Big is beautiful (and inevitable)
A day or two ago, I offhandedly endorsed an article from Jagdish Bhagwati on the continued relevance of global free trade. This provoked a few heated responses from Kevin Carson, who has long argued that economic globalization is almost entirely a result of an elaborate web of state-subsidized networks like public transportation. A truly free market, Carson argues, would privilege locally produced goods and services over long-distance competitors, who rely on an artificial network of state intervention to sustain their business model. It’s an interesting hypothesis, though absent a visit to some alternate universe without railroads and the interstate highway system, I don’t think we will ever be able to conclusively test the merits of his argument. Carson’s comments have provoked a few of my own thoughts on the intersection of local concerns and the free market, however:
1) If you are sympathetic to the idea of local, autonomous communities, I think it’s a good bet that you’re also suspicious of corporatism, subsidies, and other interventionist policies. Ideally, then, you’d want to couch your defense of localism in terms of a return to a truly free market system.
But are localism and a free market economy reconcilable? It seems to me that many local communities derive from premodern and early-modern economic systems that were not characterized by free and unfettered economic exchange. I also suspect that local communities are frequently sustained by their own competing networks of subsidies. For example, I remember reading Patrick Deneen on the surprising persistence of Bavaria’s local traditions, only to find that the German government takes an active interest in preserving (read: subsidizing) the viability of small-scale communities (emphasis mine):
Nearly every yard has an enormous pile of wood, stacked carefully and in perfect symmetry, already today in use as the temperatures dip into the 50s here. Also, in every backyard one sees a compost heap: one pays for each piece of garbage one throws into the waste can, so every incentive is to avoid refuse weight. Moreover, companies must pay for the production of packaging (which must also be separated from the garbage and separately collected for recycling) and must charge a deposit for all plastic bottles. At most public events you will not even be served with plastic: you must pay a “pfand” (deposit) for dishes or glasses, and return it for return of your deposit afterwards. You must pay for plastic bags at supermarkets, an expense most people avoid by bringing their own canvas bags. The German economy, thus, does not measure its growth by the creation of waste products, and the German countryside is not defiled with endless vistas of discarded plastic.
Towns are towns: houses are generally not permitted outside the town limits due to strict zoning laws that have kept American-style suburbanization at bay. This makes for greater population density – even in the smallest towns – and hence also makes feasible vibrant regional and national public transportation systems.
One of the ways that family businesses have been protected from the large chains is strict zoning laws that limit the building of “big box” stores outside town and city limits (yes, it’s there, but far less than in America). Another strategy has been the store closing times – a subject of fierce debate for several years. Store closing hours have traditionally favored small business owners who hire few or no employees, and who thus must be home to care for schoolchildren during the afternoons and in the early evening. Most businesses still close for several hours at lunch and at 6:30 in the evening. This allows family businesses to compete with the chains, a fact that is everywhere in evidence, and in contrast to the U.S.
I’ve learned that there is a very effective subsidy now taking place in Germany which guarantees a high rate of return for electricity produced through solar capture. In effect, houses without solar panels are subsidizing houses that have solar.
2) I understand the argument that state-subsidized transportation systems disproportionately advantage large-scale retailers and producers. But the benefits of economies of scale would still exist without an easily-accessible interstate transport network, right? Even in Carson’s counterfactual scenario, I imagine that bigger producers would still create more goods at lower marginal costs. Correct me if I’m wrong, but I also assume that a larger market share allows you to bargain with suppliers from a more advantageous position than smaller competitors. But don’t take my word for it, take Will Wilkinson’s:
To go back to Wal-Mart, once it’s basic structure is in place, it’s hard to see how the marginal outlet significantly increases internal transactions costs. “Bigger” in this sense doesn’t do much to add complexity for the managers of the core firm. But it does create efficiencies. The larger the market Wal-Mart constitutes, the harder a bargain it can drive with suppliers, allowing it to offer consumers lower prices, etc. It seems to me there is market pressure toward larger scale in this kind of retail, whether or not the state subsidizes roads. And it’s worth noting that the innovative efficiencies of Wal-Mart in part explains why localities offer subsidies to attract their stores. Wal-Mart is a stable, reliable source of jobs and tax revenue because it is a highly-successful business because it offers lower prices than competitors in part because of its economies of scale. Big business can be beautiful.
3) Given the inter-connectedness of subsidies and local communities and the inherent advantages of large-scale producers and retailers in any economic context, I think that the localism versus globalism debate is about what we should subsidize rather than whether we should subsidize, period. I think we can (and should) argue over what local features are worth preserving through active government support. But suggesting that localism represents some return to an idealized free market state of nature strikes me as pretty naive.