Bottom-up vs. Top-down: Don’t put all your eggs in one basket

This is the 3rd post in this series. Here are posts 1 and 2.

In post 1 of this series, I explained what I think are the key differences between top-down and bottom-up organizations and why it’s helpful to think in those terms, rather than other common organization characterizations like government vs. private sector.

At the end of post 1, I listed three reasons why I think bottom-up systems work better than top-down. In Post 1, I elaborated on the first reason. In this post, I elaborate on the second: No single point of failure.

This has been conventional wisdom for a long-time and you may know it better as the phrase, Don’t put all your eggs in one basket.

Why? Because you might drop the basket. This sage advice helps reduce the risk of breaking all the eggs should you drop that basket.

We use this advice when investing. No matter how much homework we do on a company, there are no sure bets. Best not to bet everything on one company.

We consider the advice when planning careers. We train for one career path, but we know it could be automated or outsourced, so it’s best to have backups.

Sports teams try not to bank too much on a single player. Great players are good to have, but they can get injured.

Engineers try to avoid single points of failure when designing systems. Bridges are designed with redundant supports, so they won’t fall if a single support fails. Systems without single points of failure save lives.

Bottom-up systems do not have single points of failure. Baskets can be dropped in such systems. Eggs will be broken, but there are plenty of other baskets to go around.

Why is this good? Because failure happens and it happens more often than success. We live in a trial-and-error universe.

Capitalism is a good example of a bottom-up system. When one business fails, there are others to take its place. It doesn’t take down the whole system. We survived Enron’s collapse, for example. It was not ‘too big to fail’.

Local government is also a good example of a bottom-up system. Local governments can and do fail. Detroit is failing, but it’s not bringing down the whole system. There are thousands more cities, counties and townships. 

School districts don’t yet have a single point of failure. Failing school districts do not bring down the whole system.

Though, school districts have moved toward becoming more top-down over the past few decades as a small group of folks in DC use taxpayer dollars to encourage school districts to deliver on what the folks in DC think is a good education.

This has moved accountability away from parents toward a central point of failure, the ‘common core’ curriculum.

Of course, ‘too big to fail’ is code for ‘single point of failure.’ If it is true that some organization has become ‘too big to fail’ (though I don’t think that was the case in the financial crisis), we should spend more time thinking about how we let a single point of failure crawl into our lives, much the same way the common core curriculum is doing now.

Bottom-up systems are not painless. Failure can be painful. But, bottom-up systems deal with pain and failure better than top-down systems.

Attempting to avoid pain and failure is one reason people advocate for top-down systems. Unfortunately, they soon learn that was a fairy tale.

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Equally Hungry

From Thomas Sowell’s column, “Forward” to the Past?:

The seductive notion of economic equality has appealed to many people. The pilgrims started out with the idea of equal sharing. The colony of Georgia began with very similar ideas. In the midwest, Britain’s Robert Owen– who coined the term “socialism”– set up colonies based on communal living and economic equality.

What these idealistic experiments all had in common was that they failed.

They learned the hard way that people would not do as much for the common good as they would do for their own good. The pilgrims nearly starved learning that lesson. But they learned it. Land that had been common property was turned into private property, which produced a lot more food.

Similar experiments were tried on a larger scale in other countries around the world. In the biggest of these experiments– the Soviet Union under Stalin and Communist China under Mao– people literally starved to death by the millions.

It is no coincidence that those who are going ballistic over the economic inequality between the top one or two percent and the rest of us are promoting a far more dangerous concentration of political power in Washington– where far less than one percent of the population increasingly tell 300 million Americans what they can and cannot do, on everything from their light bulbs and toilets to their medical care.

This movement in the direction of central planning, under the name of “forward,” is in fact going back to a system that has failed in countries around the world– under both democratic and dictatorial governments and among peoples of virtually every race, color, creed, and nationality.

 

Things fail

Here’s an interesting post from Arnold Kling on EconLog. 

In it, he discusses federalism and cartel federalism. Few people consciously view government in these terms, but should.

Federalism is the idea that governments compete for citizens, much like how companies compete for customers. When people are free to move, they tend to move to areas that offer governments they find more attractive.

As a small example, when I was ten years old, my parents moved seven miles to exit a poorly performing school district to a better school district.

Cartel federalism is when political elites, driven by similar motivations as business people, try to reduce competition between governments by colluding to offer similar types of government.

Bastiat reminds us to “treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race.”

For the same reason, we should treat all political questions from the viewpoint of the citizen.

When I studied engineering, they taught us to avoid designing systems that have a single point of failure. Why? Because things fail.

No matter how durable and reliable we believe something to be, we don’t possibly know enough to know with certainty it will not fail.

We forget that when it comes to governments. Enron failed and hurt a small portion of the economy. The Soviet Union failed and took down the whole economy. That’s a single point of failure.

Even with governments, it’s good to have choice and competition. Why? Because things fail.