2. October 2018The Schumpeter-Blockchain

Thanks to Blockchain, the Schumpeter revolution has arrived! The blockchain technology is capable of much more than just Bitcoin whose basics have made it well known. However, the blockchain is very complex. It is so complex that it is not suitable for a rainbow press coverage. Not yet anyway, considering the economic meaning of blockchain is so important that its basic idea should be explained on every milk carton. Until then I am attempting, together with Joseph A. Schumpeter, an ecological and sociological classification in the frame of a blogpost. His congenial work fascinates by its incredible closeness to the blockchain concept.

Blockchain moves people into focus

The revolutionary aspect of the decentralized technological blockchain-system is intelligent networking. It allows any complex counterfeit-proof transaction from human to human. Two million years following the invention of speech by homo erectus, the internet is now becoming intelligent. So far, mainly insiders address this subject. They exchange in special forums and, with the help of Bitcoin, Ether & Co, turn the acquired information into a profit. But it is only a question of time until the majority of the population will benefit from this technology. After all, the blockchain moves the human being into the centre. Centralized servers are outdated and, due to the decentralized structure, the user is given the opportunity to regain control over his/her own data. The supremacy of today’s monopolists is already starting to shake. In ten years from now blockchain applications will have forced many of today’s global players aside.

The Blockchain’s power of change is enormous

The Blockchain’s power of change is huge. Economical and sociological significance is easily classified with Schumpeter’s theories. He is renowned as one of the most important economists of the 20th century. Nobody has simultaneously looked so deeply into Marxism and the ideal of the entrepreneur as Joseph A. Schumpeter (1883-1950). His thesis that capitalism is based on “creative destruction”, has meanwhile turned into a dictum. And, it is more relevant than ever.

Are Zuckerberg, Musk and Page typical entrepreneurs according to Schumpeter?

In Schumpeter’s theories the entrepreneur is a central point as carrier of the economy. But are internet pioneers like Larry Page, Elon Musk or Mark Zuckerberg typical entrepreneurs according to Schumpeter’s ideas? The answer is yes and no. As driver of innovations, which according to Schumpeter is the right to exist for the entrepreneur, he would have sympathized with those three. But what about the enterprises? Are internet concerns like Google or Facebook to be “mistrusted” according to Schumpeter? However, the technological infrastructure of those two enterprises is by no means blockchain compatible. It is still very common to finance services in the internet through advertisements. In blockchain applications it is the transactions which earn the money. The area of IP is similar. While Amazon is trying to be a search engine innovator, Google spins its web around the patent of 1998 for ever tighter, without being able to escape disruptively.

The Blockchain will lead to a re-organisation of the markets

According to Schumpeter, the principle of economic innovation is a new combination of production factors with its five case studies, as there are production of new or better goods, new production methods, new markets, new delivery sources or the re-organisation of markets. Blockchain is mainly about the latter, the re-organisation of the markets. The „enforcement of inventions“, which do not occur evenly but in temporal leaps, is the core of modern economy according to Schumpeter. Only innovation creates the actual entrepreneurial profit, which turns it into the core function of entrepreneurship. What could be more disruptive?
Schumpeter’s intensive study of Marxism is by no means to be understood as appreciation or admiration. On the contrary, it is the classification of a threat. He basically says that capitalism creating a „mistrusted economy” loses the power of innovation. An objective transformation of Schumpeter’s ideas from 1929 into the year 2018 is clearly not possible. Above all because companies like Facebook, Google, Uber and Airbnb did not exist at that time. Still, companies of this calibre should confront his brilliant analysis, since a lot of his observations are of a prophetic nature like this passage from 1929:

„In the past it would have been an entrepreneur’s deed if the leader of the biggest telephone system in the world, – a private enterprise – had, at the right time, changed to automation of the telephone service. Today he has a National Economic Bureau which predicts him in all probability that in the next ten to twelve years there will be a lack of telephone civil servants in New York and automation will be tackled automatically. (…) The average businessman still looks to (the calculation methods) like the cabman to the automobile, basically convinced that this machine will never gain any practical importance. (from J. A. Schumpeter, Schriften zur Ökonomie und Soziologie, Page 93)

The resource blockchain is available in Germany since 2000

Just think about VW and the topicality of this quote becomes apparent. A country which, with SAP, has only one globally relevant IT enterprise to show, should put the challenge of the blockchain revolution at the top of its agenda.
From a scientific point of view the proximity of the blockchain approach to models of self-organisation is interesting. Schumpeter was also very keen on using metaphors from the anatomy when describing world economy as “an organism” and “something living”. In his “Schriften zur Ökonomie und Soziologie” he explores: „What we uneconomically call progress, essentially means to put productive resources currently unused into practice.”
It has been 18 years that the resource blockchain is available to the Federal Republic of Germany. In August 2000 Stefan Kost delivered a milestone with his diploma thesis “Sichere Log-Dateien auf Grundlage kryptographischer verketteter Einträge“ (Secure log-in files based on kryptographically chained entries) at the technical university of Braunschweig which could be classified in a league with the Google/Stanford patent of 1998. However, Minister of Economics at that time was Werner Müller, former CEO of Ruhrkohle AG. Supporting the climate change to be socially acceptable with fossil fuels was politically more important than laying the foundation for a German Silicon Valley.
The question remains how the state is going to deal with that pinch of uncertainty every revolution entails. Schumpeter’s answer to that: „As long as the industrial circles are the driving force of economy, and there is no other, and cannot be another organ for the fulfilment of this function, state regulations will in general not be more than a mere lesser evil.” (page 101)
The TEAL team is convinced that the combination of a Schumpeter-blockchain with the economy of a John Maynard Keynes will display a socially acceptable innovation in Schumpeter’s sense.