Belmont Club

The Market-State Concept Revisited Part 2

Archbishop of Canterbury Rowan Williams regarded the possibility that Britain was morphing into something fundamentally different with some dread.  In his Dimbleby lecture Williams said: “what I want to explore … is the suggestion … that we’re in …  a period where the basic assumptions about how states work are shifting … that we are witnessing the end of the nation state, and that the nation state is being replaced in the economically developed world by what some call the ‘market state’.”

the nation state … promises … both a piece of territory and a fairly homogeneous community … based on a firm directive hand in the economy and a safety net of public welfare provision … and its success in managing this was the obvious foundation of its claim to be obeyed. …

What happens, though, when the state no longer seems to have the power to keep its side of the bargain? … the American strategist and historian Philip Bobbitt … sees our present context … has led to a shift into a new political mode, the market state, in which the function of government – and the thing that makes government worth obeying – is to clear a space for individuals or groups to do their own negotiating, to secure the best deal or the best value for money in pursuing what they want. It involves deregulation; the ‘franchising’ of various sorts of provision – from private prisons to private pensions – and the withdrawal of the state from many of those areas where it used to bring some kind of moral pressure to bear. It means that government is free to encourage enterprise but not to protect against risk; to try and increase the literal and metaphorical purchasing power of citizens.

Williams argued that while the promised market state might bring more consumer benefits it might also cause a loss of community, echoing Winston Churchill’s conviction that “not only individual death, which is the universal experience” is to be feared, “but, incomparably more commanding, the life of Britain, her message, and her glory.”

But the problem went beyond Williams’ concerns.  The road to the market state led not to the Emerald City but the wilderness of atavistic theocracies, nationalistic authoritarianisms and declining individual opportunities, much to the dismay of those who expected the path to be smoother. The last Belmont Club post argued the problem was caused by  a principal-agent conflict in politicians whose loyalties were  divided between transnational institutions and lobbies and the their traditional constituencies.

This post argues that a successful transition to the market-state  requires a solution to the principal-agent problem else it will fail.  In the nation-state the problem of divergence of interests is solved by culture, religion and racial homogeneity.  But where those factors have been gravely weakened the conflict can only be solved by a strategy that forcibly aligns the interests of bureaucrats with the success of its populations.

There is arguably only one proto-market-state country in the world: the United States.  Yet president Obama, perhaps from habit, persists in acting like the head of a nation-state writ large called the “international order”. In a long interview in the Atlantic with Jeffrey Goldberg Obama expressed his disappointment with the international order in terms which illustrate how, in trying to be the president of everyone, he has succeeded in making himself the president of none, perhaps failing to see that leading a market-state is different from just being an old style politician with international extensions.

In recent days, the president has taken to joking privately, “All I need in the Middle East is a few smart autocrats.” Obama has always had a fondness for pragmatic, emotionally contained technocrats, telling aides, “If only everyone could be like the Scandinavians, this would all be easy.” …

Obama modulates his discussion of terrorism for several reasons: He is, by nature, Spockian. And he believes that a misplaced word, or a frightened look, or an ill-considered hyperbolic claim, could tip the country into panic. The sort of panic he worries about most is the type that would manifest itself in anti-Muslim xenophobia or in a challenge to American openness and to the constitutional order.

A recent Wall Street Journal article noted that for the first time presidential candidates from both parties were no longer strongly supportive of free trade.  “Many Democrats have long blamed free-trade deals for big job losses and depressed wages … but one big surprise Tuesday was how loudly trade fears reverberated among Republican voters in the primary contests … evidence, many observers say, of a widening undercurrent of skepticism on the right about who reaps the benefits from loosened trade restrictions.”

They had lost the faith and simply singing “we are the world” no longer cuts it — unless that phrase means what most don’t think it does.  The current crisis is rooted in the fact that neither physical or job security can be achieved by nation state policies, even with international components.

That is because contemporary productive and destructive processes are provided by overlay networks built on top of the physical infrastructure of the world.  Examples of such overlay networks are the Internet, international trade, intermodal logistics, ISIS, the distributed development of nuclear weapons etc.  You can think of these as “apps” — both good and bad — as built atop of physical infrastructure such as shipping, railways, highways, ports, communications cables, housing stock, etc.  They are logically remapped by various actors to suit their own purposes and we live in this world.

The nation state used to tax, distribute transfer payments and provide physical protection on a stand-alone basis. But today much of the action, even of the malevolent kind, has moved to these networked apps.  Take the telephone: African nation-states which for decades failed to provide even a few land lines to their population found themselves overtaken by cellular networks which in a few short years put a phone in the hands of nearly every African.

Employment was similarly disrupted.  The dollar value in salaries of call center workers in the Philippines will soon eclipse the aggregate remittances of workers physically laboring overseas — even in a country where a tenth of the population works abroad — proving one can emigrate without taking an airplane.  Bloomberg argues that wages have fallen in the West through Chinese competition even if no workers have crossed a border.

Not only does activity travel along these overlays, so does consent. People grant Skype,  Google, Paypal,  Amazon or Uber consent to use their services.  Soon driverless vehicles will have consent to convey people and their loved ones around. Rarely do users even read the terms and conditions, opting to trust providers in rational ignorance.  Many people may actually trust overlay networks more than nations states, an issue highlighted in the FBI vs Apple case.  If consent were a form of currency more of it is probably in the hands of these globally operating apps, including alas ISIS, than reposed with Third World nation states, most of which are not fully free.  It may be that most civilization (the metaphorical “Shield of Achilles”) will eventually take in the form of compiled consent in apps that will collectively comprise our culture, knowledge and even law.

The relative importance of people and territory will likely change as well.  In a knowledge economy sentience will constitute the ultimate source of economic value.  While physical resources (oil, minerals, arable land, water) will continue to be important they will be largely useless without systems embodying stored knowledge. With people paramount, the objective of a market-state should change from one of controlling physical resources to defending the citizenry.

The relative importance of physical resources will decline even further if humanity succeeds in going off-world as gigantic quantities of material becomes available through robotic extraction, manufacture and distribution throughout the Solar System. Once off-world the metric of  size will change from being measured in square miles to the census of productive people and controlling standards that acknowledge a State.

Almost as important as the human resource are initial standards which will guide the structured and unstructured (peer-to-peer) networks from which innovations will spring. Without a starting point it will be difficult to discover resources, share and transact securely. Critically such standards are unlikely to be created by bureaucratic fiat.  The only way a “State” can create them is indirectly: by fostering conditions under which these arise in creative populations under their protection.  This property has the potential to align the interests of bureaucrats with citizens.

With these in mind the strategic imperatives of a proto-nation-state are as follows:

  1. To protect and preserve, preferably in coalition with other States, the physical infrastructure of the world.
  2. To preserve, secure and provide a predictable legal environment for its population, which comprises value in a market-state age.
  3. The goal of #2 above is to increase the likelihood that the citizens of that state will check in Version 1.0 of all the important global apps — whether these be logistics to security applications  — in order to lay the foundation for the market-state age.
  4. The question of who checks in Version 1.0 of the next global innovations will more than anything else determine the future trajectory of the 21st century.

Through this prism the events of the last decade may appear in a different light. The destruction of Syrian borders is less catastrophic than the the annihilation of its human capital. The former is an offense against the nation-state; the latter a crime against the market state. The depopulation policies of Europe now appear not only short-sighted, but suicidal.  The disruption of terrorism and counter-terrorism on the world’s physical infrastructure is no longer dismissable as ‘foreign entanglement’ but a core threat to the market-state. The nuclear proliferation which has brought us closer to “midnight” than at nearly any time during the Cold War may as we shall see,  only tractable within the context of a market state. The sell out of American education to the unions, the Curleyist policy of open borders — all legacies of nation-state politics  — now reveal themselves as undermining the human resource.

To their everlasting credit the American voters sensed there was something wrong with early 21st century globalism long before the pundits detected the error. They understood, better than anyone, that the future depended upon renewing principal-agent loyalty rather than betraying it.

Many of the mistakes of Western leaders can now be seen as the result of applying 20th century leadership style to a proto-market-state age. This miscalculation is particularly dangerous because disruptive technological developments are descending on the world faster than political leaders can mentally cope with them.  Perhaps the most potent of these are artificial intelligence and the Internet of Things. These two apps, together may hold the key to nuclear proliferation and the solution to terrorism, yet may also prove to be the greatest threat to the existence of the human race.

Arthur C. Clarke once remarked that “any sufficiently advanced technology is indistinguishable from magic.” How well the world transitions from the paradigms of the 20th century to those of the 21st will determine whether the future belongs to a society of magicians or a prison camp of slaves or barbarians in possession of magical objects. Perhaps the last role of the historical state will be to assert human control over its own creations.  One thing’s for sure: it’s wasted on simply providing jobs to timeservers in bureaucracies.

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