What Stands in the Way

Download [PDF]: Industrial Policy: New Wine in Old Bottles

I. The Unsustainability of the Existing System
II. The Seeds of the New System
III. What Stands in the Way

The problem is, the low-overhead business model I described above for the informal economy is, in almost countless ways, illegal. Take the restaurant/brew pub example. You have to buy an extremely expensive liquor license, as well as having an industrial sized stove, dishwasher, etc. And that level of capital outlay can only be paid off with a large dining room and a large kitchen-waiting staff, which means you have to keep the place filled or the overhead costs will eat you alive. These high entry costs and the enormous overhead are the reason you can’t afford to start out really small and cheap, and the reason restaurants have such a high failure rate. It’s illegal to use the surplus capacity of the ordinary household items we have to own anyway but remain idle most of the time, because of zoning and “safety” regulations which make it prohibitively expensive to sell a few hundred dollars surplus a month from the household economy. You can’t do just a few thousand dollars worth of business a year, because the state mandates capital equipment on the scale required for a large-scale business if you engage in the business at all.

Government policy has the same effect at the national as the local level: to impose minimum capitalization levels and high overhead costs. We’ve already seen the importance of patents as a bulwark of planned obsolescence, making illegal what would otherwise be relatively cheap and convenient ways of keeping existing goods in operation. Legally mandated RFID chips for livestock, mandatory pasteurization, and expensive fees to officially recognized certification bodies for the right to use the term “organic,” all impose a high minimum cost on engaging in agricultural production at all, and make it impossible (at least legally) for a household subsistence operation to market a few hundred or thousand dollars worth of surplus.

Eric Husman describes the effect of the recently passed Consumer Product Safety Improvement Act, which will essentially criminalize small-scale production in the apparel industry.

You can’t just not use lead or phthalates. You can’t just point out that you are using undyed organic hemp and wooden toggles. No, you must prove that you are lead- and phthalate-free. How? Well, at $600-2400 per item, you ship it off to a certified testing lab. Plus, it’s destructive testing, so kiss 1-12 samples of whatever it is goodbye. Also, you need to make sure that it is a representative lot, so no more repurposing of used clothes. Also, you need to provide this General Compliance Certificate (GCC) to anyone downstream who wants it. At any time. And be sure you can trace it by lot. Also, you may have to put up a bond in case they want to recall your product so that they know you can cover the cost of the recall.

Now, there’s something you may not know about apparel manufacture…. You start by developing about 20 styles and see what gets bought. Once buyers buy on the strength of the sample, you order the material and start sewing. The CPSIA testing has to be done on the final product (unit testing), not the inputs (component testing). So even though you are using the same organic cotton cloth and 5 different dyes and 3 different buttons, you can’t get by with doing 8 tests (the cloth in 5 colors plus tests on each button). Nope, you have to do testing on 20 different styles x 5 different colors = 100 tests. Of which only 5 styles will ultimately go to market. That’s a minimum of $60,000 just for the testing, and you haven’t even started to sell yet.

By the way, size does not matter in the eyes of this law. Haynes T-shirts? Yes, they have to test. Grandpa’s handmade toys that he sells on E-bay? Yep, in fact E-bay and Etsy are already noting that legal compliance is a requirement of their user terms of use.[1]

None of this is any accident. The main function of licensing and regulations is to impose high minimum levels of capitalization, so that people are unable to meet a major part of their subsistence needs by producing for themselves or directly for each other. The economic model we described in the second part, as we saw, would have many wonderful effects. But from the perspective of those currently in control of the state capitalist system, they’re all very bad effects.

But the good news, to repeat it once again, is that all these artificial barriers to market entry are rapidly becoming unenforceable. In any case, as crises intensify, enforcing local zoning and licensing laws will likely be near the bottom of the priority list for governments whose resources are stressed to the breaking point.

When the truckers abandon their rigs on the shoulder and the cargo jets are permanently grounded, local economies will frantically struggle to take up the slack as a matter of survival. A good many backyard “hobby” shops may find themselves at the center of a local manufacturing renaissance as they custom machine spare parts to keep appliances running, and become the nucleus of neighborhood repair-recycling-remachining facilities. Household vegetable production will exceed the rates of the WWII “Liberty Garden” era, and market gardeners will bring new land under cultivation to satisfy a public (sick of the empty shelves at the supermarket and the USDA Surplus commodities shipped in by the National Guard) that snatches produce off the tables at the Farmer’s Market as fast as it appears.

James L. Wilson described his vision of a relocalized economy growing out of Jim Kunstler’s “Long Emergency” — and a major part of the transition involved simply ignoring government interference:

“Well, you see all these people working on their gardens? They used to not be here. People had grass lawns, and would compete with each other for having the greenest, nicest grass. But your gramma came home from the supermarket one day, sat down, and said, ‘That’s it. We’re going to grow our own food.’ And the next spring, she planted a vegetable garden where the grass used to be.

“And boy, were some of the neighbors mad. The Homeowners Association sued her. They said the garden was unsightly. They said that property values would fall. But then, the next year, more people started planting their own gardens….

“And people also started buying from farmer’s markets, buying milk, meat, eggs and produce straight from nearby farmers. This was fresher and healthier than processed food. They realized they were better off if the profits stayed within the community than if they went to big corporations far away.

“This is when your gramma, my Mom, quit her job and opened started a bakery from home. It was actually in violation of the zoning laws, but the people sided with gramma against the government. When the government realized it was powerless to crack down on this new way of life, and the people realized they didn’t have to fear the government, they became free. And so more and more people started working from home. Mommies and Daddies used to have different jobs in different places, but now more and more of them are in business together in their own home, where they’re close to their children instead of putting them in day care.”….[2]

Jeff Vail uses the hilltop towns of northern Italy as a model for the resilient communities that will emerge from the coming crisis.

How is the Tuscan village decentralized? Production is localized. Admittedly, everything isn’t local. Not by a long shot. But compared to American suburbia, a great percentage of food and building materials are produced and consumed in a highly local network. A high percentage of people garden and shop at local farmer’s markets.

How is the Tuscan village open source? Tuscan culture historically taps into a shared community pool of technics in recognition that a sustainable society is a non-zero-sum game. Most farming communities are this way — advice, knowledge, and innovation is shared, not guarded. Beyond a certain threshold of size and centralization, the motivation to protect and exploit intellectual property seems to take over (another argument for decentralization). There is no reason why we cannot share innovation in technics globally, while acting locally — in fact, the internet now truly makes this possible, leveraging our opportunity to use technics to improve quality of life.

How is the Tuscan village vernacular? You don’t see many “Colonial-Style” houses in Tuscany. Yet strangely, in Denver I’m surrounded by them. Why? They make no more sense in Denver than in Tuscany. The difference is that the Tuscans recognize (mostly) that locally-appropriate, locally-sourced architecture improves quality of life. The architecture is suited to their climate and culture, and the materials are available locally. Same thing with their food — they celebrate what is available locally, and what is in season. Nearly every Tuscan with the space has a vegetable garden. And finally (though the pressures of globalization are challenging this), their culture is vernacular. They celebrate local festivals, local harvests, and don’t rely on manufactured, mass-marketed, and global trends for their culture nearly as much as disassociated suburbanites — their strong sense of community gives prominence to whatever “their” celebration is over what the global economy tells them it should be.[3]

Brian Kaller, in The American Conservative, appeals to an American version of the northern Italian hilltop town: Mayberry.

Take one of the more pessimistic projections of the future, from the Association for the Study of Peak Oil, and assume that by 2030 the world will have only two-thirds as much energy per person. Little breakdowns can feed on each other, so crudely double that estimate. Say that, for some reason, solar power, wind turbines, nuclear plants, tidal power, hydroelectric dams, biofuels, and new technologies never take off. Say that Americans make only a third as much money, cut driving by two-thirds. Assume that extended families have to move in together to conserve resources and that we must cut our flying by 98 percent.

Many would consider that a fairly clear picture of collapse. But we have been there before, and recently. Those are the statistics of the 1950s — not remembered as a big time for cannibalism.[4]

Imagine that: the Main Street economy of Mayberry — but with modern electronics and black people!

The central point is that the industrial economy that emerges on the other side of these systemic crises will be almost unrecognizable. The transition will occur. But it can be either comparatively smooth or extremely rough, depending on whether our “leaders” choose to ease the transition by removing the barriers that stand in the way, or choose instead to divert the resources at their disposal to prop up the current system until it’s too late to avert catastrophe.

That’s why our focus now should be, not on government programs to manage the transition or government subsidies to successor technologies, but on on pressuring government to get out of the way. As Benjamin Tucker put it, “the question before us is not… what measures and means of interference we are justified in instituting, but which ones of those already existing we should first lop off.”[5]

The most important change in government policy, in my opinion, is the immediate and unconditional withdrawal of all subsidies (including eminent domain) to airports and highways, and their total reliance on user fees for funding. In the case of highways, this would mean funding the Interstates with weight-based fees on heavy trucks, which cause the overwhelming majority of roadbed damage. If this were done, the railroads would begin restoring lost capacity as fast as they could lay new track on abandoned rights of way.

Equally important is removing government supports to sprawl and monoculture. This would include eliminating zoning restrictions on mixed-use development, like home businesses and neighborhood grocers, and affordable housing in downtown areas (e.g. walkup apartments over stores). The extension of utilities to new developments should never be subsidized by ratepayers in older neighborhoods. Urban freeway systems should be funded with tolls.

Local licensing, zoning and safety laws whose main function is to criminalize low-overhead business models in the informal and household sectors should be eliminated.

“Intellectual property” should be eliminated as a barrier both to the development of modularized, easily reparable product design, and to competing open-source models of production.

Tax policy should focus on eliminating differential exemptions that favor centralized, capital-intensive, high-overhead forms of production. This would mean, in particular, eliminating the depreciation allowance, the R&D credit, the interest deduction on corporate debt, and the capital gains exemption of securities transactions involved in mergers and acquisitions — and then, at the very least, lowering the corporate income tax and capital gains tax rates to make them revenue-neutral.

Notes: 

1. Eric Husman, “In which 30 thousand small manufacturers square off against mom, apple pie, and Ralph Nader ,” GrimReader, Dec. 9,  2008 <http://www.zianet.com/ehusman/weblog/2008/12/in-which-30-thousand-small.html>

2. James L. Wilson, “Standard of Living vs. Quality of Life,” The Partial Observer, May 29, 2008 <http://www.partialobserver.com/article.cfm?id=2955&RSS=1>.

3. Jeff Vail, “The Design Imperative,” A Theory of Power, April 8, 2007<http://www.jeffvail.net/2007/04/design-imperative.html>.

4. Brian Kaller, “Future Perfect: Stop Worrying and Learn to Love Expensive Oil,” The American Conservative, August 25, 2008 <http://findarticles.com/p/articles/mi_7060/is_16_7/ai_n28558422/pg_1?tag=artBody;col1>.

5. Benjamin Tucker, “Voluntary Cooperation,” Liberty, May 24, 1890, in Tucker, Instead of a Book, By a Man Too Busy to Write One <http://fair-use.org/benjamin-tucker/instead-of-a-book/voluntary-co-operation>.

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