Blockchain Revolution

THE NEW PROSPERITY PARADOX
For the first time in modern history, the global economy is growing but few are
benefiting. On one hand, the digital age is bringing limitless possibilities for
innovation and economic progress. Corporate profits are ballooning. On the other
hand, prosperity has stalled. Throughout modern history, individuals and families at
the 51st percentile were on the rise. Despite depressions and upheavals, prosperity for
these individuals, and for society as a whole, steadily increased. This is no longer the
case. Standards of living are even declining in the developed world. Median wages
are stagnating in OECD countries. And, according to the International Labour
Organization, youth unemployment in most of the world is stuck at about 20 percent.
“Young people [are] nearly three times as likely as adults to be unemployed,” the ILO
reported.
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In many developing nations, the numbers are significantly higher. Such
unemployment is corrosive to all societies, no matter what their level of development.
Most citizens want to contribute to their community. Anyone who has been jobless
knows how it erodes self-esteem and well-being. Those with power and wealth are
getting ahead, and those without are falling behind.
This new prosperity paradox, not to be confused with the intergenerational
“Paradox of Prosperity” coined by economists such as Gilbert Morris, has befuddled
every policy maker in the Western world. One of the best-selling business books of
2014, Capital in the Twenty-First Century by Thomas Piketty, became the #1 best
seller on the New York Times hardcover nonfiction list in 2014. A tour de force of
academic scholarship, Capital explains why inequality is accelerating and will likely
continue to do so as long as the return on capital exceeds long-term economic growth.
The rich have gotten richer because their money made them more money than their
work did. Hence, the proliferation of new millionaires and billionaires. But his
solution for how to stem growing social inequality, by imposing a wealth tax on the

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ones who own most of the world’s wealth, was somewhat less inspiring, if only
because we’ve heard it before.
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Indeed, for as long as capitalism has been the
primary mode of production, the debate about how to share the fruits more equally
has not moved much beyond the redistribution of wealth, usually through taxation of
the rich and the provision of public services to the poor. Advocates of our current
economic model point to the hundreds of millions of people in the developing world
(mostly in Asia) who have been lifted out of abject poverty, but often overlook the
asymmetric benefits conferred to the very wealthy and the widening chasm between
the superrich and the rest of the population in those same countries. Today, the global
1 percent owns half the world’s wealth while 3.5 billion people earn fewer than two
dollars a day.
Defenders of the status quo are quick to point out that most of the world’s
superrich got rich by creating companies, not through inheritance. However, behind
the successes of a few are some very troubling statistics. The rate of new business
formation is down. In the United States, the share of total firms that are younger than
one year old fell by nearly half between 1978 and 2011, from 15 percent to 8
percent.
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The millennial generation, oft characterized as entrepreneurial risk takers,
is doing little to buck the trend and may be contributing to it. A recent analysis of
Federal Reserve data found that only 3.6 percent of American households headed by
someone under thirty held a stake in a private company, down from 10.6 percent in
1989.
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In the developing world, the digital revolution has done little to clear the
entrepreneurial path of red tape and corruption. Where it costs only 3.4 percent of per-
capita income to start a business in OECD countries, it costs 31.4 percent in Latin
America and a shocking 56.2 percent in sub-Saharan Africa. In Brazil, an
entrepreneur has to wait almost 103 days to incorporate his company versus 4 days in
the United States and half a day in New Zealand.
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Exasperated by government bloat
and inefficiency, many would-be developing-world entrepreneurs instead choose to
operate in the so-called informal economy. “There are a bunch of things taken for
granted in the West. Property records are fine-tuned, for example. In the Global South,
entrepreneurs would rather the government not know they exist. We need to make
identity a profitable proposition,” said Hernando de Soto. For now, staying in the
shadows frees these entrepreneurs from meddlesome and corrupt officials, but it also
profoundly limits their ability to grow their business, limits rights, and makes “dead
capital” of money that could otherwise be deployed more efficiently.
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Moreover,
even for those who operate their businesses in the open, laws of many countries do
not provide for limited liability. If your business fails, you’re personally on the hook

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for all liabilities. If you bounce a business check in many Arab countries, you go
straight to jail—“do not pass go” or any other institutions of due process on the way.
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Okay, then, the world has always had haves and have-nots. Today fewer people
starve to death, or die from malaria or through violent conflict. Fewer people live in
extreme poverty today than in 1990.
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Certain emerging economies have benefited
from outsourcing of manufacturing and liberalization of economic policies—China
being a prime example of both—and the mean income of citizens in most developed
countries increased. On balance, people are better off than they used to be, right? So
what if the rich just happen to own significantly more? Shouldn’t they keep what
they’ve earned through their efforts? What’s the problem?
Piketty pointed at capitalism. But capitalism, as a system for organizing the
economy, is not the problem. In fact, capitalism is a great way to create wealth and
prosperity for those who know how to use it. The problem is that most people never
get a shot at seeing the benefits of the system because the Rube Goldberg machine of
modern finance prevents many from accessing it.
Financial and economic exclusion is the problem. Fifteen percent of the
population in OECD countries has no relationship with a financial institution, with
countries like Mexico having 73 percent of the population unbanked. In the United
States, 15 percent over fifteen years of age, or 37 million Americans, are unbanked.
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Financial inequality is an economic condition that can quickly morph into a social
crisis.
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In 2014, the World Economic Forum, a multistakeholder organization whose
members include the largest companies and most powerful governments in the world,
argued that growing inequality posed the single biggest risk globally, beating out
global warming, war, disease, and other calamities.
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Blockchain could be the
solution. By lowering barriers to financial inclusion and enabling new models of
entrepreneurship, the tonic of the market could be brought to bear on the dreams and
ideas of billions of the unbanked.