Economists are more likely than most to emphasize the importance of decentralized decision-making and the way it allows dispersed knowledge to be fully utilized. But the argument doesn’t just apply to a high-level view of the economy as a whole. Decentralization isn’t just good economic policy – it’s also good business policy.

This thought crossed my mind when I came across an interesting Substack article by Ted Gioia on how the previously dying Barnes & Noble is now managing to grow at a time when seemingly invincible tech giants like Amazon and Facebook are in decline. He attributes this remarkable turnaround to a few key factors, including a new CEO who loves books and bookstores. But it takes more than a CEO who has his heart in the job, important though that may be. Shifting away from top-down decision-making and towards a bottom up, decentralized approach has been crucial.

(Full disclosure – during my college years, I also worked full-time at a Barnes & Noble. While I love books, I didn’t much care for my time working there. I’m just ill-suited for retail work.)

It’s worth noting that Gioia attributes part of the Barnes & Noble turnaround to a certain form of top-down decision making – specifically, deciding from the top that decisions shouldn’t be made from the top. As he puts it:

I’ve seen that firsthand so many times. I now have a rule of thumb: “There is no substitute for good decisions at the top—and no remedy for stupid ones.”

It’s really that simple. When the CEO makes foolish blunders, all the wisdom and hard work of everyone else in the company is insufficient to compensate.

This reflects an important line of thought also shared by the late Jeffrey Friedman and recently highlighted by David Henderson – when centralized decisions are mistaken, the mistake is imposed across the entire system. Bottom-up decisions could also be mistaken in any given instance, but they are also smaller in scope and not imposed system wide, allowing them to be weeded out through comparison and competition in a way that top-down decision making doesn’t allow.

The new CEO of Barnes & Noble, James Daunt, employed the same line of thinking he used during his time at Waterstones, a British book retailer. Previously, the decision about what books should be in stock at which stores was made in a top-down fashion, where publishers worked at “convincing a head buyer at headquarters” regarding inventory and display decisions. Daunt ended that practice. As Gioia puts it:

[Daunt] wanted to put the best books in the window. He wanted to display the most exciting books by the front door. Even more amazing, he let the people working in the stores make these decisions.

Leaving those decisions up to individual stores allowed local knowledge to work in favor of the company as a whole. What kind of books are in demand can vary a lot from local market to local market. Publishers and people sitting behind desks and headquarters simply are not well suited to discover this kind of information. But Gioia points out:

But Daunt used the pandemic as an opportunity to “weed out the rubbish” in the stores. He asked employees in the outlets to take every book off the shelf, and re-evaluate whether it should stay. Every section of the store needed to be refreshed and made appealing.

As this example makes clear, Daunt started giving more power to the stores. But publishers complained bitterly. They now had to make more sales calls, and convince local bookbuyers—and that’s hard work. Even worse, when a new book doesn’t live up to expectations, the local workers see this immediately. Books are expected to appeal to readers—and just convincing a head buyer at headquarters was no longer enough.

Of course, Barnes & Noble is not the only example of the importance of decentralized decision making in business. Occasionally, overly exuberant critics of the market process suggest that giant firms like Wal-Mart show that the economic calculation problem and the knowledge problem highlighted by Mises and Hayek can be overcome. Richard Fulmer has pointed out several flaws in this line of thinking already. But longtime listeners of the EconTalk podcast will also remember when Charles Platt talked with Russ Roberts about working at Wal-Mart.

Despite what the socialist writers at Jacobin imagine, Wal-Mart is far from an example of successful top-down central planning. It relies very heavily on decentralized decision making in its business structure, with decision-making authority dispersed throughout the system rather than being centrally directed. Companies sometimes forget this lesson – and they are the worse off for it. But Barnes & Noble is showing what can happens when old wisdom is rediscovered – to the benefit of themselves and book lovers as well.