Thursday, March 17, 2011

The Fundamentals of Industrial Ideologies: Centralization

The Third Wave, A. Toffler

Finally, all industrial nations developed centralization into a fine art. While the Church and many First Wave rulers knew perfectly well how to centralize power, they dealt with far less complex societies and were crude amateurs by contrast with the men and women who centralized industrial societies from the ground floor up.

All complicated societies require a mixture of both centralized and decentralized operations. But the shift from a basically decentralized First Wave economy, with each locality largely responsible for producing its own necessities, to the integrated national economies of the Second Wave led to totally new methods for centralizing power. These came into play at the level of individual companies, industries, and the economy as a whole.

The early railroads provide a classic illustration. Compared with other businesses they were the giants of their day. In the United States in 1850 only forty-one factories had a capitalization of 250 thousand dollars or more. By contrast, the New York Central Railroad as early as 1860 boasted a capitalization of 30 million dollars. To run such a gargantuan enterprise, new management methods were needed.

The early railroad managers, therefore, like the managers of titte space program in our own era, had to invent new techniques. They standardized technologies, fares, and schedules. They synchronized operations over hundreds of miles. They created specialized new occupations and departments. They concentrated capital, energy, and people. They fought to maximize the scale of their networks. And to accomplish all this they created new forms of organization based on
centralization of information and command.

Employees were divided into "line" and "staff." Daily reports were initiated to provide data on car movements, loadings, damages, lost freight, repairs, engine miles, et cetera. All this information flowed up a centralized chain of command until it reached the general superintendent who made the decisions and sent orders down the line.

The railroads, as business historian Alfred D. Chandler, Jr., has shown, soon became a model for other large organizations, and centralized management came to be regarded as an advanced, sophisticated tool in all the Second Wave nations.

In politics, too, the Second Wave encouraged centralization. In the United States, as early as the late 1780's, this was illustrated by the battle to replace the loose, decentralist Articles of Confederation with a more centralist Constitution. Generally the First Wave rural interests resisted the concentration of power in the national government, while Second Wave commercial interests led by Hamilton argued, in The Federalist and elsewhere, that a strong central government was essential not only for military and foreign policy reasons but for economic growth.

The resultant Constitution of 1787 was an ingenious compromise. Because First Wave forces were still strong, the Constitution reserved important powers to the states rather than the central government. To prevent overly strong central power it also called for a unique separation of legislative, executive, and judicial powers. But the Constitution also contained elastic language that would eventually permit the federal government to extend its reach drastically.

As industrialization pushed the political system toward greater centralization, the government in Washington took on an increasing number of powers and responsibilities and monopolized more and more decision-making at the center. Within the federal government, meanwhile, power shifted from Congress and the courts to the most centralist of three branches—the Executive. By the Nixon years, historian Arthur Schlesinger (himself once an ardent centralizer) was attacking the "imperial presidency."

The pressures toward political centralization were even stronger outside the United States. A quick look at Sweden, Japan, Britain, or France is enough to make the U.S. system seem decentralized by comparison. Jean-Francois Revel, author of Without Marx or Jesus, makes this point in describing how governments respond to political protest: "When a demonstration is forbidden in France, there is never any doubt about the source of the prohibition. If it is a question of a major political demonstration, it is the [central] government," he says. "In the United States, however, when a demonstration is forbidden, the first question everyone asks is, 'By whom?'" Revel points out that it is usually some local authority operating autonomously.

The extremes of political centralization were found, of course, in the Marxist industrial nations. In 1850 Marx called for a "decisive centralization of power in the hands of the state." Engels, like Hamilton before him, attacked decentralized confederations as "an enormous step backward." Later on the Soviets, eager to accelerate industrialization, proceeded to construct the most highly centralized political and economic structure of all, submitting even the smallest of production decisions to the control of central planners.

The gradual centralization of a once decentralized economy was aided, moreover, by a crucial invention whose very name reveals its purpose: the central bank.

In 1694, at the very dawn of the industrial age, while Newcomen was still tinkering with the steam engine, William Paterson organized the Bank of England—which became a template for similar centralist institutions in all Second Wave countries. No country could complete its Second Wave phase without constructing its own equivalent of this machine for the central control of money and credit.

Paterson's bank sold government bonds; it issued government-backed currency; it later began to regulate the lending practices of other banks. Eventually it took on the primary function of all central banks today: central control of the money supply. In 1800 the Banque de France was formed for similar purposes. This was followed by the formation of the Reichsbank in 1875.

In the United States the collision between First and Second Wave forces led to a major battle over central banking shortly after the adoption of the constitution. Hamilton, the most brilliant advocate of Second Wave policies, argued for a national bank on the English model. The South and the frontier West, still wedded to agriculture, opposed him. Nevertheless, with the support of the industrializing Northeast, he succeeded in forcing through legislation that created the Bank of the United States—forerunner of today's Federal Reserve System.

Employed by governments to regulate the level and rate of market activity, central banks introduced—by the back door, as it were—a degree of unofficial short-range planning into capitalist economies. Money flowed through every artery in Second Wave societies, both capitalist and socialist. Both needed, and therefore created, a centralized money pumping station. Central banking and centralized government marched hand in hand. Centralization was another dominating principle of Second Wave civilization.