An old joke about business management consultants is that if a client company is centralized, they tell management to decentralize; and if it’s decentralized, they straight-facedly urge centralization. The truth is that such seemingly inconsistent advice is almost always right.
There is no correct form of business organization: each one solves certain problems and creates others. If a diversified manufacturing company is experiencing serious quality-control problems, consolidating factories under quality-conscious managers can make a major difference. But as time goes by, complaints will arise about rigidity and lack of customer responsiveness: pressures will build for decentralization.
Politics and theories of governance follow similar cycles. But in a democracy, there is no CEO who can simply mandate a change in the problem-solving paradigm. So it takes a big buildup of ideological fervor to turn the wheel, and it takes a lot longer. Cycles in governing styles usually last twenty-five or thirty years.
We made such a turn in 1980, which was well overdue. Regulation was pervasive—the government told banks what interest rates they could pay. Marginal tax rates were very high. Whole industries had become cozy, price-fixing cartels that were getting murdered by the Japanese and Germans. A newly aggressive Soviet Union was profiting from American...