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Mutualist Blog: Free Market Anti-Capitalism

To dissolve, submerge, and cause to disappear the political or governmental system in the economic system by reducing, simplifying, decentralizing and suppressing, one after another, all the wheels of this great machine, which is called the Government or the State. --Proudhon, General Idea of the Revolution

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Thursday, July 14, 2005

On the Superior Efficiency of Small-Scale Organization

(Intended as a companion piece to On the Irrationality of Large Organizations).

I recently posted on the diverse, decentralized economy of the Emilia Romagna region of northern Italy. Now Eugene Plawiuk writes on a similar theme about Africa.

The real source of economic development in this region is not large scale farming but collective farming of small villages and family farmers. In particular women, who have developed intervillage cooperatives such as in Senegal....

These small scale operations are environmentally sound, and provide an alternative market model to the usual large scale Agribusiness operations of Imperialist companies from Europe and America, such as Cadbury or Archer Daniels Midland (ADM).

They allow for value added production, for democratic input into production needs, and for the continuance of viable village life, saving cities from becoming large scale refuges of the unemployed.

I watched a program on BBC on the UN Report and it showed direct economic democracy being practiced by women and men farmers in Senegal, the farmers are also unionized.

They need to have micro credit and direct economic aid, that they are not getting now, real investment in production. This form of free market economy, developing a viable acriculture for export that is sustainable can only happen with recognition of the collective values of the farmers and their villages.

It is this form of collective capitalism ( or self managed cooperative capitalism as Kevin notes in the comments below..ep ) that will save Africa from its economic downslide, and provide an ability to challenge the environmental disasters it faces from the failed attempts to introduce large scale, fertilizer based, agribusiness operations....

Western models of monopoly cpaitalism do not work in these communities, and are in fact detrimental to sustainable agriculture, mining, forestry, and industrial production. If we really wish to end poverty and support sustainable market development then the mutual aid model of anarchism, the free association of producers, worker and comsumer coops, must be given access to both capital and markets.

The local economies Eugene envisions have a lot in common with the ideas of writers like Kirkpatrick Sale, Barry Stein, Lewis Mumford, and Jane Jacobs (just to name a few).

In Human Scale, Kirkpatrick Sale wrote that even a village of 500 could be almost self-sufficient in terms of food and energy systems, and carry on a few light manufactures. A federation of such villages would provide an adequate local market to make full use of production facilities in textiles and apparel; lumber and wood products; furniture and fixtures; paper; soap, toiletries, and cleansers; stone, clay, and glass products; primary metal industries; fabricated metal products; machinery; electrical and electrical equipment; motorcycles, bicycles, and parts.

According to Sale, virtually all manufacturing could be for local markets of ten thousand or fewer. Of course, there would have to be some change in methods. For example, such small-scale local production couldn't accommodate dozens of product differentiations, or frequent model changes, or purely cosmetic features. There would probably be a great deal of Ford's dictum: "They can have any color they want so long as it's black." But there'd be a lot less of that sort of thing anyway, if manufacturing weren't dominated by a handful of cartelized firms in each industry that could maintain a common institutional culture between them and limit price competition between themselves.

Both machines and factories would be flexible and multi-purpose. The machines, for example:

...for limited markets the installation of multipurpose tools and assemblies can be far more efficient and economical.... A boring machine, for example, that can rout out a small wire or a copper tube can be used to form a drain pipe or a sewage line, if it is retooled with a simple increase in scale; a lathe that can form a nail or a screw can be used for bigger tools and machine parts.

He cited Murray Bookchin's Post-Scarcity Anarchism on the use of such multi-purpose machines to meet the full range of local needs without requiring a large amount of overbuilt, underused production facilities. There's also a lot of material in Kropotkin's Fields, Factories, and Workshops that foreshadows such an economic model.

On multi-purpose factories: Sale began by quoting Ralph Borsodi from his Mother Earth News interview, saying that two-thirds of the manufactured goods we consume could be produced most economically on a small scale.

But Adam Smith completely overlooked what factory production does to distribution costs. It pushes them up. Goods cannot be manufactured in a factory unless raw materials and fuel and workers and everything else are brought there. This is a distribution cost. And then, after you've put together whatever you're making in that plant, you've got to ship it out to the people who consume it. That can become expensive too. Now I've produced everything from tomato crops to suits of clothing which I've hand spun on my own homestead and I've kept very careful records of every expense that went into these experiments. And I think the evidence is pretty clear that probably half to two-thirds-and it's nearer two-thirds-of all the things we need for a good living can be produced most economically on a small scale . . . either in your own home or in the community where you live. The studies I made at Dogwoods-the "experiments in domestic production"-show conclusively that we have been misled by the doctrine of the division of labor. Of course there are some things-from my standpoint, a few things-that cannot be economically produced in a small community. You can't make electric wire or light bulbs, for example, very satisfactorily on a limited scale. Still virtually two thirds of all the things we consume are better off produced on a community basis.

Sale challenged Borsodi's last qualification on light bulbs and wire. General, multi-purpose production facilities, with a few dozen workers at most, could make a wide range of allied products with minimal retooling. For example, the same factory might finish a production run of light bulbs in a few months, and then switch to wiring or other electrical products. A machine shop making light electric vehicles might switch from tractors to reapers to motorized bicycles. Such frequent switching from one production run to another "would never be quite as cheap and efficient as straight-through mass production, of course," but (taking drastically reduced distribution costs into account) would probably still be cheaper overall.

Such an economy would also rely much more heavily on recycling and repairing. Sale described neighborhood recycling/repair centers for putting back into service the almost endless supply of appliances currently sitting in closets or basements, as well as "remanufacturing centers" for (say) diesel engines and refrigerators. Such activity is currently artificially expensive compared to buying new appliances, because the handful of firms in a cartelized industry collude in maintaining an institutional culture that focuses on underproducing spare parts and discontinuing them quickly. In addition, patent laws prevent outside firms from specializing in cheap production of the spare parts necessary to keep other firms' appliances operational. The production model in Sale's economy would focus on high quality, repairability and durability, rather than planned obsolescence.

There would also be greater substitution of local raw materials, and greater local ingenuity, tinkering by the workforce, etc. These last two things tie in with themes in the work of Jane Jacobs and Barry Stein. Jacobs wrote, in The Economy of Cities, of local prosperity depending on the inventiveness of a local population in devising new "product substitutions," finding creative new uses for local raw materials, ways to recycle scrap, ways for one firm to make good use of the byproducts of another in its production process, etc.

Stein wrote, similarly, on the role of an engaged workforce in the innovation process (Size, Efficiency, and Community Enterprise). Most improvements in productivity result from the cumulative effects of small improvements, rather than great inventions. And incorporating such small changes into the production process is often sufficient to permit an older plant to produce almost as efficiently as a new one. Most important, the cost of such changes is comparatively small.

Further, Stein went on, the main source of such incremental innovation is responses to perceived need, rather than technical opportunity. And who's in the best position to perceive those needs? Why, the workers!

It has already been noted that much of the technological progress within a firm is the result of a series of small innovations. This point can be made more generally. The primary source of all innovations is derived from recognition of a need, rather than from technical opportunity.... Such recognition of a need, whether within the firm or with respect to the outside market, becomes possible only under conditions in which workers... are more generally knowledgeable about the organization, its operation, and its relationship to its environment....

Later, he added,

...it is clear that those directly engaged in an organization, whether economic or not, are the most informed about its operational characteristics, are in the best position to implement internal options, and are the most directly (in many cases, the only ones) affected by the organizations' structure, roles, work arrangements, and styles.

This explains the skyrocketing of productivity not only in worker-controlled firms like those in the anarchist areas of Spain, but even in more modest experiments in worker self-management in capitalist enterprises. Work units felt a sense of ownership of the process, and no longer had to submit improvements in the process to an "employee suggestion box," to migrate up twenty echelons of hierarchy.

But of course, such experiments in capitalist enterprises seldom last very long, for obvious reasons. As Stein explained in a footnote to the passage above,

The basic point here is, of course, widely agreed to in principle if not in practice. Decentralizing decision-making to include those who possess the most relevant information and who are in the most direct position to implement decisions and gain feedback as to their effect is standard operating ideology, even though the practice is rarely applied s consistently as it could be and should be. The literature on participation (industrial democracy) is replete with examples indicating the benefits from such a strategy. It is equally clear that the reason more such ideas are not implemented has to do with control preferences and power issues rather than operating efficiency.

No shit, Sherlock. For examples, just check out the "Coventry System" in England, recounted by Seymour Melman in Decision-Making and Productivity; and Volvo's experiments in self-managed work teams, and the "pilot program" at G.E., described by David Noble in Forces of Production. In every case, despite spectacular increases in productivity and declines in scrap rates, absenteeism, etc., the management discontinued such experiments in panic.

More often, management simply pays lip service to the latest management theory fad du jour, which supposedly stresses worker empowerment, while continuing to practice Taylorism in actual fact. I used to work in a hospital that brought in outside consultants to talk about Deming and "quality circles" and similar bullshit out the wazoo. There were three separate offices, side by side, with the word "Quality" in the job title on the door. Here's the funny part: most of the problems they sought to address (patient falls, hospital-aquired infections, medication errors, etc.) were the result of deliberate under-staffing. Shit happened because people working on the floor didn't have time to slow down, notice things, or think about what they were doing. But management's "solution" was to do everything but increase staffing: more "incident review" committees doing "root cause analysis," more "process improvement committees," more tracking forms for us to waste time filling out, more agitprop handouts ("Hey, you stupid people! Don't you know you're supposed to wash your hands?"), ad nauseam. On a week day, there were probably more middle management people sitting in committees thinking up new ways to interfere with our jobs, than there were nurses providing direct patient care.

All management theories, no matter how theoretically empowering, translate in practice into Taylorism. That's because they're implemented by bosses! Duh! If a corporation's management adopted Jeffersonianism as its management philosophy, it would ignore all the stuff about local self-government and just keep the part about screwing your slaves.

Barry Stein also wrote on the flexibility of local economies in responding to consumer demand. John Kenneth Galbraith's "technostructure," with its need for predictability and control, guaranteed demand, and suppression of market fluctuations, is actually the result of artificially large size and capital-intensiveness. Small, local firms, serving local markets, can respond much more effectively to changes in local demand.

Clearly, if firms could respond to local conditions, they would not need to control them. If they must control markets, then it is a reflection of their lack of ability to be adequately responsive. But ultimately, this question hinges on the other aspect of Galbraith's thesis; namely, that without the present large scale and control, important goods will simply not be able to be produced....

....[I]t can be shown easily in information theory that the feedback--information linking the environment and the organization attempting to service that environment--necessarily becomes less accurate or less complete as the rate of change of the data increases, or as the number of steps in the information transfer process increases.

The "turbulence" that Galbraith wanted to suppress increases with organizational size and the number of interconnections within the organization.

Rather than top-down control to accommodate large size, the solution is to integrate the organization more closely with the environment it serves.

This problem is to be solved not by the hope of better planning on a large scale..., but by the better integration of production enterprises with the elements of society needing that production.

Under conditions of rapid change in an affluent and complex society, the only means available for meeting differentiated and fluid needs is an array of producing units small enough to be in close contact with their customers, flexible enough to produce for their demands, and able to do so in a relatively short time.... It is a contradiction in terms to speak of the necessity for units large enough to control their environment, but producing products which in fact no one may want.

There is another facet to this superior matching of supply and demand in a local market. It helps to insulate the local economy from the fluctuations of the business cycle. Marx wrote that the only way an economy based on commodity production and market exchange could exist without a destructive boom-bust cycle, was if producer and consumer were closely connected in a local economy. But he dismissed this contemptuously, along with Proudhon's "petty bourgeois socialism," as possible only in a primitive artisan economy.

Of course, Marx (and even more so his technocratic followers like Engels and DeLeon) greatly exaggerated the importance of economy of scale, treating it as virtually unlimited.

And in fact, it's a matter of degree. The more closely the producer is connected to the consumer, the more reliable and predictable his market is. Starting at the smallest possible level, imagine a small truck farmer who lives next-door to a plumber. If they exchange their services, the farmer still won't be able to dispose of enough of his produce to earn a living, and the plumber won't do enough plumbing for the farmer to support himself. But each will have a secure and predictable source of all his vegetable and plumbing needs, as well as a reliable outlet for the portion of his product consumed by the other. The more people you bring into the barter system, the larger the share of each member's output has a dependable market, and the more of his own needs he can meet through the barter system without fear of periodic unemployment or a boss' whims. At the scale of a community of 10,000, the fluctuations and uncertainty will be somewhat greater. But most production will still be based on a fairly stable and predictable pattern of demand for a known local market, and probably for retail outlets with which the producer has relationships of long standing. The local economy will not be subject to the severe fluctuations of anonymous commodity markets on a national scale, or to the cycles of the national credit system.

Lewis Mumford also wrote a great deal on the flexibility and adaptability of decentralized economies. For example (in The Pentagon of Power), his idea of the "technological pool," characteristic of "polytechnic" economies:

Similarly [to a gene pool], one may talk of a technological pool: an accumulation of tools, machines, materials, processes, interating with soils, climates, plants, animals, human populations, institutions, cultures. The capacity of this technological reservoir, until the third decade of the nineteenth century, was immensely greater than ever before: what is more, it was more diversified--and possibly quantitatively larger, as well as qualitatively richer--than that which exists today. Not the least important part of this technological pool were the silled craftsmen and work teams that transmitted the colossal accumulation of knowledge and skill. When they were eliminated from the system of production, that vast cultural resource was wiped out.

This diversified technological assemblage not merely constituted economic security: it permitted a continuous interplay between different phases of technology; and for a time this actually happened.

As examples of such creative cross-pollination when different "phases" of technology coexist, he mentioned "the altered cut of mainsail and jibs in modern sailing vessels," applying modern mathematical engineering analysis to a very old technology. One might also look at the applications of twenthieth century science to organic gardening by people like Robert Rodale and John Jeavons, and the integration of modern "intermediate technology" (see also here) into a subsistence lifestyle.

There was no reason whatever to make a wholesale choice between handicraft and machine production: between a single contemporary part of the technological pool and all the other past accumulations. But there was a genuine reason to maintain as many diverse units in this pool as possible, in order to increase the range of both human choices and technological inventiveness. Many of the machines of the nineteenth century, as Kropotkin pointed out, were admirable auxiliaries to handicraft processes, once they could be scaled, like the small electric motor, to the small workshop and the personally controlled operation.

Indeed, Kropotkin wrote, in Fields, Factories and Workshops, of the radical decentralizing potential of electrical power sources no longer tied (like steam engines and water mills) to large water sources. Had not organized capital and its state stood in the way, that's the way things might have happened.

More generally, as radical industrial historians have shown us, available production technologies at any given time are amenable to both libertarian and authoritarian uses. Chesterton and Belloc wrote of the liberating paths the industrial revolution might have taken had it taken place in a society where the enclosures and the suppression of the town communes had never happened; industrial techniques and eventually steam production might have been incorporated, piecemeal, into a system of artisan production and subsistence farming.

Mumford himself wrote, in quite Chestertonian terms:

There was a moment at the beginning of the sixteenth century, before the new power system, exemplified in capitalism and colonialism, had taken form, when it might have seemed that a new order was taking form, in which the older modes of polytechnics would be reconstituted and reinforced by the contributions of a science-oriented technology.

It's still not too late. In fact, when state capitalism finally runs its course, and its crises of inputs outstrip the state's ability to subsidize it, such decentralized alternatives may well be what save us.


Blogger Larry Gambone said...

First rate, Kevin. Most people are taken in my the economy of scale argument. Good to see such a well written critique. My first encounter with a different viewpoint was Murray Bookchin's "Toward A Liberatory Technology" back in the 1960's. I posted your article on my blog, too.

July 17, 2005 6:33 PM  
Blogger Richard said...

It is amazing how much the myth of "unlimited economies of scales" is perpetuated. I have been involved in a debate over at liberty forum on economies of scale in a private protection industry. This guy announced "There is a tendency in capitalism for the big, better capitalized, fish to eat up the little fish. Eventually there would be an oligopoly with total power" ("capitalism," in this context, being a free, competitive market).

I cast doubt on the claim, writing

"Absolutely. That is why when I go to the chip shops down the road when I am too lazy to cook there are only two or three chip shops out there. Oh, wait. No there aren't. There are thousands of different, seperate chip shops. Oh well - guess that was wrong, then!

Firms expand until they reach their optimal size. Then they stop, or lose money. Your assumption is that the optimal size of a provider of protection is such that no other firm can exist in the industyr, but you have not proved this. In Police Review, of March 1972, Chief Inspector Sydney Pleece wrote that, in the estimation of the Metropolitan Crime Prevention Branch, "of about 150-200 medium to very small companies offering various security services in the Metropolis"."

But the only response I got was the same assertion: "The tendency towards monopoly under capitalism is well evidenced historically--even in the food industry. If it were profitable to establish a McChips, there would be one--or a closely cooperating McChips and Chips King. Mom and Pop operations could pick up the leavings."

Actually, note already the weakening condition to the original claim that big business was "inevitable" - now, it is only if it is profitable. Which exactly echoes what I said in saying that firms expand until they reach their optimal size. But still, I got the same assertions:

In a free market system, better financed capitalists are able to attain a better position in the market than the less well financed. Any mom-and-pop store owner who has tried to compete with Walmart knows this. The bigger capitalists can buy in greater volume at lower cost, ride out recessions and strikes longer, engage in "dumping" (selling below cost to attract shoppers), etc. They can also afford to hire high class goon squads to threaten their competitors or striking workers if all else fails. Using such means, they can drive their competitors out of business.

That's the main reason why, historically, the number of companies engaged in a particular industry tends to get smaller and smaller until there are very few, or only one. This would happen with or without the use of government as a tool in the competitive struggle."

My response to this "historical" claim was

Historically this has frequently been asserted. Marx made the same claim, that the petit-borgeoisie would be driven down into the ranks of the proletariat. The trouble is that it never happened. According to the Penguin Dictionary of Economics, small and medium sized enterprises (SMEs)

"play an important part role in the economy, in a dynamic as well as a static sense, and create a disproportionate share of new jobs. A few SMEs grow to challenge existing large firms (cf. Schumpeter, JA's 'gale of creative destruction'), change and renewal being an essential feature of the free market economy. It is estimated that in 1986 all but 11.500 of the 2.5 million business enterprises in the UK employed fewer than 200 persons. Enterprises employing less than 100 persons account for about 50 per cent of non-government employment. Most small businesses are sole proprietorships and partnerships, but the vast majority of Britains active 400,000 or so private companies are small firms."

In the '90s there was a trend of Multi-business Companies (MBCs) breaking up, because this generated much more money for them.

You brought up the steel industry in the US. Well, US Steel was formed as part of the "merger movement" that birthed the trusts at the end of the nineteenth century. Since then its market share has fallen dratsically. I am trying to remember that David Friedman book, but I think he says that there are some 250 companies in the American steel industry now, and the four largest command less than 50% of the market share. Of course, state intervention has changed that, as the Economist wrote, "In the 20 months since the tariffs were imposed, the steel industry has consolidated. Some ailing steel firms, such as National Steel and Bethlehem Steel, have been gobbled up by larger competitors."

And so the debate continues.

July 18, 2005 3:59 AM  
Blogger donald said...

Have you encountered the work of Charles Sabel? He does a lot with Emilia Romagna, industrial districts, and flexible specialization. Good possibilities for this line of argument.

July 25, 2005 9:21 PM  
Blogger Jim said...


FYI, here are a few resources which tie in with small scale activity in biodynamics and eco-farming and the economics of raw material production.

The Nature of Wealth

See also Acres USA and the book UNFORGIVEN The American Economic System SOLD for Debt and War.

And here is an interesting article on smaller scale alternative alcohol fuel production, BUTANOL Advances in Biofuels

January 07, 2006 7:07 PM  

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