The third and last book by investment advisors Davidson and Rees-Mogg. I sure wish they could write another circa 2008. This volume talks in detail about how things had progressed through 1997, pretty much on track from their projections in 1987. The struggle continues between large and small scale forces of violence, wealth, and government – but the mega states appear to be gradually losing. Davidson and Rees-Mogg have numerous suggestions about how the affluent can avoid the carnage. For the rest of us, their megapolitical insights indicate what to watch out for, and when to run for the hills as best we can. Be forewarned.
Excerpts
We believe that much can be learned by analogy between the situation at the end of the fifteenth century, when life had become thoroughly saturated by organized religion, and the situation today, when the world has become saturated with politics. The costs of supporting institutionalized religion at the end of the fifteenth century had reached a historic extreme, much as the costs of supporting government have reached a senile extreme today.
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 nation-state itself.
As technology revolutionizes the tools we use, it also antiquates our laws, reshapes our morals, and alters our perceptions.
In cyberspace, the threats of physical violence that have been the alpha and omega of politics since time immemorial will vanish.
The state has grown used to treating its taxpayers as a farmer treats his cows, keeping them in a field to be milked. Soon, the cows will have wings.
Western governments will seek to suppress the cybereconomy by totalitarian means.
There is a high probability that some who are offended by the new ways, as well as many who are disadvantaged by them, will react unpleasantly. Their nostalgia for compulsion will probably turn violent. Encounters with these new “Luddites” will make the transition to radical new forms of social organization at least a measure of bad news for everyone. Get ready to duck.
… information technology will destroy the capacity of the state to charge more for its services than they are worth to the people who pay for them.
Instead of relating to a powerful state as citizens to be taxed, the Sovereign Individuals of the twenty-first century will be customers of governments.
The civic myths reflect not only a mindset that sees society’s problems as susceptible to engineering solutions; they also reflect a false confidence that resources and individuals will remain as vulnerable to political compulsion in the future as they have been in the twentieth century.
In our view, the key to understanding how societies evolve is to understand factors that determine the costs and rewards of employing violence.
We put violence at the center of our theory of megapolitics for good reason. The control violence is the most important dilemma every society faces.
It is precisely the fact that violence does pay that makes it hard to control.
Conventional thinkers of all shapes and sizes observe one of the pretenses of the nation-state – that the views people hold determine the way the world changes.
… formulations of economic justice in the modern context presuppose that society is dominated by an instrument of compulsion so powerful that it can take away and redistribute life’s good things. Such power has existed for only a few generations of the modern period. Now it is fading away.
We expect that representative democracy as it is now known will fade away, to be replaced by the new democracy of choice in the cybermarketplace.
The civilization that brought you world war, the assembly line, social security, income tax, deodorant, and the toaster oven is dying. Deodorant and the toaster oven may survive. The others won’t.
Every social order incorporates among its key taboos the notion that people living in it should not think of how it will end and what rules may prevail in the new system that takes its place.
Part of the reason that Rome fell is simply that it had expanded beyond the scale at which the economies of violence could be maintained.
The most profound causes of change are precisely those that are not subject to conscious control. They are the factors that alter the conditions under which violence pays.
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.
… politics in the modern sense, as the preoccupation with controlling and rationalizing the power of the state, is mostly a modern invention.
As we write, there is as yet little evidence of an articulate rejection of politics. That will come later. It has not yet occurred to most of your contemporaries that a life without politics is possible. What we have in the final years of the twentieth century is inarticulate disdain.
This is worth remembering as you plan ahead. The twilight of state systems in the past has seldom been an polite, orderly process.
As the millennium approaches, the new megapolitical conditions of the Information Age will make it increasingly obvious that the nation-state inherited from the industrial era is a predatory institution.
Another revealing hint that mass democracy is not controlled by its customers is the fact that contemporary political culture, inherited from the Industrial Age, would consider it outrageous if policies on crucial issues were actually informed by the interests of the people who pay the bills.
During the Industrial Age prior to 1989, democracy emerged as the most militarily effective form of government precisely because democracy made it difficult or impossible to impose effective limits on the commandeering of resources by the state.
… 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.
A delicate etiquette shrouded straightforward analysis of labor relations during the industrial period. One of its pretenses was the idea that factory jobs, particularly in the middle of the twentieth century, were skilled work. This was untrue. Most factory jobs could have been performed by almost anyone capable of showing up on time. They required little or no training, not even the ability to read or write. As recently as the 1980s, large fractions of the General Motors workforce were either illiterate, innumerate, or both. Until the 1990s, the typical assembly line worker at GM received only one day of orientation before taking his place on the assembly line. A job you can learn in a single day is not skilled work.
The ability of workers to coerce their employers into paying above-market wages depended on the same megapolitical conditions that allowed governments to extract 40 percent or more of the economy’s output in taxes.
Information technology is making it plain that the problem faced by persons of low skill is not that their productive capacities are being unfairly taken advantage of, but rather the fear that they may lack the ability to make a real economic contribution.
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.
One bizarre genius, working with digital servants, could theoretically achieve the same impact in a cyberwar as a nation-state. Bill Gates certainly could.
Private financial institutions and central banks will adopt unbreakable encryption algorithms when they realize that the U.S. government – and it may not be alone – has the capacity to penetrate current bank software and computer systems to literally bankrupt a country or sweep the bank account of anyone living almost anywhere.
The fact that the fading industrial era’s first stab at conceiving the information economy is to think of it in terms of a gigantic public works project tells you how grounded our thinking is in the paradigms of the past.
Soon after the turn of the millennium, anyone who pays income taxes at rates currently imposed will be doing so out of choice.
In the 1980s, it was illegal in the United States to send a fax message. The U.S. Post Office considered faxes to be first-class mail, over which the U.S. Post Office claimed an ancient monopoly. An edict to that effect was issued reiterating the requirement that all fax transmissions be routed to the nearest post office for delivery with regular mail.
… the view that the state improves the functioning of the economy by massive reallocation of resources is an anachronism, an article of faith roughly equivalent to the widespread superstitions at the close of the Middle Ages that fasting and flagellation were beneficial for a community.
… we believe that foreign aid and international development programs have had the perverse effect of lowering the real incomes of poor people in poor countries by subsidizing incompetent governments.
The ideology of the nation-state was that life can and should be regulated in a positive way by subsidizing undesirable outcomes and penalizing desirable ones. To be poor is undesirable; therefore, the poor were subsidized. To become rich is desirable; therefore, punitive taxes were laid on the rich to make life more “fair”.
As new, more market-driven forms of protection become available, it will become increasingly evident to the large numbers of able persons that most of the supposed benefits of nationality are imaginary.
Sovereign Individuals will also have to cope with the corrosive consequences of envy – a difficulty that sometimes detains monarchs, but which will be more intensely felt by persons who are not traditionally venerated but invent their own sovereignity.
The “losers and left-behinds” in the Information Society will surely envy and resent the success of winners, especially as the deepening of markets implies that this will be increasingly a “winners take all” world.
While the leading states will no doubt attempt to enforce a cartel to preserve high taxes and fiat money by cooperating to limit encryption and prevent citizens from escaping their domains, the states will ultimately fail. The most productive people on the planet will find their way to economic freedom.
Governments in the industrial era priced their services on the basis of the success of the taxpayer, rather than in relation to the costs or value of any services provided.
… it is to be expected that one or more nation-states will undertake covert action to subvert the appeal of transience. Travel could be effectively discouraged by biological warfare, such as the outbreak of a deadly epidemic. This could not only discourage the desire to travel, it could also give jurisdictions throughout the globe an excuse to seal their borders and limit immigration.
The United States is one of just three jurisdictions on the planet that impose taxes based on nationality rather than residence.
The United States has the globe’s most predatory, soak-the-rich tax system. Americans living in the United States or abroad are treated more like assets and less like customers than citizens of any other country.
As the larger, more inclusive national grouping begins to break down, with the more mobile “information elite” globalizing their affairs, the “losers and left-behinds” fall back upon membership in an ethnic subgroup, a tribe, a gang, a religious or linguistic minority. Partly, this is a practical and pragmatic reaction to the collapse of services, including law and order, formerly provided by the state. For persons with few marketable resources, it often proves difficult to purchase access to market alternatives to failed public services.
By eliminating the beneficial impact of competition in challenging underachievers to conform to productive norms, the welfare state has helped to create legions of dysfunctional, paranoid, and poorly acculturated people, the social equivalent of a powder keg. The death of the nation-state and the disappearance of income redistribution on a large scale will no doubt lead some among the more psychopathic of these unhappy souls to strike out against anyone who appears more prosperous than they. Therefore, it is reasonable to suppose that social peace will be in jeopardy as the Information Age unfolds, especially in North America and in multiethnic enclaves in Western Europe.
If the past is a guide, the most violent of the terrorists of the early decades of the new millennium will not be homeless paupers but displaced workers who formerly enjoyed middle-class incomes and status.
… the most predictable and vulnerable assets of the rich in the coming Information Age may be their physical persons – in other words, their lives. Which is why we fear Luddite-style terrorism in the coming decades, some of it perhaps covertly encouraged by agents provocateurs in the employ of nation-states.
When state and local taxes are considered as well, democratic government at all levels confiscates the lion’s share of each dollar earned in the United States. Predatory tax rates made the democratic state a de facto partner with a three-quarters to nine-tenths share in all earnings. This was not the same thing as state socialism, to be sure. But it was a close relation.
Hong Kong, of course, is not a democracy. Indeed, it is a mental model of the kind of jurisdiction that we expect to see flourish in the Information Age. In the Industrial Age, Hong Kong had no need to be a democracy, as it was spared the unpleasant necessity of gathering resources to support a formidable military establishment.
Now that information technology is displacing mass production, it is logical to expect the twilight of mass democracy.
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.
… our expectation is not that politics will be reformed or improved, but that it will be antiquated and, in most respects, abandoned. By this we do not mean to say that we expect to see dictatorship, but rather entrepreneurial government – the commercialization of sovereignty.
It will be perfectly reasonable for you and significant numbers of other future Sovereign Individuals to “vote with your feet” in opting out of leading nation-states to contract for personal protection with an outlying nation-state or a new minisovereignty that will only charge a commercially tolerable amount, rather than the greater part of your net worth. In short, you would probably accept $50 million to move to Bermuda.
… it is doubtful that firms will be able to survive the increasing penetration of market forces into what have heretofore been “intrafirm relationships”. As a result, firms will tend to dissolve as information technology makes it more rewarding to rely upon the price mechanism and the auction market to undertake tasks that need doing rather than having them internalized within a formal organization. As information technology increasingly automates the production process, it will take away part of the raison d’etre of the firm, the need to employ and motivate managers to monitor individual workers.
We believe that as the modern nation-state 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. They already are.
The end of an era is usually a period of intense corruption.
Unfortunately, you will not be able to depend upon normal information channels to give an accurate and timely understanding of the decay of the nation-state.
The deeper and richer textures of history are precisely the parts that tend to be edited out in the twenty-five-second sound-bites and misconstrued on CNN. It is much easier to convey a message that is a variation on an already understood theme than it is to explore a new paradigm of understanding.
As we move toward the next century, a high proportion of people in the growing cognitive elite have been given little religious or moral education in the family. The commonest religion of the elite is an agnostic humanism … A godless, rootless, and rich elite is unlikely to be happy, or to be loved. This inadequacy of the initial moral education of what will be the dominant economic group of the next century is likely to be reinforced by their life experience.
In every field it has been the radical who has won, and the conventional thinker who has fallen behind, who has literally fallen out of the race. Our politics may be led by conventional thinkers – Bill Clinton, Helmut Kohl, John Major – but our most successful businesses are led by radicals with a keen understanding of the new technological world; the archetype is Bill Gates. Conventional thinking has been discredited by its inability to deal with the rapidity and the sheer force of change.
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.
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.
Thinking about the end of the current system is taboo. To understand the great transformation in the Information Age, you must transcend conventional thinking and conventional information sources.
Quotations
Frederick C. Lane
… one of the most distinctive characteristics of governments is their attempt to create law and order by using force themselves and by controlling through various means the use of force by others.
Chinese Proverb
Of all the thirty-six ways to get out of trouble, the best way is – leave.
Alan Greenspan
The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
Christopher Lasch
Ambitious people understand, then, that a migratory way of life is the price of getting ahead.
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