What will the last government look like?

Entropy catches up to all organizations, begetting their end. Does it have to?

Marcus Aurelius oversaw one one of Rome’s most significant periods of population decline.

The New York City water supply system loses water at a rate of up to 36 million US gallons per day. Cracking pipes, buckling joints, rust, corrosion, tree-roots, and 100 years of sediment: it’s death by a thousand leaks.

The City is fixing things, but it will cost $240 million, an amount so huge that we’d be floored if public works weren’t always costing this much. The point is that old systems degrade and get more expensive to maintain as they age.

Just like our public works, our sociopolitical organizations also encounter problems that end up needing more and more investment merely to preserve the status quo — except these organizations (governments and NGOs alike) leak money and information, which is much worse.

Money and information leaks cause organizations outside their prime growth years to collapse. When people get excited about blockchains, it’s because they see the potential to reduce some of the cost and complexity in maintaining our current systems in order to forestall an otherwise-inevitable exhaustion of our social systems. The stakes here are higher than I initially realized.

Discussed in this post:

But timing is everything. To advance a thesis for Iterative Instinct, our crypto-asset fund, we had to ask whether now was actually the right time for something like cryptocurrency. Is our global financial system decrepit enough that people will tolerate the rough transition to something better? Could we be too early? Will the crypto-economy succeed at all?

I became interested in finding out where the United States might be on the “complexity curve,” and how much more wasteful and corrupt things might get before people would respond to calls for reform. In other words, how leaky is our economy, and how long before the leaks require serious technical intervention?

What is complexity?

In human terms, blockchains reduce the complexity of our human systems by offloading our redundant human-powered trust systems (eg., clearing houses) onto a network of machines. (How exactly this happens is outside the purview of this article, but future posts will showcase my attempt at a simple explanation.)

For our purposes, “complexity” is important only as a precursor to collapse, at least according to Dr. Joseph A. Tainter, a Utah State University archaeology professor who wrote a particularly well-known book on this subject. He defines it like this:

Complexity is generally understood to refer to such things as the size of a society, the number and distinctiveness of its parts, the variety of specialized social roles that is incorporates, the number of distinct social personalities present, and the varieties of mechanisms for organizing these into a coherent, functioning whole.

Complexity grows as special interests lobby successfully for more and more caveats, riders, and special provisions. Eventually, the only people willing to work inside the system are the ones receiving disproportionate rewards, usually through pay-to-play arrangements. That’s why some of the early signs of collapse, Tainter says, will be familiar to Americans today:

  • Elected officials start to hail only from rich classes, who can finance themselves
  • The quality and number of candidates for office begin to drop off
  • People retreat to mysticism, nationalism, patriotism, or racism

Where blockchain helps

Tainter says this vicious cycle is somewhat inevitable, but I don’t buy it:

Sociopolitical organization, as we know it, is a major arena of declining marginal returns… Economies of scale and advances in information processing technology do help lower organizational costs, but ultimately these too are subject to diminishing returns.

This book was written in 1988, before the discussions about electronic cash and decentralized systems began springing up in the 1990s. If blockchain succeeds, it will be by cutting so deeply into the complexity of the current system that it restores space for growth, innovation, and capital investment across the exhausted Western world.

There are other ways to forestall collapse, many of them tried by the western Roman emperors, who faced some (but not many) of the same problems we do, including a declining birth rate. Tainter refers to these tactics over the course of the book, and I collected them into a list. All but one has been discussed by our recent politicians. In fact, you can see clearly the “difference” between the political “parties” today is mostly a difference in opinion amongst the super-rich about the best way to unwind and harvest profits from the post-WWII federal enterprise.

Some of these last-ditch strategies of collapsing governments are:

  • Conquer other lands and collect booty (Neoconservatives)
  • Privatize (i.e., sell) government departments, arms, or holdings (Neoconservatives)
  • Bring in immigrants (Liberals)
  • Raise army pay to ensure loyalty (Both)
  • Debase the currency to pay bills (Both)
  • Raise taxes on the rich (Liberals)
  • Regulate and control all industries (Liberals)
  • Ally with a religion (Neoconservatives)
  • Price controls (Liberals)
  • Offer land to troops to retain loyalty of armed forces (Nobody yet…)

Tainter focuses on three empires (including the Romans) which he says are instructive today. While different in context, he says, the collapse of each one operates by the same mechanics:

What affected the Romans, the Maya, and the Chacoans so adversely was how one or more of these factors was related to the cost/benefit ratio of investment in complexity. When challenges and stresses caused this ratio to deteriorate excessively, or coincided with a declining marginal return, collapse became increasingly likely.

However, Tainter may be wrong about the certainty of this outcome, owing to one assumption: he states there is “no substitute good” for social organization that can serve as alternative when the existing one gets too expensive. Dismantling that assumption is the concern of the rest of this post.

The reorg frenzy

Corporate America is going through the same complexity-crisis as our government, although being more nimble, they have rapidly deployed all sorts of cost-cutting strategies: mobile devices, on-demand labor, cloud services, and AI, the latter which has the potential to replace a lot of human marketers. (Marketing people consume enormous swaths of Fortune 500 HR budgets; when you see AI in the headlines, read “big marketing layoffs.”)

Worker productivity has reached a plateau, that’s the problem. Short of other options, corporations are experimenting with ways to reorganize in order to fool their employees into acting entrepreneurial under the company yoke, of course with no upside for themselves. This has given rise to the popularity of Open Allocation governance systems and “company hackathons” modeled on open source communities, some of them more formalized than others.

Holacracy is an example of a decentralized but highly-regimented corporate governance system which in theory allows companies to adapt and move fast, but in practice is meant to exert even more control over their time. (The startup Medium tried and ultimately ditched it.) It is structured and transparent, almost to a fault. Needless to say, anyone with marketable skills leaves these companies quickly, and high churn rates create their own kind of complexity.

But the core idea of Holacracy is sound: everyone gets a voice, and everyone gets a vote. The problem is that human enforcement of the social contract and work processes is unreliable; cabals form, agendas develop, and rules are quietly broken.

Referendum governance

Decred is a cryptocurrency with a special focus on governance. It was developed by the btcsuite developers out of Chicago, a group which began by developing bitcoin software but ultimately left to create their own coin when they realized that human governance would be the primary roadblock to scaling the system.

They were right: today bitcoin remains locked in a vigorous hateful debate about how to scale, while Ethereum has split into two camps in a similar philosophical fight.

Decred’s solution is fascinating because it mimics the US Congress. Unlike the Bitcoin and Ethereum networks, whose power dynamic is a deadlock between miners and core developers, Decred has two non-developer pools: a proof-of-work pool and a proof-of-stake pool. The developers are stuck in the middle, bound by the requirements of both groups.

If you’re not familiar with those terms, “staking” is like being a local banker: you provide liquidity in order to enable certain services. “Miners” are typically IT admins who operate servers which verify transactions, often in their basements, for which they are paid in coins. So, the analogy between the rich Senators and the middle-class House fits. (At i2, we operate miners in four currencies and also provide stake in several more.)

Another good example is Dash’s masternode system, which requires nodes to hold 1,000 dash (approximately $13,000 USD) in order to facilitate some of the network’s feature. (Check out their community boards at DashCentral.) These masternode holders also vote on the way the network evolves, and can allocate development funds; all of this is recorded transparently on the Dash chain. This group is altogether separate from the people who actually mine dash, although there may be some overlap, as in the case of our fund.

Unlike some of the schemes discussed in blockchain circles (specifically, the fraught idea of futarchy) these decentralized organizations use simple quorum-based referendum voting to make decisions.

The difference between this system and modern states is that this voting scheme scales as the body of voters grows. Existing schemes have to resort to representative government to vote on most issues, removing the opportunity for real self-governance. To quote this brilliant post, our system of representation breaks because it cannot scale proportional to the populace. If it did, Congress would be like, 54,000 people and even less would get done. To put the representative ratio of the 269-person Congress to the 320+ million American citizenry:

… [C]onsider a stadium full of 1000 people trying to make a decision about something important. What would a Congress (0.000167%) of this stadium be? 0.000167% x 1000 people (avg. 140lbs) = 0.23lb = 1 hotdog (precisely)

Is blockchain-based governance superior?

No; transparency of the kind blockchain allows is pseudonymous, so power can still concentrate without most people being aware. But staking pools (which carry great rewards) are a good incentive for heavy hitters to pool their holdings in one place, instead of creating thousands of smaller wallets in an attempt to influence voting. The point is that blockchain and human governance need to exist in tandem: 1,000 years of (excellent) English common law fused with modern technical proofs.

In sum, the last government might look a lot like ours. After all, the Federal system is the Enlightenment’s greatest gift to humanity, and everyone from the EU, to African nations, to the new Russian Federation seem to be copying its architecture. But our new version, built to scale to 10 billion humans, must inevitably rely on machine-mediated referendum voting to keep things provably honest and thus enfranchise people.

A government can only avoid collapse if it can scale without growing overhead costs, according to Tainter. The first empire to efficiently accomplish this might cover the globe, perhaps for hundreds or thousands of years. If decentralized, it would be extremely difficult to dismantle. Whether or not that kind of development has positive ramifications for future humans, nobody knows. But as the headlines about our present-day governments and banks worsen, I grow more confident that people of all social classes and political affiliations are fed up and ready to experiment with something new.

This post was originally published on Supertemp.com.