Esko Kilpi photo

Saving democracy

Some researchers say that democracy is experiencing its worst setback since the 1930s and that it will remain in free fall unless we can find ways to reduce inequality and steer the ongoing industrial revolution. People live in a world of forces that they rarely understand, much less control. The most pressing dangers for most democracies today are not external, but internal.

Corporations are the dominant mechanism by which social economic activity is organized in the developed countries. Whether there are opportunities for true social innovation in the corporate world is thus a key question for the future of democracy.

In an economy, people essentially produce goods and services for people. Companies are intermediary organizational forms that arrange the development, production and logistics processes. The present ways of working have historically been based on a very different environment from the one that is emerging. The earlier high cost of coordination, communication and contracting is the reason behind many of the organizational forms that are still taken for granted and which we experience daily.

The digital world we live in is totally different when it comes to the quality and costs associated with these three drivers behind organizing, and allows us to imagine and experiment with totally new value creation architectures.

Because of the higher quality and lower costs of communication and coordination the content of work is changing from generic, repetitive practices to contextual, creative practices. Customer transactions are turning into interaction: (1) defining a customer’s problem together with the customer. (2) solving a customer’s problem together with the customer and (3) scaling up the solution. The value is not embedded in a product or a service any more, but in interaction.

Resource allocation has always been one of the main tasks of management: what is to be done by whom and in what order. In centralized, highly capital-intensive systems, and with homogeneous resources, this allocation can be performed top-down, separately from the people who are the actors.

When knowledge, interaction and creativity are the decisive factors of value creation and when work takes place in digital, decentralized environments, this top-down process is increasingly inefficient. Network knowledge can merge into temporary bundles whenever and wherever necessary to solve problems. The network makes it possible to pool the knowledge residing in millions of nodes into an ad hoc front end with massive problem-solving capacity with very little or no centralized control. It is an updated version of participation, opportunity and democracy in which the role of the manager changes dramatically and often disappears completely. There does not need to be any single point of oversight - that may turn into a single point of failure.

The new economic spaces are based on a reversed sequence, an “on-demand-chain”. It is the exact opposite of the industrial value chain, the make-and-sell model. Here work is a movement in time where some contributions are followed up by others, and some are not, creating a developing blockchain. The coordination patterns are not caused by traditional competitive selection, or independent choices made by powerful agents. Instead, what is happening happens in networks of peer interaction.

What if this reality of work with shorter assignments and diverse gigs were to be incorporated into our financial models, incentives and contracting protocols? With programmable crypto instruments, we don’t need to think that wages and equity are opposite ends of the rewards spectrum. Liquidity and rights to future earnings potential can be coded into general compensation principles, into smart contracts.

This new asset class can be both currency and equity at the same time.

An economic space, then, is not a bundle of assets belonging to a group of owners, but a bundle of contracts between people. The goal is to help individuals into relationships that balance the ideals of democracy, complementarity of contributions, the growth of (human) capital and symmetric claims to long-term financial returns.

Firms are social and legal constructs. They are what we think firms are. We created them and we can recreate them. It is time to renew our old construct of the firm as a newer version, a creativity- and interaction-based view of the firm.

The place to begin trying to save democracy is not trying to convince the political leaders who lack the vision and ideas, or the populists who seek to replace them with empty promises, but in truly renewing the world of work.

Thank you Bebbe Krupp!