Martin Duys, a member of our Emerging Fellows program inspects the drivers of in-country inequality in his third blog post. The views expressed are those of the author and not necessarily those of the APF or its other members.
When income inequality is discussed in casual conversation, people are generally referring to in-country inequality - the measure of how income is distributed amongst the population of a single country. The factors that drive in-country income inequality are multiple, interrelated, complex, and sometimes contradictory. Some factors tend to be more prevalent in advanced economies and others are more influential in emerging markets and developing countries (EMDCs). Geography, political history, and even culture also play a role.
The International Monetary Fund (IMF) has attempted to identify, measure, and rank the most important factors driving in-country income inequality. They conclude that over the past thirty years the three dominant factors have been: labour market flexibility, financial deepening and technological progress - in that order.
Flexible labour markets allow firms to reallocate resources and create conditions that encourage a certain amount of economic dynamism, but they also put tend to put the salaries of workers, and especially low skilled workers, under pressure. The primary beneficiaries of increased labour market flexibility tend to be those in the top ten percent of the income distribution. In EMDCs labour markets that are too rigid can create conditions that encourage informality resulting in increased levels of inequality. There is a strong body of evidence to suggest that labour market regulation (a legislated minimum wage, unionisation, and compulsory social security contributions) tends to improve income distribution. Labour market flexibility ranks as the most important factor in EMDCs and the second most important in advanced economies.
Financial deepening - increasing the provision and sophistication of financial services - is associated with increased inequality in EMDCs (ranked third), largely because the beneficiaries of this deepening tend to be those at the higher end of the income distribution. In advanced economies, where levels of financial inclusion are historically higher, the impact of financial deepening is not as significant, and it is only ranked fourth.
Advances in technology generate economic growth by increasing productivity. They also shed jobs through increased automation and require higher skill levels to run them. This ‘skill premium’ increases levels of income inequality as jobs shift from low-skilled workers at the bottom end of the income distribution to more skilled, better paid workers. Technology is the second most important factor in EMDCs. Although it is ranked only fourth in advanced economies, the skill premium factor which is as a direct result of technological advances, is the single most important driver of income inequality in advanced economies.
Globalisation, seen as more a reinforcer than a driver, is a fourth contributing factor. It creates circumstances that sometimes increase and sometimes decrease inequality. Trade liberalisation increases economic activity, generates economic growth, and decreases income inequality. Offshoring increases income inequality in the country outsourcing the manufacturing as it sheds jobs at the lower end of the salary spectrum, but the new jobs created in the offshore economy tend to decrease income inequality there. Although not fully understood, financial globalisation is thought to cause increased income inequality in both advanced and EMDC economies.
Many would expect education to appear on the list of the most influential factors, but the impact improving levels of education equality has on income inequality is dependent on a number of other variables that can dilute its impact. These variables include the size of the investment made in education, whether it is made by individuals or governments, and the level of return on the investment.
Although there are common themes in the sources of income inequality, there are no generalised lessons to be learned that can be taken from one successful attempt at addressing the issue and applying the same strategies uncritically elsewhere. Each country has its own unique mix of interrelated and intermingled factors and needs to be analysed and understood on its own merits.
Travis Kupp, a member of our Emerging Fellows program checks the sustainability of Asia’s economic growth in his second post for our EF blog. The views expressed are those of the author and not necessarily those of the APF or its other members.
What goes up must come down, or so they say. Asian economies have expanded over the last half-century, especially in the South and East, positioning the continent as the modern leader of global economic growth. Much of the rest of the continent has an imminent opportunity to benefit from this success in exchange for certain concessions. Regardless, the region must now discover how to make this position sustainable in two senses: maintaining its trajectory while weathering societal and political change and addressing the impacts of increased consumption on the environment. Contrary to popular belief, there exists no technological silver bullet to solve for this conundrum.
China is the posterchild of Asia’s economic potential. Since opening up to the world in the 1970s, its growing production and trade has lifted hundreds of millions out of poverty leading to a massive increase in standard of living and therefore, critically, consumption. India is on a similar course. In both countries, the rise in disposable income for these many millions has created an extremely attractive market for goods and services along with a favorable financial climate for entrepreneurship. A wealthier and better educated populace has led naturally to a rise in more skilled labor and associated jobs. Southeast Asia is set to reap the benefits of this shift as demand for its low-end manufacturing increases.
Asia’s growth has led to regional integration and a vast realignment of international economic alliances. If geo-economics is in fact war by other means, then China is rapidly becoming one of the most battle-hardened nations on earth. The state is simultaneously flexing its influence through the Belt and Road Initiative (BRI), so called “trade wars,” and other significant foreign investments while learning from its mistakes in each area. The BRI may project the benefits of East Asia’s growth more intensely into the Central and Western Asian nations. Then again, it could also entangle China in far-flung conflicts to protect its investments if it does not carefully manage its relationships, especially with its neighbor India.
The central importance of China to Asia’s economic hopes presents a major systemic risk. The rest of Asia, and much of the world, has become to varying degrees vulnerable to abrupt changes in the nation. Over the next decade, for instance, China needs to find a solution to its population’s declining birth rate and increased life expectancy. A more favorable policy toward immigrants could help mitigate this looming crisis but may require or introduce societal liberalization that could be politically destabilizing. Sudden regime change, however triggered, would create a significant hurdle to sustained economic growth across the region.
The deeper existential risk lies in the impact of growth on the environment. While modern technologies have made significant strides toward lessening the ills of industry, they are unlikely to keep pace with the increasing demand for goods. Environmental concerns only influence consumption patterns in wealthy nations to the extent that they are economically viable to the consumer and do not compromise standards of living. The question then becomes whether the ruling parties of Asian nation states are prepared to sacrifice their economic gains in the name of environmental stewardship. The broad multilateral cooperation required to effectively mitigate climate change and environmental degradation makes it is possible, and dangerously plausible, that continued development may ultimately win out.
Asian economic leadership has an uncertain future, but the outlook is not without hope. Even if the Chinese engine of Asia’s economic miracle stalls and internal and external political realignment ensues, it is possible that this could usher in a wave of more sustainable growth, in both senses of the word. New policies, rather than technologies, to address shifting demographics and a changing global climate are likely to be the key deciding factors of what future unfolds. Asia’s economy may have room to grow yet.
Martin Duys, a member of our Emerging Fellows program inspects the drivers of inequality among countries in his second blog post. The views expressed are those of the author and not necessarily those of the APF or its other members.
The factor that plays the most critical role in determining a person’s income is the country in which they live. It has more influence than the persons parents’ economic circumstances (the second most important factor) and far more than any effort they may make to improve their situation through education. Geography is more important than class, or level of education, in determining income.
Between-country inequality has never been as extreme as now. Just before the start of the industrial revolution, the average income in the wealthiest countries (at the time Holland and the United Kingdom) was roughly three times higher than the poorest. Described as analogous to the ‘Big Bang’ rates of economic growth and average incomes exploded in countries that industrialised. Now the difference in average income between the rich industrial nations and those that have failed to industrialise is a multiple of one hundred.
From the second half of the twentieth century other factors have also contributed to driving between-country income inequality. The political and institutional instability experienced in some countries after decolonisation caused economic stagnation and in some cases, decline. In the Soviet Block and other socialist countries, socialism failed to lift income levels significantly.
There are factors driving a decrease in between-country inequality. Sustained economic growth since the 1980s in China and India has had an enormous impact. In China alone, the number of people whose incomes have doubled is ten times that in the United States over the same period.
In gross terms, the gap between rich and poor countries continues to grow. China's economy would need to grow by eighteen per cent to generate the same value created by a one percentage point increase in the GDP of the United States. This is an almost impossible task for any economy no matter how ‘on fire’ it is.
An assumption of neoclassical economics has been that globalisation would improve levels of between-country inequality. Poor countries with cheaper labour forces would attract more foreign direct investment (FDI), because corporations looking to increase returns by lowering production costs would invest. The result would be increased local income levels and decreased inequality. Emerging countries would also ‘slip-stream’ on the technological advances of richer countries by copying their innovations and avoiding the need for expensive research and development. They would also be able to avoid adopting dead-end technologies that proved unsuccessful or were quickly superseded by superior technologies. Unfortunately, these assumptions have not been borne out by reality.
In what is termed the “Lucas paradox” FDI has not flowed as expected from high-income to low-income countries. Instead, it has to tended to flow from high-income countries to other high-income countries, and even from low-income to high-income countries. Technology adoption by developing countries has not been an equaliser as expected. Royalty payments for new technologies tend to flow from the poorer adopting countries to the more affluent countries that own the intellectual property.
The failure of the focus is shifting to include institutional and cultural considerations. The goal is to create an environment fertile for innovation, technology, and economic growth. Whether this new approach improves levels of between-country inequality remains to be seen.
Martin Duys, a member of our Emerging Fellows program initiates publishing a series of blog posts aimed at identifying the impacts of inequality on the world order by 2050. This is his first post in our EF blog inspecting inequality through the lens of security. The views expressed are those of the author and not necessarily those of the APF or its other members.
In 2013 Barack Obama described inequality as the “defining challenge of our time”. In 2014 Thomas Pikkety’s academic tome, “Capital in the Twenty-First Century” was translated into English and became a bestseller. In the same year Oxfam published a report claiming that the net worth of the world’s eighty-five richest people was equivalent to that of the poorest fifty percent of the global population. In 2015, in response, the World Economic Forum declared inequality, alongside climate change, as the challenge for its annual meeting in Davos. Inequality is clearly an issue on the global agenda, but is it one that could potentially lead to instability, conflict, or perhaps even war?
Income inequality is generally expressed by using an index of some kind to describe the manner in which income is distributed across a population. The Gini coefficient is the best-known example but can be difficult to understand. Comparing the share of total income earned by the top segment of a population (the top one percent, or the top ten percent) with that of the bottom fifty percent is more intuitively understandable.
Global income inequality has been steadily increasing for the past two hundred years. Only in the past thirty-five years with the rapid economic growth of countries in the Near and Far East has the trend begun to reverse. Between-country inequality has been decreasing recently, but where people are born is still the single largest factor determining their economic prospects, far more than any individual effort on their part. In-country inequality has been on the rise in most countries since the nineteen-eighties, especially in those countries that have followed a strategy of lower taxes and smaller government in order to encourage economic growth.
The trend reversal in levels of between-country inequality could be a source of increased security concern in the medium to long term. As the economies of countries such as India and China continue to grow their share of the global economy, the balance of power between nations will continue to visibly shift. Will it be possible for China to overtake the United States as the dominant world economy without their falling into what Graham Allison describes as the Thucydides Trap? An almost inevitable war between a previously dominant power and the new one.
One of the obvious consequences of between-country inequality is economic migration from poorer to wealthier countries. The effects of uncontrolled migration on the internal political climates of the destination countries have been only too obvious resulting in increased levels of nationalism and xenophobia. Whether in Germany, the United States, the United Kingdom, or South Africa the response to the presence of newcomers by locals is in many ways consistent and comparable.
There is evidence that high levels of in-country inequality may dampen economic growth prospects, but a clear symptom of in-country inequality is the rapid growth of the private security industry. It is estimated that more than fifty percent of the world’s population lives in countries where there are more people employed by the private security industry than by the national police service.
Some argue that that, although the share of the economic pie accruing to the upper echelons has been increasing, this doesn’t reflect the dramatic improvement in the lives of the lowest echelons brought about by the parallel decrease in levels of absolute poverty. The increase in stability and security that results from a general reduction in absolute poverty far outweighs any potential destabilisation caused by rising inequality.
Some level of inequality can also be seen as a motivating factor that encourages individuals to strive towards achieving the economic rewards that could result from further education, or career advancement.
The issue of inequality is very much on the agenda globally. There are some recent examples of security related issues where inequality has been a contributing factor. The Occupy movement after the 2008 global financial crisis had its roots in issues of inequality, as did the protests in Chile in 2019. The role that inequality plays in contributing to future issues of security will depend largely on whether levels of inequality continue to increase, or whether there is genuine movement from discussion to action on the issue.
Robin Jourdan, a member of our Emerging Fellows program believes that democratic systems have not solved many problems, but they evolve into the future. The views expressed are those of the author and not necessarily those of the APF or its other members.
To be called democracy, a governing system is made up of basic rules: open and free-will elections, political participation, civil rights, and separation of powers. In a free country, people may speak their minds and shape their own and their children's futures. Threats and weaknesses in democracies are plenty. Some leaders have destroyed the substance of democracy in their country, muzzling the press and imprisoning opponents, while preserving the show of freedom. Deciding to introduce the euro in 1999 was undertaken chiefly by technocrats rather than by popular vote. Distrust in governments and weak leadership push prevalent anxieties.
Trust is a tangential challenge for experts and technology. Often citizens reject experts as an objection to power abuse. Experts must remain servants not masters to the system. Similarly, expertise-christened artificial intelligence may make most people better off toward the end of this century. Wearable and implantable technologies enable people to interact in new ways. Famously, "I think; therefore, I am," was expressed by Descartes. We're not sure if machines think, but as that distinction becomes fainter, our relationship with them will likewise shift.
As an economic system capitalism is a relative newcomer. Sharing periods of global maturation further confuses the system by conflating democracy and capitalism. Indeed, the US Constitution isn't an economic document. It provides for intervention in financial situations when the economy requires regulation. Deeply ingrained in the material, economic liberty is the means to protect occupational freedom. This specificity leaves open the door to alternative financial solutions. Democratic socialism is when the means of production are socially and collectively owned or controlled, alongside a democratic political system. Even the ten most innovative countries are a mix of capitalist, socialist, democratic, and autocratic.
As an alternative model's success, China can't help but represent a challenge to democracy and capitalism. Achievements of the Beijing Consensus include China itself. China has become the land that failed to fail and is on a trajectory to become a viable global, science superpower. Also, these successes create compelling arguments to modify capitalism.
From an ability to marshal vast resources against wicked problems like climate change to nurture long-term thinking associated with complex problem-solving, Brussels and Beijing are tallying up successes. Democracies haven’t yet solved these problems for many reasons including unrelenting political cycles. Such evidence creates a compelling argument and threat to democracy’s hold.
Economics, health, and safety have, at times, held contentious positions. Globally today, nine out of 10 people breathe polluted air. Ignoring climate change and other wicked problems could come at a cost in the trillions of dollars, antithetical to capitalist goals. Threats to corporate profits win little public interest, but businesses can wield power to change the conservation conversation in ways that don't rely on politics.
Has democracy had its day? Changes to democratic systems are likely to continue, as it is bred to mirror the culture it supervises. Whether direct, representative or constitutional, all forms are a dominantly Western construction. That so many people are prepared to risk themselves for this idea testifies to its enduring appeal. Democracy may not exist in any pure form, but we'll miss it if it's gone.
Paul Tero, a member of our Emerging Fellows program examines the perspectives of digital economy in his twelfth blog post. The views expressed are those of the author and not necessarily those of the APF or its other members.
In order to answer this question, we need to appreciate how our perspectives have developed. It is important to note that not only do we all have our own biases but our world views aren't always in synch on any one of a number of issues. This development process starts with our beliefs. These are shaped by factors such as our culture, our education and our experiences. What we hold dear, our values, not only grows out of our set of developed beliefs but are also shaped by our family’s values and our successes in life. What builds on these two, in turn, is first our attitudes and finally our behaviours.
This is where our perspectives of the future digital economy come into play. Because the future cannot be studied, as it does not yet exist, only our images and conceptions of the future can be. These ideas are built upon our beliefs, values, attitudes and behaviours. The vision that we each have of what a fully digital economy will look like depends upon our biases and world views.
Consider the question: “what do you think the future will be like?” From a temperament perspective, are you a hopeful person and by default you look for win-win outcomes? Or are you one who has been bitten by identity fraud and, based on your experiences, your answer is laced with skepticism. The implication here is that an argument for a fully digitised economy that is utopian in nature is just as plausible as well as one that is dystopian.
In discussing how the future of the economy could unfold we have seen that there is not one preferred scenario. Several possibilities could eventuate. What underpins any of these paths is the growing preponderance of the digital bit in creating economic value. It used to be that the economy was solely based on what we could do with the atom – building things, selling things and establishing bases of power through the material world. Now it is the world of the bit that is increasingly ubiquitous.
There are then several issues that flow from this increasing digitisation: the skills that we trade for value in the workplace, questions concerning the knowledge and wisdom that can be derived from a super-abundance of data, social responses to the changing structure of the economy, and the shape of governance structures surrounding corporates and other institutions. Finally, what may arise from this trend toward increasing digitisation is the emergence of an “intelligence economy”. One that supersedes the digital economy. An economy where real value is no longer held in varying compositions of bits, but in prized abstractions of knowledge stored in quantum computing machines.
In looking forward from the vantage point of today, what is your preferred future? How would you like this increasingly digital economy develop? Are you hoping for one that is based on solely the taxation of capital, thus freeing humanity through the mechanism of a universal basic income? Or are you hoping that life continues as it is, albeit with some form of control mechanism that reduces any digital encumbrances arising from social toxicity?
Whether we gladly accept this trend or hold deep reservations, the future is progressively digital. This phenomenon will impact how value is created, how we lead our lives, and how the state conducts its governance. For just like the harnessing of physical streams by waterwheel technology led to all manner of outcomes, so too will the technology that harnesses digital streams.
Felistus Mbole a member of our Emerging Fellows program envisions sustainable future societies in her eleventh blog post. The views expressed are those of the author and not necessarily those of the APF or its other members.
What is a sustainable society? A sustainable society is one that ensures the wellbeing of human life and nature for present and future generations. It is a society that has the right balance of the economic, social-cultural, political, and ecological dimensions.
The economic system is one part of our finite ecosystem constrained by planetary boundaries. Economic growth is simply a translation of the social and natural capital within society into economic gains. The global economy has been growing for decades while the natural capital is continually being degraded at a rate well above its renewal. It is not possible for the economy to perpetually grow in this finite ecosystem.
Economic growth is a quantitative increase which does not necessarily lead to an improvement in the quality of life or equity and justice in society. The pursuit of continuous economic growth puts undue strain on the environment with total disregard to future generations. On the contrary, we need development which sustains the wellbeing of humans, cultural values, and the environment. What will a sustainable society look like? Can this be attained?
A sustainable society will be characterised by long-termism rather than short-termism. It will be a global society whose members are mindful of the global rather than the immediate local consequences of their actions. It will be a society with a shared economy that pursues development rather than mere economic growth and the common good. Otherwise, everyone will face the tragedy of the commons such as effects of climate change and societal ills.
It will be an equitable society in all aspects such affecting wellbeing and decision-making. It will not be a society where the more economically empowered make or influence policy decisions to serve their own interests. All calibres of society will need to be represented in decisions that affect their welfare, both locally and globally. The south will be as key in global decision-making as the north. It will no longer be a case of the economic powers making decisions that affect the globe. Government policies will discourage and punish behaviours that would lead to ecological degradation and hamper future sustainability of society through levies such as eco tax and economic sanctions.
The sustainable global society will espouse a paradigm shift in the value of life. It will be a society where members are valued for their very existence rather than their economic worth. This will drive a sense of equity and a desire to see one’s neighbour living as comfortably as himself. Members of the society will be oriented to change for the benefit of all.
Is a sustainable society possible? What will drive it? Who will be its custodians? As demonstrated by the ongoing global youth campaigns for climate change, maintaining the status quo is not an option. Attaining a sustainable society is a social-political problem. Economists have failed us. Building a sustainable society will require a political class that espouses societal values and does not merely serve capitalists. This will be a calibre of leadership that has the will to enforce the right values across all segments of society and to penalise those who act contrary to the tenets of this common good. It will be a political power that works to build society’s moral fibre rather than to erode it. One that is insulated from the current economic system that currently wields undue power over society and lives in present. A sustainable future society is one that includes everyone.
Paul Tero a member of our Emerging Fellows program examines the feasibility of a digital utopia in his eleventh post. The views expressed are those of the author and not necessarily those of the APF or its other members.
In July 1893, 220 men and women from the relatively new settlement of South Australia decided to start anew and create a utopian society in Paraguay, South America. Although this “New Australia Co-operative Settlement Association” had some quick wins in clearing land, establishing a township and using cattle as one of their sources of nutrition it all fell apart within two years. Despite their efforts, the ideal that this assortment of well-meaning people sought for was beyond them. While examples abound across the globe and across the centuries of utopian projects that ended in disarray, there are others such as the Shaker communities in the 1830’s and the modern Tamera project in Portugal that have achieved success.
When it comes to a future digital utopia will the dream be realised like the Tamera case, or will it be another failed venture like the “New Australia” community? Driving these outcomes are answers to several questions. For example, what does this future state look like? What is attractive about it? Do we actually want to live in a society and operate within an economy where “digital” is more dominant than it is today? What of the relationships between business, government and the citizenry? And then there are global considerations – what structure will the interactions and governance frameworks at a geopolitical level take?
What form will this anticipated mid 21st Century digital utopia take? Could we attain perfection in employment, in well-being and in society? Regarding employment, one can argue that the technologies of automation and machine learning are laying the groundwork for universal basic income. When it comes to health, advances in personalised medicine could lead to us living in trouble-free bodies. Likewise, with the social sciences, and with regtech and fintech, are we not marching toward more efficient transactions and services as well as removing impediments to social harmony?
The Western digital utopian vision may include a freedom to individually pursue creativity and education, but for those across the Asian or African continents the digital utopia may centre on social unity and shared economic activities. While either personal or communal achievement is at the heart of each of these potential future states, individuals motivated by power could well be disenfranchised.
This is where our move to digital ubiquity may actually reconcile competing impulses and world views and realise a digital utopia. For the long-held and default perspective on our atom-centric economy is scarcity. It’s supply and demand. We pay a price in exchange for owning a thing. But in a bit-centric economy abundance is the dominant narrative. This abundance stems from the fact that there is relative little marginal and distributional cost associated with the production of digital goods and services.
For example, social media services don’t have limits on the number of people that can access their platform simultaneously. Likewise, there are relatively few limits that can be placed on sources for Internet of Things data. And with the relative price of computer power and data storage always falling, the opportunities of artificial intelligence influencing the natural and social sciences seemingly knows no bounds.
It is with this perspective of abundance in a fully digital economy that a digital utopia may well come to pass for us all. While not in the same format for everyone across the globe, but certainly with some common threads and with unique contextualisations dependent upon who and where we are.
Paul Tero a member of our Emerging Fellows program inspects the business agility in digital economy through a new post. The views expressed are those of the author and not necessarily those of the APF or its other members.
One of the dominant narratives of the business world is that in order to succeed the products you provide either need to be cost competitive, be differentiated in some way, or you need to be quicker to market than others. Will this narrative hold as the economy turns fully digital?
Consider what happens today. In order to maintain profitability an external improvement approach may be taken: variations of current products may be offered, or price discounting may take place to increase the quantity sold, or new markets might be opened up. Another approach would be to focus internally. That is to reduce costs and to streamline processes. And a third approach would be to go down the innovation route and develop new products for the same or for different markets. All of these are variations on the faster, better, cheaper narrative. A narrative that holds true in an economy based on atoms, but does it hold for an economy solely based on bits?
We can gain some insights into this future state from the transition that is currently underway. This shift can be seen in the increasing proportion of business, of the economy, of even work itself being categorised as digital. Consider some observations. First, the marketing of goods and services. No longer does the maxim hold of “not knowing which half of the marketing budget is wasted”. For with the analytics available from advertising campaigns using social media channels and search engines the marketing budget can be spent more efficiently.
And second. What about the potential of big data, machine learning and the internet of things currently being brought to bear on say manufacturing processes, the logistics sector, and on agricultural practices? Finally, not forgetting consumers in all this data processing potential: we can find what we want or need more efficiently among the increase array of choices available to us.
Another insight from this transition is the merging of values with business activity. No longer can a company opaquely distance itself from that which is socially unacceptable. Today’s consumers, and even employees, increasingly call out participants in the local, national and global economies for lack of transparency and corporate behaviour at odds with forward looking standards.
A final insight is with respect to legal and political matters. Until recent times, the digital economy could be regarded as this anarchic wild-west frontier where the scale of profits was beyond comprehension and regulation was an anathema to the full gamut of stakeholders. But now we are seeing serious discussions concerning appropriate taxation regimes, effective safeguards of personal and private data for business use, and a range of attitudes of governments when it comes to how they use their citizens’ data.
So, from one perspective digital technology is making the market more efficient. Perhaps even moving it toward that holy grail of it being a perfect market. Where there is perfect information, sufficient products are available for consumers, and where the lowest cost is the hallmark of all goods and services produced.
And from another perspective, digital technology is making the market more transparent. Where the ulterior motives of its stakeholders become clearer and the governance of data is weighted in the consumer’s favour. In other words, there is possibility that a defining characteristic of the market of the future is its integrity. That across the globe the economy operates with a high level of ethics.
A fully digital economy, then, has the potential to be described in terms of it being a perfect and ethical economy. And this potential will shape the current dominant “faster, better, cheaper” business success narrative. Where even if you are “faster, better, cheaper” due to the nature of perfect markets long lasting economic rents will be almost non-existent. Where even if your business succeeds by being “faster, better, cheaper” the rewards may well be short-lived if that path to victory was less then ethical.
The implication is that “faster, better, cheaper” is becoming “faster, better, cheaper, clearer”. For even if the systems involved in the current transition to an economy based on bits seem opaque, the potential is for all digital economy systems to be fully pellucid.
Tim Morgan inspects the ownership of resources by themselves in his ninth blog post for our Emerging Fellows program. The views expressed are those of the author and not necessarily those of the APF or its other members.
In April 2016 the world’s first decentralized autonomous organization was launched. This crowdfunded organization, aptly named “The DAO”, was a collection of interlocking digital smart-contracts designed to use the Ethereum blockchain to fund investor proposed projects. The only human interactions allowed were voting on new projects by shareholders. All other management activities were conducted according to its founding smart-contract rules. This organization worth US$150 million existed as a purely digitally managed company with no legal charter, no physical address, no board of directors, no CEO, and no human management. It was the world’s first stateless autonomous company. Though The DAO was shut down later that year after hackers compromised it, new frameworks like the Aragon project and DaoStack are actively being developed.
Decentralized autonomous organizations (Daos) represent a new stage in capitalism, one that embraces the idea of giving ownership control to non-human algorithmic entities. This is a continuation of a centuries old trend of owners progressively giving up more and more control of capital to managers, corporations, investment funds, and the like. This takes that progression one step further. A Dao controls itself and all the value associated with it. It can have investors. It can pay people for work performed. It could even own physical property if a government chose to charter a Dao as a corporation. We are one legal step from autonomous organizations getting personhood-like rights of a human-chartered corporation. Is it plausible we could take the next step? Can non-human entities have human-like legal rights?
The International Center for the Rights of Nature maintains a timeline showing the accelerating adoption of legal rights for nature. Ecuador wrote Rights of Nature into their constitution in 2008. Mexico City put language into its city constitution in 2017 that would “recognize and regulate the broader protection of the rights of nature formed by all its ecosystems and species as a collective entity subject to rights”. There are many other examples. However, one right seems to always be neglected: the right for nature to engage in commerce. That leaves even legally protected natural resources at the mercy of market pressure on governments and the court of public opinion.
What happens though if we put Daos and rights-holding natural resources together? What we get are autonomous resources that can become full active participants in markets and the legal system. These “deodands”, as futurist Karl Schroeder has named them, could protect themselves from exploitation by entering into commercial contracts for sustainable extraction of their resources, hiring security, funding scientists to monitor their health, and maintaining lawyers to sue contractual or rights violators. They could even hire programmers and engineers to improve their own decision-making algorithms and sensing technologies as the state-of-the-art progresses.
Can resources own themselves? They can if we let them. If we blend a bit of technology with a dash of nature and a smidgen of legal rights, then a whole new level of ecologically sustainable development will be unlocked. Best of all is that markets will be working for sustainability. Their new owners will demand it.