We all know Web3 is about decentralization, but why decentralization is better than centralization?

In a recent article Vitalik Buterin admitted the difficulty of constructing a purely mathematical theory to answer this question. He argued that cultural factors, which are not easily quantitatively modeled, play a significant role. Maths tools can only help to verify some rough first-pass guesses, rather than explain average-case behavior.

To build a stronger foundation for the whole Web3 society across diverse social backgrounds globally, we need a fresh perspective beyond those existing quantitative methods or plain democratic narratives.

Over the next few dozen sections, I try to figure out this new perspective and practice it by analyzing three key questions:

1. Why developed countries are generally more decentralized than developing ones? In this part, I will focus on the Chinese-Western comparison, the strongest centralized empire V.S. a long-lasting decentralized states system.

2. How a decentralized organization works and how can it avoid falling apart? The Indian and Islamic cultures are major roles here.

3. How to build a successful consensus in a DAO（Decentralized Autonomous Organization）? The operating of the US constitution and the modern art market will offer valuable lessons. Smart-chain and NFT would also be included under this topic.

By writing these prehistory of a real Web3 world, my ultimate vision is to make decentralization better understood by more people, and the first step is to establish a compelling theory within our Web3 society. Recognizing that all initial theories have limitations, I actively welcome your constructive feedback and criticism.

Now let’s go.

Jared Diamond talks of a famous question in his Guns, Germs, and Steel (1997), which says:

“Why is it that you white people developed so much cargo and brought it to New Guinea, but we black people had little cargo of our own?” 「1」

Nearly 30 years after Jared wrote his book, now the question may become like that:

“Why is it that Chinese people developed so much cargo and brought it to every corner of the world, and the white people can hardly stop it?”

China became the world’s largest exporter of goods since 2009 「2」, and the second largest economy since 2010 「3」. Even in high-tech products like vehicles, China seized the export crown as of 2023.

About 200 years ago, China was once the richest country in the world, then significantly declined from the mid-19th century, and now rise again. We need a theory not only to explain the former decline, but also to explain its present power and predict its future. However, a satisfactory answer is still absent at all.

This section will start by examining the first half of the China paradox — its decline.

An influential but inadequate theory to explain this is made by Kenneth Pomeranz, the former president of the American Historical Association, in his book The Great Divergence (2000). Pomeranz attributed China’s decline primarily to the natural environment, especially the Western’s proximity of coal mines and having many fertile colonies. He said London had much closer access to its coal deposits compared to China's core region, which enabled England to maximize the power of its steam engine and gain an advantage over China「4」. As he formally stated, “forces outside the market and conjunctures beyond Europe deserve a central place” other than the internal structures in Western societies「5」. If so, it means the diversity of human social systems and cultures is negligible.

Obviously this theory is counter-intuitive, as well anti-ethical. If a society’s future is mainly decided by the nature, there would be no need to cherish any ethical values and strive for any good organization. Under that argument, maybe the best way to live is to behave like beasts.

In contrast to Pomeranz’s thesis, economist Deepak Lal gave a unique point. He concluded that two “papal revolutions” in the 6th and 11th century, which promoted love marriages and justified certain economic activities,  paved the way for modern individualism and free markets, even though the Church did these only for accumulating wealth for itself「6」. While the medieval China didn’t do this, so it was gradually outpaced by the West.

Lal exaggerated the effect of human ideology as he could not answer why other countries which also opposed love marriage like Japan developed rapidly in modern times. At the same time, Pomeranz’s radical materialistic view is also unacceptable「7」. They both ignored that neither natural resources nor spiritual beliefs can work alone outside a certain social system. Only by investigating these social systems can we find the essential reason of China’s previous mess.

Along this direction,  British historian Eric Jones proposed an insight through his notable work The European Miracle (3rd edition, 2003). He thought the European countries surpassed  China largely because they had a states system. His perspective is as follows:

More fundamental was the states-system (of Europe), very different from the unitary empires of Asia and the Middle East.

Against the economies of scale that large empires could offer, the decentral­ization of Europe's states-system offered flexibility and a family of experiments in government decision-making. ……

(The) latent competition among the states helped to curb the arbitrary behavior (and idleness) of rulers. The fact that a more or less shared culture overlay the political map fueled this competition by making it easier for capital and labour to exit from the more arbitrary states. This was a blind process that tamed rulers and induced them to offer more business-friendly conditions, even though their motives were less economic growth for its own sake than higher tax revenues and military power. ……The mechanism of the states-system overrode the governance of individual states, putting pressure on their rulers to lower barriers allowing the efficient allocation of resources and free flow of goods. 「8」

Briefly speaking, Jones found that a healthy free market can flourish more easily in a properly decentralized society like the Western Europe, rather than a highly centralized society like China.

Standing on Jones’ side, Jared Diamond developed his idea furthermore「9」. Diamond attempted to explain why China has a particularly long tradition of centralization and located the answer by maps:

China’s heartland is bound together from east to west by two long navigable river systems in rich alluvial valleys (the Yangtze and Yellow Rivers), and it is joined from north to south by relatively easy connections between these two river systems (eventually linked by canals). As a result, China very early became dominated by two huge geographic core areas of high productivity, themselves only weakly separated from each other and eventually fused into a single core.

Europe’s two biggest rivers, the Rhine and Danube, are smaller and connect much less of Europe. Unlike China, Europe has many scattered small core areas, none big enough to dominate the others for long, and each the center of chronically independent states. 「10」

Jones and Diamond together do prove that it’s the centralized nature which hindered China’s modernization in past centuries. Nevertheless, their studies are strictly limited to the economic aspect, with very little regard for the cultures and values. Jones even declared that cultural explanations cannot cope with regional divergences in economic performance.

Supposing you refuse to consider the cultural factors, it would be difficult to understand the recent success made by the same centralized China. A even more challenging question is below: if decentralization is truly the key, why other decentralized society such as India and the Southeast Asia develop much more slowly and less stably?

These questions actually highlight the need for a multifaceted approach that considers economics, politics, and culture simultaneously.

It’s not a new thing, but should be done in a new way, which is the topic of the next section.

____

Notes:

1 Jared Diamond, Guns, Germs, and Steel (Norton, 1997), the Prologue.

2 https://www.investopedia.com/ask/answers/011915/what-country-worlds-largest-exporter-goods.asp

3 https://www.nytimes.com/2010/08/16/business/global/16yuan.html

4 Kenneth Pomeranz, The Great Divergence: China, Europe, and the Making of the Modern World Economy (Princeton, 2000), p.66.

5 Ibid., p.297.

6 Deepak Lal, “Does Modernization Require Westernization?”, The Independent Review, Vol. 5, No. 1 (Summer 2000), pp.11-12. The love marriage leads to more frequent divorcements and would create more widows who have no heir and have to leave bequest to the Church.

7 Notes: the anti-eurocentrism Pomeranz is a pure American, while the euro-centric Deepak is from India.

8 p.245. The content in brackets underlined is the original text of the author, and those in brackets without underline is added by me to facilitate understanding.

9 In the Epilogue of his Guns, Diamond said Chinese people didn’t discover the new continent “because the entire region was politically unified. One decision stopped fleets over the whole of China. That one temporary decision became irreversible.” This example and conclusion is the same like Jones’ (his The European Miracle was first published in 1981), which said “In longer perspective states systems do have some advantages. Because they spread power around, wrong-headed and incon­trovertible systems-wide decisions could not be imposed by some central authority ……Thus no negative centralist decision could thwart change. ” (p.109)

10 Diamond, p.414.

11 Eric Jones, “The real question about China: Why was the Song economic achievement not repeated? ”, Australian Economic History Review Vol.30, No. 2 (September 1990). p.16. He said: “The content of Confucianism may just conceivably have altered neatly between these periods, but if it did some external force is likely to have been moulding it. ”