to be specified as well. Then comes the idea of community, and what types of community might be formed, and after formed, managed. How do communities interact with other communities and with individuals?

Just how little government is prescribed is another matter. Some government is necessary to ensure that whatever rules the author or authors of the socio-economic theory are prescribing to the population affected are enforced. Certain libertarian variations relabel government as private security, but this is simply another form of government. When we think about a modern government and the myriad rules they prescribe as to prohibited and mandatory actions, we can obtain an idea about how much detail needs to be included in a socio-economic theory. It has been the experience of virtually all governments that legal systems grow more and more complicated with time. This should be obvious. Laws that are written serve as the system that people interact within, and so loopholes and novelties are sought to obtain personal advantage, without violating the rules that have been established. This might offend some thinkers relating to abstract notions they espouse, and so the laws have to be increased to cover these offensive behaviors.

If we want to categorize socio-economic theories, or specifically the variations of libertarianisms, there should first be some thought about how to do that, and, as before any complex task, there should be some thought about what is the goal of the definitional exercise. It may well be that many of the scholarly distinctions and classifications of libertarianism are useless for some purposes, and unless we know the purpose of the definition activity, we could easily go down that path. Some erudite explanation of the variations could be done, but they would miss the point.

What components of a socio-economic theory rise up to be the top-level distinctions between variations? Recall that there are three essential parts to such a theory: that part relating to production, that relating to distribution of that which is produced, and that relating to consumption. Recall also that many labels are completely useless in defining such a theory. Ownership is one such label. Control of the use of something is what affects production, distribution and consumption. Ownership could reside in the whole population or in individuals, some group of nobility or some class like a wealthy elite, but those that control use are the ones who make decisions that affect the lives of the citizens.

Once a specification is given as to who makes controlling decisions for these three components of a socio-economic theory, there needs to be a span of control description. Things can be controlled so as to benefit a set of individuals, and exactly who are the ones to be benefited is a critical divisor of socio-economic theories. When we use the word benefits, there is also some clarity that is needed in this area. There are tangible benefits, such as shelter, nutrition, healthcare, education and so on, and there are intangible benefits, such as entertainment, praise, competitive awards and induced self-satisfaction. Benefits are dynamic, and can they be changed over the course of a citizen’s life through his own actions, and how much and what controls are in place to limit this? Inheritance of benefits is also a detail that might be needed for the top level categorization of a socio-economic theory. The use of one’s time is also a benefit. Who decides what a person will do with their own time, and what will be the consequences of that choice?

Two key ingredients in a socio-economic theory are motivation and corruption. Motivation is good and the theory should encourage it. Corruption is bad, and the theory should discourage it. Motivation in a libertarianism variant is tied to benefits, and one type of libertarianism is that individuals and communities should make decisions as to their own actions to receive benefits. In one extreme, all benefits might flow to individuals and communities made up of voluntary associations of individuals. In the other extreme, all tangible benefits might flow to the population, with only intangible benefits flowing to the individuals and communities.

Another dimension, not connected with the benefits one, is that of disposition of time. Who decides how a person might spend their time, and how much of it is under the control of the decision-maker, whoever he might be. One end of the spectrum has someone other than the individual or community deciding what they must be doing, or prescribing a boundary around the possible activities they can undertake. The other end of the spectrum has the individual or community deciding what they will do, within some boundary that has been set in advance. There is little difference between these two from one point of view, the real difference is the degree: is there much or little activity or time required by other than the individual or community?

There are four corners of this two-dimensional categorization. In one corner is the proletarian, who receives only benefits from communal activity but few from his own, and has their choice of activity strongly limited by some community of which he is a member. In another corner is the noble, to whom benefits flow from the society in general, and whose time is wholly their own, or all their own except for some obligations to higher levels of nobility. These are opposite corners. In the other corners are the entrepreneurial individual or community or the small land-holder, who receives all the benefits from his own work and is largely free from a draft of his labor but must devote himself or itself to gaining the benefits, and the prisoner, who receives only little benefits but has little demands on his time, although opportunities are negligible.

Libertarianism is the line from the entrepreneur to the proletarian. It relates to the motivation of production. Any set of theories as diverse as libertarianism cannot be condensed to a single line, but the two-dimensional spectrum provides perhaps the top-level view of the variations. Other dimensions are deemed here to be less important, but that might be considered somewhat arbitrary.

Goals in a Socio-Economic Theory

We don’t understand much of society’s workings, such as when economic collapse might occur, so how can a socio-economic theory be created which accomplishes this?

The universe does not give us goals or purposes or rules or anything else. They are chosen by man. Man chooses according to some preferences, and these preferences are not universal. In other words, there is no genetic programming for goals or anything that might be transformed into goals, except on the individual level. So when we look at entire societies, it is a severe challenge to turn anything, such as these individual goals, into rules for citizens in the society to follow.

This challenge has been overcome in every society, whether or not the rules are recorded somehow or just taught as custom. They vary tremendously, and since social and economic rules are part of the foundation of any socio-economic theory, making choices for them without any universal guidelines is also a severe challenge.

A consistent set of goals is desirable, to the extent allowed by the complexity of social life. Inconsistent goals lead to inconsistent rules for behavior, and this can be exploited by one faction, the one possessing power and force in the society, to be able to suppress all other factions, as there will be some rules that cannot be followed due to inconsistency. These can be used as a faux legitimization of punishment or levies imposed by the power faction on individuals from other factions. In general, however, consistent goals are desirable as it leads to all citizens in the society being able to follow whatever was determined to be in the best interests of the society.

Because there are such great differences between individuals in any society, the set of goals and the rules derived from them must apply differently to different categories of individuals. There are countless categorizations possible, by age, by sex, by caste, by origin, by accomplishments, by abilities, and certainly others. Rules would follow the template: a person in this category must do this and must not do this. Rule negatives can be expressed in the rules by a slightly different template: a person in this category may do this with no interference by governance. If the set of rules is logically created, each of them would relate to some goal, and would contribute to the achievement of that goal in some incremental way.

Goals are adopted because of some emotional connection within powerful individuals, or because of legacy considerations, in other words, at some time an individual or group makes up the rules, and then they stay in place until some other powerful group finds them in opposition with their internal interests and changes them. The goals can be completely opposite: one group may find conquest to their liking, and the society is organized to accomplish that; another group in another society might find that peace through defense is what they desire to organize their society around, and yet another might seek peace through any means including servitude or vassalage.

Categorization can exist via legacy divisions or can change, gradually or abruptly. Some specific caste can suffer an erosion of their perquisites, over a long period of time. Another caste might be freed from serfdom by a single order effective on a particular instant, which might be seen as abolishing a category arising from origin. A new category might be created by a draft order, affecting for example able-bodied males between the ages of 20 and 30, a new category not utilized before in the canon of laws. A schoolchild category can be created out of the larger category of children, consisting of those between 7 and 14, for example.
Most changes in goals, categories and rules affect the economics of interactions between individuals and between an individual and society as a whole, and thus have economic impacts as well as social ones. It would seem quite presumptuous to have a socio-economic theory specify all these details, but several have made attempts at it. The difficulty is getting started, and coming up with some goals, from which other aspects can be derived.

Goals can be chosen for a variety of sources, but underlying them is the desire of the creator of such a theory to have their own emotional framework justified. An author may have revenge as a covert emotion, and want to create a consistent, appealing system which eliminates the power and prestige of the targets of his emotion. Persuasion being what it is, this is certainly possible. Incremental changes would be easier to implement that a system-wide change, so this route might be easier to navigate than coming up with a whole system revision. Picking on the status or privileges of one group and persuading to change only that might be done with even a single book, or nowadays, a single e-book.

If an author does not have any revenge motive, or similar motive generated by their experiences in life or even their own vicarious experiences, what might substitute for that? Greed is one very strong motive, and an author of a new socio-economic system might be propagandising for his own benefit, or for the benefit of a group which will subsequently benefit him, after the new system begins to flourish and be adopted. This would work for an incremental change as well, and could serve as a legitimization of ongoing changes, ones which were not motivated by society being persuaded to change, but by some evolutionary alteration under way in the society to which the writing was addressed.

Besides hate and greed, behind whatever façade the author found convenient, their might be motivations more benign. An emotional desire to help others, or some specific others, without necessarily depriving others of their positions or privileges, might serve as well. Perhaps there is a way to make a non-zero sum game out of changes in a socio-economic theory, allowing this to happen, but likely there would be some collateral damage.

There could also be over-arching goals derived from abstract qualities and quantities, such as population, standard of living, trade, health, eugenics, and more. Consider the concept of progress in the technological sense; this could be used as a goal. As an example, if this latter goal were used, the categories that matter are those related to this pursuit. One category is that of scientists, another would be engineers, and a third would be technicians, all related to the continued progress of technology. Those involved with businesses which promulgate the technology across society would be yet another.

One choice that the rules could try to enforce could be continuous progress, meaning an absence of economic collapse, war, or other social catastrophes. It is true that war might accelerate the development of technology in certain areas, as has happened in our history already, but that only could take place if the development of technology were not already being emphasized and generally pushed forward as fast as possible, which is what a socio-economic system that was being built around this idea should achieve. War can divert resources into the progress or adoption of technology, but if resources are already being diverted in this direction, what more might be done by a wartime setting? Probably very little. Lackadaisical support for technology progress could be accelerated by the needs of war, but for this to exist, the socio-economic system would have had to almost fail in its principal objective.

For war to not occur, it would be necessary to understand the various causes of war, and try to establish the rules of society so that nothing leading to war would occur. Likewise, economic collapse would also have to be understood, and the predecessor conditions leading to it would have to be avoided in some manner. How exactly would some theory prevent these two scourges of society, when the processes that lead to them are not understood? The stability of society would have to be preserved, and this would have to happen even though the society was undergoing rapid change, due to the introduction, continuously, of newer and newer technology. Technology would have to be defined to be supported, but if it is deemed to be the application of scientific knowledge to any aspect of society, then the entire spectrum of science would be supported, and the trickle-down of scientific knowledge in every area of science, as applied to any appropriate aspect of society would also have to be supported. This sounds like a recipe for continuous transformation, and under such conditions, how would war and economic collapse, and any other social catastrophe, be avoided?

Another unknown is the best manner of governance. Take for example the governance of the principal objective, the expansion of scientific knowledge. How is the choice of subject chosen for any group of researchers? How is the allocation of funds to be best managed? How is education to be handled? How are all the aspects of society which contribute to having an educated, scientifically, population to be dealt with, or even determined and listed, much less directed in the useful manner?

This simple example of a goal-directed socio-economic system amply displays that we are far from having enough understanding of even simple-to-describe components of society to be able to even suggest how they might contribute to a social goal. There might be personal opinions about any of these components, as to how they work and how they might be bent to supporting a social goal, but there is certainly no scientific understanding of the various processes that occur within each of them. Perhaps the only conclusion that can be made is that science would need to be devoted to understanding these basic social processes as the very first step of the construction of a socio-economic system that supports a goal, such as technology progress. It could be that the prevalence of war in human history has pushed technology to examine offensive and defensive technologies, but not technologies in the larger part of society. It is likely time to remedy that situation.

Balancing Trade

Trade imbalances can produce many benefits to a nation or other entity, just not net over the entire nation.

Trade is often thought of as goods moving across borders, and that is convenient for many purposes. The obvious generalization is to anything that moves across borders, whether it is people, manufactured goods, agricultural goods, ideas, various financial objects, or whatever. The generalization is useful in that it allows one to contrast trade in goods to the exchange of anything else, and possible gain some insight.

Something is inside at least one of the borders, but there doesn’t necessarily have to be an equivalent entity on the other side of the border in question. Balance means there are two specific entities, typically geographic, but not necessarily. Equivalent entity trade would be between two hemispheres, two continents, two nations or groups of nations, two states or provinces or whatever is the next division below nation, two counties or parishes or whatever is the next below states, and even down to two boroughs, or regions of one city. Single entity trade is between any one of these entities and the rest of the world. There might be two entities involved in the balance, or a thousand; with multiple entities there is a network of trade and otherwise it is simply bipolar.

What might be the benefits of balanced trade, either in some single well-defined category, or some larger quantity lumping together some set of categories? The seemingly obvious flaw with unbalanced trade is that something must compensate for the imbalance. Either the entity with the deficit in exports is agreeing to pay for the difference in trade sometime in the future or with fixed assets in the country. If the imbalance is only temporary, the fluctuations in the direction of trade balancing out over time, then imbalance is only an accounting convenience, and disappears over a long enough duration. If instead it is chronic, and the total amount accumulates with each reporting period, then after some number of periods, the debt situation fails to work. The total debt becomes too large and there is either a default or a tendering of some assets of the country to the trade principals with net surpluses.

It might be possible to talk about the short-term aspect of trade imbalance separately from the long-term aspect. In the short term, a country with a shortage simply runs an arrears for the goods it imports in excess of the goods it exports. It might seem to be doing quite well, if the costs for the total of the excess do not grow too large. The country would have a standard of living, defined any which way as a measure of how much is consumed, and that standard of living would certainly be higher than if there were no trade. But debtors always live higher than those who live within their means. The argument that the debtor is therefore somehow better off can only be made by using a very restricted use of the term ‘better off’. A consumer debtor is not ‘better off’ if some long-term integrated measure is used.

This is a contrast with the producer debtor, who might be using near-term capital to become more productive and gain the amount needed to pay off his debt, while still producing more goods than this amount. The question of when a producer debtor is ‘better off’ is more complicated that for a consumer debtor, and depends on the use of the debt amounts, the repayment terms and any other obligations, what the expectation is of his current and future productivity and how much credibility there is in these estimates, and probably a half dozen or more other factors. But the question of the consumer debtor is simple, unless there are more than one.

If a country, or other entity, thinking of allowing a trade imbalance to exist in a chronic fashion, consists of multiple separate factions, with different powers and different assets, then the division into factions might influence the decision to allow the chronic trade imbalance. Who gains and who pays is the question. If there is a separation of these activities between factions, with one set of factions gaining the increased standard of living or some other benefit from imbalanced trade, and the other complementary set of factions being responsible for paying in the long term for them, then the decision might be taken in a somewhat non-holistic way. If the factions that benefit but do not carry the burden of long-term disadvantage also control the governance of the entity, then they would certainly have the motivation to allow chronic trade imbalance. Whether they could do this would depend on how the governance was organized, for example, if there was a constitutional or customary rule that trade must be balanced, then obviously they would be prevented from taking advantage of the separation into factions in this way, until the constitutional or customary rule could be bypassed or revoked.

There could be multiple other benefits that do not fall equally to the different factions within an entity, and multiple other disadvantages that also do not fall equally. Thus, to assess if the entity is likely to permit chronic trade imbalance two factors need to be addressed: the regulatory posture of the entity as a whole, as to whether it would permit trade imbalances, however they might be measured, and the net benefit less disadvantages of the factions which have control over the decision-making on allowing chronic trade imbalances. If there are no checks or barriers for this, for example, if there were sufficient public relations output promoting it and little opposing it and no historical custom to disallow chronic trade imbalances, and some net benefit would go to the factions making the decisions, then they might certainly consider it.

As to historical custom, if chronic trade imbalances were used for long periods by one set of factions, perhaps a changing set of factions, then the custom would be in this particular entity to allow it, despite the overall net disadvantage of it. Such a long period of use of chronic trade imbalances by one set of factions would also allow plenty of time for there to have been justifications, clever or absurd, created for it, even though a sufficiently high-altitude look at it shows the overall net disadvantage. The justifications could concentrate on the differential benefits, in the short-term, and ignore the integrative disadvantages, in the long-term, and if the justifications were sufficiently convincing, eloquent, erudite and obfuscating, then there would be little in the way of barriers to the use of chronic trade imbalances on the part of one set of factions to obtain a net benefit over both the short-term and the long-term.

Once constitutional regulations, historical custom, commonly held discourse and other potential obstacles are all removed or relegated to being inconsequential, the factions with decision-making authority or influence could simply go forward and make the necessary arrangements within and without the entity to induce chronic trade imbalances. Any objections to the arrangements could be dismissed as issuing from those who are uneducated as to the details of the processes that are about to take place, or rather, have been taking place for some extended duration. An even more solid buttress against objections can be constructed if one of the factions that receives net benefits from chronic trade imbalances is the one which generates the large body of discourse on the topic. With this additional impetus, the literature would continue to be amassed on the side of the differential benefits, and the integrative holistic disadvantages could continue to be ignored.

Perhaps the most serious concern the successful set of factions would have would be the constituent parts of the group, and any efforts by some of the factions to oust others, thereby possibly concentrating these net benefits into fewer hands and thus magnifying their amounts per individual. There would seem to be a minimal set of factions necessary to organize such a takeover of the trade situation, and any other faction might be a candidate for ousting, at some time. The minimal set would consist of those involved with regulatory matters relating to trade, imbalances or other aspects, those involved with the justification of the chronic imbalance and the publication of the justification together with the suppression or at least the ignoring of any counter-arguments, and those involved in the trade process. The trade process could be quite complicated, involving many moving parts, including shipping, outside-the-entity production, inside-the-entity distribution, financial arrangements for all of this, inter-entity transportation, plus governmental regulation of any and all of this. Finally, somehow the flow of benefits has to be arranged for, as there is not necessary flow between these factions comprising the minimal set. Some processes would have to be grafted onto the trade process itself to ensure that the necessary factions all receive some share in the factional benefits gained by chronic trade imbalances. But this type of flow would not have to be overt or else could be overt but disguised in any of a huge number of ways, most of which might be laudable under some rationalizations.

Thus, chronic trade imbalances between any two entities, or between one entity and the rest of the world, might induce significant advantages to a set of factions which somehow collect all the power necessary to organize it and keep it in place. This arrangement does not have to be thought up by some genius of chronic trade imbalances, but can grow over a long period of history, if this situation continues to exist.