Becoming a sovereign individual
I finished reading The Sovereign Individual by James Davidson and Lord William Rees-Mogg as 2016 came to a close. It was first published in 1997 which ordinarily is not important but for a book that is primarily making predictions about the future this puts it in a treacherous position when being read in 2016. There aren’t too many predictions that stand up to scrutiny decades later. The following shows a prediction from an artist in 1900 of what firefighting in 2000 would look like.
The basic message of The Sovereign Individual is that we are entering the last days of politics and the nation state. Rather than completely disappearing, they will fade into obscurity like the Church did in the middle of the last millennium. Back then, what we consider the nation state did not exist and it was the Church that funded public goods such as infrastructure and controlled regulatory powers. Indeed the word “politics” made its first appearance in 1529. As the power of the Church waned, the nation state filled the vacuum. If the arguments of the authors are to be believed the nation state and national politics are now on their way to becoming an anachronism. Even if you weren’t willing to contemplate this possibility before 2016, Brexit and President-elect Trump may encourage you to reconsider.
There is a difference between what is desirable and what is inevitable. Some things may be desirable but unlikely to occur whilst other things may be undesirable but likely to occur. The authors make it clear not only do they think this transition is inevitable but they relish the prospect. The authors’ political preferences are quite obvious from their writing. They are libertarian (or at least strongly conservative) and resent the level of tax they have to pay in Western society. They describe taxation as “predatory” and compare government to organized crime or protection rackets.
I won’t focus on whether this transition is desirable or not other than to say there are strong arguments that the state can be a force for good. It can be (and generally is) wasteful and inflexible but without compulsory taxation, I suspect tax revenues would be considerably lower meaning weaker support for the poorest in society, less opportunities to keep promising companies afloat (e.g. Tesla in 2009) and less funding for research and the military that played a vital role in inventions such as the internet. Public goods such as infrastructure projects are difficult to fund without compulsory taxation and risk pricing out the poorest in the case of pay per use. These arguments are glossed over for the most part by the authors.
However, their arguments on the inevitability of the transition are better grounded in logic and extrapolation than personal political preferences. Many democracies have a woeful recent record of addressing spiraling problems such as national debt levels and unfunded pension liabilities whilst new layers of bureaucracy are laid upon old layers of bureaucracy making it more difficult to do anything to address long term problems. Rather than addressing problems at the source, central banks are attempting to use monetary policy (zero interest rates, quantitative easing debasing their currencies) which thus far have only resulted in inflating asset prices and eventually risk filtering through to consumer price inflation. In some European economies you are lucky to be employed with stagnant growth and minimal social mobility. These dysfunctional political systems commonly place politics at the center of everything in society where political operators who have no expertise in anything other than politics thrive. The primary objective is maximizing votes every four years with little incentive or ability to analyze long term problems let alone trying to solve them.
These political operators generally have no expertise in technology and therefore are poorly placed to assess its likely ramifications. This appears to not only be a weakness of today’s political operators but historically. A British parliamentary committee in 1878 reported on Thomas Edison’s incandescent lamp to be “good enough for our transatlantic friends … but unworthy of the attention of practical or scientific men”. When politicians are central to society and control state education (in addition to billion dollar budgets) their competence is critical. Many governments are miserably failing to prepare their citizens for the work of the future with some belated exceptions. The Sovereign Individual suggests that “the greatest source of wealth will be the ideas you have in your head”. (As a reminder, this book was published in 1997.) Twenty years’ later, the Australian government presented the “ideas boom” budget backing investment in innovation and entrepreneurship.
Arguably physical global borders are not relevant in cyberspace (or space for that matter). The independence of cyberspace was declared in 1996. Hacking and cyberwarfare can be carried out from anywhere with geographical distance presenting no defense. Compare that to the threat posed by gunpowder where proximity to a target was required. Attackers may be working on behalf of a nation state but they could just as easily be representing themselves or have an alternative affiliation. Economies of scale that benefitted nation states and corporations in the industrial age have become a liability in cyberspace. Large structures such as the electric grid, traffic control and nuclear generators are vulnerable to a skilled hacker anywhere on the planet.
These diseconomies of scale are likely to favor greater decentralization with power flooding back to city states away from nation states. This will facilitate greater choice as city states compete to attract the wealthiest and most skilled individuals both within and outside that nation state. This competition will drive the unbundling and customization of sovereignty services rather than the standardized services provided across the entire nation. Regulations may be tailored to the needs of its citizens (its customers) and could vary depending on the city state you inhabit. If anything consumer choice is more democratic than existing democratic processes. Rather than choosing every four years between two competing political parties, you could withdraw your custom at any point from a jurisdiction and move elsewhere. The same forces of decentralization threaten large bureaucratic corporations with smaller, nimbler organizations better equipped to avoid obsolescence and prosper in cyberspace.
The invention of Bitcoin has also heralded the beginning of digital assets with real world monetary value stored in cyberspace. Unlike property or equities that rely on government and regulatory apparatus to maintain owners’ rights, Bitcoin can be held and transferred without reliance on these authorities. Seizure of cryptocurrencies such as Bitcoin requires either the cooperation of the owners or device/network vulnerabilities. The Sovereign Individual gets pretty close to predicting the invention of Bitcoin back in 1997 envisaging a denationalized, digital form of money consisting of “encrypted sequences of multihundred-digit prime numbers” and “divisible into the tiniest fraction of value”. This obviously presents an additional challenge in the collection of taxes that already seemed like a losing battle. Cryptocurrencies such as Zcash claim to offer much stronger privacy than Bitcoin for financial transactions. It is difficult to envisage anything other than more fiscal crises such as those experienced in 2011 even without tools such as Bitcoin and Zcash.
Perhaps these arguments persuade you, perhaps they don’t. Even if they don’t, I’ll proceed as a thought experiment to whether an increasingly irrelevant nation state would be positive or not. The authors argue it would overall. As with all transitions there would be winners and losers. The winners would be smart, enterprising individuals currently unable to take advantage of their skills and intelligence because of their location and/or societal structure. Cyberspace opens up opportunities to succeed regardless of location with technical innovations no longer confined to small regions such as Silicon Valley. The losers would be individuals who have benefitted from their position in society (location, bureaucracy, hierarchy) and are unable to adapt to the new world.
There is a positive overriding message independent of whether these arguments have convinced you or not. And that is rather than being riled by President-elect Trump’s Twitter account or frustrated by the hardness or softness of Brexit, focus on your own life, your skillsets and improving the life of your family and friends or people you encounter in your daily life. You can have a much greater impact here than you can on discussions in Downing Street, Trump Tower or the Greek Ministry of Finance. You can be your own sovereign. You might just do a better job of it.
Disclosure: This is distributed sponsored content commissioned by 21.co but all opinions expressed here are my own.
