A new globalisation - Page 3

From Griffith REVIEW Edition 25: After the Crisis
© Copyright Griffith University & the author.

Written by Jonathan West

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THE POINT IS THAT monitoring and controlling a system as complex as America's is already an exceedingly difficult and expensive proposition. Complexity of regulation must match the complexity of the system being regulated. But sometimes there are simply too many elements, and too many interactions. The costs impose a substantial drag on productivity. For the world system, the costs of regulating effectively would be even greater. These costs must be set against the alleged benefits of being tightly coupled to a world financial system that is becoming more complex and integrated at an exponential rate.

As well as being costly, increased regulation and oversight inevitably retard innovation. The more rules one must comply with in advance, the greater the barriers to new products or services. While a certain level of regulation is obviously necessary to avoid dangerous or otherwise undesirable products, system-wide regulation undoubtedly clogs change.

The challenges of management-through-regulation are akin to those of administering and controlling an economy through central planning – it is feasible in theory, but in practice the amount of information required and accuracy of judgements are beyond real human capacity. The system becomes slow; errors and ‘system gaming' create waste on a mounting scale. The ‘tame the system through regulation' school of thought advocates a watered-down version of old-fashioned central planning, with many of the same issues.

In the light of these dual problems of complexity and instability, we should at least explore the possibility of ‘decoupling' from such a system, and in the wake of the crisis a growing number of societies are doing so.

Any such call will inevitably be met with horrified cries of ‘protectionism' and ‘isolationism'. But decoupling implies neither. In a world where manufacturing makes up less than 10 per cent of the economy, tariffs make little sense, and nor does ‘going it alone'. What makes sense are the old-fashioned virtues of self-reliance and thrift. Being dependent on global capital to fund investment is a primary form of coupling for Australia. We spend more than we save, so we borrow from overseas to make up the gap. This makes perfect sense so long as the world is stable. But it binds us ever more closely to an unstable system.

Decoupling would begin with the recognition that becoming more self-reliant for capital and investment would be desirable. To achieve this, we would need to consume a little less and save a little more.

It would extend to the general recognition that smaller, simpler units are easier to understand and likely to be more stable than larger, more complex ones. Decoupling would not mean complete separation; that would be neither desirable nor feasible. The point, rather, is to be loosely coupled, to be able to tap the global system, trade with it, experience it, draw from it, but not have our destiny dependent on its vicissitudes.

In effect, decoupling would imply a return to the subsidiarity principle that governance be undertaken by the smallest, lowest, most local and least centralised unit possible. A now almost-forgotten foundation stone of western thought (so lost that my computer informs me ‘subsidiarity' is not a word), this principle is enshrined in the US Constitution's Tenth Amendment and the 1992 Treaty of Maastricht of the European Union. It is routinely breached by both. Subsidiarity implies that social units should seek to be as independent and self-reliant as possible, within the bounds of sustained prosperity and environmental responsibility.

One immediate difficulty in moving forward with such recognition is that it has become the height of ‘progressive' thinking in Australia to favour centralisation of powers and to support the expansion of regulation and control. Many a dinner party features sage nodding at the suggestion that local governments are hopeless, states should be abolished, small and simple is out of date, and powers should be passed to the national, and ultimately to the international. If the United Nations truly ruled the world, wouldn't it be wonderful!