Chapter 5: Potential Solutions?

What could solve the misalignment problem between individuals' economic interest and the public interest? How do we create feedback loops for negative externalities and public goods? Let's take a look at a few potential approaches and see if any of them, or maybe a combination of them, can get us the desired results.

We can start with the market itself. We know it is the most powerful coordination mechanism on the planet. Is there any way to tinker with the market, or the exchange mechanism, to capture the value of public goods? What would that look like?

We can take a look at areas where there was at least partial success in capturing the value of public goods and try to build on those. To do that we can go all the way back to the origin of money.

The introduction of money allowed the formation of a new coordination structure: the company. Companies enabled a group of individuals to pull resources together and act for a common commercial purpose.

Such coordination was hard to achieve before the widespread use of money, when value was mostly exchanged between individuals. It’s not that people never exchanged anything in groups before the use of money. In fact, it was common practice for different tribes to come together and exchange goods. Yet, such inter-tribal exchanges did not — and could not — result in the formation of more complex production processes. They merely satisfied the basic needs of the tribes and helped foster more peaceful relations between them. The prevalent exchange mode in the pre-monetary economy was still peer-to-peer. With the introduction of money we could exchange value between a company or business and its customers — a business-to-customer transaction.

Companies were more than a group of independent individuals working together. Workers understood that resources used by anyone in the company for a commercial purpose benefited the collective.

If workers of the engineering team needed new equipment to do their jobs, or if the janitorial staff needed new cleaning supplies, the individual workers didn't have to buy the resources themselves. Since everyone in the company benefited from the efforts of each worker, such an approach would make little sense. Instead, the money had to come from the company's common treasury. So now it became possible to exchange value not just between a company and its customers but also between an individual or business and the company — a business-to-business (B2B) transaction.

Of course acquiring products for a business had to be done judiciously. If any worker or team could purchase anything they wanted with money from the common treasury the company would quickly go broke. The company had to figure out how much the goods they purchased contributed to its commercial performance; they had to figure out the impact of products on the bottom line.

Such a process could extend beyond scarce goods in the market. It wasn't just about equipment or supplies. If the company could pay for workers to acquire the skills they need to improve their performance they could also do so. Similarly, if there was a way to boost productivity by providing better lighting or upgrading the internet service for example, would the company not consider paying for such a common good?

On the other hand, if the job done by some workers resulted in negative externalities affecting other workers, the company would want to address these quickly, since it hurts profitability.

And so we see that common goods and negative externalities can have feedback loops, at least within the framework of a company. We also see that a common good could have an exchange value when workers in the company have aligned interests. In this case their interests are aligned because they all make money when the company succeeds.

Workers in one department don't mind that those in other departments get resources from the common treasury, as long as they know that the process is fair and meant to benefit the bottom line.

This is where measurement becomes important. The better company management can measure the relative impact of money going toward various resources the more trust workers would have that the process is objective and transparent.

But what if workers see that others get rewards that don't correspond to their contribution? What if the distribution of resources is not transparent enough? Then workers may suspect that the company's interests are misaligned with theirs. Maybe they would then be less motivated in their job, or even want to quit altogether. Management could still remedy this situation by being more transparent in its decisions and resource distribution.

This doesn't mean of course that companies always distribute resources well or lack internal strife. Not at all. Obviously lots of businesses fail. The point however is that a company's effectiveness in resource distribution is reflected in its performance. And the company's performance is the ultimate feedback loop.

If you can have an exchange of value between an individual and a business, why not apply the same logic at a greater scale? Why not have an exchange of value between an individual and the community or the ecosystem? Perhaps we can then capture the value of public goods by a new organization structure that comprises such an ecosystem, and have contributor-to-ecosystem transactions.

Now you may say, don’t we already have a structure like that? Isn’t it called government? Not quite. It’s true that government funds public infrastructure and other common and public goods, and deals with negative externalities. But we’ve already discussed at length its many flaws and limitations. We know that it cannot effectively deal with negative externalities. As institutions lose public trust, government only becomes weaker on that front. Government is also generally ineffective and inefficient in funding public goods. It is ineffective because it barely funds a small part of the public goods that can benefit society. It is inefficient because it is wasteful even for those goods it funds.

To put it bluntly, if government could have solved even a fraction of the problems we’re dealing with, we wouldn't be facing so many crises and wouldn't be on a path to dystopia. Government is not capable of producing the level of coordination we need. It cannot align individual and public interests. That is why we need an alternative structure to put us on a path toward abundance.

So how would this ecosystem structure work? The rationale here is that once a public good is created it is an abundant good that anyone in the community or ecosystem can access and use freely. Since the ecosystem benefits from public goods, it would want to adequately compensate contributors for their work. It would also want to incentivize others to produce public goods for its benefit. If the impact of the public good on the ecosystem can be quantified, it would be possible to determine an exchange value for an abundant good. That still depends on our ability to align the interests of people throughout the ecosystem.

Before we get too excited about having an exchange value for public goods though, we need to analyze if such an approach would actually work. It is one thing to conceptualize an exchange between contributors and an ecosystem, it’s an entirely different thing to actually make this a reality.

If we were to model an exchange of value between a contributor and the ecosystem on a business-to-business exchange of value, what would it look like? What are the functional components of such an exchange and how do we build them out for an ecosystem?

The first and most important element is the coordination structure of the ecosystem itself. Obviously without a defined structure no exchange for public goods is possible. The ecosystem structure likely needs a common treasury, and an internal mechanism that can make financial decisions. More importantly however, the ecosystem needs to have a common purpose that would align the interests of all members of the community.

Once we have the ecosystem structure, contributors need to be able to interact with it when they create public goods; there needs to be a point of sale for the exchange of public goods to take place.

Finally, to make the whole system functional we need methods to measure the impact of public goods on the ecosystem. Quantifying the impact of public goods allows everyone to evaluate whether the money paid for a public good corresponds to its impact. Without such methods, how would members of the community know whether they are overpaying for public goods? How would they know that there is no collusion between the contributors and those making funding decisions?

If we have a well-defined structure for the ecosystem where members have a common purpose, a point of sale interface for contributors, and measurement methods for impact, we can finally have an effective feedback loop for public goods.

We can most likely come up with a web-based point of sale interface. Maybe we can also develop methods to measure impact. The big question though is whether we can actually create the ecosystem coordination structure. How would it work? Who will make financial decisions? The devil is in the details.

Obviously participation in the ecosystem would have to be voluntary. Making people participate in an ecosystem against their will is not a good recipe to align people’s interests; the only alignment in such a compulsory ecosystem would be against the system itself.

What would motivate people to voluntarily participate in the ecosystem then? They would certainly have to derive a benefit from it. Perhaps the benefit is being in a community that produces and funds public goods at scale, as well as benefiting from the goods themselves.

The issue with the latter part however is that public goods are supposed to be accessible by anyone. It shouldn't matter if you participate in the ecosystem or not. But if that's the case then the only real benefit of participating in the ecosystem seems to be related to social status; members will be able to say that they're a part of a community that funds public goods. Such a perk however would not be enough to create an ecosystem at scale.

What's more, the funding for the public goods has to come from somewhere. If the funding is coming from the ecosystem's common treasury, who is providing the funds? In a company the money flows into the treasury from sales. What would be the equivalent mechanism for an ecosystem? Would such an ecosystem have to be some form of a conglomerate of various companies and private individuals? Would these individuals and companies then need to agree to have a common treasury for all their sales revenues?

If that is the case, how would a common treasury for joint revenues create alignment? It certainly may look like a good idea on the surface, but what happens if some companies are competitors? Will this not create misalignment within the system? Also, who decides on the distribution of funds? Majority rule? What if a company with just a few workers has significant revenue, while another company has lots of workers but little revenue? Or worse: what if it's losing money? If funding distribution is based on majority rule, would the majority from the second company not have an incentive to abuse the system to their own advantage? Would they not want a bigger share of the pie to themselves?

Maybe instead of members deciding on distribution of funding the funds would simply be distributed proportionately to the revenue of each individual and member-company. But then what is the benefit in sending the entire revenue to the common treasury, just to receive a fixed percentage of it back? In that case the companies could just pay a tax or membership dues to the ecosystem treasury and get the same result. At least we can then avoid the problem of distributing the entire revenue. Maybe then the treasury can be used exclusively for public goods. We’d still need to figure out the magnitude of the taxes or dues — or at least figure out who determines those.

Even if the treasury is only for public goods funding, you still have all sorts of complications with the system. Such an arrangement would produce member-companies that are merely loosely aligned. It would not produce the level of alignment that is analogous to what you see among workers within a company.

When a company funds a common good that increases the performance of one department, all departments benefit from the increased performance. They also all benefit from the likely increase in sales. On the other hand, if an ecosystem funds a common good that benefits one member-company, how do other members benefit? Unless the ecosystem acts as one massive company the result is not going to be the same. If others see no discernible benefit to themselves — or perhaps even see a disadvantage, since they’re funding the good — are they likely to keep giving money to the ecosystem’s treasury? Are they likely to stay aligned with the ecosystem for long? Probably not.

Remember that the purpose of this ecosystem is to create alignment between individuals' self-interest and the public interest. Such alignment has to be substantive. It’s not enough to claim there is alignment. This is not a marketing shtick. Without a meaningful alignment between people’s self-interest and the public interest the ecosystem will not be able to function — let alone thrive — in the long term. It will not be able to maintain effective feedback loops for public goods and externalities, since those require alignment. It will also not be able to defend itself from malicious attacks and may inevitably disintegrate.

Once we resolve the funding issue, we then need to solve the issue of what would attract people to the ecosystem in the first place. Right now all we have is members paying money to a common treasury with the only tangible benefit of being able to say that they're funding public goods. Meanwhile, others are getting the benefit from the goods and don't have to pay a dime — illustrating the classic free-rider problem.

Maybe it's not entirely accurate to say that the only benefit is what members can say. Since the ecosystem provides the funding, members also influence the kinds of public goods being created. If there is more demand for certain goods within the system there is more incentive to create those. People outside the ecosystem have no such influence since they're not providing any funding.

And so we can say that there is a trade-off between how much funding individuals and member-companies provide and what they get in return. If what they get in return, in terms of public goods and improved social status, is more than what they pay into the treasury they’d want to participate in the system. This is still a much weaker attractor than working in a well-aligned company, but we'll have to make do for now.

The question now turns to how decisions are made in the ecosystem. Unless members can trust that decisions are made fairly, they won't stay in the system for long. This is what everything hinges on.

Before we even think about how decisions should be made, we need to understand what decisions need to be made in the first place — what is the nature of these decisions. Remember that the purpose here is to allow an exchange of value between public goods contributors and the ecosystem. The nature of the decision then has to be about determining the economic impact of a public good on the ecosystem.

The goal should not be to offer the lowest price to public goods contributors. We already have a system that does that; since public goods have no exchange value in the market the lowest price is zero. The goal should therefore be to offer adequate compensation. This would then incentivize other contributors to create more public goods that benefit the ecosystem. If the ecosystem undervalues public goods there would be fewer contributors willing to contribute to it. On the other hand, if the ecosystem overvalues public goods, there would be fewer members willing to fund its treasury.

And so we can get a fair exchange value for any public good between contributors and an ecosystem. What should become evident here is that the fair value is not a subjective figure — it’s a reflection of a public good’s economic impact on the ecosystem, which can be objectively quantified. The ecosystem then needs to objectively quantify the impact of the public good, and then establish how much it would value the impact.

How then should decisions be made? We don't need to reinvent the wheel if effective governance mechanisms already exist. The question though is if such mechanisms promote alignment between the individuals’ interests and the greater good of the ecosystem. Let’s consider some existing options and see if they meet our needs.

If quantifying the impact of a public good is indeed an objective measure, then ideally we would want the decision maker (or makers) to be impartial as well. Maybe it can even be an Artificial Intelligence agent that measures the impact and decides on the funding.

We can consider the development of the AI agent system as a public good, since it's meant to benefit the whole system. This is an emergent property of the ecosystem. It motivates contributors to build systems and tools that can not only benefit members, but also benefit the system itself. Thus the ecosystem can continuously evolve and become more efficient over time.

Certainly we’re not there yet with AI agents being able to make complex economic calculations. Even if we were however, would we be able to trust in the AI agent’s determination? It’s not so much a question about the agent’s objectivity, but in the people who programmed and trained it. How were these people chosen for the task? What are their economic interests? What are the economic interests of those who selected them? When you’re making such determinations for an entire ecosystem it’s crucial to know such details.

After all, the goal is to be able to scale the ecosystem to the level of society. There could at some point be trillions of dollars on the line. How can we be certain the people designing the AI agent are aligned with the interests of the ecosystem and don’t have ulterior motives? If all members in the ecosystem cannot be certain that the decisions are made impartially — whether by an AI agent or otherwise — we’re not going to have alignment in the system.

Trust in the integrity of the process is absolutely paramount if we want people’s self-interest to align with the public interest in the ecosystem. If members cannot trust the process, the ecosystem will always have credibility issues. These issues will only be magnified as the ecosystem grows.

An AI agent capable of making objective measurements and decisions is certainly a worthwhile goal. Getting there is the issue. In order to get there we still need to figure out how people can make decisions along the way in alignment with the ecosystem.

How then should decisions be made in the ecosystem? One approach would be through direct democracy; every time a contributor submits a public good to be evaluated everyone can vote on it. There could be public discussion on the expected impact of the public good, followed by a vote on possible funding amounts.

Disregarding potential misalignment issues for the moment, the trouble with such an approach is that it doesn't scale. It may be workable for a small community with a few public goods created, but what happens when you have even a dozen — let alone a thousand — public goods created every day? How can people be reasonably expected to not only vote on such a quantity of proposals but to adequately estimate the impact of each? The bigger the ecosystem the less practical such an approach becomes. What would happen if the ecosystem has a billion people and a million proposals are created every day?

How many people are likely to have the time to review even a dozen proposals per day? Not too many. If regular community members don't have the time to vote, those who do are more likely to game the system to their own ends. If the funding amount at stake is big enough, you could even expect to see contributors gaming the system and paying some members to vote on their proposal. Since voter turnout would generally be low, paying some members could make a big difference.

Even without such shenanigans from corrupt contributors, there is another problem: how do we know if the votes are meaningful? Remember that the purpose is not merely to get people's preferences. It is not voting for voting's sake. The purpose is to measure the impact of the public goods. But if most members are not well-versed in a particular subject matter, how likely are they to estimate the impact correctly? They'd just be guessing. Why then would members have high confidence that funds are distributed properly? Remember that without trust in the system members are not going to stick around for long.

Even if members were knowledgeable on the subject matter, how do we know that they would vote for the most accurate estimate? What if the majority of voters has a personal interest to overvalue or undervalue a public good? Wouldn't we just have distribution of funds based on majority rule instead of impact? Of course if most members are both unfamiliar with the subject matter and prefer to promote their personal interests then you'd get even less reliable results.

But what alternative is there? Should members' votes be weighed based on their wealth instead? That would certainly produce less populist results, and more consistent with the economic interests of member-companies. But then the results would be a lot more plutocratic; the biggest member-companies would have the most say in the system. They would be able to take advantage of individuals and less wealthy member-companies. Such an approach would align decisions with the interests of those who have the most money and power, not with the interests of the ecosystem.

Ideally we would want those who contribute the most to the public interest to have the most influence, since their efforts are the most aligned with the interest of the ecosystem. But how do you achieve that? There doesn't seem to be a straightforward way to do that. Maybe this can be done if votes are weighted based on contribution to the ecosystem?

So direct voting on every proposal wouldn't work; it's impractical at scale, lacks rigor for impact measurement, and results in misalignment. Weighing votes based on wealth makes the vote more aligned with larger member-companies but also skews the results toward plutocracy. Weighing votes based on contribution has some promise but still doesn't solve the issues of scale and expertise.

At this point it doesn’t seem like we can tackle all the issues surrounding scalability, alignment and accuracy in one fell swoop. But maybe if we keep chipping away at the problem we’d eventually get to what we’re looking for; a mechanism that resolves all the issues above.

Let us then tackle what seems to be the easier issue to resolve: scalability. Instead of direct voting, we can have representative voting, delegated voting, or even randomized voting. How would each of these approaches work?

For representative voting, all members of the ecosystem can periodically vote on a certain number of representatives. The number of representatives can be adjusted based on changes in the number of members in the ecosystem. These representatives would then dedicate their time to voting on each public goods proposal. The ecosystem would need to allocate funding to sustain these representatives, since they cannot be expected to work for free.

Delegated voting would work in a similar manner. The main difference is that each delegate would have votes weighted by the number of community members who choose to delegate their vote to that person.

Either approach can help address the problem of time spent on each proposal. As it stands however, it still wouldn’t scale beyond responding to a few proposals per day. For that we would need a more robust approach.

Instead of reinventing the wheel, maybe we just use one of the many models we already have for a full-fledged representative democracy, with separation of powers, a constitution and so on.

In such a system the bureaucracy can take care of reviewing proposals and making funding recommendations for representatives. The bureaucracy can even have subject matter experts reviewing proposals, bringing a level of accuracy to their review. The representatives would then only need to briefly consider each proposal and vote on the funding. Representatives could also adjust the size of the bureaucracy, depending on the number of proposals received.

The bureaucratic approach can potentially solve the scalability issue, but it also greatly exacerbates mistrust in the system. How do you make sure that bureaucrats are doing a professional job? How are they selected? What oversight does the public have over this process? Can contributors game the system by bribing bureaucrats? These are issues as old as government itself. But at the end of the day, the more opaque and prone to abuse the bureaucratic process is, the less trust the community will have in it. And if the community cannot trust the process, you’re not going to have alignment between individuals and the ecosystem.

The other approach to scalability is randomized voting. The idea here is that instead of the entire community voting on each public goods proposal, a certain number of voters is randomly selected for each proposal. Since voters are selected at random, there is little potential for collusion between contributors and those reviewing the proposal. The number of voters could even vary by the expected impact of the proposal, so that each is reviewed by a sufficiently large voter pool.

Even though not every member votes on every proposal, the community may still trust the process if it is done fairly and transparently. Randomized voting then has the potential to solve the scalability issue, but there are still open questions remaining. How do we know voters are truly chosen at random? What mechanism makes this selection and who designed it? How can community members verify that the system is not manipulated in any way? On top of these we still have the yet unresolved questions of expertise and alignment.

How can we address these concerns? Unfortunately, at the moment it doesn’t seem like we have good answers to any of these issues. We can perhaps have an ecosystem that scales, and randomized groups of voters can review proposals and make funding decisions, but how can we do it transparently? What would allow members to see that the process isn’t manipulated.

The randomized voting can even be weighted based on voters’ contribution to the ecosystem, which would strengthen alignment between voters and the ecosystem, but how would that ensure that the voters are knowledgeable in the subject matter? If they’re not evaluating impact accurately why would members trust in this process?

On top of all of that, there is still little to guarantee that members are truly aligned with the common interest of the ecosystem. The common purpose for all members is still mostly a slogan. It is not reflected in how the treasury is funded, nor is it clear why a public good that benefits some members is in fact beneficial to all.

And so, while this may have been a valiant and ambitious attempt to solve the alignment of individuals’ self-interest and the public interest through the market, the ecosystem structure we came up with still falls far short of our intended goal. If we cannot demonstrate why members in the ecosystem would trust the integrity of the process, we cannot claim that such a structure would even work.

If the market approach doesn’t work, what other options do we have? Mobilize activists from all over the world to protest our dystopian predicament? Even if millions of people protested and demanded change, what exactly would that achieve? If we don’t have a solution, who can bring about that change? Perhaps a better approach would simply be to raise awareness of the problem — maybe through a book or a documentary — with the hope that someone, somewhere, could find the solution.

What other options do we have? Maybe government action could stop our dystopian slide? We’ve already discussed the flaws of a government-based solution. Is it likely though that if government had more resources it could effectively address externalities and public goods? Maybe instead of creating individual–public interest alignment we could create effective feedback loops for public goods and externalities by empowering government.

The trouble here is that measuring the effects of externalities and public goods would require an incredible amount of labor and resources, and a massive growth in government bureaucracy. Yet, empowering government would not make it work more efficiently. It would certainly be able to do more, but efficiency is actually likely to decline. This means that the dynamics we previously described for institutions would apply here as well, but with greater intensity; social media would use every example of wastefulness — which undoubtedly will grow exponentially — to turn public opinion against the government and to discredit its efforts. Those who produce the most negative externalities will certainly do their best to turn public sentiment against the government’s efforts.

Since government relies on public legitimacy to do its work, it would either have to scale back its efforts or face backlash from the population. Either way such an approach is unlikely to establish effective feedback loops for either externalities or public goods — at least not for the long term.

If government funded action generates backlash, what if we rely on philanthropy instead? Then at least people won’t be able to say that their money is being wasted. Philanthropists may not have much authority over negative externalities but they could still fund efforts to measure their effect. They could then provide the data to government, which would act to curb externalities. Philanthropists could also measure the impact of public goods and fund the most promising projects. By funding the best work the process can incentivize contributors to do work that creates the most impact.

While the approach may incentivize contributors and somewhat limit externalities, it does not create feedback loops for sustainable funding. If public goods are better funded, does that provide economic benefit to the philanthropists? Likely not enough to keep and expand the funding. They would have to rely on either external funding sources or run their own commercial operations if they’re self-funded. But if there is no effective feedback loop between the funders and the public goods, the approach is not going to scale.

Moreover, just because philanthropists don’t use public funds doesn’t mean that they can escape public scrutiny. If philanthropists provide data to the government on negative externalities they would be immediately suspected of trying to influence public policy. It would raise questions on who is providing the funding and what are their motives. Is the money coming from companies trying to discredit their competitors?

The incentive on social media is always to raise suspicions and rumors — that’s an effective strategy to generate clicks and make money. Philanthropists are therefore already operating in a hostile environment, even if they’re just trying to do good. They’re also at a disadvantage because it’s nearly impossible to be transparent about funding. Even if they’re doing nothing wrong they cannot prove their integrity. The fact that motives are always suspect in an adversarial environment also doesn't work in their favor.

On top of it all, the philanthropic approach runs into the free-rider problem. People get to benefit from the public goods but don't have to contribute any funding to sustain the system that funds it.

All these add up to an approach that cannot generate the needed feedback loops to be self-sustaining, and despite the best of intentions has difficulty gaining public trust.

And so, it seems like we're quickly running out of options. The market solution cannot demonstrate its integrity and therefore cannot create individual–public interest alignment. Activism doesn't have a solution and at best can raise awareness of the problem. The government approach is inefficient and prone to public backlash. At the same time, the philanthropic alternative doesn't create effective feedback loops and is difficult to scale due to public suspicion.

The issue is not that we're letting the perfect be an enemy to the good here. It's that no approach so far comes close to being workable. Though the market approach seems to be the most promising, members cannot trust the ecosystem to work transparently. Without such trust member–ecosystem alignment breaks down, making the approach unfeasible.

If none of the established approaches works, what other options do we have? Before we completely lose hope, maybe we should consider some of the alternative strategies out there — particularly in the area of blockchain technology. To be clear though, just the thought that the blockchain may be the only thing standing between us and a dystopian future should already give us pause.