A short note about how feedback loops and communication standards impact the loci of control.

Judith D. Schwartz, What Jane Jacobs Can Teach Us About the Economy:

Jane Jacobs was an advocate of decentralization; her belief that economies function on a regional, as opposed to national, level has helped spur recent interest in launching local currencies.

But her suspicion of bigness was pragmatic rather than ideological: In her view, the larger and more complex the institution or economy, the less accurate the feedback it provides. And accurate feedback is crucial for a system to self-correct. One way to look at our financial near-crash is as the result of crisscrossing feedback loops: mixed messages coming from GDP, foreign exchanges, the stock exchange, housing sales, the data from different parts of the country contradicting each other so that when policy adjusts for one area it destabilizes another like a seesaw that veers up and down but never finds equilibrium.

With so many layers in our financial system, feedback gets lost.

… One advantage of local, as opposed to centralized, production, is that there’s more transparency, she says. Efficiency, in the sense of economies of scale, does not always promote wealth and productivity, she says. “You don’t want so much control in one place. Most innovation happens on the grassroots level.”

Interestingly, there’s a couple separate issues here: size, complexity, transparency and efficiency.

Smaller, less complex, more transparent systems are not necessarily more efficient. Instead of a set answer, the “right” form of organization requires a deeper look into the institutional arrangements within the system.

Noting the work of the recent Nobel Prize winners Oliver Williamson and Elinor Ostrom, Umair Haque points out:

Ostrom’s work is concerned, fundamentally, with challenging Garret Hardin’s famous Tragedy of the Commons, itself a living expression of neoclassical thinking. Ostrom suggests that far from a tragedy, the commons can be managed from the bottom-up for a shared prosperity — given the right institutions. That conclusion challenges orthodox economics from both left and right leaning perspectives; it suggests that, yes, markets can organize production and consumption efficiently — but only when supported and nurtured by networks and communities.

Meaning: the question really isn’t about decentralization or centralization, but the form of organization and interaction dictated by the economics of markets, networks and communities in that system.

With that in mind, much of my recent thinking has centered on the role of the local and the individual in large systems; mainly, what trends are impacting how the local and the individual impact our systems of organization?

• As it becomes easier, faster and more meaningful to build context into communication,
• As searching the “small here” continues to get better (higher signal / noise ratio),
• And as the economics of niches redefines the meaning and power of local,
• As transparency, “being public” and being human becomes easier, cheaper and more powerful (imagine the power of temporary, localized personal RFPs and personal APIs),
• “Local” can be a viable concept to apply to both the physical and the online world (with the digitally annotated physical world the holy grail), and …
• Local, real-time, meaningful, data-driven feedback will continue to take a larger role in our everyday personal and business lives. The local movement won’t change every aspect of our lives, but the impact will be profound on social norms, cultural values, governmental organization, and economic and accounting profits and losses.
• Thus, large organizations and large systems will be forced to adapt, using markets, networks and communities within their organizations and systems to restructure interactions and decisions.

Thoughts?

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(thanks to Jeremy Heigh for the Jane Jacobs link)