Discovering Cooperation Through the Blockchain

by | Feb 27, 2023

Discovering Cooperation Through the Blockchain

by | Feb 27, 2023

blockchain illustration

In the twentieth and early twenty-first centuries, political hurdles and economic roadblocks have prevented the rise of a properly free and healthy society. Competitive pressures have allowed new inventions to be created and competitive barriers have helped innovative institutions realize value from them. However, these barriers have prevented the full measure of that value from integrating with society. There has been a need for market-based economic cooperation, but this has been displaced by government intervention to create a scale consumerist society which has slowly been grinding down traditional, local, and family power structures. Transnational techno-communist institutions like the WEF advocate for centralized control to directly manage the social deficits of progressive capitalism. There is a healthier alternative which involves more flexible transitioning between cooperative and competitive modes of economic activity.

Economic cooperation is built out of a competitive marketplace. Competition determines winners and losers, strengths and weaknesses. If winners and losers join together, they can take what they learned from competing, combine their best practices, and avoid waste. Winners will have to receive the greater share of compensation, but losers will benefit more from this arrangement then being locked out altogether by competitive barriers. A well-run firm is already a cooperative model for individual employees. A natural monopoly emerges when a mature market engages in cooperative rationalization.

The heuristic for judging where and when cooperation is necessary, and when it is unworkable, asks how well a market understands its own business and structure. New markets, disruptive technologies, and the like represent areas where prices, values, practices and outcomes are unclear. Here, competition can determine those answers. Entrepreneurial skill will translate into profitability.

When a sector matures, profitability will decline. Mature sectors face only three possible outcomes. First, a price war to the bottom which destroys the industry and creates a minor recession. Second, the establishment of barriers—often by way of government regulation—to create semi-cartels which profit from monopolistic competition. Third, the firms in the market must agree to cooperate. They must combine efforts, limit waste and competition when possible, compensate players based on known strengths and weaknesses, and leave the door open for competitive disruption in the future.

The cooperative option is what progressive economies block. It’s what healthy economies need, but it’s not so easily achieved. It’s in the nature of any business to seek profits and to win as if a zero-sum game is being played. Cooperation is difficult in today’s business environment, and it would be much better suited for a decentralized market of the future.

Cooperation requires contract-based payout of gains from a common pool to individual players. It often requires rule enforcement. This is why corporate firms exist. As a technology, the firm can do both tasks. The centralized nature of governance in firms is why they work, and it’s hard to imagine a decentralized platform that could do the same thing.

Except, blockchain can do it.

Blockchain platforms such as Ethereum can include smart contracts that automatically distribute money, or even levy penalties, based on pre-determined rules. A simple example of this includes exchange rate options. Options like this can be pre-programmed, drawing data from open sources of information, and automatically fulfill without any legal or third-party intervention.

Blockchain platforms can facilitate cooperation between many small players, who combine efforts into a larger result. An automobile line could be produced in a completely decentralized fashion. Imagine a brand owned by some wealthy holding company. They grant access to this brand to a marketing and management agency, who then opens a project on a blockchain platform. The holding company has a long-term partnership with a mechanical design firm. They also have an arrangement with the marketing agency. The marketing agency then searches the platform and reviews applications to join the project. Workshops of many sizes, from large multi-use factories with spare time, to garage 3D printing contractors, sign up to fulfill many of the orders in the project. Financial entities join as well, from banks to independent households betting some of their personal wealth.

The marketing agency develops a business plan which predicts demand and coordinates with sales channels, and the contractors get offered an assignment of future revenues. When all is in agreement, each entity makes their contribution, and in the end cars with the brand and design are distributed to sales floors or platforms. Based on contracted rules, the final revenues are distributed, and the project closes.

Such a decentralized system could include a number of interesting features. First, the small contractors might need an “integrity” score, like a credit score. This includes a history of complying with that marketing agency’s loose IP rules. There will be no intellectual property laws, rather, IP respect will be encouraged by managing access. IP creators will stay on the generous side, since making access easy will encourage respect for the IP.

Another feature of the decentralized system would be insurance and quality assurance. There are many ways to provide quality assurance in a decentralized fashion. Uber has developed a few systems for this, along with AirBnB. If insurance stands alongside these features, it ought to be easy to provide high quality assurance for a decentralized marketplace. Independent contractors could be the same skilled professionals who in our day and age would be working at top firms.

The platform which lets contractors view projects, and vice versa, could include built in insurance and decentralized financing marketplaces.

That’s how such a market would be formatted, but what structure would emerge? Game theory studies not only show what makes cooperation possible, they demonstrate what form of cooperation will emerge. One result of cooperative game theory is that teams will structure according to who can produce the most value. In other words, cooperation will seek to create “dream teams.” These would represent the very best any one team could accomplish, but they do not necessarily have the capacity to capture an entire market. A natural consequence of dream team formation is niche creation. After the dream team is at capacity, leftover demand becomes a valuable niche that less skilled teams can fill. Cooperative economics should be very efficient at optimizing society’s labor value relative to unmet demand.

This makes the most sense with the blockchain platform in mind. There might be car brands which are known to have less control over quality assurance. The design and value in the car might be good, but user might expect to have to be vigilant about maintenance. As one goes down the niches, it would no longer be a matter of producing new cars, but rather could arrive at the realm of recycling and renewal. Printing new parts for older cars and keeping them alive long after initial purchase. Most car buyers won’t expect to buy a brand new car, but rather consider that as an unlikely option when high quality renewed and refurbished cars are already in the market. The market will focus on adding value and quality to society, rather than constantly pumping out quantity, hoping old possessions wear out so that people will buy new ones.

Quantity doesn’t have to be sacrificed. There’s no reason why the blockchain platform wouldn’t include Walmart style store fronts that engage with large factories and distribution warehouses. You would still be able to buy a cheap can of corn. Rather, there would be more flexibility where these channels built by Walmart types can more easily accommodate fresher, higher quality cut corn when demand for quality outpaces the need for economized grocery purchases. Small farms and handmade food products could cooperate in the same ecosystem with large food producers. The digital age has already allowed for this, but a cooperation based blockchain network might accelerate it.

The blockchain project marketplace shows what innovations could occur within the production side of the economy, but what about the demand side?

Communities could form around family and social obligations. These would be prioritized over going to work 40-60 hours a week. There’s more than enough efficiency in a modern economy to produce basic supplies for everyone. What modern economies struggle to do is translate gains in production into better quality of life other than what can be achieved through raw scale production. For example, we have no problem producing cheap building supplies for new houses, but the cost of labor for construction is prohibitive, and cheap work arounds and immigrant labor (a de facto caste system) are used instead of producing high quality constructions such as what was built in the 1950s. If people spent half the time in the factory or office, and the rest of the time in the community: building, planting, raising kids, settling personal conflicts without handcuffs and mace, then life might be a lot better. This is certainly consistent with the model of quality over quantity production. The question is how to accomplish this?

Workers could form economic cooperatives, which center around the idea of community equity. The equity is used to bring parity between high value industrial productivity, and lower relative value community productivity. This equity is a cooperative arrangement concerning the bridge between the community economy, and the external industrial economy. Equity can include community assets, such as cars, which means these assets can be more expensive, higher quality, and see more long-term maintenance and care.

I’ve been part of church communities, boy scouts, and the military. If it was voluntary, I wouldn’t mind joining a church like community that included obligations such as attending a weekly service day, and sharing a few assets in common. So long as this was enforced economically, was voluntary, and the rules were laid out clearly and not based on vague social expectations, I’d probably prefer living that way than in atomized urban America.

Another alternative is a more corporatized private law community which functions like a high-end gated community or homeowner’s association. Here, there is more privacy, but a stronger economic investment might be required. Both this and the community-based society could co-exist in the same economy. Private farms and ranches, naturally, would fit in as well.

Modern American life is not a product of freedom. Roads to travel wherever you like for free, rental contracts, 401k’s and the like help create broad private independence for the American middle class, but much of this system depends on progressive economic interventions to keep American corporations afloat. The U.S. government has started wars to help companies avoid having to pay the market price for Tungsten, which is what makes the American system work. The European alternative, also somewhat funded by America’s system, relies heavily on socialist welfare economics. I can’t defend either system.

Cooperation is the other side of competition’s coin. We ought to primarily cooperate, but the secret of economics is that competition tells us how it should be structured.

About Zack Sorenson

Zachary Sorenson was a captain in the United States Air Force before quitting because of a principled opposition to war. He received a MBA from Waseda University in Tokyo, Japan as class valedictorian. He also has a BA in Economics and a BS in Computer Science.

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