Scaling in the digital economy

Excerpted from Dizzynomics:

“The digital economy, like the financial industry, has been profoundly useful in encouraging smarter distribution and matching of other people’s specialisations vis-a-vis their wants and needs. When done well, this becomes a service that allows society to organise itself more efficiently, growing the pie for everyone. It — the service — even becomes a specialist activity in its own right.

This works great for as long as these specialists, whose core product is trust in themselves to better distribute product, don’t demand excessive returns, don’t abuse the trust and society as a whole doesn’t grow too dependent at the cost of its own knowledge, capacity or expertise.

Sadly, in both the digital and financial industry the temptation to abuse this trust can be significant. In some cases, just as per the real economy, powerful monopolies can emerge squeezing the fruits of other people’s specialisation beyond their entitlement. It’s arguably more malicious in finance and information technology, because their returns are based on allocating other people’s goods and services not even their own. Consequently, if and when there’s a major breach of trust, the implications for the real economy can be significant.

Critically, trade related scaling is impacted because vendors/producers have to once again supervise distribution directly, almost on a back to barter basis. But that’s not sustainable for a world economy which has structured itself to take advantage of scaled up services.

It is these circumstances that understandably lead us to the search for a new type of digital or financial organisation, one that doesn’t need to be trusted at all. The thinking is that if you can turn finance or information technology into a mechanism by which people’s wants and needs can be matched with those of other specialists at their own prerogative, there is no scope for abuse. You will remain in control whilst drawing benefits from information-based distribution mechanisms provided and developed by someone else.
But as I pointed out in this post, this may be a dangerous fallacy.

For a so-called P2P system to effectively reduce our dependency on a central agent or institution it must instead increase our dependency on bilateral trust relationships at the cost of our own labour and expertise. This is why these systems can’t scale!

And because unscaling or zero-scale structures simply can’t support our modern system, P2P systems don’t tend to stay P2P systems very long. They quietly evolve instead into centralised or pejorative structures.

That they have to do this is no sin of course. It’s inevitable. What is a sin is their insistence to the common man that they are somehow different to the trust/centralised systems that have come before them.

In fact, that’s the most dangerous thing about the current P2P platform fad. By presenting itself as “trustless”, it encourages the common man to take his eye off the trust abuse ball. That’s not good for society because it’s far easier to abuse someone’s trust if they didn’t even know they’re having to trust you.

In any case, what you need to know is that as time moves on, the rules that govern scaling in the real world end up governing these “P2P” systems as well. Small eBay vendors are pushed out by professionals. Amateur property landlords or hospitality agents lose business to professional landlords or hospitality agents on AirBnb. And in companies like Uber, the lowest cost service providers survive at the expense of the higher cost agents — mostly those who are prepared to go into debt to the same extent or diminish their quality of life.

Amateurs using these platform either get taken advantage of by more adept professional parties or end up trusting third parties to make decisions on their part without even knowing it.

Before you know it these platforms moat up, the winning agents become entrenched vested interests, and we arrive back at exactly the same model we had before.”

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