Subsidiarity is not Hayek

May 3, 2026 3 min

governance subsidiarity directive-governance hayek keynes organizational-theory

I’ve been writing about directive governance and subsidiarity in software organizations. The objection I get is: “Isn’t this just Hayek?”

The steelman goes something like this. Hayek argued that knowledge is distributed, tacit, and cannot be aggregated by a central planner. He was arguing against the central planning of Keynes, which was in vogue during his time. Analogously, directive governance centralizes decisions, and subsidiarity distributes them. So, directive governance looks Keynesian, subsidiarity is Hayek, and I just spent three posts reinventing The Use of Knowledge in Society.

I did use Hayek’s core insight around the tacit and distributed nature of incompressible knowledge as a starting point. But private profit-seeking organizations and the nature of software engineering reject a wholesale transplantation of Hayek’s ideas. The differences break the model entirely.

Subsidiarity keeps the hierarchy. Hayek’s market is a flat, emergent coordination mechanism without a central authority. In contrast, subsidiarity explicitly preserves organizational hierarchy. It changes the function of hierarchy from directing to enabling, from commanding to providing context and guardrails. Accountability still aggregates upward. Higher levels still intervene when lower levels cannot handle the issue. This is not “let the market decide.” It is “let the closest competent authority decide, backed by a hierarchy that enables rather than directs.”

Directive governance is not Keynesian central planning. Keynes argued for targeted intervention to correct specific market failures: demand deficiency, coordination failures, liquidity traps. Directive governance is not that; it is an organizational model where all decisions flow through a hierarchy. There is nothing targeted about it. It is a complete takeover of organizational decision-making, and not a scalpel to governance like Keynesian planning is to the economy.

The argument for failure is conditional. Hayek’s claim is universal: central planning always fails because knowledge is always distributed and tacit. My argument is that directive governance fails in software because three specific preconditions do not hold: information cannot be compressed without losing signal, metrics are not good proxies for outcomes, and execution is not separable from decision-making. Directive governance works for Pharma and manufacturing, where those preconditions hold. This is not a universal principle about the superiority of decentralization. It is a structural diagnosis.

Shared interest in mission vs. self-interest in price. Hayek’s distributed system coordinates through prices. Subsidiarity coordinates through missionary culture: every member motivated by advancing the mission, viewing others as partners. Self-interest is the engine of Hayek’s market, shared interest is the engine of missionary culture.

The difference matters under pressure. An SRE team with full decision-making autonomy might internalize its role (keep the fleet humming) without caring about the organization’s mission. That is functional, but fragile. When a crisis hits, a team that owns its role but not the mission has no reason to resist centralization. The ratchet finds less resistance. Missionaries push back. A directive that runs counter to the mission feels viscerally wrong to someone who has internalized it. Price signals do not build that resistance. Shared purpose does.

The origin story matters. Subsidiarity comes from Catholic social teaching. Quadragesimo Anno (1931) criticizes both laissez-faire capitalism and central planning. It is a third position, not a pole. Treating subsidiarity as Hayek strips the most important part: the commitment to community organized around shared purpose, with authority distributed to the lowest competent level. The encyclical calls both unregulated markets and overcentralized states a “grave evil”, and that would not sit well with Hayek.

The ratchet has no analog. The crisis-centralization ratchet is a structural mechanism that pulls organizations toward directive governance under pressure. Markets do not have this. Crises in markets lead to more markets, or regulation, or both, depending on who wins the political argument. Organizations have a one-way valve. That makes the organizational problem fundamentally different from the macroeconomic one.

Hayek’s prescription does not survive contact with organizations. Organizations are not markets. They have hierarchies, missions, reporting chains, crises, and ratchets. The question is not “centralize or decentralize?” The question is: what is your hierarchy for?

Directive governance answers: directing. Subsidiarity answers: enabling.

That distinction has no home on the Keynes-to-Hayek spectrum.

Linked in this post

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Crisis Centralization Ratchet

Tech companies centralize decision-making during crisis and almost never decentralize afterward.

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Delegation Mimicry Without Cultural Substrate

Most tech CEOs copy the structural form of delegation without the deliberate cultural investment that makes it work.

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Directive Governance

Directive governance is the pattern where information flows up (compressed and lossy), decisions are made centrally based on that compressed information, directives flow down for execution, and accountability is for compliance with directives rather than for outcomes.

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