What does governance mean

October 18, 2018

An intro to the principles of governance.

Every collective action whether it is a small group or a vast nation-state follows a governance process. Sometimes this process is formalized, well-documented, and rigid. Other times it is so fluid and informal that it is difficult to observe. The purpose of this post is not to prescribe or analyze any specific process or method for governing, as governance is contextual.

Instead, I want to describe a framework for thinking about the power dynamics associated with a governance process, and explore why its important to decentralize governance by establishing processes which prevent or mitigate the ability for power to concentrate and subvert the process at the expense of the organization as a whole.

Governance as a key management process

A relatively simple but broadly useful way to understand governance processes is to think of every action as requiring a particular set of keys which must be controlled in order to perform said action. These keys are the "keys to power".

As an individual seeking to control the governance outcome, one must either directly control the necessary keys or be able to persuade those who possess the requisite keys to act in a desired way. If the keys required to perform critical actions are held by a few people, then it is likely that the benefits of governance will accrue primarily to the few who hold the most critical or decisive keys.

This theory of governance is described quite well in Bruce Bueno de Mesquita and Alastair Smith's "The Dictator's Handbook" and also summarized by CGP Grey's short video, Rules for Rulers.

This model of governance and politics provides a framework to reason about how governance processes work and the incentives which shape how they might evolve over time.

If we seek to implement a governance process which distributes the most good to the most number, it stands to reason that we should seek to create a governance process that ensures that the keys to decisive actions are distributed broadly and implement processes which prevent or minimize the accumulation of critical keys among a relatively small subset of the population.

The failures of democracy

Using this framework we can explain why citizens in democracies tend to receive more public benefits than those under autocratic regimes. A democracy distributes the decision making authority broadly, and as a result leaders must sway a large proportion of participating individuals to act. However, democratic governance is not free from issues. In my opinion, the two most important failures to consider are that of Rational Ignorance and the Tyranny of the Majority.

Modern democracies have implemented processes to address these issues to varying degrees of success. Rational Ignorance is mitigated through the creation of representative hierarchical structures, and strict adherence to bureaucratic processes such as judicial or constitutional review have helped to stem the tyranny of the majority.

With representative hierarchical structures, decision making authority can be delegated, and decisions can be isolated within smaller subsets of a larger population. Without hierarchical structures, every participant would need to be informed and actively participate in every decision, even the decisions which have negligible impact on them. Its quite clear that this cannot scale as the number and complexity of decisions that must be made increases.

Without judicial review, the interests of minority stakeholders may not be effectively represented, and the ability of majority stakeholders to change the rules can exacerbate the issue over-time.

Despite these preventative measures, modern democracies still seem to fail far too often. Many decisions are made in a top-down manner that hardly represents consensus, and large amounts of power resides in the hands of relatively few individuals.

Can we do better?

One of the exciting prospects of distributed ledgers is the ability to efficiently reach consensus on a shared state. A property that allows us to reduce bureaucracy while maintaining a high degree of trust and certainty that a process is followed correctly.

With this technology we can take a step back, start from first principles, and experiment with new strategies and processes for organizing teams, communities, and even societies.

Is liquid democracy a more effective means of scaling democratic processes than representative democracy? Are there decisions which can be completely automated with no need to vote at all? Can we better protect individuals and minorities by designing systems which allow for more attractive opportunities to "Exit" in response to governance that does not represent your interests?

I'm optimistic that this new crypto-economic toolbox together with smart contract-enabled blockchain platforms will allow us to create a more fair and efficient ways to establish self-governing organizations, and hopefully as these self-governing organizations prove effective they will in turn help usher in a far more fair and efficient social order.