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oliver beige @oliverbeige
, 14 tweets, 3 min read Read on Twitter
To assess the relevance of blockchain to economics, it might be useful to sidestep the politically charged topics for the moment, to postpone judgment on the feasibility of any currently proposed solutions, and to focus entirely on the problem it tries to tackle.
We can, if we want, divide the "machine age" into five phases that align with the automation of particular enterprise functions: production, administration, supply, demand. The function that is still largely resisting automation is governance.
This might be somewhat counterintuitive since accounting, a major component of enterprise governance, was one of the earliest adopters of mainframe computing. But the role of automation in accounting is largely restricted to administration, the inward-looking part.
The outward-looking part of the enterprise, largely the right side of the balance sheet where the enterprise has to demonstrate good custodianship of the assets it holds and employs on behalf of external claimants (liabilities & equity), requires both human judgment and control.
The reason why we are seeing automation happen in this order is largely due to the difficulty of the underlying tasks. Internal is easier to automate than external, goods are easier than services, quantities are easier than quality, maximizing profit is easier than human desires.
But each phase not only transforms the ground rules of the function it automates, it also triggers a fundamental shift in the adjacent functions, and in the objective of the enterprise itself. In turn it also puts pressure on these adjacent functions to automate.
The last two major phases of enterprise automation, business process automation (ca. 1970–2000) and business model automation (since 2000) were both enabled by technological shocks (enterprise computing & databases, internet & distributed/cloud computing)...
...but the formal groundwork had been laid before — at times even decades before. Business processes go all the way back to Kantorovich, business models go all the way back to Vickrey.
One could claim that governance automation goes all the way back to Coase, who framed enterprises as legal rather than economic entities, as contractual arrangements to bundle all collective activities which, if conducted on a spot market, would lead to comparative misallocation.
This is something of a counterpoint to Hayek's "marvel of the price system" (itself expressed as a counterpoint to the cybernetic proposition that all economic activity could optimally be located within a single firm). Under certain conditions, price acts as a check on planning.
The price system is a marvel, but it has its scope. And what exactly the scope of the enterprise vs the market is, has been the focus of the field of Industrial Organization (and its fraternal twin, Corporate Strategy).
The current shift from dominance of processes to models, from supply side (production and operations) to demand side scale economies (interaction and network effects) is largely the result of the shift from hardware to software, i.e. from physical to digital goods and services.
It is also the result of the increasing availability of preference ("likes") in addition choice (purchases) data which turned out to be a powerful prediction tool for those who can integrate these data into their value chain.
With business processes having reached maturity and models at the peak of their economic power, we now not only understand their benefits, we are also more and more confronted with their drawbacks, which feed into the impetus for creating blockchain-based governance mechanisms.
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