At the end of 2020, General Magic bloomed out of the Giveth Galaxy with the mission to solve the needs of Public Good projects. In this series of articles, we will delve into the challenges public goods face, the role of blockchain technology for collective action, and a few samples of our work that empowers communities creating public goods.

What are public goods?

Public goods are those that are non-excludable and non-rivalrous in consumption. A non-excludable good is one for which it is not possible to exclude individuals from consumption. In other words, once the good is provided, anyone can consume it. A non-rivalrous good is one for which consumption by one individual does not reduce the availability of the good for consumption by others.

A classic example of a public good is national defense. Once defense is provided, everyone in the country receives the benefit, and no one can be excluded. Other examples of public goods include public health, law enforcement, public parks, and public transportation.

Why do public goods matter?

Externalities are the effects of economic transactions on individuals that are not party to the transaction. Public goods create positive externalities. Radio broadcasts are one example. A group of people may produce radio broadcasts, and individuals who are not involved in the transaction can benefit. The same is true for a group of citizens who clean up a public park: even if they were not part of the cleaning team, other individuals would benefit from this.

Similarly, digital public goods include open source software, open data, and open standards. These can be used and reused by anyone, without restriction, and can help to drive innovation and economic growth.

The software that blockchains run on, and the academic research and math that makes them work, was written once, and all of humanity can benefit (Vitalik Buterin)

The free rider problem

The challenge in creating and sustaining public goods is that they are usually under-provided by the market because individuals can free-ride on the provision of the good by others. For example, if I know that national defense will be provided whether or not I contribute to its funding, I may be less likely to contribute.

This free-rider problem often leads to a lack of funding for public goods, which can lead to sub-optimal levels of provision. This can create a situation where the cost of maintaining a public good outweighs the benefits, and eventually the good is no longer available to anyone. This is especially true in the context of digital public goods if alternative opportunities exist that are far more lucrative for an individual.

The solutions thus far

In a few cases, charitable providers of public goods seek contributions from individuals to directly fund their priorities. In modern society, public goods provision has primarily been owned by nation-states using taxation. State-sponsored mechanisms often suffer from high overheads and a rigidity in adapting to the evolving demands of users. The democratic systems that determine which public goods should be prioritized also tend to be dominated by the will of the majority versus the potential for value creation.

As a result, some of the most complex problems impacting communities at scale are a result of coordination failures in sustaining and thriving public goods. These are failures in design, like missing incentives for involved stakeholders to drive collective action. These are also failures in execution, such as information asymmetry, unchecked corruption, and a lack of measures of effectiveness.

Current political institutions, welfare structures, financial systems, and philanthropic initiatives have not been able to overcome the failures in coordination.

The opportunity

Can we build novel coordination mechanisms that provide a focal point for contributors to create public goods while also rewarding those involved? Can we empower such vested communities with tools for sustainable shared management of resources with transparency and autonomy? Can we create economic games that make collective value creation regenerative?

At General Magic, we believe the answer is a resounding “YES!”. To enable this future, we work with communities, the Impact DAOs, committed to creating positive externalities in their environment. In the next article in the series, we will dive further into understanding how Impact DAOs use blockchain as the “trust anchor” to build the public goods of the future and understand how programmable money creates novel primitives for this coordination.