Looking for the Exit

by Maria Liberman, Partner at Brothers Ventures, and CFO of COUB

Inception (2010)

What moves the people who are working to create a space free of nation-state power? After a horrific sentence for the Silk Road founder, madness and childish naivete may seem like the only answer. Letting go of one’s fantasies in time is a useful skill to have; thus, the Wired recently reported on the demise of Peter Thiel’s project: since 2006, the Silicon Valley guru was heading the Seasteading Institute, a developer of floating cities for international waters that never began the construction. In the world of venture capital, it is conventional to let go the ideas that didn’t stand the test of time or were launched prematurely. But, since behind every project there is an issue that it’s trying to solve, sometimes projects that seem abandoned completely change their essence, when there is a breakthrough in the understanding of the very issue they were designed to address.

For ideas on government-free territories, such a breakthrough came in October 2013 at the Y Combinator Startup School with the “Silicon Valley’s Ultimate Exit” talk by Balaji Srinivasan. Srinivasan, a young entrepreneur and Stanford professor, was little known at the time. However, uncommonly for events like these, the lecture provoked a harsh media response. It would take less than a month for Srinivasan to be invited as a Managing Partner to Andreessen Horowitz, a renowned venture fund.

Srinivasan based his talk around Albert Hirschman’s classic concept. The influential twentieth century economist proposed that there were two responses available to a person unhappy with any given circumstances, services or social institutions: Voice (alter the situation from within) and Exit (leave the interaction). Srinivasan demonstrated what role the choice between these two paths played in the becoming of the Silicon Valley itself and its many famous projects.

Srinivasan emphasized that in our days the choice lay in the realm of the relationship with the very nation-state, the territory of which the Silicon Valley occupied. This suggestion, illustrated by a slide with a Seasteading Institute’s floating city and Elon Musk’s future Mars colony, caused the greatest outrage. More importantly, Hirschman’s theory in Srinivasan’s interpretation gave an answer to the age-old question: What exactly do designers and coders create while tapping away at their keyboards?

Silicon Valley style innovation means that IT entrepreneurs don’t create a new product — rather, they provide consumers with an Exit from the older relationship system. An Exit that had not existed before, despite the abundance of consumer choices. Thus, Google created for small business and its clientele an Exit from the conventional advertisement market. Elon Musk’s lithium-ion batteries, which are seemingly nothing new, in reality open up the way to a P2P electric network and thereby the world of fundamentally new energy consumption. In the meantime, Silk Road, of course, did not manage to provide users with an Exit from the state; on the contrary, anonymity only emphasized users’ criminal role in the existing system. But it definitely gave them an Exit from the horrible street system of drug trade: according to the UN, no less than 3–7% of the world’s population engage in this activity at least once in their lifetime.

Existing types of relationships between the citizen and the state serve as a fertile ground for Exit innovations, since there is widespread dissatisfaction about the current citizen-state dynamic but no alternatives to it. Yet, it’s dangerous to be looking for an Exit out of the system that has monopoly on violence, therefore many are trying to change the situation from within. Just imagine what would happen to an Airbnb founder, if they were locked inside Hilton and asked to raise the guests loyality?

In this vein, Lawrence Lessig, the founder of Creative Commons, tried to fight corruption in US elections with the help of crowdfunding — with onlymoderate success. Sean Parker’s long-promised system to “restore democracy” is still in development. “Young democracies” present a slightly more promising case: the state machinery here is more conducive to innovation, so they more frequently boast interesting products, such asEstonia’s e-residency or Ukraine’s public procurement system.

At the recent TEDxVilnius, Lessig even asked the audience to teach Americans how to reestablish control over the state. Indeed, those who are critical of their state to begin with, have more reasons to seek a new arrangement with it. The need for an Exit here is so strong, that the backing out of the European integration even led to a revolution in Ukraine. But, perhaps, it would be more efficient to solve the travel visa issue through technology, with the help of open and reliable data. A law abiding citizen, whose data is verified by the state and stored online, would not have to fill out a visa application every time, and they would have grounds to demand the opening of the visa issuing criteria. These instruments would make travel between states much easier. Which, however, does not solve the issue if we do not want to travel.

Modern democratic state offers emigration to the discontent as the sole and sufficient Exit strategy. Possibly, a hundred years ago this alternative was equivalent to the idea of staying and continuing the struggle. But now we are living in a rather secure and friendly world, where connections, reputation, and instruments used for efficient interaction — like common language and cultural codes — gain primary importance. In other words, everything that one loses when emigrating.

To a great degree, a present-day individual is highly mobile because a large part of their network is virtual or could exist in the virtual space. But the greater our abilities to communicate online, the less willing we are to accept restrictions on face-to-face interaction with those we like. This makes the price of an Exit at the country level too high for us. And a costly Exit decreases the weight of our voice, lowering our ability to influence our environment.

So, does a physical separation from the state really constitute an Exit from the relationship with it? Or is it just a deception, like anonymity? The planners of floating cities at the Seasteading Institute experienced this in theory, having spent $1.25 mil of Peter Thiel’s investments. In the meantime, residents of Eastern Ukraine and everyone, who happened to be involved with the experiment on the ground, paid a much higher price.

Over less than two years since Srinivasan’s talk, the world has demonstrated to the Stanford Startup School audience that moving state boundaries or changing governments does not solve the issue of an Exit — and therefore requires innovators attention. Why, when part of the population wants to pay taxes in one country and the rest in another country, can’t this be resolved with programming code? Why would you necessarily need to impose this on some, while ruining the lives of others?

If until now a forced non-geographical Exit is possible — you fall asleep in one country and wake up in another — how long do we have to wait until technologies will provide us with a voluntary non-geographical Exit? A person would continue to live where they were before, but would be able to leave the subjugation of the state machinery by virtually designating themselves in the system as a non-resident. This will cost a lot, as the user would have to pay duties and higher taxes, but will not take away a very highly valued interaction with others. And most importantly, accessibility will raise the weight of each individual voice.

Maybe the innovators gave up on the idea of a faraway floating island but they definitely haven’t given up altogether. Worldwide roaring, loosening of borders, and growing protest — all of this shows that the new generation is trying to solve their issues at home. Even mass culture is changing templates of familiar genres in keeping with this yearning. The ending of the post-apocalyptic Mad Max in 2015 is very different from the one three decades ago. The characters refuse to go looking for a Promised Land, in order to solve the issue where they tried to run from. “The Green Place? You already passed it.” It’s time to return home.

This item was originally published in Russian by The Village (3 June 2015)

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