People think DAOs and NFT projects have failed as an approach for aligning incentives, coordinating human effort, and creating long-term value. Maybe they have. Or maybe they were too radical, too early, or we haven’t given them enough of a chance. It might be copium, but I like this Bill Gates quote: “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.” Technological change tends to be gradual, but can have far greater impact in the long run. So maybe “onchain organizations” and “digital objects” are just slow, but will end up being a way bigger deal than we imagined. Adoption won’t arrive all-at-once to the full vision of what is possible, but will be progressive, adapting both to technological change and human needs over time.
I recently read and enjoyed Kevin Kelly’s book What Technology Wants. Even though the book has largely inspired this post, I’d rather not adopt his definition of “technology” or use of the word “technium” (seems a bit fanciful / pretentious, no?). But I do want to talk about “technology” with a very broad definition. When I say “technology” I mean any sort of knowledge that, when applied, extends natural capabilities in some way. By this definition, language is a communications technology, as paper is a materials technology, as liberal democracy is a governance technology. Why lump these things together? Because each of them influences each other: they change what humans can do, and when humans do new things, they might create more new technologies, even in a totally different realm. These diverse technologies are a part of one overarching, human-enabling system.
[Note: I am neither a historian, nor the son of a historian. I read books, google stuff, and talk to AI. If I’m wrong about anything, please let me know!]
“The Firm” is one such human-enabling technology. It extends the abilities of humans to coordinate labor and resources around a goal. In some early forms of firm-like partnerships, such as the societas of Ancient Rome and Italian commendas, people simply wanted a way of combining money with labor, with assurances that their contracts would be honored. Those who provided capital wanted to invest without worrying that someone would just run off with their money, and those who did the work wanted to be sure they would get some extra benefit for a job well done. This was enabled by the governance-technologies that produced a relatively stable society that could agree on these structures, and reliably resolve contract disputes.
Firm-technology then had its big breakthrough thanks to the printing press. People always wanted to sail around the world, but it was impossible to finance unless you knew somebody SUPER rich, like Spanish royalty. But now, thanks to the printing press, people could spread the news far and wide about the Dutch East India Company, and any average joe with a few extra guilders lying around could invest and receive a printed share certificate. “Average Joe” could then have his economic fortunes tied to a huge, prestigious company, while his younger nephew could be paid to sail around the world furthering European imperialism. The joint-stock company was born, not just from the printing press, but from a confluence of technologies and trends. In the same way, other well-known technological breakthroughs played a role in further evolutions of “the firm”: steam engine technology led to the industrial corporation, the telegraph enabled the multinational corporation, and the personal computer provided fertile ground for startup culture.
In 1937, Ronald Coase published an essay entitled “The Nature of the Firm” where he argues that firms are formed to deal with transaction costs. Instead of negotiating agreements for every product or piece of work someone needs done, the firm allows owners to create long-term contracts with a group of employees, thereby enabling periods of low-friction: where the employees do good work, and not many people get fired or quit. Employees agree to give the output of their labors in exchange for payment, and the firm uses these combined labors to generate a profit. Negotiating payment with outside freelancers would necessitate high transaction costs: you have to find a good person, pay the market rate, and ensure the work is fulfilled. For many businesses this friction is too high, and paying salaried workers makes the most sense.
Then came the internet. The internet has some pretty big superpowers, like lowering transaction costs. Even pre-blockchain, this has already led to some firms using more collaborative business models. Instead of relying on employees to create goods and services, you are seeing multi-sided marketplaces, or platform based businesses, that rely on outside collaborators coming in to help the business provide what is being sold. Some simply provide a place for other buyers and sellers to transact, and the “contract” is built into the structure of the platform: “we will let you transact here, as long as you provide us a fee.” The internet is removing the transaction costs of all sorts of similar “short-term contracts,” since the agreements are built-in, enabling business models that would not have been possible without the internet. Some examples: Amazon, Uber, Yelp, Youtube, Airbnb, Facebook.
But popular sentiment around these companies has been pretty negative at times. Uber drivers, Youtube creators, and social media creators have helped build each platform, but don’t receive any of the same benefits that salaried employees receive, like stock-based compensation or a benefits package. And it would be very difficult for the company to provide this. It plays out like this: a firm-enabling technology leads to new behaviors that people want, but which now butts up against other desires. People wanted easier rides, but now drivers want more from the rideshare companies. The stage is set for new technologies to come along and help, for this and many other issues these businesses are facing. People want to have incentive alignment with the platforms they use, especially when using it to make a living. Individuals are collaborating with these firms to do work, and people want to be in win-win scenarios with their collaborators.
Sure, a part of DAOs and NFTs were about speculation, but a lot of the excitement was a response to the real human desire to work on something you care about with a group of aligned individuals. Whether participating as customers, superfans, and employees, people want to be a part of something fun that can be significant, or something meaningful that can have an impact, sharing aligned incentives with the project.
So far the internet has, at the very least, allowed workers to benefit from the options available to them: those who want to feel like their jobs are stable and predictable can pursue the typical employment route, others can use gig work to easily earn income on their own schedule. And some have used online platforms to become full-time entrepreneurs, but those are few and far between. Couldn’t there be more options available? Could fractional workers, working on several early-stage projects, get small stable stipends for their work, while also getting some form of financial benefit from the firm’s success? Could small transactional forms of work (gig work, bounties, freelancing) be able to progress into something more regular and meaningful, working for the same organization?
So far, we have seen the lowered transaction costs of the internet providing a lot more benefit to the firms themselves, and the owners in control of them. Are there ways that decreased transaction costs, leading to more firm-outsourcing, can actually put more power in the hands of labor, instead of capital? So far, labor has followed capital (I work for the places that will pay me), but what if the direction was reversed, at least for some small group of workers? What if capital starts chasing down labor (searching for the people, communities, and small teams doing great work)? We have seen how open source software developers, just for fun, gradually created Linux, which is everywhere. We have seen how volunteer writers and maintainers have created the amazing online resource that is Wikipedia. What more could a group of people do, motivated by a vision? The more that people are given the tools to organize and create value themselves, the less the startup landscape will be dominated by venture capital.
In upcoming posts I will expand on two ways blockchains might change the nature of work and “the firm”:
protocol-centric business models
open-source for-profit structures
The nature of work is changing because the nature of the firm is changing, becoming increasingly flexible, dynamic, and collaborative. People are slow to change, and there will be industries where tried and true business models will persist for decades. But we will see bright spots of what is to come. Let’s keep our eyes open, and keep trying stuff.
