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Musings Report 2022-2 1-8-22 Should Blockchain Technologies Be Public Utilities?
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Should Blockchain Technologies Be Public Utilities?
The most profitable business model has always been monopoly, hence the jealous enforcement of monopolies by governments, monarchies, etc., and private companies which manage to establish monopolies or quasi-monopolies (companies that dominate the market and sector while claiming they are competing fairly).
The traditional capitalist approach is to borrow vast sums of money and buy up competitors, and then lower prices below cost of production to drive any resisters out of business. This was the model used with great success by John D. Rockefeller in the late 19th century to assemble the Standard Oil monopoly.
Rockefeller could not have assembled an oil monopoly without borrowing enormous sums from Wall Street banks and playing dirty, for example, buying the railroad competing oil producers had to use to transport their oil to market and then jacking the rates up to push the competitors under.
In the tech era, the approach is still to buy up any and all potential competitors, and the developers of any tools that could pose competitive threats if they fell into the "wrong hands."
Successful tech companies don't need to borrow as much money, as they can issue new shares of their stock to entice sellers--the equivalent of "printing money out of thin air."
There is a much greater sense of urgency in the tech era to scale up very quickly lest a competitor gain dominance first. Once "the network effect" has locked in the first mover's advantage, it's very difficult to dislodge the initial quasi-monopoly.
The Internet era of 1994 to 2020 offers lessons many proto-monopolists have taken to heart. The first wave of Internet companies (let's call them Web1.0) emerged in a Wild West environment of intense innovation and competition.
The second wave of companies (Web2.0) built on the successes and errors of the first innovators. MySpace was an explosive success that faded; DoubleClick, one of the first advert companies that was eventually bought out, etc.
The second wave (which included legacy enterprises that almost folded and rebounded, such as Apple) learned to scoop up any innovations within their sector using newly issued shares of stock and cash when necessary. This strategy nipped competition in the bud.
This consolidation generated the quasi-monopolies that now dominate much of the value and mind-space of the economy and society: Facebook, Google, Apple, Twitter, Netflix, etc.
A great many smart people are salivating over the prospect of blockchain and decentralized finance (defi) becoming the new Internet in the sense of a new technology that "eats the world" while generating tens of trillions of dollars in profits and capital gains.
Given that we're in one of the greatest speculative frenzies of all history, these new technologies are the equivalent of tossing a recently expired steer into a river teeming with voracious piranha.
The problem with all new forms of wealth and sources of wealth (oil, radio, the Internet, blockchain, etc.) is super-wealthy individuals and corporations can scoop up the emerging sources of wealth using their existing wealth and near-infinite lines of credit / stock issuance.
The only hope for small-time players is that the established players overlook the potential of oil, the Web, etc., leaving just enough room for new players to establish dominance before the sclerotic, snoozing Big Players wake up and realize someone ate their lunch.
I described this dynamic in last week's Musings Report: though the blockchain at the heart of bitcoin is decentralized, bitcoin mining is capital-intensive and so it is dominated by an elite few, and bitcoin ownership is equally concentrated.
The same dynamic will manifest in every new blockchain and every decentralized finance (defi) application. Super-wealthy individuals and corporations are not about to be caught napping, and they will buy up all the early innovators with fiat money borrowed at rates no commoner can obtain, or with other elite-only wealth such as issuing stock or selling bonds.
You might have seen the lists of small companies Apple, Google, Facebook, et al. have purchased: hundreds of small companies scooped up before they could become viable competitors, or offer an advantage to potential competitors.
The same dynamic will ensure that all the promising blockchain and decentralized finance platforms and tools will be owned by the same few who own the vast majority of other forms and sources of wealth.
Longtime correspondent / contributor Venkatesh P. recommended this lecture on the so-called informal economy that generates 90% of India's jobs: India unInc: Management lessons from streets of India.
I will have more to say about this insightful presentation in future Musings, but in the context of "financial innovations based on blockchain and defi," the key point is: if these (elite-owned) innovations don't increase the net incomes of 90% of the workforce, then they're nothing but another financialization operation that enriches the already-rich at the expense of non-elites.
Financialization has many definitions, but the main dynamic is that those with the greatest access to cheap credit and leverage can buy up productive assets. Debt-funded speculation ends up controlling and exploiting real-world productive assets.
This triumph of financialized speculation has many consequences, none of them positive for the economy or society.
Apologists for financialization-speculation are expert at invoking the secular religion of "markets": all problems can be solved by making everything into a market of buyers, sellers, credit, risk, arbitrage and of course financialization.
But "market" is simply the appealing cover for the real dynamic, which is for global capital to enter a newly opened economy and promptly snap up all the most productive assets and then turn the citizenry into debt-serfs via credit that starts out cheap and becomes all too dear once the fish are on the hook.
The problem with relying on "the market" to distribute the benefits of financial innovation is "the market" is highjacked by corporations and the super-wealthy to serve their interests at the expense of everyone else.
Competition, transparency, a level playing field and accountability all reduce profits and increase risks. The "solution" is monopoly and cartels which take control of "markets" and the regulatory agencies that are supposed to enforce competition, transparency and accountability.
The net result of this dynamic is "too big to fail" as the cartels-monopolies become so dominant their collapse would bring down the entire economy, and "too big to jail" as all those billions sloshing around end up corrupting the political-regulatory orders.
Those with the most capital and the most expansive credit lines can scale up to dominate a sector and then use their profits to buy political protection of their monopoly / cartel.
This is how America has ended up with cartels in telecommunication, healthcare, higher education, social media, Big Tech, etc.
There is nothing intrinsic in blockchain or decentralized finance that will limit the dominance of the already-wealthy and corporations.
The better alternative to a "market" that soon becomes an elite skimming mechanism is to make all blockchain or decentralized finance technologies into public utilities that serve the public interest, not cartels and monopolies.
In a public utility structure, the original innovators who own the patents would earn a small fee, but the vast majority of any gains or benefits would be distributed to those using the tools and platforms, i.e. the general public.
Whatever is essential--for example, water and electricity--cannot be left exposed to a manipulated "market" that's easily hijacked to benefit the few with unlimited capital and credit at the expense of the many.
As it stands now, there is a massive, manic rush of corporate and super-wealthy players into blockchain and decentralized finance, with the sole goal of gaining first advantage and using that to construct immensely profitable monopolies or quasi-monopolies.
Public utilities are dismissed by many as "socialism" but public utilities don't fit into the usual ideological boxes. They can be either privately owned or owned by public agencies, and they respond to market forces (i.e. "capitalism") but are structured to serve the common good rather than super-wealthy owners / managers.
The financialization boom in which every input, resource and asset is commoditized into a financial instrument that can boost the profits of those at the top is drawing to a close, as the scarcities and inequalities that are the systemic result of financialization have undermined the economy, the society and the political order.
All are tottering on the edge of collapse, largely due to the excesses of financialization / speculation and financialization's dependence on the infinite expansion of debt-funded "waste is growth" consumption.
There is a proven model that serves the public's interests and customers-consumers: public utilities. Rather than let blockchain technologies become the latest iteration of corporate / super-wealthy dominance and profiteering, these innovations (should they bear fruit) should be tightly regulated to serve the public, not the super-wealthy and corporate elites.
Highlights of the Blog
podcasts:
Entropy intensifies (26:52 min., with Max Keiser)
Tune in (to degrowth), drop out (of hyper-consumerism and debt-serfdom) and turn on (relocalizing capital and agency)
posts:
Why Don't We Cut Out the Middleman and Just Elect Pfizer and Merck? 1/7/22
The Economy / Market Look "Healthy" Until They Have a Seizure and Collapse 1/5/22
What Will Surprise Us in 2022 1/2/22
Best Thing That Happened To Me This Week
Harvested enough poha berries from our two poha plants to make a jar of poha jam, which was once widely available commercially but has become a scarce luxury ($10 for 7.5 ounces plus shipping).
From Left Field
NOTE TO NEW READERS: This list is not comprised of articles I agree with or that I judge to be correct or of the highest quality. It is representative of the content I find interesting as reflections of the current zeitgeist. The list is intended to be perused with an open, critical, occasionally amused mind.
What Is The Meaning Of Omicron? William A. Haseltine
From the Great Resignation to Lying Flat, Workers Are Opting Out: In China, the U.S., Japan, and Germany, younger generations are rethinking the pursuit of wealth.
Ponzi? Insiders Dump Stocks To Their Own Companies At Record Pace -- take note when the rats are scurrying off the ship....
The latest monster ships could be a disaster
The hidden healing power of sugar (BBC)--now this is a surprise...
Great Protocol Politics: The 21st century doesn’t belong to China, the United States, or Silicon Valley. It belongs to the internet
How the West invited China to eat its lunch (BBC) -- let's not forget the hundreds of billions of profits skimmed by Apple et al. by moving production to China....
Magnesium, P.I. -- scarcity is the dominant narrative of the era...
Lessons from the USSR Crisis - What brought down the second largest empire of modern times? -- Not sure I buy this line of inquiry, it leaves out far too many other dynamics....
In Liberty County, workers who quit feel liberated, but the community discovers a powerful downside -- if our economy can only thrive if we pay less-than-living wages to tens of millions of workers, it richly deserves collapse....
Money for Nothing: Many jobs are pointless. Others are being automated away. In the future, who will still work for a paycheck? -- Indeed....
Disrupting the Five Temples of Power: And they point the way to a state of affairs that requires better rules, not better rulers: A world without bosses.
"If you see through everything, you’ll wind up seeing nothing." C.S. Lewis
Thanks for reading--
charles |
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