Decentralized authority
Decentralization of authority is promoted to improve public governance and operational efficiency of markets but it may take different meanings in different contexts. It can mean either delegation - limited authority within hierarchies, or it can refer to non-hierarchical structures which contain overlapping groups with many direct links that are not bottlenecked on powerful gatekeeping nodes. Decentralization of authority is one of the main themes of free market ideology. This view is not limited to the supporters and there is evidence of a consensus favorable to decentralization from a review of authors both supportive of free market capitalism and its critics.
In this section
Consensus view between supporters and critics of free market ideology
The Heritage Foundation's language in the Economic Freedom Index report directs its criticisms against a "centralized" authority and emphasis on individual decisions thus suggesting that one of the positive features of markets is their decentralization of decisions (Miller, 2020).
Government domination of finance and the centralized ownership or control of property and resources [...] leave little if any space for individual initiative or entrepreneurship. - Miller, Heritage Foundation Economic Freedom Index report 2020
While the skepticism of central authority is explicit, what is less clear is whether this skepticism towards public institutions is directed at the democratic nature of how they are organized and operate, or their centrality as a natural monopoly or the combination of both. The World Bank Office of Chief Economist cited this as a positive feature of the Washington Consensus as a set of reforms that promoted “free play of market forces to coordinate through price signals myriads of decentralized decisions of firms and individuals, thus enabling efficient resource allocation and fostering creative entrepreneurship“ (Birdsall, 2010). Free market supporters, critics and more centrist economists also promotes decentralization of authority such as the IMF Fiscal Monitor report in regards to public fiscal institutions for improved spending controls. However, the IMF report avoids generally promoting a central or decentralized structure in general for the state and leaves this as a matter of social preference which may vary from country to country (IMF, 2014).
Sociology of small groups and Dunbar's number
The emergent outcomes of economy-wide effects are the result of local interaction dynamics of reciprocity, association and conformity occurring within groups, the structure of how these groups organize themselves into larger networks and the institutions governing interactions at multiple scales. If there are different dynamics on smaller group size than larger ones this would be an important consideration for institution design. Decentralizing decisions down to group sizes within the range of a small community or "tribe" may enable the conditions which play to the strengths of human social behavior that are optimal for cooperative - reciprocity, negotiation, punitive intervention, associative group identities, and the cultivation and enforcement informal shared group norms and values. Group size based on informal associations at the smallest unit has been studied by the anthropologist Robin Dunbar, who established a relationship between the size of the neocortex and the group size of grooming cliques in primates (Zhou, Dunbar, 2005).
For humans he determined that 150 was the upper limit of informal association group size and it is known as “Dunbar’s number” (Zhou, Dunbar, 2005). His hypothesis was that for social primates physical constraints of neural connectivity, tissue density set limits on the number of different permutations of cross-relationships in a group that an individual could keep track of (Zhou, Dunbar, 2005). Presumably, the strength of informal associations alone would start to break down for group sizes larger than this limit and would fissure absent any other force or institutional design (Zhou, Dunbar, 2005). So the local dynamics in groups of less than 150 may be important for the informal association mechanisms in norm setting and cooperation and more formal institutions may be needed to coordinate behavior at larger scales. Decentralized authority and the advantage of small decision making group over larger ones was also a feature identified in Ostrom’s analysis shared among the successful common pool resources institutions (Ostrom, 1990).
Bottom-up vs top-down
Ostrom described local autonomy as an important condition for individuals to be motivated and trust the institution and for the resulting rules to reflect the nuances of the local site conditions. These local autonomous organizations provide opportunities for participants to have the opportunity to directly manipulate and influence institutional rules that affect them, a form of democracy (Ostrom, 1990). Ostrom elaborated how the decentralized structural features from the successful cases enabled the conditions for cooperation - trust, communication, deliberation of rules and mutual monitoring and supervision. One of the points she argues is that the cases where the institutions grew bottom-up instead of imposed as top-down from an external central authority. She claimed that the progression of successes from small autonomous groups into larger networks and associations such as the Philippines zapatas irrigation networks worked better than in cases when an external outside authority imposed standard regulations in a top-down manner such as the Newfoundland fisheries example (Ostrom, 1990).
Weak links potential to disrupt abuses of power
Hierarchical structures may be more favorable to enforcing conformity in abuse of power than non-hierarchical ones. Psychologist Solomon Asch found in his conformity experiments that a small number of dissenting opinions was sufficient to disrupt the effectiveness of peer group pressure (Asch, 1952). A hierarchical network structure is characterized by connections concentrated to a few highly connected nodes that can exert leveraged influence over a large region of the network. Connections within a component are reinforced "strong" ties where conformity and peer pressure could be effective. Decentralized networks also have connected components with highly connected powerbroker nodes, however the contrast in these networks is the presence of bridges between components in the network connected via a few direct "weak" links that bypass these gateway nodes (Easley, 2010). So the presence of many of these weak links may increase the likelihood of encountering a dissenting minority opinion and thus limit the potency of conformity on unpopular or controversial decisions by a minority of powerbrokers in the network.
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