One of the central tenets of peer-to-peer economies is that they lack the massive corporations that are a mainstay of traditional retail economies. This shift away from a handful of dominant corporations serving as the main employers and producers of goods in an economy towards a decentralized peer-to-peer economy in which individuals are the primary producers interacting with consumers is known as decorporatization.
Decorporatization can be difficult to envision given the high degree to which modern economies are dominated by large, centralized corporate structures. However, there are several ways in which decorporatization is already occurring as peer-to-peer based marketplaces emerge, raising the question of whether a shift towards decentralized markets is beneficial for consumers and the economy as a whole. Besides, the advent of peer-to-peer marketplaces brings some immediacy to the question of how peer-to-peer economies should be governed.
In this article, we will examine the forms that decorporatization is taking in the modern world, its potential benefits for the economy, consumers, and producers, and discuss the advantages of code governance as a model for optimizing the economic outputs of peer-to-peer marketplaces.
Decorporatization in the Modern World
Decorporatization has been proposed as one of the fundamental ways in which to decentralize the global economy (Hoefer 1996), shifting financial and production power away from a handful of large companies towards a broader base of individual producers. At the same time, peer-to-peer marketplaces must develop to efficiently connect consumers with this new base of producers to eliminate the need for large corporations. The resulting global economy will thus be driven by a wide range of peer-to-peer marketplaces, neither redundant nor superfluous, that is distributed globally to connect producers and consumers.
Although it is often lost against the backdrop of increasing corporate mergers and acquisitions — essentially indicating a further movement towards corporatization and economic centralization (Deloitte 2018) — decorporatization is taking place to a significant degree as a sub-movement within the broader global economy. For example, self-employment, one of the measures that essentially tracks how individuals migrate from a producer role in a corporation-dominated economy to a producer role in a peer-to-peer economy, is on the rise. In the United Kingdom, two out of every five new jobs created between 2010 and 2014 has resulted from a gain in self-employment (TUC 2014). Although the sources that these new self-employed producers were drawn from and their subsequent involvement in peer-to-peer economies may vary, the very movement towards an increased number of self-employed producers is indicative of a trend towards decreasing economic centralization and possibly of a trend towards decorporatization. In fact, the possibility of this new trend in decoporatization has been given a name: the gig economy.
The rise of the gig economy and of peer-to-peer online marketplaces is also a form of economic decentralization that presents a direct challenge to large, entrenched corporations. Airbnb, a company that essentially serves as host to a peer-to-peer marketplace for accommodations, has, for example, effectively disrupted existing corporations in the hotel industry such as Hilton and Marriot — publicly traded corporate behemoths that concentrate economic power within their industry. In the same vein, peer-to-peer ride-sharing platforms such as Uber and Lyft have presented significant challenges to existing taxi services that, like corporations, concentrate economic power within their industry and regions of service within central organizations. Even online goods marketplaces, such as Etsy, have worked to challenge the centralized economic power of traditional retail stores by offering a peer-to-peer alternative to traditional retailers — in the process reducing the number of goods that people purchase from large corporations and empowering self-employed producers within the new peer-to-peer economy.
Efficiency and Potential Benefits of Decorporatization
The growth in self-employment, the rise of the gig economy, and the development of peer-to-peer marketplaces in numerous industries, all of which challenge corporate retail structures and the highly centralized global economy, raises a central question — does decorporatization offer benefits to society?
The answer is complex as there will undoubtedly be winners and losers as the landscape shifts from the corporation-dominated, highly centralized economic landscape of the present global economy to the peer-to-peer-dominated, highly decentralized economic landscape of the future. However, there are several indications that decorporatization will be more efficient for the economy overall as well as provide economic opportunities for a large number of people who are generally at a disadvantage in the corporatized economy.
Economic Efficiency
One of the major advantages of a decentralized, decorporatized economy is that it offers significantly higher efficiency in matching producers with consumers. The benefits of decentralization have been largely studied with respect to resource allocation by governments among their sub-regions — highly centralized governments suffer from failures to achieve “perfect correspondence” between the resources they provide in any given sub-region and the needs of the people in that sub-region (Oates 1972; Martinez-Vasquez and McNab 2001). The efficacy of decentralization in solving this problem has been put to the test in modern China, where a policy of increased fiscal decentralization from the central government played an important role in the country’s economic growth over the past several decades (Lin and Liu 2000).
The lessons learned from the failure of centralized fiscal models and the success of fiscal decentralization can be applied to decorporatization. Highly centralized corporations necessarily fail to achieve “perfect correspondence” between their product offerings and supplies across the variety of geographic regions and market sectors that they cover. Meanwhile, decorporatization, and particularly the development of highly local and highly focused peer-to-peer marketplaces, offers a means of achieving more efficient resource allocation and better correspondence between producers and consumers.
Human diversity
Another important benefit of decorporatization is the development of a borderless economy and the inclusion of a greater diversity of producers and consumers in the global economy. Peer-to-peer networks and marketplaces outside the control of highly centralized corporations are essential to the establishment of alternative currencies — including cryptocurrencies — that are required for seamless international transactions. These currencies, which operate on the backs of peer-to-peer networks and outside of any government or corporations’ control, are highly decentralized and have the potential to be an effective means of enabling people in developing countries to participate in the global economy (Kshetri and Voas 2018).
In addition to the establishment of decentralized currencies that facilitate trade between the developing and developed world, decorporatization offers the potential for an influx of human diversity into the global economy. Already, the positive effects of decentralization on diversity have been observed in countries where sub-regions or sub-populations have been given partial or full economic or governmental autonomy (Ghai 1998). More generally, the rise of peer-to-peer marketplaces and a shift away from centralized corporations lowers the bar for entry into a wide variety of industries. For example, the diversity of artists on the Billboard Top 200 album charts increased markedly following the appearance of peer-to-peer music sharing (Cooper 2005), while Uber and other ride-hailing platforms have drastically lowered the training and financial barriers to entering the taxi industry. Furthermore, a shift away from large corporate structures towards self-employment and borderless economies will undermine the institutional bias that is entrenched in many large corporations (Dobbin and Jung 2011), thus further increasing diversity within the economy.
Environmental impact
A lesser, but still noteworthy effect of decorporatization is that it is likely in the long run to improve environmental sustainability. Centralized corporations necessarily suffer from being geographically mismatched from the majority of their consumer base, requiring extensive logistics chains that negatively impact the environment (Dey, LaGuardia, and Srinivasan 2011). Although peer-to-peer marketplaces are not necessarily more sustainable, particularly in the context of a borderless, global economy, they do offer the potential to dramatically reduce the environmental impacts of supply and delivery chains when producers and consumers are matched within geographic regions.
Code Governance of Peer-to-peer Economies
Given the advantages of a shift towards decentralized peer-to-peer economies, one of the fundamental issues that must be considered is how these new marketplaces will be governed in the absence of centralized corporate structures. The question is non-trivial since peer-to-peer marketplaces are largely anonymous, there is little cost to creating an alternate identity after a failed transaction, and the likelihood of producers and consumers interacting with users they have encountered in the past decreases as the size of peer-to-peer marketplaces increases (Einav, Farronato, and Levin 2016). Thus, there must be a mechanism in place to provide producers and consumers confidence that transactions taking place within the peer-to-peer economy will be successful.
At present, there are a few, largely subjective mechanisms for establishing trust within peer-to-peer marketplaces. In the case of marketplaces that are facilitated by a centralized company — for example, Ebay — the company can offer guarantees to the consumer to step in in case a producer fails to deliver a product as advertised. However, these guarantee mechanisms are costly and only function in the case of peer-to-peer marketplaces that are under the umbrella of a centralized corporation (Hui et al. 2014). A second mechanism, used by nearly all current peer-to-peer marketplaces, is a reputation system in which producers and consumers are given feedback related to their trustworthiness following a transaction. Although a reputation system has functioned effectively to filter out the worst actors within peer-to-peer marketplaces, this system still has numerous shortcomings — roughly 98% of feedback to producers is positive given that disappointed consumers often do not leave feedback and a significant subset of consumers fear retaliatory feedback (Nosko and Tadelis 2014; Bolten et al. 2013).
Thus, there is a need for an alternative model to establish and maintain trust within anonymous peer-to-peer marketplaces. An umbrella model that offers promise is to adopt code governance of peer-to-peer marketplaces, in which mathematical algorithms are used to control interactions between producers and consumers within the marketplace.
There are several ways by which code governance can be implemented within peer-to-peer marketplaces. For example, researchers have investigated the efficacy of using algorithm-based incentives to encourage cooperation between producers and consumers. Modeling a variety of incentive structures has demonstrated that algorithms in which producer and consumer feedback is not publicly shared, but rather used to adaptively offer incentives to marketplace users can produce highly efficient levels of cooperation (Lai et al. 2003). Besides, another study proposed the KARMA framework for maintaining the trust and defending against freeloading users within a marketplace (Vishnumurthy, Chandrakumar, and Sirer 2003). In the KARMA framework, the resource contributions and consumption of each user in a peer-to-peer marketplace are tracked by an external set of users, thus alleviating much of the bias in contemporary user feedback systems. Importantly, both of these mechanisms of code governance of peer-to-peer marketplaces maintain the decentralization of the marketplace and reduce the time costs inherent in establishing trust within a network.
Decorporatization and the rise of peer-to-peer marketplaces represent an important movement within the broader global economy. This economic shift towards peer-to-peer economies offers the potential for increased market efficiency, the establishment of a borderless economy, and lower barriers to entry into numerous entrenched industries that will create opportunities for increased human diversity. While establishing trust between producers and consumers within peer-to-peer marketplaces remains an important and significant challenge, several code governance-based solutions offer the potential to facilitate cooperation within these markets.
-Sean Ryan,
CEO, Glitch.
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