Whither government regulation in a highly complex age?

A contribution by Gordon Cook which was published in his Cook Report newsletter.

“The speed of change in planning, action, and execution on all levels, that has been enabled by the Internet revolution in particular and ICT in general, is propelling us into a more complex and tightly coupled global system that none of the major players seem to adequately understand. We were able to manage the slower moving world of the 20th century with some degree of top-down adequacy. But what worked 20 years ago does not accomplish the same ends today when we have a society and an economy that are too complex to manage or even control in any centralized top-down way. This has enormous implications for all of us.

Let’s examine the reasons why.

Despite huge omnibus bills in health reform and finance reform – documents that are twice as long as War and Peace – it seems that there is a lack of awareness, both within the large corporation and within federal government, of what is possible or impossible to centrally plan and organize. The changes brought about by successive waves of ICT revolutions and the increased communication pathways of the Internet allow no one the time to “sort things out.”.

In his April 2010 Stanford Power of Pull lecture, John Seely Brown emphasized the stability of the 20th century economy where the technology revolutions lasted longer.

Contrast this to the potential instability the 21st century infrastructure where revolutions of ICT capability are piled on one top of another without any of the stability needed for catch up, whether by central corporate planning staff or by federal regulators. The technology changes far faster than administrative rules and regulations that can be written to govern it.

Looking at the dysfunctionality of Washington, one sees a process that has gotten completely out of control.

The Washington Post has published a series called “Top Secret America’ that details the enormous unchecked expansion of the National Security apparatus post 9/11.

“After nine years of unprecedented spending and growth, the result is that the system put in place to keep the United States safe is so massive that its effectiveness is impossible to determine.”

And in part 2

“What started as a temporary fix in response to the terrorist attacks has turned into a dependency that calls into question whether the federal workforce includes too many people obligated to shareholders rather than the public interest — and whether the government is still in control of its most sensitive activities. In interviews last week, both Defense Secretary Robert M. Gates and CIA Director Leon Panetta said they agreed with such concerns.”

In a July 20 New York Times column David Brooks wrote:

“But the 2010 financial reform law was 2,319 pages, an intricately engineered technocratic apparatus. As Mark J. Perry of the American Enterprise Institute noted, the financial reform law is seven times longer than the last five pieces of banking legislation combined.” . . . . “It’s a progressive era, based on the faith in government experts and their ability to use social science analysis to manage complex systems.” “This progressive era amounts to a high-stakes test. If the country remains safe and the health care and financial reforms work, then we will have witnessed a life-altering event. We’ll have received powerful evidence that central regulations can successfully organize fast-moving information-age societies.” [But] “If the reforms fail — if they kick off devastating unintended consequences or saddle the country with a maze of sclerotic regulations — then the popular backlash will be ferocious.”

It is disquieting to note that the governing technocrats are seemingly as disconnected from reality as the Soviet Central planners who, under perestroika in the late 1980s, thought that the Russian economy could be mapped out top down from Moscow and across eleven time zones without decentralized access to ICT. Those hopes failed disastrously in 1991. As we watch what is happening in the summer of 2010, it seems that power is flowing from the hollowed out center to the edge, where the smaller size and scale of local communities may make things more manageable.

I noted Michel Bauwens’ observation about the increased monopolization of the economy over the past 30 years as having a negative impact on innovation. He wrote : “Today, America’s five largest banks control a stunning 48 percent of bank assets, double their share in 2000 (and that’s actually one of the less consolidated sectors of our economy). Similarly, the debate over health insurance reform awakened many of us to the fact that, in many communities across America, insurance companies enjoy what amounts to monopoly power. Some of us are aware, too, through documentaries like Food, Inc., of how concentrated agribusiness and food processing have become, and of the problems with food quality and safety that can result.”

“In a recent conversations with a Silicon Valley enthusiast, I mentioned monopolization as a big problem of neo-liberal capitalism, in terms of hampering innovation and keeping small businesses out of the equation, which my conversation partner saw as a non-issue. . . . .[However] to see America as the land of the Silicon Valley entrepreneurs [is] to lose sight of the larger issue of the deep structure of the economy.”

On arch-econ on July 20 Andrew Odlyzko responded:

“Monopolization is just one facet of what’s changing in the economy. It’s tied to globalization, and the spread of the Internet. And it may be related to something else that the Internet facilitates, namely collusion through signaling. Companies no longer have to get together with their competitors in smoke-filled hotel rooms to hash out anti-competitive deals. They can do that through transparent signaling in the electronic marketplace. (This has been studied most extensively in the context of spectrum auctions, which are on on-going arms race. Governments impose more and more rules on the auctions, in order to stop the bidders from colluding, and the bidders come up with ever more ingenious ways to get around them. A wonderful opportunity for game theorists to get practical experience, on both sides of the fence!)”

It seems that with the real time communication of the Internet the opportunity is created for those affected by regulation to collaborate on how to evade the efforts of the regulators. In a globalized world, the locus of shared interests is no longer at the level of the community save for those who still have local jobs. For the corporate managers it is spread around the globe at scattered corporate profit centers and for the governing elite it is centered in the federal apparatus that makes choices seen as supporting its own interest rather than those of the local communities affected.

But peer-to-peer groups are beginning to engage in their own signaling as Michel Bauwens pointed out by asking: “would you agree that it is precisely the same type of stigmergic signaling which also strengthens post-market dynamics as in peer production, where the signals actually replace the market?

“Ultimately, and this is behind the rise of the zeitgeist movement, it also signals the possibility of a system of real-time coordination of physical production, what they call resource based economics, i.e. they dream of replacing the market with mutual and transparent coordination processes obtained through open book management and transparency … in other words, no need for centralized planning, but also no specific need for market-based pricing as signals for allocation … Christian Siefkes also speculates on such a system in his book, From Exchange to Contributions, “

“I don’t see this happening tomorrow myself but it is an interesting future possibility. Finally there is a lot going on, for example Fair Tracing and Open Supply Chains, which aims to generalize such signaling approaches, See http://p2pfoundation.net/Stigmergy, and http://p2pfoundation.net/Fair_Tracing .”

COOK Report here: For me the new and disappointing information is that the federal government seem to have lost the power to government effectively on behalf of all its citizens. As a result, in highly unpredictable ways, power likely devolves to local communities unfamiliar with its exercise – an unforeseen result of continued advances in Moore’s law. Has technology change become so overwhelming that our political and economic systems can no longer cope?

Some have suggested that government and civil society are disadvantaged when dealing with the global corporation and from an economic point of view this is likely. However the Seely Brown and his co-authors have demonstrated that the 20th century economic efficiency is also draining out of the major publicly held corporations that have seen a 75% decline in their return on investment over the last 45 years. It seems increasingly that the only scale that can be adequately negotiated in the face of rampant technology change may be the local.”

2 Comments Whither government regulation in a highly complex age?

  1. AvatarPoor Richard

    I agree that the failure of government regulation to curb the destructive activity of large corporations is only likely to worsen with the increasing privatization of government. So what can p2p culture do about this?

    1. Establish powerful, federated P2P Guilds based on various global commons of knowledge and expertise.

    2. Establish many strong, self-reliant economies at the local geopolitical (or Eco-political) level by forming partnerships between the P2P guilds and progressive local communities. These local economies would also be strongly confederated with their peers regionally, nationally, and globally.

    3. One more maneuver that may be necessary to assist this process I will dub “castling”, a term borrowed from the game of chess. What I mean by this is a shifting of local populations between adjacent local geopolitical jurisdictions (such as cities and counties in the US) so as to create political, social, and economic majorities of p2p culture in the targeted locations. The locations that are simultaneously abandoned by p2p culture are essentially “sacrificed” to the destructive corporations.

    Half a loaf saved is better than none. The resulting strongly confederated p2p cultural strongholds might stand the best chance of competing with the large corporate entities, excluding them from the “castled” commons, and limiting the scope of their environmental destruction.

  2. Pingback: Guilding the Lilly | Poor Richard's Almanack 2.0

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