What the inventive genius of mankind has bestowed upon us in the last hundred years could have made human life carefree and happy if the development of the organizing power of man had been able to keep up with his technical advances. As it is, the hardly bought achievements of the machine age in the hands of our generation are as dangerous as a razor in the hands of a 3-year-old child.
Over the last few decades, communication technology has advanced astoundingly, moving us toward richer and richer representations and higher and higher fidelity communication.
This same level of advancement should and can be achieved for our political and social technologies. There is an enormous amount of richness in our interpersonal lives, within our “Dunbar groups”, that is not present for larger scale and anonymous social interactions. Let’s change that. Enter SOCIAL TECH.
I. Why increasing returns undermine capitalist optimization
- WHEN CAPITALISM WORKS
- Prior to the 19th Century, the “labor theory of value” reigned: there was a belief in a linear relationship between labor inputs to a company and its outputs.
- As the industrial age bloomed, this belief was updated. It was found that there was a sweet spot, a point beyond which adding another more inputs increases output less and less. Think of a gold mining operation, where the cost to mine more increases more and more as the easy to reach stuff has been mined.
- We call this phenomenon “decreasing returns” and capitalism works when you in a context of decreasing returns! When everyone is paid out their fair share, there’s some left over as profit.
- WHEN CAPITALISM FAILS
- In contrast, there are economic contexts in which we find increasing returns. The whole is greater than rather than less than the sum of its part, and adding more inputs increases output more and more rather than less and less. This is what’s sometimes referred to “economies of scale.”
- The world is full of these economies of scale, and yet the capitalist instutions we make use of are not designed to allocate resources efficiently in these contexts. If everyone were paid out their fair share, it would be more value than the enterprise is generating to begin with.
- SOFTWARE AS ARCHETYPE
- What happens when you try to have profit seeking when you have economies of scale? Either you put some kind of monopolistic structure in charge, concentrating power and returns in a small few, or you don’t do that and the business goes bankrupt. Think Big Microsoft in the 90s vs. an open-source software project with no money to pay contributors.
- BUT! All the great examples of “Capitalism” are actually these economies of scale situations: this is fundamentally inconsistent with the claims as to what capitalism is good for. What to do?
II. Optimal institutions for increasing returns
- Quadratic Funding
- Quadratic Funding is a mechanism for resource allocation developed by Radical Exchange, what they call an optimal mechanism for the provision of public goods. It’s sort of like the idea of “matching funds” that’s quite common in charitable giving, with some different considerations.
- Basically, the smaller a person’s possible contribution, the less likely they are to actually contribute because their contribution doesn’t matter much. Taking that into account, you can set up a system to weight the contributions by size, reversed. Technically, you want the amount received to be the square of the sum of the square roots of each contribution.
- This flips the script from, “What if I contribute 1 dollar more? What’s the cost-benefit analysis of that?” to “What if I could get everyone to contribute based on how much they care?”
- Well, where do the matching funds come from?
- There’s an economic idea know as the Henry George Theorem.
- An example: Everyone knows areas with really good schools have high house prices. Sometimes this is a 1:1, if you build a school, the house prices go up a predictable amount. If you can quantify the value increase made by the school, and you could somehow get access to those funds, then you could fund any school that costs less to build than that increase in property values that it drives.
- A gernalization of this is the Henry George Theorem. The increasing returns activities will throw off value but not be able to absorb it while decreasing returns activities will soak up value.
- If you can recycle the value accrued by the decreasing returns activities (through taxing perhaps) into the increasing returns activities then you get this self-fulfilling kind of superconduction.
- But how can you do this without the tax impacting the economics negatively? Enter the SALSA: Self-Assessed Licenses Sold at Auction. Under this scheme, property owners name their price but are required to sell to any buyer who meets the price.
- There are all sorts of impediments to property being repurposed for new uses, in both private market contexts and political contexts. We have regular elections so as to reallocate “political property”. What this sort of compelled sale idea, you can build guaranteed periodic reallocation into the economic system.
- Uses in the Wild
- Taiwan is using quadratic voting for many civic services and votes, including their Presidential Hackathon.
- The State of Colorado is using quadratic funding to allocate it’s budget for the second year this year
- Gitcoin is a crowdfunding service on the Ethereum blockchain that uses quadratic funding
Ill. Next steps for “optimal institutions with pervasive increasing returns
- Problem: the examples really only work in theoretical contexts where there is one public good and the rest of the economy is private goods, a sort of generic context. But the world is specific, and the social realities of the world must be taken into account.
- Many of the participants in a market that are vying for access to the same kinds of goods are in relation to each other in some ways. If the good is truly a public good, in that it may enjoyed by those even who didn’t fund it, that affects the allocation of resources. You or your spouse winning an auction are not unrelated outcomes.
- How do you deal with the fact that people have different social relations, and these social relations will affect how cooperative and competitive those people behave?
- The solution: a new framing. Rather than a list of people each with an amount of money, you have a graph of people with weighted relationships amongst them. You can then run political economies atop this graph. This non-linear weighted graph allows for blossoming complexity and rich social structures on top.
- There are so many things missing from the description of social and political life optimized for in the design capitalist institutions: signalling, cultural undestanding, representation, non-linear ways in which we combine information, community structures around property ownership (not just individual property rights), democratic governance of collective entities, etc.
- These are so clearly part of human life but not part of our institutions. As AI is reaching closer and closer to human-like cognition, and VR is reaching closer and closer to human-like sensory experiences, why can’t we do this with our political and social tech?