Networking nation-states the coming info-national order.

• Author: Bennett, James C.

THE EARLY 20th century was filled with predictions that the airplane, the automobile or the assembly line had made parliamentary democracy, market economies, jury trials and bills of rights irrelevant, obsolete and harmful. Today's scientific-technological revolutions (epitomized by space shuttles and the Internet) make the technologies of the early 20th century--its fabric-winged biplanes, Tin Lizzies and "Modern Times" gearwheel factories--look like quaint relics. Yet all of the "obsolete" institutions derided by the modernists of that day thrive and strengthen. The true surprise of the scientific revolutions ahead is likely to be not the technological wonders and dangers they will bring but the robustness of the civil society institutions that will nurture them.

This may seem counterintuitive to many people. Surely novel technological capabilities require novel social institutions, right? The experience of the past century argues that the opposite is the case. Institutions tend to be modified more than replaced. They do not die out unless they demonstrate actual and substantial harm, and they adapt only as much as needed to provide a viable solution to pressing problems. We should respond to the challenges facing us by strengthening an evolving framework based on our best and most successful institutions.

Of Civil Societies and Free Markets

AT THE DAWN of the 21st century, it is quite clear that states are prosperous when their civil society is strong, and peaceful when their civic statehood is strong. It is no surprise that most of the world's poorer and strife-wracked states are those with no or little civic nature: totalitarian states, personal dictatorships and kleptocracies.

A civil society is a vast network of networks, beginning with the individual and moving outward to encompass families, community organizations, congregations, social organizations and businesses--all invented by individuals coming together voluntarily. Such civil societies beget civic states. These states are ones in which authority begins at the local and community level and gradually is built upwards to deal with wider-scale issues. Civic states are built on community assent and a feeling of participation in a local, regional and national community, and the authority of the state is not upheld by constant exercise of force but by the willingness of citizens to comply with its directives.

At the root of civil society is the individual. People who define themselves primarily as members of collective entities, whether families, religions, racial or ethnic groups, political movements or even corporations, cannot be the basis of a civil society. Societies that place individuals under the permanent discipline of inherited or assigned collectivities, and permanently bind them into such, remain bogged down in family favoritism; ethnic, racial or religious factionalism; or the "crony capitalism" that has marred the economies of East Asia and Latin America.

Democracy and free markets are effects of a strong civil society and strong civic state, not their causes. Over the past century, there has been a misdirection of attention to the surface mechanics of democracy, to nose-counting rather than the underlying roots of the phenomenon. It was clear that a society containing the strong networks of association characteristic of a civil society also develops the means of expressing the interests of society to the state. It is the need for effective means of expression that gave rise to the original governmental mechanisms we now call democracy. Later, intellectuals in societies that did not have a strong civil society (particularly pre-Revolutionary France) looked at societies that did (particularly England) and attempted to distill an abstract theoretical construct capturing the essence of that experience. They called this democracy, but they subsequently focused attention on their model (and its misunderstandings) rather than the essence of what they actually admired.

England's strong civic state had its roots in local expressions of civil society, a process certainly well rooted by the 14th century. These include the grand and petit jury systems, the election of various aldermen and other local officials and the quasi-official role of many civil society institutions. Selecting members of the House of Commons was one of many different mechanisms by which local communities gave or withheld their consent to the state.

The lesson of English history has been repeated many times over, up to and including contemporary events in Taiwan and South Korea. When civil society reaches a certain degree of complexity, democracy emerges. Without civil society, importing the procedures, rituals and even institutions of democracy results only in instituting one more set of spoils for families and groups to fight over at the expense of the rest of society. Democratic mechanisms no more create civil society than wet streets cause rain.

Similarly, the market economy is more than the absence of socialism or strong government; it is the economic expression of a strong civil society, just as substantive (rather than formulaic) democracy is the political expression of a civil society and civic state. Entrepreneurship in business uses and requires the same talents and often the same motives that go into starting a church, a nonprofit organization or a political party. The society that can create entrepreneurial businesses tends to be able to create the other forms of organizations as well. Often, the same individuals start several of each form at different stages in their lives. The market economy also requires a civil society with general acceptance of a common framework of laws, practices and manners. Without a general acceptance of fair dealing, an agreement on what fair dealing means, and an adjudication system that can resolve and enforce resolution of disputes, a true market economy cannot exist--as developments in the post-Soviet sphere indicate.

These realizations have immense implications for today. The rapid formation, deployment and financing of enterprises like those found in Silicon Valley are an inherent characteristic of a strong civil society. The strong role of non-company organizations (such as professional and industry associations and informal networks of acquaintances) in Silicon Valley also suggest that such entrepreneurism is a strong civil-society phenomenon. And it is highly likely that the innovations spawned by the current Information Revolution--including the Internet, the communication satellite and high-bandwidth fiber--optic cable--will spur innovation in the other science-based revolutions.

Indeed, the new technologies have strengthened civic states and societies, making them even more competitive vis-a-vis what could be called the "economic state:" the centralized nation-state in which the government draws its raison d'etre from presiding over the transfer of benefits between generations, classes and regions. The problem for economic states, such as France, is that when creativity does arise and ventures start, the prevailing set of social, economic and political institutions retards their growth.

In corrupt and undemocratic countries with weak civil societies, family networks permit entrepreneurs to get around these obstacles--but only up to a point. They cannot expand easily beyond that. In stronger civil societies, such as Germany, that have high-trust characteristics but lack openness and flexibility in their political and social systems, ventures start but can become frustrated by bureaucratic barriers. There is a French Silicon Valley, but it does not lie in any of the technology centers planned by the French state; rather, it stretches from Dover to London, where hundreds of thousands of young French men and women have relocated to pursue their dreams without the high taxes and social burdens of the Continent.

The Economic State's Decline and Fall

STATES WITH high regulatory and tax burdens are now coming under heavy pressure as they increasingly find themselves outdistanced. The erosion of the monopoly of the economic state over most arenas of human activities is traceable to the lowering of transaction costs for international financial activities in the 1960s, which allowed major corporations and banks to take advantage of the lower tax and regulatory burdens of tax havens such as the Netherlands Antilles. Corporations became sophisticated consumers of "sovereignty services."

Over the past three decades, these trends have accelerated enormously as the breakup of old European empires gave rise to many new sovereign entities. The increase in the number of providers, combined with the falling cost of accessing them, has made sovereignty services (incorporation, ship registration, citizenship, residency permits and so on) a highly competitive market area. As devolution produces yet more sovereign states and the Internet reduces the cost of accessing the services to rock bottom, this market can be expected to flourish. The market for sovereignty services has shown great price elasticity: the users of offshore accounts, shell corporations and trust mechanisms proliferate as the transaction costs of setting up such services fall.

Consider the ability to sell products and services on the Internet, and the decline of the corporation-employment model (seen in downsizing, delayering and in the rise of "free-agent" contractors and entrepreneurs). Private Internet currencies based on strong encryption (cybermoney) will soon provide payment mechanisms that are not recorded in central clearing houses and are thus beyond subpoena power. Much of the actual economic activity in the coming era will pass (and already has passed) out of the strictly national realm. Even the most powerful nation-states are beginning to find it impossible to set currency or interest rates without reference to the world market.

Nor can the economic...