Examples on How the Governing Forces Work
Next: Governing Forces and Scale
In previous post we presented the powers that govern commons and developed our own visualisation for quickly understanding how a particular domain is likely to work.
Let’s spin through a couple of examples on use
Global Problems
Global issues like climate have low subtractability (slow changes) and would more fall into the category of public goods rather than common goods.
When dealing with global issues such as reduction of emissions, the number of participants is large (195 currently), they do not have shared norms as there are large differences in political landscape from authoritarian states to full democracies, there is a wide range of cultural differences, global monitoring is ineffective as authoritarian countries can effectively block it as interference into their internal matters, reward for violations are large.
So even when everyone at the end has skin in the game, it is very difficult and time consuming to reach agreements globally.
There have however been many successful initiatives, examples include eradication of small pox or dealing with acid rain for example, but the process takes long time and currently we are heading for more disagreements between large players.
Earlier most of the financial resources to combat these came from a relatively small set of industrialised nations and these nations had populations that were pressuring governments for action. Now that industrialisation and capabilities are more evenly distributed, there are more decision makers and process seem to be working less efficiently.
Various identity groups have also gained increasing power in industrial nations preventing effective action. For example nuclear power was left out of Kyoto protocol due to political reasons. This has prevented effectively combatting climate change and led to millions of unnecessary deaths due to pollution in air (from burning fossils instead).
Reaching agreements can be greatly enhanced by reduction of participants. Medium size countries all over the world have been joining to form larger trading and cooperation blocks to increase their collective bargaining power in international negotiations. Some of these blocks like EU act together in many areas like environment but not all. Larger blocks mean that solving all global issues becomes easier as it is much easier to get agreements with ten or so roughly similarly sized blocks than with almost two hundred with huge differences.
This changes the landscape markedly. Fewer participants with larger resources mean that cost of violations goes up as groups have negotiation power to demand effective sanctions and have the power to implement them. They can also demand more effective monitoring and spend more on it.
The change is captured in image below
For former super powers this may create an identity crisis. By committing to a large group of mid-sized parties they would have to admit to themselves that past glory days are begone and we’re no longer a major power. They may react by sulking (isolation) or aggression. Some may even leave their trading group. It’s clear that they need help but any attempt is seen as an insult so not much is to do than salute the sinking ships.
Dominant participant
The view changes if there are parties that intend to use the treaties in one sided way – for example to gain access to markets but are powerful enough to block own markets without anyone being able to sanctioning them.
In such a setup companies could also violate IPR rules and be protected by their government. Beating competition both in lower price and bigger margins is possible if you can outsource development.
In this scenario interests differ, monitoring does not work, there is no cost for violations and norms are not shared leading to following diagram. Under such scenario all agreements with the dominant participant worsen own position.
Trading/Political Unions and Responsibility Washing
Fair play and resulting trust are the public goods to be protected in global or other treaties between big blocks.
If you look at the situation from inside a large trading and other group, things are not always so rosy.
For citizens this move to large groups means that several key decisions in trading policy and many other areas are done at group level far away from normal people. This changes the national policy landscape. Most citizens do not have the time to follow who decides and what. For national politicians there is great temptation for responsibility washing – all popular decisions are our work and all unpopular imposed by this faceless, cruel bureaucracy far away. Conveniently forgetting that we participated into the decision making and some of these bad decisions were in fact our proposals.
Not really knowing who makes the final call and politicians pushing responsibility to a higher level on all bad stuff promotes a story were individuals and nations are powerless and being taken advantage of. Not a great trust building direction.
If you look at the group level decisions, there can be a large set of nations together that have significant differences in norms. Nations do not want to mess into each other’s internal affairs or criticise (we’re supposed to be friends here), so monitoring of violations inside the group can be weak (aka left to each country to implement themselves, unless too big to ignore). The legal contracts and structures created when the group was formed rarely include punishments or processes for kicking someone out. Such rules would limit the attractiveness of new members joining after all.
This makes it very easy for any participant to violate rules. If the group is loose - made of countries differing from each other - passing big sanctions can be impossible as it would violate the group cohesion that is needed in external trade negotiations, there may even be no legal ground for such sanctions.
If the group rules require unanimous decision making, a single rogue participant can play the group like a violin.
Still, everyone has skin in the game of making the block work well and the formation of a block requires that they have similarity of interest to some degree. But many factors are set against it, unless this is thought well in advance.
For a block to work well, it needs to have common, independent police, jurisdiction and practices for implementing common decisions. Without it trust soon start eroding when violations are detected in media and nothing is done about them. Trust takes long to build but is easily shaken (“once caught, always suspected” is the Finnish saying)
However, move to large groups is necessity as otherwise a few large nations will dictate their will to the detriment of everyone else.
State and Municipalities
The fact that many important decisions are no longer alone done by national politicians means they need to justify their existence. Group level decisions tend to be complex balancing acts between opposing needs. Explaining imperfect compromises in an age of agitated social media and ineptitude to compromise is not an easy task.
Political parties feel stress due to this. National level may no longer be the only or even main relevant scope for decision making. It’s not clear what to do. People get their information increasingly through digital platforms that are geared towards short and simple messages – towards meme politics. Parties seem to be turning more into advertisement agencies focusing on drumming a few catchy slogans in the pressures of social media and power drifting away. Identity politics is one approach with idea is not to solve common problems but to punish people that own voters do not like with showy displays of power. Not understanding how the world works, nor what to do about it, politicians turn to click-bait decisions.
This perhaps means that insisting on making every decision at national level is the wrong scope. Governments are anyway bad at experimentation and in a fast-changing world you cannot survive without a large dose of trying different proposals.
Several possibilities exist. Cities and municipalities could be the right level for local decisions (when world gets bigger, you need to go smaller). Decision makers live in the same city, local police can effectively monitor and local judiciary system issue punishments for violations, cities and regions tend to have their own identity (shared norms) etc.
Cities could experiment with different alternatives and in effect they do it already now as there is competition for attracting talent to cities. That’s why they put effort into creating stimulating cultural attractions, effective traffic, good economic climate for companies, street safety and so on. They have to do this all within the current national legislative framework with little possibilities for larger experiments.
We’ve covered many other options how this could be implemented like Governmental/Municipal Kanban and Citizens’ Automation Budget for example.
Another trend and dimension where people self-organise and try out different models of cooperation is happening in the web3 space with so called decentralised autonomous organisations. Services for people by people with no intermediaries.
Mobility and Social Security
How does the case look for people who have recently moved to a new country vs. people who have roots there?
People who have just moved to a new country do not necessarily know all of the laws and customs and may sometimes inadvertently break against some regulations. But having just moved in, the cost of moving again is very small as they do not yet have established themselves in the new destination. Unless of course they moved in because of a spouse or a much better job opportunity.
If the social benefits are constructed so that one gets all of them, even when one misbehaves or contributes nothing and benefit level is very high compared to the starting location, there is very little restraints against bad behaviour nor any structural incentives for good behaviour. Unless one is part of a culture where the community monitors itself, one has personal own moral code or commitment to religious norms.
On national level there are many participants.
For people who have their roots in the country know they are entitled to all benefits even when they break rules. But they have skin in the game as its their permanent home, have relatives and friends who know them and most people want to maintain reputation in the eyes of the rest of their peers and family. There are some weak rewards for anyone monitoring and reporting misuse of common funds as they see this destroying their social safety net. This combination is a more mixed bag of forces pulling for and against misuse.
At the worse end an individual moving alone with no connections from an individualistic culture has no skin in the game, meets high rewards, has no or little cost for misbehaving. This does not necessarily mean individuals are bad, but for this case the system is constructed against cooperation. The system rewards bad behaviour and there is no reward for good behaviour. This moving may result either because the individual has lots of wealth or or total lack of it.
On the better end one has strong personal incentives due to career or personal relationships to act more or less like native.
As seen with people it’s impossible to generate general rules that always apply due to large variety of motives. But benefits are a class of public goods that are vulnerable to misuse if one gains access to them without graded sanctions for misuse.
Too Big to Fail Companies
What happens when companies become too big to fail? The leaders in these organisations can be quite isolated from general public. They can purchase apartments in multiple countries, purchase passports from several nations, change whereabout easy or just live in gated communities and in some countries their children can attend private schools. No skin in the game. When caught doing unlawful actions, individuals often get to keep their incentives and the company is punished except in most serious cases. There is no cost of violation.
Purposeful increase in participants
Sometimes the number of participants in an industry vertical is increased on purpose by legislative change. As example going from a few collective pension funds to hundreds of private funds that citizens are free to pick from. A normal citizen does not have the same information, time nor skills to evaluate these companies.
As pensions are something most people do not actively think about early in their career, its unlikely that customers start co-ordinating and doing collective bargaining themselves.
This easily leads to creation of an industry of advisors. These advisors may get a cut of every deal they bring in to a pension fund, a strong incentive to guide customers towards non-optimal direction.
The rewards for misbehaviour can be reducing the effects of common norms.
An environment where the company that spends most on ads and kick-backs to advisors and least to managing the funds, wins.
Outsourcing
The results of outsourcing are also easy to map out.
The company providing the service is usually far away where cost of labor is low. The people who implement the service will never meet any users nor do they ever use it themselves. They do not have any skin in the game.
They won’t be using the online banking they implement or rail road company’s services, so neighbours are not going to sneer at them if the rail company forgets how to sell tickets or bank forgets that some customers want to make deposits and withdrawals (real examples from Finland some years back). If the company delivering the service can do it under budget say by using junior staff with little training and help, they can collect quite nice rewards and project manager gets a promotion.
Managers at customer side have aligned goals – reduced costs lead to incentive payouts. Ultimately projects get to a working state and the manager in charge gets credit of having led such a difficult project successfully and for making hard decisions and can move to lead the next, bigger outsourcing project. Really big failures tends to result in switching outsourcing provider to next. Basically, failures lead to a situation where outsourcers keep swapping their customers and the original managers at customer side get promoted to upper levels (or make a horizontal career move before facts bubble up).
Monitoring remote work across cultures is hard. Benefit for detecting problems are however large as outsourcing contracts are big. Due to geographical distance there are less shared norms and often at least some cultural misunderstandings. Each party tries to do their best usually on shop floor level, so there is seldom is any need to violate contracts just a desire to bring costs to an absolute minimum in environment where direct communications are harder due to geographical and cultural distances.
Social Media
Social media as an environment has the following characteristics. It is possible to post behind anonymity or false identity and the APIs of these services allow the creation of computer programs that act like real users - so called bots. Bots armies are used to boost the targeted type of content by creating, liking and sharing it on massive scale. The people behind bots do not have any skin in the game as they work from a country where these services are not available or popular.
The companies’ algorithms prioritise highly emotional (engaging) content since it keeps users most occupied and longest on the site. The longer users stay, the more ads can be shown to them bringing revenue up. The emotional effects are enhanced by the fact that normal non-verbal feedback mechanisms are missing so people misunderstand even neutral messages as critical. The social media managers and employee neither have skin in the game as they often restrict their own children’s access. The monetary rewards for owners can be enormous.
There is no cost for violations as it is easy to start another account if one is banned. Participants are from all around the world without having shared norms and their numbers run into hundreds of millions. Social media companies however invest a lot into monitoring and automating their detection processes as well hire folks to do manual removal of illegal content.
You can also think of an analogy how human interactions have changed over time as the cooperating group size has increased. In a village or even very small city most people know each other or have common friends and relatives. If there is a heated dispute between two individuals, its likely that both have several shared friends, acquaintances or relatives who have a vested interest to seek cool down the parties and seek a peaceful resolution.
In a large community, the likelihood of this is very small; there is no informal mechanism for resolution. Quite the contrary, we are evolutionarily programmed to like positive feedback, siding with one side is a sure way to get lots of it along a flood of negative from the opposing side. Both are likely to create an impression that I matter as I get so much attention. The stakes are stacked for escalation. Laws could be applied in the most coarse cases, but they differ from country to country.
There are rules for conduct when users sign up to, but the volume of messages is so huge, that the whole process of mediating messages needs to be automated with some additional work from workers to manually handle borderline cases or train the automation. Everyone also have their own definition what is acceptable and these views can be weaponised to silence political opponents. Governments have tried to heavily influence what is allowed to publish on these platforms especially during the previous pandemic, and they have been successful.
That’s the nature of social media.
As partial solution discussions are going to discussion services where dialogue happens around a single topic, products of a company, a particular hobby etc.
One could also think for future also about invite-only based social services where the inviter stakes their reputation for the people who they brought in or open APIs that allow people to bring in their own filtering algorithms. None really exists today.
National Currency
In fiat everyone has high stakes in the game as loss of trust would mean massive losses to everyone. Also, punishments for falsifying currency tend to be several as the financial stability is at the heart of each nation. Thus, even for fraudsters it makes sense only to produce small quantities - enough to make one person or team wealthy - but not so much to attract serious attention or threaten the stability of the monetary system. Only serious attempts have been during war times against enemy nation and even there since technologies for money printing are the same, there has always been a serious threat of retaliation with same means.
Bitcoin
Bitcoin is based on trustless environment – i.e. it is expected that at least some actors have no skin in the game, only wanting to come in for quick wins. Its nature is high number of participants and high reward for exploitation making it vulnerable in that sense.
The solution is rather smart - high-reward for validation (monitoring). The validators get as reward new coins when they validate and write a new block. Due to the reward, there are numerous independent parties monitoring the activity on the network.
In blockchain if a party tries to write non-valid transactions to the block after winning the right to write, others will notice and the party loses their entire mining reward.
