The Importance of Compartmentalization

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GEORGE SOROS: Markets are inherently unstable, or at least potentially unstable. An appropriate metaphor is the oil tankers. They are very big; and therefore, you have to put in compartments to prevent the sloshing around of oil from capsizing the boat. The design of the boat has to take that into account. And after the Depression, the regulations actually introduced these very watertight compartments. And deregulation has led to the end of compartmentalization.
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The above quote is from Inside Job, the striking documentary that sought culprits for the sudden recession of the late-2000s. The movie is so comprehensive that the wisdom of George Soros’s analogy is easily overlooked. As one can see from the diagram, oil tankers have numerous compartments, which are separated by firm steel walls. In the absence of these barriers, nothing prevents large external waves from redistributing the oil to one side of the boat, causing the ship to sink. Soros compares the walls to the Depression-era regulations that separated local consumer banks from large investment banks like Goldman Sachs. This prevented the investment banks from speculating directly with consumer’s savings. However, as financial markets became more and more intertwined, the barriers that were designed to protect consumer savings slowly eroded until everyone’s money was just sloshing around in one large tank. Thus, when the housing market crashed, the turbulence caused the global economic oil tanker to plunge. If the economy had remained compartmentalized, Soros implies, the housing crisis would have been isolated and limited in its damage.
The importance of compartmentalization is not limited to economics or oil tankers. In reading The People’s History of the United States by Howard Zinn, I came upon a surprising example of this principal: states’ rights after the American Revolution. The common modern argument for increasing the rights of states and municipalities is that local governments are able to respond better to issues that affect their constituents. However, the case that James Madison made for states’ rights in Federalist #10, the tenth paper in a series on why states should adopt the new Constitution, was far different from this populist perspective. The passage below is taken from The People’s History (pages 96-97):
In Federalist Paper # 10, James Madison argued that representative government was needed to maintain peace in a society ridden by factional disputes. These disputes came from “the various and unequal distribution of property. Those who hold and those who are without property have ever formed distinct interests in society.” The problem, he said was how to control the factional struggles that came from inequalities in wealth. Minority factions could be controlled, he said, by the principle that decisions would be by vote of the majority.
So the real problem, according to Madison, was a majority faction, and here the solution was offered by the Constitution, to have “an extensive republic”, that is, a large nation ranging over thirteen states, for then “it will be more difficult for all who feel it to discover their own strength, and to act in unison with each other…. The influence of factious leaders may kindle a flame within their particular States, but will be unable to spread a general conflagration through the other States.”
Madison’s argument can be seen as a sensible argument for having a government which can maintain peace and avoid continuous disorder.
Madison’s concerns were not with the efficiency of government, but with its stability. By keeping the country sectioned into separate states, waves of revolutionary sentiments could not as easily spread throughout the nation. The power of the United States would come from its ability to stay united against threats on the outside, while remaining strictly divided into states, counties, and cities on the inside. Long before oil tanker engineers, Madison recognized the effectiveness of compartmentalization. Two years after Madison published and distributed this paper throughout New York, the Bill of Rights was ratified, granting Americans the freedom of assembly and reserving rights to the states. As anti-Federalists celebrated the amendments, Madison must have enjoyed the irony. In his eyes, affirming the separation of the states made truly free (and potentially revolutionary) assembly impossible.
Madison was not the first to use compartmentalization to his advantage, nor was any human. As is the case with many concepts, nature understood long before we came around. A prime example of this is found in trees. All trees are highly compartmentalized, as shown in the figures below (borrowed from the US Forest Service website):
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The benefits of this rigid structure become clear when the tree is injured or infected. Rather than expending energy in attempts to heal the wound or exterminate the infection, a tree is able to contain the damage by cutting off the affected compartments from the rest of itself. This phenomenon, known as CODIT (Compartmentalization Of Decay In Trees), was discovered in the late 1970s. The trees’ ingenious strategy is perfectly analogous to a country maintaining distinct states to prevent sweeping rebellions, an economy establishing isolated sectors to prevent global depressions, or an oil tanker containing tank divisions to prevent capsizing. Though they may not agree with Madison’s motivations in Federalist #10, politicians should remember his logic and admire the universality of the concept of compartmentalization.
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One Response to The Importance of Compartmentalization

  1. Ed Silver says:

    I really like the way you can draw upon so many different genres in making your point. Ironically, your ability to seamlessly tie together examples from political philsophy to tree science shows the beauty of thinking in a de-compartmentalized way.

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