Decentralize Industry
The illness of capitalism from which our radical friends derive such keen satisfaction, is closely connected with the tendency of capitalism to run to extreme centralization. Wealth tends to concentrate itself into a few hands. This is the first and most dangerous aspect of the disease leading to overbuilding, inadequate spending, stock market booms, and Republicanism generally. The second aspect of concentration is the growth of centralized control over business operations, through mergers, high financing, and interlocking directorates. The third aspect is geographical concentration, as industry moves from rural areas into a ring of towns within trucking distances of the great metropolitan centers. Centralized wealth, centralized control, and centralized location are three separate but interrelated aspects of the development that leads capitalism into communism, they will have to tackle capitalism and force it to decentralize.
Price-fixing has, in effect, divided American industry into two parts. In one part prices are “stabilized”, by control of production. If the market fails, production is quickly curtailed, workers are laid off, and the price is maintained. The initial burden is thrown on the workers — that is, the industry tries to save itself by impoverishing the consumers of other industries. In the other part of the economic system production control is not yet established. When hard times begin, production goes on but prices fall, reducing the buying power of the producers. By a curious dispensation of Providence, the industries where the burden of depression falls first on labor are those controlled by high finance, while the industries where the owners take the first blow are farming and small business — controlled by persons who when young failed to marry into the Preferred List. This commendable arrangement was all very well on a small scale, but it could be overdone. The effect of controlled prices on one end and uncontrolled prices on the other is to make the market rise high in good times and collapse violently in hard times: it aggravates the stability of business in general. Finance makes most of its living by riding the waves of the business cycle, so the finance men have prospered by an arrangement that makes business more unstable. But when the downswing goes too far the people are liable to become impatient, and all the principles of “sound” finance may be called in question…
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Profit-making and price-fixing in the same business make life hard for all other business. Some kinds of business have to be centrally controlled, for technical reasons, and if they are centrally controlled they will inevitably fix prices. From there on the road lies through financial skullduggery to heavy public regulation, atrophy of the profit-making function, and finally public ownership. Railroads are already far along toward the last stage: electric power is traveling fast. The power industry has already proved that centralized control, which is technically desirable, is, under private financial auspices, inefficient and disastrous. The next step is to kill the holding companies and start over. The end will be that rates will be fixed to benefit business in general, profits will be no longer an object, and only the Federal government can afford to be the stockholder.
The types of business that must be centralized are in general those that require planned distribution of load, such as power and transportation; those that deal in limited strategic resources, such as oil and timber; and those that serve business rather than consumers, such as basic commodity and security markets and communication. The borderline between industries that must be centralized and industries that may be decentralized is vague, and judgment depends somewhat on political viewpoint…
Centralized control leads naturally to public ownership, because capitalism can tolerate only a small amount of price-fixing within the profit system itself. Public ownership, or, as the socialists call it, “operation for use and not for profit,” is one of those things that look better than the taste. Bureaucracy is the most obvious objection to public ownership. Large-scale planning tends to run to statistics, a dangerous narcotic that will corrode the higher brain cells of all but the toughest minds. Bureaucratic narcosis is an occupational disease of those who handle large productive operations. They do a good job on the details, and forget what the objective of the operation was intended to be. They also tend to stick together in stubborn resistance to any change that might disturb their peaceful ruminations. But bureaucracy is not merely a characteristic of government business; it is a natural disease in big bbusiness of any kind. Russia has it already, but so have the American railroads. Everyone who is familiar with the inside working of large corporations knows that the tendency to nepotism, buck passing, red tape, and the growth of barnacles generally, is to be found in big business as well as in government. In government or business, the bureaucratic sleep can be prevented for a time by a tough leader who keeps his eye on the ball, damns the statistics, and frequently fires his subordinates. But in the long run, the cure for bureaucracy is decentralization and free competition; and where decentralization is impossible we shall just have to swallow the consequences and make the best of it…
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Centralized industry has to be publicly owned, and policy in the public business has to be determined by political pull, which is unfortunate but inevitable, as America or Russia or any other place. The moral would seem to be not to centralize when it can be avoided…
The tendency of centralization to grow by its own effects has put the rural areas at a disadvantage that grows worse with time. City people have the capital; they become creditors, draining the country of money. City people have the money to spend; they become the market, draining the country of its industries. City people have the jobs to offer; country people produce the children; so country incomes fall while city incomes rise. The effects combine to aggravate the cause, and the whole movement is cumulative, unless some outside agency interferes, such as the government.
The result of centralization has been that many areas that are physically marginal have become marginal in the financial sense. Physical marginality is real enough. There are areas that ought never to have been ploughed, that ought to go back to forest or pasture, as everybody knows since the dust began to blow. But other areas are running a steady monetary deficit merely because of the way the economic system has arranged itself…
This country cannot afford to abandon areas that are able to produce wealth, but not to enjoy it, because of absentee ownership and economic disadvantage. What good is an oil field to the Texans if the oil is owned by people in New York? The West in general is marginal because the Easterners own the resources and the South is marginal because Northerners own the factories and the mortgages. But if the Westerners and the Southerners were to move to New York, the wealth of the nation would be small. The nation has to pay the people who work its resources enough to make them stay where they are, which is why the nation has to lay income taxes on New York and spend the money in the South and West. The New Yorkers accept dividend checks from all over the country and then kick at the injustice of having to pay taxes to support the “pauper” states. The face is that free trade always tends to drain all the money into one place, just as rivers tend to run into the ocean, and unless there is some overhead power to draw water out of the ocean and pour it on the back country, the life-giving streams will cease to flow. Free trade without heavy income taxation does not make sense, and in fact it dies out. But, human nature being what it is, there will surely never be enough differential taxation to redress the unbalanced buying power of the hinterland as it exists now. The rural areas need industry, home owned, home controlled, and home located, to give them money incomes and reduce their dependence on the Federal government. Subsidy will always be necessary; but the quantity needed can be cut by decentralization of small-scale industry…
The notion that big plants were efficient had a great vogue in the days of our folly. They were efficient, as viewed from Wall Street, because the big companies could carry a more complicated capital structure and one that could more easily be milked by the wise. Viewed from the directors’ room, too, the big companies were a heart-warming spectacle, because the investment of their large surplus funds could affect the stock market; and a prudent director might eke out his twenty dollar gold piece by taking his innocent stockholders for a ride over the bumps. But from the point of view of making the most goods for the least labor and the least social dislocation, the engineers were remarking that small plants were sometimes more efficient.
A factory that is just large enough to swing the best modern equipment will do as good a mechanical job as can be done. If the product is a complicated or large object like a typewriter or an automobile, the factory will have to be larger than a mill for making coat-hangers or overalls. But this is a big country, well able to support a number of typewriter companies and automobile factories. If there are a number of independent concerns in our large free-trade area, and if they are scattered about and free from price-fixing, the main virtues of decentralized industry are there even though each factory may employ several thousand men. But the greatest virtues are found in those industries where the factories can be numerous and small, and able to fit into little country towns, several of different kinds to a town.
In a little factory the officials are apt to know their men by name, and if the management is far the workmen will be inclined to give service that is not to be bought for money alone. The officers of a small factory are conscious not only of costs and prices, but of people, materials, and machinery, vital factors of success that in a big concern seem abstract and far away. A small factory can quickly change its methods or its product to suit the changing times. If the management gets to sniffing statistics and falls asleep, the company can die and a more wakeful one can grow up in its place, without dislocating half of the United States and overthrowing the social order. The small factory can make a quality product, it can utilize some special genius or material peculiar to its locality, it can catch hold of some small but eager market that the clumsy tongs of a large organization cannot grasp. The small factory can sometimes cut the established channels of trace and sell to the people of its own region without the overhead costs of the long journey to the metropolis and back. If the larger factories are independent enough to offer a free market, many little factories can prosper making parts and accessories for automobiles or other complex products.
Little independent factories are best suited to geographical decentralization. They can use the comparatively cheap labor of the rural areas without draining the profits into the cities. Labor is cheap in the country, and it must be too, because the people are born there—though there ought to be limits. Rural factories, if they become numerous, will raise the total income of the population so that the people will be able to support schools and churches and hospitals, all of which will provide business for the local industries themselves. The cumulative disintegration of the country districts can be reversed and turned into a new upbuilding, provided enough new growth can be artificially induced so that the money drain can be stopped.
But the beautiful picture of a happy countryside with farms and little industries working together is a dream until the people of the United States, acting as sovereign, destroy the great rackets of the under and upper world, and free the little industries from the power of high finance and organized racketeering generally…
The American people happen to want freedom. That is the primary reason for planning decentralization, because the price of free initiative is free prices, and free prices are not found in Big Business. The American people want a system that will not require too much detailed interference from Washington, and that is a reason for planning geographic decentralization and a greater degree of regional self-sufficiency. But the most important reason for desiring decentralization is more abstract and at the same time more fundamental.
National planning in a system of high productivity is a fearful job. The production of basic necessities, on which the Russians are now valiantly chewing, will be the least of our problems. Most of our energies will be devoted to services and caprice goods, which are highly unpredictable. With the growth of technology in farming and industry, technological unpredictability will increase. The first of all plans for a system of plenty should be a plan for a national shock absorber to ease our fall when our economic miscalculations let us down. A large body of decentralized free industry is the only kind of shock absorber that has yet been invented; and any high-technology country—be it capitalist, communist, or fascist—that is without one is liable to suffer some terrifying bumps.