11. April 2018

The history of Econvillage and Econvillage100

Co-Authored by Dr. Carolin Güssow

The global population is around 7.5 billion. Let’s decrease this figure to a symbolic total of eight people living on a patch of fertile earth...

A little wild grain, strawberries and leek grow in the ground. There are a few simple tools, such as scythes, scattered around. There is sufficient water, but fertile ground is limited. The eight people would like to eat more than is currently available. Scarcity is the apt word; we are far from the land of plenty. What do the eight people do?

They soon realize that they form an archetypal small economic community and name their patch of land Econvillage. The villagers naturally attempt to increase their yield of wheat, strawberries and leek in the fields. They constantly discuss the most successful way to cultivate the fields. Cultivation should produce as big a harvest as possible, function in the long term and be sustainable.

The eight people begin to specialize themselves over time. One of them is particularly strong and is best at ploughing the field. Another is skilled and deft when it comes to harvesting. Such specialization enables the villagers to eke out a little extra yield. However, when the tools have been optimized and everyone works in the area where they have most talent, the increase in yield comes to a standstill. Growth in Econvillage is at an end.

If tasks are shared out based on skills, it can well be imagined that there will be heated arguments about the distribution of the harvest. Is most given to the person who is strongest or the one who can harvest most quickly? What about those who are sick for a time? They cannot be left to go hungry, can they? The villagers learn the hard way that they do not live in the land of plenty. More for one means less for another. Just as they constantly discuss the best cultivation methods, they also have to clarify the issue of distribution. They like to do this around the campfire.

 

In other words, economic organization is resolved collectively here. Who could dispute the success of this model? If not everyone works as hard as possible, this will have an immediate negative impact on the success of the harvest. If the agreed distributions rules are not followed, sanctions discussed by the campfire are imposed. With just eight people, this seems like a manageable organizational task. Discussions by the campfire lead to the best governance structure in Econvillage!

ECONVILLAGE100

Let’s now imagine a different utopia. We will shrink the global population down to 800 rather than 8. The result is a new place of archetypal economic activity that corresponds to Econvillage multiplied by 100 in every dimension: 100 times as many people, 100 times as much fertile ground, 100 times as many wheat, strawberry and leek plants, 100 times as many tools. The new place is thus called Econvillage100. The inhabitants of Econvillage100 would also like to eat more. There is sufficient water, but ground is limited. Is this still a manageable organizational task?

Lagerfeuer in Econvillage100, Corinne Bromundt

Fireplace. By Corinne Bromundt

Let’s assume, for the time being, that the Econvillage100 villagers organize themselves like the Econvillage villagers. They meet by the campfire for group discussions. It’s soon like ancient Athens: everyone is talking at the same time. At some point, the people with the loudest voices might win through. There are still many of them though. Plus, do they really have the best ideas?

In Econvillage100 it is decided that one person who is particularly well qualified for this purpose should take on the task of economic organization of Econville. Their mandate is to ensure a harvest that is as plentiful as possible. The chosen person specifies who should work on the fields and for how long, and what should be planted and harvested and in what quantity. Distribution rules, so who gets what from the harvest, are likewise stipulated.

What does that remind you of? Exactly: in the communist era, this position was entitled central planner. In economic sciences this figure still exists, but luckily only as fiction.

Krake. By Corinne Bromundt

Krake. By Corinne Bromundt

What problems might a central planner have in organizing the economy of Econville100 as “efficiently” as possible so that the greatest possible harvest is obtained? To ensure a high yield, they must employ individuals based on their best skills. But how can they be familiar with the skills of 800 individuals? Even more difficult is the fact that they must decide whether leek, strawberries or wheat should be cultivated on a piece of ground. How can they know how much of what will ultimately best satisfy the needs of the inhabitants of Econvillage100? How can they tell when these needs change? After all, the tastes of the Econvillage100 villagers are also subject to fashion trends, and sometimes leek are in higher demand than strawberries and vice versa.

After several years of experience, the Econvillage100 residents are not happy with the idea of a central planner. They want to try something different. They have had enough of being dependent on the ignorance of responsible persons! They pledge themselves to a system where no individual can control the economy of Econvillage100. In the new system, the economic organization of Econville is the responsibility of nobody. Precisely, say the villagers. Nobody should be responsible for our economic organization. Then we are dependent on nobody’s ignorance!

So what is this anonymous system of nobody? How did the Econvillage100 residents reach this impossible-looking fantasy? And what will emerge from it? Find out in our next blog…

About the author
Prof. Dr. Johannes Binswanger Johannes Binswanger's teaching and research focus is on how to make good decisions in firms and politics in today's economic world. He teaches the Economics module in the Executive MBA program at the Executive School of Management, Technology and Law.