Let me define the problem.
Open Value Network: A network of people that share a number of tools, their capital, freely, by paying only the cost of initial purchase. Anyone is able to use the tools. The only restrictions are technical, not economical.
And the context:
Capitalism: An economic system that uses the ownership of capital as a means to extract value from the workers. Workers here are those that sell their labor in exchange for money. The extraction of value is computed by subtracting the costs of production from the sales.
The problem:
What will be the social dynamics of having an open value network inside capitalism? How will it affect the OVN's functioning and qualitative properties?
Existence of the Problem - Do we live in Capitalism?
Before dealing with the problem itself, it is worthwhile to check whether the problem actually exists. What I mean by that is that there is disagreement whether capitalism continues to be as I described it or we are living in a post-capitalist economy where capital plays no important role in production.
The spectrum of denialists.
The proponents of the idea that we live in a new era that is not driven by capital, either physical capital or in general capital, come from many spectrums of society. We have venture capitalists of the Silicon Valley like Marc Andreessen who has declared to the world that software is eating the world. We have libertarians that are enamoured with new decentralized technologies like the blockchain and its ability to work outside the control of the state that imagine that this will enable the creation of distributed and open production processes/ organizations. We have the reformist left whose rejection of the possibility of actual political transformation from below has led them to find ways that will change capitalism without class struggle , and they are very eager to accept anything without too much thought.
Deconstructing Marc Andreessen's article.
Let me focus on Marc Andreesen's article that software is eating the world. In his article, he provides multiple examples of software companies disrupting sectors of the economy, eventually capturing the majority of the market. The examples are many and it would be difficult to say that they are not doing that. Companies from Amazon, apple, google, Uber, netflix etc, have disrupted the markets they entered into. Their profits are huge as is their growth. There are many other economic sectors that can be disrupted by software companies but not all or most as the article presumes. The main concept that we need to understand though is why they have that ability. Is it because they do not need capital (physical or not)? Is it because the value that software companies add is growing proportional to the value of other sectors of the economy? Let me answer those questions one by one.
Startups need capital to be successful.
First of all, startups need capital to be successful. The fact that some of them do not require physical capital is inessential. Let us look at some statistics:
According to data compiled by Fundable, 565000 startups are launched each year. The total capital invested per year is 531 billions. Around 240 billions are invested by the founders and their family. 55 billions are invested by Venture Capitalists, Angel Investors or Banks. The interesting part is that AI invest in less that 1% of the startups and VCs in only 0.05%.
If we look at two more statistical quantities, we will understand why. According to Paul Graham, another venture capitalist, less than 1 in 10 startups succeeds. If we look at the normal founder's equity dilution after a series of investments, they eventually only own 20% of the company. In other words, VCs invest mostly in startups that succeed and get 80% of the equity. Remember that they only invest 55 billions while people invest 240 billions.
From the statistics in startups, we see that they require a considerable amount of capital that can only be provided (in big quantities) by VCs, AIs and banks.
Software companies need physical capital.
Secondly, software companies need physical capital. Software companies that have infiltrated certain economic sectors that requires physical capital do use physical tools/infrastructure. Uber is using the cars of its "employees." Apple is using Chinese factories to produce its phones. So it is wrong to believe that physical capital is not needed. It is also wrong to believe that software or innovative ideas produce a lot of value that can explain the huge profits of apple, samsung, Uber, etc. If we look at the working hours and the percentage of people that work in the manufacturing of a phone and that in the design and software development, we will see that the profits of those companies do not go proportionally to the working force they employ. Most profits go to software companies.
Software companies do not produce as much value as the profits they amass.
There are two reasons why software companies get so much profits.
Exploitation of Workers at scale.
First, they get those profits because they exploit people en mass. Apple exploits the chinese workers. Uber exploits the car drivers, amazon exploits its employs. All exploit the software developers as I have shown above. The level of exploitation is such they have become infamous.
Monopolies in the captured markets.
Secondly, they acquire bigger profits because they create monopolies that others cannot enter. Facebook has the monopoly of private user data. Google has the monopoly of web search. Uber , that of taxi drivers. Apple has sued multiple companies so as to block them from the entering the smart phone market.
Till now we have shown that software companies need capital, Also that they have big profits, not because they create a lot of value but because they are able to exploit a lot people effectively and because they control markets in a monopoly.
What enabled the increased scale of exploitation?
What we have though omitted is to explain why software is able to disrupt economic sectors that made Marc Andreesen say that it will eat the world. Well there is an obvious answer to that. Software companies do not create value but allow the coordination and collaboration of a lot of people on a specific production process. They reduce the cost of the exploitation because they are able to exploit people in numbers that would be unimaginable a few years ago. Thus, if traditional companies do not change to scale the exploitation of the workers, they are to get bankrupt and their market share taken over.
How much value does the information sector produce?
Statistics:
Let us now stop focusing on software companies and startups etc. and look at the economy as a whole. Here, we also have statistics that show that the percentage of value generated by the software/information sector or the research sector is very low.
The best way to find the value generated is to look at the number of workers employed in a specific sector. The reason I use this measure is because it is more accurate than taking labor costs per Industry. Wages in research positions or in software development are high due to the exploitation of other economic sectors. In an ideal economy where there is extensive worker mobility, wages would vary very little and the Open Value Network is such an ideal economy.
Let us look at some US statistics:
(Keep in mind that in the US reside most of the software companies, so the statistical data need to be adjusted to make conclusions for the whole world.)
Here is the percentage of software developers to the total workforce in 2014:
2014
Software developers : 1,114,000
Total workforce : 161,074,000
percentage : 0.69%
In general, the information workers :
2014
information workers: 2,750,000
Total workforce : 161,074,000
percentage : 1.7 %
2008
information workers: 3,000,000
Total workforce : 157,700,000
percentage : 1.9 %
Let us also look at the researchers :
2012
researchers per 1mil population : 4,019
population : 314,100,000
workforce : 159,324,000
percentage (in the workforce) : 0.79%
We are looking at the number of researchers because the internet enables the collaboration in research, in the same way that it enables collaboration in free and open software. Let us not forget that researchers work on labs that are worth billions, thus researching requires a lot of capital. But even if we forget this, then it is obvious from the 0.79% percentage that research contributes very little in the production process. Even if we double the worth of a researcher or triple his value, the open collaboration due to the internet would not change the characteristic of the Capitalist system.
Most software developers also work for companies and they get a salary because software development is risky and it requires a lot of people and a lot of years before a final product is made. But even if we forget this, the percentage of software/information workers to the whole workforce shows that the percentage of value created by them is less than 2%.
Fixed capital investment per worker
Let us also look at the fixed capital investment per worker in the US:
2014
Private Nonresidential Fixed Assets: 21,463 billions
Labor force employed : 147.439 millions
Fixed Capital per worker : 145,572 $
(Keep in mind that the average household debt is 90,000$. So, do not have high hopes for crowdfunding the capital needed.)
Conclusion
In conclusion, I have proved two things. First that we continue to live in Capitalism, thus the problem of Capital accumulation does exist. Second that the percentage of value captured from the software industry is disproportional to the value it produces because it has scaled worker exploitation. The ability to scale collaboration is one of the necessary parts for the success of the Open Value Network and the capital accumulation of the ryaki economic system.
Now that we proved that problem does exist, and trust me when I tell you that a huge number of people believe the opposite and thus the above was necessary, let me try to analyze the problem itself.
Analyzing the problem
The problem is rather simple. Since the Open Value network will provide, allow anyone to participate in the creation of of value with the use of the capital of the network, thus effectively putting the capital in the commons, obviously a great number of people will want to participate. And this is a problem because at first the capital of the network will be small and the participation interest high.
A feedback loop that leads to the appropriation of the common capital.
A problem of governance
That will effectively split the people into two categories, those that had access to the capital resources and those that did not have access. The main thus question is how the capital resources would be governed and by whom. If we allow the participants of the production in the network to determine the allocation and distribution of the resources, then we are prone to the closure and appropriation of the commons by them.
One does not need to immediately prohibit people from participating in the network. At first, it will introduce stiffer technical barriers that only people that have already used the tools can surpass. That will reduce the worker mobility in the network that will further increase the incentive to put more barriers.
Having the Common resources governed by their users is creating a feedback loop that reduces worker mobility and thus lead to the formation of a single group of people with interests different from the public good.
This is not a theoretical concept. This process has happened and is happening right now.
There are two different places where it is happening.
Concrete examples:
Immigration creates friction between the residents of a country and the newcomers. The high income inequality around the world leads many people to search for a better place to live and work. That results in accepting jobs at lower wages than the previous residents, who then either lose their jobs or see their wage reduced. That can lead many low income workers to request the deportation of the immigrants and the closure of the country borders. Of course, this policy will not help because Capitalism itself creates unemployment, not immigrants. Here, we see the need to politically explain this fact so that all workers together struggle for the overthrow of Capitalism.
Worker cooperatives have an incentive to accumulate private capital for the prosperity of its members and not of Society. Recently, we have seen the participation of worker cooperative in the Commons and Sharing Movement. And the friction between the commons and the interests of the members of Worker cooperatives became prevalent.
At the 2016 Ouishare Fest, Yochai Benkler did notice this friction during the festival.
Worker cooperatives have chosen the path of enclosing property, of protecting the workers, their own workers, not all the workers.
Approaching the problem from an information point of view.
Analyzing the problem itself a little further, we see that we are trying to maintain a specific idea, the open access to capital while at the same time permitting the self-governance of the commons because we value democracy. Have there being examples of such a process? Political parties deal with the same problem. Let us see two different erroneous solutions.
Revolutionary parties try to maintain their revolutionary ideas by creating a hierarchical structure that allows only certain members to effectively take decisions about the party. Because of that, the party is open to new members, but the members lack any effective democratic control.
Reformist political parties allow for multiple views to coexist inside the party, not really caring for the social dynamics inside. As we have seen from the recent events, this leads the less radical ideas to take over and eventually suppress the different ideas when they become the government.
Learning from our mistakes - Some general rules of Governance
It is inevitable that for an idea to maintain its integrity, there need to be some form of restriction in the number of participants of the group. Hierarchical structures lead to the loss of democracy inside the group, something that makes the participants alienated. I think that we need rules that are easy to understand and easy to abide, that would not require a bureaucracy to interpret them, everyone in the group would be able to decide whether the rules are respected or not.
The relation of the working class struggle to the OVN.
It is important to note that the feedback loop is dependent not only on the capital scarcity but also on the well-being of workers, thus on having the working class win the class war and get good wages and working conditions. That would reduce the demand for work in the OVN and thus would increase the income that participants get from the OVN.
In other words, maintaining the property of the OVN open to everyone is directly dependent on the working class struggle. That is why the OVN needs to politically act in solidarity with the working class struggle.
The open nature of the OVN is directly related to the success of the working class struggle.
Proof of Ideology.
Two possible solutions that resolves the OVN social contradictions.
We saw that Commonification of Property is directly related to the success of the worker's class struggle.
For the participants in the OVN, there are only two options that could increase their income from the OVN.
Capturing the Capital for themselves or supporting the external struggle of the workers. We need to design the democratic governance of the commons so as to support the second.
How can we exclude people that want to appropriate the property for themselves and accept those that are in solidarity with the rest of the workers? We need a simple rule that is easy to follow. We need a proof of ideology that will guarantee that the majority of the members of the group that govern the commons have the right ideas.
Here is one solution which might work. Every worker that wants to participate in the governance of the commons needs to give 1/5 of their income from the OVN to an account that the group would then use to support the strikes of workers or the immigrants that arrive in the country. This will have multiple effects. It will bolster the solidarity between workers. It will help them win the class struggle and at the same time it will provide a guarantee that the commons will not be appropriated.
This breaks the feedback loop and guarantees that the OVN will not degenerate.
The spectrum of denialists.
The proponents of the idea that we live in a new era that is not driven by capital, either physical capital or in general capital, come from many spectrums of society. We have venture capitalists of the Silicon Valley like Marc Andreessen who has declared to the world that software is eating the world. We have libertarians that are enamoured with new decentralized technologies like the blockchain and its ability to work outside the control of the state that imagine that this will enable the creation of distributed and open production processes/ organizations. We have the reformist left whose rejection of the possibility of actual political transformation from below has led them to find ways that will change capitalism without class struggle , and they are very eager to accept anything without too much thought.
Deconstructing Marc Andreessen's article.
Let me focus on Marc Andreesen's article that software is eating the world. In his article, he provides multiple examples of software companies disrupting sectors of the economy, eventually capturing the majority of the market. The examples are many and it would be difficult to say that they are not doing that. Companies from Amazon, apple, google, Uber, netflix etc, have disrupted the markets they entered into. Their profits are huge as is their growth. There are many other economic sectors that can be disrupted by software companies but not all or most as the article presumes. The main concept that we need to understand though is why they have that ability. Is it because they do not need capital (physical or not)? Is it because the value that software companies add is growing proportional to the value of other sectors of the economy? Let me answer those questions one by one.
Startups need capital to be successful.
First of all, startups need capital to be successful. The fact that some of them do not require physical capital is inessential. Let us look at some statistics:
According to data compiled by Fundable, 565000 startups are launched each year. The total capital invested per year is 531 billions. Around 240 billions are invested by the founders and their family. 55 billions are invested by Venture Capitalists, Angel Investors or Banks. The interesting part is that AI invest in less that 1% of the startups and VCs in only 0.05%.
If we look at two more statistical quantities, we will understand why. According to Paul Graham, another venture capitalist, less than 1 in 10 startups succeeds. If we look at the normal founder's equity dilution after a series of investments, they eventually only own 20% of the company. In other words, VCs invest mostly in startups that succeed and get 80% of the equity. Remember that they only invest 55 billions while people invest 240 billions.
From the statistics in startups, we see that they require a considerable amount of capital that can only be provided (in big quantities) by VCs, AIs and banks.
Software companies need physical capital.
Secondly, software companies need physical capital. Software companies that have infiltrated certain economic sectors that requires physical capital do use physical tools/infrastructure. Uber is using the cars of its "employees." Apple is using Chinese factories to produce its phones. So it is wrong to believe that physical capital is not needed. It is also wrong to believe that software or innovative ideas produce a lot of value that can explain the huge profits of apple, samsung, Uber, etc. If we look at the working hours and the percentage of people that work in the manufacturing of a phone and that in the design and software development, we will see that the profits of those companies do not go proportionally to the working force they employ. Most profits go to software companies.
Software companies do not produce as much value as the profits they amass.
There are two reasons why software companies get so much profits.
Exploitation of Workers at scale.
First, they get those profits because they exploit people en mass. Apple exploits the chinese workers. Uber exploits the car drivers, amazon exploits its employs. All exploit the software developers as I have shown above. The level of exploitation is such they have become infamous.
Monopolies in the captured markets.
Secondly, they acquire bigger profits because they create monopolies that others cannot enter. Facebook has the monopoly of private user data. Google has the monopoly of web search. Uber , that of taxi drivers. Apple has sued multiple companies so as to block them from the entering the smart phone market.
Till now we have shown that software companies need capital, Also that they have big profits, not because they create a lot of value but because they are able to exploit a lot people effectively and because they control markets in a monopoly.
What enabled the increased scale of exploitation?
What we have though omitted is to explain why software is able to disrupt economic sectors that made Marc Andreesen say that it will eat the world. Well there is an obvious answer to that. Software companies do not create value but allow the coordination and collaboration of a lot of people on a specific production process. They reduce the cost of the exploitation because they are able to exploit people in numbers that would be unimaginable a few years ago. Thus, if traditional companies do not change to scale the exploitation of the workers, they are to get bankrupt and their market share taken over.
How much value does the information sector produce?
Statistics:
Let us now stop focusing on software companies and startups etc. and look at the economy as a whole. Here, we also have statistics that show that the percentage of value generated by the software/information sector or the research sector is very low.
The best way to find the value generated is to look at the number of workers employed in a specific sector. The reason I use this measure is because it is more accurate than taking labor costs per Industry. Wages in research positions or in software development are high due to the exploitation of other economic sectors. In an ideal economy where there is extensive worker mobility, wages would vary very little and the Open Value Network is such an ideal economy.
Let us look at some US statistics:
(Keep in mind that in the US reside most of the software companies, so the statistical data need to be adjusted to make conclusions for the whole world.)
Here is the percentage of software developers to the total workforce in 2014:
2014
Software developers : 1,114,000
Total workforce : 161,074,000
percentage : 0.69%
In general, the information workers :
2014
information workers: 2,750,000
Total workforce : 161,074,000
percentage : 1.7 %
2008
information workers: 3,000,000
Total workforce : 157,700,000
percentage : 1.9 %
Let us also look at the researchers :
2012
researchers per 1mil population : 4,019
population : 314,100,000
workforce : 159,324,000
percentage (in the workforce) : 0.79%
We are looking at the number of researchers because the internet enables the collaboration in research, in the same way that it enables collaboration in free and open software. Let us not forget that researchers work on labs that are worth billions, thus researching requires a lot of capital. But even if we forget this, then it is obvious from the 0.79% percentage that research contributes very little in the production process. Even if we double the worth of a researcher or triple his value, the open collaboration due to the internet would not change the characteristic of the Capitalist system.
Most software developers also work for companies and they get a salary because software development is risky and it requires a lot of people and a lot of years before a final product is made. But even if we forget this, the percentage of software/information workers to the whole workforce shows that the percentage of value created by them is less than 2%.
Fixed capital investment per worker
Let us also look at the fixed capital investment per worker in the US:
2014
Private Nonresidential Fixed Assets: 21,463 billions
Labor force employed : 147.439 millions
Fixed Capital per worker : 145,572 $
(Keep in mind that the average household debt is 90,000$. So, do not have high hopes for crowdfunding the capital needed.)
Conclusion
In conclusion, I have proved two things. First that we continue to live in Capitalism, thus the problem of Capital accumulation does exist. Second that the percentage of value captured from the software industry is disproportional to the value it produces because it has scaled worker exploitation. The ability to scale collaboration is one of the necessary parts for the success of the Open Value Network and the capital accumulation of the ryaki economic system.
Now that we proved that problem does exist, and trust me when I tell you that a huge number of people believe the opposite and thus the above was necessary, let me try to analyze the problem itself.
Analyzing the problem
The problem is rather simple. Since the Open Value network will provide, allow anyone to participate in the creation of of value with the use of the capital of the network, thus effectively putting the capital in the commons, obviously a great number of people will want to participate. And this is a problem because at first the capital of the network will be small and the participation interest high.
A feedback loop that leads to the appropriation of the common capital.
A problem of governance
That will effectively split the people into two categories, those that had access to the capital resources and those that did not have access. The main thus question is how the capital resources would be governed and by whom. If we allow the participants of the production in the network to determine the allocation and distribution of the resources, then we are prone to the closure and appropriation of the commons by them.
One does not need to immediately prohibit people from participating in the network. At first, it will introduce stiffer technical barriers that only people that have already used the tools can surpass. That will reduce the worker mobility in the network that will further increase the incentive to put more barriers.
Having the Common resources governed by their users is creating a feedback loop that reduces worker mobility and thus lead to the formation of a single group of people with interests different from the public good.
This is not a theoretical concept. This process has happened and is happening right now.
There are two different places where it is happening.
Concrete examples:
Immigration creates friction between the residents of a country and the newcomers. The high income inequality around the world leads many people to search for a better place to live and work. That results in accepting jobs at lower wages than the previous residents, who then either lose their jobs or see their wage reduced. That can lead many low income workers to request the deportation of the immigrants and the closure of the country borders. Of course, this policy will not help because Capitalism itself creates unemployment, not immigrants. Here, we see the need to politically explain this fact so that all workers together struggle for the overthrow of Capitalism.
Worker cooperatives have an incentive to accumulate private capital for the prosperity of its members and not of Society. Recently, we have seen the participation of worker cooperative in the Commons and Sharing Movement. And the friction between the commons and the interests of the members of Worker cooperatives became prevalent.
Worker cooperatives have chosen the path of enclosing property, of protecting the workers, their own workers, not all the workers.
Approaching the problem from an information point of view.
Analyzing the problem itself a little further, we see that we are trying to maintain a specific idea, the open access to capital while at the same time permitting the self-governance of the commons because we value democracy. Have there being examples of such a process? Political parties deal with the same problem. Let us see two different erroneous solutions.
Revolutionary parties try to maintain their revolutionary ideas by creating a hierarchical structure that allows only certain members to effectively take decisions about the party. Because of that, the party is open to new members, but the members lack any effective democratic control.
Reformist political parties allow for multiple views to coexist inside the party, not really caring for the social dynamics inside. As we have seen from the recent events, this leads the less radical ideas to take over and eventually suppress the different ideas when they become the government.
Learning from our mistakes - Some general rules of Governance
It is inevitable that for an idea to maintain its integrity, there need to be some form of restriction in the number of participants of the group. Hierarchical structures lead to the loss of democracy inside the group, something that makes the participants alienated. I think that we need rules that are easy to understand and easy to abide, that would not require a bureaucracy to interpret them, everyone in the group would be able to decide whether the rules are respected or not.
The relation of the working class struggle to the OVN.
It is important to note that the feedback loop is dependent not only on the capital scarcity but also on the well-being of workers, thus on having the working class win the class war and get good wages and working conditions. That would reduce the demand for work in the OVN and thus would increase the income that participants get from the OVN.
In other words, maintaining the property of the OVN open to everyone is directly dependent on the working class struggle. That is why the OVN needs to politically act in solidarity with the working class struggle.
The open nature of the OVN is directly related to the success of the working class struggle.
Proof of Ideology.
Two possible solutions that resolves the OVN social contradictions.
We saw that Commonification of Property is directly related to the success of the worker's class struggle.
For the participants in the OVN, there are only two options that could increase their income from the OVN.
Capturing the Capital for themselves or supporting the external struggle of the workers. We need to design the democratic governance of the commons so as to support the second.
How can we exclude people that want to appropriate the property for themselves and accept those that are in solidarity with the rest of the workers? We need a simple rule that is easy to follow. We need a proof of ideology that will guarantee that the majority of the members of the group that govern the commons have the right ideas.
Here is one solution which might work. Every worker that wants to participate in the governance of the commons needs to give 1/5 of their income from the OVN to an account that the group would then use to support the strikes of workers or the immigrants that arrive in the country. This will have multiple effects. It will bolster the solidarity between workers. It will help them win the class struggle and at the same time it will provide a guarantee that the commons will not be appropriated.
This breaks the feedback loop and guarantees that the OVN will not degenerate.
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