2024-05-21_The_Death_of_the_Nation

00:00:00.000 | (upbeat music)

00:00:02.500 | Is your California dream feeling more and more distant?

00:00:06.460 | You've got countless apps and influencers

00:00:09.260 | telling you how to do it their way.

00:00:11.380 | And your expert aunt who might be giving

00:00:14.660 | a bit too much advice.

00:00:16.540 | Tips, hacks, and experts are everywhere these days.

00:00:21.580 | But when it comes to real estate,

00:00:23.380 | the question to ask is, who's your realtor?

00:00:27.180 | Because a California realtor is the only person

00:00:30.200 | who can bring your dream home.

00:00:32.580 | Someone who gets that buying a home

00:00:34.540 | is one of the most complicated

00:00:36.080 | and stressful things you can do,

00:00:38.060 | but can still make it possible on your budget.

00:00:40.780 | A California realtor can read the constantly shifting market

00:00:44.820 | and they're out in front for all of the tough stuff.

00:00:47.460 | So you can get to the good stuff.

00:00:50.140 | So who's your realtor?

00:00:51.780 | Because no one cares more about helping Californians

00:00:55.300 | live the California dream than California realtors.

00:00:59.140 | - The analysis and arguments you're about to hear

00:01:02.660 | were published in 1997.

00:01:06.140 | You can judge for yourself the prescience

00:01:08.380 | or the myopia of these arguments.

00:01:11.580 | The life and death of the nation state.

00:01:15.620 | Democracy and nationalism as resource strategies

00:01:18.660 | in the age of violence.

00:01:22.060 | Quote, "Most important of all,

00:01:24.460 | "success in war depends on having enough money

00:01:27.380 | "to provide whatever the enterprise needs."

00:01:30.540 | Robert de Balzac, 1502.

00:01:33.580 | The rubble of history.

00:01:37.360 | On November 9 and 10, 1989,

00:01:42.280 | television broadcast to the world

00:01:44.180 | scenes of exuberant East Berliners

00:01:46.500 | dismantling the Berlin Wall with sledgehammers.

00:01:50.100 | Fledgling entrepreneurs among the crowd

00:01:52.020 | picked up pieces of the wall

00:01:53.380 | that were later marketed to capitalists

00:01:56.060 | far and wide as souvenir paperweights.

00:01:59.740 | A brisk business in these relics

00:02:01.380 | was done for years thereafter.

00:02:04.280 | Even as we write,

00:02:05.500 | one can still encounter occasional ads in small magazines

00:02:09.260 | offering bits of old East German concrete for sale

00:02:13.380 | at prices ordinarily commanded by high grade silver ore.

00:02:18.460 | We believe that those who bought

00:02:20.460 | the Berlin Wall paperweights

00:02:22.140 | should be in no rush to sell.

00:02:25.980 | They hold mementos of something bigger

00:02:27.980 | than the collapse of communism.

00:02:30.140 | We believe that the Berlin Wall

00:02:31.700 | became the most important pile of historical rubble

00:02:34.300 | since the walls of San Giovanni

00:02:36.480 | were blasted to smithereens almost five centuries earlier

00:02:40.260 | in February, 1495.

00:02:42.860 | The leveling of San Giovanni

00:02:45.660 | by the French King Charles VIII

00:02:47.940 | was the first blast of the gunpowder revolution.

00:02:51.120 | It marked the end of the feudal phase of history

00:02:54.300 | and the advent of industrialism as we outlined earlier.

00:02:59.220 | The destruction of the Berlin Wall

00:03:00.580 | marks another historical watershed,

00:03:02.740 | the passage between the industrial age

00:03:05.460 | and the new information age.

00:03:08.340 | Never has there been so great a symbolic triumph

00:03:10.820 | of efficiency over power.

00:03:13.340 | When the walls of San Giovanni fell,

00:03:15.500 | it was a stark demonstration

00:03:16.980 | that the economic returns to violence in the world

00:03:19.420 | had risen sharply.

00:03:21.300 | The fall of the Berlin Wall says something different,

00:03:25.160 | namely that returns to violence are now falling.

00:03:29.300 | This is something that few have even begun to recognize,

00:03:32.820 | but it will have dramatic consequences.

00:03:36.860 | For reasons we explore in this chapter,

00:03:39.100 | the Berlin Wall may prove to be far more symbolic

00:03:42.360 | of the whole era of the industrial nation state

00:03:45.420 | than those in the crowd that night in Berlin

00:03:47.980 | or the millions watching from a distance understood.

00:03:51.380 | The Berlin Wall was built to a very different purpose

00:03:54.460 | than the walls of San Giovanni,

00:03:56.660 | to prevent people on the inside from escaping

00:03:59.860 | rather than to prevent predators on the outside

00:04:02.740 | from entering.

00:04:04.340 | That fact alone is a telling indicator

00:04:06.460 | of the rise in the power of the state

00:04:08.560 | from the 15th to the 20th centuries

00:04:11.140 | and in more ways than one.

00:04:14.000 | For centuries, the nation state

00:04:15.780 | made all outward facing walls redundant and unnecessary.

00:04:20.780 | The level of monopoly that the state exercised

00:04:23.780 | over coercion in those areas where it first took hold

00:04:27.540 | made them both more peaceful internally

00:04:31.060 | and more formidable militarily

00:04:33.740 | than any sovereignties the world had seen before.

00:04:37.220 | The state used the resources extracted

00:04:39.340 | from a largely disarmed population

00:04:41.300 | to crush small scale predators.

00:04:44.120 | The nation state became history's most successful instrument

00:04:47.680 | for seizing resources.

00:04:49.960 | Its success was based upon its superior ability

00:04:53.440 | to extract the wealth of its citizens.

00:04:56.280 | Quote, MTV is more than a purveyor of music videos

00:05:00.680 | and a promotional tool of the recording industry.

00:05:03.280 | It's the first truly global network,

00:05:05.920 | the first network to deliver a single stream of programming

00:05:08.920 | in virtually every country in the world.

00:05:11.160 | In the process, MTV is creating a single sense

00:05:13.840 | of shared global reality for its viewers,

00:05:16.520 | children and young adults.

00:05:18.400 | Recent research has found that young people

00:05:20.400 | around the planet more and more share

00:05:22.040 | not just common pop icons and common tastes,

00:05:25.240 | but common expectations for their careers,

00:05:28.120 | common sets of values about what is meaningful in life

00:05:30.660 | and what there is to be afraid of,

00:05:32.520 | a common sense that politics is less important

00:05:35.240 | than their own abilities in shaping their futures.

00:05:37.800 | Jim Taylor and Watts Wacker,

00:05:40.960 | the 500 year Delta, what happens after what comes next?

00:05:44.420 | Love it or leave it, unless you're rich.

00:05:48.800 | Before the transition from the nation state

00:05:51.560 | to the new sovereignties of the information age is complete,

00:05:54.680 | many residents of the largest

00:05:56.120 | and most powerful Western nation states,

00:05:58.520 | like their counterparts in East Berlin in 1989,

00:06:01.680 | will be plotting to find their way out.

00:06:04.940 | For the generations that came of age before World War II,

00:06:07.980 | or early in the Cold War,

00:06:10.160 | moving across borders is traumatic.

00:06:13.320 | But for new generations who draw their bearings

00:06:16.280 | from a more global perspective,

00:06:18.600 | abandoning the country of their birth

00:06:20.180 | is not the unthinkable decision it would be

00:06:22.240 | for older persons who are more deeply inculcated

00:06:25.920 | with the ideology of the nation state.

00:06:28.760 | Jim Taylor and Watts Wacker report the intriguing results

00:06:31.760 | of a mass survey of 25,000 middle class high school students

00:06:35.980 | on five continents.

00:06:38.040 | In a sampling conducted during the 1995-96 school year

00:06:41.400 | by Brainwaves Group, a New York consumer research firm,

00:06:45.800 | nine of 10 students agreed that, quote,

00:06:48.240 | "It's up to me to get what I want of life."

00:06:51.000 | More strikingly, quote, "Almost half the teens said

00:06:53.640 | they expected to leave the country of their birth

00:06:55.600 | in pursuit of their goals."

00:06:57.680 | Perhaps because he is tuned in

00:06:59.240 | to the attitudes of the MTV generation,

00:07:01.840 | as the first presidential candidate to campaign on MTV,

00:07:05.240 | Bill Clinton has sought to make it more difficult

00:07:07.680 | for Americans to, quote, "Leave the country of their birth

00:07:11.160 | in pursuit of their goals."

00:07:13.560 | In 1995, at about the same time

00:07:15.640 | that the high school students were declaring

00:07:17.160 | their intentions to seek independence,

00:07:19.440 | the president of the United States proposed the enactment

00:07:22.800 | of an exit tax, a Berlin Wall for capital

00:07:27.800 | that would require wealthy Americans

00:07:29.760 | to pay a substantial ransom to escape

00:07:33.020 | with even part of their money.

00:07:35.760 | Clinton's ransom is not only reminiscent

00:07:37.880 | of the late East German state's policy

00:07:40.160 | of treating its citizens as assets.

00:07:42.760 | It also calls to mind the increasingly draconian measures

00:07:45.520 | taken to shore up the fiscal position

00:07:47.920 | of the Roman Empire in decline.

00:07:51.040 | This passage from the Cambridge Ancient History

00:07:53.840 | tells the story, quote, "Thus began the fierce endeavor

00:07:57.800 | of the state to squeeze the population to the last drop.

00:08:02.000 | Since economic resources fell short of what was needed,

00:08:05.080 | the strong fought to secure the chief share for themselves

00:08:08.800 | with a violence and unscrupulousness,

00:08:11.000 | well in keeping with the origin of those in power

00:08:13.820 | and with a soldiery accustomed to plunder.

00:08:17.080 | The full rigor of the law was let loose on the population.

00:08:20.480 | Soldiers acted as bailiffs

00:08:22.560 | or wandered as secret police through the land.

00:08:25.440 | Those who suffered most were, of course,

00:08:27.860 | the propertied class.

00:08:29.560 | It was relatively easy to lay hands on their property.

00:08:32.720 | And in an emergency, they were the class

00:08:35.760 | from whom something could be extorted

00:08:37.880 | most frequently and quickly."

00:08:40.120 | When failing systems have the power to do so,

00:08:43.660 | they often impose penal burdens upon those seeking to escape.

00:08:47.800 | Again, we quote the Cambridge Ancient History, quote,

00:08:50.580 | "If the property class buried their money

00:08:53.040 | or sacrificed two thirds of their estate

00:08:55.600 | to escape from a magistracy,

00:08:57.680 | or went so far as to give up their whole property

00:08:59.960 | in order to get free of the domain's rent

00:09:02.000 | and the non-property class ran away,

00:09:04.400 | the state replied by increasing the pressure."

00:09:07.720 | This is worth remembering as you plan ahead.

00:09:11.520 | The twilight of state systems in the past

00:09:14.400 | has seldom been a polite, orderly process.

00:09:18.520 | We mentioned the nasty habits

00:09:20.000 | of Roman tax collectors in chapter two.

00:09:22.800 | The large numbers of agri deserti,

00:09:25.520 | or abandoned farms in Western Europe

00:09:28.000 | after the collapse of the Roman Empire

00:09:29.960 | reflected only a small part of a wider problem.

00:09:33.360 | In fact, exactions tended to be relatively mild in Gaul

00:09:37.280 | and in the frontier areas

00:09:38.720 | that comprise current day Luxembourg and Germany.

00:09:42.320 | In Rome's most fertile region, Egypt,

00:09:45.760 | where farming was more productive because of irrigation,

00:09:48.840 | desertion by owners was an even bigger problem.

00:09:52.400 | The question of whether to attempt escape,

00:09:54.600 | the ultimum refugium, as it was known in Latin,

00:09:58.160 | became the overriding quandary

00:10:00.200 | of almost everyone with property.

00:10:02.520 | Records show that, quote, "Among the common questions

00:10:05.680 | which used to be put to an oracle in Egypt,

00:10:07.720 | three standard types were, am I to become a beggar?

00:10:11.360 | Shall I take to flight?

00:10:12.840 | And is my flight to be stopped?"

00:10:16.240 | Clinton's proposal says yes.

00:10:18.680 | It is an early version of an obstacle to escape

00:10:20.840 | that is likely to grow more onerous

00:10:22.440 | as the fiscal resources of the nation state slip away.

00:10:25.800 | Of course, the first US version of an exit barrier

00:10:29.280 | is more benign than Erich Honecker's concrete

00:10:33.120 | and barbed wire.

00:10:34.760 | It also involves greater price sensitivity

00:10:37.520 | with the burden falling only on,

00:10:39.600 | quote, unquote, "Billionaires"

00:10:42.440 | with taxable estates over $600,000.

00:10:45.880 | Nonetheless, it was justified with similar arguments

00:10:49.880 | to those once propounded by Honecker

00:10:52.320 | in defense of the late German Democratic Republic's

00:10:54.600 | most famous public works project.

00:10:56.880 | Honecker claimed that the East German state

00:10:59.000 | had a substantial investment in would-be refugees.

00:11:02.400 | He pointed out that allowing them to leave freely

00:11:04.560 | would create an economic disadvantage for the state,

00:11:07.200 | which required their efforts in East Germany.

00:11:10.360 | If you accept the premise that people are

00:11:13.720 | or ought to be assets of the state,

00:11:17.120 | Honecker's wall made sense.

00:11:19.800 | Berlin without a wall was a loophole to the communists,

00:11:23.960 | just as escape from US tax jurisdiction

00:11:27.480 | was a loophole to Clinton's IRS.

00:11:31.280 | Clinton's arguments about escaping billionaires,

00:11:34.520 | aside from showing a politician's usual disregard

00:11:37.760 | for the integrity of numbers,

00:11:39.640 | were similar in kind to Honecker's,

00:11:42.280 | but somewhat less logical

00:11:44.280 | because the US government, in fact,

00:11:46.120 | does not have a large economic investment

00:11:48.280 | in wealthy citizens who might seek to leave.

00:11:51.040 | It is not a question of their having been educated

00:11:53.160 | at state expense and wanting to slip away

00:11:55.520 | and practice law somewhere else.

00:11:57.680 | The overwhelming majority of those

00:11:59.280 | to whom the exit tax would apply

00:12:01.480 | have created their wealth by their own efforts

00:12:04.040 | and in spite of, not because of the US government.

00:12:08.720 | With the top 1% of taxpayers paying 30.2%

00:12:12.600 | of the total income tax in the United States for 1995,

00:12:16.520 | it is not a question of the rich failing to repay

00:12:19.280 | any genuine investment the state may have made

00:12:22.240 | in their education or economic prosperity.

00:12:24.840 | To the contrary, those who pay most of the bills

00:12:27.640 | pay vastly more than the value

00:12:30.000 | of any benefits they receive.

00:12:32.240 | With an average annual tax payment exceeding $125,000,

00:12:36.720 | taxes cost the top 1% of American taxpayers

00:12:39.840 | far more than they now realize.

00:12:42.560 | Assuming they could earn even a 10% return

00:12:45.360 | on the excess tax paid by each over a 40-year period,

00:12:49.520 | each $5,000 of annual excess tax payment

00:12:52.600 | reduced their net worth by $2.2 million.

00:12:55.840 | At a 20% rate of return,

00:12:58.120 | each $5,000 of excess tax reduces net worth by $44 million.

00:13:03.120 | As the millennium approaches,

00:13:05.360 | the new mega political conditions of the information age

00:13:08.200 | will make it increasingly obvious

00:13:09.920 | that the nation state inherited from the industrial era

00:13:13.360 | is a predatory institution.

00:13:16.280 | With each year that passes,

00:13:17.520 | it will seem less a boon to prosperity

00:13:21.120 | and more an obstacle,

00:13:23.180 | one from which the individual will want an escape.

00:13:26.760 | It is an escape that desperate governments

00:13:29.260 | will be loath to allow.

00:13:31.580 | The stability and even the survival

00:13:33.820 | of Western welfare states depends upon their ability

00:13:37.280 | to continue extracting a huge fraction

00:13:39.680 | of the world's total output for redistribution

00:13:42.980 | to a subset of voters in the OECD countries.

00:13:46.980 | This requires that the taxes imposed

00:13:49.220 | upon the most productive citizens

00:13:50.620 | of the currently rich countries

00:13:52.300 | be priced at super monopoly rates,

00:13:55.140 | hundreds or even thousands of times higher

00:13:58.140 | than the actual cost of the services

00:14:00.100 | that governments provide in return.

00:14:01.900 | The life and death of the nation state.

00:14:06.220 | The fall of the Berlin Wall

00:14:08.900 | was more than just a visible symbol

00:14:10.500 | of the death of communism.

00:14:12.300 | It was a defeat for the entire world system

00:14:15.180 | of nation states and a triumph of efficiency and markets.

00:14:20.180 | The fulcrum of power underlying history has shifted.

00:14:24.260 | We believe that the fall of the Berlin Wall in 1989

00:14:27.980 | culminates the era of the nation state,

00:14:30.860 | a peculiar 200 year phase in history

00:14:34.020 | that began with the French Revolution.

00:14:36.720 | States have existed for 6,000 years,

00:14:40.340 | but before the 19th century,

00:14:42.280 | they accounted for only a small fraction

00:14:44.420 | of the world's sovereignties.

00:14:46.760 | Their ascendancy began and ended in revolution.

00:14:51.760 | The great events of 1789 launched Europe

00:14:54.660 | on a course toward truly national governments.

00:14:58.020 | The great events of 1989 marked the death of communism

00:15:02.700 | and an assertion of control by market forces

00:15:05.420 | over massed power.

00:15:08.020 | Those two revolutions, exactly 200 years apart,

00:15:11.540 | define the era in which the nation state

00:15:14.020 | predominated in the great power system.

00:15:16.580 | The great powers in turn dominated the world,

00:15:19.900 | spreading or imposing state systems

00:15:22.700 | on even the most remote tribal enclave.

00:15:26.660 | The triumph of the state as the principal vehicle

00:15:29.460 | for organizing violence in the world

00:15:31.620 | was not a matter of ideology.

00:15:34.440 | It was necessitated by the hidden logic of violence.

00:15:38.900 | It was, as we like to say, a mega political event

00:15:43.460 | determined not so much by the wishes of theorists

00:15:47.300 | and statesmen, or even by the maneuvering of generals,

00:15:51.460 | as by the hidden leverage of violence,

00:15:55.700 | which moved history in the way that Archimedes

00:15:58.260 | once dreamt of moving the world.

00:16:01.620 | States have been the norm for the past 200 years

00:16:05.140 | of the modern period.

00:16:06.940 | But in the longer sweep of history, states have been rare.

00:16:11.140 | They have always depended upon extraordinary

00:16:13.620 | mega political conditions for their viability.

00:16:17.060 | Prior to the modern period,

00:16:18.980 | most states were oriental despotisms.

00:16:22.980 | Agricultural societies in deserts

00:16:25.380 | depended upon control of irrigation systems

00:16:27.660 | for their survival.

00:16:29.420 | Even the Roman Empire, through its control of Egypt

00:16:32.820 | and North Africa, was indirectly a hydraulic society,

00:16:37.820 | but not enough of one to survive.

00:16:40.100 | Rome, like most pre-modern states,

00:16:42.840 | ultimately lacked the capacity to compel adherence

00:16:45.540 | to the monopoly of violence

00:16:46.940 | that the ability to starve people provides.

00:16:49.980 | The Roman state outside of Africa

00:16:52.020 | could not cut off water for growing crops

00:16:54.540 | by denying unsubmissive people

00:16:56.460 | access to the irrigation system.

00:16:58.960 | Such hydraulic systems supplied more leverage to violence

00:17:02.900 | than any other mega political configuration

00:17:05.380 | in the ancient economy.

00:17:07.300 | Whoever controlled the water in these societies

00:17:10.580 | could extract spoils at a level almost comparable

00:17:14.380 | to the percentage of total output absorbed

00:17:17.160 | by modern nation states.

00:17:19.260 | Magnitude over efficiency.

00:17:22.860 | Gunpowder enabled states to expand more easily

00:17:27.560 | outside the confines of rice paddies

00:17:29.960 | and arid river valleys.

00:17:32.480 | The nature of gunpowder weapons

00:17:34.340 | and the character of the industrial economy

00:17:36.780 | created great advantages of scale in warfare.

00:17:40.360 | This led to high and rising returns to violence.

00:17:44.900 | As historian Charles Tilley put it,

00:17:47.340 | "States having the largest coercive means

00:17:49.780 | "tended to win wars.

00:17:51.500 | "Efficiency," the ratio of output to input,

00:17:55.080 | "came second to effectiveness," total output.

00:17:58.720 | With governments mostly organized on a large scale,

00:18:03.180 | even the few small sovereignties that survived,

00:18:06.620 | like Monaco or Andorra,

00:18:08.920 | needed the recognition of the larger states

00:18:11.260 | to ensure their independence.

00:18:13.360 | Only big governments with ever greater command of resources

00:18:17.100 | could compete on the battlefield.

00:18:19.140 | The great unanswered question.

00:18:24.120 | This brings us to one of the great unanswered puzzles

00:18:26.700 | of modern history.

00:18:28.540 | Why the Cold War that came at the conclusion

00:18:31.140 | of the great power system pitted as its final contenders,

00:18:35.220 | communist dictatorships against democratic welfare states.

00:18:40.220 | The issue has been so little examined

00:18:42.980 | that it actually seemed plausible to many

00:18:45.820 | when a State Department analyst, Francis Fukuyama,

00:18:49.100 | proclaimed, "The end of history,"

00:18:51.700 | after the Berlin Wall fell.

00:18:54.100 | The enthusiastic audience his work elicited

00:18:57.060 | took too much for granted.

00:18:59.260 | Apparently, neither the author nor many others

00:19:02.120 | had bothered to ask a fundamental question.

00:19:05.180 | What common characteristics of state socialism

00:19:09.820 | and welfare state democracies

00:19:12.900 | led them to be the final contenders for world domination?

00:19:17.400 | This is an important issue.

00:19:21.340 | After all, dozens of contending systems of sovereignty

00:19:24.900 | have come and gone in the past five centuries,

00:19:27.740 | including absolute monarchies, tribal enclaves,

00:19:31.260 | prince-bishoprics, direct rule by the Pope,

00:19:33.980 | sultanates, city-states, and Anabaptist colonies.

00:19:37.940 | Today, most people would be surprised to learn

00:19:40.340 | that a hospital management company with its own armed forces

00:19:44.900 | could rule a country for centuries.

00:19:47.400 | Yet, something very like that happened.

00:19:50.620 | For 300 years after 1228,

00:19:53.720 | the Teutonic Knights of St. Mary's Hospital at Jerusalem,

00:19:57.540 | later united with the Knights of the Sword of Livonia,

00:20:00.420 | ruled East Prussia and various territories in Eastern Europe,

00:20:04.500 | including parts of Lithuania and Poland.

00:20:07.780 | Then came the Gunpowder Revolution.

00:20:10.720 | Within decades, the Teutonic Knights were expelled

00:20:14.200 | as sovereigns of all their territories,

00:20:16.620 | and their grandmaster was of no more military importance

00:20:20.400 | than a chess champion.

00:20:22.400 | Why?

00:20:23.460 | Why did so many other systems of sovereignty

00:20:25.700 | dwindle to insignificance,

00:20:27.740 | while the great struggle for world power

00:20:29.580 | at the end of the Industrial Age saw mass democracies

00:20:32.900 | lined up against state socialist systems?

00:20:35.960 | Unimpeded control.

00:20:38.940 | Our theory of megapolitics points to the answer.

00:20:43.260 | It is rather like asking why sumo wrestlers tend to be fat.

00:20:48.260 | The answer is that a lean sumo wrestler,

00:20:50.800 | however impressive his ratio of strength to weight,

00:20:54.240 | cannot compete with another wrestler who is gigantic.

00:20:58.640 | As Tilly suggests, the important issue was effectiveness,

00:21:03.440 | total output, not efficiency, the ratio of output to input.

00:21:08.440 | In an increasingly violent world,

00:21:11.680 | the systems that predominated

00:21:13.160 | through five centuries of competition

00:21:15.400 | were necessarily those that facilitated

00:21:17.480 | the greatest access to resources needed

00:21:19.360 | to make war on a large scale.

00:21:22.400 | How did this work?

00:21:24.200 | In the case of communism, the answer is obvious.

00:21:27.280 | Under communism, those who controlled the state

00:21:30.560 | controlled almost everything.

00:21:33.120 | If you had been a citizen of the Soviet Union

00:21:35.020 | during the Cold War, the KGB could have taken

00:21:37.200 | your toothbrush if they thought it useful

00:21:38.960 | for their purposes to do so.

00:21:41.000 | They could have taken your teeth.

00:21:43.320 | According to credible estimates that have become

00:21:45.760 | more credible since the opening of

00:21:47.640 | former Soviet archives in 1992,

00:21:50.640 | secret police and other agents of the late Soviet state

00:21:54.000 | took the lives of 50 million persons in 74 years of rule.

00:21:59.000 | The state socialist system was in a position

00:22:01.920 | to mobilize anything that existed within its boundaries

00:22:05.320 | for its military, with little likelihood

00:22:08.040 | that anyone living there would argue.

00:22:10.320 | In the case of Western democracies,

00:22:12.120 | the story is less obvious,

00:22:14.160 | partly because we are accustomed to think of democracy

00:22:17.520 | in stark contrast to communism.

00:22:20.360 | In terms of the industrial age,

00:22:22.480 | the two systems were indeed great opposites.

00:22:25.440 | But seen from the perspective of the information age,

00:22:28.400 | the two systems had more in common than you might suspect.

00:22:31.880 | Both facilitated unimpeded control of resources

00:22:36.240 | by government.

00:22:37.760 | The difference was that the democratic welfare state

00:22:41.400 | placed even greater resources in the hands of the state

00:22:45.000 | than the state socialist systems.

00:22:47.000 | This is a clear cut example of a rare phenomenon,

00:22:50.840 | less being more.

00:22:53.400 | The state socialist system was predicated upon the doctrine

00:22:56.240 | that the state owned everything.

00:22:58.760 | The democratic welfare state, by contrast,

00:23:01.120 | made more modest claims and thereby employed

00:23:05.000 | superior incentives to mobilize greater output.

00:23:08.960 | Instead of laying claim to everything in the beginning,

00:23:11.880 | governments in the West allowed individuals

00:23:13.960 | to own property and accumulate wealth.

00:23:17.000 | Then after the wealth had been accumulated,

00:23:19.880 | the Western nation states taxed a large fraction of it away.

00:23:23.800 | Property taxes, income taxes,

00:23:26.320 | and estate taxes at high levels

00:23:28.560 | furnished the democratic welfare state

00:23:30.720 | with prodigious quantities of resources

00:23:33.340 | compared to those available

00:23:34.720 | through the state socialist systems.

00:23:37.800 | Inefficiency where it counted.

00:23:40.040 | Compared to communism,

00:23:42.000 | the welfare state was indeed a far more efficient system.

00:23:46.540 | But compared to other systems for accumulating wealth,

00:23:49.940 | such as a genuine laissez-faire enclave

00:23:52.980 | like colonial Hong Kong,

00:23:54.860 | the welfare state was inefficient.

00:23:57.240 | Again, less was more.

00:24:00.520 | It was precisely this inefficiency

00:24:02.800 | that made the welfare state supreme

00:24:05.000 | during the mega political conditions of the industrial age.

00:24:08.640 | When you come to understand why,

00:24:10.740 | you are much closer to recognizing

00:24:12.420 | what the fall of the Berlin Wall

00:24:14.200 | and the death of communism really mean.

00:24:17.300 | Far from assuring that the democratic welfare state

00:24:19.880 | will be a triumphant system, as has been widely assumed,

00:24:24.160 | it was more like seeing that a fraternal twin

00:24:27.000 | has died of old age.

00:24:30.180 | The same mega political revolution that killed communism

00:24:34.200 | is also likely to undermine

00:24:36.300 | and destroy democratic welfare states

00:24:38.760 | as we have known them in the 20th century.

00:24:41.260 | Who controls government?

00:24:44.740 | The key to this unorthodox conclusion lies

00:24:49.360 | in recognizing where the control

00:24:51.720 | of democratic government is lodged.

00:24:54.680 | It is an issue that is not as simple as it may seem.

00:24:57.880 | In the modern era,

00:24:58.800 | the question of who controls the government

00:25:01.040 | has almost always been asked as a political question.

00:25:06.040 | It has had many answers, but almost uniformly,

00:25:09.360 | these involved identifying the political party,

00:25:12.060 | group, or faction that dominated the control

00:25:14.760 | of a particular state at a particular moment.

00:25:17.880 | You have heard of governments controlled by capitalists,

00:25:21.600 | governments controlled by labor,

00:25:23.840 | governments controlled by Catholics

00:25:25.680 | and by Islamic fundamentalists,

00:25:28.080 | governments controlled by tribal and racial groups,

00:25:30.840 | governments controlled by Hutus and governments by whites.

00:25:34.460 | You have also heard of governments controlled

00:25:36.120 | by occupational groups, such as lawyers or bankers.

00:25:39.800 | You have heard of governments controlled by rural interests,

00:25:43.240 | by big city machines and by people living in the suburbs.

00:25:46.540 | And you have certainly heard of governments controlled

00:25:48.560 | by political parties, by Democrats, Conservatives,

00:25:52.160 | Christian Democrats, liberals, radicals,

00:25:54.460 | Republicans, and socialists.

00:25:56.680 | But you probably have not heard much

00:25:59.300 | about a government controlled by its customers.

00:26:03.980 | Economic historian, Frederick Lane laid the basis

00:26:06.920 | for a new way of understanding

00:26:09.000 | where the control of government lies

00:26:10.720 | in some of his lucid essays

00:26:12.840 | on the economic consequences of violence discussed earlier.

00:26:16.320 | Thinking about government as an economic unit

00:26:19.960 | that sells protection led Lane to analyze

00:26:24.000 | the control of government in economic

00:26:26.800 | rather than political terms.

00:26:29.120 | In this view, there are three basic alternatives

00:26:31.660 | in the control of government,

00:26:33.300 | each of which entails a fundamentally different set

00:26:36.100 | of incentives, proprietors, employees, and customers.

00:26:41.100 | Proprietors, in rare cases, even today,

00:26:46.700 | governments are sometimes controlled by a proprietor,

00:26:50.820 | usually a hereditary leader who for all intents

00:26:54.420 | and purposes owns the country.

00:26:56.940 | For example, the Sultan of Brunei treats the government

00:26:59.520 | of Brunei somewhat like a proprietorship.

00:27:02.360 | This was more common among lords of the Middle Ages

00:27:05.400 | who treated their fiefs as proprietorships

00:27:07.480 | to optimize their incomes.

00:27:09.520 | Lane described the incentives of the owners

00:27:12.560 | of the production-producing enterprise as follows.

00:27:15.640 | Quote, "An interest in maximizing profits would lead him,

00:27:19.920 | while maintaining prices, to try to reduce his costs.

00:27:24.040 | He would, like Henry VII of England,

00:27:26.680 | or Louis XI of France, use inexpensive wiles,

00:27:30.860 | at least as inexpensive devices as possible,

00:27:34.360 | to affirm his legitimacy, to maintain domestic order,

00:27:38.160 | and to distract neighboring princes

00:27:40.580 | so that his own military expenses would be low.

00:27:43.560 | From lowered costs, or from the increased exactions

00:27:47.600 | made possible by the firmness of his monopoly,

00:27:50.280 | or from a combination, he accumulated a surplus."

00:27:54.400 | Governments controlled by proprietors

00:27:56.680 | have strong incentives to reduce the costs

00:27:59.200 | of providing protection or monopolizing violence

00:28:02.240 | in a given area.

00:28:03.840 | But so long as their rule is secure,

00:28:07.040 | they have little incentive to reduce the price, the tax.

00:28:11.480 | They charge their customers below the rate

00:28:13.920 | that optimizes revenues.

00:28:16.140 | The higher the price a monopolist can charge

00:28:19.000 | and the lower his actual costs,

00:28:21.120 | the greater the profit he will make.

00:28:23.360 | The ideal fiscal policy for a government

00:28:26.000 | controlled by its proprietors would be a huge surplus.

00:28:30.320 | When governments can keep their revenues high,

00:28:32.880 | but cut their costs, this has a large impact

00:28:36.240 | on the use of resources.

00:28:38.400 | Labor and other valuable inputs

00:28:40.480 | that would otherwise be wasted,

00:28:42.240 | providing unnecessarily expensive protection,

00:28:45.640 | become available instead for investment and other purposes.

00:28:50.080 | The higher the monarch can raise his profit

00:28:52.800 | by lowering costs, the more resources are freed.

00:28:57.200 | When these resources are used for investment,

00:29:00.240 | they provide a stimulus for growth.

00:29:02.800 | But even if they are used for conspicuous consumption,

00:29:06.000 | they help create and feed new markets

00:29:08.840 | that otherwise would not exist

00:29:10.560 | if the resources had been wasted

00:29:12.320 | to produce inefficient protection.

00:29:14.820 | Employees.

00:29:17.920 | It is easy to characterize the incentives

00:29:20.040 | that prevail for governments controlled by their employees.

00:29:24.000 | They would be similar incentives

00:29:25.480 | in other employee-controlled organizations.

00:29:28.800 | First and foremost, employee-run organizations

00:29:31.460 | tend to favor any policy that increases employment

00:29:34.800 | and oppose measures which reduce jobs.

00:29:38.080 | As Lane put it, quote,

00:29:39.740 | "When employees as a whole controlled,

00:29:41.820 | "they had little interest in minimizing

00:29:43.500 | "the amounts exacted for protection

00:29:45.720 | "and none in minimizing that large part of costs

00:29:49.280 | "represented by labor costs by their own salaries.

00:29:53.000 | "Maximizing size was more to their taste also."

00:29:56.560 | A government controlled by its employees

00:30:00.400 | would seldom have incentives

00:30:02.000 | to either reduce the costs of government

00:30:04.760 | or the price charged to their customers.

00:30:07.560 | However, where conditions impose strong price resistance

00:30:11.760 | in the form of opposition to higher taxes,

00:30:14.400 | governments controlled by employees

00:30:16.200 | would be more likely to let their revenues

00:30:18.020 | fall below their outlays than to cut their outlays.

00:30:22.160 | In other words, their incentives imply

00:30:25.000 | that they may be inclined toward chronic deficits

00:30:28.680 | as governments controlled by proprietors would not be.

00:30:31.420 | Customers.

00:30:34.880 | Are there examples of governments

00:30:36.720 | controlled by their customers?

00:30:38.900 | Yes.

00:30:40.100 | Lane was inspired to analyze the control of government

00:30:43.000 | in economic terms by the example

00:30:45.360 | of the medieval merchant republics like Venice.

00:30:48.980 | There, a group of wholesale merchants

00:30:51.240 | who required protection

00:30:52.560 | effectively controlled the government for centuries.

00:30:55.580 | They were genuinely customers

00:30:57.700 | for the protection service government provided,

00:31:00.480 | not proprietors.

00:31:02.260 | They paid for the service.

00:31:04.260 | They did not seek to profit from their control

00:31:06.300 | of government's monopoly of violence.

00:31:08.500 | If some did, they were prevented from doing so

00:31:10.820 | by the other customers for long periods of time.

00:31:13.900 | Other examples of governments controlled by their customers

00:31:16.480 | include democracies and republics with limited franchise,

00:31:20.520 | such as the ancient democracies

00:31:23.160 | or the American Republic in its founding period.

00:31:27.120 | At that time, only those who paid for the government,

00:31:31.440 | about 10% of the population, were allowed to vote.

00:31:35.640 | Governments controlled by their customers,

00:31:38.160 | like those of proprietors,

00:31:40.340 | have incentives to reduce their operating costs

00:31:43.300 | as far as possible.

00:31:45.160 | But unlike governments controlled

00:31:47.200 | by either proprietors or employees,

00:31:50.360 | governments actually controlled by their customers

00:31:53.280 | have incentives to hold down the prices they charge.

00:31:57.520 | Where customers rule,

00:31:59.080 | governments are lean and generally unobtrusive

00:32:02.800 | with low operating costs, minimal employment, and low taxes.

00:32:07.800 | A government controlled by its customers sets tax rates

00:32:12.000 | not to optimize the amount the government can collect,

00:32:16.000 | but rather to optimize the amount

00:32:17.880 | that the customers can retain.

00:32:20.960 | Like typical enterprises in competitive markets,

00:32:24.100 | even a monopoly controlled by its customers

00:32:26.440 | would be compelled to move toward efficiency.

00:32:29.920 | It would not be able to charge a price in the form of taxes

00:32:33.440 | that exceeded costs by more than a bare margin.

00:32:38.440 | The role of democracy, voters as employees and customers.

00:32:43.440 | Lane treats democracy in the conventional way,

00:32:48.840 | in assuming that it brings violence-using

00:32:51.720 | and violence-producing enterprises,

00:32:54.040 | quote, "increasingly under the control of their customers."

00:32:58.040 | This is certainly the politically correct conclusion.

00:33:02.720 | But is it true?

00:33:05.440 | We think not.

00:33:06.840 | Look closely at how modern democracies function.

00:33:10.360 | First of all, they have few characteristics

00:33:12.840 | of those competitive industries where the terms of trade

00:33:16.000 | are clearly controlled by their customers.

00:33:18.800 | For one thing, democratic governments

00:33:21.280 | typically spend only a bare fraction

00:33:23.960 | of their total outlays on the service of protection,

00:33:27.640 | which is their core activity.

00:33:30.180 | In the United States, for example,

00:33:31.720 | state and local governments spend just 3.5%

00:33:36.720 | of their total outlays on the provision of police,

00:33:40.080 | as well as courts and prisons.

00:33:42.840 | Add military spending, and the fraction of revenues

00:33:46.040 | devoted to protection is still only about 10%.

00:33:50.000 | Another revealing hint that mass democracy

00:33:52.820 | is not controlled by its customers

00:33:55.140 | is the fact that contemporary political culture,

00:33:58.400 | inherited from the industrial age,

00:34:00.580 | would consider it outrageous if policies on crucial issues

00:34:04.140 | were actually informed by the interests of the people

00:34:06.840 | who pay the bills.

00:34:08.200 | Imagine the uproar if a US president

00:34:11.360 | or a British prime minister proposed

00:34:13.760 | to allow the group of citizens

00:34:15.760 | who pay the majority of the taxes

00:34:18.080 | to determine which programs of government should continue

00:34:21.480 | and which groups of employees should be fired.

00:34:24.860 | This would deeply offend expectations

00:34:28.080 | of how government should operate

00:34:30.480 | in a way that allowing government employees

00:34:32.640 | to determine whose taxes should be raised would not.

00:34:37.080 | Yet, when you think about it,

00:34:39.040 | when customers really are in the driver's seat,

00:34:41.480 | it would be considered outrageous

00:34:43.020 | that they should not get what they want.

00:34:45.760 | If you went into a store to buy furniture

00:34:48.440 | and the salespeople took your money,

00:34:50.440 | but then proceeded to ignore your requests

00:34:53.120 | and consult others about how to spend your money,

00:34:56.400 | you would quite rightly be upset.

00:34:59.180 | You would not think it normal or justifiable

00:35:02.240 | if the employees of the store argued

00:35:04.000 | that you really did not deserve the furniture

00:35:06.400 | and that it should be shipped instead

00:35:07.840 | to someone whom they found more worthy.

00:35:10.700 | The fact that something very like this happens

00:35:13.160 | in dealings with government

00:35:14.520 | shows how little control its customers actually have.

00:35:19.520 | By any measure, the costs of democratic governments

00:35:22.960 | have surged out of control,

00:35:25.160 | unlike the typical situation

00:35:26.720 | where customer preferences force vendors to be efficient.

00:35:30.600 | Most democracies run chronic deficits.

00:35:34.940 | This is a fiscal policy

00:35:36.680 | characteristic of control by employees.

00:35:40.080 | Governments seem notably resistant

00:35:42.620 | to reducing the costs of their operations.

00:35:45.840 | An almost universal complaint

00:35:47.800 | about contemporary government worldwide

00:35:50.560 | is that political programs, once established,

00:35:54.120 | can be curtailed only with great difficulty.

00:35:57.740 | To fire a government employee is all but impossible.

00:36:01.460 | In fact, one of the principal advantages

00:36:03.780 | arising from privatization

00:36:05.360 | of formerly state-owned functions

00:36:07.060 | is that private control usually makes it far easier

00:36:10.800 | to weed out unnecessary employment.

00:36:13.780 | From Britain to Argentina,

00:36:16.140 | it has not been uncommon for the new private managers

00:36:18.820 | to shed 50 to 95% of former state employees.

00:36:22.600 | Think as well of the basis

00:36:24.940 | upon which the fiscal terms

00:36:26.240 | of a government's protection service is priced.

00:36:28.980 | For the most part, you would look in vain

00:36:31.180 | for hints of competitive influences on tax rates

00:36:33.820 | according to which government services are priced.

00:36:36.460 | Even the occasional debates about lowering taxes

00:36:39.640 | that have interrupted normal political discourse

00:36:41.940 | in recent years

00:36:43.060 | betray how far removed democratic government

00:36:46.340 | has normally been from control by its customers.

00:36:50.100 | Advocates of lower taxes

00:36:52.340 | sometimes have argued that government revenues

00:36:54.560 | would actually increase

00:36:56.060 | because rates previously had been set so high

00:36:58.460 | that they discouraged economic activity.

00:37:01.120 | The trade-off they normally intended to highlight

00:37:04.780 | was not competition between jurisdictions,

00:37:07.380 | but something much more amazing.

00:37:10.060 | They did not argue that because tax rates in Hong Kong

00:37:13.860 | were only 15%,

00:37:15.620 | rates in the United States or Germany

00:37:17.460 | must be no higher than 15%.

00:37:20.060 | To the contrary, tax debates have normally assumed

00:37:23.540 | that the trade-off facing the taxpayer

00:37:25.780 | was not between doing business in one jurisdiction

00:37:28.580 | or doing it in another,

00:37:30.300 | but between doing business at penal rates

00:37:32.700 | or taking a holiday.

00:37:35.220 | You were told that productive individuals

00:37:37.700 | subject to predatory taxation

00:37:39.700 | would walk away from their inboxes

00:37:41.420 | and go golfing if their tax burdens were not eased.

00:37:44.920 | The fact that such an argument could even arise

00:37:48.180 | shows how far removed from a competitive footing

00:37:51.340 | the protection costs imposed

00:37:53.060 | by democratic welfare states have been.

00:37:55.860 | The terms of progressive income taxation,

00:37:58.740 | which emerged in every democratic welfare state

00:38:01.780 | during the course of the 20th century,

00:38:03.900 | are dramatically unlike pricing provisions

00:38:06.500 | that would be preferred by customers.

00:38:08.960 | This can easily be seen by comparing taxation imposed

00:38:11.980 | to support a monopolistic provision of protection

00:38:14.700 | with tariffs for telephone service,

00:38:17.060 | which until recently was a monopoly in most places.

00:38:20.940 | Customers would scream bloody murder

00:38:23.300 | if a telephone company attempted to charge for calls

00:38:26.460 | on the same basis that income taxes are imposed.

00:38:29.820 | Suppose the phone company sent a bill for $50,000

00:38:32.860 | for a call to London

00:38:34.340 | just because you happened to conclude a deal

00:38:36.540 | worth $125,000 during a conversation.

00:38:40.660 | Neither you nor any other customer in his right mind

00:38:43.100 | would pay it, but that is exactly the basis

00:38:45.700 | upon which income taxes are assessed

00:38:47.860 | in every democratic welfare state.

00:38:50.580 | When you think closely about the terms

00:38:52.420 | under which industrial democracies have operated,

00:38:55.000 | it is more logical to treat them

00:38:56.620 | as a form of government controlled by their employees.

00:39:00.260 | Thinking of mass democracy

00:39:02.460 | as government controlled by its employees

00:39:05.020 | helps explain the difficulty of changing government policy.

00:39:09.100 | Government, in many respects,

00:39:10.780 | appears to be run for the benefit of employees.

00:39:13.740 | For example, government schools in most democratic countries

00:39:17.620 | seem to malfunction chronically,

00:39:20.100 | and without remedy.

00:39:22.140 | If customers truly were in the driver's seat,

00:39:25.100 | they would find it easier to set new policy directions.

00:39:28.540 | Those who pay for democratic government

00:39:30.420 | seldom set the terms of government spending.

00:39:32.880 | Instead, government functions as a co-op

00:39:35.660 | that is both outside of proprietary control

00:39:38.660 | and operating as a natural monopoly.

00:39:41.480 | Prices bear little relation to costs.

00:39:44.660 | The quality of service is generally low

00:39:46.640 | compared to that in private enterprise.

00:39:49.180 | Customer grievances are hard to remedy.

00:39:51.980 | In short, mass democracy leads to control of government

00:39:55.380 | by its employees.

00:39:58.060 | But wait, you may be saying that in most jurisdictions,

00:40:02.020 | there are many more voters

00:40:03.660 | than there are persons on the government payroll.

00:40:06.580 | How could it be possible for employees

00:40:08.860 | to dominate under such conditions?

00:40:11.180 | The welfare state emerged to answer exactly this quandary.

00:40:17.340 | Since there were not otherwise enough employees

00:40:19.620 | to create a working majority,

00:40:21.800 | increasing numbers of voters

00:40:23.620 | were effectively put on the payroll

00:40:25.580 | to receive transfer payments of all kinds.

00:40:28.440 | In effect, the recipients of transfer payments and subsidies

00:40:31.940 | became pseudo-employees of government,

00:40:34.860 | who were able to dispense with the bother

00:40:37.040 | of reporting every day to work.

00:40:39.360 | It was a result dictated by the mega-political logic

00:40:42.240 | of the industrial age.

00:40:44.380 | When the magnitude of coercive force

00:40:46.260 | is more important than the efficient deployment of resources,

00:40:49.300 | as was the case prior to 1989,

00:40:52.080 | it is all but impossible for most governments

00:40:54.260 | to be controlled by their customers.

00:40:56.700 | As the example of the late Soviet Union illustrated so well,

00:41:00.380 | until a few years ago,

00:41:01.540 | it was possible for states to exercise great power

00:41:04.180 | in the world, even while wasting resources

00:41:06.820 | on a massive scale.

00:41:08.860 | When returns to violence are high and rising,

00:41:12.380 | magnitude means more than efficiency.

00:41:15.460 | Larger entities tend to prevail over smaller ones.

00:41:19.080 | Those governments that are more effective

00:41:20.940 | in mobilizing military resources,

00:41:23.300 | even at the cost of wasting many of them,

00:41:25.940 | tend to prevail over those

00:41:27.620 | that utilize resources more efficiently.

00:41:29.940 | Think what this means.

00:41:32.800 | It inescapably implies that when magnitude

00:41:36.980 | means more than efficiency,

00:41:39.540 | governments controlled by their customers cannot prevail,

00:41:44.260 | and often cannot survive.

00:41:47.780 | Under such conditions,

00:41:48.980 | the entities that will be most effective militarily

00:41:52.100 | are those that commandeer the most resources for war.

00:41:56.900 | But governments that are truly controlled

00:41:59.020 | by their customers who pay their bills

00:42:01.340 | are unlikely to have carte blanche

00:42:03.140 | to reach into the pockets of everyone to extract resources.

00:42:07.780 | Customers normally wish to see the prices they pay

00:42:10.820 | for any product or service,

00:42:13.100 | including protection, lowered, and kept under control.

00:42:17.460 | If the Western democracies had been under customer control

00:42:20.360 | during the Cold War,

00:42:21.780 | that fact alone would have made them

00:42:23.660 | weaker competitors militarily,

00:42:26.060 | because it would almost certainly have curtailed

00:42:28.060 | the flow of resources into the government.

00:42:30.860 | Remember, where customers rule,

00:42:33.180 | both prices and costs should be expected

00:42:35.660 | to be under tight control.

00:42:37.660 | But this is hardly what happened.

00:42:39.900 | The welfare states were manifestly the winners

00:42:42.380 | of the spending contest during the Cold War,

00:42:45.300 | commentators of all stripes cited

00:42:47.620 | as a factor in their triumph,

00:42:49.580 | their ability to spend the Soviet Union into bankruptcy.

00:42:53.240 | It is precisely this fact that highlights the way

00:42:56.860 | in which the inefficiencies of democracy

00:42:59.300 | made it mega-politically predominant

00:43:01.220 | during a period of rising returns to violence.

00:43:04.540 | Massive military spending, with all its waste,

00:43:07.860 | represents a distinctly suboptimal deployment of capital

00:43:10.980 | for private gain.

00:43:12.780 | We suggested earlier that while welfare states

00:43:15.620 | were economically efficient

00:43:16.900 | as compared to state socialist systems,

00:43:19.380 | they are far less efficient for the creation of wealth

00:43:22.220 | than laissez-faire enclaves like Hong Kong.

00:43:25.940 | Ironically, it was this very inefficiency

00:43:27.940 | of the democratic welfare state

00:43:29.780 | as compared to a more unencumbered free market system

00:43:32.700 | that made it successful

00:43:34.240 | in the mega-political conditions of industrialism.

00:43:39.180 | How did inefficiency fostered by democracy

00:43:42.620 | become a factor in its success during the age of violence?

00:43:46.780 | The key to unraveling this apparent paradox

00:43:49.140 | lies in recognizing two points.

00:43:51.500 | One, success for a sovereignty in the modern period

00:43:56.740 | lay not in creating wealth,

00:43:58.960 | but in creating a military force capable of deploying

00:44:03.540 | overpowering violence against any other state.

00:44:07.720 | Money was needed to do that,

00:44:09.980 | but money itself could not win a battle.

00:44:13.660 | The challenge was not to create a system

00:44:15.900 | with the most efficient economy

00:44:17.820 | or the most rapid rate of growth,

00:44:19.900 | but to create a system that could extract more resources

00:44:23.220 | and channel them into the military.

00:44:26.580 | By its nature, military spending is an area

00:44:29.860 | where the financial returns per se

00:44:32.420 | are low or non-existent.

00:44:35.660 | Two, the easiest way to obtain permission

00:44:38.920 | to invest funds in activities

00:44:40.760 | with little or no direct financial return,

00:44:44.280 | like tax payments,

00:44:45.720 | is to ask for permission from someone

00:44:48.560 | other than the person whose money is coveted.

00:44:52.160 | One of the ways that the Dutch

00:44:53.840 | were able to purchase Manhattan for $23 worth of beads

00:44:58.040 | is that the particular Indians to whom they made the offer

00:45:02.120 | were not the ones who properly owned it.

00:45:05.200 | Getting to yes, as the marketing people say,

00:45:08.340 | is much easier under those terms.

00:45:12.200 | Suppose, for example, that as authors of this book,

00:45:16.140 | we wanted you to pay not its cover price,

00:45:19.420 | but 40% of your annual income for a copy.

00:45:23.540 | We would be far likelier to get permission to do so

00:45:26.640 | if we asked someone else and did not have to ask you.

00:45:31.620 | In fact, we would be far more persuasive

00:45:33.860 | if we could rely instead upon the consent

00:45:36.340 | of several people you do not even know.

00:45:39.540 | We could hold an ad hoc election,

00:45:42.220 | what H.L. Mencken described with less exaggeration

00:45:45.740 | than he might have thought as quote,

00:45:47.520 | "An advanced auction of stolen goods."

00:45:50.980 | And to make the example more realistic,

00:45:53.600 | we would agree to share some of the money

00:45:55.740 | we collected from you with these anonymous bystanders

00:46:00.100 | in exchange for their support.

00:46:02.580 | That is the role

00:46:04.020 | the modern democratic welfare state evolved to fulfill.

00:46:08.020 | It was an unsurpassed system in the industrial age

00:46:13.020 | because it was both efficient and inefficient

00:46:16.980 | where it counted.

00:46:18.540 | It combined the efficiency of private ownership

00:46:21.740 | and incentives for the creation of wealth

00:46:24.320 | with a mechanism to facilitate

00:46:26.060 | essentially unchecked access to that wealth.

00:46:30.460 | Democracy kept the pockets of wealth producers open.

00:46:34.820 | It succeeded militarily during the high water period

00:46:37.780 | of rising returns to violence in the world

00:46:40.500 | precisely because it made it difficult for customers

00:46:43.540 | to effectively restrict the taxes the government collected

00:46:47.260 | or other ways of funding the outlay of resources

00:46:50.420 | for the military, such as inflation.

00:46:53.040 | Why customers could not dominate.

00:46:58.460 | Those who paid for protection during the modern period

00:47:02.700 | were not in a position to successfully deny resources

00:47:06.660 | to the sovereign, even acting collectively

00:47:10.580 | when doing so would simply have exposed them

00:47:13.380 | to being overpowered by other possibly more hostile states.

00:47:18.380 | This was an obvious consideration during the Cold War.

00:47:23.020 | The customers or taxpayers who bore a disproportionate share

00:47:27.680 | of the cost of government

00:47:29.060 | in the leading Western industrial states

00:47:32.620 | were in no position to refuse to pay hefty taxes.

00:47:36.780 | The result would have been to expose themselves

00:47:39.620 | to total confiscation by the Soviet Union

00:47:42.980 | or another aggressive group capable of organizing violence.

00:47:47.740 | Industrialism and democracy.

00:47:51.900 | Taking a longer view, mass democracy may prove

00:47:57.060 | to be an anachronism that will not long survive

00:48:00.060 | the end of the industrial age.

00:48:02.300 | Certainly, mass democracy and the nation state emerged

00:48:06.300 | together with the French revolution

00:48:08.180 | at the end of the 18th century,

00:48:10.180 | probably as a response to a surge in real income.

00:48:14.700 | Incomes had begun to rise significantly

00:48:16.940 | in Western Europe about 1750,

00:48:19.460 | partly as a result of warmer weather.

00:48:22.140 | This coincided with a period of technological innovation

00:48:25.060 | that displaced skilled jobs of artisans

00:48:27.780 | with equipment that could be operated by unskilled workers,

00:48:31.260 | even women and children.

00:48:33.460 | This new industrial equipment raised earnings

00:48:35.780 | for unskilled workers,

00:48:37.020 | making the income distribution more equal.

00:48:40.100 | The crucial trigger point of revolution

00:48:42.020 | may not have been, as is often thought,

00:48:44.840 | the perverse idea that people tend to revolt

00:48:47.900 | when conditions improve.

00:48:49.720 | More important may be the fact that

00:48:51.940 | when incomes had risen to a certain level,

00:48:54.900 | it at last became practical for the early modern state

00:48:59.420 | to circumvent the private intermediaries

00:49:02.460 | and powerful magnates with whom

00:49:04.580 | they had previously bargained for resources

00:49:07.460 | and move to a system of direct rule,

00:49:10.800 | in which a national government

00:49:12.220 | dealt directly with individual citizens,

00:49:15.040 | taxing them at ever higher rates

00:49:17.580 | and demanding poorly compensated military service

00:49:20.800 | in exchange for provision of various benefits.

00:49:24.500 | Because the emerging middle class

00:49:26.460 | soon had enough money to tax,

00:49:28.900 | it was no longer essential, as it previously had been,

00:49:32.460 | for rulers to negotiate with powerful landlords

00:49:35.740 | or great merchants who were,

00:49:37.860 | as historian Charles Tilley wrote,

00:49:40.860 | "In a position to prevent the creation of a powerful state

00:49:44.620 | that would seize their assets and cramp their transactions."

00:49:49.620 | It is easy to see why governments were more successful

00:49:54.040 | in extracting resources

00:49:56.260 | when they dealt with millions of citizens individually,

00:49:59.700 | rather than with a relative handful of lords,

00:50:02.900 | dukes, earls, bishops, contract mercenaries,

00:50:06.520 | free cities and other semi-sovereign entities

00:50:09.780 | with whom the rulers of European states

00:50:11.740 | were obliged to negotiate prior to the mid 18th century.

00:50:15.260 | Rising real incomes allowed governments

00:50:18.660 | to adopt a strategy that placed more resources

00:50:21.100 | under their control.

00:50:22.760 | Small sums taken in taxes from millions

00:50:26.060 | could produce more revenue than larger amounts

00:50:28.580 | paid by a few powerful people.

00:50:31.380 | What is more, the many were far easier to deal with

00:50:35.380 | than the few who were generally unwilling

00:50:37.740 | to give their money away

00:50:39.100 | and were far better placed to resist.

00:50:42.260 | After all, the typical farmer, small merchant or worker

00:50:46.220 | possessed vanishingly small resources

00:50:48.800 | as compared to the state itself.

00:50:51.060 | It was not even remotely possible

00:50:52.900 | that the typical private individual in Western Europe

00:50:55.400 | on the eve of the French Revolution

00:50:57.400 | could have effectively bargained with the state

00:50:59.700 | to reduce his tax rate

00:51:01.500 | or mounted an effective resistance to government plans

00:51:04.480 | and policies that threatened his interests.

00:51:07.100 | But this is precisely what powerful private magnates

00:51:11.060 | had done for centuries and would continue to do.

00:51:14.940 | They effectively resisted and bargained with rulers,

00:51:18.160 | restraining their ability to commandeer resources.

00:51:21.020 | Quote, "Going to war accelerated the move

00:51:25.020 | "from indirect to direct rule.

00:51:27.660 | "Almost any state that makes war

00:51:29.480 | "finds that it cannot pay for the effort

00:51:31.620 | "from its accumulated reserves and current revenues.

00:51:35.060 | "Almost all war-making states borrow extensively,

00:51:38.700 | "raise taxes, and seize the means of combat,

00:51:42.340 | "including men, from reluctant citizens

00:51:45.220 | "who have other uses for their resources."

00:51:48.480 | Charles Tilly.

00:51:49.880 | The example of Poland in the mid-18th century

00:51:52.920 | illustrates this perfectly.

00:51:55.520 | In 1760, the Polish National Army comprised 18,000 soldiers.

00:52:00.520 | This was a meager force compared to the armies

00:52:05.520 | commanded by rulers of neighboring Austria,

00:52:08.400 | Prussia, and Russia, the least of whom

00:52:11.040 | could control a standing army of 100,000 soldiers.

00:52:15.160 | In fact, the Polish National Army in 1760

00:52:19.260 | was small even in comparison with other units

00:52:22.520 | under arms within Poland.

00:52:24.980 | The combined forces of the Polish nobility were 30,000 men.

00:52:29.380 | If the Polish king had been able to interact directly

00:52:33.360 | with millions of individual Poles and tax them directly,

00:52:38.100 | rather than being limited to extracting resources

00:52:41.120 | indirectly through the contributions

00:52:43.340 | of the powerful Polish magnates,

00:52:45.660 | there is little doubt that the Polish central government

00:52:48.220 | would have been in a position to raise far more revenues

00:52:52.080 | and thus pay for a larger army.

00:52:55.140 | Against ordinary individuals who were not in a position

00:52:58.460 | to act in concert with millions

00:53:00.020 | of other ordinary individuals,

00:53:02.100 | the central authorities were to prove

00:53:04.100 | irresistibly powerful everywhere.

00:53:06.980 | But the king of Poland lacked the option

00:53:09.520 | of directly taxing his citizens in 1760.

00:53:12.820 | He had to deal through the lords,

00:53:15.180 | wealthy merchants, and other notables

00:53:17.420 | who were a small, cohesive group.

00:53:20.600 | They could and did act in concert

00:53:23.900 | to keep the king from commandeering their resources

00:53:26.780 | without their consent.

00:53:28.500 | Given that the Polish nobility had far more troops

00:53:31.500 | than he did, the king was in no position to insist.

00:53:35.740 | As it turned out, the military disadvantage

00:53:38.940 | of failing to circumvent the wealthy and powerful

00:53:41.620 | in gathering resources was decisive in the age of violence.

00:53:46.380 | Within a few years, Poland ceased to exist

00:53:49.580 | as an independent country.

00:53:51.220 | It was conquered by invasions from Austria,

00:53:53.700 | Prussia, and Russia, three countries with armies,

00:53:56.900 | each of which was many times bigger

00:53:59.060 | than Poland's small force.

00:54:01.240 | In each of those countries, the rulers had found paths

00:54:04.180 | to circumvent the capacity of the wealthy merchants

00:54:07.380 | and the nobility to limit the commandeering

00:54:10.300 | of their resources after the French Revolution.

00:54:14.540 | The French Revolution resulted in an even greater surge

00:54:19.520 | in the size of armies, a fact that demonstrated

00:54:22.460 | the strength of the democratic strategy

00:54:24.260 | when returns to violence were rising.

00:54:26.860 | The bargain government struck

00:54:28.620 | from the French Revolution onward

00:54:31.400 | was to provide an unprecedented degree of involvement

00:54:35.380 | in the lives of average people

00:54:37.940 | in exchange for their participation in wars

00:54:41.260 | in place of mercenaries and paying a growing burden of taxes

00:54:45.860 | from their rising incomes.

00:54:48.520 | As Tilly said, quote, "The state's sphere expanded far

00:54:52.420 | "beyond its military core, and its citizens began

00:54:55.860 | "to make claims on it for a very wide range

00:54:59.000 | "of protection, adjudication, production, and distribution.

00:55:03.780 | "As national legislatures extended their own ranges

00:55:07.020 | "well beyond the approval of taxation,

00:55:09.520 | "they became the targets of claims

00:55:11.320 | "from all well-organized groups

00:55:13.740 | "whose interests the state did or could affect.

00:55:17.920 | "Direct rule and mass national politics grew up together

00:55:21.880 | "and reinforced each other mightily."

00:55:24.360 | The same logic that was true in the 18th century

00:55:28.920 | remained true until 1989, when the Berlin Wall fell.

00:55:34.920 | As the Industrial Age advanced,

00:55:37.220 | incomes for unskilled work continued to rise,

00:55:41.100 | making mass democracy an even more effective method

00:55:44.260 | of optimizing the extraction of resources.

00:55:47.360 | As a result, government grew and grew,

00:55:50.960 | adding about 0.5% to its total claims on annual income

00:55:55.720 | in the average industrial country over the 20th century.

00:56:00.260 | During the Industrial Age prior to 1989,

00:56:04.040 | democracy emerged

00:56:05.480 | as the most militarily effective form of government,

00:56:09.160 | precisely because democracy made it difficult or impossible

00:56:13.600 | to impose effective limits

00:56:15.240 | on the commandeering of resources by the state.

00:56:18.360 | Generous provision of welfare benefits to one and all

00:56:22.080 | invited a majority of voters to become, in effect,

00:56:26.260 | employees of the government.

00:56:28.520 | This became the predominant political feature

00:56:31.040 | of all leading industrial countries,

00:56:33.600 | because voters were in a weak position

00:56:36.440 | to effectively control the government

00:56:38.440 | in their role as customers for the service of protection.

00:56:42.160 | Not only did they face the aggressive menace

00:56:44.600 | of communist systems,

00:56:46.440 | which could produce large resources for military purposes

00:56:50.320 | since the state controlled the entire economy,

00:56:53.120 | but true taxpayer control of government

00:56:55.620 | was also impractical for another reason.

00:56:59.140 | Millions of average citizens

00:57:01.720 | cannot work together effectively to protect their interests.

00:57:06.040 | Because the obstacles to their cooperation are high

00:57:09.440 | and the return to any individual

00:57:11.660 | for successfully defending the group's common interests

00:57:14.400 | is minimal,

00:57:15.880 | millions of ordinary citizens will not be as successful

00:57:19.380 | in withholding their assets from the government,

00:57:22.040 | as will smaller groups with more favorable incentives.

00:57:26.120 | Other things being equal, therefore,

00:57:27.740 | you would expect a higher proportion of total resources

00:57:31.000 | to be commandeered by government in a mass democracy

00:57:34.360 | than in an oligarchy

00:57:36.920 | or in a system of fragmented sovereignty,

00:57:39.900 | where magnates wielded military power

00:57:42.280 | and fielded their own armies,

00:57:44.060 | as they did everywhere in early modern Europe

00:57:46.840 | prior to the 18th century.

00:57:49.520 | Thus, a crucial, though seldom examined,

00:57:52.200 | reason for the growth of democracy in the Western world

00:57:55.280 | is the relative importance of negotiation costs

00:57:58.560 | at a time when returns to violence were rising.

00:58:02.800 | It was always costlier to draw resources from the few

00:58:06.380 | than from the many.

00:58:08.300 | A relatively small elite group of rich

00:58:11.280 | represent a more coherent and effective body

00:58:14.560 | than a large mass of citizens.

00:58:17.000 | The small group has stronger incentives to work together.

00:58:20.640 | It will almost inevitably be more effective

00:58:23.440 | at protecting its interests than will a mass group.

00:58:27.160 | And even if most members of the group

00:58:29.080 | choose not to cooperate with any common action,

00:58:32.160 | a few who are rich may be capable

00:58:34.360 | of deploying enough resources to get the job done.

00:58:37.740 | With democratic decision-making,

00:58:39.920 | the nation state could exercise power

00:58:42.040 | much more completely over millions of persons

00:58:45.120 | who could not easily cooperate

00:58:47.100 | to act collectively in their own behalf

00:58:49.600 | than it could in dealings with a much smaller number

00:58:52.240 | who could more easily overcome

00:58:53.720 | the organizational difficulties

00:58:55.320 | of defending their concentrated interests.

00:58:58.040 | Democracy had the still more compelling advantage

00:59:00.800 | of creating a legitimizing decision rule

00:59:03.400 | that allowed the state to tap the resources

00:59:05.480 | of the well-to-do without having to bargain directly

00:59:08.380 | for their permission.

00:59:09.880 | In short, democracy as a decision mechanism

00:59:13.160 | was well-fitted to the mega-political conditions

00:59:15.480 | of the industrial age.

00:59:17.200 | It complemented the nation state

00:59:19.120 | because it facilitated the concentration of military power

00:59:22.080 | in the hands of those running it

00:59:23.840 | at a time when the magnitude of force brought to bear

00:59:26.400 | was more important than the efficiency

00:59:29.080 | with which it was mobilized.

00:59:31.160 | This was demonstrated decisively with the French Revolution,

00:59:34.840 | which raised the magnitude of military force

00:59:37.100 | on the battlefield.

00:59:38.560 | Thereafter, other competitive nation states

00:59:41.520 | had little choice but to converge on a similar organization

00:59:45.860 | with legitimacy ultimately tied

00:59:48.040 | to democratic decision-making.

00:59:50.720 | To summarize, the democratic nation state succeeded

00:59:53.960 | during the past two centuries for these hidden reasons.

00:59:58.360 | One, there were rising returns to violence

01:00:02.400 | that made magnitude of force more important than efficiency

01:00:06.440 | as a governing principle.

01:00:08.580 | Two, incomes rose sufficiently above subsistence

01:00:13.440 | that it became possible for the state

01:00:15.320 | to collect large amounts of total resources

01:00:18.380 | without having to negotiate with powerful magnates

01:00:21.300 | who were capable of resisting.

01:00:22.880 | Three, democracy proved sufficiently compatible

01:00:27.560 | with the operation of free markets

01:00:29.720 | to be conducive to the generation

01:00:31.520 | of increasing amounts of wealth.

01:00:33.920 | Four, democracy facilitated domination of government

01:00:37.480 | by its employees,

01:00:39.760 | thereby assuring that it would be difficult

01:00:41.980 | to curtail expenditures, including military expenditures.

01:00:47.000 | Five, democracy as a decision rule

01:00:50.320 | proved to be an effective antidote

01:00:52.740 | to the ability of the wealthy to act in concert

01:00:55.880 | to restrict the nation state's ability to tax

01:00:58.400 | or otherwise protect their assets from invasion.

01:01:01.280 | Democracy became the militarily winning strategy

01:01:06.160 | because it facilitated the gathering of more resources

01:01:09.620 | into the hands of the state.

01:01:11.700 | Compared to other styles of sovereignty

01:01:13.780 | that depended for their legitimacy on other principles,

01:01:17.120 | such as the feudal levy, the divine right of kings,

01:01:20.920 | corporate religious duty,

01:01:22.620 | or the voluntary contributions of the rich,

01:01:25.480 | mass democracy became militarily the most potent

01:01:29.280 | because it was the surest way to gather resources

01:01:32.580 | in an industrial economy.

01:01:35.180 | Quote, "The nation, as a culturally defined community,

01:01:40.500 | "is the highest symbolic value of modernity.

01:01:44.040 | "It has been endowed with a quasi-sacred character

01:01:47.560 | "equaled only by religion.

01:01:49.480 | "In fact, this quasi-sacred character derives from religion.

01:01:54.480 | "In practice, the nation has become either

01:01:57.240 | "the modern secular substitute of religion

01:02:01.000 | "or its most powerful ally.

01:02:03.860 | "In modern times, the communal sentiments

01:02:06.060 | "generated by the nation are highly regarded

01:02:09.200 | "and sought after as the basis for group loyalty.

01:02:12.860 | "That the modern state is often the beneficiary

01:02:14.960 | "should hardly be surprising, given its paramount power."

01:02:19.720 | Joseph R. Libera.

01:02:21.640 | Nationalism.

01:02:24.220 | Much the same can be said of nationalism,

01:02:28.120 | which became a corollary to mass democracy.

01:02:31.440 | States that could employ nationalism

01:02:33.640 | found that they could mobilize larger armies

01:02:36.200 | at a smaller cost.

01:02:38.040 | Nationalism was an invention that enabled a state

01:02:40.880 | to increase the scale at which it was militarily effective.

01:02:45.240 | Like politics itself,

01:02:46.840 | nationalism is mostly a modern invention.

01:02:50.300 | As sociologist Joseph Libera has shown

01:02:52.880 | in his richly documented book on the rise of nationalism,

01:02:56.320 | the nation is an imagined community

01:03:00.120 | that in large measure came into being

01:03:02.040 | as a way of mobilizing state power

01:03:04.120 | during the French Revolution.

01:03:06.240 | As he puts it, "In the modern sense of the term,

01:03:09.680 | "national consciousness has only existed

01:03:12.480 | "since the French Revolution.

01:03:14.340 | "Since the time when in 1789,

01:03:17.160 | "the Constituent Assembly equated the people of France

01:03:20.360 | "with the French nation."

01:03:21.820 | Nationalism made it easier to mobilize power

01:03:25.600 | and control large numbers of people.

01:03:28.120 | Nation states formed by underlining

01:03:30.780 | and emphasizing characteristics that people held in common,

01:03:34.600 | particularly spoken language.

01:03:36.960 | This facilitated rule

01:03:38.380 | without the intervention of intermediaries.

01:03:41.540 | It simplified the tasks of bureaucracy.

01:03:44.760 | Edicts that need only be promulgated in one language

01:03:47.920 | can be dispatched more quickly

01:03:49.840 | and with less confusion than those

01:03:51.540 | that must be translated into a babble of tongues.

01:03:54.960 | Nationalism therefore tended to lower the cost

01:03:57.760 | of controlling larger areas.

01:04:00.680 | Before nationalism, the early modern state

01:04:03.480 | required the aid of lords, dukes, earls, bishops,

01:04:07.840 | free cities, and other corporate and ethnic intermediaries,

01:04:11.860 | from tax farmers to military contract merchants

01:04:15.680 | and mercenaries to collect revenues, raise troops,

01:04:18.800 | and conduct other government functions.

01:04:21.400 | Nationalism also decisively lowered the costs

01:04:24.300 | of mobilizing military personnel

01:04:26.680 | by encouraging group identification

01:04:29.000 | with the interests of the state.

01:04:31.280 | There was such a substantial advantage

01:04:34.440 | in harnessing group feeling to the interests of the state

01:04:38.960 | that most states,

01:04:40.580 | even the allegedly internationalist Soviet Union,

01:04:44.660 | converged on nationalism as a complementary ideology.

01:04:49.660 | Seen in a longer perspective,

01:04:51.940 | nationalism is as much an anomaly as the state itself.

01:04:56.880 | As historian William McNeill has documented,

01:05:00.100 | polyethnic sovereignties were the norm in the past.

01:05:03.880 | In McNeill's words, quote,

01:05:05.800 | "The idea that a government rightfully should rule

01:05:08.600 | "over citizens of a single ethnos

01:05:10.840 | "started to develop in Western Europe

01:05:13.020 | "towards the end of the Middle Ages."

01:05:15.080 | An early nationalist entity was the Prussian League,

01:05:19.600 | Prussischer Bund, which formed in 1440

01:05:22.800 | in opposition to rule by the Teutonic Order.

01:05:26.620 | Some of the characteristics of the order

01:05:28.460 | were highlighted earlier as a polar example

01:05:31.180 | of a sovereignty unlike the nation state.

01:05:34.500 | The Teutonic Order was a kind of chartered company,

01:05:37.960 | almost none of whose members were native to Prussia.

01:05:41.220 | Its headquarters shifted at various times

01:05:43.520 | from Bremen and Lubeck to Jerusalem,

01:05:45.880 | to Accra, to Venice, and on to Marienburg on the Vistula.

01:05:50.300 | At one time, it ruled the district

01:05:52.680 | of Britsenland in Transylvania.

01:05:55.080 | It is not surprising that a sovereignty

01:05:57.840 | so unlike a state would become the object

01:06:01.280 | of one of the early attempts to mobilize national feeling

01:06:04.700 | as a factor in organizing power.

01:06:07.700 | However, as an indication of how different

01:06:10.240 | early nationalism was from later varieties,

01:06:13.680 | the German-speaking nobles of the Prussian League

01:06:16.960 | petitioned the King of Poland

01:06:18.520 | to place Prussia under Polish rule,

01:06:21.280 | largely because even then, the Polish king

01:06:24.520 | was a relatively weak monarch

01:06:26.640 | who was not expected to rule with the same rigor

01:06:29.520 | as the Teutonic Order.

01:06:31.840 | Nationalism in its early incarnations came into play

01:06:35.840 | just prior to the Gunpowder Revolution.

01:06:38.960 | It continued to develop as the early modern state developed,

01:06:42.020 | taking a quantum leap in importance

01:06:44.340 | at the time of the French Revolution.

01:06:46.800 | We believe that nationalism as an idea of force

01:06:51.360 | has already begun to recede.

01:06:53.600 | It probably reached its heyday with Woodrow Wilson's attempt

01:06:57.240 | to endow every ethnic group in Europe

01:07:00.360 | with its own state at the close of World War I.

01:07:04.080 | It is now a reactionary force inflamed in places

01:07:08.080 | with falling incomes and declining prospects like Serbia.

01:07:12.840 | As we explore later, we expect nationalism

01:07:15.860 | to be a major rallying theme of persons with low skills,

01:07:20.760 | nostalgic for compulsion as the welfare state

01:07:24.840 | collapses in the Western democracies.

01:07:28.160 | You haven't seen anything yet.

01:07:30.880 | For most persons in the West,

01:07:32.880 | the fallout from the death of communism

01:07:35.080 | has seemed relatively benign.

01:07:37.740 | You have seen a drop in military spending,

01:07:40.720 | a plunge in aluminum prices,

01:07:42.720 | and a new source of hockey players for the NHL.

01:07:46.000 | That is the good news.

01:07:48.000 | It is news that most people who came of age

01:07:50.360 | in the 20th century could applaud,

01:07:52.520 | especially if they are hockey fans.

01:07:54.880 | Most of the news that is destined to prove less popular

01:07:58.280 | is still to come.

01:07:59.320 | With the passage of the industrial age,

01:08:03.520 | the political conditions that democracy satisfied

01:08:06.480 | are rapidly ceasing to exist.

01:08:09.460 | Therefore, it is doubtful that mass democracy

01:08:13.480 | and the welfare state will survive long

01:08:16.320 | in the new, mega-political conditions

01:08:18.600 | of the information age.

01:08:20.220 | Quote, "Congress was not a temple of democracy.

01:08:25.440 | "It was a market for bartering laws."

01:08:28.800 | Alberto Fujimori, President of Peru.

01:08:31.920 | Indeed, future historians may report

01:08:36.160 | that we have already seen the first postmodern coup,

01:08:40.280 | the remarkable padlocking of the Congress in Peru in 1993.

01:08:45.560 | This was hardly an event

01:08:47.080 | that attracted much favorable notice

01:08:49.040 | in the leading industrial democracies,

01:08:51.600 | but it may turn out to mean more in the fullness of time

01:08:54.800 | than conventional analysts would suggest.

01:08:58.120 | The few who have thought about it

01:08:59.720 | tend to see it as just another power grab

01:09:02.420 | of the kind that has become depressingly familiar

01:09:04.960 | in the history of Latin America.

01:09:07.240 | But we see it as perhaps the first step

01:09:09.320 | toward delegitimizing a form of governance

01:09:12.200 | whose immediate mega-political reason for being

01:09:14.680 | has begun to disappear

01:09:16.000 | with the transition to the information age.

01:09:18.600 | Fujimori's closure of the Congress

01:09:20.680 | is a symptom of the ultimate devaluation

01:09:23.920 | of political promises.

01:09:25.900 | A similar fate could await other legislatures

01:09:28.320 | when their credit is exhausted.

01:09:30.140 | The shift in technology that is eroding industrialism

01:09:35.260 | has trapped many countries with governments

01:09:37.600 | that no longer work or work badly.

01:09:41.440 | Legislatures, in particular,

01:09:43.160 | appear to be increasingly dysfunctional.

01:09:46.340 | They grind out laws

01:09:47.560 | that might've been merely stupid 50 years ago,

01:09:50.640 | but are dangerous today.

01:09:53.120 | This was spectacularly obvious in Peru,

01:09:56.800 | where the internal sovereignty of the state

01:09:59.020 | had almost collapsed by 1993.

01:10:02.680 | Quote, "Attacks, kidnappings, rapes, and murders

01:10:06.800 | "have coincided with increasingly aggressive driving habits

01:10:10.160 | "and unsafe streets.

01:10:12.520 | "The police have gradually lost control of the situation,

01:10:15.980 | "and some of their members have been involved in scandals

01:10:19.000 | "and become seasoned criminals.

01:10:21.300 | "People have gradually grown used

01:10:23.040 | "to living outside the law.

01:10:25.060 | "Theft, illegal seizure, and factory takeovers

01:10:28.260 | "have become everyday occurrences."

01:10:31.120 | Hernando de Soto.

01:10:32.420 | Peru in ruins.

01:10:36.040 | In a sense, Peru was no longer a modern nation state in 1993.

01:10:41.600 | It still had a flag and an army,

01:10:44.240 | but most of its institutions lay in ruins.

01:10:47.480 | Even the prisons had been taken over by the inmates.

01:10:50.520 | This disintegration could be traced to a number of causes,

01:10:54.160 | but most expert attempts to explain it

01:10:56.280 | miss the real point.

01:10:58.080 | Peru was an early casualty of the technological change

01:11:01.560 | that is making closed economies dysfunctional

01:11:04.160 | and undermining central authority everywhere.

01:11:07.460 | These mega-political stresses are compounded

01:11:09.840 | because decision-making institutions

01:11:11.600 | like the Peruvian Congress

01:11:13.380 | are trapped by perverse incentives

01:11:15.320 | into aggravating the very problems

01:11:17.160 | that they most need to solve.

01:11:19.520 | Representative democracy in Peru

01:11:21.440 | was like a pair of loaded dice.

01:11:23.960 | As a decision mechanism for aggrandizing the state,

01:11:27.760 | it was unsurpassed.

01:11:30.120 | But when new circumstances called for devolving power,

01:11:34.140 | the inherent biases that made democracy so useful

01:11:37.640 | under the old mega-political conditions

01:11:40.160 | made it increasingly dysfunctional.

01:11:42.720 | The very laws passed by the Congress

01:11:44.600 | were rapidly destroying any foundation of value

01:11:48.000 | or respect for the law.

01:11:50.260 | As de Soto put it in "The Other Path,"

01:11:52.760 | quote, "Small interest groups fight among themselves,

01:11:56.240 | "cause bankruptcies, implicate public officials.

01:11:59.640 | "Governments hand out privileges.

01:12:01.960 | "The law is used to give and take away

01:12:04.360 | "far more than morality permits."

01:12:07.440 | A Congress like that in Peru,

01:12:09.440 | entirely enthralled to special interest groups,

01:12:12.500 | has all the moral stature of a gang of fences

01:12:16.260 | auctioning off stolen goods.

01:12:18.640 | It made the free market illegal

01:12:20.800 | and consequently made the law ridiculous.

01:12:24.400 | As de Soto writes at the pre-Fujimori period,

01:12:27.860 | quote, "A complete subversion of ends and means

01:12:31.240 | "has turned the life of Peruvian society upside down,

01:12:34.980 | "to the point that there are acts which,

01:12:37.440 | "although officially criminal,

01:12:39.280 | "are no longer condemned by the collective consciousness.

01:12:42.640 | "Smuggling is a case in point.

01:12:44.580 | "Everyone from the aristocratic lady

01:12:46.980 | "to the humblest man acquires smuggled goods.

01:12:50.360 | "No one has scruples about it.

01:12:52.340 | "On the contrary, it is viewed as a kind of challenge

01:12:54.700 | "to individual ingenuity or as revenge against the state.

01:12:59.700 | "This infiltration of violence and criminality

01:13:02.720 | "into everyday life has been accompanied

01:13:04.960 | "by increasing poverty and deprivation.

01:13:08.340 | "In general terms, Peruvians' real average income

01:13:11.880 | "had declined steadily over the last 10 years

01:13:14.820 | "and is now at the level of 20 years ago.

01:13:17.860 | "Mountains of garbage pile up on all sides.

01:13:21.000 | "Night and day, legions of beggars, car washers,

01:13:24.680 | "and scavengers besiege passers-by asking for money.

01:13:29.100 | "The mentally ill swarm naked in the streets,

01:13:31.840 | "stinking of urine.

01:13:33.580 | "Children, single mothers, and cripples

01:13:35.880 | "beg for alms on every corner.

01:13:38.460 | "The traditional centralism of our society

01:13:40.880 | "has proved clearly incapable of satisfying

01:13:43.660 | "the manifold needs of a country in transition."

01:13:46.740 | De Soto described the abandonment

01:13:50.380 | of the grotesque legal economy for the black market

01:13:53.160 | that was underway before Fujimori padlocked the Congress

01:13:56.280 | as, quote, "an invisible revolution."

01:14:00.160 | We are positive about the benefits of the free market,

01:14:03.780 | but much less positive about the promise of a society

01:14:06.640 | in which the law is as degraded as the money.

01:14:11.120 | The world that De Soto described in Peru prior to 1993

01:14:15.860 | was a clockwork orange world

01:14:18.520 | where overly centralized

01:14:20.360 | and dysfunctional government institutions

01:14:23.060 | were literally destroying the civil society.

01:14:26.620 | This is what Fujimori set out to change.

01:14:29.840 | He had slashed inflation

01:14:31.720 | by turning off the printing presses.

01:14:34.000 | He had also managed to fire 50,000 government employees

01:14:37.920 | and trim some subsidies.

01:14:40.320 | He had made a start toward balancing the budget.

01:14:43.760 | His program of reform included comprehensive plans

01:14:46.960 | to create free markets and privatize industry.

01:14:50.400 | But as in the former Soviet Union,

01:14:53.000 | most of the important elements of Fujimori's reform

01:14:55.840 | were yet to be adopted in 1993,

01:14:58.600 | including the first round of large-scale privatization

01:15:02.220 | of state banks, mining companies, and utilities.

01:15:05.960 | Instead of enacting these necessary proposals,

01:15:08.680 | Peru's Congress, like the Russian Congress

01:15:11.460 | that challenged Yeltsin's reforms in Moscow,

01:15:14.320 | sought to move backwards.

01:15:16.320 | Their plan, restore subsidies from an empty treasury,

01:15:20.080 | pad the payroll, and protect any and all vested interests,

01:15:24.360 | especially the bureaucracy.

01:15:26.800 | Exactly what you would expect of a government

01:15:29.000 | controlled by its employees.

01:15:31.360 | Fujimori claimed that the Congress of Peru

01:15:33.680 | was dithering and corrupt,

01:15:35.720 | a fact with which almost everyone agreed.

01:15:38.200 | He further claimed that congressional dithering

01:15:40.400 | and corruption made it impossible

01:15:42.080 | to reform Peru's collapsing economy

01:15:45.100 | or combat a violence assault by narco-terrorists

01:15:48.600 | and nihilistic sendero luminoso, shining path, guerrillas.

01:15:52.740 | The 70% solution.

01:15:56.280 | So Fujimori closed the Congress,

01:15:59.480 | an act that might have indicated

01:16:01.520 | that he was as authoritarian

01:16:04.200 | as many earlier Latin American leaders.

01:16:07.180 | But we thought, and said so at the time,

01:16:09.700 | that Fujimori had correctly identified

01:16:12.520 | a fundamental impediment to reform.

01:16:15.120 | The extravagant official elegies for the Peruvian Congress

01:16:18.720 | by American editorial writers

01:16:20.520 | and officials of the State Department

01:16:22.440 | were not shared by the people of Peru.

01:16:25.080 | While North Americans carried on

01:16:26.720 | as if Peru's Congress were the incarnation

01:16:29.200 | of freedom and civilization, the Peruvian people cheered.

01:16:33.560 | President Fujimori's popularity shot up above 70%

01:16:37.000 | when he sent the Congress home,

01:16:38.840 | and he was later reelected to a second term in a landslide.

01:16:42.620 | Most citizens apparently saw their legislature

01:16:45.280 | more as an obstacle to their well-being

01:16:48.440 | than as an expression of their rights.

01:16:51.380 | In 1994, real economic growth in Peru reached 12.9%,

01:16:56.380 | the highest on the planet.

01:16:58.280 | Deflation of political promises.

01:17:01.780 | We saw Peru's turmoil less as a throwback

01:17:05.560 | to the dictatorships of the past

01:17:07.700 | than as an early installment of a broader transition crisis.

01:17:12.420 | You can expect to see crises of misgovernment

01:17:15.520 | in many countries as political promises are deflated

01:17:18.480 | and governments run out of credit.

01:17:20.500 | Ultimately, new institutional forms will have to emerge

01:17:23.460 | that are capable of preserving freedom

01:17:25.140 | in the new technological conditions,

01:17:27.220 | while at the same time giving expression and life

01:17:29.500 | to the common interests that all citizens share.

01:17:32.860 | Few have begun to think about the incompatibility

01:17:35.600 | between some of the institutions of industrial government

01:17:39.580 | and the megapolitics of post-industrial society.

01:17:43.740 | Whether these contradictions

01:17:44.980 | are explicitly acknowledged or not, however,

01:17:48.480 | their consequences will become increasingly obvious

01:17:51.780 | as examples of political failures compound around the world.

01:17:55.700 | Institutions of government

01:17:57.120 | that emerged in the modern period

01:17:59.100 | reflect the megapolitical conditions

01:18:00.980 | of one or more centuries ago.

01:18:03.400 | The information age will require new mechanisms

01:18:05.960 | of representation to avoid chronic dysfunction

01:18:08.860 | and even social collapse.

01:18:11.220 | When the Berlin Wall fell in 1989,

01:18:13.460 | it not only signaled the end of the Cold War,

01:18:16.100 | it was also the outer sign of a silent earthquake

01:18:18.700 | in the foundations of power in the world.

01:18:21.480 | It was the end of the long period

01:18:24.280 | of rising returns to violence.

01:18:27.120 | The fall of communism, which we forecast in 1987

01:18:31.040 | in "Blood in the Streets,"

01:18:32.960 | and even earlier in our monthly newsletter,

01:18:35.340 | "Strategic Investment,"

01:18:37.000 | was not merely the repudiation of an ideology.

01:18:39.980 | It was the outward marker of the most important development

01:18:43.240 | in the history of violence over the past five centuries.

01:18:46.760 | If our analysis is correct,

01:18:49.480 | the organization of society is bound to change,

01:18:53.100 | to reflect growing diseconomies of scale

01:18:55.580 | in the employment of violence.

01:18:57.660 | The boundaries within which the future must lie

01:19:00.840 | have been redrawn.

01:19:01.980 | Chapter that I have just read you is chapter five

01:19:07.940 | called "The Life and Death of the Nation-State"

01:19:10.940 | from a book titled "The Sovereign Individual,

01:19:14.260 | "Mastering the Transition to the Information Age,"

01:19:17.120 | by James Dale Davidson and Lord William Rees-Mogg.

01:19:20.800 | Lord William Rees-Mogg is now deceased.

01:19:22.680 | James Dale Davidson is not particularly prominent,

01:19:26.120 | but their book was, at the time,

01:19:30.080 | considered to be pretty crackpot-ish.

01:19:32.940 | It was revived quite a bit in the 2000s

01:19:38.200 | by a lot of the tech wonks.

01:19:41.660 | Peter Thiel, among others, has been quite a fan,

01:19:45.860 | and the Bitcoiners have broadly pushed it

01:19:48.900 | as being enormously influential and farsighted.

01:19:53.900 | I always find it interesting to read books

01:19:56.460 | 25 years after they're published,

01:19:57.940 | 'cause you can get some sense of what they've gotten right,

01:20:00.700 | what they've gotten wrong, and adapt from there,

01:20:03.280 | and you can think about the predictive power

01:20:05.060 | of their model.

01:20:06.200 | If this chapter's been interesting to you,

01:20:07.580 | I hope you'll pick up a copy.

01:20:08.700 | The next chapter is called

01:20:09.700 | "The Megapolitics of the Information Age."

01:20:12.200 | There are other chapters, "Transcending Locality,"

01:20:14.940 | "The Emergence of the Cyber Economy."

01:20:17.180 | I would go on and talk about nationalism and reaction

01:20:20.720 | and the new Luddites, many other elements to the book,

01:20:23.980 | but I hope you'll pick it up.

01:20:25.140 | It's available on audio as well as digital copies

01:20:28.820 | and physical copies, of course.

01:20:30.460 | And I hope that you'll think about

01:20:31.700 | what you might see reflected in our society today.

01:20:35.660 | Look around at the world and ask yourself,

01:20:37.620 | how well has this analysis held up?

01:20:40.300 | Think about countries all around the world.

01:20:43.260 | Obviously, most of my audience

01:20:44.700 | is from the United States of America.

01:20:46.540 | We are having our own challenges and issues,

01:20:48.820 | but somewhat insulated from a lot of these things.

01:20:51.300 | Around the world, though,

01:20:52.140 | you can see the impacts a little bit more clearly,

01:20:54.200 | and you can certainly trace a lot of influence

01:20:57.000 | in the United States as well.

01:20:58.540 | I hope that you'll pick up a copy of the book.

01:21:00.120 | I personally believe that we are living

01:21:01.680 | in a hinge of history.

01:21:03.260 | I have a hard time predicting the future,

01:21:05.220 | but I certainly want to understand the past

01:21:07.100 | more keenly today than I ever did before.

01:21:09.660 | So check out the book,

01:21:10.860 | and I look forward to continuing our conversation

01:21:12.820 | on it in the future.

01:21:13.820 | - Is your California dream feeling more and more distant?

01:21:20.880 | You've got countless apps and influencers

01:21:23.660 | telling you how to do it their way,

01:21:25.800 | and your expert aunt who might be giving

01:21:29.060 | a bit too much advice.

01:21:31.940 | Tips, hacks, and experts are everywhere these days,

01:21:35.980 | but when it comes to real estate,

01:21:37.780 | the question to ask is, who's your realtor?

01:21:41.580 | Because a California realtor is the only person

01:21:44.620 | who can bring your dream home.

01:21:47.000 | Someone who gets that buying a home

01:21:48.940 | is one of the most complicated and stressful things

01:21:51.700 | you can do, but can still make it possible on your budget.

01:21:55.180 | A California realtor can read

01:21:57.180 | the constantly shifting market,

01:21:59.240 | and they're out in front for all of the tough stuff.

01:22:01.860 | So you can get to the good stuff.

01:22:04.540 | So who's your realtor?

01:22:06.180 | Because no one cares more about helping Californians

01:22:09.720 | live the California dream than California realtors.

01:22:13.560 | (trombone music)

2024-05-21_The_Death_of_the_Nation_State