by John Henry Clippinger Ph.D.
With unfettered human growth, we can expect the extinction of at least 60% of today’s species and a largely uninhabitable planet within the next fifty years. Our time to curtail these trends is less than 20 years! Nature has given us an ultimatum. It is not a future problem; it is an immediate imperative. Yet denial and paralysis persist.
But they are not an option. The transition cannot be achieved in the usual manner. No supra-multi-national agency, no UN or any nation-state can prescribe nor impose a global solution; no Amazon, Google, Alibaba, Tesla, or mega-corp or collection of same can innovate our way to a viable future. No omnipotent state – China nor the US or coalition of same can meet the deadline.
Whatever the solution, it cannot entail the expansion of state or global governmental powers; nor the imposition of taxes, top-down regulations, entitlements, nor classic “free market” solutions. These remedies, whether democratically enacted or dictatorially imposed will not work at scale and are themselves, contributors to environmental degradation and economic inequity.
THERE ARE HOPEFUL HISTORICAL PRECEDENTS
Some of the most significant and rapid changes in Western society occurred through a series of natural micro-changes in the structure of social and economic networks. No king nor conqueror made these changes; no grand plan nor prescient ruler engineered these changes. Rather a series of largely unintended and gradual “nudges” in social and economic networks broke the rigidity of traditional relationships and opened up hitherto prohibited roles and behaviors. The Italian Renaissance “emerged” out of isolated social and economic groups having to reinvent themselves in order to adapt to the deprivations of continuous warfare and the Black Plague. Out of these necessities sprung modern finance, public art and the humanist tradition.
Similarly, the Scottish Enlightenment “emerged” out of the breakdown of rigid social and religious structures resulting in just 75 years Scotland being the financial center of Europe. It was also the time for Adam Smith’s discovery of the power “invisible hand” for the micro-regulation of human incentives and modern economics. With the free flow of capital combined with the mechanics and science of the Industrial Revolution, wealth and power were developed and concentrated as never before. By virtue of it’s logic and material gain, It transformed the planet in two hundred years, ushering in a whole new geological epoch, The Anthropocene.
ACCELERATED MICRO-SELECTION, TOKENS AND MICRO-MONETARY POLICY
Market mechanism such as price and currencies have proven to be a highly effective and “headless” means to drive innovation and social transformation. However, unitary pricing mechanisms and market clearing mechanisms alone do not always reflect “externalities” and consequently result in “market failures” and “bubbles”.
Price alone does not reflect the multidimensionality of people’s values and preferences. Some goods and services do not have equal social standing with regard to one another even though they may have a comparable price; a $500 scarf is not comparable to $500 of infant nutrition. Goods and services have mutual social and economic dependencies depending on scale, type and the individual, hence, they are not wholly fungible with respect to one another through a simple market price. Rather the full fidelity of their value – preference – can only be captured by a multidimensional preference space. The analogy is to a digital communications channel for a video that must have sufficient ‘bits” to represent red, green, blue and gray scales and motion to capture an image in its full fidelity. The mechanism is equivalent to early daguerreotype photos.
If policymakers or communities want to influence and maintain access to certain kinds of goods or services – such as housing, healthcare, mobility, education, then it makes sense to issue currencies or tokens that are associated just with that asset class.
Digital tokens provide a highly flexible and decentralized means to incentivize investments in different kinds of assets such as housing, energy or health. Through “smart contracts” the supply and fungibility of tokens can be adjusted algorithmically to align the supply and convertibility of those assets to achieve desired social outcomes – such as sustainability, resilience, affordability and accessibility.
The other advantage of a multi-token approach is that it is highly scalable, distributed and potentially self-deploying, self-optimizing and self-healing. Like 5G technologies, which when deployed at scale will encompass multiple billions of devices the issuance and governance of tokens will have to be trusted and optimized at scale. It is very likely in the near future there will be a fusion of infrastructure technologies like 5G with the architecture of next-generation financial, cultural and social institutions. Hence, technical architectural and ownership decisions will have enormous economic and social implications as a world so shaped by technology, architecture is policy.
THE THIRD SPHERE: THE FUSION OF THE DIGITAL PHYSICAL AND BIOLOGICAL
Digital embodiments will be the medium in which future socio-economic institutions will evolve to meet the challenges for massive change. The speed of biological and physical evolution is bounded by the fertility cycle of a generation of a species. For humans, this is every 30 years. Digital evolution is only limited by computational power. Genetic algorithms can “fitness select” millions of generations in seconds at virtually no cost or risk.
This scale and pace of evolutionary change is totally new to planetary ecosystems. It represents a wholly new sphere for reimagining and implementing new societies and economies at scale. This is not a future event or capability. It is wholly practical now to use machine learning to recognize, register and orient physical assets based upon their three dimension attributes. The importance of this for building digital facsimiles or “twins” of physical spaces and structures cannot be overemphasized.
It is feasible to model the actual physics of structures and natural settings, then it is possible to have “ground truth” for assertions and claims about spaces, structures and behaviors. Using the same techniques, it is possible to represent the “social and economic” physics of human constructs: buildings, spaces, organizations, markets and institutions. In this world of high resolution “simulacras” ( living simulations) of the physical and the man made it is possible to “have built” be identical to “as designed”.
There are several open platforms born of the gaming and virtual reality worlds crossing over into the worlds of business, cities and everyday life. By giving every “asset” and “user” an identity, rights, authorities, wallets, and roles, it is possible to animate a virtual world in a manner that closely mimics a physical world. Cars behave as cars based upon their form factor and physical attributes as well as by the behaviors of their drivers and the rules of the road.
This is a “New Eden Moment” with all the potential and portent that term implies.
BASIC RIGHTS AS DESIGNED
The gap between espoused rights and actual, enforced rights is a challenge to all constitutional democracies. In most cases, the simple assertion by governments of democratic rights, such as freedom of expression, an independent judiciary, voting and elections is sufficient to qualify them as democracies regardless of actual practices. Likewise, an emphasis on political rights at the expense of social and economic rights is one of the recognized failings of American Democracy and the rising status of populist and authoritarian regimes.
The prospect that social and economic rights could be encoded into governance algorithms and then enacted and enforced implicitly may seem farfetched, but the automation of the control of machine and device behavior is prevalent practice in aviation, energy, munitions, transportation and increasingly, in many areas of “smart” cities. What is called “smart”, is in many cases the use of sensors and machine learning to adapt behaviors, processes to preserve certain outcomes or states. These states could be logistic flows, flight patterns, transportation flows or doses of medicine or nourishment for a patient.
Rights are in effect “smart” contracts between different parties – asset types-and authorities – that are expressed and enforced computationally and stored on Decentralized Ledger Technology (DLT). A good and challenging example is housing. The basic economic right of access to housing or food can be expressed as an access token to those assets at a specific price – point in time and at a specific location – for a specific purpose. Likewise, the political right of assembly, free speech or voting can be similarly expressed functionally as access tokens to particular classes of assets or services under specific conditions. Such access tokens, therefore, make very concrete the scope or limitations of those rights and provide a tamper-proof ledger to record the extent they are properly exercised. Hence, such token and smart contract technologies can reduce the gap between the espousal of human rights and civil liberties and their actual implementation.
EMBODIED POLITIC: SOVEREIGN MUTUAL GOVERNANCE
One of the perpetual challenges to a legitimate effective political organization is determining who is the “sovereign” entity. Is it the emperor of “Mandate of Heaven” of the Zhou Dynasty? Is it the Leviathan of Thomas Hobbes? “We the People” of Thomas Jefferson? The Proletariat of the Workers State of Karl Marx? The heroic individual of Ayn Rand? Sovereignty entails the exercise of power and authority to enforce a boundary to protect the freedoms and rights of the sovereigns. It requires a “body” and the perpetual challenge has been who or what should be that body.
The practical institutional challenge has been whether this role is better exercised by an autonomous autocrat, a representative deliberative body Congress, a direct democracy, a Coop, an oligarchy, “free”individuals, or some combination of the above or wholly other means? The legitimacy of any of these approaches should be subject to the simple test – Do they protect and enhance freedoms and basic human rights?
In some respects, good mechanics trump good intentions. Adam Smith’s discovery of the invisible hand and the power of micro-incentives (prices) to drive and organize human behaviors to better outcomes for all was an epochal first step in understanding the potential for self-ordering mechanics of human behavior. Charles Darwin’s theory of natural selection owes its origins to Adam Smiths original insights and goes further in developing a general theory of evolution resulting in evolutionary game theory and economics. This discovery has been as much a descriptive science as well as a normative on in that it can be used to naively proscribe “Social Darwinism” to more recently, evolutionary game theory and Evolutionary Stable Strategies (ESS) as a testable condition for viable economic policies.
What is possible now – as never before- is the capacity to design, build, deploy, test and evolve a “simulacra” of a sovereign governing body that incorporates members as individual and as mutual sovereigns. In this manner, one can move from the “naturalist” metaphors of Prince Peter Kropotkin’s, Mutual Aid: A Factor of Evolution to the deployment of a “body politic” that actually embodies the most effective mechanisms to realize basic human rights. The legitimacy of this approach resides in the verifiable representation of the “body politic” of its members and its capacity to enact those mechanisms that realize the rights and freedoms of its members. In a somewhat simple analogy, one can think of this as a flight simulator that accurately reflects the behaviors of a particular plane, such as a Boeing 787 to reflect the actual social and economic behavior of a community in a district or region. At one time in the past, it was thought flight simulators will never fully mimic the behavior of a plane; now they are required training for all pilots. The same might be said for ‘governance simulators”.
It is noteworthy that there is not any universally valid embodied politic, as each will vary by the composition of their members and their definition and prioritization of rights and freedoms. Yet by virtue of their shared design and architecture, they would share common principles and should have some form of “interoperable” sovereignty to allow for forms of cooperation and exchange for mutual advantage.
The fusion of the physical with the virtual, and the capacity to anchor the representations and governance of human activities to verifiable “twins” of both the physical world and the socially constructed world represents a genuinely new space for urban and social design. Through the use of “augmented” actions spanning the physical and the digital, it is also possible for sovereign members to actually participate in that new design in a way that materially realizes and advances their basic human rights and needs.
EVOLUTIONARY INTENTIONAL SOVEREIGNTY
There is the trope in Libertarian circles that the “best government is the one that governs least”. There is the implicit notion that a “laissez-faire” approach to markets and governance, in general, will enable the “natural” and inherently just forces of self-governance to emerge. This inherently conservative, even originalist, notion that the natural or original state is the best state, and that any attempts to direct social and economic outcomes to advance basic human rights is an “overreach” of government. There is an inherent distrust of the state to act in its own self-interest under the guise of public interest. This concern is certainly warranted but its remedy of minimalism and originalism is misplaced. Governments have to shape and direct public behaviors simply to ward off invaders, advance collective economic interests build infrastructures, and plan for and anticipate challenges such as climate change. This is increasingly the case and good governance, a high functioning civil service is correlated with economic and social prosperity. The originalist invocation of Founder Father’s 18th century constitutional intent as a prescription for a 21st society is romantic Swan Song, a denial of the exigencies and realities of the moment.
Designing decentralized mechanisms such as tokens to achieve publicly agreed to outcomes, while emergent is not “laissez-faire” in the classic “free market” sense. Evolutionary mechanism design approaches using tokens is like “niche construction” where designed initial conditions and incentive mechanisms provide for a “fitness condition” that selects for outcomes that advance specific rights and freedoms. One can think of these rights as attributes of a species that are robustly adaptive to conditions of its niche in terms or predation, resources, and cooperation. By constructing the parameters of a niche, one is selecting for certain individual and group behaviors that advance the goals of the “body politic”.
AFFORDABILITY AND ACCESS: MUTUALIZED GOVERNANCE OF ASSETS
With the programmability of tokens both for individuals and asset classes, there is an unprecedented opportunity to explore how property rights can be designed to achieve the goals of affordability access and sustainability
Tokens have multiple manifestations: access resources, permissions, privacy, store of value, units of account, units of exchange, derivatives, smart contracts, rewards, titles, and verification of claims. They are especially effective for expressing complex kinds of property rights. As Elinor Ostrom noted in her Nobel Prize acceptance speech, there many kinds of property rights other than the exclusivity of ownership. The Common Law notion of “estate” interests can be manifested jointly, contingently, or under a variety of rights holder conditions. The ability to represent the rights of “real” (things) assets as well as other asset classes – mobility, energy, wellness, broadband, food, and model their mutuality provides new mechanisms for implementing social and economic rights.
The key notion is that access to different asset classes such as housing, energy, mobility is determined by cost – actual and market or demand based. It is also true that the market or demand value of an asset class is subject to its relationship to other asset classes – such as mobility, public spaces, amenities, schools, hospitals. Hence the value of housing is not a sole function of its cost but its relational cost and value to other assets such as access to transportation, schools, and amenities. There is mutual value creation and degradation among these asset classes based upon their access to one another. Hence, there are dynamic ranges of cost among assets that can be adjusted by influencing their supply and demand. For example by increasing the cost of one asset cost relative to another, for example, transportation, relative to housing, and recognizing certain elasticity of demand, one can make housing more affordable while retaining the affordability of transportation.
Another consideration in increasing and adjusting asset value is the deflationary effect of Moore’s Law upon the cost-performance of technology-based assets, which in many cases are most of the asset classes. These exponential reductions in cost generate “surpluses” after every major innovation cycle of 3 to 5 years. Under affordability governance, these surpluses can be retained and distributed to make other asset classes more accessible. The point being is that there can be a baseline threshold of cost-performance – such as in energy and broadband – that renders additional performance ancillary (e.g.bandwidth speed) whereby the savings can be passed on to other asset classes such as housing, food, and health. The social goal of affordability is to achieve a balance of basic goods and services that is resilient to economic fluctuations and which conserves sufficient purchasing power to ensure a dignified and sustainable quality of life. Under traditional market conditions, these surpluses would be used to produce high margin products priced for a luxury buyer for added but non-essential features. This where marketing constructed “want” supersedes consumer “need”.
MICRO-MONETARY POLICIES AND MUTUAL DRAWING RIGHTS (MDR) FOR LIQUIDITY AND EQUITY
The governance approach advocated here was derived from the International Monetary Fund policy to use Special Drawing Rights (SDRS) to reduce currency imbalanced between debtor and creditor nations. It was derived from John Maynard and Fritz Schumacher’s notion of the Bancor proposed in Bretton Woods Monetary Conference of 1944 and put into practice in 1969 and continues to the present.
Instead of trying to maintain the balance and reserves of different national currencies, the goal of a Mutual Drawing Right (MDR) is to balance the token reserves of different asset classes in order to achieve a mutualized asset value outcome – in this case, affordability, for a designated group. This group could be defined as members of a Mutual organization who had an income as measured by the ratio of their income to the Average Median Income (AMI) for that location. The extent they were above or below the AMI, all relevant asset classes would be indexed by their AMI affordability. The goal of the MDR like the SDR is to provide a unit of account that reflects the relative influence of that asset upon the desired affordability outcome. The goal is to create a basket of assets weighted according to their relative influence to achieve AMI affordability. The initial “holdings” of asset token would reflect its fiat market value, and the “allocations” would reflect the token supplements/deficits needed to balance the value of that asset according to the affordability index. The role of the governance mechanism is to alter the supply and conversion ratios of different asset token types to ensure stable affordability and access. Other criteria, could also be introduced such as carbon reduction and capture as well as resilience and liquidity. These token dynamics could modelled and tested before implementing them in practice and then adjusting the models over time.
Given that improvements in different types of asset classes can enhance the value of others, such as inexpensive and ubiquitous transportation, proximity to good schools and amenities can enhance real estate and housing values, the adjustment of MDRs can also be used to incentive overall value appreciation and become the basis for new kinds of data-driven investment instruments.
MUTUALISM AND THE NEW CAPITAL STACK FOR VALUE RETENTION AND GENERATION:
One of the main goals of the Mutual Organization (MO) and the MDRs is to attract and retain outside capital by having the Mutual organization become the majority owner of the assets within the community. By building up its own asset-backed reserves the MO can issue its own credit and build its own “capital stack” designed to meet the goals of its members. By building up asset-backed reserves of diverse asset types the MO can reduce risk and increase leverage for the underwriting and financing of projects. The goal is to create an attractive collection of investment instruments that would provide predictably and market competitive rates of return while also provide security and a hedge against fiat currencies and exposure to the risks of climate change. In its more developed form MOs and affiliated MOs would provide their own kind of circular economies that were not only relatively self-contained and liquid but also carbon negative.
There are other ways in which debt obligations could be paid off. One of the powers of the MO is to create new jobs which can be paid for by the issuance of new tokens that have liquidity in the network. If the new jobs, such as home care, picking up trash, and local art, create the value they can be immediately compensated. Since this environment would have Augmented Reality (AR) overlays it is wholly practical to monitor and compensate work. Think of this as Pokemon Go with a strong authentication and security layer.
Other key consideration is to keep the cost of operations and capital low so that all forms of costs are minimized and the savings passed on to the members of the MO. This has been the policy of Vanguard Mutual Funds for the last 50 years. Vanguard is itself a Mutual Organization with $6.5 trillion under management. While it is owned by its members it is run by a management group that is bound by a strict set of operating procedures. These management companies could be internally spawned by the MO or hired on a fee basis much like an accounting or auditing firm.
There is no time to wait. A Radical Transformation in the global economy and society is demanded. Nature is giving us her ultimatum on a daily basis. She will only get more shrill. No Green Deal nor any global Supra-Agency will rescue us. We need to play by different rules
Tech matters and has to be at the heart of any solution. The right tech at the right time, constantly evolving and innovating The fusion of the physical and the digital combined with machine learning, IOT, 5G, and crypto-tokens and new incentive, security and governance mechanisms offer a promising design space that can scale and execute in the time frame needed. The target is ourselves and the way we see and organize ourselves. The new Tech is about how to direct and control ourselves. We are the problem and a new variant of us, individually and collectively, will have to be the solution.
We just need to let go and build the New Eden.
Originally published at Johnclippinger.org
Also published on Medium.