Network States and Startup Societies

Why the “commercialization of sovereignty” is something to avoid

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– OPINION –

Lately, I’ve been tracking the growing influence of Balaji Srinivasan’s crypto-libertarian manifesto, The Network State (2022). Last week, the book was referenced in James Pogue’s Vanity Fair article, “Inside the Dissident Fringe, Where the New Right Meets the Far Left, and Everyone’s Bracing for Apocalypse,” on the brewing “civil war” taking place in Wyoming and Montana:

Wealthy and well-connected preppers and back-to-the-landers have been moving west, many of them at least tangentially involved in the edgy online realm of thought known as the dissident right. Tech executives and crypto investors are creating secretive groups to help people “exit”— a term that has taken on almost mystical significance in some circles recently — from our liberal society, tech-dominated lives, and fraying system. And there are grander plans, for whole secessionist movements using crypto and decentralized autonomous organizations to build whole mini societies, many on the model of what Balaji Srinivasan, the former partner at Andreessen Horowitz, calls a “Network State.”

An investor and former CTO at PayPal, Srinivasan is a junior member of that nucleus of vast wealth and influence made up of Silicon Valley power brokers such as Peter Thiel (co-founder of PayPal and Palantir, first major investor into Facebook), Marc Andreessen (Netscape and a16z or Andreessen Horowitz), and Elon Musk. Like Thiel and Andreessen, Srinivasan promotes the ideas found in The Sovereign Individual (1997) by James Dale Davidson and William Rees-Mogg. Andreessen called it, “the most thought provoking book on the unfolding nature of the 21st Century that I’ve yet read.” Thiel wrote the preface for its reissue.

According to The Sovereign Individual, information technology will inevitably lead to a fracturing of nation-states and balkanization: “We anticipate that the apparently solid power of nation-states currently devoted to mass democracy will splinter in tens of thousands of fragments into a system more reminiscent of the medieval period than the modern industrial age.” Srinivasan’s idea for network states derive from that book’s proposals:

We expect to see something new emerge to replace politics. … Our expectation is not that politics will be reformed or improved, but that it will be antiquated and, in most respects, abandoned. By this we do not mean to say that we expect to see dictatorship, but rather entrepreneurial government — the commercialization of sovereignty.

We are, obviously, in a very dangerous and uncertain time. Personally, I believe that the danger and uncertainty is intensified by those members of the tech “power elite” who subscribe to this libertarian ideology, pushing for the collapse of government and its replacement by corporate services.

“The commercialization of sovereignty” — or what Srinivasan calls “society as a service” — means that governments will be displaced by private companies who sell the services currently provided by the government to subscribers, who have no democratic oversight. This would, indeed, be a return to a medieval model, with a handful of super-wealthy “sovereign individuals” and masses of enslaved serfs. In fact, we have already tilted far in this direction.

As I have written previously, I find libertarianism to be opportunistic, lacking empathy, and based in a very shallow understanding of history. Above all, this ideology is self-confirmatory for those who — whether due to business acumen, luck, or inheritance — possess significant financial resources and don’t need to rely on public goods or social services. I find it tragic and despicable that libertarianism has become such a massive influence on American society. It has been promulgated through the heritage of writers like Ayn Rand and the economists of the Austrian School, through the Koch brothers and the vast web of influence they created (detailed in Dark Money by Jane Mayer), and, now, through Peter Thiel and his massive network.

I highly recommend Max Chafkin’s The Contrarian: Peter Thiel and Silicon Valley’s Pursuit of Power, a 2021 biography of Thiel, who is still largely revered in tech circles, despite his support for Donald Trump. Already back in 2009, Thiel stated, “I no longer believe that freedom and democracy are compatible.” I will write in greater depth on Thiel next. In Thiel’s 2009 essay, “The Education of a Libertarian” (where he also noted it was a mistake to give women the right to vote¹), Thiel wrote:

In our time, the great task for libertarians is to find an escape from politics in all its forms. … Because there are no truly free places left in our world, I suspect that the mode for escape must involve some sort of new and hitherto untried process that leads us to some undiscovered country; and for this reason I have focused my efforts on new technologies that may create a new space for freedom.

The Network State is an extension of this ideological project. Essentially, Srinivasan proposes, if you have a large virtual community with a shared worldview, that community can form a “startup society” that eventually becomes a state. Even if they live around the world, the constituents of such an entity can crowdfund land together. Once they have established their economic and cultural power, they can seek diplomatic recognition to issue their own visas and passports (and presumably create their own security force). He summarizes the characteristics of his envisioned network states in one sentence:

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 I do find some elements of the “network state” concept appealing, if not original to Srnivasan. I like the idea that virtual communities, recognizing shared affinities, can organize to take action in the world together. This is the basic idea of DAOs (Distributed Autonomous Organizations). I also like the prospect that network states can define their own internal system of governance. As Srinivasan points out, these entities could be built around a wide range of world views and practices.

However, there are many reasons to have concerns about how network states will develop in reality. What seems to be driving the movement, for the most part, is the desire of a small wealthy elite to preserve their wealth and increase their autonomy. The ideal, for these elites, is to live without responsibility to the local community or place. As Pogue notes in Vanity Fair, many of those signing up for Srinivasan’s prototype are concerned about living through a time of reduced options rather than the infinite horizon of possibility that Srinivasan and Thiel often promote: “A comedown period from the age of cheap fossil-fuel energy and rapid economic and technological progress… a scenario that looks more like the long decline of the Roman Empire than it does cataclysmic collapse.” Network states are likely to be means of enclosure, creating boundaries between insiders and outsiders, while amplifying the clout of those within the system.

The prospect of a “social smart contract” replacing the current legal system managed by governments also raises many questions. As I have discussed in previous essays, mathematically defined smart contracts would remove all ambiguity from social relations in ways that would have negative consequences for many. I understand the current system isn’t perfect, but it has developed over centuries of trial and error. As an example, let’s say you are renting an apartment and get fired from your job. You can’t make your rent. Under today’s legal system, you have some latitude to renegotiate with your landlord who also has to go through a lengthy process to evict you. With a smart contract, if you can’t pay the rent, the door would be locked to bar entry, or perhaps a security drone will appear on your doorstep to chase you away. I recommend checking out the website, The Crypto Syllabus, which explores the downsides of blockchain-based “improvements” to current legal and financial practices.

Much of The Network State is a political screed that reveals Srinivasan’s limits as a thinker and ideologue. For instance, at one point, he writes, in true libertarian fashion, “The aggression of the Trade-Unions eventually led to the communist revolutions which killed tens of millions of people globally, led to ‘lasting disorders and attacks upon property,’ and generally became the bane of the world.” This is a bizarre distortion of the historical record — like other tech entrepreneurs and investors, Srinivasan hates unions, which, historically, are means for workers to improve working conditions and get a better deal from company owners. In America, worry over the influence of communism helped bring about the New Deal, which ensured worker’s rights and, ironically, helped make the US the world’s most prosperous country for the next half century. As Henry Ford realized, decently paid workers were the market for the cars produced in the factories.

Srinivasan also nurses a bizarre vendetta against The New York Times and other establishment media, while seeming to believe that blockchain is the cure for many of the world’s ills. To fully fathom Srinivasan’s worldview is a daunting task. Like Jordan Peterson, he is a nonstop, monotonous ranter who has convinced himself he has brilliant insights on nearly every facet of contemporary civilization. The infuriatingly bland Lex Fridman recently indulged Srinivasan in an interview that runs well over seven hours. I listened until I couldn’t stand it anymore.

My own views about the nature of government and the distinction between the private and public sectors are different from Srinivasan and Thiel’s. The form of national governments, based on representative democracy, we have today emerged in the 18th and 19th century as a result of various social and economic developments. Feudalism was no longer appropriate as a larger, more prosperous middle class and more aware working class demanded more political participation. Governments are a continuously renegotiated pact between the “rulers,” possessors of property and capital, and the “ruled,” those who work to survive.

A very big problem we have today is that the speed of change has accelerated exponentially over the last centuries. Our current governments are built on 18th and 19th century social and media technologies, which makes them slow and cumbersome by design. It is conceivable we could establish a new technology — perhaps in the form of a social network using proxy voting, sortition, or “liquid democracy” to enable faster, collective decision-making — as the basis of a 21st century society. As a positive outcome, experiments with the network state could lead to prototyping these types of systems.

The political philosopher Hannah Arendt saw the yearning to escape from politics as a mistake, leading to dystopian outcomes. Admittedly, politics as we see it exercised today makes a depressing spectacle. But the core idea of “politics” derives from “polis,” the center of the Greek city-state where the free citizens came together to debate and decide on the important issues of their day. Arendt notes that we can’t have authentic human freedom without the opportunity — the public space — for power and political agency to be expressed, shared, and enacted. In a very real sense, we need more authentic politics, rather than less (or none, as Thiel prefers).

In theory, debate, discussion, and decision should be the core of a democratic society. It is obvious we are very far from this ideal. I believe we need to return to the polis, to find a way toward greater participation, rather than escaping into the shiny promise of untried, imaginary constructs. I’m not averse to network states or startup societies. I am against them, however, if they deny the value of place while chaining local, organic communities to abstract smart contracts, reducing social activities into paid services.

Following the model of The Sovereign Individual, a small elite, a “cognitive aristocracy,” should decide for the masses. One term for this is monarchism; another is fascism, or, in our case, rule by a technocratic elite. That is clearly what people like Thiel, Musk, and Andreessen want. Srinivasan is a bit more cagey, but tends in the same direction.

Footnote 1: Since 1920, the vast increase in welfare beneficiaries and the extension of the franchise to women — two constituencies that are notoriously tough for libertarians — have rendered the notion of ‘capitalist democracy’ into an oxymoron. — Thiel, The Education of a Libertarian, Cato Institute

Published with the permission of the author.  A version of this piece was originally published in Daniel Pinchbeck’s Newsletter.

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