While toying in my mind with ideas about possible new social networks, I again came back to social networks for businesses. Creating such service has been tried before, and as far as I know, has not succeeded much beyond creating weak sales leads generation platform, that nobody really uses.

But today I thought — what if you are a government and you could force companies to participate in such public social networks? What would happen?

At first, what does it mean, a social network between enterprises? We can identify multiple layers of interconnectedness between companies.

1. Ownership network. One firm can own another, one person can have a stake in several companies, there can be holding companies, sister companies, public companies with large shareholders, and probably dozens of more complex arrangements. This is the strongest network.
2. Transaction network. Companies buy and sell products and services. That is the main reason for their existence. Each such transaction is either with another company or with a private person. (If a private person is also the owner of another company and deal is over a certain size, this becomes part of the transaction network). This is the widest network.
3. Social network. Companies participate in exhibitions, industry associations, lobbying groups, sponsorship deals — all along with other companies. This is the weakest but potentially very interesting network.

All three layers of the network are known to the government. They know who owns companies as it runs the registers and issues trade licenses, so ownership is covered.

For countries that have strong VAT laws, there is also a strong possibility that companies must report all the parties they have issued invoices for and whose invoices they have paid. Also for deals over a certain size with private persons, there tends to be additional reporting.

Crudely drawn network

So, imagine that all this data that the government has, would be published. Monthly, or in near real-time, depending on how reporting is set up.

The government does not need to build any fancy user interface, simple API access would be enough. Maybe also with some batch export available. People would figure it out quickly.

The direct implication is that there would be the more equal and transparent playing field for different market participants.

Investors and lenders would clearly understand ownership networks. It would be easier to judge who is scheming more, and who is more honest.

Who is more exposed to risk and who is safer. This would lead to less risk for investors and thus cheaper financing for good market players. And less systemic risk for the banking sector.

Competitors would get to know the supply chains of each other. Their approximate costs and margins. This would drive the market more towards perfect competition, meaning less profit for companies, but better deals for consumers. Also, it would make it easier for new market participants to enter the business, also driving down prices.

End users would be more informed when making buying decisions. Not only regarding price but also on various choices based on ethics. When buying free-range they would be able to check how free and how range the suppliers for particular producer actually are. Or what political parties the company is donating to. Or what other unwanted third-degree ties there might be. Extracting this information would be easy to automate making woke or conservative choices easier.

And, of course, all sorts of vigilante data analysts would have field days pointing out suspicious connections between politicians, bureaucrats, and vendors.

What would it mean on a more macro level? As competitiveness inside the country would increase, many companies would fail and many would win, but at the end, lean and strong winners would emerge. And they would be able to compete better also globally.

Not so obvious consequence would be better corporate governance and also better behavior of government officials. Transparency would decrease the occurrence of self-dealing and hidden corruption by selecting preferred suppliers or making friendly discounts to oil some gears.

As productivity would increase, the population would get richer. As prices would be pushed lower by stronger competition, living costs would go down.

There might be also negative consequences, of course. Bad players would also get more knowledge, so they would be able to do more targeted corporate fraud. It would be much easier to track when some supplier is in the tough spot, and things like fake invoice sending would get new lease of life.

More precise knowledge for the lenders might decrease overall runway for the struggling companies and therefore more bankruptcies would occur, which, while maybe healthy at the macro level would cause much unhappiness to people directly affected.

In some situations, better protected foreign rivals might be able to get the advantage of local companies. Especially in case of global supply chains, where not all the steps would be covered by this forced transparency.

And there would be a lot of other, unimaginable, consequences. New startups would grow on top of the available data. New automated business decisions would be made. New social movements would emerge. Society would be changed forever and only time would tell the story of overall impact.

Originally published on medium.