Only the State Can Succeed at Decentralization

Max Bovkun/The Lounge Burj Khalifa, United Arab Emirates

Nothing throws the Bay Area’s ongoing conquest of America into open view like the ubiquity of decentralization and disruption. These concepts confront us via LinkedIn pitches, cypherpunk forums, free market think tanks, blockchain advocates—visionaries and grifters of all kinds. Route around the past! The future awaits, they say.

But if the digital spin is new, the Schelling point itself is as old as America. It has underpinned everything from the country’s founding to its modern conduct as a superpower. Decentralization is generally a debate about centers versus peripheries: holistic, coordinated action versus localized, particular action. Western politics, particularly in America and the Anglosphere, has been crippled for decades by viewing center and periphery as two sides of a factional conflict.

In the realm of economics, markets and the state are consistently seen as two players in a zero-sum game. The dovish version sees the state as a necessary but ultimately corrective force, evening out the playing field; meanwhile, the hawkish version presents a parasitic state draining productive energy from a population just trying to get by. In regional disputes, cities are pitted against towns and rural areas. Growth is seen as necessarily favoring one or the other, and by extension educated urbanites versus ‘Middle America.’ In debates about social mores, the notion of common customs which shape the population is all but nonexistent. Debates center on the boundary between private freedom versus public restriction—whether drug use, owning firearms, sexual norms, or religious praxis.

The presumption of a zero-sum game is a fundamental error in nearly every one of these discourses. America’s greatest innovations were achieved by dynamic interaction between state power and market potential. Investment and coordination by the military, health, and research agencies like DARPA brought us GPS, numerous pharmaceutical drugs, the internet, and the Google algorithm. The same is true around the world; for example, South Korea’s famously competitive firms were the result of the Park regime’s aggressive industrial policies. On the regional question, the U.S. need not look far for an alternative. During America’s rise in the 19th and early 20th centuries, the development of each region was seen as necessary for the strengthening of the whole country. The Hamiltonian-inspired American System used both external tariffs and internal transportation investment to spur the country’s industrial development in both the east and on the frontier. When it comes to social mores, the very fact that opening certain questions to personal choice creates such conflict implies that most people realize this dichotomy is false. Central action on norms, administration, and law themselves condition the values, duties, and taboos of the population.

The cases are diverse, but the lesson is the same: center and periphery, when properly governed, interact symbiotically in a feedback loop. The health and development of the center feeds that of the periphery, and vice-versa. Good statecraft must use the strength of each simultaneously. It must recognize the dance between center and periphery, and consider both as components of a unified and dynamic whole.

The topic of decentralization, typically burdened by zero-sum thinking, deserves a fresh analysis through this lens.

Why the West is Watching Asia During COVID-19

The truth is that decentralization has happened around the world, across political, economic, and technological lines. It just differed from the popular American narrative in one important way: rather than decentralization against the center, decentralization has been carried out by central powers—to their own benefit as well as the benefit of their respective peripheries. Governments and corporations have both harnessed strategic decentralization to create  positive feedback loops between center and periphery.

Successful decentralization isn’t rebellion and fracture; it’s a constructive cooperation between central and peripheral powers within a holistic order. Centralized and decentralized actions solve different problems: scale and coordination on the one side, experimentation and localized knowledge on the other. This is a much better model for successful institution building.

Over the last decade, a number of East Asian states have captured the Western imagination—or at least an uncertain attention—as they appear to be winning on both fronts at once. Singapore, South Korea, Taiwan, and China are the foremost examples. These states have simultaneously built resilient state capacity and productive markets. While many Western liberal democracies are succumbing to political gridlock and economic stagnation, they have been able to take decisive action and upgrade their systems in response to challenges.

These states are not identical. Singapore is a city-state; the rest are not. Taiwan and South Korea privilege voluntary action and privacy, while Singapore and China do not. Unlike the rest, China is a demographic behemoth. It is nimble in economics, but risk-averse when it comes to popular discontent, and its central government is used to routing around slow or corrupt mid-level bureaucracies.

But despite such differences, these states have demonstrated competency and energy in many areas which Western states appear to have lost them. The COVID-19 crisis has only accelerated this pattern. In that context, the PRC and Taiwan have established something like two ends of a spectrum. The former’s response was highly central and top-down—suppressed information it saw as destabilizing, but was able to respond on a large scale as the disease spread. The latter allowed greater participation by citizens, as well as free-flowing information which contributed to an early response. This reflects the different cultures of the mainland and Taiwan, the different scales as a large empire and a smaller nation-state, and the differences between the CCP and the government in Taipei. Both possess lessons for America as it works through and beyond this pandemic.

Decentralizing from the Center: Beijing and Taipei

Historically, China’s reform process was informed by observing how other systems had out-competed it on the economic front. Deng Xiaoping’s famous pragmatism was based on his willingness to learn from different systems. His attentiveness to Singapore is well-known, based on Lee Kuan Yew’s successful combination of a market economy with a more authoritarian and technocratic approach to governance.

More directly, the integration of Hong Kong and Macau gave the CCP a chance to import institutional knowledge to its newly-minted special economic zones (SEZs). For example, Leung Chun-ying—best known for his career as Hong Kong’s infamously pro-Beijing chief executive—played a key role in the development of Shenzhen as China’s premier SEZ. He both advised its urban reforms and positioned Hong Kong as a springboard for foreign investment into the mainland. By actively creating the space for local experimentation, the CCP is able to control the incorporation of desirable updates into its top-level policies. It continually updates its strategy, creating and integrating local systems to maintain sovereignty over “one country.”

The SEZs aren’t just restricted zones of tolerated markets, or interfaces to Western international capitalism. Within CCP theory, the economic development they spur introduces what Party theorist Ye Xianming calls the logic of capital to the country as a whole. They help to eradicate the “backward” characteristics which hold China back. The controlled interface to Western international capitalism allows the Chinese economic community to gain practical knowledge, and subjects institutions in the rest of China to a sharpening competitive logic without turning the whole country over to this conception of capitalism. The CCP sees the SEZs as ultimately propelling China and the party-state forward to complete the logical development of their social form. In terms of theory, at least, China is the world’s foremost Hegelian and modernist state.

The Chinese model has provided for striking levels of decentralization and experimentation, but it is inescapably touched by the culture of the CCP itself. The party feels, for good reason, that its central control is precarious, so it very carefully manages the process of incorporation. Openness to novelty is checked by a fear of destabilization. The CCP’s relationship with those it governs is hardly one of deep trust. This is especially evident in the watchful eye it keeps over the country’s internet, which makes the ubiquitous use of VPNs a necessity.

Off the coast, the government of Taiwan has embraced a more open model of digital governance. Taiwanese government figures such as Audrey Tang, a programmer who has taken on the role of Taiwan’s digital minister, have led these initiatives. Tang worked to build relationships between the Taiwanese government and the g0v (“gov-zero”) programmer and hacker community, which was devoted to building open source tools for governance—a combination which would be utterly bizarre in the American context, but has effectively upgraded Taiwan’s state capacity. These relationships have since become solidified and reflected in policy. Since 2015, this partnership has led to both the vTaiwan and Join platforms. These are not simply feedback mechanisms or digital comment boxes. Rather, they are structured to reveal Schelling points on policy issues, ultimately leading to emergent consensus positions. Around half of the Taiwanese population has participated in these sorts of platforms.

Taiwanese citizens took an active role in determining what sort of data has been collected and used throughout the early stages of Taiwan’s COVID-19 response. This resulted in numerous community-based apps which used both public and voluntarily-disclosed data to coordinate local responses. Two prominent examples were the creation of apps monitoring face mask availability and tracing contact. The former was coordinated in part by Digital Minister Tang, alongside g0v programmers. Real-time tracking of mask availability reduced shortages and allowed for efficient reallocation. The latter allowed citizens to share reports, symptoms, and other data which could then be used to determine if one had been in a high-risk area or if symptoms were serious enough to report to medical centers.

All this took place alongside more centralized measures: integration of national health insurance data with customs and immigration, real-time symptoms and travel history alerts for visitors to clinics, QR codes and online reporting of personal data, prediction of traveler infection risks, and the use of personal phones to fast-track low-risk returnees and track the quarantine of high-risk ones.

While central coordination remains essential to the Taiwanese model, it places a far higher degree of trust in local coordination. Citizens can organize and bootstrap responses without waiting on approval from official channels. Rather, successful responses attract the attention of these channels, which then act as platforms on which to scale up and support their implementation. Rather than awaiting entire new party platforms, the g0v culture which influenced this strategy focused on ‘forking’ governance by allowing live feedback as policies develop. On the civil service side, Tang’s approach also encouraged greater risk-taking among public employees.

Unlike the CCP, this relationship is more characterized by trust and openness between the government and population. But in both cases, the dynamic reinforcement between central and local actors has allowed these governments to develop a honed and responsive form of state capacity.

Decentralization Beyond Liberalism

Neither China, nor Taiwan present a model which can be imported wholesale into the U.S. context, or that of its allies. The CCP’s emphasis on centralization and control is based on a deep fear of its own population. This is a failure. As Taiwan showed, a relationship of trust and cooperation between state and people is needed to realize much of what these digital networks make possible. Nevertheless, China’s willingness to pursue ambitious projects, its belief that governance can be skillful and successful, and its ability to quickly grow domestic state capacity should be taken as examples. And while Taiwan’s model is more amenable to many Western social and political norms, it was developed in the context of a highly-educated and homogeneous population living on a small island, without the same political order concerns as a more imperial state like China or the US. A huge and diverse country like the U.S. cannot presume to import such a model.

But America can learn from both. Both the CCP and Taiwanese strategies have important insights, pointing toward a more fundamental model that can be adapted to local conditions—governance forks with American characteristics.

The core competencies of central action include coordination and scale. When action among a number of local actors is obstructed by insufficient capacity, information, competing interests, or other barriers, it can become more efficient for a central actor to coordinate local actors. Sometimes, it may even override them completely. Where local incentives compete with the common good, it provides a rational center for action where none would otherwise exist.

On the other hand, over-extension is often the cause of failure. A classic example is the calculation problem; the necessary knowledge for economic planning is sometimes dispersed among many local actors but inaccessible to a single central actor. Central actors can also find themselves over-applying a particular solution beyond its original context, so that it begins to create more problems than it solved. They can lose the expertise necessary for maintaining previously successful solutions, or fail to keep track of whether the local conditions for a previous solution have continued to hold.

One good example is bureaucracies: a common failure mode for a bureaucracy is that it becomes inefficient in solving the problem which it was formally created to solve, or that it loses the organizational owner who was able to direct it. However, this should not lead one to assume that a central actor as such is the problem. Modern American governing institutions are infamously plagued by ineffective bureaucracies. But Americans have also built effective bureaucracies and can observe effective bureaucracies in other countries today—ones that achieve their goals and are effectively managed by their owners. Forgetting how to cure a disease is bad, but assuming this means there can be no cure is much worse.

Likewise, peripheries are the scene of localized knowledge and coordination. A multiplicity of actors is often more resilient to failure. On a localized level, people can experiment, act on unique knowledge, and improve on what they learn from others. When properly stewarded, they provide an optimal level of variability to the system as a whole—one which keeps it dynamic and resilient. However, failures in coordination, scale, or information can become insurmountable without recourse to a higher-level actor.

In a healthy positive feedback loop, the center and periphery each act on their strengths. The competency of the center benefits the periphery, while the competency of the periphery achieves the goals which the center cannot. This is a functional order: each part plays its role in a system according to an overall logic. It operates teleologically, with the internal structures evolving as is necessary to fulfill the overall system’s goals. When it comes to a state governing a country, the goal is peace, law, strong social institutions, economic wealth, and so on.

As a general principle, this seems basic. As a guiding force of American governance, it has been thoroughly abandoned and memory-holed. The last remnants of the American System were abandoned in the early 20th century. By the turn of the century, the notion of a state which actively developed and stewarded the country had its new home in Beijing.

When the ability to govern—or even conceive of—a country as a holistic system disappears, the political incentive is for factions to arise. Polities tend to disintegrate from the top down. This is the situation we are struck with in America. Various factions of middlemen and rentiers, who have lost the ability to coordinate around the guiding logic of a holistic center, expropriate the productive health of the peripheries.

Reconciliation is only established through victory by a faction animated by the holistic logic of a new governing center, or collapse and foreign conquest. Victory of a faction operating on mere factional logic only accelerates the problem as they use it as a looting opportunity.

A reconsolidating victory can come from the center or periphery. The American colonies won a peripheral victory against the British center, and the resultant republic won a central victory against its southern periphery during the Civil War. China, now a decisive center, was an exploited periphery for much of its recent history.

Human nature plays a formative role in the tribal dynamics which so often occur when these systems collapse. But that same human nature drives cooperation and invention when things are arranged properly. That makes the symbiotic feedback loop approach to centers and peripheries a powerful mindset for states to have. Each allows humans to cooperate in a uniquely advantageous way. A stewardship approach allows states to responsibly order and govern these systems, and consider them holistically rather than as mere units of tribalized political warfare. Decentralization is often an effective tool to route around and supplant failed institutions or obstructive mid-level political actors. But that efficacy is determined by how well it serves the overarching goals of the country.

A New American System

Throughout the early-stage COVID-19 response, America’s major decision-makers faced numerous coordination failures. The messaging from the White House changed quickly, guidance from federal agencies was unclear, and entrepreneurs willing to put their manufacturing resources to use were met with counterproductive regulatory hurdles like the need for emergency-use authorizations when creating tests. Mid-level structures failed to adapt to allow for central and local action to coordinate on a response.

Federal actions did improve as time went on. For example, the White House helped to launch the COVID-19 Open Research Dataset, including pre-publication materials. This is an excellent example of central action overcoming barriers to information access so that private and local actors are better able to develop their own responses. But soon enough, political bandwidth was taken up with discussions about what form the bailout should take.

While the private sector responds as best it can to building the infrastructure for the pandemic response, America’s governing institutions seem unable to make substantive changes in how they achieve their mission. At best, there are instances of momentary collaboration, sure to collapse once the pressure is off and the blame-game begins.

As long as no clear center exists in the real structure of American governance—which sometimes overlaps with its formal blueprint, and sometimes does not—the necessary forms of decentralization will not occur either. Competent local actors are frustrated, factions near the center are busy with political conflict, and the middleman bureaucracies lack real ownership or direction.

The goal of decentralization is to unleash companies, cities, and other local actors to experiment and take risks in order to benefit the country as a whole. But if America as a whole has no center, then the logical move is for the most successful local actors to fill the gap—either by making a bid for the central power, or by reconstituting it locally. When California’s governor calls it a nation-state, he might just be taking a convenient dig. But there’s a reason the dig is effective. If a state is successful when the federal power is not, why continue to give it resources? If a region has no stake in the rest of the country, why continue to remain part of it?

The same logic is mirrored in subcultures which see technology as a way to outmaneuver an unsaveable state. When the tech sector seems bold and innovative, and the political sector is a bloated zombie, people start looking to technology as an escape hatch—whatever the realities of their intertwined relationship. But what is the most successful version of this project? A secession of Silicon Valley alone will not fill the vacuum of America. If Silicon Valley creates a real alternative, then it has not repudiated the center, but created an astonishing fork to replace it. If this happens, then Silicon Valley will need to honestly confront its goals sooner or later.

America probably isn’t going to disintegrate next week. But if it permanently remains without any rational, coordinating, or effective central power, then why should it remain together indefinitely? The Soviet and British empires disintegrated over a few decades. The Roman one took longer. But disintegrate they all did, when their centers of gravity vanished. And the constituents, for all their momentary liberties, mostly ended up the hapless vassals of other powers.

The same might have happened to America itself. The founding generation could have found itself reconquered, had they not ably used their diplomatic and military resources. Had a less determined union let the south secede or failed to take the west, the European powers might have reasserted themselves on the continent. If the American System had not successfully built a powerful national economy, the country might have become yet another resource trap, like so many other states in the Americas. At every stage, America succeeded because it was able to produce a coordinated center with the capacity to govern the country as a whole. It actively supported the creation and development of rising cities and states, increasing its territorial reach and overall might.

In order to coordinate this scale of policy once again, and defeat the middleman institutions that would resist dynamic coordination, the federal center will have to both rebuild its own state capacity and explicitly adopt a new model of what governance looks like. They will have to think in terms of building positive feedback loops on the political level, realizing the power of center and periphery alike. China achieved this capacity through a long process of reform, including importing expertise from outside the mainland. Likewise, the technological competence of Taiwanese institutions became possible in large part due to the government’s outreach to programmers who had participated in the g0v community and Sunflower Movement.

In terms of immediate response, the increasing calls to rebuild strategic American manufacturing may open doors to long-term action. Those involved in the response on the political or institutional level have a historically unique opportunity. The partnerships they build now with outsiders could substantively upgrade American state capacity, bringing in the most brilliant, competent, and innovative minds in the country to the highest levels of power.

In seeking allies, those already coordinating at the national level can privilege competency over formal jurisdiction when it comes to seeking allies. The competent bodies for local response are varied: city governments for the urban cores, states for the rural areas, and a number of private actors. Each have their own relationships with the federal level, and some with the executive branch. Under the pressures of the COVID-19 response, it may well be that Los Angeles and Utah are similar in terms of the number of people they have the capacity to organize, despite one being a city and the other a state. If so, it makes sense to prioritize these relationships at the same level.

Long-term, this evolution diversifies the number of political entities with which the center has direct institutional relationships. In the near-term, this would improve its ability to coordinate policy and share data. In a further-reaching scenario, it could open the door to federal authorization for SEZ-style designations in interested cities, or the evolution of national-scale digital governance tools, scaling up local successes to engage the American people as a whole.

The dynamics of American governance would start to resemble a barbell model, with central and local institutions taking precedence over certain state governments or outmoded federal agencies. Local policy experimentation on matters like housing and land policy, voting strategies, data sharing, and the like could accelerate under the aegis of streamlined central coordination, rather than multiple layers of state, federal, and alphabet agency regulation.

America has a massive, well-educated population. It has vast natural resources. It has more great cities in its borders than any other country. American companies are among the most resourceful and innovative organizations in the world. Why shouldn’t its state be likewise? The only excuse is a lack of will, vision, or strategy—or all the above.

Decentralization captures the imagination when it communicates creativity, experimentation, and energy. It represents a chance to step over sclerotic and outmoded bureaucracies. It is embodied in images of rising cities, new technologies, and rugged frontiers. The American psyche is entranced by these images on a deep level. They are synonymous with its rise and identity. But that rise was only made possible by the bold and effective governance which forged this promising multiplicity into a country.

If the real potential that decentralization holds for America is to be achieved, it will go hand-in-hand with a vital and dynamic center—or it will not be achieved at all.

Ash Milton is managing editor of Palladium Magazine.