As a student (sometimes I feel like I the only one) of five centuries of The Company and it’s governance I am entirely bought in to the idea that the Company has gone off the rails. This is in large part cultural we live in a neoliberal world where “greed is good” and concern for the well-being of one’s fellow citizens is replaced by seeing them as potential consumers or assets to be strip-mined of their time and attention that you can resell at a profit.
In practice however an epidemic of Statist interference – under the rubric of Corporate Governance (invented en passant by the Nazi Party, another tale for another day) – leads to the Company being turned into a plaything for regulators – those new-fangled off-balance-sheet civil servants who make laws in an extra-parliamentary fashion (and this is no crazy talk check out for example a former Deputy Governor of the Bank of England talking about this very topic outlined in his book “Unelected Power”).
Statist Corporate Governanced Company is taking the Company’s design well off the rails – currently in the UK in the direction of, as the Red Hot Chilli Peppers called it “Californication” the latest example of which is ensuring that characteristics a baby had in the womb are prevalent when it comes to choosing Directors for listed Boards, but more generally turning the Company into a plaything of bureaucrats and well-meaning businessmen not one of whom ever created and listed a startup. Furthermore the non-use of antitrust laws (something to do with campaign contributions meaning that the merchants have bought much of the political process) is seeing increasing oligopolisation – to the benefit of vested interests but not that of citizens. Corporate wokism and shareholder-speak is a thin negligee to cover the stench of robber-baron-ism all over again.
Thus when I hear of alternative business structures my ears prick up and when a reader of this blog suggested I check out Ben Schecter’s a17 article on “The Future of Work is Not Corporate — It’s DAOs and Crypto Networks” it was an excellent pretext to look at an alt. Business structure and find out what DAOs are and whether they are the future or even a part of it.
Schecter’s Hypothesis – Rather Bold And Way OTT
This is all future-/change- hype-y as is the west coast way and in need not just of earthing but of a more than cursory inspection of Jacques Ellul’s seminal work in the 1950s where he showed that not just technology but more generally technique is at the root of most malaises whether it be farming (skeletons shorter showing weaker health than hunter-gathers), the industrial revolution (soot filled towns and sweatshops) or tech (Facebook ruining your kids mental health). No time for any of this and in the land of hype you gotta aim for the stars. Schecter says:
“In the future, it’s likely that the average person will not work for a company.”
Which is certainly bold. Are steel producers, car manufacturers, supermarkets – you name it – going to turn into DAOs rather than companies. No. Indeed some four-thousand plus words later he does end up deflating his own trial balloon.
The inconvenient truth is that there are more companies than ever – most “indies” need to be companies these days. Why? Well the major change in employment over the past quarter of a century whether in 25yrs eg in FS or the government is to sack people and then rehired them as consultants. However also to insist that these people have to have their own companies as otherwise BigCo will not trade. The global economy is heavily (esp. in tech) “oligopolised” and provides the vast bulk of the planet’s food, water, power, medicines, cars etc etc. These companies will not – and Schecter is not predicting this – go away esp as they get privileges from the State (eg tax breaks, complex tax rules which only they can take advantage of etc etc).
This move by Big/MegaCos was of course an arbitrage on workers rights – consultants get no paid holidays and any price premium to compensate that has been eroded let alone items such as IR35 which scuttle tax position of “indie” consultants.
So as to Schecter’s hypothesis “meh” – but lets take as a scenario and gloss over other such breathless technofuturisms as “people will earn income in non-traditional ways by [eg] learning new skills.” Almost impossible to envisage course providers paying people to come on their degree courses – indeed the clear trend is for ever-more expensive degrees and degree inflation such that one often hears “one degree is no longer enough”. But hey inconvenient truths never stop the factories of “this’ll fix it” churning out new Utopian solutions. Having first programmed a computer in the late ‘70s all I can see is that along with new functionalities – largely in the intersection of tech and comms – it has created a vast priesthood. Whatever alleged efficiency gains were going to save us all have been offset by the need for all companies to hire battalions of techies to administer to the needs of the machine. It’s a new religion – they will, they say, lead you to the promised land – just everyone’s journey seems to get harder and the only ones to get rich are the priests who gain ever more control over your life. Haven’t we heard this story before?
Let’s spell out Schecter’s premise of what will replace the Company with the following quote:
“This new future of work is enabled by the networks that form around crypto protocols, which are emerging as new ways of coordinating, measuring, and rewarding contributions to complex ecosystems. This shift is already beginning to unlock new earning potential for individuals, and it is leading toward a growing transfer of value capture from organizations to people participating as individuals in crypto networks.”
Schecter is operations lead at a crypto platform – so naturally when you have a hammer everything is a nail.
The traditional way to make money was “work-to-earn,” but the future of income is “x-to-earn” — play to earn, learn to earn, create to learn, and work to earn.”
Poorly drafted but the premise reduces to “you used to work in the past to earn money, I believe in the future you will play/work/learn/create to earn money”. Even then this is pretty weak – is being a Grandmaster at chess playing or working right now? Do artists and musicians not create to earn etc.
Anyway let us not worry about the uber-hype and his view of the future, let’s hope that he is more solid on what a DAO (Decentralized Autonomous Organization) is and what it’s pros/cons, strengths/weaknesses are compared to existing business models.
The (Alleged) Limits of Companies “As Coordination Mechanisms”
“Traditional corporate employment is rapidly becoming outdated as a means for coordinating activity in the Information Age — we already see this in the emergence of alternative forms of earning such as influencers, contractors, creators, gig economy participants, and more. These ways of earning don’t necessarily feel like “work,” but they are all examples of people participating as individual value providers in complex networks, and earning income for their contributions.”
I have no idea what insane definition of “work” that this chap has in mind but does her really think zero hours contracts, pizza delivery, uber-driving, consulting to MegaCo with no hols/health benefits etc do not feel more slavish than work within a BigCo was? Silicon Valleyism at it’s best – those little people aren’t working they are self-actualising when they deliver us pizzas and drive us around for less than a living wage. This last point I am pleased to say he recognises:
“However, these non-traditional opportunities are limited in number, and when available, often under-reward a contributor’s value. That’s because these jobs are still based in a web2 paradigm in which corporations continue to control the business model.”
“Web2” is absolutely not the reason! Employers whether of slaves in ancient Rome, peasants in medieval Europe, or within companies (and the many other types of legal structure – partnerships, charities, LLPs etc etc) have always been controlled to a greater or lesser extent by their morality and prevailing social mores and to a greater or lesser extent by their desire for profit/a well-funded lifestyle. That not web2 is the thing. If pizza companies wanted they could pay their delivery gig-ers ten times the current rate (and techies could tip the deliverer $100 – odd that they don’t almost like the reason is folks like maximising their own wealth not other people’s…).
By far the greatest change in work over the past 50yrs has been the replacement of the traditional paternalistic, lifetime employment model with a “Personnel” department – a word from the army where you need to look after your men as they may well save your life. This has been replaced by an American, neoliberal, transactional model where Personnel was rebranded as Human Resources – which change of vocabulary could not be more telling.
But we await with baited breath how alleged co-ordination failures are rendering the company increasingly redundant. Schecter states:
“Increasingly, traditional corporations have “orbital stakeholders,” or participants that blur the line between internal and external members of the organization.”
By “orbital stakeholders” it’s clear he means “consultants”. Nothing new there. He claims that “companies are having a difficult time aligning incentives with these stakeholders”. I am not sure your average MegaCo is interested in aligning incentives, rather from folks I know in the consultancy industry BigCos’ predominant concern is reducing cost, the amount they pay them. A point he goes on to acknowledge and his whole article so far collapses into a reference to someone else’s article:
“the company begins to extract value from these participants. This, according to Chris Dixon, is “Why Decentralization Matters”.”.
Finally we converge at a far simpler premise stripped of flowery futurism and snazzy vocabulary:
“The model of a company having strict boundaries between internal and external may have made sense in the Industrial Age, but in the Information Age, this model leads to misaligned incentives and unsustainable extraction. In our world of complex information and orbital stakeholders, companies are no longer suited to help us coordinate our activity.”
Ah so in the “Industrial Age” there were no “misaligned incentives” between mill owner and mill worker?
As per the introduction I am 110% on-board with the need to change the current way companies are structured and created (all by State legislation). So I have no problem whatsoever accepting there is a better way – indeed my forthcoming book on the history of the company is currently lacking a final chapter – what should come next? – hence my interest in alt. business structures.
Schecter is clear on his position:
“Crypto networks create better alignment between participants, and DAOs will be the coordination layer for this new world.”
Ah so just a “coordination layer” and not a company replacement at all? The Company – as anyone on a Board knows – fulfills way more functions than merely co-ordinating labour – that is simply the internal organogram.
Furthermore the above quote betrays a misunderstanding that remuneration has little to do with what tech platform you are using (much later in the article he recognises that tech actually creates problems of wealth concentration and DAOs may do too..) and everything to do with the supply and demand and where power lies.
If supply is vast, say mediocre guitarists or actors, then the price will be low and vice versa if you need a DiCaprio or a Clapton – this is independent of what platform or vehicle or technology you use to recruit or pay them.
On the demand side in an oligopolised world if you are say a small farmer producing milk and you need to sell to say a handful of possible supermarkets then the power lies with them – they set the price. Once again you could wrap supermarkets in a 16thC wrapper, the many forms of 19thC wrapper, a 20thC wrapper or a 21stC wrapper and the power dynamic would not change. And admonish me if you wish but I don’t believe that turning farmers into DAOs would change anything. Indeed it is not even clear that they could given the nature of a DAO (not that well explained in the article) which approximates in my understanding of this explanation to relate far more easily to internet projects – funny that.
DAOs As A New Coordination Layer
Notwithstanding all the above the DAO is something in and of itself no matter how poorly articles handle socio-economic questions. Thus let us examine the DAO not in relation to anything else or any premises. As explained by Schecter:
“DAOs will eventually replace the traditional model. A DAO is an internet-native organization with core functions that are automated by smart contracts, and with people who do the things that automation cannot (e.g., marketing, software development). In practice, not all DAOs are decentralized or autonomous, so it is best to think of DAOs as internet-based organizations that are collectively owned and controlled by its members.
Though it is still early in the evolution of DAOs, they are no longer just a hopeful concept. They are real organizations managing billions of dollars of capital, providing real products and services to millions of people, and creating new ways for people to earn an income.”
As my sarcasm-meter is running low I better not empty the tank by quoting a slide from a City lawyer’s presentation I attended (”smart contracts are neither smart nor contracts”…!)
Schecter links to an overview of the current DAO landscape (here if you are curious) and outlines the general differences between a “Traditional Org” (not no longer “A Company”) and a DAO – respectively:
1) Decision-making: centralized – collective
2) Ownership: permissioned – permissionless
3) Structure: hierarchical – flat/distributed
4) Information flows: private and gated – transparent and public
5) IP: closed-source – open-source
As to (1) I had many buddies back in hippy days working in co-operatives – eventually most of them moved on to a command and control approach as their internal decision making speed was so slow, a problem which increases exponentially with scale.
As to (2) ownership the comment makes no sense to me. Who owns the economic flows, pays the taxes and (if not limited liability) goes to jail if it can’t pay its bills?
As to 3-5 all fine, all very internetty even if even things like internet fora end up having to have moderators as your perfect commune will definitely be ruined by an invasion of hells angels, there’s always a gatekeeping role.
Schecter when needing heavy lifting refers to external articles. In this case:
“Cryptonetworks use multiple mechanisms to ensure that they stay neutral as they grow, preventing the bait-and-switch of centralized platforms. First, the contract between cryptonetworks and their participants is enforced in open source code. Second, they are kept in check through mechanisms for “voice” and “exit.” Participants are given voice through community governance, both “on chain” (via the protocol) and “off chain” (via the social structures around the protocol). Participants can exit either by leaving the network and selling their coins, or in the extreme case by forking the protocol.”
Which is relatively clear if glosses over the reasons for courts – contract law is A Big Thing inter alia as all circumstances cannot be envisaged and as all human interaction exists within a vast realm of laws and courts of the land. “Community governance” is not defined although one can assume its of a similar philosophy to bitcoin network decisions which have certainly created plenty of heat and a certain degree of hate. Turns out you can’t take the human being out of a tech network.
Economic naivety creeps in again Schecter assumes “competition” which as we saw does not exist in oligopolies and tech of all sectors shoots to oligopoly very very fast:
“The structure of a DAO is inherently open and accountable, a forcing function to share value with the participants who create it. Otherwise, other DAOs will out-compete them or their participants will leave for other opportunities.”
Economics in terms of what participants get out of this raises some questions about actual market practice:
“ownership returns (remember, the best DAOs are distributing ownership to their participants through their own native token)”
Bizarrely having led us this far:
“In the future, working for this group won’t be demonstrably different from working for a company — DAOs will still have core contributors whose interests are most directly aligned with the health of the organization.”
Oh. How disappointing after all this breathless techfuturism. Amazingly when we drill into the article the sole benefit Schecter mentions is governance:
“In the future, working for this group won’t be demonstrably different from working for a company — DAOs will still have core contributors whose interests are most directly aligned with the health of the organization. Because DAOs are more transparent than corporations and can be held accountable by a larger community, however, there is added pressure (think about the scrutiny public officials are under).”
Which once more betrays naivety. It seems very much like a co-operative whole food shop of the 70s where there are core workers and more part-time workers.
I am not sure whether the alt. tech platform Odysee is a DAO although it shows some of the characteristics – rewards are based on a crypto-currency LBRY and participants fall into categories that Schecter mentions work-to-earn (lets say video creators), contributors (say part-time employees of Odysee although I suspect they are paid in dollars, in principle they could be paid in LBRY (but would then obviously convert that into dollars to go to the supermarket)), participate-to-earn.
As to the odder categories he mentions Axie as a play-to-earn game involving pet NFTs (yet another uber-hyped attempt to turn bits into something of real value (I’ll stick with gold bullion myself)) and learn-to-earn which sounds something of a stretch – for sure education, as Thiel has been saying for decades, is super-ripe for disruption but I can’t imagine the model flipping so that you are paid to do a degree (which was in fact the old model when the “state” paid and effectively recouped the money via higher GNP/taxes).
Near the end Schecter ends with a tweeted meme portraying as a midwit anyone who feels that there are unsolved governance, resource allocation, compensation and compliance issues. Well I guess including a meme you found on twitter is far easier than constructing arguments allaying concerns.
In his summary Schecter ends by undermining his breathless lead-in prose and article title:
“It is unclear, in the long-term, how much income can be earned through these outlets. X-to-earn does not mean every single person will be able to make art and play video games for a living.”
This is a poor if archetypally hypey article about something trendy which wastes it’s firepower with breathless technohype about a radically different future and barely touches on how a DAO works let alone gives a full account of strengths, weaknesses and most importantly work-in-progress. I’ve made a note to read a better article on the DAO some day (any suggestions?) and perhaps one that uses a Case Study to render it more concrete than a list of “bound-to”/generally/maybe/possibly-s.
Human creativity is miraculous and experimentation is the only way to proceed (I won’t say “progress” after the c19 fiasco and reading this article I have a strange longing to go off-grid :-D).
Regardless of one article DAOs are an innovative use of crypto as an infrastructure organisational system. On Thiel Island if it manages to erect an electric fence around itself and keep out all non-island legal protocols one might well be able to design everything around them – it simply is not made clear enough in Schecter’s article – despite it stretching to over 4,000 words – to know whether one could.
Even on a zero-laws fantasy island though one needs some protocols around ownership. Governance whether of an island, a crypto, or a DAO is never the no-brainer that those who have not studied governance might assume. From one perspective the past two thousand years of England has been about how the land, its peoples and its businesses are governed – and this is a never-ending saga as we saw not least of all with Brexit. Governance struggles never-end as there are always some human beings trying to get the better of others, to impose their will on others – a phenomenon which not only does tech not solve it even exacerbates (look at how tech has created its own zillionaires with enough dough to fly themselves into space). This naturally applies to networks and Schecter indeed does mention (at the end):
“Measuring and rewarding all contributions to a network will lead to a more meritocratic allocation of resources. The flipside of meritocracy is a world in which DAOs actually increase the power laws that web2 economies have previously demonstrated. On Spotify, for instance, the top 1.4% of creators make 90% of royalties.“
Oops. Worse than companies? Gosh. In passing meritocracy is the wrong word here – it’s the same old American winner takes all society with the vast majority of participants earning next to nothing to fund the lifestyles of the astronomically rich and famous. Apart from the Stallman-esque open-source software brigade and adjacents mainstream tech is all about a flood-up society.
To the extent that DAOs qua organisational tool/system/platform in action rather than in article can create more trickle-down and less flood-up they will be a wonderful thing. One of the things that Odysee and DAOs do is enable users to be rewarded for their time and attention. As we know these are the things being harvested and then monetised by the likes of YouTube, Facebook, Twitter et al. Any mechanism that enables platform users to be rewarded for their time and attention is definitely A Good Thing.
But again there are plenty of cautions – my first startup back in the day had the great idea of distributing and sharing ownership. Wonderful but a surging share price meant that new graduates from a couple of years back owned more of the company than new VPs. There are banks in the City where the terms and conditions around share options schemes means that there is a whole raft of upper-middle management just sitting round doing not a lot waiting to cash out. Incentive schemes, like governance schemes are surprisingly hard to craft. A bit like code actually. You can spec what your program should do and even write a program that looks like it does, but bugs will emerge years later.
The Company – and the many other business vehicle variants – is, these days, primarily a legal vehicle for employment, transactions and taxation purposes. It can simply be a wrapper it is not a way of internal organisation – one can achieve all of Schecter’s claims for DAOs “uniqueness” within a company. Thus, pace I haven’t a clue what permissioned/permission-less ownership means:
1) Decision-making: centralized – collective
2) Ownership: permissioned – permissionless
3) Structure: hierarchical – flat/distributed
4) Information flows: private and gated – transparent and public
5) IP: closed-source – open-source
You can create a Company tomorrow where everyone is a Director with one share, the organogram is one-layer only, whose inside-workings are transparent to anyone who wishes to see them and that is entirely open-source, has no IP and where new and part-shares are created for folks that participate/engage to various degrees in various roles. Et voila.
There is no need to abolish The Company per se (and let’s not forget the importance of limited liability that means there is a legal veil between you and the consequences of your investment/job) one can simply organise it differently.
Having said that as I mentioned experimentation is good. Long live a thousand flowers blooming in terms of new ways of organising society not just “vertically” in terms of nations but “horizontally” in terms of groups of people increasingly from different countries. It is certainly possible than to do it with oligopolised, regulatory-protected, tax-advantaged, state governance-rule-driven organisations.
Watch this space I guess and one should not judge the DAO by one poor article. However for sure there are plenty of bumps along the way and bugs in the code before one can solve legal and governance issues which have been refined over five centuries.
As Top Gear used to say … “how hard can it be?”.
Let’s End With A Fascinating Gendanken…
Let’s do this on the fictitious and law-free Thiel Island and for simplicity let’s just have one DAO for everything – the State and the people are literally one and the same. Everyone is having a wonderful time participating in this. If Thiel island is a completely-contained ecosystem – that is, it grows its own food, has infinite mineral resources, power, water, makes silicon chips etc etc etc – then this all works fine as a closed system. The DAO crypto is in effect a local currency.
In practice however Thiel Island will need to import materials and that will require hard currency. Let’s say you are an exporter to that island and they offer to pay you in ThielCoins. What are they worth?
Well in the general case of loads of cryptos in the world it’s the usual crypto problem but in the gedanken case where Thiel Island has only one DAO (I know this is against the spirit but bear with me) one ends up with a fascinating conclusion – one is getting a share of an economy.
If being paid for ones time and attention is a far fairer exchange than having it stolen (and it is stolen – they design it to be addictive) then owning a share in an economy is a far better deal than just being a citizen.
Of course at that point one can introduce governance rules around borrowing and spending on the network – and that brings us back to State governance. However in terms of designing better systems one could presumably come up with a system where you have more control than voting in one bunch of incompetent thieves or the other every five years who borrow like crazy, spend like crazy and debase the currency.
Tuvalu has blockchained all its records maybe someone wants to head out there and see if the local politicians are up from some radical decentralised autonomous state organisation as well.
Failing that any sci-fi writers out there?