An additional point worth noting is that there is tremendous social value in reducing coordination costs, but it's nearly impossible to capture that value, so it's very under-provided.
What does lowering coordination costs look like? Trade meetups, conferences, and similar events or locations to foster communication and coordination (Like EA and LW meetups and forums,) as well as trustworthy information sharing - which is costly to individuals and mostly benefits others. (Like Givewell, which provides analysis that doesn't benefit itself, so it is a largely trusted broker.)
I'd be very interested in thinking about what other general strategies could exist - they seems like great targets for world optimization.
Definitely sometimes true, but there are also many areas where the agent doing the coordination is the one extracting all the profit (like most marketplaces). Related: Laws of Tech: Commoditize Your Complement
It's rare that commercial businesses and market extract anywhere near all of the surplus, but it's a good point.
How many of these are of the same type, e.g., material suppliers?
In a startup (~50 employees) that I worked in we had
I totally agree with the core point that coordination is a limiting factor.
off the top of my head:
3 shipping logistics
7-8 material suppliers
1 supplier of physical premises
1 supplier of machinery and support
2 payment services providers
1 banking service
1 loan servicer
3 e-commerce service providers
Love your posts! I’d recommend publishing them at a slower pace so people get a chance to see and read them. It’s also a bit confusing on LW when several posts are published on the same day, and you can’t tell which one is first in the series (just from the front page).
If coordination services command high wages, as John predicts, this suggests that demand is high and supply is limited. Here are some reasons why this might be true:
Note that, if the argument in my review of interfaces as scarce resources is correct, then coordination can also be viewed as a subtype of interface - a way of translating between what a user wants and how they express that desire, into the internal language or structure of a complex system. This makes sense. Google translates natural-language queries into the PageRank algorithm, Facebook translates “friends” into databases and networks, and Amazon, like any store, translates the user’s desire to “buy a product” into an extremely complex sequence of supply-chain actions.
Not all resources/interfaces are best viewed as forms of coordination, although virtually all forms of economic activity depend heavily on coordination to get things done. A non-coordination purpose of some resources is to meet basic individual survival needs, such as agricultural production. While this is obviously necessary to facilitate coordination as well, I don’t think most people would tell you that they avoid starvation in order to better coordinate.
The most actionable advice I can take away from these thoughts stems from point (3) and (5) above. As people proceed in their careers, they naturally gain access to skills, contacts, and other information that is translatable to other roles and jobs. Each job is a chance to “harvest information” that is locally abundant in one environment and port it to another environment where that information is scarce.
In considering what job to take, applicants should form a detailed model of what information they’ll be able to harvest from their employer. Employers likewise should consider what information they can harvest from their new employee. This puts a new spin on the increasing tendency of employees to change employers and even careers. Rather than a sign of disloyalty or fickleness, it’s just the natural result of an economy efficiently incentivizing and engaging in valuable information exchange.
If coordination is indeed a neglected skill, then it’s important to figure out whether it’s teachable, but neglected by the educational system; or unteachable, but learnable. Figuring out what is useful and what skills are required to coordinate effectively in a particular line of work seems like a key component of useful experience, and a topic to steer conversations toward in dialog with mentors and more experienced peers.
"This puts a new spin on the increasing tendency of employees to change employers and even careers. Rather than a sign of disloyalty or fickleness, it’s just the natural result of an economy efficiently incentivizing and engaging in valuable information exchange"
this is very interesting idea! sadly, i have no idea how to check it.
Oh boy I love this. Quite obvious, but such elegant analysis!
I have one example on top of this:
There is a phenomenon called “teal organizations”, where they replace top-down management with trust. Everyone in the company gets to decide which actions to take, as he’s probably the person closest to the problem. This is counteracted by additional responsibility to always ask someone more experienced than you when you make a decision — but instead of waiting until he gives you orders, you ask him yourself. Also, it doesn’t have to be your boss, it can be more meritorious colleague.
Sorry for the mixed description, you can read more at Reinventing Organizations by Frederic Laloux or at their website. There are many examples of successful organizations that works like that: Zappos, Valve are ones of the popular.
Overall, I love the series. Very deep and to the point, plus a lot of examples.
I think one additional area you can plug in here is regulation and federal business/commercial law as well. When that is done well it really should reduce coordination problems and relax constraints.
However, I thin one can says relaxing the coordination constraints is (probably) a necessary condition for increasing rewards at the object/skill level it doesn't seem to be a sufficient condition.
Still, as ALexei says, I do like you posts and make an effort to pay attention when I see one posted.
Good points. Personal to Prison Gangs makes a similar point about regulation, along with several other phenomena - litigation, credentialism, tribalism, etc. Based on the model in the OP, all of these are increasing over time because they solve coordination problems more scalably than old systems (e.g. personal reputation).
With regards to coordination vs object-level skills, I think a decent approximation is that object-level skills usually need to be satisficed - one needs to produce a good-enough product/service. After that, it's mainly about coordination: finding the people who already need the good-enough product you have. To put it differently, decreasing marginal returns usually seem to kick in much earlier in object-level investments than in coordination investments.
More generally, would it be reasonable to say that legibility relaxes coordination constraints? That feels like it helps crystallise something I've been mulling over.
If you have a map of a city, you don't need to find someone who knows the city to navigate it. If you have accurate birth and death records for a country, you don't need to talk to local leaders to find out things like "how many people are avoiding taxes" or "how many people are dying of malaria". If you know exactly what quality of wood a forest is going to produce, you don't need to talk to all of the forest managers to find out which one is most suitable as a supplier.
Interesting point. Rings true, though I'll have to mull it over a bit. Certainly important-if-true.
The thought about the margins for object level and coordination level seems right. Perhaps another aspect to consider in that context is sources of increasing returns. The object level seems much more like the internal economies of scale. The coordination space seem much more like Smithian external economies/network type effects (which suggests my initial view was in error).
I think this post was pretty causal in my interest in coordination theory/practice. In particular I think it helped shift my thinking from a somewhat unproductive "why can't I coordinate well with rationalists, who seem particularly hard to get to agree on anything?" to a more useful "how do you solve problems at scale?"
All these problems could be interpreted as alignment or intelligence problems. In many cases, the actors involved do not care enough about the outcome. Or when they do care, they are not intelligence enough to connect their actions to their incentives.
Here are two essays from a similar perspective.
Discussing the division between the coordination economy and production/satisfaction economy:
https://macroflaneur.substack.com/p/the-coordination-economy
History the coordination and production constraints since hunter gatherer till today:
https://macroflaneur.substack.com/p/coordination-vs-productivity-the
Of course, just because decreasing coordination costs is good in general doesn't mean it's good for you in particular. There may well be somebody in India who can do your job better than you for a fifth the pay (telecommuting, probably), and it would be disastrous for you if someone solved your boss's coordination problem with that person. Trump campaigned on a platform of erecting barriers to foreign competition, and his election says quite a bit about how many people dearly wanted such a thing.
Let’s start with a few examples of very common real-world coordination problems.
So coordination problems are a constraint to production of all kinds of economic value. How taut are those constraints?
Well, let’s look at the market price of relaxing coordination constraints. In other words: how much do people/companies get paid for solving coordination problems?
When I think of people whose main job is to solve coordination problems, here are some occupations which spring to mind:
Note that all of these are occupations typically associated with very high pay. Even more to the point: within each of these occupations, people who solve more complicated coordination problems (e.g. between more people) tend to make more money. Even at the small end, the main difference between an employee and a freelancer is that the freelancer has to solve their own coordination problem (i.e. find people who want their services); freelancers make lots of money mainly when they are very good at solving this problem.
Similarly with companies. If we go down the list of tech unicorns, most (though not all) of them solve coordination problems as their primary business model:
Again: solving coordination problems at scale offers huge amounts of money.
This suggests that coordination problems are very taut constraints in today’s economy.
It’s not hard to imagine why coordination problems would be very taut today. Over the past ~50 years, global travel/transportation has gone from rare to ordinary, and global communication has become cheap and ubiquitous. Geographical constraints have largely been relaxed, and communication/information processing constraints have largely been relaxed. The number of people we could potentially coordinate with has expanded massively as a result - a small doily business can now sell to a national or even global customer base; a phone app can connect any willing driver in a city to any paying rider.
Yet human brains have not changed much, even as the number of people we interact with skyrockets past Dunbar’s number. It’s hard for humans to coordinate with thousands - let alone billions - of other humans. The coordination constraint remains, so as other constraints relax, it becomes more taut.
What Would This Model Predict?
One prediction: suppose I’ve decided to become a freelancer/consultant. I can invest effort in becoming better at my object-level craft, or I can invest effort in becoming better at solving my coordination problem - e.g. by exploring marketing channels or studying my target market. Which of these will make more money? Probably the latter - coordination constraints are very taut, so there’s lots of money to be made by relaxing them.
More generally, when evaluating new business ideas, questions on my short list include:
To the extent that coordination is an unusually taut constraint, answers to these questions will be the main determinant of business profitability - even more so than product quality.
Coming from a different direction, when considering a business idea we should ask how many different kinds of people this business needs to coordinate. At one point I worked at a mortgage startup, where the list of internal departments included marketing, sales, underwriting, legal, and capital markets on the mortgage side, plus design, engineering, and ops on the tech side, and on top of that we had to interface to at least a dozen external companies on a regular basis. Coordination is the primary constraint at a company like that.
Yet another direction: if coordination constraints are very taut, then we expect adoption of technology which makes coordination easier. One form of this is outlined in From Personal to Prison Gangs: people make themselves easier to coordinate with, by following standardized patterns of behavior and fitting into standard molds. For instance, in large organizations (where more people need to coordinate) we tend to see group-based identity: rather than understanding what John or Allan does, people understand what lawyers or developers do. Interactions between people become more standardized, and roles more rigid - these are solutions to coordination problems. Such solutions entail large tradeoffs, but coordination constraints are very taut, so large tradeoffs are accepted.
Conversely, if we want a world with less pressure to standardize behavior, then we need some other way to relax coordination constraints - some technology which helps people coordinate at scale without needing to standardize behavior as much. Such technology would probably see wide adoption, and potentially make quite a lot of money as well.
Summary
I often hear people they’d like object-level skill/effort to be rewarded more than marketing/sales, or they’d like to see less pressure to standardize behavior, or they’d like the world to be more individualized and identity to be less group-based. To the extent that we buy the picture here, all of these phenomena are solutions to coordination problems. Society rewards marketing over object-level skill, and tries to standardize behavior, because coordination constraints are extremely taut.
If we want the world to look less like that, then we need alternative scalable technologies to solve coordination problems.