From Shareholders to Stakeholders

The means of production of the post capitalist era are not noisy machines on a factory floor, but data and software on the Internet. Therefore, we can democratize access to the means of production if we take ownership to our own data and make software open source.

Basically, we humans are decent because we, throughout our prehistory, have been selected through a process in which only the kindest survived. It was only when we gave up nomadic life and introduced private property and social hierarchies that inequity became a structural part of our society and the “unfriendly” individuals were allowed to survive and even acquire power (source). But now the time has come where we no longer need chiefs and managers and where we can, once again, share the means of production.

The capitalist system is based on private property rights and is programmed to exploit greed as the driving force. From a societal point of view, this is not an optimal solution; but now we are reaching a stage where we will be able to redistribute control from the few to the many – from shareholders to stakeholders – and to program our organizations to perform far more efficiently.

Collaborative Capitalism

Distributed ledgers are gradually turning the old school shareholder companies into networks that allow competitors to collaborate without giving up control and without revealing trade secrets.

 An example of this new collaborative trend is the logistics platform TradeLens developed by IBM and Maersk. It is a shared distributed ledger where the world’s major shipping companies connect their it-systems to cut through red tape and to save costs. The next step in international transport is likely to be autonomous containers that can be rented just like a robo-taxi and can find its way to the destination by itself.

In the longer run, competition will force more and more corporations to connect their proprietary systems in distributed networks. They take distributed ledger technology mainstream; but ironically, they contribute to a technology that pose an existential threat to their own existence. It is likely that customers at some point will switch to the public Internet where they will find the same service at a much lower price.

Deglobalization 

During the initial globalization after the first Cold War, industrial manufacturing spread throughout the world and goods were transported several times around the planet before reaching consumers. The driving force in this process was cheap labor, especially from China. 

Now, automation, 3D printing, biotechnology and new materials make it profitable to move production closer to the markets. We do not buy a new shirt, but buy a digital model that we get printed in a shop around the corner. This process was further accelerated by COVID-19 which exposed the fragility of the global supply chain.

We are moving to an era, where data is exchanged instead of atoms and where we will be internationalizing and decentralizing at the same time.

From Silicon Valley to the Internet

Tech giants like Google, Facebook and Amazon are children of Web1 and Web2 and have evolved into the World’s largest companies in a matter of years. Similarly, Web3 will create new businesses that will outperform some of the old ones.

However, the new network companies will probably be smaller and not necessarily of American origin. Smaller businesses are expected to collaborate on complex projects and share digital resources with everyone, including smart people in poor countries.

Software development will likely move from Silicon Valley to the Internet and everybody will gain access to an international market. Even small businesses are becoming multinationals with partners and employees worldwide. 

Centralized organizations and hierarchies can be outperformed by polycentric networks where a person’s power is more based on how many networks she is a part of and less on how many people are under her control.

Applications vs. Protocols

The Internet consists of 2 layers:

  • A bottom layer made up of infrastructure protocols.
  • A top layer of applications that do something useful for the users. 

The original Internet consisted mainly of a protocol layer, and very little money was made on the Internet during the Web1 era. With Web2, a ”fat” application layer was created by companies such as Google and Facebook who earn a lot of money on these applications (source)

From a societal point of view, Web2 is not an optimal model: A lot of resources are wasted because all companies build the exact same type of proprietary applications to run their business. Uber not only build a website, they also have to build a mobile application, an identity system, a payment system, a storage system and more. When Lyft comes along to compete with them, they have to build their own versions of the exact same components.

The Web3 builds on a fat infrastructure layer of open source protocols and only needs a thin layer of applications. Everyone can share the protocols and a myriad of companies will collaborate on top of this infrastructure.

Linux open-source collaboration demonstrates, that it can be advantageous for companies to collaborate rather than to compete. Instead of developing their own features in an operating system, Linux users share the code and help each other with bug fixes and improvements.

The Network Effects 

The industrial economy was dominated by the law of “diminishing return” according to which, the marginal output of a production process decreases, the more of a single factor of production is put in. The textbook example is about digging a hole in the ground: if one person can dig a hole in five hours, it will take more than one hour for five people to dig a similar hole.

Network economy is dominated by a completely different logic: Metcalfe’s Law, which states that the value of a network grows exponentially with the number of nodes. The classic example is the telephone: the more people have a telephone, the more useful it becomes to everybody. 

Metcalfe’s Law gives rise to the so-called “bootstrap problem”: It is hard for a network project to get through the initial phase – where the costs are high and the application utility is low – until the network reaches a critical mass of users. 

As a result of the “bootstrap problem”, most attempts at new networks on Web2 fail and the investors loose their money.
On Web3, on the other hand, entrepreneurs don’t lose their initial investment. If they are dissatisfied with the network, they can continue on a free copy – they can fork instead of fail.

This explains why the Web2 is a “winner takes all” game. After reaching a critical mass, the winning players establish a monopoly by acquiring competitors and by staying technologically renewed through acquisition of startup companies. In recent years, we have seen the so called “sharing economy” like Uber and Airbnb follow this prescription. 

Stakeholder Economy 

There is bad news for those who hope that markets will break down under post-capitalism. Cryptoeconomics holds market forces on steroids. Everything can be traded: If you, for example, order the fast trip in a robo-taxi, it will pay the transverse traffic to hold back, and instead of buying Internet access via an intermediary service provider, tomorrow’s electronic devices will work in a mesh-network and buy capacity from each other.

The old-fashioned monopolists do not have much to look forward to either. The network economy is not suited for centralization: Hierarchies are expensive to maintain and it is hard to keep secret recipes on an open network where everybody can copy them. Furthermore, 3D printing eliminates economies of scale by lowering the threshold for mass production, and monopolies do not work well without economies of scale.

The factory work from the industrial era is based on a division between capital owners and wage workers. The owners get a return on their investment and the workers get paid for their work. Under post-capitalism, a lot of businesses will be sharing open source protocols and all stakeholders – consumers users, workers, service providers, creditors, and investors – will be sharing common goals.

“The tools of innovation are becoming democratized and starting a new business is less and less capital intensive. The price of bringing a tech product to market in the 1990s was 2,5 million USD. In the 2000s it dropped to 250.000 USD and now it starts to look like 250 USD” – Boyd Cohen, urban strategist.

It will be very hard for the incumbents to preserve their monopoly benefits. The number of small corporations will explode and self sovereign workers, who fully control their own time, will replace wage workers.

Distributed Organizations 

Over the last couple of hundred years, the industrialized world has undergone tremendous technological development, while management has changed very little. Now the new Internet is introducing a collaborative governance model that potentially can release huge social resources. The DAO-model can be used, not only by companies, but by all kinds of institutions and communities.

Web1 and Web2 made stores drop their brick and mortar shops and move out on the Internet. With Web3, the turn has come to offices and administrative functions that all move on the Internet.

Transnational enterprises are developing into supranational superpowers, that are likely to act like political powers and to organize themselves as distributed organizations able to circumvent nation-state regulation. Many of them are under pressure to anchor more in the United States, but are also required to participate in regional and national supply chains and markets in the EU, China and India – often in joint ventures with local businesses.

Companies can grow too big and reach a level where nobody can oversee the business. Therefore, large corporations will likely apply market forces to their internal workings by turning the organizations into networks of autonomous teams that do ”business” with each other. Within the teams everyone is responsible, so ideally there are no managers – only different roles.

Already today, many big corporations do not invent or manufacture much themselves. Instead, they label brands on products, they acquire. In the future, consumers will co-own their favorite brands and can choose to invest a dollar every time they hit the ”like” button on social media. “Points” earned from buying a product could very well earn the loyal user the right to vote on the design of new versions of the product. 

Can the Market Replace the Firm?

Instead of consumers interacting with companies, they can also interact directly with each other acting as producers. This is already happening for house-owners on Airbnb, car-owners on Uber and influencers on social networks.

When hierarchies become networks – and networks become markets – why not manufacture goods and services in an open market of workers rather than within companies? Web3 will blur the lines between the market and the firm since it diminishes the transaction costs of economic coordination.

Digital technologies have in recent times lowered many of the transaction costs that made companies dominate the market. Outsourcing, offshoring, freelancing, digital payments, etc., move a lot of work from corporate hierarchies into the market and the gig economy – and it keeps moving: Web3 has the potential to bring down the cost of transactions by a factor 100 or more, just as Web2 brought down the cost of information.

You can download the full essay as an e-book in pdf or  ePub format.

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