The Sovereign Individual by Davidson and Rees-Mogg
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One of those few books where you see the world differently after reading it. The next couple decades of technological advancements will give us unprecedented ability to live in ways that would have been unthinkable 30 years ago. This book outlines how tech will change the ways we live, especially relative to countries, and how we can take advantage of it.
The Transition of the Year 2000: The Fourth Stage of Human Society
We’re entering into the fourth stage of human society:
Hunting and gathering societiesAgricultural societiesIndustrial societiesInformational societies
In the future, wealth will be measured not just by the amount in your bank account, but in your ability to structure your affairs to realize complete individual autonomy and independence. Unprecedented financial independence will be possible for you in your lifetime.
The cybereconomy, more than any individual country’s economy, will be the greatest economic phenomenon of the future.
As our financial freedom increases, governments won’t have any choice but to treat us more like customers, and less like victims of an organized crime ring.
When money can be earned anywhere, you won’t be obligated to live in or subject yourself to high taxation. Governments that charge too much will drive away their best customers. The nation-state will not endure these changes in its present form.
As technology weakens the state, the state will treat these new sovereign individuals with hostility, in the same way it treats challenging governments.
In the information age, a job will be a task that you do, not a thing that you have.
As more money moves online, governments won’t be able to track or control it anymore. They’ll lose their power over commerce and won’t be able to treat their citizens as a farmer milking cows.
As the Soviet Union tried to suppress access to personal computers and Xerox machines, Western governments will seek to suppress the cybereconomy by totalitarian means.
As individual sovereignty increases, new luddites will arise who rebel against the technological advances allowing for this individual autonomy. There will be a nostalgia for the past flamed by a crisis from the transition. The greatest resentment will likely be centered among the middle class in rich countries, they will feel they have the most to lose. Anyone receiving handouts from the government will resent the sovereign individuals who don’t support them.
With technology increasing, we’ll move closer and closer to Neal Stephenson’s Metaverse in Snow Crash, where we live as much online as offline and conduct ourselves according to the online laws and customs, working in the cybereconomy.
You can’t rely on conventional information sources to give you an objective warning about how the world is changing and why. You have to figure it out for yourself.
Forecasting is generally wrong, but it can be done well. A forecast that anticipates the impact of incentives on behavior is likely to be broadly correct. The greater the anticipated change in costs and rewards, the less trivial the implied forecast is likely to be.
Points to keep in mind when trying to understand the information revolution:
A shift in the foundations of power unfolds far in advance of the actual revolutions in use of power.Incomes are falling when a major transition beginsPeople are blind to the logic of violence in existing society, so they’re blind to the changes in that logic. Megapolitical changes are not recognized before they happen.Major transitions always involve a cultural revolution, and usually entail clashes between adherents of the old and new values.Megapolitical changes are never popular because they antiquate intellectual capital and break down established moral imperatives.Transitions to new ways of organizing life happen in pieces, starting with the catalysts of the change.Transitions always involve periods of social chaos and heightened violence due to disorientation and breakdown of the old system.Corruption, moral decline, and inefficiency appear to be signal features of the final stages of a system.The growing importance of technology in shaping the logic of violence has led to history accelerating, where each transition happens faster than the last.
There are four key pieces to understanding megapolitcal changes:
Topography, the control and makeup of the land.Climate, it’s change can precipitate major shifts in power. The 17th century was frought with social revolution.Microbes and disease can cause radical changes in power.Technology plays the biggest and most impactful role in the new megapolitical changes though
Before farming, humans were as densely settled as bears.
In the hunting gathering days, there was no reason to work more than the 10-15 hours a week you needed to do to secure food. Overkill was punished because the food would rot before it could be eaten, and decrease food available to you in the environment in the future.
The move to agriculture resulted in the emergence of property. Before that, there was no sense of private property since there was no need. But when you spend a year growing a field of corn, you don’t want someone else to come along and eat it.
The garden of eden is the tale of our better hunter gatherer days, the word Eden may even derive from the Sumerian word for “Wilderness.”
Perfection is a synonym for exhaustion: just as we master a certain technology, a new innovation comes along to blow it away. Right as we perfected the horse mounted cavalry, gunpowder was invented and any peasant could defeat a knight.
Mass production of books ended the Church’s monopoly on Scripture and information, wider book availability increased literacy, more people could contribute thoughts on important subjects, and it threatened the church’s monopoly on theology and information.
The dramatic change of 500 years ago will happen again. The information revolution will destroy the monopoly of power held by the nation state, just as the gunpowder revolution destroyed the church’s monopoly.
The downsizing of the church liberated productivity, since its monopoly on information and power got in the way of growth in a few ways:
High direct costs from tithes, taxes, and fees.Religious doctrines made savings difficult, demanding you donate to the church and the poor and avoid being a “miser.”Spending huge amounts of money on relics related to Christ instead of economic development.When protestant denominations arose, there was competition within the church, leading to significantly less regulation.The protestant church did away with much of the ceremonial excess of the catholic church, giving people their year back for work and reducing the costs of staying faithful.The break in the monopoly released huge amounts of assets that were being held in the church with low returns, freeing up the money for more lucrative projects.Protestant churches lifted the bans on earning interest on money, among other things, rapidly accelerating capitalism
“The end of the fifteenth century was a time of disillusion, confusion, pessimism, and despair. A time much like now.”
“If you went into a store to buy furniture, and the salespeople took your money but then proceeded to ignore your requests and consult others about how to spend your money, you would quite rightly be upset… The fact that something very like this happens in dealings with governments shows how little control its “customers” actually have.”
One of the advantages of privatizing formerly state owned functions is that private control weeds out unnecessary employment. The costs of democratic government for all things is significantly higher than those functions need to be. Firing employees, downsizing departments, these kinds of changes are extremely difficult.
Taxation based on income is silly, imagine if the phone company sent you a bill for $50,000 because your phone call to London scored you a $125,000 deal.
The democratic nation state has succeeded for the last 200 years because:
Increasing scale of violence made the magnitude of power more important than efficiency.Income rose enough above subsistence that the state could collect large amounts of money without having to negotiate with powerful magnates.Democracy proved compatible with the operation of free markets to help with generating more wealth.Democracy helped domination of government by its employees, making it harder to cut costs, fire people, reduce military spending, etc.Democracy as a decision mechanism restricted the rich’s ability to work together to curtail the governments power.
The information age will require new mechanisms of representation and government to avoid chronic dysfunction and even social collapse. The past systems will break down as technology advances.
The technology of the information age will make it easier to create assets outside the reach of typical forms of coercion, government or otherwise.
Economic prosperity requires protection, and a big function of government is providing that protection so that economies can flourish. It’s not an easy problem to solve: there will always be people who want what isn’t there’s, and there’ll be a need to insulate yourself against them.
Old Chinese saying: “Of all the thirty-six ways to get out of trouble, the best way is–leave.”
In the information age, if life becomes inoperable or undesirable in one location you’ll no longer be tied to it. You can simply leave and live elsewhere. A change in government could lead to companies fleeing overnight.
The information age will alter property, business, and work in powerful ways:
Information technology has neglibible natural resource content. Information technology is highly portable, it’s not reliant on one place, so a certain area doesn’t have the same kind of control over it. GM can’t pack up its car plants and fly off to another country over night, but a software company can.Information technology lowers the scale of enterprise. Firms will be smaller and more agile, with more competitors. Less opportunities for monopoly.Smaller enterprises means it will be harder to secure above-market wages, since there will be more competitors and less control by employees. Unions lose their power.Information technology lowers capital costs, which will increase competition and entrepreneurship. This will also reduce barriers to exit, making it easier for companies to go under, and less likely that banks will rescue and bail them out.Information technology has a shorter product cycle. Products will become obsolete faster, so any gains from extorting above-market wages will be short lived.Information technology is not sequential but simultaneous and dispersed. Unlike the assembly line, info tech can accommodate multiple processes at once. It’s possible for people to work together without ever seeing each other. Telecommuting will accelerate.Microprocessing will individualize work, away from the standardized work of the assembly line. This will also increase income inequality, since one programmer can write an algorithm worth millions, while another working at an identical laptop could create nothing of value. Resentment between those who create value and those who don’t will increase. As information technology proliferates, low skilled people won’t be taken advantage of anymore, they simply won’t be able to contribute meaningfully to the economy.
The individual as an ensemble: As our access to information technology grows, we’ll be able to multiply our abilities by manifesting a potentially limitless number of agents to complete tasks for us, whether they’re humans or programs. One person’s potential output will increase exponentially with technology. You could even continue acting after death.
One key difference with the migration to cyberspace is that it’s limitless. In medieval society, the successful and rich concentrated in certain areas, but cyberspace doesn’t require this. Instead, you can keep pushing out the boundaries and claiming new frontiers, and in doing so, pulling more resources away from governments and the physical world and into cyberspace.
As virtual corporations arise, individuals will domicile their income-earning activities in a jurisdiction that provides the best service at the lowest cost. Sovereignty will be commercialized.
Cyberspace is a great equalizer, no matter how many governments or how big of governments enter it, they’ll be no more powerful than anyone else.
The information wars are more likely to break down the old systems than harm the new ones, the new ones will be more robust to their attacks.
We’re hardwired to think in terms of locality, even when thinking of the Internet we describe it as a “superhighway,” a very local thing. As salmon have their own homing instincts, ours is to think in terms of the local.
They predict the cybereconomy will evolve through several stages:
The most primitive version of the information era will be the Internet facilitating what were ordinary industrial-era transactions. An exotic delivery system for catalogues.The intermediate stage will use information technology in ways impossible in the industrial era, like long distance medical diagnosis.The third era will be a true cybereconomy. Transactions occuring over the net outside the jurisdiction of nation states.
They also spell out some ways that commerce will be changed in the information age:
Convergent communication: global communication and web transactions will be fast and nearly freeThe Internet will come “unwired” allowing for constant, mobile access.International business will be done seemlessly through the webYour phone will become a bank, outside any country’s jurisdiction, and you’ll be able to manage all of your financial transactions through it.You’ll be able to effortlessly communicate in other languages through your devicesAll of your media will become customized, including your newsMass production will shift to customized production, you’ll be able to get cars, clothes, etc. made just for youYou’ll be able to locate your business anywhere in the world through the webThere will be virtual culture, like museums and performances
Governments will try to enact laws to restrict the power of these new technologies, but they won’t work. It used to be illegal to send a fax in the US because the postal service claimed dominion over what it thought was mail. Obviously those laws didn’t last.
Technology will allow for micropayments and microtransactions based on consumption, instead of playing flat rates to the service providers.
As more business moves online, governments will experience a steep decrease in taxation revenue, which will be problematic since they’ll have budgeted for much higher income. This will likely lead to a major financial crisis
As the minimum skill requirement increases for making a meaningful economic contribution, the number of people unable to contribute to the workforce will drastically increase. There are many more people at the bottom of skill levels, and so even a small increase in required skill will push out huge numbers.
Societies that believe in income equality and high levels of consumption for people of low or moderate skill will face demotivation and insecurity. As information technology increases, the unemployable underclass will grow, which will lead to a nationalist, anti technology bias.
The Sovereign Individuals of the information economy won’t be warlords, but masters of specialized skills, like entrepreneurship and investment.
The egalitarian economy and the nations it supports can’t disappear without a crisis. It makes sense that the end of nations as we know them could lead to a massive economic and social crisis.
With the economy moving online, incentives and market paradigms will reward wealth creation and encourage people to pay for the resources they consume.
Nation states with a single major metropolis (England, France) will remain coherent longer than those with several big cities (US, Brazil) since the latter have multiple centers of interest.
The new fragmented sovereignties that arise from the breakdown of nation states will cater to different tastes, just as hotels and restaurants do, enforcing specific regulations within their areas that appeal to the market segments they want customers from.
In the Information Age, only cities that repay their upkeep with a high quality of life will stay viable. People at a distance won’t be obligated to subsidize them. A good marker for the viability of a city will be whether those living at the core of it are richer than those living at the periphery.
Inexpensive governments with low costs of doing business will attract the new companies in the information age. The high cost governance of North America and Western Europe will drive out companies that need to compete.
Moving away from firms: There’s no reason that 1000 employees can’t be replaced by a group of independent contractors, especially in a post-assembly line economy.
Industrial era employees who held good jobs but did little will find themselves bidding for contracts in the market.There will be no such thing as “jobs” as we think of them now, just skills and things you do.No more jobs for life, or the company that takes care of you. It’s not productive.
The movie business is a good example: the companies for a particular movie are spun up for a year, people are “employed” for the project, and then at the end of it they go their separate ways. They have no expectation of being employed forever.
Memorization as a skill will become useless, but the value of quickly learning will increase. We’ll be in a world of abundant information and what you’ll need to know is how to use it.
The Information Age is likely to bring discontinuities and sharp breaks in the existing systems:
Changes in economic organization as discussed already.A rapid falloff of organizations that operate within rather than beyond geographic boundaries.Wider recognition that the nation state is obsolete, leading to widespread secession movements in many parts of the globe.A decline in the status and power of traditional elites, as well as a decline in the respect for the symbols of the nation stateAn intense and even violent nationalist reaction among those who lose status, income, and power when the ordinary life is disrupted by political devolution and new market arrangements, including:Suspicion of and opposition to globalization, free trade, foreign ownership and penetration of local economiesHostility to immigration, especially of groups that are visibly different from the former national groupPopular hatred of the information elite, rich people, the well-educated, and complaints about capital flight and disappearing jobsExtreme measures by nationalists intent upon halting the secession of individuals and regions from faltering nation-states, including resorts to war and ethnic cleansings.Since the new technologies will allow sovereign individuals to leave nation states and stop supporting freeloaders, there will be a neo-luddite attack against them.The intensity of the neo-luddite reaction will vary by region:It’ll be less intense in rapidly growing economies which were poor during the industrial revolutionIt will be most intense in the currently rich countries, especially within populations that are skill-poor and value-poor but who got used to a high standard of livingThe neo-luddites will attract most of their adherents from the bottom ⅔ of income earnersBut the reaction will be strongest not in the very poor, but among those of middling skill, underachievers with credentials who face downward mobilityOld imperatives of Nationalism will lose their appealThe nationalist reaction will peak in the early decades of the 2000s, then fade as the efficiency of fragmented sovereignties proves superior to the nation stateThe nation state will ultimately collapse in fiscal crisis
As it becomes easier to live comfortably and earn a high income anywhere, the pull to choose where to live based on price savings will be more appealing.
The difference between the new “information aristocracy” and the “information poor” is that the information poor will see little benefit from moving. They’ll be tied by geography. The information aristocracy will be extremely mobile, able to earn a living in any jurisdiction they find themselves in, just as popular novelists have always been able to do.
A new “transnational” or “extranational” understanding of the world and a new way of identifying one’s place in it will arise in the new millennium.
The boundaries between nations are not natural: No one could tell the difference between an American, Canadian, and Sudanese after a plane crash. They’re artificial differences.
The Internet reinforces English as the new global language.
The web allows people to transcend any bad luck of being born in a certain country or state, they’re global citizens now.
There will be a big advantage to being multilingual and cosmopolitan in the Information Age, and if you want to take full advantage of the freedom of mobility, you should stake out a welcome mat in multiple places beyond the one you were born in.
Narrow casting will soon replace “broad” casting as how we obtain our news. It will all be specially tailored for us.
Education: First, it was controlled by the Church. Then, it was controlled by the state. Now, it will be controlled and improved by technology, and it will be personalized and individualized based on the student.
Governments won’t be able to stop its sovereign individuals leaving. They’ll surely be as clever and enterprising as the migrant workers who sneak in.
The US is one of the few nations that charges taxes based on citizenship, not residence. Business in the future will be most expensive for Americans who will be paying the same taxes no matter where in the world they go. Their lifetime tax burden would be lower in as a citizen of any of more than 280 other jurisdictions in the world.
Unless the US changes its tax laws, enterprising individuals will likely renounce their citizenship in the future in pursuit of a better form of governance.
Business on the Internet will reduce discrimination, no one cares if you’re white black woman man dwarf etc.
People will react much more violently to technologies that replace specific jobs, as opposed to technologies that allow for new kinds of work or production.
New memberships and communities will arise that transcend borders, similar to the guilds of old, where you can be part of one no matter where you are in the world and it will afford you certain privileges in the cybereconomy.
People will choose their jurisdictions the same way they today choose their insurance carriers or religions. Jurisdictions that fail to provide a suitable mix of services will face bankruptcy and liquidation, like an incompetent business.
Democracy has prevailed when certain factors support a military power for the masses, including:
Cheap and widely dispersed weaponry.Weapons that can be used effectively by amateurs.A military advantage for a large number of participants on foot in battle
Now that information technology is displacing mass production, it’s logical to expect the end of mass democracy.
Geographic representative democracy only makes sense in a pre-information age world. Now that we can communicate instantly globally, there’s no reason to have state based representatives. Any other arbitrary breakdown would make as much, or more, sense, such as birthdays.
The technology of the information age will give rise to new forms of governance, just as the agricultural and industrial ages did before it.
When you look outside of politics, leaders, coaches, executives, etc. are not selected democratically. They’re hired, they’re qualified. And, they’re paid in part based on performance, unlike legislators who make the same amount regardless of how effective they are.
Your additional lifetime earnings, when adding in interest, would be in the tens of millions by relocating your assets and citizenship to a more tax friendly country.
The information age will be the age of the independent contractor, rewarded based on performance and competence, instead of the “company man.”
As the barriers to transmitting information has fallen, more information has been produced, and it’s become increasingly valuable to be able to discern signal from noise and know what to pay attention to. That skill is becoming increasingly valuable because:
The information overload puts a premium on brevity, which leads to abbreviation, which leaves out what is unfamiliar, which leaves out important parts of understanding the information.There’s an increased value in broad overviews and lower value of individual facts.The growing tribalization and marginalization of life will stunt discourse and thinking. Many people will shy away from conclusions that make them uncomfortable, even if they’re obvious.
Losing a creative outlet can lead to a nervous breakdown, we need an Ikigai, a reason to live.
We will identify more with people who share our interests and work than our country. An investment banker in Manhattan has more in common with a trader in Tokyo than the server who prepares his food for lunch.
The cybereconomy may put more emphasis back in trust and mutual assurance than in the industrial era, and ways of assuring trust between unknown parties will rise.
Whatever your current residence or nationality, to optimize your wealth you should reside in a country other than the one from which you hold your first passport, while keeping the bulk of your money in a third country, preferably a tax haven.
If you can teach yourself how to solve problems, you have a bright career ahead of yourself. No matter where you live, you will find problems galore in need of solving. Those who would benefit from solutions of their problems will pay you handsomely to solve them.