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

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

Of Civil Societies and Free Markets

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

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

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

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

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

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

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

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

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

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

The Economic State's Decline and Fall

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

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

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