Balaji Srinivasan proposes the successor to the nation state, the network state.
A network state is 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.
Just as the printing press, musket, and industrialization led to the rise of the nation state, the internet and crypto will lead to the rise of the network state. Further, the network state is a third path, a middle way out of our current ideological battles, as well as a necessary step towards unlocking the world of atoms.
The emergence of the network state has several components. First, someone needs to found an online community, focused on a common identity. This community then will instantiate itself in physical form, buying properties, creating shared spaces, though such properties need not be contiguous. Then, once the community reaches a certain size and economic power, it will gain some form of sovereign recognition, a network state.
This emergence of network states is set against the backdrop of woke capital, led by the New York Times, communist capital, led by the CCP, and crypto capital, led by BTC. Woke capital represents the incompetent dominant political force in the west. Communist capital represents the rise of China. Crypto capital represents the emerging web3 economy.
A historical example of a proto network state is Israel, which Balaji mentions as an inspiration for the book. A people with a common identity decided to coordinate mass migration to a new homeland. With the explosion of new networks forming because of the internet, we can expect similar tales to unfold.
The Network State represents the culmination of Balaji’s thinking. It is an information dense book, with insights that are difficult to capture in a single review or podcast. Despite knowing Balaji and following his work, I still found new ideas worth grappling with.
The majority of the book is on Balaji’s vision/understanding of the world. The network state is not a governance framework defined from first principles, but instead a reaction to existing events and circumstances.
An under-discussed concept that Balaji brings to the forefront is the frontier. Somewhere people can go who are dissatisfied with the current system. America’s frontier looms large in our collective consciousness. For Balaji, the internet is a new frontier.
The internet allows new forms of social organization. We’ve all gotten used to flash mobs. Last year saw flash hedge funds, e.g. Gamestop and AMC. What is the next step in coordinated social activity?
This coincides with an increasingly unattractive set of options. Woke capital is in charge of the US and driving it towards collapse. Communist capital, while competent, with its extreme authoritarianism is hardly a pleasant alternative. Balaji believes that crypto capital, represented by BTC, is the third option. He is not particularly excited by Bitcoin maximalism, but believes the strong identity that bitcoiners have, combined with distrust in existing institutions, will cause people to flock to their banner.
The new middle that Balaji proposes is the network state. It allows people to re-organize around shared ideals, creating a patchwork of jurisdictions that would allow people to escape the failing systems around them.
My main question relates to the practicality of the vision. Take Israel for example. While a useful analogy, it also represents the challenges facing a network state. Jews are a millenia old tribe with strong cultural norms, outsized media and political influence, who were facing a genocide. Even then, they almost failed.
Mormonism might be a better example. Mormonism was founded by Joseph Smith in the 1820’s. Salt Lake City was founded in 1847 by his followers, less than 30 years later. While they were facing oppression, it was hardly comparable to the genocide faced by Eastern European Jews in the early 20th century. In a single generation, Mormons were able to create an identity strong enough to coordinate mass migration.
Salt Lake City wasn’t the only intentional community in America in early America. There were dozens, few of which survived. Most were organized around religious principles. Further, it was substantially easier to start an intentional community in the 19th century when the majority of the population farmed and there was an abundance of available land.
Network states sort people geographically by interest. You can associate with people who are Keto, share a religion, or want access to technologies that aren’t approved by other jurisdictions. People moving in the US do not typically move for those reasons.
88% of people moving in the US move for housing, family, or jobs. Only 3 million people move to a new state annually. Over the last 50 years, mobility has declined sharply among the younger generation. The network state assumes that these trends reverse.
Now, it is arguable that there is an increasing amount of what might be described as ideological migration. The move of many tech workers and executives to Florida, though part based on taxes, was also partly based on ideological reasons. There is some ideological sorting among college grads, with young conservatives moving to Austin, for example. Whether this trend continues and scales to support network states remains to be seen.
More people are working remotely. This could lead to a change in mobility patterns. At a minimum, I expect the sunbelt to continue to grow and the Northeast to continue to shrink. People like living in nice places.
However, Balaji takes the idea of digital lives a step further. There is little discussion of physical infrastructure in the book.I view the internet not as supplanting the existing economy, but adding on to it. We are still an industrial economy, we just have a digital layer on top.
Historically, the modern nation state emerged in part as a mechanism to create internal free trade zones. Having to pay taxes to a dozen principalities you crossed made trade prohibitively expensive. Today, having standard requirements for anything mass produced allows for lower cost goods. If every small jurisdiction sets different requirements for cars, toys, etc, the prices of those goods will rise. The book isn’t clear how network states will interact with each other to ensure free flow of goods and allow the benefits of living in a large commercial society.
Take, for example, drugs and medical devices. I agree with Balaji that the FDA is too restrictive in approving new drugs and medical devices. However, it is possible to go to Central America or the Caribbean and create a facility to sell drugs and medical devices that haven’t been approved by the FDA. In fact, there is a cottage industry providing gene therapy and other treatments.
The reason this can’t scale is because market size matters. If the treatment is outside the US, you need to add in flight and hotel costs to receive it. Bringing new drugs to market is expensive, even without the FDA’s onerous process. A large market is necessary to ensure the R&D for pharmaceuticals and other industries. Network states could be net negative for freedom by reducing the size of the market, thereby limiting the gains from trade and technological innovation.
Balaji stresses the importance of sovereignty for network states. He analogizes this;
Because small countries like Tuvalu, El Salvador, and the like have already signed business development deals with startups, so it’s no longer unheard of — just difficult.
Striking a business deal with a sovereign is fundamentally different from getting them to recognize your sovereignty, particularly on their own territory. The experience of the ZEDEs in Honduras is useful. The ZEDEs grant special jurisdictions a substantial amount of autonomy, ability to collect taxes, labor law, even police. However, they are not sovereign. That amount of autonomy has been repeatedly attacked in the press and the new Honduran government voted to repeal the ZEDE legislation.
Getting building permits can be difficult enough, ask Sidewalk labs. Getting the right to issue building permits is more difficult still. However, even the right to issue building permits is not sovereignty.
China and Taiwan provide a useful example for how sovereignty is dealt with internationally. Taiwan used to be recognized by the UN as the legitimate government of China. In the 1970’s the UN, US, and many countries switched to recognize China. That Taiwan, a high income country of 23 million residents, controlling an island, struggles with diplomatic recognition illustrates the challenge. Somaliland has gone over three decades as a self-governing democracy and has yet to gain international recognition.
I suspect the crux of my disagreement with Balaji comes in part due to how we view the current political establishment. Balaji views them as hopelessly corrupt and inefficient, an IBM, if not worse, that needs to be competed away. While I am no fan of the existing establishment, I think it’s more stable than Balaji believes, is likely to be better than a successor organizational structure, and retains the possibility for reform.
Political structures tend to be stable. The Soviet Union fell, but large parts of the structure remained intact. Russia is a clear successor to the Soviet Union, just having lost its satellite states. America has weathered civil wars, world wars, currency crises, the threat of nuclear more, etc. It is robust.
I think Balaji underestimates the value of stability. Any change in the nature of states will be disruptive. The printing press led to the reformation. The briefly lived Capitol Hill Autonomous Zone (CHAZ) demonstrates the risk of withdrawing the current order. Left wing demonstrators occupied it during the George Floyd protests, demanding police reforms. The police withdrew patrols from the area. Within a month two men were shot, one of whom died.
Perhaps Balaji believes disruption is inevitable and the best response is developing network states. However, given the human cost of the disruption, explicit consideration of how to maintain order in the transition is worthwhile. The magnitude of the United States would be catastrophic, arguably on par with the fall of the Roman Empire.
Lastly, while I am not optimistic about reform, I do believe it’s possible. Microsoft gives a good example of a sclerotic institution that reformed itself to become a market leader. Meiji Japan managed to become the first non-western industrialized country after being shocked by American technology. Reform is possible.
Balaji puts forward a powerful vision of the future in The Network State. I agree with many of his claims. The American establishment is largely incompetent and anti-innovation. Alternative social structures, including communes, cults, and charter cities will arise in response. However, this will not lead to network states, but instead decline.
The next decade will look a lot like the last decade, but worse. There will be civil unrest, inflation, and economic crises in the US. The world will continue to see regional conflicts become more prominent as the US is less able to project power. People will search for something better, but largely come up empty. The one bright spot will be new technologies that are occasionally able to outpace the regulators.
The alternative is building on what works. The Charter Cities Institute starts by focusing where urbanization is happening, Africa and Asia. These countries need new urban spaces. By pairing the new urban spaces with improved governance, we can lay the groundwork for sustained economic growth.
In the US there is low hanging fruit to improve productivity, reforming the FDA, accelerating high skilled immigration, removing barriers, e.g. NEPA, to physical infrastructure. YIMBYs are a great recent example of building a political coalition to positively affect change. Less than a decade old, they have changed the national conversation and improved laws in many cities and states. It is from YIMBYs, progress studies, and similar movements that I expect to lead to the biggest improvement in governance to come from over the coming decades.
