389. Locality and flexibility
In mainstream
economics, next to the assumptions of rationality and autonomy of the
individual, the focus on optimal outcomes, and the neglect of uncertainty, a
further problem is the assumption that local roots of people and communities
hinder the flexibility that optimal allocation of resources requires. That is
related to the assumption that the individual is autonomous.
The human being derives
its identity from interaction, and that works best in local contacts of some
duration. Some time is needed to get to know each other, cross cognitive distance,
and to build trust and shared conventions, taken for granted habits and
orientations. Human beings require a certain amount of community.
I don’t want to
idealize such communities. The sharpest of conflicts and excesses of rivalry, jealousy,
and revenge, developing into feuds, can arise there. To prevent such festering
and stagnation, loosen dependencies, and obtain fresh ideas, there must be variety
and room for entry and exit, and outside contacts.
Also, local bonding can
increase what I discussed in this blog as ‘parochial altruism’, with altruism
within the group and discrimination of outsiders, further worsening its
isolation.
Nevertheless, some
continuity and locality of relations in communities is needed. Formerly, people
found community in religious associations and bonds of neighbourhood, school,
sport, pubs, etc. And in a job, in the community of a firm, often on the basis
of teams. For the lower educated, all these bonds have largely disappeared, as
a result of increase of scale, resulting in concentration outside local
communities, move to low wage countries, and spatial development of roads,
office blocks, and shopping malls that destroyed social infrastructure.
And some of what
remained of facilities went with priority to immigrants who needed to
integrate; at least that is how it was perceived. More highly educated and
mobile people found community of some sort in departments and teams in larger
firms or professional bonds, which did not depend on geographic locality. But
that now is also crumbling through individualization of work and shorter and
more flexible employment.
These losses have been an important part of the feeding ground for populism.
The dominant stream in
economics, excluding spatial economics and economic geography, had no eye for
this. On the contrary: the central dogma was that of ‘comparative advantages’
and maximum flexibility, needed for the optimal allocation of resources.
Locally one should engage in activities in which in comparison one was best,
and other things needed to be acquired in trade with others. Labour and capital
should not be locally bound but maximally flexible, to move to where their
yield was greatest.
Local roots were seen
as causing rigidity, and that, the suggestion is, is always bad. That is part
of the rhetoric of maximal flexibility. The more the better. But that is often
counter-productive, also from a purely economic perspective. That applies to
both local communities and firms. It is good for both the firm and for the
people working in it that one invest in knowledge and capabilities that are
specific to the firm, yielding higher profits with specialties and novelties. That
requires sufficient continuity of jobs and teams, because otherwise such
investments are not made since they require continuity for them to be recouped.
That lack of specific investments lowers quality of products, and the intrinsic
quality of working in teams.
The goal should not be
maximal but optimal flexibility: sufficient duration of location and relation
without yielding rigidity. That is to be part of a new economy.
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