Last week the Minespider team had a great time at Tech Open Air Berlin (TOA) and I had the opportunity to speak about Minespider to a full house. I’m always happy to share ideas with a large group of like-minded people all at once. In the past year, I have focused more on mining industry and responsible supply chain events, so it was a refreshing change of pace to spend time at a forward-thinking technology event with so many prominent tech speakers, sharing a glimpse into the exciting world of responsible sourcing and supply chain sustainability.
Kicking off the session…
Minespider is a blockchain protocol that helps companies to know where their raw materials come from and under what conditions they were produced. We want to transform the mineral supply chain. It is an enormous challenge but a worthwhile one, and we see that the industry is ready with major players scrambling to get involved.
In the past few months, we have started projects with a number of major brands and have recently announced a partnership with Volkswagen.
It has been an exciting time, but as we were working on identifying supply chain players and what data would help us prove the responsibility of minerals, a nagging question kept coming up:
Why are there abuses in the supply chain in the first place?
No company wants forced labour to go into their products. No individual wants children to dig our raw materials out of the ground, or to have irreplaceable ecosystems destroyed so we can have cheaper products. These things are externalities that are part of the very fabric of how our economy works.
The global economy organizes around one key motivator — financial profit. It is a relatively simple incentive model — perform well and you get more resources so you can do more things and have more power. Perform poorly and get eliminated. This incentive model pushes companies to be more efficient and solves a key problem we had a hundred years ago — inadequate production capacity.
The problems we face today are unintended consequences of the problems we solved yesterday. Supply chain abuses are in large part consequences of an economy that incentivizes production efficiency using profit as the only motive.
Large corporate brands purchase their supplies from large suppliers through their buying departments. The people working in the buying departments are evaluated based on the price they can get. After working with a supplier for a period of time they may ask for discounts assuming their suppliers are becoming more efficient. These suppliers will be able to accommodate this by asking for discounts from their suppliers and so on.
Eventually these discounts get passed on to smaller companies with less oversight who are able to provide such discounts by forcing people to work for free or committing other abuses.
This dynamic persists because nobody sees their own role in the system. Procurement workers only see the discounts they receive, not the ripple effect they have up the supply chain. Similarly, we as consumers only see the products in store and their price. If we see sustainability labels, it doesn’t really tell us about the impacts of our buying choices because we naturally expect companies to be responsible.
No snowflake feels responsible for the blizzard.
If we want responsible supply chains then regulation is a start, but it is not enough. Increased regulatory requirements result in companies hiring compliance teams to check on their supply chains, but do nothing to change the incentive models that caused the problem in the first place.
Instead, we need to build responsibility right into the core mechanisms of the economy.
Introducing Social Credit for Companies
There was an episode of Black Mirror on Netflix called “Landslide” that explored the possibility of a dark future. One where people’s status on a social media app determined what they could purchase, where they could live, where they could travel and other aspects of their power in life. This episode struck a chord in a lot of people because of reports that some countries were experimenting with implementing such a system to encourage loyalty to the government.
This may be a grim prospect when it applies to individuals, however, corporations are not people.
What could a social credit score look like for corporations that would incentivize positive social outcomes? Realistically it would require three components:
- A score based on the company’s positive initiatives and practices.
- The score should go up or down based on the scores of the company’s suppliers.
- The score should affect the company’s ability to operate financially.
A company’s score could be tied to their ability to operate similar to a credit score. If it drops too low, it would increase their cost of borrowing, or limit their ability to spend or bid on government contracts.
By tying a company’s score to their suppliers, this would provide a massive incentive to either improve supplier scores or switch to more responsible suppliers, incentivizing a race to be the top.
The path forward
Such a radical shift in the core functioning of the global economy might seem like a pipe dream, but many of the pieces are already moving into place.
Many global companies are assigning a rating to their suppliers based on sustainability practices they are able to provide. The rise of blockchain means that these rating systems may be able to extend much further back in the supply chain than they do currently.
We are already seeing investment funds move away from industries that are negatively perceived, such as fossil fuels. A few large funds adopting a supplier-influenced social credit score as part of their investment criteria could be all that is needed to start a snowball effect.
An effect that would lead to a world where being responsible has a business case.