This article has been written for Bitcoin’s 10th birthday.
‘Economics is not a morality play’ Krugman, Nobel laureate in economy said in an interview. Krugman is not a technologist but it’s not hard to imagine how he would react if he was asked: what about technology? The reason for societies is the division of labour which, in turn, is the building block of the economy. Economy, indeed, is the most fundamental layer of any society. It is said that the market addresses the most basic human needs. And things like morality belong to higher levels. Bullshit. At least that is what I will try to argue: Morality is far more fundamental than that. Morality doesn’t address human basic needs you might say. Again bullshit (I would use stronger words if the article wasn’t about morality).
How can we change the values of society? What does it have to do with economic value? Sharing economy, for instance, changes the notion of value in the economy. It’s not that people won’t spend but they will buy services that enable them to share stuff instead of producing them. What is the role of tools we build? Technology enables us to have such a weird economy which potentially can address many of our environmental concerns. Then what is the role of technology in morality? Technology helps us to redefine value, moral value.
This is a thought experiment: you’ve been staring at a shelve for some moments wondering whether to buy that crisp. You probably won’t die of starvation if you don’t eat that. Is it moral for you to buy the crisp? So many people are dying of starvation around the world. So, at least arguably, this is immoral. You search online and realize that it has been produced in a poor region. By buying the crisp you are, in fact, helping many poor workers who, if the company goes bankrupt, will be out of work (and might even die of starvation). Buying the crisp, then, is moral. You live in a world where billions of connected sensors and devices monitor every step of the production process. The company is located in a place where it faces severe soil erosion. If the company keeps producing crisps it will irreversibly damage the environment. Buying the crisp is immoral. But you read on and realize that the company uses a new technology which doesn’t harm the environment. Buying the crisp is moral (you are holding the crisp in your hand thinking “should I finally buy this damn thing?). The act is buying a crisp. This is an independent act. The reason for that is you like eating crisp. Is it moral for you to by that? Based on the technologies we use and have access to the answer is different. New technologies emerge and our morality changes.
What is magical about the tools we build that they change our morality? Technology does two things: It enables us to estimate values more precisely (big data in the crisp example, for instance). But (and even more controversially) it changes our values too. The new technology -which protected the soil- changed the transaction costs. Previously the cost of damaging the environment was extremely high. The new technology reduced the cost and so the value of the crisp went up. But (there is always a “but”, isn’t it?) according to Rosenberg “Tech change is largely deliberate search of firms and entrepreneurs. They determine what kind of invention, products characteristics and factor-saving biases will be profitable.” So technology itself is the result of people’s pursuit of self-interest. However, the issue here is a paradigm shift. No single invention alone can create a paradigm shift and reshuffles our value system. But a chain of inventions can. In the crisp example, you used the internet to access the big data which was based on data collected from IoT and connected sensors and devices. Then you used AI to extract information out of the data. Blockchain technology was also used for data immutability so no market agent could cheat. Besides all these, a whole lot of hardware and sensors and robots change the value of the crisp you hold in your hand.
In this article, I will go through some of the technologies which play a role in the paradigm shift and in another article I will discuss how they will reshuffle our value systems.
What is this paradigm shift thing? Industry 4.0, or the so-called fourth industrial revolution, is “the current trend of automation and data exchange in manufacturing technologies.” Is it the driving force of the paradigm shift? Will the world in future exhibit similar features to industry 4.0, an autonomous decentralized world? Or basically, will manufacturing define the future of economy at all?
Autonomous; How autonomous the production machine will be? A driver-less car? What about the division of labour? As advancements in technology reduce demand for low-skill jobs and increase demand for high-skill jobs, will workers bypass middlemen, firms, and sell their services and products directly in the market? Will division of labour evolves into decentralization of the production process? Then the pyramid of the division of labour will fall into a mesh, a network of connected nodes. Will machines replace us in the job market? The paradigm shift will then be toward an even more centralized world were fewer people will have far more wealth and power.
The Centre for Economics and Business Research (Cebr) reports “There is clear evidence that points towards robotic automation in many cases being a complement for human labour, rather than a direct substitute. As more mundane tasks are automated, the human effort becomes more valuable as it is focused on higher-level tasks, creativity, know-how and thinking”.
Let’s use this article as an example to show how the human brain is different from machines. I read about Marx. That he believed workers have to sell their labour to capitalists at a lower price than its real value. Capitalists will then sell the product with a higher price in the market. Then I read about advancements in tech. I thought well the technology will remove cumbersome tasks. This means workers need to develop higher skills. Then I thought what would stop them from selling their highly specialized services directly in the market. I know based on the theory of the firm, transaction cost is key. Will this complex kind of division of labour which is the result of advancements in technology reduces costs so huge firms become too costly and so go extinct? I have also read about monopoly. In the next cross-road waiting for the red light to become green, I think to myself this will have a huge impact on monopoly. I hear the sound of a horn from the car behind me. The light is now green. Wait a minute, I think. What will happen to social classes? I’ve read about social class. Marx has a lot to say about that I remember. I had some experiences in computer graphics and game development too. I suddenly imagined those meshes I used to work with, in 3d packages for game development. That’s it, I think. Those huge pyramid hierarchical systems will turn into horizontal meshes with so many nodes. I change lanes so the annoying person behind me can pass me on. Oh my God, I’m shouting. I just remembered a TED talk I had watched some weeks ago. It was about an exciting technology. What was its name? I think for a while. Blockchain, I remember. That is a perfect fit in this scenario, I think.
I can go on and on. The moral of the story is that no machine can relate some irrelevant experience, game development, to Marx’s writing and derives a conclusion out of that. There is no pattern in that. Machines can’t operate when there is no pattern. In contrast to chess for example where no human can be as efficient as machines (I won’t go through different arguments regarding automation and job market but if you are interested, this is an interesting study).
So Automation is part of the paradigm shift. It changes the nature of the works. Now let’s discussed about other technologies which are part of the paradigm shift.
Economics theory, Krugman rightly points out, at least aspires to be science, not theology. ‘It is concerned with earth and not heaven’. Economists will then need to accept living on earth has some limitations. Earth’s resources are limited. We can’t keep producing co2 as if we live in heaven. Global warming is a real threat and we are responsible for that. We need to make the right choices about industrial activities, transportation and, well how to put it, cows defecation which, among other things, are the main sources of co2 omissions. The question is what we can do about it. Think, think I tell myself. I can ask the Uber driver’s opinion too (I no longer drive while thinking). He says he is concerned with the way we consume things. I ask him if he knows what transaction cost in economics is. He has no idea. I tell him transaction cost is a fancy term for costs associated with transactions. (silence) In trades, I add (silence). For example, imagine you use your car for 8 hours a day. Why not letting other people using your car during the other 16 hours and pay you for that? Many people might need a car when you don’t use yours. Why not let them use your car? It’s difficult to manage that, he replies. This difficulty, I say, is transaction cost. If technology reduces the cost then sharing cars will be feasible. Then we don’t need to buy cars we buy services which enable us to share it. Imagine a chess board. If we share cars, it means fewer cars will be sold. Basic economics says when demand falls, prices will go down. If car manufacturers decide to reduce the price of cars in response to sharing services, the price of sharing services will also drop because the price of sharing cars depends on the price of cars. Other factors such as gas price are important too but cheaper cars mean cheaper sharing services.
Furthermore, car manufacturers are limited to production costs. Since reducing prices doesn’t increase demand, they might decide to increase the price to maximize the profit. More expensive cars encourage sharing. Demand drops even further. But that’s not all as statistics over the last couple of decades indicate, jobs opportunities in the manufacturing sector are shrinking and in the service sector is growing. Since the job market in manufacturing is becoming more competitive, more job seekers will be pushed toward serves, sharing services for example. They will grow as a result. There is a term to describe such a situation in chess: check-mate. In this situation, manufacturing-as-a-services will probably grow even further. Manufacturers, if the profit of selling physical products drop, will try to find new ways of revenue generation. They can sell services to those who rent their products. In the car sharing example, they can sell services regarding energy consumption for instance. Automation alongside sharing economy transform the nature of jobs in the manufacturing sector. In fact, it becomes harder and harder to distinguish these two. Because of servicification of manufacturing? Yes, but also due to digitalization in production. What the heck is that? “The product and process optimization methods are software driven and are mostly also supported by simulations. The transfer of simulation results to the real world, in turn, has effects on the processes in the company, which brings about its maturing into a Digital Enterprise. The current industry mega-trend is therefore called the digitalization of industry” (From Siemens official website). These are some of new jobs technology creates in the manufacturing sector.
So sharing economy will have a huge impact on manufacturing and the economy in general, you might say. I, in fact, haven’t discussed the exciting parts yet. To begin, sharing economy will not kill manufacturing. It just corrects misallocation of resources. Instead of manufacturing worthless products which might be used a few hours a day or week (notice the word “worthless”, change in value system), resources can be allocated to manufacture what we really need, IoT devices and sensors for example which is estimated to be near half a trillion dollar industry by 2020 Forbes reports.
On the other hand, the cost of sharing devices which are being used a lot, or if they are very cheap, will exceed the cost of buying them very quickly. Let’s say the price of a product is 10$. The cost of buying sharing services alongside the gas which is being used to bring it to you and collect it back from you when you no longer need it will be higher than 10$ in a short time.
Before discussing it more, it’s helpful to talk about the current trend in tech manufacturing. It has absolutely nothing to do with sharing economy but you will notice similarities in the way of thinking. Manufacturers tend to encapsulate more and more functionalities in a single device these days. Just look at your smartphone. Instead of manufacturing many devices, only one device is being manufactured with many functionalities. In future, it is expected to have more robots in homes as well as in factories. Isn’t it cool to use your smartphone as the brain and sensing device of your robot which vacuums your home, cleans windows and does a whole lot of other things? (in case you clean your house regularly) So instead of manufacturing more and more devices, resources will be allocated to build better and better robots. Less exploitation of natural resources and more utilization of brain power.
The other cool thing is that sharing economy is not merely sharing consumption but also sharing production (and this list grows as we move forward). Customization is key in sharing production. We share products when buying sharing services is more valuable than buying the product itself. But when the cost of buying sharing services exceeds the cost of buying the product itself, we search online, download different designs, (probably through peer-to-peer trading platforms, today we have platforms such as OpenBazaar) combine them and print it out using a local 3d printer (today platforms such as 3D Hubs are available which are network of manufacturing Hubs and 3d printers which allow you to select the cheapest and closest manufacturers to you). Additive manufacturing which is a more fancy name for 3d printing is more suitable in this context. This is an open production line. The final product is your own, unique product with so many different functionalities. “A newly emerging trend is the increasing demand of consumers for customized, tailor-made and individualized products.” (International Labour Office, working paper no.13). Advancements in 3d printing will only fuel this desire.
And my favourite part: Since profit in selling physical products drop, will this encourage open-source hardware in large scale? And if this happens, I’m telling you that’s huge. A true sharing knowledge. Open-source software is already popular. A cool business model for open-source software is to upload your code as an open-source package (that’s a great way to advertise yourself after all). And if someone needs a customized version they will pay you for that. The same business model can be used for open-source hardware (I had planned to talk about patent as well but I removed it, in short patent is not the future, keep it out of the way).
Sharing knowledge was the third item in the list. The last one is sharing resources. “We have sensors now on agriculture fields. They are monitoring the growth of crops, etc. We have sensors now in factories that are monitoring our economic data. We have sensors in smart homes, monitoring how energy is being used in our buildings. We have sensors on smart vehicles, warehouses. We have smart roads. All of them collecting data.” says Rifkin. He then adds “[IoT] connects everything with everything with everyone. We are essentially creating a distributed nervous system. That’s going to allow everyone on the planet, at very low cost, to begin directly engaging each other in a global internet of things and bypassing a lot of vertical integrated organizations and middlemen who keep us away from each other.” But sharing resources is not limited to data. Dfinity, for instance, provides “a public decentralized cloud” or as they call it internet computer. Anyone will have access to resources which, at some point, were only available to huge monopolies. “Access” defines the future of the economy.
Rifkin has also mentioned the idea of decentralized power production. Where each home can produce its own power using solar panels for instance. It’s not practical at the present time. We should wait and see if scientists and engineers can solve problems such as diluteness and intermittency problems. Which means “it takes a lot of resources to collect and concentrate renewable energies and even more resources to make power available on demand.”
And eventually Blockchain. That is the tech behind Bitcoin. Why would anyone want to care about Blockchain? Because, as one reason, it makes much of governments’ functionalities obsolete. It began by removing central authorities and banks from the equation in making payments between untrusted parties. (big deal, right?) But now, 10 years after its birth, it has gone far beyond that. Many new exciting platforms have adopted Blockchain such as BitNation “the world’s first decentralized borderless voluntary nation”. Blockchain will be a vital part of any solution in a decentralized world.
Back to the question I asked some paragraphs ago will this complex kind of division of labour reduces costs [for individuals] and so huge firms become too costly and go extinct? Sharing economy decentralizes everything. Not something huge monopiles will appreciate. “ Individual tasks performed by people will increasingly become tradable over the internet. Experts believe that the share of tasks performed outside the firm and the share of self-employed people who work on a project-by-project basis for various clients will increase” European Parliamentary Research Service says in a study.
So far I have discussed different technologies which alongside each other play a role in the paradigm shift. But there is one more thing I would like to mention too. Programmers who learned how to code 20 years ago and stopped learning ever-since have unusable, outdated knowledge and skills today. The pace of technology change and advancements will be even higher in future than today. It’s vital to develop the attitude of constant exploration and learning in people. How can we do that? Let me recommend you something:
“An Adventure game is a video game in which the player assumes the role of a protagonist in an interactive story driven by exploration and problem-solving.” Game developers make use of people’s interest for constant exploration and discovery in an interesting setting. Why not use video games for educational purposes, a reasonable person will ask. On the other hand, sharing knowledge is not merely about open-open source software and hardware. The Internet has decentralized information on a massive scale. And that is available to everyone. “Free education for all” is becoming more and more feasible. I, personally, am not a graduate of any economy school. To be honest someday, when I was online, I thought to myself “let’s see what this thing is all about”. In a world where more high-skill jobs are required freedom of education is a human right. Notice that I used “freedom” and not just availability of free education. Since workers need to develop higher skills to be able to enter the job market, an opportunity to use free education becomes increasingly important. Poor people, however, have no financial freedom to spend some years to acquire the necessary skills and knowledge without worrying about their next meal. The “free education”, therefore is not free for them.
It’s not surprising at all that Milton Friedman, a true advocate of freedom of choice, was a supporter of Universal Basic Income or UBI (had you ever thought about the relationships between video games and UBI? had to destroy a few cars for that). UBI, paying everyone enough money for their basic needs every month, Offers poor people freedom to acquire necessary skills in the new economy, to, as Yanis Varoufakis says, turn down jobs, to value (again notice the word) their personal preferences. Productivity is no longer achieved by longer hours of work. People come up with more creative solutions when they freely do what they love and not when forcefully do what they hate. Our creativity is the main driver of productivity in the new economy. Creativity and thinking, as I tried to show in the car example, is our main advantage in the future job market.
UBI indeed needs economic and social infrastructure. Funding such a thing in rich countries might be possible but undoubtedly there are huge hurdles globally. UBI, as presented in this article, is a way to help everyone to join social, economic activities. However, unsurprisingly, not everyone agrees this will work. That’s unrealistic they say. ‘People will be discouraged to find jobs.’ Bullshit, the Uber driver says. Statistically speaking cow shit would be a better slur in English I think. People already have enough money in their pocket to survive they say. Kaynes in an essay published in 1930’s mentioned a similar situation: due to economic growth, by the year we reach to 2030, people will hardly be working. Maybe 15 hours a week he predicted. Keynes was right about the first part. Median household income, by some estimates, is now 4 times more in the US than when he wrote the essay in the UK. The second part, however, didn’t turn out to be correct for most people (well, of course, if they are employed). Why?
It will be discussed in another article. This article focused on different aspects of the paradigm shift. In another article, we will be discussing its impact on our moral system.