THE FOURTH STAGE OF HUMAN SOCIETY
The theme of this book is the new revolution of power which is liberating individuals at the expense of the twentieth century nationstate. Innovations that alter the logic of violence in unprecedented ways are transforming the boundaries within which the future must lie. If our deductions are correct, you stand at the threshold of the most sweeping revolution in history. Faster than all but a few now imagine, microprocessing will subvert and destroy the nationstate, creating new forms of social organization in the process. This will be far from an easy transformation.
The coming transformation is both good news and bad. The good news is that the Information Revolution will liberate individuals as never before. For the first time, those who can educate themselves will be almost entirely free to invent their own work and realize the full benefits of their own productivity.
The changes implied by the Information Revolution will not only create a fiscal crisis for governments, they will tend to disintegrate all large structures. Fourteen empires have disappeared already in the twentieth century. The breakdown of empires is part of a process that will dissolve the nationstate itself. Government will have to adapt to the growing autonomy of the individual. Taxing capacity will plunge by 50-70 percent. This will tend to make smaller jurisdictions more successful. The challenge of setting competitive terms to attract able individuals and their capital will be more easily undertaken in enclaves than across continents.
When the state finds itself unable to meet its committed expenditure by raising tax revenues, it will resort to other, more desperate measures. Among them is printing money. Governments have grown used to enjoying a monopoly over currency that they could depreciate at will. This arbitrary inflation has been a prominent feature of the monetary policy of all twentiethcentury states.
In the new millennium, cybermoney controlled by private markets will supersede flat money issued by governments. Only the poor will be victims of inflation.
In the past, when the power equation made more difficult for groups to assert a stable monopoly of coercion, power was frequently fragmented, jurisdictions overlapped, and entities of many different kinds exercised one or more of the attributes of sovereignty. When the reach of lords and kings was weak, and the claims of one or more groups overlapped at a frontier, it frequently happened that neither could decisively dominate the other. In the Middle Ages, there were numerous frontier or "march" regions where sovereignties blended together. In the new millennium, sovereignty will be fragmented once more. New entities will emerge exercising some but not all of the characteristics we have come to associate with governments.
METAPOLITICAL TRANSFORMATIONS IN HISTORICAL PERSPECTIVE
Human cultures have blind spots. We have no vocabulary to describe paradigm changes in the largest boundaries of life, especially those happening around us.
To see "outside" an existing system is like being a stagehand trying to force a dialogue with a character in a play. It breaches a convention that helps keep the system functioning. Every social order incorporates among its key taboos the notion that people living in it should not think about how it will end and what rules may prevail in the new system that takes its place. Implicitly, whatever system exists is the last or the only system that will ever exist.
People are always and everywhere to some degree conservative, with a small "c." That implies a reluctance to think in terms of dissolving venerable social conventions, overturning the accepted institutions, and defying the laws and values from which they drew their bearings. Few are inclined to imagine that apparently minor changes in climate or technology or some other variable can somehow be responsible for severing connections to the world of their fathers. The Romans were reluctant to acknowledge the changes unfolding around them. So are we.
A shift in the megapolitical foundations of power normally unfolds far in advance of the actual revolutions in the use of power.
Incomes are usually falling when a major transition begins, often because a society has rendered itself crisis-prone by marginalizing resources due to population pressures.
Seeing "outside" of a system is usually taboo. People are frequently blind to the logic of violence in the existing society; therefore, they are almost always blind to changes in that logic, latent or overt. Megapolitical transitions are seldom recognized before they happen.
Major transitions always involve a cultural revolution, and usually entail clashes between adherents of the old and new values.
Megapolitical transitions are never popular, because they antiquate painstakingly acquired intellectual capital and confound established moral imperatives. They are not undertaken by popular demand, but in response to changes in the external conditions that alter the logic of violence in the local setting.
Transitions to new ways of organizing livelihoods or new types of government are initially confined to those areas where the megapolitical catalysts are at work.
With the possible exception of the early stages of farming, past transitions have always involved periods of social chaos and heightened violence due to disorientation and breakdown of the old system.
Corruption, moral decline, and inefficiency appear to be signal features of the final stages of a system.
The growing importance of technology in shaping the logic of violence has led to an acceleration of history, leaving each successive transition with less adaptive time than ever before.
Other things being equal, the more widely dispersed key technologies are, the more widely dispersed power will tend to be, and the smaller the optimum scale of government.
THE AGRICULTURAL REVOLUTION AND THE SOPHISTICATION OF VIOLENCE
Wherever farming took root, violence emerged as a more important feature of social life. Hierarchies adept at manipulating or controlling violence came to dominate society.
The advent of agriculture entailed more than a change in diet; it also launched a great revolution in the organization of economic life and culture as well as a transformation of the logic of violence. Farming created large-scale capital assets in land and sometimes in irrigation systems. The crops and domesticated animals farmers raised were valuable assets. They could be stored, hoarded, and stolen.
The move to a settled agricultural society resulted in the emergence of private property. Obviously, no one would be content to toil through whole growing season to produce a crop just to see someone else war along and harvest what he produced.
Farming gave rise to specialization in violence. Precisely because it created something to steal, farming made investment in better weaponry profitable. The result was theft, much of it highly organized. The powerful were now able to organize a new form of predation: a monopoly of violence, or government. This sharply differentiated societies, creating quite different circumstances for those who benefited from plunder, and the mass of poor who tilled the fields. The few who controlled military power could now become rich, along with others who found favor with them.
Humans live in a wide variety of habitats. The wide number of potential niches in which we live require variations in behavior that are too complex to be informed by instinct. Therefore, behavior is culturally programmed.
Markets always place the greatest pressures on the weakest holders. Indeed, that is part of their virtue. They promote efficiency by removing assets from weak hands.
The expulsion from the Garden of Eden can be seen as a figurative account of the transformation of society from foraging to farming, from a free life with food picked from nature's bounty with little work to a life of hard labor.
Farming was an incubator of disputes. Farming created stationary capital on an extensive scale, raising the payoff from violence and dramatically increasing the challenge of protecting assets. Farming made both crime and government paying propositions for the first time.
THE LAST DAYS OF POLITICS
Politics in the modern sense, as the preoccupation with controlling and rationalizing the power of the state, is mostly a modern invention. We believe it will end with the modern world just as the tangle of feudal duties and obligations that engrossed the attentions of people in the Middle Ages ended with the Middle Ages.
If our reasoning is correct, the nationstate will be replaced by new form of sovereignty, some of them unique in history, some reminiscent of the city-states and medieval merchant republics of the premodern world. What was old will be new after the year 2000. And what was unimaginable will be commonplace. As the scale of technology plunges, governments will find that they must compete like corporations for income, charging no more for their services than they are worth to the people who pay for them.
We believe that change as dramatic as that of five hundred years ago will happen again. The Information Revolution will destroy the monopoly of power of the nationstate as surely as the Gunpowder Revolution destroyed the Church's monopoly. There is a striking analogy between the situation at the end of the fifteenth century, when life had become thoroughly saturated by organized religion, and that of today, when the world has become saturated with politics. The Church then and the nationstate today are both examples of institutions grown to a senile extreme. Like the late-medieval Church, the nationstate at the end of the twentieth century is a deeply indebted institution that can no longer pay its way. Its operations are ever more irrelevant and even counterproductive to the prosperity of those who not long ago might have been its staunchest supporters.
THE LIFE AND HEALTH OF THE NATIONSTATE
As the millennium approaches, the new megapolitical conditions of the Information Age will make it increasingly obvious that the nationstate inherited from the industrial era is a predatory institution. With each year that passes, it will seem less a boon to prosperity and more an obstacle, one from which the individual will want an escape. It is an escape that desperate governments will be loath to allow.
States have been the norm for the past two hundred years of the modern period. But in the longer sweep of history, states have been rare. They have always depended upon extraordinary megapolitical conditions for their viability.
Unlike governments controlled by either proprietors or employees, governments actually controlled by their customers have incentives to hold down the prices they charge. Where customers rule, governments are lean and generally unobtrusive, with low operating costs, minimal employment, and low taxes. A government controlled by its customers sets tax rates not to optimize the amount the government can collect but rather to optimize the amount that the customers can retain. Like typical enterprises in competitive markets, even a monopoly controlled by its customers would be compelled to move toward efficiency. It would not be able to charge a price, in the form of taxes, that exceeded costs by more than a bare margin.
When you think closely about the terms under which industrial democracies have operated, it is more logical to treat them as a form of government controlled by their employees. Thinking of mass democracy as government controlled by its employees helps explain the difficulty of changing government policy. Government in many respects appears to be run for the benefit of employees.
Democracy became the militarily winning strategy because it facilitated the gathering of more resources into the hands of the state. Compared to other styles of sovereignty that depended for their legitimacy on other principles, such as the feudal levy, the divine right of kings, corporate religious duty, or the voluntary contributions of the rich, mass democracy became militarily the most potent because it was the surest way to gather resources in an industrial economy.
Much the same can be said of nationalism, which became a corollary to mass democracy. States that could employ nationalism found that they could mobilize larger armies at a smaller cost. Nationalism was an invention that enabled a state to increase the scale at which it was militarily effective. Like politics itself, nationalism is mostly a modern invention. Seen in a longer perspective, nationalism is as much an anomaly as the state itself.
We expect nationalism to be a major rallying theme of persons with low skills nostalgic for compulsion as the welfare state collapses in the Western democracies.
THE MEGAPOLITICS OF THE INFORMATION AGE
Everywhere you look in the universe, you see systems attaining greater complexity as they evolve. This is true in astrophysics. It is true in a puddle. Leave rainwater alone in a low spot and it will grow more complex. Advanced Systems of every variety are complex adaptive Systems without an authority in charge. Every complex system in nature, of which the market economy is the most evident social manifestation, depends upon dispersed capabilities. Systems that work most effectively under the widest range of conditions depend for their resilience upon spontaneous order that accommodates novel possibilities. Life itself is such a complex system.
There has always been a strong tendency for social systems to mimic the characteristics of prevailing technology. This is something that Marx got right. Gigantic factories coincided with the age of big government. Microprocessing is miniaturizing institutions. If our analysis is correct, the technology of the Information Age will ultimately create an economy better suited to exploit the advantages of complexity.
When the logic of violence changes, society changes.
The shift to an Information Society has altered megapolitical conditions in crucial ways that sharply increase the security of property. Microtechnology has already begun to prove subversive of the extortion that supports the welfare state because even in the commercial realm it creates very different incentives from those of the industrial period.
Information technology has negligible natural-resource content. It confers few if any inherent advantages of location. Most information technology is highly portable. Because it can function independent of place, information technology increases the mobility of ideas, persons, and capital.
Information technology lowers the scale of enterprise. This makes for smaller firm size, which implies a larger number of competitors. Increased competition reduces the potential for extortion by raising the number of targets that must be physically controlled in order to raise wages or tax rates above competitive levels.
Falling scale in enterprise also implies that efforts to secure above-market wages are less likely to command broad social support, as they did in the industrial period.
Information technology lowers capital costs, which also tends to increase competition by facilitating entrepreneurship and allowing more people to work independently.
Information technology shortens the product cycle. This makes for more rapid product obsolescence. This, too, tends to make any gains that might be achieved by extorting above-market wages short-lived. Grasping for temporarily higher wages at the expense of placing your job in jeopardy is like burning your furniture to make the house a few degrees warmer.
Information technology is not sequential but simultaneous and dispersed. Unlike the assembly line, information technology can accommodate multiple processes at the same time.
Microprocessing individualizes work Industrial technology standardized work. Anyone using the same tools would produce the same output. Microtechnology has started replacing "stupid" machines with more intelligent technology capable of highly variable output. The increased variability of output for persons using the same tools has profound implications. Among the more important is the fact that where output varies, incomes vary as well. Most of the value in fields where skill varies will tend to be created by a small number of persons. This is a common characteristic of the most highly competitive markets.
The biggest changes in life occur to variables that no one watches. Or to put it another way, we take for granted variables that have fluctuated very little for centuries or even hundreds of generations.
Government is not only a protection service; it is also a protection racket. While government provides protection against violence originating with others, like the protection racket it also charges customers for protection against harm that it would otherwise impose itself. The first action is an economic service. The second is a racket.
For the first time in history, information technology allows for the creation and protection of assets that lie entirely outside the realm of any individual government's territorial monopoly on violence.
In the age of the virtual corporation, individuals will choose to domicile their income-earning activities in a jurisdiction that provides the best service at the lowest cost. In other words, sovereignty will be commercialized.
TRANSCENDING LOCALITY: THE EMERGENCE OF THE CYBERECONOMY
Like salmon marked by their homing instinct, our consciousness is still deeply etched by notions of locality. For the whole of history until now, economies have been tethered to a local geographic area.
Information technology divorces income-earning potential from residence in any specific geographic location. Since a greater and greater portion of the value of products and services will be created by adding ideas and knowledge to the product, an ever-smaller component of value-added will be subject to capture within local jurisdictions. Ideas can be formulated anywhere and transmitted globally at the speed of light. This inevitably means that the information economy will be dramatically different from the economy of the Factory Age.
Governments will not only lose their power to tax many forms of income and capital; they are also destined to lose their power of compulsion over money.
When Sovereign Individuals can deal across borders in a realm with no physical reality, they will no longer need to tolerate the long-rehearsed practice of governments degrading the value of their money through inflation. Why should they? Control over money will migrate from the halls of power to the global marketplace. Any individual or firm with access to 160 cyberspace will be able to easily shift out of any currency that appears in danger of depreciation Unlike today, there will be no necessity to deal in legal tender. Indeed, if transactions spanning the globe it will be likely that at least one party to every transaction will find himself dealing in a currency that is not legal tender to him.
The new digital money of the Information Age will return control over the medium of exchange to the owners of wealth, who wish to preserve it, rather than to nationstates that wish to spirit it away.
Surely the most momentous consequence of the new digital money will be the end of inflation and the de-leverage of the financial system. The economic implications are profound.
The death of inflation will take away the disguised profits that inflation previously conveyed to those who were the monopolistic issuers of currency. If all the disguised profits of issuing money were extinguished, a new method of payment would be needed to compensate the issuers of currency directly. Use of the new monetary system will therefore probably involve a more explicit transaction cost, perhaps a fee on the order of 1 percent per annum. This will be a small price to pay compared to the annual inflationary penalty of from 2.7 percent to 99 percent imposed by nationstates. All the more so because there is a likelihood that overall prices will decline in the future as monopolies are eroded and competition intensifies worldwide.
Governments facing serious competition to their currency monopolies will probably seek to underprice the for-fee cybercurrencies by tightening credits and offering savers higher real yields on cash balances in national currencies. Some governments may even seek to remonetize gold as another expedient to meet competition from private currencies. They may well reason that they could gain higher seigniorage profits from a loosely controlled nineteenth-century gold standard than would be the case if they allowed their national currency to be displaced entirely by commercial cybermoney.
The price of gold will probably rise significantly relative to other commodities, no matter which of the alternative government policies predominates. Why? The real price of gold almost always rises in deflation. A deflation, after all, reflects a shortage of liquidity. Gold is the ultimate form of liquidity.
Whenever circumstances allow people to reduce protection costs and minimize tribute paid to those who control organized violence, the economy usually grows dramatically. As Lane said, "I would like to suggest that the most weighty single factor in most periods of growth, if any one factor has been most important, has been a reduction in the proportion of resources devoted to war and police."24
THE END OF EGALITARIAN ECONOMICS
Globalization, along with other characteristics of the information economy, will tend to increase the income earned by the most talented individuals in each field. Because the marginal value generated by superlative performance will be so huge, the distribution of earnings capacity throughout the entire global economy will take much the shape it does now in the performance professions like athletics and opera.
Societies that have been indoctrinated to expect income equality and high levels of consumption for persons of low or modest skills will face demotivation and insecurity. As the economies of more countries more deeply assimilate information technology, they will see the emergence-so evident already in North America-of a more or less unemployable underclass. This is exactly what is happening. This will lead to a reaction with a nationalist, antitechnology bias,
In the Information Age, familiar locational advantages will rapidly be transformed by technology. Earnings capacity for persons of similar skills will become much more equal, no matter in what jurisdiction they live.
Global competition will also tend to increase the income earned by the most talented individuals 178 in each field, wherever they live, much as it does now in professional athletics. The marginal value generated by superior performance in a global market will be huge.
In the new cybereconomy, the almost total portability of information technology will prohibit the hoarding of many of the jurisdictional advantages that arose in the Industrial Age. Enhanced competition between increasing numbers of jurisdictions will turn on new types of local advantage. Sovereignty will be commercialized rather than predatory. Governments will be obliged by the force of competition to set policies to appeal to those of their customers who make the greatest contributions to economic wellbeing, not to those who contribute little or whose economic contributions are negative.
Arbitrary political regulations that impose costs without creating offsetting market benefits will soon be nonviable. Powerful competitive forces are tending to equalize the prices of goods, services, labor, and capital across the globe. Governments will have less latitude to impose arbitrary policies than they are accustomed to enjoy. Any government that attempts to impose more burdensome regulations on an activity than other sovereignties will simply drive that activity away. In some cases, of course, driving away unwanted activities will please the market and make those jurisdictions all the more popular and prosperous. In this sense, certain regulations may be compared to the house rules imposed by the proprietors of a hotel chain. If they prohibit people from walking barefoot or smoking in the lobby, they will no doubt lose certain customers. But turning away those customers may not cost the jurisdiction customers overall, or even reduce its total revenues. Well-shod nonsmokers may pay more precisely because barefoot smokers are excluded.
In the place of nationstates you will see, at first, smaller jurisdictions at the provincial level, and ultimately, smaller sovereignties, enclaves of various kinds like medieval city-states surrounded by their hinterlands. As strange as it may seem to people inculcated with the importance of politics, policies of these new ministates will in many cases be informed more by entrepreneurial positioning than by political wrangling.
In the place of nationstates you will see, at first, smaller jurisdictions at the provincial level, and ultimately, smaller sovereignties, enclaves of various kinds like medieval city-states surrounded by their hinterlands. As strange as it may seem to people inculcated with the importance of politics, policies of these new ministates will in many cases be informed more by entrepreneurial positioning than by political wrangling. These new, fragmented sovereignties will cater to different tastes, just as hotels and restaurants do, enforcing specific regulations within their public spaces that appeal to the market segments from which they draw their customers.
A peculiar irony of the reemergence of micro-sovereignties or "city-states" is that it may coincide with the emptying out of many cities. The large city was largely an artifact of industrialism in the West. It arose with the factory system to capture scale economies in the manufacture of products with high natural resource content.
In the Information Age, only cities that repay their upkeep costs by offering a high quality of life will remain viable. Persons at a distance will no longer be obliged to subsidize them. A good marker for the viability of cities is whether those living at the core of the city are richer than those on its periphery. Buenos Aires, London, and Paris will remain inviting places to live and do business long after the last good restaurant closes in South Bend, Louisville, and Philadelphia.
New Organixational Imperatives
Information technology will dissipate many of the long-term organizational advantages of firms that arise from high transaction and information costs. The Information Age will be the age of the "virtual corporation."
Rapidly falling information and transaction costs will decisively lower economies to scale, voiding many of the incentives that gave rise to long-lived firms and career employment during the industrial period.
"Good jobs" will be a thing of the past. A "good job," as Princeton economist Orly Ashenfelter put it, "is a job that pays more than you are worth."3 In the Industrial Age, many "good jobs" existed because of high information and transaction costs. Firms grew bigger and internalized a wider range of functions because doing so allowed them to capture scale economies. Corporate bloat was also subsidized by tax laws.
Inevitably and logically, the character of business organization in the industrial era assured that the most highly skilled and talented people who created a disproportionate share of the value-added in an organization were paid proportionately less than their contribution was worth. This will change in the Information Age.
Instead of permanent bureaucracy, activities will be organized around projects, in much the way that movie companies already operate. Most of the formerly "internal" functions of the firm will be outsourced to independent contractors. The industrial-era employees who held "good jobs" but who contributed little and relied upon fellow workers to "cover" for them will soon find themselves bidding for contracts in the spot market. And so will many loyal, diligent employees. "Good jobs" will be an anachronism because jobs in general will be anachronistic.
In the postindustrial period, jobs will be tasks you do, not something you "have."
The model business organization of the new information economy may be a movie production company. Such enterprises can be very sophisticated, with budgets of hundreds of millions of dollars. While they are often large operations, they are also temporary in nature. A movie company producing a film for $100 million may come together for a year and then dissolve. While the people who work on the production are talented, they have no expectation that finding work on the project is equivalent to having a "permanent job." When the project is over, the lighting technicians, cameramen, sound engineers, and wardrobe specialists will go their separate ways. They may be reunited in another project, or they may not.
NATIONALISM, REACTION, AND THE NEW LUDDITES
As the world "becomes smaller" and communications improve, the accidental and "intrinsically absurd" claims of nations and nationalism are bound to weaken.
The trouble with this reasonable expectation is that all previous history suggests that it cannot be accommodated in a reasonable way. The transition it implies will involve a crisis. We expect the Information Age to bring discontinuities-sharp breaks with the institutions and the consciousness of the past. Here is what to look for as the process unfolds:
An intense and even violent nationalist reaction centered among those who lose status, income, and power when what they consider to be their "ordinary life" is disrupted by political devolution and new market arrangements. Among the features of this reaction: a. suspicion of and opposition to globalization, free trade, "foreign" ownership and penetration of local economies; b. hostility to immigration, especially of groups that are visibly different from the former national group; c. popular hatred of the information elite, rich people, the well-educated, and complaints about capital flight and disappearing jobs; d. extreme measures by nationalists intent upon halting the secession of individuals and regions from faltering nationstates, including resort to wars and acts of "ethnic cleansing" that reinforce nationalist identification with the state and rationalize the state's claims on people and their resources.
Since it will be obvious that information technologies facilitate the escape of Sovereign Individuals from the power of the state, the reaction to the collapse of compulsion will also include a neo-Luddite attack on these new technologies and those who use them.
The nationalist-Luddite reaction will not be uniform across regions and population groups: a. The reaction will be less intense in rapidly growing economies where per capita income was low during the industrial era, and where the deepening of markets raises incomes among all skill groups. b. Reactionary sentiments will be most intensely felt within the currently rich countries, and especially in communities with high percentages of the value-poor and skill-poor who previously enjoyed high incomes. c. The Unabomber notwithstanding, the neo-Luddites will attract most of their adherents among those in the bottom two-thirds of earnings capacity within the populations of leading nationstates. d. The nationalist and Luddite reaction will be strongest, however, not among the very poor but among persons of middling skills, underachievers with credentials, who came of age during the industrial era and face downward mobility.
For most of the twentieth century, the productive have been treated as assets by the state, in much the way that the dairy farmer treats milk cows. They have been squeezed ever more vigorously. Now the cows will sprout wings.
As the era of the "Sovereign Individual" takes shape, many of the ablest people will cease to think of themselves as party to a nation, as "British" or "American" or "Canadian." A new "transnational" or "extranational" understanding of the world and a new way of identifying one's place in it await discovery in the new millennium. This new equation of identity, unlike nationality, will not be a product of the systematic compulsion that made nationstates and the state system universal in the twentieth century.
The idea that humans must naturally place themselves in an "invented" community called a nation will come to be seen by the cosmopolitan elite as eccentric and unreasonable in the next century, as it would have been through most of human existence.
Bogus Kinship Consider the strong tendency of politicians everywhere to describe the state in terms borrowed from kinship The nation is "our fatherland" or "our motherland." Its citizens are "we," "members of the family," our "brothers and sisters."
A prime example of "epigenesis" or the tendency of genetically influenced motivational factors to innately bias humans to favor certain choices. How does this epigenesis work? The identification mechanism employed to harness emotional loyalty to the nationstate makes use of various devices that would have been markers of kinship in the primitive past "to link the individual's inclusive fitness concerns" with the interests of the state. For example, Shaw and Wong focus on five identification devices used by modern nationstates to mobilize their populations against out-groups. These are:
While the economic logic of participating in the cybereconomy turns the rationales of the nationstate upside down, it is compelling, especially for persons of high skills. In order to optimize their advantage in shopping among jurisdictions, individuals must be willing to exit the nationstate and entrust their personal protection to security personnel motivated mainly by market incentives in areas that may be distant from where they were born and reared. This implies a significant advantage in being multilingual and cosmopolitan in culture rather than jingoistic. And it further implies that anyone who is serious about realizing the liberating potential of the cybereconomy for himself and his family should begin to stake out a welcome for himself in several jurisdictions other than that in which he has resided during his main business career.
In the new age to come, communities and allegiances will not be territorially bounded. Identification will be more precisely targeted to genuine affinities, shared interests, or actual kinship, rather than the bogus affinities of citizenship so tirelessly promoted in conventional politics. Protection will be organized in new ways that have no analogue in a surveyor's kit that demarcates territorial borders. Assets will increasingly be lodged in cyberspace rather than at any given place, a fact that will facilitate new competition to reduce the "protection costs" or taxes imposed in most territorial jurisdictions.
Ambitious people understand, then, that a migratory way of life is the price of getting ahead.
—CHRISTOPHER LASCH
There also seems to be a strong psychological component in the reaction against globalization. This freedom that capitalism provided to people "to create their own identities" proved scary to those who were not prepared to make creative use of it. As Billig said, they yearned "for the security of a solid identity," and were "drawn towards the simplicities of nationalist and fascist propaganda."
We expect a return of extortion motivated by a desire to share in the rewards of achievement as the Information Age unfolds. Groups that feel aggrieved over past discrimination are unlikely to quickly relinquish their apparently valuable status as victims simply because their claims on society become less justified or harder to enforce. They will continue to press their claims until evidence in the local environment leaves no doubt that they will no longer be rewarded.
THE TWILIGHT OF DEMOCRACY
It is no secret that democracy has been relatively rare and fleeting in the history of governments. In those times, ancient and modern, where democracy has prevailed, it has depended for its success upon megapolitical conditions that reinforced the military power and importance of the masses. Historian Carroll Quigley explored these characteristics in Weapons Systems and Political Stability. They have included:
We believe that the technology of the Information Age will give rise to new forms of governance-just as the Agricultural Revolution and, later, the industrial era brought forth their own distinctive forms of social organization. What might such new institutions be? Somewhere, in some jurisdiction, sometime before the crack of doom, someone will realize the potential that computer technology offers to make possible truly representative government. The supposed problem of excessive campaign expenditures and the undoubted annoyance of chronic political campaigning could be resolved in an instant. Rather than being elected, representatives could be selected by sortition entirely at random, with a high statistical probability that their talents and views would match those of the population at large.
There is every reason to believe that performance would be greatly enhanced if the pay of legislators were keyed to some objective measure of performance, such as the growth of after-tax per capita income. Pay them on the basis of performance, and the chance that they would perform would increase a thousandfold.
A system that routinely submits control over the largest, most deadly enterprises on earth to the winner of popularity contests between charismatic demagogues is bound to suffer for it in the long run.
A rational selection process, combined with a constructive incentive structure to reward positive leadership, would bring able people to the helm of government. It would also mobilize new types of talent who otherwise would not normally take an interest in the problems of governance. The most talented executives in the world could be attracted to run faltering governments if they could be paid on the basis of results they actually achieve for society.
We expect to see something new emerge to replace politics. By this we do not mean to say that we expect to see dictatorship, but rather entrepreneurial government - the commercialization of sovereignty.
Societies are too complex to be rightly considered the fruit of any willful effort of self-organization. The nationstates of the modern period emerged spontaneously as a coincidental by-product of industrial technology that raised returns to violence. Now information technology is reducing the returns to violence. This makes politics anachronistic and irretrievable, no matter how earnestly people might wish to preserve it into the next millennium.
MORALITY AND CRIME IN THE "NATURAL ECONOMY" OF THE INFORMATION AGE
We believe that as the modern nationstate decomposes, latter-day barbarians will increasingly come to exercise real power behind the scenes. Groups like the Russian mafiyas that pick the bones of the former Soviet Union, other ethnic criminal gangs, nomenklaturas, drug lords, and renegade covert agencies will increasingly be laws unto themselves.
To a larger extent than you might expect, important organs of information that appear to be keen to report anything and everything may prove to be less dependable information sources than is commonly supposed. Many will have other motivations, including shoring up support for a faltering system, that they will place ahead of honestly informing you. They will see little and explain less.
The Age of Information has not yet become the Age of Understanding. To the contrary, there has been a sharp drop-off in the rigor of public discourse. The world now could know more than at any time in the past. But there is almost no public voice left to assess the meaning of events and say what is true.
"Interference competitors," as Jack Hirshleifer put it, "gain and maintain control over resources by directly fighting off or hampering their rivals." However much we may wish that human behavior were always subject to the rule of law and "other socially enforced rules of the game" ("political economy"), there is ample evidence that many people "play by the rules" only when it suits them. Hirshleifer, an authority on conflict, put it this way: "[T]he persistence of crime, war and politics teaches us that actual human affairs still remain largely subject to the underlying pressures of natural economy."
In other words, economic outcomes are determined only partly by the peaceful and law-abiding behavior of the Homo economicus described in textbooks, who honor property rights "and will not simply take what does not belong to them." Actual outcomes are also shaped by conflict, including overt violence. As economist Hirshleifer points out, "Even under law and government, the rational, self-interested individual will strike a balance between lawful and unlawful means of acquiring resources-between production and exchange on the one hand and theft, fraud and extortion on the other."
As the scale of warfare falls, defense and protection will be mounted at a smaller scale. Therefore, they will increasingly be private rather than public goods, provided on a for-profit basis by private contractors. This is already evident in the privatization of policing in North America. One of the more rapidly growing occupations in the United States is the "security guard."
Because information technology has undermined the capacity of centralized authority to project power and provide physical security for systems that operate at a large scale, the optimal size of almost every enterprise in the "natural economy" is falling.
Because information technology has undermined the capacity of centralized authority to project power and provide physical security for systems that operate at a large scale, the optimal size of almost every enterprise in the "natural economy" is falling. To respond to this technological change will entail a massive investment requirement (read opportunity) to redesign vulnerable systems with distributed rather than concentrated capabilities. If vulnerabilities of large scale are not removed, the systems that retain them will be subject to catastrophic failure. Sooner or later, by default if not by design, services and products provided by large bureaucratic agencies and corporations will devolve into highly competitive markets, managed not from a 'headquarters" but through a distributed, decentralized network.
In the Information Age it will be much less important that government be large and powerful than that it be honest. Most of the services that governments historically provided are destined to devolve into the private market in the next millennium. But it is doubtful on the evidence from around the world whether you can long depend upon a corrupted system with corrupt leaders for the security of your family and investments.
The Information Revolution will significantly reduce "the scale of public intervention" and on that basis holds out hope for a rebirth of morality and honesty.
For human beings it is the struggle rather than the achievement that matters; we are made for action, and the achievement can prove to be a great disappointment. The ambition, whatever it may be, sets the struggle in motion, but the struggle is more enjoyable than its own result, even when the objective is fully achieved.
The alternative to destructive "interference" competition is collaborative competition, and collaborative competition is the central idea of Adam Smith, and also of Malthus and of William James. The archetype of destructive competition is the conqueror. He destroys his competitors in order to seize their assets, which may include taking over their countries and may involve the enslavement of their peoples. The archetype of collaborative competition is the merchant. It is in the interest of the merchant that the customer should be satisfied with the transaction, because onlv a satisfied customer comes back for more trade. It is also in the interest of the merchant that the customer should be prosperous, because a prosperous customer has the money to go on buying. Conquest implies the destruction of the other party; commerce implies the satisfaction of the other party. As modern technology has made conquest an extraordinarily dangerous policy, commerce has become the only rational approach to the problems of survival.
A strong community, even a virtual community, depends upon the morality being widely accepted. The most successtul periods in the history of societies tend to be those in which the collective morality is fully shared. Such a morality not only performs specific functions such as reducing crime, and helping to support family and social structures, but gives citizens a sense of purpose and direction. Such a consensus on morality historically seems to depend on there being a dominant religion, whether that is a state religion of the early survival for a dispersed people; the Islamic religion with its social rules; the Catholicism of the Middle Ages; or the Protestantism of early New England. The three ideas of a people, a morality, and a religion depend upon one another, and each tends to reinforce the others. In such a moral society, the individual citizen is able to work toward personal objectives inside a framework of social support.
A shared morality in a tolerant society was the ideal of John Locke and of early philosophers of liberty. They did not at all believe that a society, of any kind, can be maintained without rules, but they thought that the rules ought to be subject to the best of reason, and that people should be coerced to accept only the essential rules. They did recognize that coercion was inevitable in social morality, particularly in the protection of life or of property, because they considered that no society can survive if there is no security. They applied an almost absolute tolerance to variations in personal choices that did not affect the welfare of others. The Confucian, mourning his father for forty days, could live next door to the Jew, honoring the Sabbath, without either disturbing the other, or wanting to coerce him into following his own religious practices.
From this combined doctrine of social morality in essential matters and tolerance in personal decisions, one actually gets a core moral standard that has to be imposed on all citizens and a voluntary ethic that citizens accept as individuals or as members of subgroups in society.
A general erosion of the collective morality threatens liberty, both directly, in that it introduces an element of anarchy, and indirectly, by encouraging the most authoritarian forces of society. We can see the history of public morality as a cycle between disorder and authoritarianism; the modern authoritarian moralities, both feminism and fundamentalism, have emerged as a cyclical response to the hedonism of the 1960s.
A good social morality has certain characteristics. It should contribute to the survival of society and of individuals, in a dynamic rather than static way. It should include tolerance and avoid self-righteousness. It should be religious, rather than merely agnostic. It should not pretend to decide questions of scientific fact. It should be neither anarchic nor authoritarian. It should be widely shared and deeply held. Such a social morality is particularly important to the family and to the raising of children as independent and responsible adults. It provides the focus of a good society. We find that any such morality is supported by the logic of interdependence that comes from commerce and fellow-feeling, but is threatened by the attacks of a facile scientism, by the alienation of a superclass and a subclass, by the loss of the rootedness of the old geographical economies. Perhaps there will be a reaction against these trends. They must be recognized as extremely dangerous to the societies of the next century.
IMPLICATIONS AND STRATEGIES
The argument of this book has many unorthodox implications for achieving financial independence in the Information Age. Among the more important:
Citizenship is obsolete. To optimize your lifetime earnings and become a Sovereign Individual, you will need to become a customer of a government or protection service rather than a citizen. Instead of paying whatever tax burden is imposed upon you by grasping politicians, you must place yourself in a position to negotiate a private tax treaty that obliges you to pay no more for services of government than they are actually worth to you.
Of all the nationalities on the globe, U.S. citizenship conveys the greatest liabilities and places the most hindrances in the way of becoming a Sovereign Individual. The American seeking financial independence will therefore obtain other passports as a necessary step toward privatizing or denationalizing himself. If you are not an American, it is economically irrational to become a resident of the United States and thus expose yourself to predatory U.S. taxes, including exit taxes.
Based upon the history of other dominant systems facing collapse, those who opt for the ultimum refugium and get out early will be better off in the end. The dangers of a nationalist reaction to the crisis of the nationstate make it important not to underestimate the scope for tyranny and mischief. You should never leave your money in any jurisdiction that claims the right to conscript you, your children, or grandchildren.
Whatever your current residence or nationality, to optimize your wealth you should primarily reside in a country other than that from which you hold your first passport, while keeping the bulk of your money in yet a third jurisdiction, preferably a tax haven.
You should travel widely to select alternative residences in attractive locales where you will have right of entry in an emergency.
Violence will become more random and localized; organized crime will grow in scope. It will therefore be more important to locate in secure physical spaces than in the twentieth century. Protection will be more technological than juridical. Walling out troublemakers is an effective as well as traditional way of minimizing criminal violence in times of weak central authority.
If you are financially successful, you should probably hire your own retainers to guarantee your protection against criminals, protection rackets, and the covert mischief of governments. Police functions will increasingly be filled by private guards linked to merchant and community associations.
Areas of opportunity and security will shift. Economies that have been rich during the Industrial Era may well be subject to deflation of living standards and social unrest as governments prove incapable of guaranteeing prosperity and entitlement programs collapse.
The forty-eight least-developed countries, comprising some 550 million persons with per capita income of less than $500 per head, will have widely divergent fates in the information Age. Most will become even more marginalized and desperate, providing a venue for only the most intrepid investors. But those that can overcome structural problems to preserve public health and order stand to benefit from rapid income growth.
Jurisdictions of choice in which to enjoy high living standards with economic opportunity include reform areas in the Southern hemisphere, such as New Zealand, Chile, and Argentina, which boast adequate to superior infrastructure and many beautiful landscapes and are unlikely to be targets of terrorists wielding nuclear, chemical, or biological weapons.
The fastest-growing and most important new economy of the next century will not be China but the cybereconomy. To take full advantage of it, you will need to place your business or profession on the World Wide Web.
Encryption will be an important feature of commerce on the Web and the realization of individual autonomy. You should acquire and begin using strong encryption immediately. Just as the church attempted to ban printing at the twilight of the Middle Ages, so the United States and other aggressive governments bent on control will seek to bar effective encryption. As happened five centuries ago, this may merely drive the taboo technology into areas where the writ of established authority is weakest, assuring that it will be put to its most subversive use in undermining state control everywhere.
Where possible, all businesses should be domiciled offshore in a tax-haven jurisdiction. This is particularly important for Websites and Internet addresses, where there is virtually no advantage in locating in an onshore, high-tax jurisdiction.
Corporations in the Information Age will increasingly become "virtual corporations" - bundles of contracting relations without any material reality, and perhaps without physical assets. The virtual corporation should be domiciled with an offshore trust to minimize tax liabilities.
Incomes will become more unequal within jurisdictions but more equal between them. Countries with a tradition of a very unequal distribution of incomes may be relatively more stable under these conditions than those jurisdictions where strong expectations of income equality have developed in the Industrial period.
As a relative performance becomes more important than absolute output in determining compensation, an ever more important occupation will be that of the agent, not merely for the highly paid performer, like a football star or an opera singer, but also for persons of modest skills, who may welcome help in landing a paying position.
"Jobs" will increasingly become tasks or "piece work" rather than positions within an organization.
Many members of regulated professions will be displaced by digital servants employing interactive information-retrieval systems.
Control over resources will shift away from the state to persons of superior skills and intelligence, as more wealth will be created by adding knowledge to products.
As Professor Guy Bois observed in his history, The Transformation of the Year One Thousand, "in a period of increasing difficulties, the weaker elements in the social body tend to polarize around a rising star." In the transformation of the year two thousand, the rising star will be the Sovereign Individual. As the nationstate system breaks down, risk-averse persons who formerly would have sought employment with government may find an alternative in affiliating as retainers to the very rich.
You should expect a slowdown or decline in per capita consumption in countries such as the United States, which have been the leading consumers of the world's products in the late stages of industrialism.
Debt deflation may accompany the transition to the new millennium.
The death of politics will mean the end of central bank regulation and manipulation of money. Cybermoney will become the new money of the Information Age, replacing the paper money of Industrialism. This means not only a change in the fortunes of banknote printers, it implies the death of inflation as an effective means by which nationstates can commandeer resources. Real interest rates will tend to rise.
While the experience of the nineteenth century proves that long-term growth can proceed apace even while deflation raises the value of money, business and investment strategies must be adjusted to the unfamiliar realities of deflation-that is, debt should be avoided; savings and cost reductions should be pursued with greater urgency; long-term contracts and compensation packages should probably be drawn with flexible nominal terms.
Taxing capacity in the leading nationstates will fall away by 50 to 70 percent, while it will prove far more difficult to reduce spending in an orderly way. The result to be expected is a continuation of deficits that plague most OECD countries, accompanied by high real-interest rates.
Technical innovations that displace employment should probably be introduced in jurisdictions that have no tradition of producing whatever product or service is in question.
Cognitive skills will be rewarded as never before. It will be more important to think clearly, as ideas will become a form of wealth.
Thinking about the end of the current system is taboo. To understand the great transformation to the Information Age, you must transcend conventional thinking and conventional information sources.
Because incomes for the very rich will rise faster than for others in advanced economies, an area of growing demand will be services and products that cater to the needs of the very rich.
The growing danger of crime, particularly embezzlement and undetectable theft, will make morality and honor among associates more crucial and highly valued than it was during the Industrial Era, particularly in its waning years.