Is Capitalism Dead? No, it’s just in metamorphosis
By Chris Skerik on The Capital
Unfortunately, I was not invited to speak at Davos this year. If I had been able to make it, perhaps I would have been able to hear in person Marc Benioff make the proclamation “capitalism as we know it, is dead”. When I do get my invite to Davos, I’ll be sure to stand next to Mr. Benioff, shake his hand and agree. Then I would tell everyone, yes capitalism is dead, albeit, its death will look more like a caterpillar going through a metamorphosis and we are going to have to wait and see what emerges from the cocoon. Of course, waiting for the outcome makes for boring reading. I invite you to read on as I describe to you what the future of capitalism will look like as we charge on through the digital age and into the 4th Industrial Revolution.
As we move through the story, here are the pieces Mr. Benioff presents which I agree are bringing down the current state of capitalism. Capitalism in its current form has not done enough to include all parts of society. In particular, it has not done enough to provide solutions for climate change, equality of human rights, and economic inequality — there is a complete lack of consensus on these topics. As a result, more and more in society are opting out of participating in our established institutions. As a solution, some argue simply, we need to tax the rich and re-distribute to the poor. These arguments get couched in topics like a carbon tax and modern monetary theory. I believe these solutions will only fool us into thinking the problem is solved. These solutions require the same bureaucratic, centralized government, institutional models that have put society in its current predicament. In short, if the distribution of resources is the problem then using the same distribution platform will lead us to the same outcome. What we need is a new distribution model and I believe that model can be found through blockchain technologies.
What it is not?
First, let me tell you what the new version of capitalism will not be. As a society as we have worked through the aftermath of the Great Recession. We have heard calls from around the world for blends of socialism and nationalism to help save us from the evils of capitalism. In any of these cases, the solution requires a more stringent and active role of government and institutions. As an example, we hear calls for increased taxes, more regulation, and increased borders. All these calls for change have different constituents, however, they all rely on the same distribution model. Requiring the same distribution model as we have today, eventually will get us back to the same spot regardless of your political views. If we go down this path, I would predict we will end up with a super form of globalization, an even wider gap between rich and poor and climate change remaining unsolved. Socialism is not the answer and not because it is a bad model. It is not the answer because it uses the same distribution model as capitalism. In fact, in our current form of capitalism with the amount of government intervention, one could argue today’s capitalism looks more like socialism.
The Current Model is Fractured — Facts are not Facts.
To explain how blockchain technologies will solve the distribution model, we need to uncover key tenants of the current model which are broken. First, facts are not facts. Perhaps the apex of this tenant was when the weapons of mass destruction could not be found. Facts are not facts can be seen every day. We have a world that has become divisive partly because we don’t believe the facts on the other side. Instead of trying to understand each other, we have a standoff that says my facts are right and yours are wrong. This has led us to where, when we don’t trust the facts, we don’t trust the person. We are only comfortable operating in a network with trusted allies and we rarely seek to integrate into networks where we have little or no trust. As an extension, to referee these disputes, we rely on a centralized command model of institutions and governments. The distribution model today relies heavily on trust or enforcement, centralized command and the interpretation of facts which might not be facts. This approach is broken and the result leads to Mr. Benioff’s conclusion, capitalism as we know it is dead.
The Blockchain Solution
For most, Bitcoin is the focal point of blockchain technology. It is a technology very few outside the blockchain world understand. Bitcoin has been around since the start of the Great Depression. It is not coincidental Bitcoin was founded when centralized capital markets around the world were in collapse. It is important to distinguish Bitcoin and blockchain. Bitcoin is a type of blockchain and many blockchains are emerging. For our discussion, below is the list of critical tenents of the blockchain technology which are going to be baked into the DNA of the capitalist model metamorphosis.
Facts are Facts: Data entered onto a blockchain becomes immutable and data can only be entered once consensus is achieved by participants. Immutable means the data of the past can not be changed or altered out of convenience for future events. Facts of the moment remain facts of the moment.
Trustless: Because facts are facts, there will be considerably less need for trusted networks. In a trustless environment, we will feel more comfortable operating in jurisdictions or networks we would have normally only operated when trusted relationships have been established. This will minimize the need to have favored nation status as blockchain will not require knowledge of favored status. And if the global consensus does require sanctions against a nation rules can be quickly broadcast across all blockchains and enforcement of sanctions could occur instantaneously. Hopefully, as the requirements of a high level of trust in our society diminish so to will the walls between networks or groups. Please do not take this claim that Democrats and Republicans will sing kumbaya together. Hopefully, the divisive nature of political discourse will look more like a healthy slow simmer than an overzealous rigorous boil. With blockchain, we will be able to operate with a higher degree of trustlessness.
Decentralization: Blockchain technology will become integrated into our lives. Eventually, blockchain will be as ubiquitous as the internet and as immutability and trustless tenents are embedded in society, the role of centralized institutions and government will start to wither away. With blockchain, there will be fewer disputes that require intervention from regulators, institutions and governments. Political platforms such as Senator Warren calling for increased accountability and regulation become moot as there will be considerably fewer problems needing regulation and need to enforce centralized accountability.
Moving Forward: The Butterfly Effect
Where will this take us? What will capitalism look like in the blockchain world? Exact specifics will remain opaque in the near term. However, as we move to a decentralized world, part of the crystal ball can become less cloudy if we look at economic models. A few models can be examined. Does decentralization start to look like Frederick Hayak where distribution is determined by the market with no government interference? In Hayak’s model, there is no role for central banks or regulators. Resources would then be distributed across a blockchain as dictated by the consensus of participants. Or does a new model which has the withering away of the state, sound like Fredrich Engels where the collective decides how resources are allocated? I would leave discussions for the armchair economists and social scientists to wrestle over, however, when I do present at Davos, like Benioff, I would make my predictions: Here is an early glimpse.
Central Banks and Monetary Policy In their current form they will be obsolete in 5 years. Here is why: Negative Interest Rates: Central bank’s role of either propping up currency or fighting inflation will continue to be ineffective in a negative interest rate environment. Fiat currencies will start to look to digital capital markets, such as Bitcoin for safety and stored values. In a negative interest environment, there are almost no levers which central banks can pull to impact monetary policy. This will become more exasperated as the flight of fiat currency capital moves to digital assets which results in less capital for central banks to regulate. Even central banks’ movement to create digital currencies will not stem this flow.
Fiscal Policy: Participants and activity on the blockchain will move quickly. It will move too quickly for the government to react in time to potentially correct any pitfalls which may emerge, such as social injustices. Look how long it has taken to try and solve Brexit or even some countries accepting of sexual and gender rights. The US government passes almost no meaningful legislation. Canada can not seem to decide to build or not build a national pipeline while Europe quietly charges on building gas pipelines (btw gas replacing coal does not solve long term carbon issues). Legislative bodies across the world only serve to hold up their current distribution models. With blockchain, there will be no waiting or need to wait for the government to enact legislation. For a fiscal policy to be implemented, governments will need to adapt their own blockchain or find a way to become integrated into the dominant blockchains. Further, the government’s ability to impact activity on a blockchain will need to be accomplished in a decentralized manner. As groups look to solve social justice, they will be better served to find a path on blockchain technology than look for government to solve. Governments will move too slow. Blockchain technologies will require participation and consensus from all stakeholders. The most effective blockchain platforms will be ones that allow room for stakeholders to participate.
Incentives and Currency: As more capital enters into digital assets on a blockchain, there will be more incentive for industries to start operating on the blockchain they deem most beneficial for their operations. The industry or business will chase the capital. As a result, we will start to see many different types of digital currencies or tokens with each token having industry-specific features and benefits. With blockchain platforms, digital currencies will eventually replace fiat currencies as capital moves to a natural path of least resistance. Many will doubt this claim, however, did you ever imagine Apple having more cash held in Ireland than the USA.
Income Tax: Tax regimes will be forced to move away from income tax to a transaction or a consumption tax. Income tax is a slow, inefficient and self-regulating tax regime. Transactions taxed on a blockchain will create instant cash flow for governments. Transactions on a blockchain will happen instantaneously, so will tax collections. Governments seeking new revenue models that accept and react to blockchain platforms the quickest will be able to extract the most revenue early. In the future, government to government conflicts will be based on transaction jurisdiction and which government authority can collect the tax. To solve these conflicts, international organizations will need to adjust to a more borderless mindset and more of a collective mindset. Future global trade deals will be focused on jurisdictional tax consensus. Governments who opt-out or who are late adaptors of blockchain will quickly miss on out on revenue opportunities. In this model, I would predict developing countries will adapt quickly and in doing so will be able to more quickly close their inequality gaps at a quicker rate than developed countries. Developing countries have the most to gain relative to developed countries.
Marc Benioff has declared capitalism as we know it dead and I agree. For those wishing to find a new path, a new hope there is a way and that path includes blockchain technology. I look forward to meeting in Davos as we see the butterfly emerge from the chrysalis.
World Economic Forum Blockchain Capital Vitalik Buterin POLITICO Harvard Kennedy School Institute of Politics at Harvard Kennedy School World Economic Forum The Institute for New Economic Thinking Economic Innovation Group
