It’s awfully tough to get rid of institutions. Institutions are organizations, customs and norms of behavior that mediate between individuals and society in a way that promotes social order and works for everyone. Over time, they decay, and they become corrupted and, eventually, they cease to serve the purpose for which they were conceived.
Our Decaying Institutions
Think of the US Congress, conceived as an expression of representative democracy. Almost no-one today believes that any elected official that sits in Congress represents anything except their own interests and those of the special interest groups that pay for their election and re-election.
Think of banking, conceived as a mechanism to promote economic growth by collecting savings and directing those savings to entrepreneurs who would utilize them in the creation and expansion of productive businesses. Today, banks operate a fraudulent scheme called fractional reserve banking, by means of which one savers’ funds are loaned multiple times, creating an untenable situation where multiple entities have claims on a single deposit. Meanwhile, banks make money trading stocks and bonds and derivatives for their own account, diverting money from the productive economy to the unproductive financial sector.
Or think of education, conceived as a knowledge transfer from generation to generation, to nurture in young minds the accumulated wisdom of society and the intellectual spirit to search for new ideas. Now, education is a government propaganda mill, designed to keep each successive generation mutely compliant with the establishment rules.
The Grounds For Optimism
The temptation is always to be pessimistic, to believe that the decline and decay in institutions is inevitable and irreversible, and leads to social and civilizational collapse. It’s easy to feel that we are living through the decline and fall of the Roman empire.
That’s wrong. Humans, acting entrepreneurially, are creative, ethical and optimistic. They believe in a better future, and they act to try and achieve it. We can do this irrespective of the institutions that now suffocate us, and independently of those of our peers who have been sucked in to the bureaucracy and the redistributionist, regulatory state.
The Emerging New Institutions.
As evidence of the possibilities, think of the new institutions that are emerging in spite of – or perhaps because of – the failure of the existing ones. Some examples include:
Money is the greatest economic institution. It facilitates the exchange economy, in which each of us finds our highest and best role in the division of labor, identifies the best way to serve our fellow man, and trades our specialized product for all the other things we need. We make that trade through the institution of money. Money evolved over time to become more and more convenient and easy to use without losing the trust required to maintain its utility and value. But then governments claimed a monopoly on making and circulating money, and corrupted the institution forever. Money has been de-valued – sometimes becoming effectively worthless, as in the Weimar Republic of yesterday and Venezuela today – and stripped of all integrity. Governments are able to dilute its spending power at will, create more of it whenever they need to spend more, which is every day, and drain money of most of its market-tested integrity. It is now a political artifact of central banks, and a crony capitalist scheme in which those closest to the government (big banks and big financial firms) enjoy the commercial use of newly issued money first, and make above-market profits as a result of their politically favored position.
But now, we are witnessing the emergence of crypto-currencies. These currencies represent a new institution of money, not controlled by governments and central banks, and relying entirely on the market for their value. There is built-in transparency and integrity through cryptography and verification protocols; supply is constrained. The market will be the decider of which currencies are acceptable to people.
The new crypto-money was created by pioneering individuals, who conceived of the idea and the technology, and built the eco-system within which the new money can be exchanged. A new institution has been born.
The Gig Economy.
Employment is an institution. For a long time, we have been instructed that employment is a dependency relationship; we work at the pleasure of the firm that employs us, and no longer. Our earnings are defined by the pay scale the employer attaches to our job or the position we temporarily fill.
A new institution is emerging to replace this dependency-based earnings metaphor: economic self-determination. What the media dismissively call “the gig economy” is, in fact, individuals abandoning dependency and taking control of their own earnings revenue streams. An entrepreneurial individual can map their desired earnings for a long period of time into the future, and navigate their way to those earnings as an independent contractor, designer, artist, project specialist, professional practitioner, or any one of many self-directed and self-resourced choices. They can assemble the requisite skills and knowledge, build a personal brand, join a project team of their choice, and cultivate the relationships to support their life plan. Their earnings are not governed by the whims of a superior in a bureaucracy and they do not have to suffer the indignities of personal reviews and lay-offs. It’s a better institution.
The institutions we know as firms or corporations can become sclerotic, bureaucratic, defensive and non-innovative. A system for starting new ones was never really institutionalized until the advent of venture capital and the start-up ethos, beginning in post World War II America. Venture capital helps at multiple stages of company development – initial idea generation, the start-up phase, the ramp-up phase, and the monetization or exit phase. It is the start-up phase that has caught the popular imagination. But venture capital is the most productive capital in the economy because of all four phases, generating both big returns for successful investors, and economic growth and improved products and services for society. The institutionalization of the start-up and associated developmental methodologies is one of the great achievements of modern capitalism. It was the result of far-sighted pioneering and tolerance of uncertainty among early pioneers – another example of institutional entrepreneurship.
Home Generation Of Energy.
Our governments want us tied to the energy distribution grid fed by their energy generation plants. Depending on which country you live in, the energy system may be state-owned or state-regulated, but, either way, it is definitely not a free market institution. Energy utilities are government-instituted monopolies; they are insulated from competition and do not practice market pricing.
But no institutions are totally immune to market-driven reform. In the energy field, individual consumers can now take energy generation into their own hands. They can install generators and propane tank systems and, most recently, solar panels for electricity generation. Solar panels will soon take the form of solar roof tiles, so that any hone owner can be their own power plant. And efficient batteries for storage will soften the impact of the daily solar cycle on home energy management. Home generation of energy becomes its own institution.
Home Schooling And Self-Education.
The state’s near-monopoly on education may be the most dangerously decayed institution. How can a society expect a legion of innovative modernizers to emerge from an education mill designed to suppress original thought? The state should have no role to play in education, and yet its role is completely institutionalized and almost total.
Once again, we can rely on innovators to demonstrate the possibility of alternative approaches, and observe as these innovations advance towards becoming institutions in their own right. Home schooling now has a strong and widespread community. Homeschooling curricula and content are available on the internet, and systems like the Montessori Method are moving towards institutional values based on broad and deep studies and experience.
In higher education and skills education, the self-selected, self-administered course content available on the internet is pervasive and high quality. Continuous self-directed learning is a reality for any lifelong learner who seeks it. The state monopoly is not unbreakable.
Self-Scaling And The Internet Economy.
One of the myths perpetrated by the old institutional environment is that the individual is severely limited in the contribution he or she can make or the impact he or she can have. Only with institutional help can the individual become part of a larger entity with broad reach and real impact in whatever endeavor is being undertaken. One of the words used to capture this restrictive idea is scale – the ability to bring large amounts of resources to bear against a particular opportunity.
Today, scale is downloadable from the internet. The cloud makes huge computing power available to individuals at almost marginal cost. Artificial intelligence augments individual capacity, and cognitive computing connects us to almost unlimited knowledge, data and analytics. Global exchange platforms enable us to collaborate and trade for talent and expertise, and buy and sell merchandize and services, worldwide. There is no limit to the individual’s access to the power of scale.
Businesses are building environments to support the individual entrepreneur with scalable infrastructure. Ali Baba can almost instantly provide a digital storefront, e-commerce back end, financing, computing, logistics and legal and accounting services for any size business. You can start tomorrow.
Maturing Technologies Result In Superior New Institutions.
These are just a few of the innovative new institutional pathways being laid out today. More will emerge. The maturing technologies of cloud computing, cognitive computing, virtual and augmented reality, artificial intelligence, big data analytics, global exchange and logistics platforms can all provide the individual with self-directed, self-resourcing economic power. If the old institutions decay around us, we need not worry, because the new ones are forming and will serve us much better.