Policy for the future: Lessons from bitcoin
If you took a time machine back to 1980, gathered a room full of policy makers and economists, and asked them what sectors would be the most valuable sectors in 2016, the answers you received would have been strange. You probably won’t have many suggesting that Nollywood would be huge, or that telecoms would be bigger than steel. In fact, you may have driven out of the room if you suggested that the top ten most valuable companies in the world would be IT firms. What if you gathered a room full of policy makers and economists today and asked them to predict what sectors will be the most valuable in 2040? Guaranteed the answers will probably vary depending on which policymaker you ask, but what are they odds that any of them will get it right?
Therein lies the challenge for policymakers. You have to make policy for a future that is largely unpredictable. If the future is unpredictable then how do you make policy for it?
First a little lesson in probabilities. Most of us played Ludo growing up so we are familiar with rolling dice. If I gave you a six-sided dice and asked you to roll it, what is the probability that you will roll a six on your first try? Mathematically you have a one in six chance of rolling a six. You could get it on your first try, but you probably will not. What if I got you and two of your friends to independently roll a dice. Of course the probability that any of you will actually roll a six is the same, but the probably that if three of you roll the dice, one of you will get six is a bit higher than one in six. It is not in three in six but let’s leave that for the mathematicians. What if I got your whole extended family of say 100 people and asked them all to individually roll a dice. In that instance you can almost guarantee that somebody in that pool will roll a six. Even though it will be difficult to predict who rolls the six beforehand, given that everyone has the same one in six odds, you are almost certain that somebody will.
The logic behind probabilities is not restricted to games but has very real world applications. Indeed, bitcoin, the cryptocurrency that is becoming very prominent, is based in part on that logic. Bitcoin mining, the process of validating new transactions, is based on many people (or computers) trying to solve a mathematical puzzle that is very difficult to solve. So difficult that it involves a lot of guess work, with the probability of any particular person guessing correctly very small. Much smaller than our one in six odds with the dice. The probability is so small that it is virtually impossible to predict in advance, which computer will solve the puzzle first. However, because there are many people with many computers, each trying to solve the puzzle, it is almost a certainty that the puzzles will be solved by someone.
Policy for the future
What does this all have to do with policy making for the future? In many respect the problem facing the policy maker is similar to that facing the person trying to predict who will roll a six in advance, or which computer will solve the mathematical puzzle. Yes, the future could be all about agriculture and plantain bread but what if it isn’t? What if the future value creating industries are in IT or the clothing sector or in some sector that has not been invented yet? Future agriculture could be all about rice and wheat farming but what if it isn’t and the future is all about chickens and potatoes? In essence, the question every policymaker should be asking is; What if our guess about the future is wrong?
It is a very important question because if you force everyone to focus on agriculture and plantain bread but the future turns out to be about IT then your policy has made people worse off. If you induce farmers to grow rice and wheat and future farming turns out to be all about chickens and potatoes, then you have made farmers worse off. If you create policy that places all the emphasis on cement but the future turns out to be all about steel, then you have made people worse off. If you use fiat to allocate foreign exchange to manufacturers but the future turns out to be in financial services, then you have made everyone worse off.
How do you make policy when you cannot predict the future? Create a level playing field and give people the freedom to roll their own dice. Some will choose IT, others will choose agriculture. Some will choose the clothing/fashion industry, others will choose the sector that has not even been invented yet. Even though we cannot predict which sector will thrive beforehand, we increase the probability that some will succeed, and the others will learn what works.
This does not mean that there is no room for strategic planning. There always is. We just need to make sure than we allow for the probability that the plan could be wrong, and give people the freedom to disagree.
Nonso Obikili is director of applied economics at the African Heritage Institution and tweets @nonso2. The opinions expressed in this article are the author’s and do not reflect the views of his employers.