Centralised VS decentralised validation
Centralised validation of someone’s ‘worthiness’ is a process driven by necessity rather than a process of optimization. Fortunately, with all the democratization and decentralization happening around the world, we are seeing the process shifting away from a necessary process toward optimizing it.
During the era of an industrial revolution in the 19th century, our society faced a rapid increase in productivity which led to an increase in living standard. This was enabled by an advancement of science and engineering applied to our industries, making basic necessities such as food and clothing cheaper and more widely available.
As a result, the industries started demanding workers and could pay them a higher wage than they could make from farming. This initiated the governments to institute a formal educational system that could train, largely uneducated, a population so the society could continue to grow and bring more people above the poverty line. Institutions such as Universities played an important role in providing the society with an independent yet centralised and standardised process to validate someone so that industries could deploy those people in an efficient manner. Such a centralised system was also applied to other industries such as finance where a central institution (bank, FICO score…etc) came out with one standard rule to determine an individual’s creditworthiness. We can see similar standardisation in almost all industries; media has their broadcasting standard, trade has their regulatory commissions…etc.
This worked well in a sense that a large number of population was able to fit into the designed system of the new economic and societal system. As a result, as you can see from Figure 1, we saw a massive number of people being saved from extreme poverty. But time has changed and this centralised and standardised process of validating someone need an upgrade in order for our society to make another leapfrog from here onward. More specifically, we need to graduate from a system that is designed to save the mass by applying a single rule to accomodating diversity which will lead to a richer society.
Diversity and quality are enriching our society, not volume
If you are reading this it is highly likely that you don’t live in a poverty. You might not be living in a mansion but the fact is that you are not facing an existential threat from famine or cold weather. That means that your basic necessities are more or less satisfied and any increase in the supply of goods related to that satisfaction will only yield a marginal benefit. For instance, if someone was to offer you another T-shirt that is same as the one in your drawer, you would probably not be that excited. However, if the T-shirt has an autograph from your favourite idol, it would be a different story. The same T-shirt will now yield a much higher marginal benefit to you.
The analogy here is that the centralised system that we have been applying to our society is like offering everyone more of the same T-shirt whereas the decentralisation and democratization are equivalent to offering everyone the T-shirt with an autograph. The reason this would increase the pie for our society is simple; because more people’s need is met closer to their maximum utility. This can be easily depicted by the price discrimination graph that we learned in ECON101 class. As illustrated in Figure 2 below, by introducing Midas and Hermes, we increase the size of the captured area and reduce the triangle area which is essentially lost utility.
This is not new to our society and we all knew this was superior to the centralised application of our institutions but there was a real headwind from execution and application of this because it meant creating an impossible amount of manual work. The headwind, however, is now being challenged by technology and we are already seeing it being disrupted in any part of our institutions.
The old way got stretched too far
As much as the conventional way of centralisation and standardisation benefited us in uprooting poverty, it went too far and, arguably, is at a point where it is failing to harmonise with technical and social developments that it is inhibiting our society from reaching its full potential.
For instance, can you believe a major league baseball player was denied a credit card application in the US because he had no FICO score and zero histories of paying tax or receiving an employment income in the US? This is a true story that happened to Hyun-Jin Ryu (now at Toronto Blue Jays) when he moved to the states from Korea to play for the L.A. Dodgers. This is a great example where a bureaucracy along with standard rule applied by a centralised institution is failing our society. We can see other examples as well where there are Instagram influencers, who can draw the attention of tens of thousands of people, are having trouble receiving a business credit card because the number of followers on YouTube isn’t a criterion on the FICO score (this is being addressed by companies such as Karat).
The joke I make is that such standard rules administered by centralised and bureaucratic institutions are like drawing the next NBA players solely based on their parent’s credentials. In such case, LeBron James would never have made it to the NBA and instead Michael Jordan’s son would get to play at the NBA. It sounds insane and something you would see in the Netflix show with monarch background but that is essentially what the centralisation and standardisation do to us when stretched too far.
The future
Fortunately, humans always have a solution to a problem and I think technology is the solution to the problem. The reason we are yet to see it completely replace the convention, despite its obvious advantage, is because human habits take time to be overdone and that is something that technology cannot solve. These transition toward decentralisation and democratisation will take place in all industries and in different forms but they will happen and our society, thanks to tech and capital, will be leapfrog yet again.
