November 2022
Hereby it is manifest, that during the time men live without a common Power to keep them all in awe, they are in that conditions called Warre; and such a warre, as is of every man, against every man. . . For Warre, consisteth not in Battell onely, or the act of fighting; but in a tract of time, wherein the Will to contend by Battell is sufficiently known: and therefore the notion of Time, is to be considered in the nature of Warre; as it is in the nature of Weather. Whatsoever therefore is consequent to a time of Warre, where every man is Enemy to every man; the same is consequent to the time, wherein men live without other security, than what their own strength, and their own invention shall furnish them withall. In such condition, there is no place for Industry; because the fruit thereof is uncertain: and consequently no Culture of the Earth; no Navigation, nor use of the commodities that may be imported by Sea; no commodious Building; no Instruments of moving, and removing things as require much force; no Knowledge of the face of the Earth; no account of Time; no Arts; no Letters; no Society; and which is worst of all, continuall feare, and danger of violent death; And the life of man solitary, poore, nasty, brutish, and short. . . “I Authorize and give up my Right of Governing my selfe, to this Man, or to his Assembly of men, on this condition, that thou that give up thy Right to him, and Authorise all his Actionsin like manner.” This done, the Multitude so united in one Person, is called a COMMON-WEALTH, in latine CIVITAS. This is the Generation of that LEVIATHAN, or rather (to speake more reverently) of that Mortall God, to which we owe under the Immortal God, our peace and defence. [italics and bold added]
[Thomas Hobbes, Leviathan, sive De materia, forma, & potestate civitatis ecclesiasticae et civilis., Ch 13 and 17, London: Andrew Crooke, 1651).
The “Leviathan” was the name Hobbes gave to the CIVITAS, COMMONWEALTH, or STATE, which people constructed to advance peace, economic growth, and civilization.
The battles of the 21st century will come from the three great organizing constructs of mankind: states, corporations, and networks (including platforms). Most of today’s political, social, and economic conflict comes from these three types of advanced civilizational entities engaging in constant negotiation or outright battle, for control of the modern populations. [1]
Definitions first.
State: A centralized government with a border, population, sovereignty, domestic monopoly on violence and control, and recognition by other states, that exists to settle disputes, produce and distribute certain goods and services, and make foundational laws. It typically has an executive, a legislature, judges, and an administrative bureaucracy directing it.
Corporation: A legal & economic entity, spanning multiple states (a multi-national corporation), often consisting of multiple other entities (corporations) with a group of people/employees, using capital to make products or services. It typically has a board and C-suite directing it.
Network: A group of people or technological nodes (e.g. internet service providers, Discord servers, subreddits, Bitcoin nodes, etc) that transact in a decentralized and anarchic way. Examples include an outdoor market, the internet, or large platforms like Google Search, Instagram (including all the users and creators), or all mobile phones. Norms and protocols may direct different networks, but some are completely unregulated and spontaneous. A subset of networks are the tech “platforms,” though they are often owned and controlled by states or corporations. [2] Specifically, multi-sided platforms serve distinct groups of customers who need each other in some way, and the core function of the multi-sided platform is to provide a common (real or virtual) meeting place and to facilitate interactions between members of the distinct groups. Platforms play an important social and economic role by minimizing transactions costs between entities that benefit from getting together.
Some History for Context
While states have existed for millennia (e.g. Mesopotamian states, Qin Dynasty China, Ashokan India, Greek city-states, etc), the first modern states were when European monarchies transitioned to being representative democracies in the 18th century. They offered some equality, liberty, and self-rule (in theory), with the United States, Switzerland, and New Zealand leading the way from 1789 to 1857. Interestingly, even in the 2020s, these 3 countries remain the best examples of high-functioning modern states, innovating in matters of federalism, the administrative and regulatory bodies, economic growth, and technological advancement. Interestingly, new state formation is defined by a metaphysical conception of a “will of the people” through which the new state is ritually granted sovereignty. That leads to the paradoxical nature of modern foundings, characterized by the symbolic acts and rituals upon which a state is enabled to secure political and social order. [3]
Corporations existed in ancient and medieval times in a basic form (e.g. the collegium of ancient Rome, City of London Corporation, Stora Kopparberg in Sweden), but the first great innovations were in the 17th century with the Dutch East India Company, Hudson Bay Company, the South Sea Company, and East India Company of London. They were created by legislatures to act as commercial, profit-maximizing entities for their venal shareholders, often to extract resources from other parts of the world or colonies. They allowed people and capital to be massed together for specific profit-driven goals, often under a board and professional management, to act as ageless, commercial entities. After the first ones failed, many countries limited or banned corporations for a century (e.g in the UK corporations were banned from 1720 to 1825; in US states, you needed an act of the state legislature to charter each corporation). This was undone by the enterprising American Robber Baron class in the last 19th century, who revived the corporate entity to consolidate their empires of state-level partnerships and trusts into multi-state and then multi-national corporations such as the US Steel Company, Standard Oil, Edison General Electric, etc. [4]
Networks are more amorphous and have always existed, like local markets, but the subset of the modern platform is relatively new, and tied to technological development. Railroads and telegraphs emerged as 19th century platforms, while 20th century equivalents were electrical and utility grids, telephones, mass media (radio and TV), and finally computers linked via the internet and ISPs. The 21st century brought mobile phones, XR, IOT, and more. Interestingly, one can think of all modern software, including cloud services, AI, and blockchains, as network platforms.
The Modern Struggle
The 21st Century is defined by States, Corporations, and Platforms competing for resources like people/attention/labor, money/wealth, control of the narrative (people’s hearts and minds’), control over technology, and many of the foundational primitives of our civilization (e.g. schools, energy plants, media, etc). Most people are just pawns in the larger interactions of these types of institutions.
States technically have the broadest mandate to serve the general goodwill and weal, with some powerful institutions to separate out and balance different powers, factions, and interests. However, they are often structured to favor elite and incumbent groups or the personal interests of politicians and administrators (state or regulatory capture). Many states lack the capacity to provide basic services and so they often cannot take over the economy or banish markets (as that has ended poorly in economic and then social collapse, like Venezuela). Most states are like vampires – they can and will live for centuries or longer, with some city-states surviving for a millennium or more. They cheat death and their bloodsucking taxes never go away.
Corporations have a much narrower mandate to maximize value for shareholders, but in practice are forced to broaden their interests and concerns to support a wide group of stakeholders like employees, management, customers, local communities, lenders, their headquarters’s state, etc. These are among the most efficiently run institutions in the world for shorter periods of time, but many fail to keep up with the brutal rate of change and they become sclerotic or nepotistic quickly. The average life of a S&P 500 company (within the list) is roughly 18 years today, though the total life before a bankruptcy, merger, or acquisition may be twice that.
Network platforms can have very long lives (e.g. railways, radio, electrical grids, TV, etc) but generally don’t stay independent – they are often built or taken over by corporations and states, though a handful of platforms are important enough that they operate at the level of states and their corporate owners directly negotiate with states (e.g. Apple iPhones and China, Microsoft Windows and the EU, Google Search and India, etc). They can be efficient or overly-dense, and that often reflects a tradeoff to create resilience to disruption.
States and corporations are often subject to the “institutional imperative”, which I broadly define as internal constraints that come from the path dependency of culture, know-how, and organizational constraints, but also includes the tendency of executives to mindlessly imitate their peers, work in their own interests and against those they represent (e.g. agency costs per agency theory).
Network platforms are often subject to technical benefits and constraints. The major benefit is Metcalfe’s law, which says that every time you add a new user to a network, the number of connections increases proportionally to the square of the number of users. The law says the value of a network is proportional to the square of the number of nodes in the network. Hence old networks continue to remain extremely powerful, and the first network to gain scale often remains dominant for a long time and is hard to challenge. The major constraint is the rate of technological change. Networks need to be fed, maintained, and upgraded, and older networks need to have their software reconfigured to meet modern needs. Otherwise, newer networks may usurp them (like the Apple/iOS ecosystem did for Wintel, phones and TV did for radio, or iPhone/Android did for phone companies and PCs, etc).
The struggle between states, corporations, and network platforms is like that when an immovable object meets an unstoppable force. It’s hard to know who wins, or what even the underlying physics of the explosion looks like.
Looking Deeper – Understanding the Encounter and Explosion
Much of the serious modern news is about conflict – states versus states, corporations versus networks, networks versus states, corporations versus states, corporations versus corporations, and networks versus networks. These are the conceptual entities, the titans of our times, battling for dominance.
What complicates this are the combinations: the corporate-controlled state (e.g. the CCP controlling China); the state-controlled corporation (Amtrak, Fannie Mae, CNPC, Saudi Aramco, etc); the corporate-controlled network (iPhones, Google search, etc); the network controlled state (monarchies like Saudi Arabia or the UAE); the state controlled-network (BBC or All India Radio); the network state (a new entity conjured by Srinivasan).
Srinivasan’s new book defines a network state as a sort of gryphon, a “a highly aligned online community with a capacity for collective action that crowdfunds territory around the world and eventually gains diplomatic recognition from pre-existing states.” He goes further with a complex definition:
A network state is a social network with a moral innovation, a sense of national consciousness, a recognized founder, a capacity for collective action, an in-person level of civility, an integrated cryptocurrency, a consensual government limited by a social smart contract, an archipelago of crowdfunded physical territories, a virtual capital, and an on-chain census that proves a large enough population, income, and real-estate footprint to attain a measure of diplomatic recognition.
Balaji Srinivasan, The Network State [1]
He goes on to encapsulate this in an image. The dashboard below shows what a million-person network state looks like on the map. Specifically, it depicts a network state with 1.7 million people, 157 billion dollars in annual income, and a 136 million square meter footprint. The network state is neither physically centralized like a nation state, nor limited in scale like a city state. It’s geographically decentralized and connected by the internet. It’s feasible, but implausible, that one could start this kind of country from your computer. “That is, just as Facebook grew from one person’s laptop, Srinivasan posits a million-person network state that owns a global archipelago of physical territory could start as a one-person startup society, as shown in this gif: thenetworkstate.com/networkstate.gif.” Finally, real-time census is key to the network state. The dashboard combines concepts from coins, companies, and countries to focus a society on growth in people, annual income, and real estate footprint.
Srinivasan’s main insight is that we need to broaden our concept of a state to allow a merge with the idea of a network platform, like a late-night Git merge request gone wrong, but which has a wonderful and unexpected outcome. His book is quite insightful, similar to Scott’s “Seeing Like a State” or Davidson’s “The Sovereign Individual“, but with a mix of network theory and economics, a dash of Bitcoin, and some pushback against the power of the CCP and the NY Times. My biggest open question is “what’s the first use case, or need, for a network state?” Srinivasan implies the collapse of states, like Venezuela (totally) and Argentina (economically) may spread through the Western World, making network states necessary as resilient alternatives, or place to exit to. While that’s possible, it seems improbable. I can see the value of a network platform like Bitcoin existing to allow individuals to have freedom over state controls on banking and money (e.g. AML, capital controls, surveillance, seizure, etc), but what is the first major use of a network state, that solves an immediate problem?
One solution could be economic freedom. A global group of skilled programmers may lack the passports and visas to live in the wealthier countries, but still operate in global labor and financial markets as part of a network state.
My deeper question is, why not have all three? Can we build a “network-corporate-state?” Three examples come to mind. First, the East India Company was powerful because it was a corporate-state: it literally acted as a state for more than a century to consolidate and administer vast parts of India, until the failed Indian Rebellion of 1857 forced the British government to directly administer it as the British Raj. The Company was also a loose network of agents in different parts of India. Second, Standard Oil put together the best aspects of a corporation and a decentralized network of trusts holding refiners, to invent the modern multi-national corporation as a network-corporation. Some believe it directly controlled the state of New Jersey for over 2 decades.
Third and most importantly, an even older decentralized corporation, which eventually became a state, was the Holy See (the sovereign city-state of the Vatican city). This started as a network of bishops, morphed into a corporate-network (the Roman Curia), and became the first true network-corporate-state when the Vatican City State was distinctively established with the Lateran Treaty of 1929, between the Holy See and Italy, to ensure the temporal, diplomatic, and spiritual independence of the papacy. [4][5]
What would a network-corporate-state look like? What does the oldest, large institution in the Western World have to show us about the future merged organization?
The org chart and the network pattern of the Roman Catholic Church, which is also the smallest nation state.
Notes
[1]. My thinking is heavily influenced by Niall Ferguson’s “The Square and the Tower: Networks and Power, from the Freemasons to Facebook” and Balaji Srinivasan’s “The Network State.”
Ferguson positions networks at the basis of human innovation, arguing that they have allowed us to construct modern civilization. Networks are extremely varied, including patterns of settlement and migration in the early days of humanity, but also cults and crazes that sprout without any real plans. Networks build in a horizontal direction, while hierarchies do the same in a downward fashion, never at the same level. His book is focused on the relationship between hierarchies and networks, between ‘the vertical tower and the horizontal square’. The metaphor of the tower is meant to illustrate official power, and how it stands atop the square and its various exchanges between individuals. The book’s main thesis is that there have been two ages of networks where the traditional system’s failure to maintain its monopoly on power. The first was started with the invention of the mobile printing press, allowing for the spread of revolutionary ideas, ending at the close of the nineteenth century. The second started in the 1960s and boomed with the spread of the internet as well as the disintegration of the Soviet Union and colonial Africa and Asia.
[2] Beyond Ferguson, many have written about platforms, but my favorite book is Cusumano’s “The Business of Platforms.” Also see: Evans, David S. and Schmalensee, Richard and Noel, Michael D. and Chang, Howard H. and Garcia-Swartz, Daniel D., Platform Economics: Essays on Multi-Sided Businesses (December 17, 2011). PLATFORM ECONOMICS: ESSAYS ON MULTI-SIDED BUSINESSES, David S. Evans, ed., Competition Policy International, 2011, Available at SSRN: https://ssrn.com/abstract=1974020.
[3] Bensel’s “The Founding of Modern States” is a good place to start. For constitutions, see Colley’s “The Gun, the Ship, and the Pen.”
[4]. A fun introduction is Magnuson’s “For Profit: A History of Corporations.” Friedman’s “A History of American Law” gives some insight too, though the most important early corporation is the East India company, where Darlymple, Keay, Barrow, and others have written books on it. For the Robber Barons, the best discussion is in Chernow’s “Titan” and Strouse’s “Morgan: American Financier.”
[5] See Hitchcock’s “History of the Catholic Church: From the Apostolic Age to the Third Millennium.”
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