Centralization

economic-dictionary

In economics, centralization involves the meeting or concentration of different faculties or decision-making in order to stimulate or improve the organizational coordination of a society, company or State.

It is usually understood within the economic sphere that centralization supposes the reduction of decision-making agents, managers or organizations that have the possibility of making decisions.

The same would happen in the case of countries, where it is common that the smaller they are, the more centralized they are in economic, political and administrative matters.

The opposite conceptual phenomenon is decentralization, which consists of the dispersion of responsibilities and resources at different points in a business organization chart. Or, in different territories in the case of a regional structure.

Centralization at the microeconomic level

It is common to see that the larger the company, the greater the level of centralization it has. This is so, because, a priori, it will have a more complex organizational capacity.

From the above, it could be considered that at a higher level of centralization, there will be vertically more limited hierarchies, since the power of execution will be concentrated in fewer people or departments.

The maximum exponent at the level of business organization is found in the figure of the self-employed worker or the sole proprietorship. Examples where the centralization of power is limit.

Centralization at the macroeconomic level

Within the macroeconomic level, centralized states are those that bring together the factors of production, state infrastructures and the distribution of wealth instead of deriving their directives in subordinate or territorial administrations, or even in market economy conditions.

In pronounced cases of centralism, important aspects such as the setting of interest rates, the price levels of goods and services or the adoption of general economic policies for the entire population are especially significant. In other words, it is a more remarkable level of interventionism.

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