Use market economy philosophy to analyze Elastos token burn issue

Author:Lao Mao

Hayek said: In the long run, it is the concept, and therefore it is the person who spreads the new concept, which dominates the process of historical development.

In a free society, everyone decides independently and bears their own responsibility, which is the basic essence of freedom. If these things are handed over to a third party, it will violate human freedom.

Since the establishment of Elastos, it has gone through a difficult road of rational construction and development. Among them, because it did not realize the original airdrop coin concept, it left a huge amount of unprocessed assets, and then its purpose was changed by modifying the white paper. As a development fund to support the Elastos Ecological Project, it is regrettable that this approach has moved towards the opposite of a freely competitive market economy-subsidized industrial policy.

Industrial policy is an important path for the contest between the capitalist market economy and the socialist planned economy. It is also a guiding indicator for some people to measure whether the government is promising. However, the results are disappointing no matter from the practice of developed economies or developing economies.

After the 1990s, there was a lot of detailed research on Japanese industrial policy, and a basic conclusion was reached: Japanese industrial policy has generally failed. Michael Porter and others used accurate data to prove that the 20 most successful industries in Japan basically have no effect on industrial policy, even if they do, the effect is minimal; on the contrary, the 7 most failed industries are all seriously affected by industrial policies . After the 1980s, Japan’s industrial policy mistakes abounded, including the research and development of fifth-generation computers, analog technology, and mobile communications, all of which were led astray by industrial policies. The Ministry of International Trade and Industry myth was shattered.

Before the reform, China implemented a planned economy. After the reform, the industrial policy replaced the planned index, which was the planned economy in a vest. As Liu He and Yang Weimin said in the preface of the book “Industrial Policy in China: Theory and Practice”: "Plan is an industrial policy, and industrial policy is a plan, both of which reflect the government’s intervention in economic life and resource allocation. "

Since the 1980s, there have also been numerous examples of failures in China’s industrial policy, and there have been numerous examples of successes. This is not denied by even Keynesian economists. Which of the persistent structural imbalances and overcapacity in the Chinese economy is not the result of government industrial policy?

The reasons for the failure of industrial policies are exactly the same as the reasons for the failure of the planned economy. In a nutshell, the reason why industrial policies have failed is because of the limitation of human cognitive ability and because of the distortion of incentive mechanism. More generally speaking, one is due to human ignorance, and the other is due to human shamelessness. The limitation of cognitive ability is more fundamental than the incentive mechanism.

  1. The limitation of cognitive ability.

To put it bluntly, it is known that Wanjin is difficult to buy. It is difficult for us humans to predict which industry will usher in the outbreak of innovation, which can create huge commercial value and social value. New technologies and new industries are unpredictable. A basic assumption of those who support industrial policy is that technological progress and new industries are foreseeable and therefore can be planned. This assumption is completely wrong. New industries always come from innovation. History has proven that innovation and new industries are unpredictable. This is because: the innovation process is full of a series of uncertainties, and innovation has no statistical rules to follow. The uncertainty of innovation makes it impossible for us to foresee the results of the search and pre-establish a path to a specific goal; we neither know where the goal is, nor where the truth is, and can only move forward through continuous correction of errors. People’s analysis of innovation and industrial development is “after all.” If innovation can be predicted in advance, then it is not innovation! 30 years ago, no one foresaw today’s leading industries (Internet, new energy, biopharmaceuticals, etc.), and today it is impossible to predict what will happen 30 years later.

Innovation is a process of trial and error, and its unpredictability means that the only way to achieve innovation is the freedom of economic experimentation, that is, Hayek’s “independent efforts of the people” with different knowledge and different opinions, rather than putting themselves Lock on a predetermined path.

The advantages of decentralized decision-making: each entrepreneur decides what to do or not to do according to his own vigilance, imagination, and judgment; market competition determines success or failure: successful innovation brings profits, is continuously copied and diffused, and becomes a new growth point; The failed test stops.

Industrial policy is a centralized decision-making, which means that the social resources are concentrated on the goals selected by the government. This is a gamble! The probability of success is very small, and the cost of failure is huge. If everyone has a 90% chance of making mistakes and 10 people make decisions separately, the probability of making mistakes at the same time is only 34.9%, and the probability of at least one person succeeding is 65.1%. As long as one person succeeds, society has this product. On the contrary, if a decision is concentrated, the probability of success is only 10%.

There is also an indisputable fact that government officials do not have the alertness and judgment of entrepreneurs; even if they do, there is no incentive like entrepreneurs. Experts also have no ability to formulate industrial policies. Experts are not entrepreneurs. They may have the hard knowledge necessary for innovation, but not the soft knowledge necessary for innovation. It is also impossible to succeed in formulating industrial policies by entrepreneurs, because past success is not a guiding light for the future, and innovations that have an important impact on economic development usually come from unknown entrepreneurs, not business leaders who have achieved success. Many splendid companies went bankrupt because of the disruptive innovation of new and more innovative entrepreneurs.

  1. Distortion of incentive mechanism.

The market has different incentives for government officials and entrepreneurs, which leads entrepreneurs to be willing to take risks, as long as they do things; government officials will avoid risks and do things right-the simplest “right” is to be in the process Impeccable. When risks are exposed and things may not be done, entrepreneurs will resolutely take responsibility and take measures to correct and stop losses. Government officials are more motivated to prove that they are not wrong. If we can obtain information about the consequences of all actions, we can of course design an incentive mechanism so that they have no room for rent-seeking. But in theory or in practice, it is impossible to obtain such information. There is no way to effectively measure the input and output of government officials, and there is no way to effectively incentivize them. We can only carry out procedural supervision and control, try to make them manage less things, and make it clear what we can only do. This is what “limited government” means.

As far as industrial policies are concerned, there are special difficulties in the design of incentive mechanisms: the consequences of a policy will take a long time to show up, and policies that look good in the short term may be bad in the long term; Depends on the formulation of policies, but also on the implementation of policies. But government officials traded back and forth like a lantern, and it was impossible to define the personal responsibility of each official. Every official has sufficient reasons to defend his decision. It is difficult to distinguish whether the “jing” is wrong or the monk is wrong!

Elastos CRC uses a total of 16.5 million Ela to fund the development of ecological projects. There is no essential difference from the government’s industrial policy, that is, to believe in human rationality, and to achieve its intended goal with the planned economic thinking. However, in the implementation process, it will encounter two major problems: ignorance and shamelessness. Even if the CRC democratically elected committee is strictly controlled, it will not prevent developers from using self-interest to use the fund as a cash machine. At the same time, the developer is not unsure that the prophet will surely achieve the success of the ecological project. The final result is the majority of currency holders pay the bill.

The only effective incentive mechanism I can think of is: If you want to realize an investment in a project, you should let the people who are in favor of the project take out some of your own money to invest or make collateral. Since you think this investment is good, then give you a chance to make a lot of money! Investing in coins shared by coin holders will always have serious adverse selection and moral hazard. The best incentive mechanism can only alleviate people’s shamelessness, not solve people’s ignorance.

Perhaps Hayek’s words will enlighten us: since true knowledge can only exist in everyone’s limited experience, the formation of social order must be based on respect for the individual’s experience and knowledge. The individual’s experience and knowledge are in order The creative role played in the formation is to allow them to compete spontaneously in mutual exchanges, thereby forming a natural choice for the survival of the fittest.

Hayek has insight into the existence, continued institutional conditions of human civilization, and other more complex conditions; his research work is not against the rational ability of human beings, but to reveal the origin, evolution and core operating mechanism of civilized society, and to defend civilization , What we should and should not do.

Transfer from [Chain World]: Original Chinese version is at https://www.lianshijie.com/elastoss/462000