Blockchain: Leveraging a Trust Technology in Expeditionary Economics

BLOCKCHAIN: LEVERAGING A TRUST TECHNOLOGY IN EXPEDITIONARY ECONOMICS CARL J. SCHRAMM By now, the rule of law is universally considered a critical prerequisite for help- ing an undeveloped nation emerge with a self-sustaining, expanding economy. While an uncontested element of development theory, establishing the rule of law is so difficult in practice that it is seldom attempted. An example: Frustrated with the diffi- first step on the road to creating a credit- culties of post-conflict pacification, the based economy, the U.S. found itself second Bush administration turned to inventing a makeshift economic develop- establishing the rule of law as the central ment strategy on the fly. Unlike past situ- step in restarting the Iraqi economy.1. U.S. ations, where Army doctrine anticipated development officials, however, did not having to rebuild and temporarily admin- consider its implementation possible. ister the governments and economies of While visiting a farm on the outskirts of defeated nations, U.S. forces deployed in Tikrit in 2010, I asked how the farmer Iraq and Afghanistan had no such remit could prove his ownership of the land on and no institutional memory of perform- which we stood. A USAID official deflect- ing these roles, let alone contemporary ed my inquiries by invoking the dogeared training in managing such responsibili- formula that informal traditions of access ties.3. to the nearby stream for irrigation operat- The military instead looked princi- ed as a de facto claim to the land. The idea pally to USAID, a civilian development of a written deed recorded with the local agency, under a newly devised approach government was dismissed as pie in the referred to as “whole of government.”4. sky.2. Without authority to engage in civilian Instead of pursuing a workable rede- state-making, the military trusted that velopment plan that focused on establish- USAID, as well as several executive ing property ownership as a fundamental departments and independent agencies, 28 innovations / Blockchain for Global Development II Downloaded from http://www.mitpressjournals.org/doi/pdf/10.1162/inov_a_00273 by guest on 02 October 2021 could provide field commanders with an izens. Democracy, Rostow argued, was effective strategy to rekindle Iraq’s econo- sure to follow. my.5. After several decades of attempts to USAID’s competency with large- make take-off happen, it was clear that scale economic development in post-con- USAID didn’t know how to cold-start an flict situations was, unfortunately, nonex- economy. When confronted with the istent.6. The agency had been created early need for a strategy to restart the Iraqi in 1961 to counter Soviet efforts during economy, the agency turned to extramu- the Cold War to draw developing nations ral consultants. The roadmap provided, into its ideological orbit, including state “Moving the Iraqi Economy from planning of economies, by funding major Recovery to Sustainable Growth,” infrastructure projects.7. America’s copy- rehearsed Rostow’s view that formal cat policy, conceived by Walter Rostow, institutions must be in place for take-off was known as the take-off theory.8. to occur.10. Not surprisingly, the plan jus- Ironically, Rostow saw central plan- tified spending enormous sums to build ning as necessary to the five stages of various governmental agencies that mim- growth that every modern economy must icked our federal system, institutions traverse.9. Beginning with subsistence thought necessary to support a function- agriculture, any nation’s achievement of ing economy.11. An Iraqi equivalent of the what Rostow described as a mass con- U.S. Securities and Exchange sumer economy could be hurried along if Commission to regulate nonexistent a rich nation built the predicate institu- stock trading is one example, efforts to tions (roads, bridges, electrical grids, hos- build local chambers of commerce anoth- pitals, schools, banking systems, etc.) er. necessary to achieve “take-off” velocity, his third stage of economic growth. Once EXPEDITIONARY some growth had been realized, he ECONOMICS argued, a maturation process would enable the nation to transition into the Notwithstanding its contemporary final stage—a growing free market econo- embrace, Rostow’s theory had been sus- my that provided modern goods to its cit- pect for decades. Reality presents a ABOUT THE AUTHORS Carl J. Schramm is a University Professor at Syracuse University. Schramm served as president of the Ewing Marion Kauffman Foundation from 2002 to 2012. While there, he initiated the institu- tion’s commitment to research on innovation and its link to entrepreneurship. He served on the faculty of the Johns Hopkins University, teaching health policy and finance. As an entrepreneur, Schramm started several companies in healthcare informatics and risk assessment. His corporate experience includes being CEO of Fortis Healthcare. His most recent book, Burn the Business Plan, What Successful Entrepreneurs Really Do, was published by Simon & Schuster in 2018. © 2018 Carl J. Schramm innovations / volume 12, number 3/4 29 Downloaded from http://www.mitpressjournals.org/doi/pdf/10.1162/inov_a_00273 by guest on 02 October 2021 Carl J. Schramm powerful critique. In more than six at forming new firms in developing coun- decades, USAID could not claim a sin- tries have failed.18. Prime among them is gle example of a modern economy that that, in most countries where economic emerged as a result of its ministra- development efforts are of particular tions.12. Worse yet, contemporary importance to the U.S., the absence of for- examples of cold-start economies, mally articulated rules that establish unaware of Rostow’s required stepwise property rights for the physical and intel- prescription, were at hand. Modern lectual assets of existing and new busi- Singapore, founded in 1965, began as a nesses are woefully inadequate or nonexistent. Without them, the risks of starting fishing village with no natural new firms or reestablishing preexisting resources, insufficient farm production ones are so high that it is unlikely that a to feed its population, and virtually no modern economy can take shape. manufacturing.13. Fifty years later, what its founder described as “a tiny Chinese RULE OF LAW island in a large Malay sea” was a flour- ishing first-world finance and trade- As suggested, the foundation of expedi- centered economy.14. tionary economics rests on studies A third challenge to Rostow’s thesis showing that the salient force in devel- arose when a group of respected econo- opment is indigenous innovation that mists proposed a new “cookbook” for leads to increased levels of entrepre- development. Endorsed by the neurial risk-taking.19. As American his- International Monetary Fund, the World tory demonstrates, the nation’s early, Bank, and the U.S. Treasury, it became 15. unprecedented, and unequalled eco- known as the Washington Consensus. nomic success depended on individual Again, there is no evidence that the con- inventors and entrepreneurs who creat- sensus formula—“stabilize, liberalize and ed new technologies and, importantly, privatize”—has ever worked in practice.16. new business firms. This occurred in a Expeditionary economics was proposed as a situation-specific approach to past that to a modern observer would economic development to guide action in seem chaotic; for one thing, there was the wake of wars and catastrophic natural virtually no government regulation of disasters.17. This model serves a larger market practices or products. In retro- purpose, namely, a more actionable and spect, it is clear that the transition from effective approach to economic develop- a mercantile economy to capitalism is ment than Rostow’s five-stage model, nothing if not messy. which continues to be the default guide to Critical to the success of the early U.S. government aid. American economy, however, was Central to the theory of expeditionary English common law. While the pre- economics is the notion that indigenous dictability that a fair and efficient legal entrepreneurial activity is the key to system provides has been regarded as nec- development. While U.S. foreign policy essary to economic growth since the ini- has adopted the veneer of promoting tial observations of Adam Smith, Rostow entrepreneurship, positive results, as failed to appreciate the centrality of legal measured by newly formed firms that sur- rules to the modern development of com- vive five years and create significant num- merce. He was not alone; among the bers of new jobs, are hard to find. There Washington Consensus’ ten broad policy are many reasons that U.S. efforts aimed objectives, the last in order of importance 30 innovations / Blockchain for Global Development II Downloaded from http://www.mitpressjournals.org/doi/pdf/10.1162/inov_a_00273 by guest on 02 October 2021 Blockchain: Leveraging a Trust Technology in Expeditionary Economics was “legal security for property rights.” eralized credit as a way to kickstart the This phrase was a modern articulation of economy. It is hardly surprising that John Locke’s rule of law, which in turn is fewer than 3 percent of homes in Iraq a restatement of Aristotle’s view of law as were financed by mortgages.24. central to an efficient and virtuous socie- ty. The U.S. Constitution explicitly linked BLOCKCHAIN the hoped-for success of American TECHNOLOGY: A NEW TOOL democracy to specific, clearly articulated FOR EXPEDITIONARY 20. property rights. ECONOMICS In attempting to encourage the growth of foreign economies, however, History is marked by technical innova- the U.S. commitment to installing the rule tions that changed everything—the of law has been selective. In post-invasion wheel, sailing, bicycles, electricity, tele- Iraq, for example, establishing the rule of phones, cars, airplanes, television, air law meant imposing a formal constitu- conditioning, atomic weapons, the tion, defining a corpus of criminal law Internet, and cell phones.

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