Imagine a condition in which we have created our own social safety nets. That is, the safety nets are not created for us by some authority. Through self-organization, people start to experiment with systems designed to help members thrive. Fungus-like, these systems eventually take over the world.
Each system would be composed of people working together to provide an optimal level of security, resources, and perhaps even tough love — all while mitigating perverse incentives. These systems would be equipped with quantitative and qualitative feedback loops, so that they could respond to members’ needs and changing circumstances.
None of these would be a grand, universal scheme contrived through the political process. Rather, they would be experiments in mutual support.
Troubles with UBI
In our last article, I warned against groupthink about a UBI. Specifically, I listed several reasons why we should be skeptical of most UBI proposals currently on the table:
- A UBI risks creating perverse incentives likely to make people less productive.
- A UBI risks giving a massive lever of power to those we might find dangerous.
- A UBI is not likely to be passed in any pure form, but will be a product of politics.
- A UBI is unaffordable, even if you were able to end major, popular welfare programs.
- A UBI risks crowding out the formation of vital communities rooted in mutual aid.
- A UBI doesn’t take into account the economy’s heterogeneity along a number of dimensions.
- One additional point: UBIs are monolithic and will be difficult to adapt to changing circumstances.
But offering a critique of a UBI doesn’t mean one is against creating social safety nets. Quite the contrary, we sketched a few criteria for what a decentralized alternative might look like.
This article is meant to go deeper into the idea of Distributed Income Support Cooperatives (DISCs). While this offers a little more detail, the idea will still have to be taken up more seriously by innovators and entrepreneurs more capable than I.
DAOs Compared to DISCs
If a distributed autonomous organization (DAO) is a decentralized way of coordinating activities to create value (upgrading the traditional firm), then the DISC is a decentralized way of coordinating mutual aid (upgrading traditional welfare). DISCs, like DAOs, will be voluntary, permissionless, and most likely ambivalent to questions of national origin. These cosmopolitan entities will bind people based on the desire to create better social safety nets, not based on accidents of birth.
I think one of the next big advances for distributed ledger technologies will enable what I refer to as “human fractals.” The idea here is in contrast to disintermediation — taking out middlemen — the latter of which is one of the virtues of the blockchain. In some cases, though, we will need hypermediation, that is, more middlemen.
Allow me to quote from my soon-to-be published book, The Social Singularity.
To sketch hypermediation, imagine that technology enables a system of numerous checkers. Those checkers use their minds to do the checking on the activities of others, but they themselves are checked in a kind of fractal. Each checker builds and guards a reputation so as to be considered and rewarded for future work as a checker. It’s not disintermediation, but rather virtuous recursion with associated good incentives. There is no perfect human fractal, but it would still be virtuous when compared against the status quo ante.
Such is not to argue that the original blockchain, with its logic fixed at the level of the network, isn’t profoundly useful for a host of use cases. Rather, there will be circumstances in which people will want to self-organize in ways that take into account their particular strengths, aptitudes, perspectives and context. As I write, blockchain-inspired alternatives are being developed along these lines. There will be distributed ledgers for identity, reputation, and improved trust networks. And sometimes hypermediation will be required.
If human fractals work, they are likely to make decentralization even more potent, not less.
Now, I think DISCs developers will have to avail themselves of both hypermediation technologies and disintermediation technologies. I could be wrong, as I am no technical expert. But DISCs will probably need to involve human “checkers” to work, at least at the outset. After all, communities are formed by people who check up on each other, and check to see whether we’re doing the right things.
DISCs: Going Deeper
The DISC framework differs considerably from a UBI in that it’s designed primarily as a system of mutual aid instead of a system of redistribution. This is important, because DISCs:
- Are emergency measures, as in a form of insurance that kicks in when needed, reducing perverse incentives;
- Are decentralized, so that they can’t be used as a massive lever of central power;
- Don’t require politics, so they can be voluntary and self-organizing;
- Are affordable, because they target isolated needs;
- Are supportive of community, because they operate embedded in human fractals and reputation systems;
- Can be relativized to various regional and individual economic circumstances;
- Can be built in tandem with DACs and DAOs, or so that people can get income support between gigs, say, in the fluid blockchain labor marketplaces of the future;
- Can be configured a mutual-aid system in which the community surrounding a person validates the need and stakes reputation capital on such validation;
- Use reputation as a currency of trust;
- Scale with displacement and poverty without being monolithic.
While we are only at the genesis of the decentralization and polycentrism revolutions, the world is moving away from monolithic social systems. Instead of thinking about how we can outsource our sense of responsibility for each other to distant capitals, let us think about how we can create and join systems that, eventually, allow us to become the social safety net.
Real People, Real Circumstances
One of the major problems with traditional welfare and central systems of government largesse is that they don’t generally take into account particular circumstances of time and place. Support is dispensed via a central bureaucracy according to certain bureaucratic rules and processes. But this removes the vital element of community, and in some cases destroys community. Who knows you? What is your reputation? How can you improve it? Do you have skin in the game, however limited? These are questions that appear nowhere in public assistance schemes or UBIs, but will be vital to DISCS.
DISCs, therefore, would have peer pools and peer juries.
These mechanisms mean that people can join communities of contributors, but each member of the community is accountable to every other member. That you’re accountable to the other members means you always have incentives to do what’s right so as to keep your membership privileges intact so as to enjoy future potential benefits of the DISC. I am fond of social theorist Marshall McLuhan’s saying “We shape our tools, and then our tools shape us.” Elsewhere I add: “We shape our rules, and then our rules shape us.” This is no truer than in the social support systems we create, which can help us to rediscover a sense of responsibility to others (or lose it).
Peer Pools and Peer Juries
Peer pools are the internal mechanism of DISCs’ mutual aid support systems. These collect dues on a periodic basis as a condition of membership, although the dues might be as low as pennies a month. People can be members of multiple DISC cooperatives, which means you might be a member of a pool associated with healthcare, and another pool associated with unemployment. In any case, every member contributes based on his or her ability to contribute. I realize this sounds vaguely Marxist, which is fine. I prefer to think of it as a form of distributed social insurance that includes some members who are more likely to be net contributors, and some members who are more likely to be net beneficiaries. (I assume enough high-income people will become members, as we’ll discuss. In this way, pools are neither purely transactional nor purely charitable, but rather a hybrid.)
Peer juries will be responsible for making determinations about the validity of claims to peer pools. Perhaps each member of a DISC will have, say, a mix of members she knows and others she doesn’t know to serve as her peer jury. DISCs can experiment with ways to make juries fairer and more game-proof, but the idea is to use reputation as a strong incentive to get things right — both with respect to disbursement of support, as well as strong incentives to apply for pool benefits based on genuine need. Aligning the incentives in such a way that balances the needs of members against the health of the DISC will be critical to the success of these entities. And peer juries serve a vital feedback function that UBIs don’t, as the latter treats the entire population as a black box into which largess must flow. We can imagine all manner of governance functions within peer juries, including localized liquid democracies. (Hat tip to Justin Goro on this potential feature).
Can DISCs be tokenized? They almost certainly can and should be. We can imagine a utility token in which people are invited to participate initially, but instead of the expectation of some return, membership fees in the DISC are discounted in exchange for their advanced contribution. We can also imagine larger token holders having the option for a more robust presence on peer juries, or a stake in establishing early terms and conditions as charter members.
We can imagine DACs, DAOs, high net worth individuals, or legacy firms contributing large sponsorships in exchange for marketing visibility or naming rights. We can even imagine tokens being used not just for initial capital raises, but also for “programmable incentives” inside the DISC, for example, as incentives for good health, loyalty rewards, or any other reward system that contributes to the overall health of the DISC — including bonuses for attracting new members.
(Variations on tokenized UBI alternatives can be found in the work of Jason Potts, for example, who proposes counterparty contracts instead of government social insurance pools.)
DISCs need not always and in every case distribute money with no expectation of return. Some DISCs could contrive systems of micro-loans and other access to capital for helping members build small businesses, for example. In these hybrid DISCs, people will be required to pay loans back at certain intervals, and their reputation in the DISC will be affected if they fail to meet their obligations. In this way, jury members might decide to be more or less rigid with respect to the criteria, and the sweet spot among DISCs can be discovered as DISCs compete in the mutual aid fitness landscape.
Dividends and Surpluses
Pools of resources have the potential to grow if properly stewarded, which means DISCs can create differential rates of dividends to members of the community based on different criteria. This potential feature, similar to a UBI, might be worth trying — particularly if it helps align the incentives of all the members in service of a DISC’s mission. And mature DISCs with lots of members may discover that membership dues are reduced thanks to surpluses being stewarded in a fashion similar to mutual funds. (I admit I am less sanguine about this aspect in the U.S. given the tendency of regulators to define everything under the sun as a security. And dividends would certainly push things in that direction.) With all the above caveats, the most interesting model might be that “dividends” or surpluses would accrue in an emergency fund that protected members in the event of some protracted economic recession, such as that between 2008 and 2013. Or surpluses might enable DISCs to attract more high-risk, low-contribution individuals.
Diversity and Experimentation
What’s so interesting about DISCs is that they will be diverse and experimental. No DISC is a single, monolithic scheme unless one happens to find the absolute best rule structure and health measures, which draws in more and more members. This evolutionary aspect to DISCs means that they will constantly evolve relative to changing circumstances and new information. Such cannot be said of a UBI, of course, because a UBI is generally thought of as a product of statute, not really of innovation. Unlike a standard UBI, DISCs will take on different forms and evolve like genomes, particularly as DISCs offer a right of exit, which means threat of member defection is a built-in accountability mechanism.
Some of my favorite directions for experimenting include Mark Frazier’s land grant dividends, in which rising land values in special economic zones (SEZs) could create surpluses. These surpluses could go into regional DISCS associated with an SEZ. Such might limit the reach of a DISC, but the trade off could be acceptable when one considers that people sometimes like cluster based on proximity. The point here is not perfection, but experimentation.
Gaming DISCs and Races to the Bottom
We should accept any cautionary notes about potential problems that might crop up in some DISCS, particularly as they’re getting started and they’re in early experimentation phases. There might even be a pretty sizable die-off of poorly conceived or executed DISCs. Why?
There will be participants who try to game DISCs by hacking, creating rules, loopholes, or coalitions that allow members to take advantage of other members. As this part of the evolutionary of DISCs plays out, we are likely to see what many perceive to be a “race to the bottom” as stronger, more solvent DISCs emerge in the fitness landscape.
As with ICOs and cryptocurrencies, this macro process is likely to play out here too. But when the dust settles and the vulnerable DISCs die off, strong, secure DISCs will emerge to attract new members. However, it will behoove any DISC designer to construct criteria and/or secure templates that start with fidelity to mission and a view to the benefit of all members, even if certain members end up volunteering to be net contributors to the DISC.
Scaling Laws and Wealth
A lot of people think that wealth inequality is a problem. Some argue that inequality would be mitigated if certain institutions — private and corporate — didn’t create a rigged game that benefits those at the top. Others think that however one arrives at the inequality, it is inherently bad. For this discussion, I want to put aside those debates and think of inequality as a given. One thing we do know is that natural systems organize according to scaling laws, which reveal a “few large, many small” phenomenon, referred to as “vascularization.”
For example, physicist Adrian Bejan has formulated the constructal law to show this in trees, river systems, circulatory systems, animal forms, and the design of highways and roads. Here’s a summary from Quartz:
Recently [Bejan] published a paper in the Journal of Applied Physics, arguing that wealth inequality is inevitable because of, and can even be predicted by, constructal law. That’s because the distribution of all things — across the social, political, and economic worlds — is determined by vascular patterns, like those of tree branches or river tributaries, Bejan says. They fork and morph to create new streams, naturally. And, naturally, these branches and tributaries are unequal.
Bejan illustrates that hierarchy is unavoidable using Horton’s law of stream numbers, which says that three to five tributaries emerge over the lifetime of a mother stream. As the mother streams calve and then the next generation of tributaries in turn calves again, uniformity disappears. When Horton’s law’s multiplier is applied to the movement of wealth in a society, Bejan says, even modest complexity — five families in a tiny village, for example — leads to a non-uniform distribution of wealth.
In other words, differential contributions of labor, risk, or capital will result in differential wealth outcomes, which in every case creates some measure of inequality. Therefore, any system we contrive will be concerned either with reducing poverty or closing the wealth gap through coercive redistribution.
With DISCs one is concerned with reducing poverty and assumes some inequality is not only a natural feature of economic life, but is integral to any complex system in which economic flows are involved. There are lots of reasons to prefer poverty alleviation to coercive distribution, but I have tried to restrict mine to the pragmatic. In short, we need each other to create value, so that whatever system we contrive should respect the generative aspects of the wider economic ecosystem on which it will depend.
I suspect that in order for DISCs to work well, they will have to mirror the scaling-law vascularization of the wider society. In other words, DISC designs should be prepared to have members with differential contributions and differential relative benefits. High net worth individuals, for example, might be aware that their participation in a DISC is mostly charitable, and indeed it might be possible to structure DISCs so that people can contribute dues/fees with no expectation of future benefit.
You might be wondering: Why in the world would rich people be members of DISCs? What incentives to they have to participate if they have little expectation of ever using benefits? To that I would respond:
- Why do wealthy donors give to charity?
- Why do wealthy congregants in churches tithe?
- Why do wealthy people build research centers at universities?
- Why do wealthy companies sponsor things?
- Why do wealthy patrons support arts and letters?
- Why do wealthy magnates like Warren Buffett support higher taxes on the wealthy if they wouldn’t support powerful mutual aid organizations like DISCs?
Wealthy people are generally also in a good position to have greater stewardship privileges than the rest of us, which is to say they might have more powerful voting privileges in exchange for their proportionally greater contribution. Such might function as trustee boards for non profits.
If your response is to any such DISC proposal is “We simply can’t count on rich people to support others,” then you’ll likely return to the project of trying to figure out how to make a UBI viable. And that’s fine. In the meantime, the rest of us will be getting on with the business of criticism through creation.
The Robot Apocalypse
Much of justification in agitating for a UBI comes from a desire to avoid massive displacement caused by AI and automation. I am less concerned about such predictions than others (at least in terms of time). Or better, I should say I agree that AI and automation will eventually replace humans in a number of roles, but the point at which AI can do everything better than human brains is the point at which we will have interfaced with AI much more readily — merging with them, essentially.
I am also optimistic about improvements in human performance and collective intelligence, not to mention that prior to any robot apocalypse, labor and capital will have migrated to new industries for which AI is unsuited. We will become as human hiveminds. But that is an argument for another day.
For our purposes, there is no apparent reason to think that DISCs can’t be an adequate social insurance mechanism for any future job displacement due to AI and automation — and it won’t require political sausage making to implement.
The Hard Work
The hard work on DISCs needs to be done by people who are a lot smarter than I. For example, it will be important to model different distributions of members so that any given DISC is healthy and financially sustainable. (I’m looking at you economists, actuaries, and developers.) It will be important to figure out DISCs internal governance structures beyond peer juries, for example, where the “human fractal” of disbursement is designed to track genuine need, to exclude freeloaders, and to protect the health of the overall safety net.
My sketch is most certainly not perfect. My goal here is to set imaginations alight. We needn’t default to monolithic social schemes like UBIs, which require insuperable political obstacles and questionable centralized implementation. Let’s figure out how to take care of each other, to align the incentives so that people are eager to join, and to ensure that these systems grow sustainably so that they include as many human beings as possible.
Note: If you’re interested in working on the development of the first DISC in any capacity, please feel free reach out below.
Update: Here’s a solidity developer’s first approximation or MVP.
Update June 3, 2018: Due to the overwhelming response, we have set about developing the DISC framework as an open source technology.