OpenBazaar And Institution: Will Central Authorities Survive In The Future?

[This is the first article in a series regarding OpenBazaar and institution]

OpenBazaar has been welcomed by academists and enthusiasts and people from all walks of life. OpenBazaar offers something far beyond free peer to peer trade. This article is about the organization. Among other things, any organization should organize the process of decision making. But before anything else organization is a set agreement which should be enforced. Hobbes here, says bring in swords. If technology solves 3 things in the modern world one has to be the issue of trust. What would social institutions look like then? This article is about the organization.
Why should anyone seek an alternative when there are agreements and Hobbes’s sword is a well-functioning machine? Institutions may reach to a point, says Locke (one of the main contributors to the theory of the social contract, not an anarchy) where revolution becomes an obligation. The social contract states that governance is a service society should pay for by abandoning a portion of their freedoms. What specifies the price? Can I say, at some point, well no thank you?
These are the ingredients of this article: Marx believed an organization is built based upon the economic structure of a society. Social Darwinism states those individuals who manage to climb up the social ladder should survive in a society. Individualism is where society values individuals more than society as a whole. And eventually transaction cost. Let’s get started.
According to Marx social institutions may be transformed due to class conflict. He says production relations and conditions and economic structure of a society determines its social organization. A social institution is nothing more than a body which facilitates this structure, he believes. But, he adds, this will be transformed due to class conflict. His predictions didn’t turn out to be right, however. Revolution happened elsewhere and not where he had predicted, western Europe. Society may be transformed because of the conflicts for sure but each organization comes with a natural element. A non-corrupt organization is in its most unstable state where each member of the community has maximum responsibility. Even above that natural miss-allocation of resources unlevels the playing field for market agents. So the first step f corruption has been already taken. Just another push is needed (Marxists attempts to “cure” this miss-allocation of resources were disastrous due to the reasons discussed in previous articles). So corruption is an internal element of any organization and a major force of its transformation (In the evolution section we will talk about the other element as well). Why would one try to change a corrupt institution then? The new institution, too, will eventually be corrupted. There is no “the perfect method”. Douglass North and Evolutionism will have something to say about this.

Social Darwinism: [Please note that any reference to individuals such as Trump as the president of the US is, in fact, a reference to politicians as a whole and not a single person. This article is not about any particular party. It tries to examine the central authority model regardless of any party.]

Social Darwinism is all about the survival of individuals. For instance, based on Social Darwinism, a son of a billionaire who has gone bankrupt for many times (not for wise choices) but still affords to hire tax lawyers who (based on laws passed by representatives in the parliament, the API of corruption one would say) help him to avoid paying tax for years and so gets richer and richer and because a large number of US citizens who are perfectly sure he will never be elected as president, refuse to vote for Hillary Clinton, another total insider, and so he actually becomes the president of the united states and pulls out of the Paris agreement that endangers the entire existence, let alone mankind, should survive. But it’s not the survival of individuals that ensures the survival of the species. We are social animals our survival depends on the survival of the community. Individuals, in contrast, can make all of us go extinct. That is why social Darwinism is so wrong.

Individualism and transaction cost:
It will be discussed in later articles that self-interest of individuals cannot be defined outside a social context (i.e. the society they are part of). The problem of the difference between individualism and collectivism( the whole society) is a confusing one. After all, society is nothing more than a collection of individuals. Or is it? Can we think of society as an independent force? It’s important to note that individualism in a society turns into its opposite when applied in politics. Individualism in politics is what some scholars call collectivism, where the goals of one are considered to be the goal of the community, according to Mises but holds true in many cases. It would be true in all cases if leader-follower( or institution-society) relationship was a one-way road. It’s not. Society is affected by this relationship and is pushed toward certain goals for sure, but so does the leader. To become the leader of Germans, Hitler became as harsh as possible toward Jews on the other hand Germans of WWII became as harsh as possible towards them as a result of his policies. They pushed each other to extremes and together they collapsed.
But wait a minute game theory doesn’t say that. It says, given that a society is distributed uniformly across the political spectrum, and the race is between two candidates, mathematically speaking (regardless of social, psychological considerations) candidates will be better off by moving toward the center. A third candidate enters the race and the centrist has no chance of winning, two other candidates are better off by moving toward extremes. This is true, mathematically speaking. The point of this article, however, is transaction cost. In economy, transaction cost is the cost of any economic trade. Locke says individuals and government are parties in an exchange where individuals give away parts of their freedom in return of the protection of the rest. And then North says organizations that fail to reduce the transaction cost will be replaced by organizations which do so. Based on Locke’s idea regarding the social contract individuals should ask themselves all the time: Am I a party to a profitable deal?
What is the cost of the central authority? What is the performance of the central authority model regarding costs associated with social institutions? Corruption, for instance, is a cost. Is the central authority model the most efficient one to reduce these costs?

Corruption is an ingredient of any organization, we now know. But there is also another element found in all organizations. Society and means of production(technology) and relations are constantly changing. And so should social institutions. North’s transaction cost, therefore, can be restated as such:
institutions which allocate resources to adjust themselves in response to constant external changes (technological changes for instance which transform economic relations) and reduce the cost will replace organizations which allocate resources based on relations transformed primarily due to corruption. In other words, organizations that respond to corruption more rapidly than to external factors will need to go. Because those organizations allocate resources primarily not in response to external changes but instead based on internal factors. A new organization will then emerge, North says, which reduces the cost.
The original idea of democracy, decentralization of power from elites to society, can be regarded as an attempt to minimize this cost. But then due to social complexities indirect democracy, where representatives represent the will of the people, emerged which (not surprisingly) could be used as an API to crack the lock the idea of democracy had tried to create. So now instead of Marx’s capitalist vs worker conflict, we have two other forces in the world which is dominated by constant changes. And organizations which reduce the cost in this scenario survive. [Governance in a rapidly changing modern world and stability of the social institutions will be discussed in the next articles in this series]

Leader-Follower model:
This model is hugely vulnerable in a social context. The decision-making process of mankind (sometimes called the rational animal) is far from being rational due to social psychological issues among other things. Decision makers as a result “act as satisfiers, seeking satisfactory solutions rather than the optimal one.”[ Bounded rationality theory]. This method is prone to maximize the cost of irrational decisions, amplified in a leader-follower relationship. But, one might argue, a leader is helpful in many cases. For instance, when a nation is in panic and everyone is rushing to cash out their money from banks a strong leader can convince them that it serves the best interest of the whole community not to do so. But imagine the same person convinces the community that an entire race should vanish from the face of the earth.
A leader does two things: It organizes the society and ignites the emotions of masses (mobilizes the community). Emotions are a critical part of our lives. Without it, we would go extinct on day one. For example in a primitive world scenario, the cognitive part of the brain says: “dude, a lion (or something) is chasing you.” And nothing happens until the time emotions come into play and push us to act accordingly. The first phase is merely regarding information. But the second phase initializes the act. In the leader-follower model, leader ignites the emotions of the community. The first phase, the cognitive phase which should have been done collectively, is bypassed or at best is prone to large error due to the amplification effect explained earlier.
What about the other role of the leader? Who is in charge of organizing people? Communication in such a world is key. The January 25 revolution, Egyptian revolution of 2011, had no central organizers. A number of youngsters set the date for a mass demonstration online and a dictatorship of 30 years collapsed (although it ended up to another dictatorship similar to most, if not all, other revolutions). The cognitive phase in social scenarios should be decentralized. This is the age of the death of central characters. Society should be formed around ideas which are constantly the subject of debate and so are developed and modified all the time. Of course, individuals ignite the emotions of masses but society is not formed around them. [The mechanism for collective decision making and direct democracy regarding all major issues in a society which operates under as little social rules as possible and the role of education will be discussed in next articles.]
So, no the central authority by no means is an efficient model for social institutions in the modern world. Yet it has been the only viable solution in the market of institutions for centuries. Are we witnessing a historical breakthrough, one might ask.

2 thoughts on “OpenBazaar And Institution: Will Central Authorities Survive In The Future?”

  1. Pingback: The cost of the central authority via /r/economy | Chet Wang

  2. Pingback: The cost of the central authority – CryptoNews – Cryptocurrency news, bitcoin, ethereum, blockchain, smart contracts

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