Thoughts in Between

by Matt Clifford

TiB 195: The State vs Big Tech vs Blockchains; and more...

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A slight departure from usual form today in that I want to devote the whole of this week's edition to three connected essays published over the last two months that offer competing visions on how technology will shape the future of geopolitics. 

Three visions of the geopolitical future

The first piece, published in October, is an essay by political scientist Ian Bremmer that argues that Apple, Microsoft, Alphabet, Meta, Amazon et al ("Big Tech") are becoming geopolitical actors that rival even the most powerful nation states. The second, by Stephen Walt in November, rejects this and sees a future dominated by traditional great powers. The third, by Balaji Srinivasan and Parag Khanna, and published last week rejects the dichotomy and argues that "the future belongs to the internet" - particularly the decentralised version enabled by blockchain technologies.

All three are worth your time, and I suspect represent forerunners of three major "camps" in what will become an increasingly important debate over the next decade or so. The key question all three wrestle with is what sovereignty means when we spent an increasing amount of our time and resources in digital worlds not rooted in any one state's physical territory. These digital worlds, all three essays agree, are and will be contested spaces where traditional modes of power vie with new ones.

Bremmer sees a plausible future where states have to cede a great deal of sovereignty to Big Tech companies in order to be able to benefit economically and socially from technological progress. Walt disagrees: "Physical space is essential; digital space is optional", he argues. Srinivasan and Khanna believe that both nation states and huge corporations will see power ebb away to Web3-powered decentralised networks and communities. This is a great piece and much-needed piece. I agree with a lot of the argument, so I want to focus on where I think they're too bullish. 

Against techno-inevitability

I have three reasons for wondering if the crypto / Web3 transformation of geopolitics isn't quite as inevitable as Srinivasan and Khanna believe: first, what I've previously called "the stubborn persistence of the physical"; second, the enduring need for legitimacy beyond code; and, third, the limited market size of nomadic talent. The first of these we've discussed many times - see, e.g., TiB 109, 161, 162, 164, 181, and 183. Even as the economy rapidly digitises, it's proven hard to virtualise many of the most important building blocks not just of society, but of digitalisation itself. Semiconductors, for example, have to be made somewhere, and at least so far nation states have been effective at regulating and controlling their distribution.

One of Srinivasan and Khanna's arguments is that "rule of law is becoming rule of code" - that is, that smart contracts will supplant politically and judicially mediated "off-chain" agreements. The best argument against this is this excellent essay on legitimacy by Vitalik Buterin, one of the co-founders of Ethereum, which we discussed in TiB 158. As Buterin argues, communities' core preference for fairness will tend to override even hard-coded outcomes. This will make nation states, as long as there are people who expect to be represented by them, hard to transcend.

Another important idea for Srinivasan and Khanna is that "in a competitive marketplace of jurisdictions where somewhere can be anywhere, no single government has as much authority as people think". That's true, but it requires there to be a large group of organisations and, crucially, individuals willing to "shop around" for better jurisdictions. But the evidence suggests that people are (surprisingly?) unwilling to move, even when they have a strong financial incentive to do so. See, for example, this study that shows that there's little high-net-worth migration in response to tax hikes.

Thesis, antithesis, synthesis?

Despite these quibbles, I strongly agree that the decentralisation genie will be hard to put back in the bottle and that we should expect geopolitics to evolve in response. I think, though, it's a mistake to think of nation states / corporations / decentralised communities as perfectly distinct or even irreconcilable categories. A key question is how governments will attempt to accommodate or co-opt Web3, as they have all previous general purpose technologies (see my podcast with Jade Leung and TiB 149 for more on this).

It would be a mistake to underestimate states' capacity for accommodation. One advantage governments have is that while the creators of many decentralised protocols have ideological motivations, very few consumers do. As such, they will flow to the best user experience, not the protocol that best escapes the reach of the state. "Not your keys, not your coins" resonates with true believers, but for most users Coinbase or similar is the easier choice - and it's very easy for a state to co-opt a regulated public company.

As it becomes increasingly clear that crypto isn't going away, states will be assiduous in pursuing whatever strategic advantage it can offer. For a glimpse of what this might look like, read the highlights from this week's US House hearing on crypto and the arguments Web3 leaders thought would be most persuasive to lawmakers - from strengthening (yes, you read that right) dollar supremacy to providing an alternative to Web2 monopolies. We're a long way from equilibrium here, but by far the most likely outcome is that states, corporations and protocols co-evolve - rather than fight to the death.

Quick links

  1. The morning after the night before. Which countries drink the most? And which regret it most? Fascinating graphic, which includes many stories... What’s with the New Zealand / Denmark contrast? [Repost: sorry, I messed up the link last week]
  2. Working hard or...? Great chart of average working hours since the 19th century.
  3. Land of the free and home of the rich. Striking comparison of the income distributions across four well-off countries.
  4. Not remotely surprising. What's the biggest reason people are leaving their jobs?
  5. Legend on legend. Mike Moritz profiles Arthur Rock, 1984.

BONUS: One of the most clicked links in TiB this year was this piece by Alex Crompton on how to learn chess as an adult. Here's Alex discussing the topic further on one of the leading chess podcasts last week.

What do you think?

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This is the last "normal" TiB of the year. Next week there'll be the now traditional TiB Review of the year, followed by a two week break.

As always, feel free to reply if you have comments, questions or recommendations.

Until next week,

Matt Clifford

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