Table of Contents
Problems of Hypercentralization
Chaos always triumphs over order, as chaos is better organized.
Terry Pratchett
Slave owners replenished their stocks of slaves by raiding neighboring territories and expanded their holdings at the expense of those lands. However, it turned out to be more effective not to devastate the conquered lands but to collect tribute instead. This provided farmers with a respite and allowed them to accumulate enough money to hire their own armies and eventually transform into feudal lords. Feudal lords derived income from their lands and borrowed money from proto-financiers, which led to the accumulation of capital and deprived the feudal lords of their granted privileges over land. Land became purchasable, and the main source of income shifted to production. The landowners, once in a position of power, became suppliers for capitalists. Capitalists developed industry and robotics, which led to the informatization of society and pushed capitalists into the background, turning them into providers for bureaucrats. Informists (bureaucrats) promote the informatization of society, which, in the end, should strip them of the privileges they strive to maintain.
Information has become such an important resource that its managers and producers—scientists, computer specialists, experts, and professionals—are starting to play a more significant role in society than its owners—politicians, officials, and businesspeople. What does the decision-making process look like at a fairly high level today? For example, when it comes to building a highway. Analysts and experts gather information, evaluate options, build models, and make forecasts. The result of their work is several potential solutions to the problem, which are presented in a simplified and condensed form to the higher-ups. The boss, such as the Minister of Transport, may have little to no understanding of road construction, but he is often an expert in other areas—political maneuvering, intrigue, kickbacks, and deception; otherwise, he would hardly be able to hold that position. He approves the option that best serves his interests. The actual implementation of the project is not his responsibility either—engineers and lower-level managers will take care of that.
Considering that the options presented to him are more or less equivalent (and they can’t be otherwise—if the experts know their stuff, they won’t let a project that is far from optimal slip through), it turns out that simply flipping a coin would yield a result that isn’t much worse. It might even be better—corrupt officials are more likely to choose the project that offers more opportunities for kickbacks rather than the one that is better. With a coin flip, however, the odds are fifty-fifty. Moreover, we’ve painted an ideal scenario—usually, a corrupt minister doesn’t let things run their course and carefully ensures that convenient loopholes are built into the project proposals and forecasts from the very beginning, creating all the conditions for his family’s “business.” Of course, there are honest and competent ministers, but even they, despite their best intentions, simply cannot delve into the technical and economic details of every project and make a well-informed decision. Understanding this, they rely on their subordinates, preferring to control the outcome rather than the process. Meanwhile, they focus on placing the right people in the right positions and giving them the freedom to work without constantly looking over their shoulders.
Hypercentralization is an atavism, a relic from a wild past when the dominant male in a herd could not allow anything to happen without his knowledge. Any attempt by a subordinate to make an independent decision threatened the leader with a loss of power. Autocratic rule suited the small group of monkeys, but it became cumbersome and awkward as monkeys evolved into humans and were able to unite into larger structures. Nevertheless, neither nature, with its rigid genetic programming that has remained virtually unchanged for the last forty thousand years, nor the primitive technologies and knowledge of the past could offer anything else.
However, nature had a solution. In addition to communities of animals with individuality, capable of recognizing one another and forming aggression-regulated hierarchical structures, there also existed anonymous, depersonalized communities where individuals do not recognize each other and can only distinguish members of their own group from outsiders—such as ant colonies, flocks of birds, and herds of antelopes. [66]. Such communities do not require hierarchy or aggression. They can consist of a large number of individuals, as group members do not need to remember individual differences. Each member of such a community must be completely predictable to the other members. In other words, the other members of the anonymous community must trust him as they would trust themselves, and he must behave accordingly. The “norms of behavior” in such communities are strictly defined by instincts and reflexes.
Communities of this type form a decentralized “network” of fairly simple and unintelligent beings that, by working together, effectively and quickly make quite complex decisions. An anonymous, albeit with some caveats, colony of rats exhibits behavior that some biologists refer to as “collective intelligence.” A herd of antelopes instantly reacts to a lion spotted by one of them. Ants and bees possess technologies that no elephant or dolphin could even dream of. [67]. And this is despite the fact that each individual ant or bee has practically no brain.
Ants are one of the most successful animal species on Earth. They are found all over the world, except in Antarctica and some remote islands, making up 10 to 25% of the biomass of terrestrial animals, surpassing the share of vertebrates.
Ants form families that vary in size from a few dozen individuals to highly organized colonies consisting of millions of individuals and occupying large territories. Large families are primarily made up of sterile, wingless females that form castes of workers and soldiers or other specialized groups. Almost all families have males and one or more reproductive females, known as queens.
The complex system of communication and coordination among relatively primitive insects has allowed them to achieve heights unattainable by any other species on Earth, except for humans. Many species of ants are known for their practices of animal husbandry and agriculture—they farm aphids and cultivate mushrooms. In the Amazon rainforest, there are so-called “Devil’s Gardens”—areas where only one species of tree, Duroia hirsuta, grows. Worker ants of the species Myrmelachista schumanni, known as “lemon ants,” kill the green shoots of other species by injecting formic acid into their leaves as a herbicide. In this way, the ants allow their favored trees to grow freely without competition. The largest known “Devil’s Garden,” consisting of 328 trees, is approximately 800 years old.
Ants can not only build anthills taller than a human, extending several meters underground (which, in scale, surpasses the most grandiose structures created by humans), but they can also unite into supercolonies made up of several nests, with worker ants freely moving between them. One of the largest supercolonies on Hokkaido Island in Japan includes approximately 306 million worker ants and one million queens, living in 45,000 nests over an area of 2.7 square kilometers.
The word “queen,” often used to refer to an ant queen, implies that she is the center of the ant colony; however, in reality, it is the worker ants that hold this position. The more females there are in the colony, the more “disrespectful” the workers are towards them. Worker ants relocate the queens from one part of the nest to another, exchange them with other nests, and kill those whose fertility has declined too much. The workers also control the reproduction of individuals in the colony: they eliminate excess larvae or alter their feeding regime to change the ratio of castes within the colony. The “queens” are merely a shared resource of the ant colony, similar to a herd of cows in a village.
Ants act in a coordinated and consistent manner not through a single central authority, but through “swarm intelligence” — the collective behavior of a decentralized self-organizing system.
The most intelligent and perceptive creatures—primates, lions, elephants, dolphins, wolves—naturally exhibit more pronounced individual differences and therefore typically live in small groups of individuals capable of recognizing one another. [2]. The relationships within the groups formed by these animals are built on a reputation-based system. For example, other males will not challenge the dominant male precisely because he has the appropriate reputation, and they will respond more actively to a call of “there’s food here” if it comes from an individual known for being a good forager.
In a large human society, individual reputational connections cease to function due to the sheer number of individuals within the group and, consequently, the large number of strangers who constantly surround people.
Since the emergence of the first large human communities, this problem has been addressed by substituting individual recognition with group recognition based on cultural stereotypes—using criteria such as language, religion, or traditions—or by conditionally incorporating unfamiliar individuals into the familiar biological hierarchy. This way, people could interact within very large groups by fitting each specific stranger into a limited number of templates or roles and assigning them a standard reputational assessment associated with those roles.
Naturally, as such role models, people began to use the established hierarchical scheme of relationships in tribal communities. Thus, chiefs and kings became the “fathers” of their nations, while, for example, soldiers in the same unit were referred to as “brothers in arms.” In this way, people did not follow the path of ants but simply learned to scale the hierarchy to very large sizes.
There is an interesting pattern: in ants, bees, and almost the only species of mammals capable of building large-scale engineering structures—beavers—the leading role is usually played by the females. [68]. It seems that the aggression and tendency to dominate, characteristic of male social animals in personified groups, which have been so vividly displayed throughout human history, do not help but rather hinder collective actions of large human groups. [66]. Moreover, in the absence of governing instincts and strong reputational ties, the opportunism of the participants in these groups hinders progress (that is, individuals pursuing their own interests at the expense of the group’s interests), leading to what is known as the “free rider effect.” [20]. In social insects, instinctive collectivism is genetically ingrained, while in humans it typically extends to close relatives or members of small groups. [17]. Текст для перевода: ..
The Freeloader Effect
When people can receive benefits regardless of whether they have paid for them or not, they have less incentive to pay. They are tempted to become free riders: individuals who take advantage of benefits without contributing their share to the costs associated with providing those benefits. But if no one has the incentive to cover the costs, no one will have the incentive to provide those benefits. As a result, public goods will not be produced, even though everyone values them more than the costs associated with their production.
People’s actions are determined by the costs they expect to incur and the benefits they expect to gain as a result of those actions. If the benefits that an individual stands to gain are absolutely the same in every respect, regardless of whether they take a certain action or not, and if taking that action involves significant costs, they will not take that action.
Based on the materials: Heyne, Paul T. The Economic Way of Thinking [69].
With the growth of labor productivity, the improvement of weapons and writing, kingdoms and empires became increasingly centralized not because it was wise, but simply because it was possible. A king or tyrant, who ruled an empire of greater size, had or thought he had more tribute collected from the provinces. In practice, however, the costs of tax collection, maintaining the apparatus designed to control territory and population, sustaining an army, neutralizing rivals for the throne, corruption, and the fight against it destroyed all the advantages of large empires for their rulers. A similar illusion of advantages from dominance can be observed even in a large troop of baboons, where females typically give birth to offspring not from the dominant male, thus preventing incest. While the dominant male chases after a middle-ranking male who dared to court his female, the other middle-ranking males manage to “take out” other females from the dominant’s harem.
Anyone who has worked in government agencies or sufficiently large private companies knows very well how ineffective hyper-centralization can be. The response time of such structures to changes in external conditions is measured in years and decades. The workday of most managers is almost entirely consumed by battling transactional costs. The bureaucratic hierarchy tends to grow without limits, and its interests are virtually disconnected from those of the people who (supposedly) own the structure.
The centralization and tightening of the organizational structure allowed for the provision of transaction guarantees and reduced the opportunism of its members. [70]. At the same time, a hierarchy requires significant costs for its existence, which exceed the transaction costs of other types of organizations, and deprives the organization—in this case, the state—of flexibility in interacting with its environment.
Thus, any hierarchical structure has a limit to its efficiency, which is determined by the cost of maintaining the hierarchy and the presence and nature of the disturbances that this structure deals with. [71]. The development of information technologies—printing, followed by radio, telephone, and mass media—created the illusion that hierarchical structures could grow indefinitely.
However, the centralization and unification of the entire management system leads to an increase in the interconnectivity of the whole system. The impact that the system receives becomes more significant for the entire system as a whole, the better the communications within that system are developed. [72]. An epidemic at one end of the empire quickly spreads throughout the territory. A rebellion in one province affects all parts of the country, at the very least diverting resources to suppress it, and at most inspiring other provinces due to developed communication. A poor harvest in one region can lead to food shortages or even famine or food riots across the entire country. This means that endless growth of the hierarchical structure is impossible, even in the absence of external pressures and with low communication costs.
Ancient Egypt was a vast kingdom without the printing press or a developed road network until it faced the necessity of actively responding to external threats. Moreover, Egypt existed along a single natural infrastructure highway—the Nile—and could not expand its territories without developing its infrastructure. Eventually, it was conquered first by the Persians and then, constantly shaken by uprisings, by Alexander the Great. [73]. and finally, Rome [74]. Текст для перевода: ..
The Macedonian Empire itself fell apart immediately after the death of its founder, as the desired centralization by the rulers could not be supported by the infrastructure that existed within the empire. Ultimately, the last ancient empire we know of was Rome. If we look at a map of Ancient Rome, we can see that it seems to embrace the Mediterranean Sea. This geographical layout may seem strange to us, but in those times, the sea offered a faster means of transporting information and goods than traveling on foot or horseback, especially in the absence of roads.
Rome was able to retreat from the coast and expand its influence into continental Europe precisely because of its roads. It was also these roads that brought Rome into contact with the barbarians sooner than would have happened otherwise. However, the rigid structure of governance and the state itself did not allow for a quick response to external threats, despite the theoretical possibilities of centralized resource mobilization. The structure and the center consumed more and more resources, leaving insufficient means for urgent needs, such as the army.
From the History of the Fall of Rome
By the 3rd century, uprisings by slaves and coloni were becoming increasingly frequent and widespread, which had previously been quite rare. Rome began to shift from offensive wars to defensive ones. The army of conquest and plunder transformed into a regular border army.
The struggle for power sharply intensified. From 235 to 284 AD, 26 emperors came to power, of whom only one died of natural causes. This means that, on average, an emperor ruled for just 1.9 years during this period. The year 238 is particularly known as the year of six emperors. This time of almost constant civil war and anarchy is referred to as the era of the “soldier emperors.”
Roman emperors tried to buy the loyalty of their soldiers by increasing their pay. However, to cover these additional expenses, they reduced the silver content in the minted denarii, worsening an already difficult financial situation in the country. Caracalla’s father, Septimius Severus, reduced the silver content in the denarius to sixty percent, while Caracalla himself lowered it to fifty percent.
The crisis began to undermine trade relations within the state, weakening the economy, which was exacerbated both directly and by the fact that the government was receiving less tax revenue and becoming militarily weaker. Inflation also hit trade hard. The road networks were not being updated, and banditry began to rise.
In the context of the circulation of emperors, only a person who could establish an administrative structure designed to oppress everyone and everything could firmly secure their position, ensuring that no one would rock the boat. The system itself needed to prevent the usurpation of power. Energetic, tough soldier-emperors began to rise to power, who cared about the fate of the empire — the so-called Illyrian military junta. They restored the army’s former strength and efficiency, but their focus was solely on the needs and interests of the military.
At the beginning of Roman history, the armies largely provided their own equipment, while by the end, they were almost entirely funded by the state. Soldiers in the early republican army were unpaid, and the financial burden of the army during that period was minimal. During the expansion of the republic and later the early empire, Roman troops acted as plunderers. However, after Rome ceased to expand, this source of income dried up. By the end of the 3rd century, Rome “stopped winning.” The army became a burden.
Most of the money from taxes and rent collected by the imperial government was spent on the military: in 150 AD, this accounted for approximately 70-80% of the imperial budget. Imagine if a modern state increased its spending on the most costly budget item by a third, let alone by 50%. You would see it struggle and go bankrupt. Rome had to do this. It was forced into wars with the Sassanids, Germans, and other barbarians.
In the century following Augustus’s death, the central administration was stable, and government expenses were covered by growing wealth. After that, government expenditures (soldier salaries and the expansion of the bureaucracy due to the increasing number of provinces) rose sharply and began to exceed revenues. Imperial authority could only cover the rising costs through coinage and tax increases. Both strategies were implemented, and both undermined the prosperity and stability of the empire.
Everyone knows the phrase “Bread and circuses!” It was used by a satirist of that time to describe the policies of state officials who, by bribing the masses with handouts of money and food, as well as circus performances, seized and maintained power in Rome. The practice of subsidizing food prices was introduced by the “grain law” as early as 123 BC.
Fifty-eight years before the birth of Christ, a Roman politician named Clodius, known for his populism, was elected to public office on a platform of “free grain for the masses.”
His Leges Clodiae included a law establishing regular unemployment benefits in the form of grain distributions, which were already being provided to the poor monthly at very low prices, and now were given out for free, thereby enhancing Clodius’s political status. When Julius Caesar came to power, he found 320,000 people in Rome receiving government grain assistance, while the total population of Rome was 1 million. He reduced their number to 150,000. However, after Caesar’s assassination, this figure began to rise again, and the privileges increased.
During times of crisis for the empire, the distributions not only continued but became more substantial. During the reign of Septimius Severus, olive oil was added to the distributions, and under Aurelian, pork, salt, and wine were included as well.
Of course, all of this was not done out of great love for the masses, but to prevent them from rebelling. The same policy is being implemented today through welfare, with entire “Harlems” relying on social assistance.
The reasons mentioned above led to inflation. By the end of the third century, due to the emergence of bronze coins, the population of the Roman Empire began to mint their own coins, which further accelerated their devaluation.
In the third century, the imperial governments of Rome began requiring their citizens to pay taxes not in money, but in goods or services. In fact, the imperial government refused to accept its own bronze coins as tax payments.
And then came Diocletian. It is from him that the form of government known as the dominion begins.
The reforms of Diocletian, and later of Constantine, aimed to strengthen the social and state structure in order to enhance central government authority to protect against the rising revolutionary masses.
One of Diocletian’s reforms was to increase the number of provinces from 50 to 100, so that the governors of these now relatively small regions would not have enough power to organize a rebellion or usurp authority. Rome transformed into a monarchical state with the emperor holding absolute centralized power. Emperors began to receive divine honors, with worship services even held before their statues, and they were addressed as dominus et deus, meaning “lord and god.” Compare this to the title of Caesar — “First among equals.”
In 301 AD, the Edict of Diocletian on maximum prices was issued. The government attempted to combat inflation, which had spiraled out of control after an excessive amount of money was put into circulation. They simply set maximum prices for about 1,000 food items and rates for the work of craftsmen and other professions, under the threat of death for anyone who traded at higher prices. The result was a shortage. Producers either scaled back production or traded illegally, and bartering flourished.
The decree also imposed restrictions on wages, and people with fixed salaries found that their money was becoming increasingly worthless “pieces of paper.”
Diocletian was apparently the first state leader to start blaming merchants for inflation. He was the first to confuse cause and effect, labeling the greed of merchants as the main reason for rising prices. He forgot to mention the greed of the state and the destruction of the gold and silver content of Roman coins in his edict.
To maintain a massive army of around half a million people, which was significantly larger than in previous centuries, Diocletian had to raise all taxes on the civilian population, increasing payments in both cash and kind to the maximum limit that the Roman world could bear.
The tax burden became unbearable and continued to grow, with all freedoms disappearing. At a certain point, there came a time when Roman citizens began to view their own state as an enemy, while seeing the barbarian armies at the borders of the empire as liberators. This was the price people paid for the tightening of controls that allowed the empire to stay afloat in the third century.
Regionalization was on the rise, cities fell into decline, the economy collapsed, becoming command-based and subsistence-oriented with low efficiency, and the tax base dwindled. The pressure from the barbarians increased. There was not enough money for the army, and no one wanted to serve. Barbarians were allowed to settle further into the empire, and they were expected to defend the borders. The moment came when the balance of power in the empire finally shifted in favor of the barbarians. The Western Roman Empire fell under the pressure of the Great Migration of Peoples.
Based on the materials поста. Alexandra Dovnich.
If we go further, we can focus on the feudal states of the Middle Ages. The system of vassalage simply did not allow for the existence of large centralized structures until the invention of the printing press, which enabled the consolidation of larger social formations. This period is now referred to as the era of feudal fragmentation. The largest empire of that time—Ancient China—could only exist thanks to books and roads. With the invention of printing, the time of flourishing for large European empires began, which, now much faster than in ancient times, reached their peak and then declined under the weight of the costs of maintaining hierarchy and external disturbances.
Centralized China lost the competition for the New World to a less centralized Europe, and the Incas and Aztecs never saw the Chinese before falling to the onslaught of Europeans who were less civilized than the Chinese but more decentralized. [8]. However, it was precisely the more advanced information and infrastructure technologies of the Europeans, compared to those of the indigenous peoples, that enabled them to achieve this victory.
The costs of maintaining a pyramid grow non-linearly. Empires reach their limits and collapse, torn apart by internal contradictions, burdened by the expenses of sustaining their apparatus, and facing external threats that disrupt the well-oiled bureaucratic life of large empires, as well as chaos caused by the strong interconnectedness of the empire’s parts with the center and with each other. Moreover, the more advanced the means of communication and transportation, the faster this process occurs. Egypt took millennia. Rome managed to sustain itself for just over a thousand years. European empires lasted only one to two centuries. The reasons for the collapse of empires can be analyzed endlessly, but all empires fell apart not because they were efficient.
This process reached its peak in the first half of the 20th century. In Europe, alongside a new leap in information and transportation technologies—such as the invention of radio, motor vehicles, and aviation—two colossal hierarchies emerged: the USSR and the Third Reich. The unchecked power of dictators was stronger and more all-encompassing than any emperor of the past could have imagined. In earlier times, in the absence of telephones, radios, and telegraphs, a viceroy or governor of any province was almost an independent little king. Without propaganda, empires were constantly shaken by sobering uprisings. The practical impossibility of controlling everything and manipulating everyone reliably guaranteed a sufficient degree of decentralization, which ensured a long, stable existence of the empire, independent of the fluctuations in the ruler’s will.
The empires of the 20th century were like an explosion on a historical scale. Now, unrestrained by technological limitations, communication and fast transportation allowed hierarchies to develop on a planetary scale, if not for the same external influences and internal contradictions. Germany lost the war. The Soviet Union couldn’t keep up with the arms race and the scientific and technological progress that no longer fit within the framework of five-year plans. No businessman in the twenty-first century seriously plans for more than a year, and three- to five-year plans are structured as part of a strategy rather than as mandatory documents, recognizing the increased turbulence of the modern world. [72]. Текст для перевода: ..
The unchecked strengthening of the vertical power structure in the twentieth century resembled an unknown organism’s infection. Fascist Germany burned out in just twelve years. The Soviet Union somehow lasted until seventy, leaving behind a much deeper and more systemic devastation. If there had been telephones and newspapers in ancient Rome, perhaps the history of the Roman Empire would have been much shorter.
A rigid hierarchical structure has immense inertia. Technologies that promote centralization only accelerate its movement in a direction that is fixed once and for all. Sometimes this direction turns out to be correct, and the hierarchy achieves impressive successes. For instance, the Soviet Union, taking a hard line on accelerated industrialization, successfully leaped from an agrarian society to an industrial one between the two world wars (while simultaneously starving and imprisoning millions of people). However, by the end of the 20th century, when all industrially developed countries were already building an information and service economy, the factory worker from the Soviet poster still confidently gazed into a bright future, while officials happily reported on pig iron production per capita. A decentralized society would hardly have been able to transform a predominantly agrarian country into an industrial state in just twenty years. But it also wouldn’t have barreled toward the abyss at full speed under the influence of propagandistic anesthesia.
A fitting comparison here would be with ants. When they carry a tasty beetle back to the anthill, they do so in a rather chaotic and disorganized manner, often getting in each other’s way. [75]. However, any beetle that the “scouts” find will sooner or later end up inside the anthill. Perhaps they would drag it there faster if there were a single authoritative leader among them to show the way and lead the group. But if that leader gets lost, the ants will just as quickly and confidently drag the beetle past the anthill.
Perhaps future historians will say that the second half of the 20th century and the beginning of the 21st century marked a milestone in human history, akin to the Neolithic Revolution. For the first time in ten thousand years, the process of uniting people is accompanied not by an increase, but by a decrease in centralization. For the first time, it has reached a global scale. During these few decades, all colonial empires collapsed, while the UN, WTO, IMF, and the Internet emerged. At the same time, the unified vertical of power in the most developed countries has splintered into several branches. The weakening of these vertical structures is accompanied by an unprecedented increase in average life expectancy, rising wealth, large-scale construction, and explosive growth in technology and science. A qualitative leap in development is occurring, and universal decentralization is an integral attribute of this change. The most powerful catalyst for this process is information technology. It is these technologies that can provide people with a means of communication devoid of a single center of control and national borders, rendering most of the familiar state structures unnecessary by stripping them of their few useful functions and exposing their atavistic nature.
Opportunism of power
Corruption
If the state were made up entirely of good people, everyone would probably be arguing with each other about the possibility of stepping back from governance, just as they currently contest power.
Socrates
There is a house in the historic center of Prague. The house was built behind forests and a high fence. When it was completed and everyone saw that it extended beyond the “red line,” it was already too late to make any changes. But the government found a document permitting the construction and simply hanged the official who had signed the permit. Right on that house. The official was hanged, but the house was not demolished. The dangling corpse was meant to convince the other officials to uphold the law. Did they stop taking bribes? No. They just became better at covering their tracks.
Corruption can be viewed as a game. There is a risk, and there is a potential reward. The higher the risk, the higher the stakes of the game, but increasing the risk (through harsher penalties or more frequent arrests) does not lead to the end of the game. It only raises the stakes. Similarly, the fight against drugs typically results in an increase in their prices. [58]. Текст для перевода: ..
The organization of the fight against corruption can provoke the involvement of the very fighters against corruption in corrupt practices, leading to the establishment of corrupt pyramids that, in the worst cases, culminate at the top of the power structure, unless that power is the outright owner of the controlled territory.
Corruption is characteristic of hired bureaucrats. A leader who is not a hired official has no interest in corruption. They will earn their income from honest and transparent business practices (taxes for kings or shareholder profits for capitalists), and corruption will primarily rob them. This is why corruption was not typical of feudal lords as a ruling class.
Whether a hired official is appointed as a lord (king or someone else) or elected from the people, he must somehow justify his existence, or, in terms of modern economics, “create added value.”
If an official is appointed by the king or a higher-ranking official, he is generally not accountable to the people he is supposed to manage or the problems he is meant to solve—he is alienated from them. His added value is created through the control of the entrusted territory and the increase of tax revenues. In such a situation, he will do everything to secure additional income for himself, and corruption will thrive, not limited to the top echelons of power, since the elite is not interested in corruption and, importantly, possesses an unlimited repressive apparatus. Thus, the corrupt official’s task is to take, but not so much that information about his bribery reaches the very top. In large territories, where there existed a whole hierarchical ladder from the king to minor officials, corruption could not help but flourish.
The added value of an elected official lies in providing administrative or managerial services to the community. The official more effectively manages the common resource for the benefit of the community than a crowd would. The official organizes the collection of the community’s opinions on various matters and also implements the community’s directives. Ancient Greece and republican Rome are classic examples of such an organization. However, a community of 10 people is not the same as a community of 1,000 people. [17]. It’s much easier to gather the opinions of ten people than those of a thousand. While it’s possible to reach a consensus on the most deserving among ten individuals, it’s no longer feasible with a group of a thousand. Moreover, in larger groups, the opportunism of the members starts to emerge, as they not only intend to avoid funding or participating in the creation of public goods but even shy away from the decision-making process itself—thinking, “Let the smart people decide without me, and I’ll just go along with them.”
Then the idea arises of electing an administrator endowed with power, specifically a) for a fixed term, during which it is impossible or extremely difficult to remove them, and b) by a majority vote, but not by consensus or an “overwhelming majority.” It is believed that the delegate will not act against the interests of society, as they are a member of it themselves. In the context of ancient Greece, where delegates were chosen by lot and frequently replaced each other, people had reason to trust such a delegate. However, as soon as a delegate gained some means of maintaining control for a sufficiently long period, their interests and those of their electorate became completely different. The thesis that a delegate will enact fair laws or decisions because they would not want to harm themselves by living under the same laws or decisions no longer holds true. [76]. The electoral system of power is a typical market transaction characterized by asymmetric information. The true motives of a delegate running for office and the actions of a delegate who has already taken their position are unknown to the electorate. In such conditions, the dishonest delegate gains an advantage. All the factors associated with “cats in bags” transactions are present both ex ante and ex post:
- Antiselection occurs when the more resources a candidate is willing to spend to obtain a position, or the easier the choice seems to the voter, the less likely the candidate is to behave honestly. Ultimately, bad candidates are likely to completely displace good ones in the electoral market.
- moral hazards that arise when a delegate, once elected, may be inclined to breach the contract with voters, for example, by failing to fulfill campaign promises.
During the election stage, there is again a disconnect between the official and the community he is supposed to serve. Firstly, he has powers granted to him for a specific term, and it is difficult to revoke these powers due to laws written by the community itself. Secondly, the weight of an individual community member’s vote is diluted and insignificant. A specific person can be overlooked and their interests disregarded in favor of the “interests of society.” For example, in modern society, one local council member represents the interests of about 10,000 households. Is someone opposed? That’s their problem. There are still 9,999 families left.
At this stage, the opportunism of the community members comes into play once again. They shy away from voting and have no intention of going against the authorities or expressing protest. After all, a bureaucrat robs each person of a penny, while active protest actions, even if they carry no repressive consequences, cost much more. Nowadays, citizens are free to submit requests to the authorities and even participate in strikes and protests, but they simply can’t be bothered. They see no point in it.
It turns out that, theoretically, an elected official can deeply offend half of the electorate while only slightly rewarding the other half. In the next election, he will receive votes from 50% of the people, and his wife will add one more vote. The official will benefit from the margin, the difference between the monetary equivalent of the “offense” and the monetary equivalent of the “reward.” Interestingly, in the next term, he can offend the second group quite severely while not offending the first group, who have already been hurt. The first group will feel an “improvement” and vote for the official, while the opinions of the second group will no longer matter. In the third round… well, you get the idea. Elections eventually turn into a process not of appointing an official, but of legitimizing the power usurped by the official or the bureaucratic elite, even if the official does not use “administrative resources”—that is, the resources of society entrusted to him for management—in order to win the election.
Moreover, if the bureaucratic elite controls the media and propaganda, they can offend everyone. Some just a bit more than others, while justifying it on television by saying that “it’s even worse for others.”
The root of corruption lies in the alienation of officials from the people for whom they create “added value.” This alienation arises because it is extremely difficult to organize a large group of people to make rational everyday decisions on various issues. It’s simply unrealistic. Few people are competent on the matter. Even fewer will participate or consider a particular issue important. A permanent referendum is so costly and ineffective that society is willing to pay the price of corruption to avoid it.
Reducing the need for public goods
Authorities, one way or another, need to explain their value to society. Otherwise, society simply will not tolerate an outright kleptocrat, and there are many historical examples of this. The government can create value by managing the creation of public goods and encouraging society to finance them. If there were no incentivizing function of the government, then “free riders” who do not want to pay for the installation of beacons, road construction, and border security would make up the overwhelming majority. Societies that failed to realize the need for a ruler to collect tribute or taxes simply disappeared from the face of the Earth.
At the same time, the ruler understood that taxes could be spent not only on a lighthouse or a road but also on himself personally. The amount he could appropriate for himself was determined solely by the tolerance of the people and the extent of actual expenses. If the lighthouse cost 1,000 coins, and the people tolerated a loss of 50% of their contributions, then to extract more money from the populace, it was necessary to build a road or better equip the army. In that case, the expenses would amount to, say, 5,000 coins, of which the ruler would take 2,500 instead of 500 in the first scenario.
In order to spend more, a ruler needed to create or invent new public goods. This is the direction in which all civilized societies have developed. “Free” healthcare, “free” education, “free” pensions, and other “free” things are enthusiastically supported by politicians of all stripes not only because voters love freebies, but also due to the direct benefits for themselves. Even in countries with low levels of corruption, where direct theft is difficult, the factor of direct benefit is still present. The number of public goods administered by an official determines their influence, the budget of their department, and their salary.
Let’s take, for example, a public good like pensions. The idea of a solidarity pension, along with other measures for the social protection of workers, was first implemented at the state level by Bismarck. [77]. and subsequently spread to other countries. In the United States, social protection public goods began to be implemented in the 19th century through labor unions. Until recently, the benefit of pensions looked like this: the ruling elite (or the bureaucratic apparatus of the union), using the right to coercion The text for translation: [17]. They took a portion of citizens’ income and spent it on paying pensions to the elderly. In return, the elite promised citizens that they would receive pensions in the future funded by the contributions of future generations.
By exploiting the asymmetry of information, those in power could redistribute pension funds in a way that would “sweeten” their appeal to voters before elections at the expense of others, effectively bribing voters not with their own money, but with public funds.
As soon as the population growth stopped, the pension system crisis began. [78]. We were fortunate that by that time, information technology had advanced to the point where it was practically costless (compared to the 19th century) to calculate and account for each citizen’s contribution to the pension fund, allowing us to pay each citizen the pension they had actually earned.
But then a question arose among citizens: “Why do we even need a government?” and among officials: “Why should I administer a fund that I can’t manage at my discretion?” All of this led to what is now referred to as pension reform and to the state losing its monopoly on one of its public goods. A similar metamorphosis is happening now, and has already occurred in developed countries, with healthcare.
If we look at another public good, such as road construction, we will find that the corresponding level of development in information technology and accounting, which allows us to track which vehicle used which road, could eliminate the need for a transportation tax that is currently tied to fuel consumption or engine size, rather than actual mileage on actual roads. As a result, “government” roads are maintained in perfect condition, while the most heavily trafficked ones are the opposite.
Yes, there are already toll roads. The costs associated with toll collection and usage tracking are continuously decreasing. In the past, drivers had to purchase a “standard ticket” just to enter a toll road, but now, license plate recognition systems, radio tags, navigation trackers, surveillance cameras, and video analytics will soon be able to monitor road usage. This will make it possible to issue specific bills for the actual use of specific roads instead of a transportation tax, based on the principle of “weight in motion,” similar to what is done in Germany or Sweden. [79]. For example, this approach has already started to be implemented for freight transport, the movement of which is monitored using navigation systems and tachographs. [80]. As a result, the state loses the ability to harvest from yet another public good. The maintenance of the roads will be taken over by those who actually build and service them.
One can examine literally every public good, including the police or law enforcement, which often operate outside the realm of the state in the form of private security firms, while the state continues to collect taxes “for maintaining law and order.”
The measure of the use of public goods can be taken into account in almost everything. In several cities in Ukraine, there are paid elevators in apartment buildings. [21]. …which are cheaper for residents than the “free” ones provided by the housing maintenance services. People use the elevator with electronic keys, and based on usage statistics, they are billed accordingly. This is fairer.
Transition to business processes
What we call management mostly comes down to making people’s work more complicated.
Peter Drucker
Any authority, including the bureaucratic elite, needs its legitimization. Legitimization is not only about giving legality to the method of coming to power (regardless of whether it is a monarchy or a democracy), but also about promoting the idea of hierarchy as a natural form of social organization. It is taken for granted that someone must be in charge.
Legislation actively supports this myth, stating that a company must have a director with signing authority, and that any structure must have a head or chairperson. However, the hierarchical management model is neither the only nor the optimal structure. From the perspective of organizational theory, organizations can be viewed as two extreme types: “market” and “hierarchical.” A market organization is spontaneous and is not truly an organization. Hierarchical structures are considered “natural.” At the same time, many organizations are gradually transitioning to various intermediate forms, which are described not by hierarchy, but by a system of contracts or agreements. [70]. Текст для перевода: ..
There can be asymmetrical agreements, such as a franchising scheme. There are monopolistic arrangements—like a holding company where services, including accounting or HR, are only procured from companies within that holding. There are also wiki organizations based on equal cooperation. At the same time, the main form of documentation regulating relationships in such organizations is not a “regulation on organizational structure,” but rather a set of contracts.
Such organizations consider the business process, which has clients and is itself a client of another process, as the indivisible unit rather than a function performed by someone. In the modern world, there is a shift in the paradigm of organization from a functional to a process-oriented approach. [70]. This saves the company’s resources that were previously spent on the transactional costs of a hierarchical structure. Yes, nominal directors with signing authority still exist, as laws still operate within hierarchies; at the same time, the director, as a role in business processes, becomes a client of someone else, say, an accountant or a salesperson, and a service provider for, for example, salespeople or HR specialists. The concept of “who is in charge?” becomes blurred.
But what happens when a bureaucratic structure commissions an IT company to automate its operations, for example, to automate document management? It turns out that IT companies, and especially the software they implement, don’t care who is in charge. What matters to IT companies is understanding the business processes within the organization and the roles of individuals in those processes. Consequently, as part of the implementation of their services, they describe the business processes, roles, and clients. In the end, it turns out that not only can the head of the organization demand something from others, but others also start to demand things from the head (with the help of smart software): decisions to be made, signatures, participation in meetings, taking on responsibilities, and so on. Now, the leader of the organization can no longer shift everything onto their subordinates while remaining “clean and innocent,” as their responsibilities are clearly defined, and their actions can be tracked.
It turns out that the informatization of bureaucratic structures leads to the erosion of hierarchy within these structures, and in the long run, to the erosion of the entire state and management apparatus as a hierarchical structure. Considering that, from the perspective of processes and roles, it doesn’t matter whether performers are inside or outside the structure, the day is not far off when state structures will outsource almost all of their functions.
The very principle of outsourcing, that is, transferring organizational functions outside its boundaries, has also become possible thanks to information technology. Previously, it was more convenient (meaning with lower transaction costs) for everyone to be in one office and pass papers to each other, but now this necessity has disappeared, and the costs of gathering people in one office come to the forefront. It has become cheaper, more profitable, and more convenient for everyone to work outside the office, manage document flow electronically, and hold meetings via video conference.
Loss of market control with asymmetric information
One of the important public goods provided by the bureaucratic elite is the regulation of markets with asymmetric information. The bureaucracy strives to demonstrate its usefulness by implementing institutions for certification, licensing, inspections, and other control measures.
Uncontrolled markets with asymmetric information are prone to collapse. [52]. In such markets, it is advantageous for suppliers to be dishonest. It’s cheaper to sell a pig in a poke when there is no pig in the poke, or the pig is dead. In conditions where suppliers are not transparent and are not monitored by some third-party intermediary, markets with asymmetric information collapse. Consumers stop purchasing goods or services in that market, while producers offer increasingly lower-quality products, replacing quality with propaganda.
An example of a “collapsed” market can be found in the insurance market of Ukraine as of 2011. Clients are unsure whether they will receive compensation for their insurance claims. Insurers are only selling themselves and paper with empty promises. The penetration of voluntary insurance types is less than 4% of GDP, and insurers rely on mandatory types and those where information asymmetry works in favor of the insured. For instance, auto insurance. In the absence of complete information about the vehicle’s mileage, the driver’s qualifications, and the claims history, the insurer is just as uncertain as the insured: the former doesn’t know what exactly they are insuring, while the latter doesn’t know what compensation they will receive. The insurer knows nothing about the insured’s plans, the car’s mileage, the client’s health status, the places where the person drives and parks their car, and other implicit reasons that make it seem more advantageous for the insured to have insurance rather than to be uninsured—this is adverse selection at play. At the same time, the insurer also offers a “cat in a bag”: the insured is unaware of the insurer’s actual financial condition, not just what is on paper, what their plans are for paying out claims, what the fine print of the insurance rules entails, the actual speed of decision-making regarding payouts, and so on.
Government regulatory agencies are striving to strengthen oversight, and their valuable role is not only to ensure that consumers in asymmetric markets are satisfied with the quality of services, but also to assure all market participants that the products available are of high quality. The public good of maintaining market stability is hard to overstate, and the bureaucratic elite will seek to create work for themselves in any market where there is even a hint of asymmetry. This includes licenses, certifications, and services like sanitary and epidemiological stations or fire departments, among others.
The state is once again aided by information technology, and already now, for example, in the pharmaceutical market of several developed countries, individual labeling of medications is being introduced down to the level of blisters or ampoules. [81]. Soon, it will be technically impossible to sell a medication in pharmacies if its origin is unknown or if a medication with that number has already been sold or recalled. This can only be ensured through the use of information technology. The government will utilize information services for control purposes.
At the same time, there is a trend in the world that the author of many books on marketing and management, F. Kotler, discusses in his book “Chaotics.” [72]. described as “the empowerment of the consumer.” Thanks to information technology, any advertising or propaganda campaign by a supplier in an asymmetric market can be neutralized by a single post from a user on a blog or social media. Cameras in mobile phones allow for instant photographs of criticized phenomena, which can then be shared worldwide in an instant. Manufacturers now find it more beneficial to be transparent, and the functions of market control in situations of asymmetric information are shifting to a cloud of mass collaboration among consumers who exchange information directly with one another. The state loses yet another of its functions.
Loss of monopoly on information
Behind the veil of mystery that shrouds human society often lies ordinary treachery.
Wilhelm Schwäbel
American evolutionary biologist, physiologist, and biogeographer Jared Diamond in his book “Guns, Germs, and Steel: The Fates of Human Societies” [8]. It was noted that the state emerged when egalitarianism “…gave way to a centralized authority that made all important decisions and held a monopoly on crucial information (for example, about what threats a neighboring leader expressed in a private conversation or what harvest the gods supposedly promised to send this year).” This monopoly on information was one of the most important sources of power for all rulers. Even the monopoly on the use of force, which is characteristic of any state, pales in comparison to the monopoly on information. After all, to apply force, one must know how, against whom, and how intensely to apply it.
However, information technologies, which are permeating all management structures, are increasing the transparency of their operations in one way or another. Now, thanks to e-government systems and laws like Ukraine’s “On Access to Public Information,” it is much easier for citizens to obtain information that previously required fruitless correspondence or long waits in archives.
Information is becoming “superfluid.” And despite any measures taken to protect it, there will almost always be someone who will steal and publish it. Moreover, this process has already been established on a permanent basis. The notorious project Wikileaks is nothing more than an intelligence service “on a public basis.”
The classification “secret” or “for official use only” used to mean “not to be published,” but now it means “it’s worth seriously considering what will happen after this is published.” This means that any secret information now needs to be analyzed in terms of the consequences that its publication will bring. Those in charge of secrets are already calculating risks and taking measures to mitigate the impact of those risks.
And tomorrow, the label “secret” will lose its meaning altogether, as any mystery that arises will see efforts directed not at concealing it from others, but at eliminating the consequences of its potential disclosure in the future. The paradigm of working with secrets is changing. After that, the reverence for secrecy will vanish: “Publish away, enjoy!”
The state, having equipped itself with databases, has handed spies a suitcase with a handle, which, once grasped, can be easily carried away. While archives used to be paper-based and cumbersome, they can now fit in the palm of your hand or even be sent via email. Thanks to information technology, the state is losing its monopoly on information, and its activities are either becoming transparent or officials are forced to act as if all their actions will eventually be revealed. The loss of the monopoly on information signifies a loss of the power that this monopoly once provided.
Moreover, the government is losing its monopoly on information due to the widespread collaboration of citizens. [82]. Technologies now allow for the instant streaming of images from a mobile phone camera or a cheap drone during mass protests or other significant events, depriving the state of the ability to manipulate public opinion through the media. Blogs and social networks have stripped the state of its monopoly on viewpoints regarding events. Web cameras with public access, installed at every intersection and owned by private individuals and companies, undermine the state’s monopoly on the priority of the government information system as the primary source. Furthermore, the miniaturization and reduction in cost of recording equipment make it possible to secretly record and subsequently broadcast any actions of officials, whether it be illegal instructions from a superior to subordinates during meetings, election fraud, or outright coercion of individuals due to their position of power. Exposing video messages from officials, which they post online and that attract widespread public attention, are also becoming increasingly popular. The era of centralized, controlled media is already over.
Government and corporate officials, when ordering IT services that they can no longer live without, ultimately end up with a Trojan horse.
Eternal problems of power
With the rise in average education levels and technological progress, maintaining a monopoly on information required increasingly greater resources. This resulted, on one hand, in the development of a propaganda institution, and on the other, in the legislative establishment of the concept of privacy, according to which no one should even attempt to learn anything about their neighbor without their written consent, while the ruling elite is allowed to meddle in others’ affairs. As those in power invest more and more effort into creating “one-way mirrors,” the real rulers become not those who are wealthier or smarter, but those who are on the right side of the mirror. However, the idea of privacy, supported by the authorities and societal conformity, prevents even the authorities themselves, not to mention other agents, from making rational decisions due to a lack of complete information.
The authorities are forced to act under conditions of limited rationality, which means they are not objective in regulating various social processes. A typical issue for the authorities is controlling migration and the conditions for issuing visas, which create problems for everyone but do not pose obstacles for those who want to enter the country at any cost.
By regulating undesirable activity, authorities always operate with the formula U = V * C, where U is the damage from the offense, the costs to the authorities or society from the crime; V is the probability of catching the criminal, which, in conditions of information asymmetry, is always much less than 100%; and C is the sanctions, the costs imposed on the criminal if they are caught. With limited resources to manage “V,” authorities begin to regulate “C,” which leads to excessive punishment for those who are caught, creating a sense of injustice among them—they feel they have been punished too harshly for something for which others have not been caught at all. Hence the expected response of any criminal to the question, “What were you imprisoned for?” — “For nothing!” In conditions of limited rationality, authorities are unable to prevent crime, and sanctions against criminals represent new costs for the authorities, but do not eliminate the costs from crimes that have already been committed. From an economic perspective, the situation is a dead end.
In conditions of limited rationality, authorities are unable to regulate the circulation of “sensitive” goods, such as weapons or drugs, and prefer to impose a complete ban on them. This approach is suboptimal and leads to significant costs, including the flourishing of the black market and generally uncontrollable markets, the costs associated with maintaining prohibitions and enforcing sanctions, and the costs related to the increasing asymmetry of the shadow market. Most of the problems associated with drugs are, in one way or another, caused by their prohibition. [58]. )..
Acting under conditions of incomplete information, authorities often struggle to organize a fair distribution of the costs associated with acquiring certain public goods. Moreover, in many cases, these goods become public simply because it is too expensive to organize individual tracking of their consumption.
One can provide numerous examples of the limited rationality embedded in existing management mechanisms, down to the simple understanding that power, as a purchaser of public goods, also acts as a buyer in an asymmetric market and is therefore unable to make rational decisions, instead opting for heuristic approaches: “like everyone else,” “like no one else,” “for cheaper,” or, conversely, “for more expensive.”
Wikinomics
Where is the modern economy headed? F. Kotler referred to this phenomenon as “turbulence” or “chaotics.” [72]. , thus demonstrating their cautious attitude towards what is happening, while Don Tapscott and Anthony D. Williams referred to it as “wikinomics.” [83]. According to Kotler, “the world has entered a new stage of the economy. National economies are deeply interconnected and interdependent. Commercial activities are conducted through streams of information moving at the speed of light over the Internet and mobile networks. This new stage brings remarkable benefits in the form of reduced costs and accelerated production and delivery of goods and services. However, every coin has its flip side. This refers to a significant increase in the level of risk and uncertainty faced by both producers and consumers.”
If we try to summarize Kotler’s concerns in two words, it would be this: no matter what technologies or production know-how a manufacturer has, they will always:
- will become outdated very quickly;
- will be replaced by technologies that completely change the market;
- will be instantly copied by competitors,
- which are simply countless and numerous;
- propaganda will compete with consumer reviews;
Look at what happened to the know-how of Kodak or Agfa in the field of film production. Was it worth it to keep these “secrets”? Who knew that “digital” would catch up to film quality in just five years? Look at the fate of copy protection on DVD discs. In the end, the protection itself, in the form of regional coding, became a problem for honest users rather than for those who were copying movies.
And while 20 years ago, the closed nature of software code was considered normal and taken for granted, today companies are criticized for this lack of openness.
These were examples of how technologies that completely change the market left companies that kept their secrets with no time to maneuver. While large companies may still have a reason to maintain asymmetry, for smaller producers who cannot allocate significant resources for security, it loses all meaning.
The Massachusetts Institute of Technology has already developed equipment that functions as a mini or even micro factory, which can be set up at home. You can download the design and manufacturing process of a product from the internet and create items at home using smart machines—ranging from a 3D printer to a CNC milling machine. [83]. We are moving towards a situation where a single person or household will be able to produce all essential consumer goods on their own or with minimal assistance.
Boeing was able to produce its new, revolutionary aircraft only by distributing not just production tasks but also all the previously classified documentation related to the plane among thousands of contractors. [83]. Chinese moped manufacturers do not concentrate all production under one roof; instead, they operate like a network of small firms, each specializing in a specific component, process, or assembly. As a result, they produce cheaper, more, and even better products than the Japanese. A hallmark of the “wikonomics” model is the companies’ drive towards complete outsourcing, where all tasks are performed by external firms, and the company itself only takes on the roles of managing the system and the brand. Everything is outsourced: accounting, marketing, sales, and production is moved to third-world countries. Even the staff no longer works directly for a specific employer; they work for a company that specializes in personnel leasing or “outstaffing.”
Such fragmentation of productive forces into small specialized enterprises, down to individuals possessing knowledge, skills, and tools, is only possible with a serious information infrastructure in place. This is the very informatization that the ruling class promotes. The effectiveness of the “cloud” economy has already been proven in some industries. Compare Wikipedia and Encarta. Both encyclopedias were very similar in terms of goals and audience. The first was created through mass collaboration, while the second was developed centrally by Microsoft. And what was the outcome? Today, most people would look up the meaning of the unfamiliar word “Encarta” in Wikipedia, rather than the other way around.
One of the arguments against the idea of wikinomics is that “home production of aluminum pots will never be more cost-effective than mass production.” We will pause on this remark to elaborate further on what wikinomics is.
- Wikinomics does not require everyone to have, say, a 3D printer at home. Look at what’s happening in the photography industry right now. Anyone with some extra money can print photos at home by buying a printer, yet everyone still goes to photo labs, which have long become “mini-factories” operated by a single person. Wikinomics does not specifically require home production. It only implies maximum decentralization of production and the most open exchange of information.
- In our world, the cost of an aluminum pot and its retail price are “two very different things.” There’s no doubt that the cost of mass stamping will be lower than that of individual manufacturing, but it will be very difficult to determine which option will be cheaper for the consumer—an expensive custom pot made at home or at the nearest wiki-robot factory, or a cheaply mass-produced pot sold along with transportation, storage, advertising, shelf placement, salaries for all employees from the cashier in the store to the packer in production, and of course, bribes and kickbacks.
- It should be understood that without considering the financial aspects, such as the cost of equipment and its operating time, the production cost of a pot is equal to the cost of the energy and raw materials used. Whether it’s a local robotic factory or a megacorporation, the figures involved are practically the same.
- Wikinomics doesn’t say “no” to mass production. Wikinomics suggests that the main productive forces will belong to the cloud of wiki cooperation. If, in this era of mass centralized production, we can still find workshops or manual labor, it’s only because they have found their niches and continue to justify their existence. Souvenirs, clothing tailoring, cleaning services, caregiving, janitorial work, tour guiding, beekeeping—these are all “remnants” of the pre-industrial economy that are still relevant and continue to exist today. In the context of wikinomics, mass production will still make sense. But it won’t be the primary generator of gross product. That’s all there is to it. After all, how many times in our lives do we buy pots?
The development of the financial system has made it possible to overlook a common issue for any business: the need for startup capital. Now, the concept of “market entry barrier” has become quite virtual. Even in markets dominated by major players, such as aviation or automotive manufacturing, there are always large investors available, such as government stabilization funds. [72]. For smaller markets — banks and private investors.
Let’s add the factor of labor migration from company to company, and we will create a wonderful picture of the world where there is simply no room for secrets, and any successful innovation is instantly copied by everyone around. The only way to survive will be constant movement. Just as a cyclist does not seek stability in stopping, companies should not get stuck in preserving the status quo; they must keep moving forward in innovation to be the leaders and to be the ones that others copy, rather than the other way around.
The productive forces enter market conditions where having certain business ideas or technological secrets gives companies only a relatively small temporary advantage, which quickly disappears once the first product hits the market. The patent system no longer functions as it used to. This is especially true for small manufacturers, who simply cannot afford lengthy legal battles.
The large number of small suppliers leads to consumers losing sight of the differences between two products, relying solely on the one clear criterion they understand — price. In a competitive market, information asymmetry benefits unscrupulous manufacturers. The acceleration of scientific and technological progress, along with hyper-competition, makes traditional methods of reducing asymmetry — such as branding and certification — increasingly ineffective. What brands, licenses, and certifications can be discussed when the technology used to produce a product may only be relevant for a couple of years, or when the company itself may not survive long without various mergers and acquisitions? Who can guarantee that by revealing their technology to a government official, a company won’t end up facing a powerful competitor the very next day, especially one backed by the state?
Businesses need to reduce the asymmetry of information currently maintained by the authorities. This is essential for safely disclosing information about themselves for their own purposes. In many economies today, the government is viewed as an agent to whom information should be disclosed only as a last resort and often under duress. Therefore, traditional methods of reducing asymmetry are no longer effective; consumers are confused and unsure about whom to buy products or services from, while the market becomes increasingly competitive, and the asymmetry supported by know-how and patents is no longer effective. What can businesses do in such conditions?
If you can’t stop the process, you need to lead it. If you have a secret, you should already behave as if your competitors have discovered it and as if there is an even newer secret that you don’t have. Even if there is still some undisclosed confidential document, say a business plan, the sensitive parts of its content can, thanks to the development of information technology, be assessed through indirect signs or modeled by competitors using game theory and modern computing tools. So why should companies incur additional costs to maintain secrecy?
If the consumer is provided with complete information about the product, for example, selling carrots not only with a scale but also with an on-site mass spectrometry analysis, then those carrots will be purchased specifically from that seller. The price will not matter much, as what the buyer sees is no longer just a carrot, but a set of fertilizers and pesticides. The consumer will be willing to pay a higher price for the same product, as it reduces their transaction costs.
Is a mass spectrometer expensive? What if it were free? Or at least very cheap? Would you buy carrots at a market from a vendor without scales? Even if you were given a specific price for a specific bag of carrots, but without knowing the exact weight? Of course not. Similarly, in a market where everyone had chromatographs and mass spectrometers, no one would buy anything without on-site analysis.
Until now, it has been simply cheaper to hide information and ramp up propaganda than to fully disclose it. But today, propaganda is becoming increasingly expensive and less effective. In the mass market, propaganda hardly means anything anymore. People will quickly learn about poor quality and discrepancies between the product and its advertising. Meanwhile, the material efforts to ensure transparency are becoming more accessible. Anyone can set up webcams in a workshop and put their accounting system online. Unfortunately, in our environment of constant information battles between businesses and the ruling elite, this is not always safe.
Businesses no longer have, and will never have, the time to develop a PR strategy and reputation management policy. Reputation must be impeccable from day one. And it can only be impeccable when a business fundamentally has nothing to hide and when there is no ground for speculation or conjecture. Transparency becomes the foundation of safety not only for individuals but also for businesses.
What is wikinomics for the ruling class? It represents new production relationships to which the existing methods of exploitation are completely inapplicable. The elite cannot control, and therefore cannot profit from, the cloud of individuals who operate “in a different universe” in relation to the state. Mass collaboration can effectively ignore any current methods of control. It is indifferent to borders, written laws, and the officials themselves. The whole world contributes to Wikipedia. Boeing assembled its 787 with the help of the entire world, exchanging information across borders. People are already organizing mutual travel clubs, bypassing travel agencies, creating mail parcel clubs to receive goods from other countries that are unavailable in their own, and utilizing media in the form of blogs that are minimally controlled by the ruling class. They are also using online stores with mutual settlements through cloud payment systems that are independent of the buyer’s or seller’s location, and much more.
Over time, the contradictions between the information-based superstructure and the “cloud” information foundation will accumulate and intensify. Both the state and businesses, as well as citizens, will increasingly resort to new methods to eliminate information asymmetry for their own security, constantly seeking ways to pull the informational blanket over themselves.
We will see more and more victims of this contradiction, victims of the ruling class’s struggle for elusive power. Meanwhile, we will continue to be told that sharing information is piracy, appointing professionals to positions of power is undemocratic, allowing everyone to bake bread for sale is dangerous, and that we can’t do without advertising on television. The question is, how long will we continue to believe this?
Reckonism
Where the mind is free from fear, and the head is held high;
Where knowledge is free;
Where the world is not divided into parts by the narrow walls of a house;
Where words come from the depths of truth;
Where relentless effort reaches out for perfection;
Where the clear stream of reason has not lost its way in the dry desert sands of dead habit;
Where the mind is led by You towards ever-expanding thought and action.
In those heavens of freedom, oh my Father,
Let my country awaken!Rabindranath Tagore
We are moving, and very quickly, towards a new social order. The information infrastructure and the accounting of each individual’s contribution in mass collaboration will be the main elements of this new political system. We have named this system “reckonism,” derived from the English word “reckon” — to count, to consider, to regard, to have an opinion.
Reconism is a socio-political and economic system based on complete mutual information transparency, universal equality of rights to access and use information.
Reckonism can be implemented on the condition that a distributed information system is created, which will be capable of tracking, storing, and providing any information upon user request regarding the legal, economic, and informational relationships between individuals, while practically eliminating the possibility of relationships that are not recorded by this information system.
Reconomics implies minimizing participation in the economy and social life of so-called “public goods” — goods that can be used by all people without restrictions. Each individual’s participation in the use of a “public good” should be taken into account. For example, a bridge over a river is a public good if it is free. From the perspective of reconomics, everything should be paid for, and this becomes possible with the creation of a system of complete accounting. On the other hand, reconomics ensures citizens’ involvement in the distribution of profits or compensation from the exploitation of other “public goods.”
A characteristic example of the trend towards re-privatization is the pension reform currently being implemented in many countries. There is a shift from a solidarity pension system, based on the principle of a “common pot,” to a personalized system—”I earned it, so I spend it.”
Reckonism ensures that groups make optimal decisions and enhances group mobilization by allowing them to share the costs of acquiring a public resource while simultaneously providing specific and measurable benefits derived from the resource’s use by other group members, similar to how shareholders participate in the distribution of profits from a corporation.
Information transparency allows for a clearer understanding of the reputation of group members, which categorizes them as mobilized participants in groups of any size. Through tools similar to social networks, it becomes possible to track reputation, decision-making history, and the activity of members. This way, the main issue of collective action—the problem of the passivity of each individual member in a large latent group—disappears.
Considering that the primary positive function of the state, which it “sells” to its citizens, is the mobilization of resources for the creation and maintenance of public goods, the advantages that the existence of a state apparatus provides to society significantly diminish with the development of a system of universal accounting. Reconism, facilitated by digital communications, offers the potential to mobilize even very large latent groups, enabling the organization of direct popular governance, or “cloud democracy.” [127]. or “wiki-politics.” In reconism, the word “power” ceases to denote the ability to appropriate surpluses and instead refers only to administrative functions that are transferred to situational leaders of groups without any rights of irrevocable delegation. It becomes possible to minimize, if not eliminate, the necessary coercion that all members of society agreed to as part of the social contract, such as tax collection or maintaining law and order. The first issue is addressed through a complete accounting of the contributions of group members. The second is managed by tracking the reputation of participants, the history of their actions, and the flow of money and material assets.
Reconism implies the dominance of wikinomics over other production methods, the development of peer-to-peer technologies, including in finance and economics, and the establishment of commodity-money relations that differ from the current ones due to the minimization of information asymmetry between buyers and sellers. The economy of reconism is characterized by the minimal possible centralization.
Rekonizm, due to its almost complete mutual openness, opens up new impressive prospects for society.
Personality
In a system of reconizism, the meaning of any theft, robbery, or embezzlement is lost. Selling stolen goods would be impossible, as the system would not allow the transfer of money from buyer to seller without proof of legal ownership of the item. Additionally, most types of fraud or abuse of trust become fundamentally impossible. Anyone can be easily verified on the spot, and the material result of fraud can also be easily returned.
In a context of complete transparency, society will simply have to become much more tolerant of the opinions, actions, and statements of the most marginalized individuals, while simultaneously becoming much less tolerant of any form of violence. Otherwise, we risk simply destroying each other when we see what lies beneath the socially acceptable facade.
No one will ever seriously claim that all people are equal, but recognition allows for a fuller realization of the idea of equal opportunities for everyone. Regardless of “telephone rights,” nepotism, connections, or proximity. After all, all these phenomena, referred to by the term “protectionism,” are simply based on different levels of access to information.
Business
Liberalization of trade. Currently, bans are widely used to regulate the circulation of dangerous goods, such as drugs and weapons. However, bans can only reduce illegal trafficking in cases of extreme levels of violence, and even then, not always. In practice, it turns out that the state creates an entirely unregulated, tax-free market for drug cartels, where they can earn profits that legal producers can only dream of. Naturally, a portion of these superprofits ends up in the pockets of those fighting against drugs. The only way to break this cycle is to create a legal market, thereby depriving criminals of their sales outlets.
The legalization of drug circulation, along with the personal identification of this circulation, would completely eliminate the issues currently attributed to drugs themselves: the use of low-quality substances or those known to be dangerous to health, crimes committed by addicts in search of a fix, and the uncontrolled sale of drugs to minors.
In general, the ban on the circulation of certain goods, primarily drugs and weapons, is due to the difficulty in tracking the fate of such items and the high likelihood of their criminal use. However, in the absence of cash and with any goods being processed through personal accounts, in most cases, circulation can be allowed. And if there is a strong desire to impose a ban, it can simply be marked in the information system.
Rekonism will lead to a shift in the paradigm of mediation. It is important to distinguish between the efforts of a trader who delivers goods to a convenient location for purchase from a wholesale base and organizes the trade itself, and the efforts of a search agent who, for a fee, finds suitable conditions for a deal, as opposed to the questionable activities of speculators or unnecessary links in the mediation chain who survive solely by having access to insider information.
Pricing could operate under entirely different principles. It may be possible to organize demand before supply or to set prices after understanding the volume of supply or even after consumption. An evolution of the existing group discount services is likely to occur. If a buyer can study the supply chain of a product and the places where added value is created, they will be able to decide for themselves whether to use the services of a middleman or to provide those services for themselves, using the simple formula of “time equals money.” On the other hand, even if a wholesaler refuses to sell retail, the mere knowledge of markups by buyers and competing retailers should stabilize the market.
Finance
Reckonism will lead to a revolution in financial services. Any financial institution acts as an intermediary between those who have excess money and those who need it. Financial institutions that rely on information opacity will simply become obsolete. Interest rates on loans will be minimal, as credit fraud will virtually disappear. Interest rates on deposits will be maximized, as depositors will be able to see the bank’s profit structure and consciously choose banks with lower overhead costs. There will be a strong incentive to properly structure processes within banks, optimize their resources and expenses, and the banking margin—the difference between loan and deposit rates—will be minimal and justified.
Insurance is set to experience a renaissance, as the insurance market is unstable precisely because insurers do not know what policyholders know. The rates offered to clients take into account fraud and are averaged out based on the principle of “the average temperature in a hospital,” leading to a situation where not everyone is inclined to purchase insurance, but only those who expect a claim more than others, which in turn drives up the rates. However, if insurers have complete knowledge about their clients, they can offer fair rates based not only on driving experience in auto insurance but also on mileage, the type of terrain where the vehicle is used, and the purposes for which it is used. Insurance payouts will not require investigations, as all the information will be readily available to the insurer. The pension reform currently underway, which is already being implemented with the principles of reconism in mind, will receive strong support.
A new class of financial services may emerge—peer-to-peer finance. This means that a person deposits money and takes out loans from a wiki-cloud rather than a specific bank. Borrowing money will involve lending not to a bank, but to a specific individual or enterprise, simply by signing up for a loan request and joining the decision of someone who knows the borrower personally. In addition to peer-to-peer banking services, there is also a clear potential for peer-to-peer insurance based on the principles currently used by Lloyd’s. [84]. Текст для перевода: ..
State
Total accounting will simplify the system of collecting taxes, fees, and alimony. They will be deducted automatically. There will be no non-payers at all. Transparency will minimize corruption. [85]. No matter what material value is discovered with a person, it will be possible to find out in half a second whose it is and whether it was voluntarily given to them. It will also be impossible to transfer or receive a monetary reward without it being recorded.
Any system of delegating power leads to the alienation of those in power from those who have delegated that power to them. Modern democracy gives each voter one vote. This may have been a good system a few thousand years ago when only a privileged minority participated in elections and when almost everyone knew each other. Today, however, elections are often won through money and connections, meaning access to information, rather than by persuading voters, most of whom are not qualified to make informed choices and are guided only by the phantoms of propaganda and advertising. Moreover, elections do not ensure that a voter’s voice corresponds to their contribution to society. The idea of a property qualification for voters implies just that, but if voting is simply about money, then thieves and bandits will come to power, no longer cloaked in the ideals of democracy. However, if in a recognized society stealing becomes impossible, and contributions are assessed not by earnings but by how much you have paid in taxes during the period between elections (or cumulatively over your lifetime), that is, by your share of the country’s total wealth, then the system appears quite fair. “The more I contribute to the state’s revenue, the greater my voice.” Why should the weight of the vote of someone who does something beneficial for society be equal to the weight of the vote of someone who does nothing? Such a norm has long existed and is implemented in corporate law.
What about retirees? Throughout their lives, retirees have already “accumulated” enough rights to public property and have a significant voice. Their pensions are paid from funds that belong to them. These funds earn money and pay taxes. It would be very easy to track the tax contributions of each retiree.
The very structure of power can and should transform from a system of irrevocable delegation of authority for a long term into a system of direct decision-making by each member of society, regardless of any election timelines. A politician will seek support from others on various issues in real time, rather than once every 4-5 years. If a voter is dissatisfied with the behavior of a delegate, they can immediately withdraw their support, and the politician’s influence will diminish accordingly. Due to the complete transparency of politicians’ work, there will be no need for term limits—one governs as long as they are liked and as long as they like it themselves. The power of officials will take on a purely administrative and dispatching form, focusing not on exploitation but on protection and assistance.
From the perspective of public administration, reconism means the wikification of the state, similar to the wikification of the economy. Firstly, due to the development of information technologies, the positive effects of scale in large state entities diminish, bringing their drawbacks—related to inertia and lack of transparency—to the forefront. Secondly, information technologies enable greater transparency in society, which creates opportunities for building reputational relationships, significantly reducing the potential for opportunism both from the authorities and members of society, and for ensuring direct citizen participation in governance.
The process of wikification of power will break the vicious cycle that leads to“No matter what words are spoken on the political stage, the very fact that a person appears there proves that they are a whore and a provocateur. Because if that person weren’t a whore and a provocateur, no one would let them onto the political stage—there are three rings of security with machine guns.” [86]. If it becomes practically impossible to abuse power, and if power does not lead to personal enrichment, then the flow of selfish parasites will stop setting the tone for all political life. It’s similar to the first parent-teacher meeting at a school or kindergarten: the biggest challenge is finding volunteers to join the “parent committee.”