[p2p-research] How Relocalization Worked

[Ryan]

  Sent to you by Ryan via Google Reader: How Relocalization Worked via
The Oil Drum - Discussions about Energy and Our Future by Nate Hagens
on 11/22/09

Below the fold is a guest essay by John Michael Greer, author of The
Long Descent, a book I have read and recommend. The post examines the
importance and viability of relocalization from a historical
perspective.
How Relocalization Worked by John Michael Greer
(Original can be found here.)

One of the points that I’ve tried to make repeatedly in these essays is
the place of history as a guide to what works. It’s a point that
deserves repetition. A good many worldsaving plans now in circulation,
however new the rhetoric that surrounds them, simply rehash proposals
that were tried in the past and failed repeatedly; trying them yet
again may thus not be the best use of our limited resources and time.

Of course there’s another side to history that’s more hopeful:
something that worked well in the past can be a useful guide to what
might work well in the future. I’d like to spend a little time
discussing one example of this, partly because it ties into the theme
of the current series of posts – the abject failure of current economic
notions, and the options for replacing them with ideas that actually
make sense – and partly because it addresses one of the more popular
topics in the ongoing peak oil discussion, the need for economic
relocalization as the age of cheap abundant energy comes to an end.

That relocalization needs to happen, and will happen, is clear. Among
other things, it’s clear from history; when complex societies overshoot
their resource bases and decline, one of the things that consistently
happens is that centralized economic arrangements fall apart, long
distance trade declines sharply, and the vast majority of what we now
call consumer goods get made at home, or very close to home. Now of
course that violates some of the conventional wisdom that governs
economic decisions these days; centralized economic arrangements are
thought to yield economies of scale that make them more profitable by
definition than decentralized local arrangements.

When history conflicts with theory, though, it’s not history that’s
wrong, so a second look at the conventional wisdom is in order. The
economies of scale and resulting profits of centralized economic
arrangements don’t happen by themselves. They depend, among other
things, on transportation infrastructure. This doesn’t happen by
itself, either; it happens because governments pay for it, for purposes
of their own. The Roman roads that made the tightly integrated Roman
economy possible, for example, and the interstate highway system that
does the same thing for America, were not produced by entrepreneurs;
they were created by central governments for military purposes. (The
legislation that launched the interstate system in the US, for example,
was pushed by the Department of Defense, which wrestled with
transportation bottlenecks all through the Second World War.)

Government programs of this kind subsidize economic centralization. The
same thing is true of other requirements for centralization – for
example, the maintenance of public order, so that shipments of consumer
goods can get from one side of the country to the other without being
looted. Governments don’t establish police forces and defend their
borders for the purpose of allowing businesses to ship goods safely
over long distances, but businesses profit mightily from these indirect
subsidies nonetheless.

When civilizations come unglued, in turn, all these indirect subsidies
for economic centralization go away. Roads are no longer maintained,
harbors silt up, bandits infest the countryside, migrant nations invade
and carve out chunks of territory for their own, and so on.
Centralization stops being profitable, because the indirect subsidies
that make it profitable aren’t there any more.

Ugo Bardi has written a very readable summary of how this process
unfolded in one of the best documented cases, the fall of the Roman
Empire. The end of Rome was a process of radical relocalization, and
the result was the Middle Ages. The Roman Empire handled defense by
putting huge linear fortifications along its frontiers; the Middle Ages
replaced this with fortifications around every city and baronial hall.
The Roman Empire was a political unity where decisions affecting every
person within its borders were made by bureaucrats in Rome. Medieval
Europe was the antithesis of this, a patchwork of independent feudal
kingdoms the size of a Roman province, which were internally divided
into self-governing fiefs, those into still smaller fiefs, and so on,
to the point that a single village with a fortified manor house could
be an autonomous political unit with its own laws and the recognized
right to wage war on its neighbors.

The same process of radical decentralization affected the economy as
well. The Roman economy was just as centralized as the Roman polity; in
major industries such as pottery, mass production at huge regional
factories was the order of the day, and the products were shipped out
via sea and land for anything up to a thousand miles to the end user.
That came to a screeching halt when the roads weren’t repaired any
more, the Mediterranean became pirate heaven, and too many of the end
users were getting dispossessed, and often dismembered as well, by
invading Visigoths. The economic system that evolved to fill the void
left by Rome’s implosion was thus every bit as relocalized as a feudal
barony, and for exactly the same reasons.

Here’s how it worked. Each city – and “city” in this context means
anything down to a town of a few thousand people – was an independent
economic center; it might have a few industries of more than local
fame, but most of its business consisted of manufacturing and selling
things to its own citizens and the surrounding countryside. The
manufacturing and selling was managed by guilds, which were
cooperatives of master craftsmen. To get into a guild-run profession,
you had to serve an apprenticeship, usually seven years, during which
you got room and board in exchange for learning the craft and working
for your master; you then became a journeyman, and worked for a master
for wages, until you could produce your masterpiece – yes, that’s where
the word came from – which was an example of craftwork fine enough to
convince the other masters to accept you as an equal. Then you became a
master, with voting rights in the guild.

The guild had the legal responsibility under feudal municipal laws to
establish minimum standards for the quality of goods, to regulate
working hours and conditions, and to control prices. The economic
theory of the time held that there was a “just price” for any good or
service, usually the price that had been customary in the region since
time out of mind, and the municipal authorities could be counted on to
crack down on attempts to push prices above the just price unless there
was some very pressing reason for it. Most forms of competition between
masters were off limits; if you made your apprentices and journeymen
work evenings and weekends to outproduce your competitors, for example,
or sold goods below the just price, you’d get in trouble with the
guild, and could be barred from doing business in the town. The only
form of competition that was encouraged was to make and sell a superior
product.

This was the secret weapon of the guild economy, and it helped drive an
age of technical innovation. As Jean Gimpel showed conclusively in The
Medieval Machine, the stereotype of the Middle Ages as a period of
technological stagnation is completely off the mark. Medieval craftsmen
invented the clock, the cannon, and the movable-type printing press,
perfected the magnetic compass and the water wheel, and made massive
improvements in everything from shipbuilding and steelmaking to
architecture and windmills, just for starters. The competition between
masters and guilds for market share in a legal setting that made
quality and innovation the only fields of combat wasn’t the only force
behind these transformations, to be sure – the medieval monastic
system, which put a good fraction of intellectuals of both genders in
settings where they could use their leisure for just about any purpose
that could be chalked up to the greater glory of God, was also a potent
factor – but it certainly played a massive role.

The guild system has nonetheless been a whipping boy for mainstream
economists for a long time now. The person who started that fashion was
none other than Adam Smith, whose The Wealth of Nations castigates the
guilds of his time for what we’d now call antitrust violations. From
within his own perspective, Smith had a point. The guilds were
structured in a way that limited the total number of people who could
work in any given business in any given town, and of course the just
price principle kept prices from fluctuating along with supply and
demand. Thus the prices paid for the goods or services produced by that
business were higher, all things considered, than they would have been
under the free market regime Smith advocated.

The problem with Smith’s analysis is that there are crucial issues
involved that he didn’t address. He lived at a time when transportation
was rapidly expanding, public order was more or less guaranteed, and
the conditions for economic centralization were coming back into play.
Thus the very different realities of limited, localized markets did not
enter into his calculations. In the context of localized economics, a
laissez-faire free market approach doesn’t produce improved access to
better and cheaper goods and services, as Smith argued it should;
instead, it makes it impossible to produce many kinds of goods and
services at all.

Let’s take a specific example for the sake of clarity. A master
blacksmith in a medieval town of 5000 people, say, was in no position
to specialize in only one kind of ironwork. He might be better at fancy
ironmongery than anyone else in town, for example, but most of the
business that kept his shop open, his apprentices fed and clothed, and
his journeymen paid was humbler stuff: nails, hinges, buckles, and the
like. Most of this could be done by people with much less skill than
our blacksmith; that’s why he had his apprentices make nails while he
sat upstairs at the table with the local abbot and discussed the
ironwork for a dizzyingly complex new cutting-edge technology, just
introduced from overseas, called a clock.

The fact that most of his business could be done by relatively
unskilled labor, though, left our blacksmith vulnerable to competition.
His shop, with its specialized tools and its staff of apprentices and
journeymen, was expensive to maintain. If somebody else who could only
make nails, hinges, and buckles could open a smithy next door, and
offer goods at a lower price, our blacksmith could be driven out of
business, since the specialized work that only he could do wouldn’t be
enough to pay his bills. The cut-rate blacksmith then becomes the only
game in town – at least, until someone who limited his work to even
cheaper products made at even lower costs cut into his profits. The
resulting race to the bottom, in a small enough market, might end with
nobody able to make a living as a blacksmith at all.

Thus in a restricted market where specialization is limited, a free
market in which prices are set by supply and demand, and there are no
barriers to entry, can make it impossible for many useful specialties
to be economically viable at all. This is the problem that the guild
system evolved to counter. By restricting the number of people who
could enter any given trade, the guilds made sure that the income
earned by master craftsmen was high enough to allow them to produce
specialty products that were not needed in large enough quantities to
provide a full time income. Since most of the money earned by a master
craftsman was spent in the town and surrounding region – our blacksmith
and his family would have needed bread from the baker, groceries from
the grocer, meat from the butcher, and so on – the higher prices evened
out; since nearly everyone in town was charging guild prices and
earning guild incomes, no one was unfairly penalized.

Now of course the guild system did finally break down; by Adam Smith’s
time, the economic conditions that made it the best option were a
matter of distant memory, and other arrangements were arguably better
suited to the new reality of easy transport and renewed economies of
scale. Still, it’s interesting that in recent years, the same race to
the bottom in which quality goods become unavailable and local
communities suffer has taken place in nearly the same way in most of
small-town America.

A torrent of cheap shoddy goods funneled through Wal-Mart and its ilk,
in a close parallel to the cheap blacksmiths of the example, have
driven local businesses out of existence and made the superior products
and services once provided by those businesses effectively unavailable
to a great many Americans. In theory, this produces a business
environment that is more efficient and innovative; in practice, the
efficiencies are by no means clear and the innovation seems mostly to
involve the creation of ever more exotic and unstable financial
instruments: not necessarily the sort of thing that our society is
better off encouraging.

Advocates of relocalization in the age of peak oil may thus find it
useful to keep the medieval example and its modern equivalent in mind
while planning for the economics of the future. Relocalized communities
must be economically viable or they will soon cease to exist, and while
viable local communities will be possible in the future – just as they
were in the Middle Ages – the steps that will be necessary to make them
viable may require some serious rethinking of the habits that now shape
our economic lives.

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