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The liberation of a large part of the global economy from political control will oblige whatever remains of government as we have known it to operate on more nearly market terms. Governments will ultimately have little choice but to treat populations in territories they serve more like customers, and less in the way that organized criminals treat the victims of a shakedown racket.
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Taxing capacity will plunge by 50-70 percent. This will tend to make smaller jurisdictions more successful.
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Microprocessing reduces the size that groups must attain in order to be effective in the use and control of violence. As this technological revolution unfolds, predatory violence will be organized more and more outside of central control.
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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.
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Before the nation-state, it was difficult to enumerate precisely the number of sovereignties that existed in the world because they overlapped in complex ways and many varied forms of organization exercised power. They will do so again. The dividing lines between territories tended to become clearly demarcated and fixed as borders in the nation-state system. They will become hazy again in the Information Age. In the new millennium, sovereignty will be fragmented once more. New entities will emerge exercising some but not all of the characteristics
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Market forces, not political majorities, will compel societies to reconfigure themselves in ways that public opinion will neither comprehend nor welcome. As they do, the naïve view that history is what people wish it to be will prove wildly misleading.
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“The universe rewards us for understanding it and punishes us for not understanding it. When we understand the universe, our plans work and we feel good. Conversely, if we try to fly by jumping off a cliff and flapping our arms the universe will kill us.”11 —JACK COHEN AND IAN STEWART
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In our view, the key to understanding how societies evolve is to understand factors that determine the costs and rewards of employing violence. Every human society, from the hunting band to the empire, has been informed by the interactions of megapolitical factors that set the prevailing version of the “laws of nature.” Life is always and everywhere complex. The lamb and the lion keep a delicate balance, interacting at the margin. If lions were suddenly more swift, they would catch prey that now escape. If lambs suddenly grew wings, lions would starve. The capacity to utilize and defend against violence is the crucial variable that alters life at the margin.
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Power, as William Playfair wrote, “has always sought the readiest road to wealth, by attacking those who were in possession of it.”
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We explained why the “War on Drugs” was a recipe for subverting the police and judicial systems of countries where drug use is widespread, particularly the United States. With tens of billions of dollars in hidden monopoly profits piling up each year, drug dealers have the means as well as the incentive to corrupt even apparently stable countries.
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the world. In spite of the central role of violence in determining the way the world works, it attracts surprisingly little serious attention. Most political analysts and economists write as if violence were a minor irritant, like a fly buzzing around a cake, and not the chef who baked it.
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THE VANITY OF WISHES The tendency to overlook what is fundamentally important is not confined solely to the couch dweller watching television. Conventional thinkers of all shapes and sizes observe one of the pretenses of the democratic nation-state —that the views people hold determine the way the world changes.
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Millions of words have been uttered and written about economic justice and injustice for each page devoted to careful analysis of how violence shapes society, and thus sets the boundaries within which economies must function. Yet 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.
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If our meaning is not entirely intelligible in places, that is not because we are being cute, or using the time-honored equivocation of those who pretend to foretell the future by making cryptic pronouncements. We are not equivocators. If our arguments are unclear, it is because we have failed the task of writing in a way that makes compelling ideas accessible.
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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.
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The basic 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. Indeed, they are so remote from any obvious means of manipulation that they are not even subjects of political maneuvering in a world saturated with politics. No one ever marched in a demonstration shouting, “Increase scale economies in the production process.” No banner has ever demanded, “Invent a weapons system that increases the importance of the infantry.” No candidate ever promised to “alter the balance between efficiency and magnitude in protection against violence.” Such slogans would be ridiculous, precisely because their goals are beyond the capacity of anyone to consciously affect. Yet as we will explore, these variables determine how the world works to a far greater degree than any political platform.
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As a rule, large numbers of people do not suddenly and all at once decide to abandon their way of life simply because they find it amusing to do so. No forager ever said, “I am tired of living in prehistoric times, I would prefer the life of a peasant in a farming village.” Any decisive swing in patterns of behavior and values is invariably a response to an actual change in the conditions of life.
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“Looking back over the centuries, or even if looking only at the present, we can clearly observe that many men have made their living, often a very good living, from their special skill in applying weapons of violence, and that their activities have had a very large part in determining what uses were made of scarce resources.”16 —FREDERIC C. LANE
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Even today, however, you should not underestimate the impact of suddenly colder weather in lowering real incomes—even in wealthy regions such as North America. There is a strong tendency for societies to render themselves crisis-prone when the existing configuration of institutions has exhausted its potential. In the past, this tendency has often been manifested by population increases that stretched the carrying capacity of land to the limit. This happened both before the transition of the year 1000 and again at the end of the fifteenth century. The plunge in real income caused by crop failures and lower yields played a significant role in both instances in destroying the predominant institutions. Today the marginalization is manifested in the consumer credit markets.
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4. Technology
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Balance between offense and defense. The balance between the offense and the defense implied by prevailing weapons technology helps determine the scale of political organization. When offensive capabilities are rising, the ability to project power at a distance predominates, jurisdictions tend to consolidate, and governments form on a larger scale. At other times, like now, defensive capabilities are rising. This makes it more costly to project power outside of core areas. Jurisdictions tend to devolve, and big governments break down into smaller ones.
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Equality and the predominance of the infantry. A key feature determining the degree of equality among citizens is the nature of weapons technology. Weapons that are relatively cheap, can be employed by nonprofessionals, and enhance the military importance of infantry tend to equalize power. When Thomas Jefferson wrote that “all men are created equal,” he was saying something that was much more true than a similar statement would have seemed centuries earlier. A farmer with his hunting rifle was not only as well armed as the typical British soldier with his Brown Bess, he was better armed. The farmer with the rifle could shoot at the soldier from a greater distance, and with greater accuracy than the soldier could return fire. This was a distinctly different circumstance from the Middle Ages, when a farmer with a pitchfork—he could not have afforded more—could scarcely have hoped to stand against a heavily armed knight on horseback. No one was writing in 1276 that “all men are created equal.” At that time, in the most manifestly important sense, men were not equal. A single knight exercised far more brute force than dozens of peasants put together.
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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.
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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.
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Seen in this perspective, 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. Because crops had to be tended over the entire growing season, from planting through harvest, migration away from threats became less attractive, especially in arid regions where opportunities to grow crops were confined to the small areas of the land with dependable water supplies. As escape became more difficult, opportunities for organized shakedowns and plunder increased. Farmers were subject to raids at harvesttime, which gradually raised the scale of warfare. This tended to increase the size of societies because contests of violence more often than not were won by the larger group. As competition over land and control of its output became more intense, societies became more stationary. A division of labor became more apparent. Employment and slavery arose for the first time. Farmers and herders specialized in producing food. Potters produced containers in which food was stored. Priests prayed for rain and bountiful harvests. Specialists in violence, the forefathers of government, increasingly devoted themselves to plunder and protection from plunder. Along with the priests, they became the first wealthy persons in history. In the early stages of agricultural societies, these warriors came to control a portion of the annual crop as a price of protection. In places where threats were minimal, yeoman farmers were sometimes able to retain a relatively large degree of autonomy.
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Decentralized authority, which optimized output under some circumstances, also gave rise to stronger local powers who sometimes blossomed into full-fledged challengers for dynastic control. Even Oriental despots were by no means free to do as they pleased. They had no choice but to recognize the balance of raw power as they found it.
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In general, risk-averse behavior has been common among all groups that operated along the margins of survival. The sheer challenge of survival in premodern societies always constrained the behavior of the poor. An interesting feature of this risk aversion, explored in The Great Reckoning, is that it reduced the range of peaceful economic behavior that individuals were socially permitted to adopt. Taboos and social constraints limited experimentation and innovative behavior, even at the obvious cost of forgoing potentially advantageous improvements in settled ways of doing things.13 This was a rational reflection of the fact that experimentation increases the variability of results. Greater variability means not only potentially greater gains but—more ominously for those at the very margin of survival—potentially ruinous losses.
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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.
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Farming created stationary capital on an extensive scale, raising the payoff from violence and dramatically increasing the challenge of protecting assets.
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Whenever technological change has divorced the old forms from the new moving forces of the economy, moral standards shift, and people begin to treat those in command of the old institutions with growing disdain.
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Although almost no one knew it, medieval society was dying. Its death was neither widely anticipated nor understood. Nonetheless, the prevailing mood was one of deep gloom. This is common at the end of an era, as conventional thinkers sense that things are falling apart, that “the falcon cannot hear the falconer.” Yet their mental inertia is often too great to comprehend the implications of the emerging configurations of power. Medieval historian Johan Huizinga wrote of the waning days of the Middle Ages, “The chroniclers of the fifteenth century have, nearly all, been the dupes of an absolute misappreciation of their times, of which the real moving forces escaped their attention.”8 Myths Betrayed Major changes in the underlying dynamics of power tend to confound conventional thinkers because they expose myths that rationalize the old order but lack any real explanatory power. At the end of the Middle Ages, as now, there was a particularly wide gap between the received myths and reality. As Huizinga said of the Europeans in the late fifteenth century, “Their whole system of ideas was permeated by the fiction that chivalry ruled the world.”9 This has a close second in the contemporary assumption that it is ruled by votes and popularity contests. Neither proposition stands up to close scrutiny. Indeed, the idea that the course of history is determined by democratic tallies of wishes is every bit as silly as the medieval notion that it is determined by an elaborated code of manners called chivalry.
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At the end of the Middle Ages, as now, there was a particularly wide gap between the received myths and reality. As Huizinga said of the Europeans in the late fifteenth century, “Their whole system of ideas was permeated by the fiction that chivalry ruled the world.”9 This has a close second in the contemporary assumption that it is ruled by votes and popularity contests. Neither proposition stands up to close scrutiny. Indeed, the idea that the course of history is determined by democratic tallies of wishes is every bit as silly as the medieval notion that it is determined by an elaborated code of manners called chivalry. The fact that saying so borders on heresy suggests how divorced conventional thinking is from a realistic grasp of the dynamics of power in late industrial society.
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In warfare, the most useful value systems induce people to behave in ways that short-term rational calculation would rule out. No organization could mobilize military power effectively if the individuals it sent into battle felt free to calculate where their own best advantage lay, and join in the fight or run away accordingly. If so, they would almost never fight.
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These new gunpowder weapons could be fired by commoners. They required little skill to use but were expensive to procure in quantity. Their proliferation steadily increased the importance of commerce as compared to agriculture, which had been the foundation of the feudal economy.
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The uniforms aptly symbolize the new relations between the warrior and the nation-state that went hand in hand with the transition from chivalry to citizenship. In effect, the new nation-state would strike a “uniform” bargain with its citizens, unlike the special, divergent bargains struck by the monarch or the pope with a long chain of vassals under feudalism.
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Piety and Compassion The piety that rationalized the saturation of society by organized religion in the late Middle Ages served the same purpose as the “compassion” that is meant to justify the political domination of life today. The sale of indulgences to satisfy a desire for piety without morals parallels lavish welfare spending to slake the pretense of compassion without charity. It was largely immaterial whether the actual effect of received practices was to improve moral character or save souls, just as it is largely immaterial whether a welfare program actually improves the lives of the people to whom it is directed. “Piety,” like “compassion,” was an almost superstitious invocation.
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Rome, like most premodern states, ultimately lacked the capacity to compel adherence to the monopoly of violence that the ability to starve people provides. The Roman state outside of Africa could not cut off water for growing crops by denying unsubmissive people access to the irrigation system. Such hydraulic systems supplied more leverage to violence than any other megapolitical configuration in the ancient economy. Whoever controlled the water in these societies could extract spoils at a level almost comparable to the percentage of total output absorbed by modern nation-states.
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Compared to Communism, the welfare state was indeed a far more efficient system. But compared to other systems for accumulating wealth, such as a genuine laissez-faire enclave like colonial Hong Kong, the welfare state was inefficient. Again, less was more. It was precisely this inefficiency that made the welfare state supreme during the megapolitical conditions of the Industrial Age. When you come to understand why, you are much closer to recognizing what the fall of the Berlin Wall and the death of Communism really mean. Far from assuring that the democratic welfare state will be a triumphant system, as has been widely assumed, it was more like seeing that a fraternal twin has died of old age. The same megapolitical revolution that killed Communism is also likely to undermine and destroy democratic welfare states as
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But wait. You may be saying that in most jurisdictions there are many more voters than there are persons on the government payroll. How could it be possible for employees to dominate under such conditions? The welfare state emerged to answer exactly this quandary. Since there were not otherwise enough employees to create a working majority, increasing numbers of voters were effectively put on the payroll to receive transfer payments of all kinds.
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When returns to violence are high and rising, magnitude means more than efficiency. Larger entities tend to prevail over smaller ones.
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Because the emerging middle class soon had enough money to tax, it was no longer essential, as it previously had been, for rulers to negotiate with powerful landlords or great merchants who were, as historian Charles Tilly wrote, “in a position to prevent the creation of a powerful state” that would “seize their assets and cramp their transactions.”
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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. Generous provision of welfare benefits to one and all invited a majority of voters to become, in effect, employees of the government. This became the predominant political feature of all leading industrial countries because voters were in a weak position to effectively control the government in their role as customers for the service of protection.
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Democracy had the still more compelling advantage of creating a legitimizing decision rule that allowed the state to tap the resources of the well-to-do without having to bargain directly for their permission. In short, democracy as a decision mechanism was well fitted to the megapolitical conditions of the Industrial Age. It complemented the nation-state because it facilitated the concentration of military power in the hands of those running it at a time when the magnitude of force brought to bear was more important than the efficiency with which it was mobilized.
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States that could employ nationalism
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Nation-states formed by underlining and emphasizing characteristics that people held in common, particularly spoken language. This facilitated rule without the intervention of intermediaries. It simplified the tasks of bureaucracy. Edicts that need only be promulgated in one language can be dispatched more quickly and with less confusion than those that must be translated into a Babel of tongues. Nationalism, therefore, tended to lower the cost of controlling larger areas. Before nationalism, the early-modern state required the aid of lords, dukes, earls, bishops, free cities, and other corporate and ethnic intermediaries, from tax “farmers” to military contract merchants and mercenaries to collect revenues, raise troops and conduct other government functions.
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Throughout history, violence has been a dagger pointed at the heart of the economy. As Thomas Schelling shrewdly put it, “The power to hurt—to destroy things that somebody treasures, to inflict pain and grief—is a kind of bargaining power, not easy to use but used often. In the underworld it is the basis for blackmail, extortion, and kidnapping, in the commercial world, for boycotts, strikes, and lockouts.… It is often the basis for discipline, civilian and military; and gods use it to exact discipline.”
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Although we tend not to perceive it in these terms, the proportion of assets that are controlled and spent coercively, through crime and government, provides a rough measure of the megapolitical balance between extortion and protection. If technology made the protection of assets difficult, crime would tend to be widespread, and so would union activity. Under such circumstances, protection by government would therefore command a premium. Taxes would be high. Where taxes are lower and wage rates in the workplace are determined by market forces rather than through political intervention or coercion, technology has tipped the balance toward protection.
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We wrote in The Great Reckoning that the computer is enabling us to “see” the formerly invisible complexity inherent in a whole range of systems.I Not only does advanced computational capability enable us to better understand the dynamics of complex systems; it also enables us to harness those complexities in productive ways.
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When Lane wrote in the middle of this century, the Information Society was nowhere in sight. Under the circumstances, he may well have supposed that the competition to employ violence in the world had reached its final stage with the appearance of the nation-state. There is no hint in his works that he anticipated microprocessing or believed that it was technologically feasible to create assets in cyberspace, a realm without physical existence. Lane had nothing to say about the implications of the possibility that large amounts of commerce could be made all but immune from the leverage of violence.
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Lane’s study of the violent medieval world attracted his attention to issues that conventional economists and historians have tended to neglect. He saw that how violence is organized and controlled plays a large role in determining “what uses are made of scarce resources.”8 Lane also recognized that while production of violence is not usually considered part of economic output, the control of violence is crucial to the economy.
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Under conditions that have heretofore existed, any group or agency that you could employ to successfully protect your life and wealth from attack would also necessarily have had the capacity to take either. That is a drawback for which there is no easy answer. Normally, you could look to competition to keep providers of an economic service from ignoring the wishes of their customers. But where violence is concerned, direct competition often has perverse results. In the past, it has usually led to increased violence. When two would-be protective agencies send their forces to arrest one another, the result is more akin to civil war than protection.
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They will maximize the freedom to know, to go, to do, and to be.
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The examples of Somalia, Rwanda, and others you will soon see on television offer a Technicolor proof that violent competition for control of territory does not yield the same immediate economic gains as other forms of competition. To the contrary.
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when violence is “highly competitive,” this usually means that there are significant obstacles to the projection of power at any distance. In military terms, defense is predominant over the offense.
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“During a late phase of the second stage many tribute takers attract customers by special offers to agricultural and commercial enterprise. They offer protection at low prices for those who will bring new lands into cultivation, and special policing services to encourage trade such as that organized by the Counts of Champagne for merchants coming to their fairs.”46 In other words, when they were able to establish a sufficient control over territory to negotiate credibly, local warlords did what local merchants do when they need to increase market share: they discounted their services to attract customers. The warlords later used the added resources from additional economic activity to consolidate their control over larger territories. Once that control was firmly established, they began
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Indeed, for reasons spelled out in previous chapters, the military survival of an industrial nation-state largely depended upon the fact that no effective limits could be placed upon its claims on the resources of its citizens.
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The presence of large-scale industrial firms would not have been possible in a disordered environment with more competitive violence, even if the result of the competition had been to shrink the overall share of output taken by government. This is why capital-intensive operations are uneconomic in the American slums, as well as in Third World societies where ad hoc violence is endemic. Industrial society as a whole was able to proceed because a certain kind of order was established and maintained. Enterprises were subject to regular, predictable shakedowns, rather than erratic violence.
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This fifth phase involves competition in cyberspace, an arena not subject to monopolization by any “violence-using enterprise.” It is not subject
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Unlike the past, when the inability to monopolize protection in a region meant higher military costs and lower economic returns, the fact that governments cannot monopolize cyberspace actually implies lower military costs and higher economic returns.
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The first potential beneficiary of the Seychelles law is a white South African who became wealthy by circumventing the economic sanctions against the former apartheid regime. Now he faces the danger of economic retribution by the new South African government and is willing to pay the Seychelles for protection.52 Whatever the merits of any individual case, the example shows why attempts by governments to maintain a cartel for protection on the ground are doomed to failure. Unlike the medieval frontier, in which the competition was between two authorities only, the frontier in cybercommerce will be between hundreds of jurisdictions, with the number probably rising rapidly to thousands. 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. Unlike medieval frontier societies, which were in most cases impoverished and violent, cyberspace will be neither. The competition that information technology is driving governments to engage in is not competition of a military kind, but competition in quality and price of an economic service —genuine protection. In short, governments will be obliged to give customers what they want.
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That older software allocated computational capacity according to rigid priorities in much the same way that the central planners at Gosplan in the former Soviet Union used to allocate goods to boxcars by rigid rules. The new systems are controlled by algorithms that mock market mechanisms to allocate resources more efficiently by an internal bidding process that mimics the competitive processes in the brain. Instead of giant computer monopolies conducting important command-and-control functions, they will be decentralized in the new millennium.
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The need for protection against bandits on the Information Superhighway will require widespread adopting of public key-private key encryption algorithms. These already allow any individual user of a personal computer to encode any message more securely than the Pentagon could have sealed its launch codes only a generation ago. These powerful, unbreakable forms of encryption will be necessary to secure financial transactions from hackers and thieves.
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“What the Net offers is the promise of a new social space, global and anti-sovereign, within which anybody, anywhere can express to the rest of humanity whatever he or she believes without fear.
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The new technology creates for the first time an infinite, nonterrestrial realm for economic activity.
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In almost every competitive area, including most of the world’s multitrillion-dollar investment activity, the migration of transactions into cyberspace will be driven by an almost hydraulic pressure—the impetus to avoid predatory taxation, including the tax that inflation places upon everyone who holds his wealth in a national currency.
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Paper money also contributed significantly to the power of the state, not only by generating profits from depreciating the currency, but by giving the state leverage over who could accumulate wealth. As Abu-Lughod put it, “when paper money backed by the state become the approved currency, the chances for amassing capital in opposition to or independent of the state machinery became difficult.”
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F. A. Hayek argued, there is “no clear distinction between money and non-money.” He wrote, “although we usually assume there is a sharp line of distinction between what is money and what is not—and the law generally tries to make such a distinction—so far as the causal effects of monetary events are concerned, there is no such clear difference. What we find is rather a continuum in which objects of various degrees of liquidity, or with values which can fluctuate independently of each other, shade into each other in the degree to which they function as money.”
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The capacity of digital money to deliver micropayments will facilitate the emergence of new types of businesses that heretofore could not have existed, specializing in organizing the distribution of low-value information. The vendors of this information will now be compensated through direct-debit royalty schemes that overcome previously daunting transaction costs.
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Setting aside transition difficulties, which could last for decades, the long-term prospects for the global economy should be highly bullish. 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.”
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Some technologies have been relatively egalitarian, requiring contributions of many independent workers of approximately equal utility; others have put power or wealth into the hands of a few masters while most people were little more than serfs. Both history and technology have shaped different nations in different ways. The Factory Age produced one shape, and the Information Age is producing another, less violent, and therefore more elitist and less egalitarian than the one it is replacing.
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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. This has already begun to happen. Because institutions that have employed compulsion and local advantage to redistribute income are losing power, income inequality within jurisdictions will rise. Global competition will also tend to increase the income earned by the most talented individuals 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.
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Williamson defined six different methods of operation and control. Among them is the “entrepreneurial mode,” “wherein each workstation is owned and operated by a specialist.”27 Another is what Williamson calls the “federated workstations” in which “an intermediate product is transferred across stages by each worker.”28 There is no physical reason why the thousands of employees could not have been replaced by a gaggle of independent contractors, each renting space on the factory floor, bidding for parts, and offering to assemble the axle or weld the fenders onto the chassis. Yet you would look in vain for an example of an industrial-era automobile factory organized
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“In a market, you don’t do something because somebody tells you to or because it is listed on page thirty of the strategic plan. A market has no job boundaries.… There are no orders, no translation of signals from on high, no one sorting out the work into parcels. In a market one has customers, and the relationship between a supplier and a customer is fundamentally nonorganizational, because it is between two independent entities.”31 —WILLIAM BRIDGES
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In the postindustrial period, jobs will be tasks you do, not something you “have.” Before the industrial era, permanent employment was almost unknown. As William Bridges put it, “Before 1800—and long after in many cases—job always referred to some particular task or undertaking, never to a role or position in an organization.… Between 1700 and 1890, the Oxford English Dictionary finds many uses of terms like job-coachman, job-doctor, and job-gardener—all referring to people hired on a one-time basis. Job-work (another frequent term) was occasional work, not regular employment.”34 In the Information Age, most tasks that were formerly captured within firms as an expedient to reduce information and transaction costs will migrate back to the spot market.
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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. As scale economies fall, and capital requirements for many types of information-intensive activities fall simultaneously, there will be a strong incentive for firms to dissolve.
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As in the medieval period, there are once again growing diseconomies of scale in the organization of violence.
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The leading welfare states will lose their most talented citizens through desertion.
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The mere fact that developments embracing the whole globe are commonly described as “international” shows how deeply the nationalist paradigm has penetrated into our way of conceiving the world. After two centuries of indoctrination in the mysteries of “international relations” and “international law,” it is easy to overlook that “international” is not a longstanding Western concept.
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“A language is a dialect with an army and a navy.” —MARIO PEI
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When returns to violence were rising, a common tongue facilitated the exercise of power and consolidated jurisdictions.
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Our main focus in this book is on objective “megapolitical” factors that alter the costs and rewards of human choices.
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Seen in their proper light, however, as Hirshleifer points out, many of the paradoxes of “altruism” are semantic muddles that frequently confuse or mislead people into losing sight of the context of competition in which “helping” could convey a survival advantage: “ ‘If an altruism choice of strategy is to be viable in competition with non-altruism, altruism must contribute to self-survival more than non-altruism does, and therefore it can’t really be altruism.’
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The triumph of capitalism will lead to the emergence of a new global, or extranational, consciousness among the capitalists, many of whom will become Sovereign Individuals. Far from depending upon the state to discipline the workers, as the Marxists imagined, the ablest, wealthiest persons were net losers from the actions of the nation-state. It is clearly they who have the most to gain by transcending nationalism as markets triumph over compulsion.
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The current innovation of information technologies is quite different from the innovation of industrial technologies that the world experienced in recent centuries. The difference lies in the fact that most current technological innovations with labor-saving characteristics tend to create skilled tasks and reduce scale economies.
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In the use of violence there were obviously great advantages of scale when competing with rival violence-using enterprises or establishing a territorial monopoly. This fact is basic for the economic analysis of one aspect of government: the violence-using, violence-controlling industry was a natural monopoly, at least on land. Within territorial limits the service it rendered could be produced much more cheaply by a monopoly. To be sure, there have been times when violence-using enterprises competed in demanding payments for protection in almost the same territory, for example, during the Thirty Years’ War in Germany. But such a situation was even more uneconomic than would be competition in the same territories between rival telephone systems.
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On the other hand, declining decisiveness in battle, which corresponds to the superiority of the defense in military technology, contributes to the dynamic stability of anarchy. Therefore, the apparent impact of information technology in reducing the decisiveness of military action should make the anarchy between minisovereignties more stable and less prone to be replaced through conquest by a large government. Less decisiveness in battle also implies less fighting,
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We offered a paradoxical explanation in Chapter 5, namely that democracy flourished as a fraternal twin of Communism precisely because it facilitated unimpeded control of resources by the state.
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“People learn to want what they see they can get, but they can also change their minds if they see that they do not like what they wanted and what they got.”
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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. A leader who could significantly boost real income in any leading Western nation could justly be paid far more than Michael Eisner. In a better world, every successful head of government would be a multimillionaire.
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What we now think of as “political” leadership, which is always conceived in terms of a nation-state, will become increasingly entrepreneurial rather than political in nature. In these conditions, the viable range of choice in putting together a “policy” regime for a jurisdiction will be effectively narrowed in the same way that the range of options open to entrepreneurs in designing a first-class resort hotel or any similar product or service is defined by what people will pay for. A resort hotel, for example, would seldom attempt to operate on terms that required guests to perform hard labor to repair and extend its facilities. Even a resort hotel owned or controlled by its employees, like the typical modern democracy, would try in vain to force customers to comply with such demands, especially after better accommodations became available. If the customers would rather play golf than do heavy labor in the hot sun, then on that question, at least, the market offers little scope for imposing arbitrary alternatives. In such conditions, presently “political” issues will recede into entrepreneurial judgments, as fragmented jurisdictions seek to discover which policy bundles will attract a viable cross-section of customers.
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As the monopoly on violence enjoyed by the “bigger battalions” breaks down, one of the first results to be expected is increasing prosperity for organized crime. Organized crime, after all, provides the main competition to nation-states in employing violence for predatory purposes.
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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 only 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.
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The destruction of tradition has been a necessary condition of scientific progress. If we all still believed that the sun revolved around the earth, then we could not have developed satellite communications. Indeed what we believe to be science itself is only a series of hypotheses, imperfect explanations due to be replaced by other explanations, stronger but still imperfect. Yet the destruction of tradition has been a disaster to the moral order of the world.
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“collapse” is what happens when a centralized control system is no longer worth what it costs.
