Why not let legacy institutions fail?

The seed of this article came when I read Balaji’s excellent post on founding v. inheriting institutions. That post got me wondering what would happen if we just let bloated legacy institutions fail. I am not an anarchist and my hope is not for chaos to prevail.

Social and economic institutions play a valuable role to help society work. We need them. But they all default to a top-down, bureaucratic format that increases costs (and inefficiencies) over time. I’d love to find examples when that trend was successfully reversed.

I can’t help but wonder how much time, money and effort is spent in maintaining the crumbling status quo. People in many countries are feeling short-changed, and trust towards social and economic institutions has been declining.

Instead of trying to keep afloat what we have, wouldn’t our collective time, money and efforts be best applied towards new, bottom-up institutions that are purpose-built for efficiency and accountability? Would these not better serve society today if we can free ourselves from our legacy? Even if the answer is no, asking the question is in order.

There is no easy way to A/B test this unfortunately. My bet is that we have a structural issue and we grossly under-estimate how much ineffective most of these bloated organizations actually are in achieving anything. Similar to un-managed technical debt, are we tied down by societal debt, and can we “re-platform” society in order to get on a more attractive path?

The power governments have to tax people is a form of monopoly. Governments do not compete with anyone for the tax revenue. Taxpayers can’t decide to pay their taxes to B instead of A given their track records. That is inertia, and that is an issue. Tax payers are captive, they can’t do much about this situation. Yes you can move abroad in some cases, but most people won’t or can’t. Given that rent-seeking type of arrangement, governments do not have the right incentives to stay lean and to maximize impact.

Generally, when institutions get older, the cost of simply maintaining current operations goes up a little (or a lot lately) every year. They are not getting to economies of scale. They have no need to remain nimble as long as they can coerce their citizens.

As a thought experiment: what would happen if we let legacy institutions fail? Would citizens self-coordinate to fill in the void? Would chaos eventually return to a new, fitter order on which societies work?

Institutions going to zero?! It might sound batshit crazy, but it might just be history repeat itself, according to Dalio’s Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail. Some events and cycles are too slow for anyone to be around the next time they come around. The death of legacy institutions is inevitable, if history is a guide. Everything in the natural world follows natural cycles of birth, growth, decay and death. Plants, animals, planets, stars, civilizations, you get it.

A bright spot in the Covid-19 pandemic has been how resilient and innovative we have been with regards to global-scale social experiments. The crisis gave us a clear focal point to channel our ideas and ambition collectively.

We went from natural order to total chaos to a new-and-improved order in under 2 years (at least the economy kept moving and we gave people vaccines). That gives me hope that while there is always turbulence with social and economic changes, we’d quickly find a way out of the void and chaos that old institutions would leave behind.

I want to see a better incentive model for managing social institutions: aligned incentives (aka skin in the game), transparency, efficiency. I often wonder, what would happen if I moved to a tax-free country and elected to pay the same rate as I would pay previously in Canada, but give the money to charities of my choice? In other words, what if could decentralize how individuals allocate the money for society’s benefit?

What if we ended up on a better allocation model than current institutions? On one hand there is so much money in the economy, and on the other hand governments are running in the red, a lot of people can’t save anything at all, and non-profits struggle to make ends meet. How can both such abundance and scarcity co-exist at the same time?

Our societal approach to allocation and incentives have to be part of the problem and the solution. One way to tackle this was illustrated in this interesting paper, explaining what primitives we might need for a decentralized society to take form.

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