The Collapse of Centralization

A deep and structural socioeconomic shift has been brewing for decades. Centralized institutions are failing us. This pandemic is the beginning of the end of centralization...

“This is the way the world ends. Not with a bang but with a whimper" - T.S. Eliot

I’m not sure if this virus is a bang or a whimper. I’m no epidemiologist to know for sure. But it is lighting a fire to a profound socioeconomic transformation that has been brewing for years. The world is unbundling - from centralized institutions to decentralized organizations.

Centralized institutions are failing us. Already fragile institutions saddled with debt, grossly underfunded and unprepared, are now crippling in the face of COVID. Sure enough, centralized institutions will not all crumble overnight. Some degree of centralization is required, even in decentralized systems. However, this pandemic is part of a paradigm shift that has been brewing for some time: progressive decentralization.

A post-COVID world will become progressively more decentralized.

The pandemic has taken the world by storm. For many (China, WHO, US, UK), it came as a bang - caught off guard and grossly unprepared. For others (Taiwan, Singapore) - it came as a whimper. As Taleb points out, this pandemic is not a black swan. Pandemics are predictable, and especially as the world becomes more interconnected and urban density increases. They happen every decade or so. It feels like a black swan because it caught many off guard. Not surprisingly, we tend to overestimate certain risks and underestimate others.

For instance, what’s more likely to happen in a short period:

  • millions die because of cancer, or

  • millions die because of a pandemic.

Most people would say cancer. It’s more observable and quotidian. Both are terrible outcomes, but our perceived risk is off, so, we miscalculate probabilities and risk.

In centralized systems, this sort of risk calculation and top-down policy goes unchecked. It gives rise to systematic miscalculated risks and inefficiencies. Centralized systems are like a game of broken telephone where the quality of information degrades as it moves up the chain of command. In contrast, decentralized systems are better at processing information at the edges, where the quality of data is intact. Processing and adapting new information is key to our survival, and decentralized systems are much better at that than centralized ones.

COVID is a symptom, not the cause

While I am no epidemiologist, I understand that this virus is not unlike others - this too shall pass. While viruses never leave us, our immune system develops antibodies to fight it off. Viruses mutate, and we adapt. Immunity is a game of cat and mouse.

Already we see masks gradually go away, and life return to some normalcy. But we are not returning to a pre-COVID world. Specifically, the idea of bestowing our trust in the same organizations that responded so poorly during this crisis is going away. The collective blind trust in centralized organizations will erode. Perhaps not with a bang, but with a whimper. COVID, Black Lives Matter….they are symptoms of the failed centralized state.

COVID caught the world by storm and halted most economic activity - an unprecedented move. During this time of isolation, many began questioning the response of governments and health organizations. They were left wondering why they couldn’t go back to work, or receive a stimulus paycheck in time. Some got checks; others are still waiting. In short, this pandemic came to expose the fragility of the system and institutions that create it.

COVID is less about the virus and more about what it has set in motion: a growing discontent and desire to change the status quo. While still early, I believe we will look back at COVID and mark it as the beginning of the end of system-wide centralization. This paradigm shift will happen. Perhaps “not with a bang, but with a whimper.”

A skeptic reader may say: you’re exaggerating. Global institutions are strong and healthy. This pandemic is merely a speed bump - there’s nothing to see here. Look at how stocks have rebounded (h/t Robinhood). New reported cases are down. Soon a L-U-V-W-Y shaped recovery. Who knows? Yes, we will recover from this economic blow. But focusing on the economic recovery misses the point.

COVID has opened Pandora’s Box, and the world has woken up to the malfeasance and betrayal of trust by centralized institutions. Arguably, the financial crisis in 2008 should have had this effect, but it didn’t. Somehow we didn’t learn then that any centralized entity eventually betrays our trust. However, COVID is more personal. It has kept us inside, away from socializing; it was a health and economic blow across the board. It left us wanting more from our leaders and institutions. It was a global shock that led many to feel betrayed.

The collapse of centralization

To better understand how and what this pandemic will catalyze, I turned to Tainter’s seminal work “The Collapse of Complex Societies” to make sense of the current state of the world.

You may ask: why study collapse? Perhaps you sense the world is better, more technologically advanced, and equipped to deal with adversity like pandemics. Yet our world is also more interconnected, and subtle changes in one part of the world have ripple effects on a global scale. The same optimism that drives progress also makes us susceptible to believing in false narratives that “this time will be different.”

“Even if one believes that modern societies are less vulnerable to collapse than ancient ones, the possibility that they may not be so remains troubling.” - Tainter

History tells us that we cannot cheat collapse. It’s a natural phenomenon, not a black swan. It may come as a bang (natural disaster, nuclear war, asteroid) or whimper (economic and political decay). If we cannot avoid collapse, then perhaps we learn from that of ancient empires and civilizations like the Romans, Mayans, and Minoans. If destruction seems far-fetched, consider that we’ve had our fair share as of late - the British Empire, the Ottomans and the Soviet Union.

What a collapse looks like

Collapse is a broad term. Most contemporary thinkers foresee collapse from catastrophes such as nuclear war, resource depletion, natural disasters, and pandemics. Others consider it a socioeconomic and political process - more akin to the demise of the Soviet Union and the British Empire. Tainter’s definition of collapse encompasses many things:

  • “a lower degree of stratification and social differentiation;

  • Less economic and occupational specialization, of individuals, groups, and territories;

  • Less centralized control; that is, less regulation and integration of diverse economic and political groupies by elites;

  • Less behavioral control and regimentation;

  • Less investment in the epiphenomena of complexity, those elements that define the concept of ‘civilization’: monumental architecture, artistic and literary achievements, and the like;

  • Less flow of information between individuals, between political and economic groups, and less sharing, trading, and redistribution of resources;

  • Less overall coordination and organization of individuals and groups;

  • A smaller territory integrated within a single political unit.”

Defining collapse is not an easy thing to do. Not all manifest the symptoms described above. However, most collapses throughout history have a combination and sequence of events: internal socioeconomic deterioration followed by an external blow (natural or man-made).

It’s hard to imagine what a devastating collapse of civilization like the Mayans or Roman Empire would look like in the modern day. While it is impossible to fully understand what and how the collapse felt at the moment in time, Tainter’s definition of “sudden and devastating” seems far-fetched. Perhaps the most recent example of collapse is the Soviet Union. Entire generations that grew up under communism soon were living in a free world, facing the opportunity/struggles of freedom of choice. Assimilating to a system that allows choice was, and still is, a difficult adjustment for many generations that grew up under communist rule.

While some collapses are sudden, devastating blows like the asteroid that decimated dinosaurs, most tend to follow Hemingway’s model of “gradually, then suddenly.” We tend to memorialize the fall of empires to single episodes like the fall of the Berlin Wall. However, rarely do collapses happen so suddenly and as a result of an exogenous shock like an asteroid. Rather, most collapses are felt over time. It’s like that nagging voice inside your head, or that gut feeling that tells you something is not right. Like the proverbial frog in boiling water, which succumbs to boiling water - temperatures rising “gradually, then suddenly” boiling. Today, perhaps more than ever, many around the world hear that voice telling them that the world is not right. Put aside the stock market, the economic recovery, and the number of new COVID cases. Instead, look around, and you’ll sense a growing, grassroots-led movement expressing discontent in our institutions and looking for change.

Collapse or metamorphosis?

Like any natural process, crises like these bring much pain and are moments where revolutionary ideas, leaders, and organizations are made. For the past decade, we have seen the rise of decentralization models. Of growing importance, we see the emergence of decentralized forms of money (Bitcoin -> non-sovereign money) and information (Internet -> fall of media empires). Arguably, both the decentralization of information and finance are pivotal, collapse-inducing moments that are paving the way for other forms of decentralized organizations.

COVID has exposed how bad the current system is and, more importantly, that decentralized networks like Bitcoin offer a credible and better alternative. If you don’t believe me, then go out and ask Argentinians or Venezuelans living in hyper-inflation monetary regimes. Actually, don’t go that far. Ask CEOs of Fortune 500 companies that are using decentralized finance rails and stablecoins (think Venmo on steroids) to operate faster, better, and cheaper. Why? Because sending wires across the world continues to be a slow and expensive process.

Decentralization has long been touted under the Orwellian flag; “beware of Big Brother,” you say. Today, decentralization is less about some utopian version of the world. Quite simply, decentralized alternatives like Bitcoin are being adopted because of the benefits they provide. Those benefits will only become clearer as centralized institutions continue to fall short. Bottom line.

The collapse of centralization is happening on a global scale (at varying rates but happening, nonetheless). We can trace this back to the turn of the prior century. First, the advent of modern transportation (physical movement), then the rise of the Internet (movement of ideas), and now the rise of decentralized money (movement of value). These three waves reinforce each other and are unlocking new decentralized models.

As we assimilate the current state of the world, the worst we can do is ignore this paradigm shift, pretend like nothing is wrong, or that someone will bail us out. I hope you don’t read this as a pessimistic outlook on the world. Don’t confuse reality with pessimism. Perhaps I’m wrong, a canary in the coal mine of sorts. I'm merely expressing my grave concern with our centralized institutions' fragile condition and, more importantly, my optimism that the future is headed towards a more open and transparent decentralized world.

Unlike the asteroid that decimated dinosaurs in a single blow, I believe that COVID is part of a long chain of reactions leading to the collapse of centralized institutions. We are undergoing a collective awakening moment that makes us more cautious of centralized institutions. Like shedding skin, the collapse of centralization will be a metamorphosis from the inside out. Perhaps not as severe, but no less profound.

How and when we get there? Only time will tell.

“Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” - Winston Churchill

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