Skip to main content

Op-Ed: Blockchain Can Make Globalization Work

Law & justice - Op-Ed: Blockchain Can Make Globalization Work

De-globalization is not just about Brexit and rising U.S. protectionism. It is much more than that. It's a pervasive negative attitude regarding globalization that includes various autonomous and sometimes antagonistic movements, such as anti-Western universalism in Eurasia, anti-federalism in Eastern Europe, Piketty-type neo-Marxism in Western Europe, as well as the Islamic State and the like from the Mediterranean to Central Asia.

What's at stake here is the post World War II intellectual construct positing that if people from all civilizations find it profitable to be acquainted through exchange, they will become interdependent and identify with mankind as a whole, peacefully.

Globalization is losing ground fast to de-globalization — the view that a globalized economy generates intolerable inequalities between people, classes, nations and civilizations. To combat inequality, the argument goes, governments need to regain their sovereign rights and close their national borders.

Inequality within societies has widened considerably in recent decades. But this is not because of international trade or movements of people; after all, cross-border trade and migration have been happening for thousands of years. So what is fueling it? To answer that question, we must consider what it is about globalization that is generating returns for the wealthy. The reply: the capacity to combine.

A central aspect of globalization is the careful documentation of the knowledge and legal tools needed to combine sovereign rights and property rights over seemingly useless single assets (electronic parts, legal rights to production, and so on) into complex wholes (an iPhone), and appropriate the surplus value they generate.

It is well-organized knowledge documented in clear and accessible ledgers that faithfully describes not only who controls what and where, but also the rules governing potential combinations, which makes it possible for the multiple components from ten countries to be brought together to manufacture one wooden pencil in Germany; it is also the story behind the hundreds of combinations that are required to assemble a mechanical Swiss watch and the thousands that it took to create flight navigation systems in the U.S. or over the world wide internet.

It is also the knowledge that informs us which authority has the sovereign right to regulate exchange, who has the property rights to any given asset and who can use both of these rights to leverage that asset. That is also how we know what can be leveraged and whether a given document can be used to perform over a dozen functions that are required to make complex combinations, including those acting as pledges against investment, collateral for credit, credentials for receiving public services and property rights containers to capture and store the surplus value created by the combinations.

After two decades of fieldwork in some 20 countries with over 1,000 researchers, my organization, the Institute for Liberty and Democracy (ILD), has ascertained that 5 billion people — out of 7.3 billion around the world — are not documented in national ledgers or in anything approaching a manner easy to compare, measure or mix on an international scale. Instead, their entrepreneurial talents and legal rights to assets are recorded in hundreds of scattered records and rules systems throughout their countries, making them internationally inaccessible.

The Missing Links in the Legal Chain and Blockchain

This lack of consolidated, documented knowledge — and not trade — is the principal reason for global inequality. The lawyers and politicians who draft and enact the legislation and regulations that govern globalization are dramatically disconnected from those who are supposed to implement the policies at the local level, and those who write up and control the ledgers that embody the social contracts that are respected on the ground. In other words, the legal chain is missing a few crucial links.

Experience in Japan, the United States and Europe shows that putting in place a straightforward legal approach to ensuring equal rights and opportunities can take a century or more. But there is a faster way: treating the missing links as a break not in a legal chain, but in a knowledge chain.

We at the ILD know something about knowledge chains. We spent 15 years adding millions of people to the globalized legal system by bringing the knowledge contained in marginal ledgers into the legal mainstream — all without the help of sophisticated software. But we do not have decades more to spend on this process; we need to bring in billions more people, and fast, if we want globalization to be less unequal. That will require automation.

Over a year ago, the ILD began — with seed funding from the Omidyar Network and the brilliant and patient coaching of Bill Tai from Silicon Valley — to determine whether information technology, and specifically blockchain (the transparent, secure, and decentralized online ledger that underpins Bitcoin), could enable more of the world's population to get in on globalization. The answer is a resounding yes.

By translating the language of the legal chain into a digital language — an achievement that required us to develop a set of 21 typologies — we have created a system that could do at least four important things:

First, identify, locate and capture any ledger in the world and make it public;

Second, make compliance effective by digitally placing any international contract in the ledgers — local or global — where the reputation of the contracting parties is at stake and commitment is more likely;

Third, we have been able to compress into 34 binary indicators the questions that computers have to ask captured ledgers to determine which provisions should be made in existing legislation to make globalization a more equal process;

And, fourth, use those same 34 indicators to insert into "blockchain smart contracts" the links missing in the legal chain, so that globalized firms and non-globalized collectives can start making fair deals without needing to wait for local rules to adapt to global legislation.

Maybe the language that will help us globalize in equal terms is not English but the binary language of automation.

This op-ed is a guest post by Hernando De Soto. It has also appeared online via Project Syndicate. The views expressed are his own and do not necessarily represent those of Bitcoin Magazine.