Decentralization

Local Matters

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The quarter century beginning in 1993 will see startling changes in the ways individuals relate to their community and nation. The most important of these changes will be accelerated devolution, both economic and political.

Railroads, electric power, the telephone, and the interstate highway system have all had a powerful decentralizing impact on the American society and economy. In the coming years new telecommunications technology will drive another wave of economic devolution. Fiber-optic information highways will make it cheaper and easier for brain industries to disperse from large cities to small cities and, increasingly, to rural areas. More and more brain workers—people engaged in processing information rather than things—will relocate to what David Churbuck and Jeffrey S. Young, writing in Forbes, call the "virtual workplace."

This trend has for years been the stuff of Sunday-supplement articles: the software writer working from a hot tub on the deck of his Oregon mountain lodge; the meat broker selling shiploads of Australian lamb from a rural Vermont cabin; the catalog sales company whose order takers answer phones far out in the Nebraska prairie. But the telephone, the modem, and the fax machine are only the first-level instruments of this spatial devolution. Increasingly small and inexpensive satellite dishes will allow direct downlinking of data to individual homes. Fiber-optic computer networking will link company units together at the speed of light. Teams of architects and engineers will design products electronically while living many miles apart—and perhaps seeing each other only at the annual company picnic. Video conferencing will be cheap and simple, with large, flat wall screens bringing realistic, life-size images into each dispersed office. Holograph transmission may be a reality by 2018.

Fast, efficient parcel services like UPS and Federal Express allow overnight delivery of documents and products to co-workers or customers, at a cost often less than one employee's 20-mile round-trip commute to work. An example: Dell Computer is a retail firm with no store. It markets directly to customers through toll-free phone lines and next-day delivery via UPS from strategically placed warehouses.

The Lewis Galoob Toy Company of South San Francisco is a prototype of the global manufacturing business of the future. Galoob contracts with independent toy designers who think up new products. It contracts with manufacturing engineers who figure out how to make the products. It contracts with manufacturing brokers in Hong Kong who find workshops in China to put the products together. The brokers contract with ocean shippers to deliver the products to the United States. Manufacturer's representatives market the products on commission to wholesalers and retailers. A finance company collects payments on commission. The Lewis Galoob Company could be located anywhere in the world where modern telecommunication facilities are available.

The productive people who thrive in this kind of environment are not the sort of people who are content to live in, to use the worst example, New York City. They may enjoy the opera and the deli and MOMA, but they decidedly do not relish the crime, fear, stress, congestion, drug culture, pollution, rotten schools, filth, noise, graffiti, taxes, and endemic rudeness that infest the nation's largest (but shrinking) city. So why stay? Once their escape route led to the suburbs. Now, increasingly, it leads to the more distant reaches of the country.

Because the economy is rapidly becoming more global and more decentralized, and because it places ever greater emphasis on highly mobile brain power, competitive pressure will force governments to compete for the new entrepreneurial activity. High-tax, high-regulation Vermont and California will miss out on the economic decentralization wave. Low-tax, low-regulation New Hampshire and Idaho will win. And eventually the idea will percolate into the heads of even the most ardent statists that recreating the economic environment that has emptied out New York City is not conducive to anything desirable, unless their goal is simply to punish enterprise and impoverish their people.

The states led by economically smart political leaders will prosper, at the expense of their dull-witted competitors. And political leaders of regions within the loser states will demand more autonomy to shape their own policies and escape the curse of redistributionist legislatures enamored of more government spending and controls. This trend is already evident in Northern California and Southern Oregon, where sentiment is growing for secession into a new state of Jefferson.

Decentralization will also accelerate on the world stage. The explosion of nationalism that accompanied the disintegration of the Soviet Empire in 1989 has yet to run its course. But future fragmentations may increasingly emphasize not national but economic considerations. Pro-enterprise Slovenia wanted out of a stagnant Marxist Yugoslavia not only to get away from the quarreling Croats and Serbs but also to join Western Europe's market economy. Pro-enterprise Lombardy wants out of an Italy run by incompetent socialist bureaucrats in Rome. Pro-enterprise Guangdong is chafing at control from socialist Beijing.

We are heading toward the "World of a Thousand Flags" envisioned years ago by Austrian economist Leopold Kohr. Many of those flags will fly over strong, vigorous little economies, whose well-educated, hard-working, property-respecting citizens will earn their way in the world marketplace. Switzerland, Singapore, Taiwan, and South Korea are early examples.

In sum, the world of 2018 will feature a dynamic, flexible global economy, with economic rewards flowing to those with brain power, a work ethic, and a governmental regime built on sound respect for property rights, stable currency, and governmental restraint. Cities, states, and nations where government taxation and regulations stifle enterprise will see productive people relocate to more congenial environments. The pro-freedom areas and pro-freedom governments will be the winners. Countries and states run by dumb statists will be the losers.

The demands of a global brain-work economy will stimulate increased parental concern about the education of their children. Parents will no longer be satisfied with the mandatory offerings of the local government school, especially if it is devoid of moral and cultural values and lacking in educational or any other kind of discipline. They will demand education that will equip their children to take advantage of new opportunities and meet the emerging competition. This parental pressure will eventually spell the death of many government schools, with their central mandated curricula, militant teacher unions, low discipline, and "anything goes" ethos.

Ultimately, many states will allow what residents of 92 Vermont towns have had since 1869: a full-blown educational, choice system. And a Supreme Court test will establish that a general system of education vouchers does not constitute an impermissible establishment of religion, even if the vouchers are used to pay tuition at parochial schools. There will be a surge of home schooling and the ancient practice of mentoring, making use of interactive computerized instruction, compact-disk reference libraries and fiber-optic or satellite downlinking of a wide variety of instructional programs. The combination of telecommuting, home schooling, and electronic shopping and entertainment on demand will overcome the barrier of distance from urban centers.

Higher education will be radically transformed for most students. The children of the rich will still attend four years of on-campus instruction (and entertainment), but for most middle-class families the price tag will have become far too high. Instead of requiring students to spend four years on campus to earn a degree, colleges will assign them to learning mentors who will devise for them (often via teleconference) a suitable program of electronic instruction. Students will learn Shakespeare, cell biology, and calculus from the nation's very best teachers by laser disc and satellite dish. (An Arlington, Virginia, company already offers courses by some of the nation's most renowned professors on videotape and is arranging to offer college credit through several cooperating institutions.)

Remarkable new computer graphics will revolutionize mathematics and science instruction. Photos, film clips, and computer-graphic sequences will increasingly displace the traditional talking head. Students will take examinations at a nearby resource and proctoring center, which will serve many colleges on contract. Much higher education will be given in conjunction with the student's employer, and certifications of competence in specialized fields, like the Professional Engineer degree, will come to be more valuable than the traditional Bachelor and Master of Arts, Science, or Business Administration. Intercollegiate athletics will lose its connection to education, already something of a fiction in the major national programs. City and company teams, as in the old AAU and women's softball today, will fill the space just below the professional teams.

Labor unions in the non-governmental sector—now down to about one-eighth of the non-agricultural work force—will continue to dwindle in influence. Joint labor-management work teams, largely prohibited under long obsolete labor law, will increasingly determine workplace conditions independent of contract bargaining. The rise of profit sharing, employee stock ownership plans, and participatory management techniques—all abhorred by most old-line union leaders—will eventually end the labor-management-owner distinctions, with great benefits to the economy and to the participants. The last stronghold of unions, the public sector, will be steadily weakened as taxpayers demand the benefits of privatization of many government functions.

After a disastrous experiment with a bureaucratic, price-controlled national health system during the Clinton presidency, the nation will move to restore individual responsibility in lifestyle and health care. Employer-provided health benefits will cease to be tax free, but individuals and families will be allowed to put tax-deductible dollars into medical-care savings accounts, from which they will purchase catastrophic (high-deductible) coverage. Families that make healthful living choices will see their accounts accumulate over the years, creating a tax-free means to cover their health and retirement-home expenses. Low-income families will, as always, have to be subsidized, but they will take part in the same system as everyone else. Putting consumers back into the health marketplace in place of third-party payers, coupled with effective tort reform, will help curb health-care costs.

The discovery of the merits of the tax-deductible medical care savings account plus the need to generate investment capital formerly supplied by commercial bank reduced to uselessness by heavy-handed federal regulation, will lead to a revolutionary change in the national tax system. Instead of taxing income, the federal government will adopt a cash-flow-style consumption tax. The taxpayer will add up his income; deduct funds devoted to investments, savings, and medical-care account; claim an appropriate subsistence exemption based on family size; and pay tax on the consumed balance. This approach not only encourages investment and frugality, it also puts an end to the complexities and inequities of capital gains and depreciation treatment.

Another serious bout with inflation will give impetus to currency competition. Contracts will be written in terms of the index price of a market basket of internationally traded commodities instead of a fixed amount of Federal Reserve notes, and privately issued currencies will become preferable to unstable and politically manipulated government currencies. Localities will experiment with local currencies as payment for locally produced goods and services.

Throughout this period there will be a remarkable efflorescence of self-help activity in rural areas, suburbs, and inner cities alike. Once governments see that Americans can do remarkably well at solving their own problems if only left alone to do so, there will be a new willingness to dismantle the barriers to self-help. Neighborhood corporations, for instance, will demand the end of such government afflictions as mandated wage scales and nonsensical building and housing codes, zoning rules, and occupational licensing requirements. The opportunity to participate meaningfully in self-directed civic activity will restore real power to citizens seeking to take part in the "little platoons" of a society in which they can once again have confidence and whose progress they can help to shape.

John McClaughry was the Republican candidate for governor of Vermont in 1992.

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