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.

Nor can the economic state count on coercive solutions to counteract
this trend. It cannot tax what it cannot see. One of the products of
cheap, ubiquitous computing has been the growing, worldwide
availability of strong programs for encrypting data on personal
computers. With such programs, individuals and companies can
communicate and trade beyond the easy ability of governments to
intercept or, if proper precautions are taken, even to be aware that
the transactions exist.

States that cling unrealistically to the models of the past will find
their economies becoming more like that of Italy, where a very
substantial portion of GDP (over 50 percent by common estimates) is
thought to be off the books and beyond the view (and reach) of the
state. This becomes a vicious circle, as the declining collections
force the state to cut services or raise the rates on those who still
pay taxes--usually both at once. Cutting services causes taxpayers to
question the value of their relationship with the government, and
raising rates pushes more taxpayers further into tax avoidance. Both
courses of action further reduce the ability of the state to command
the sort of revenue stream it previously enjoyed.

The reduction of the effective available percentage of GDP to
taxation authorities will accelerate the existing trend toward the
decline of economic states. An economic state's support rests
primarily on its ability to transfer resources from one sector of
society to another. Such states will be subject to stronger pressures
to break apart, as the ability to shift wealth declines and the
social compacts they support grow weaker. Pay-as-you-go services,
such as Social Security in the United States, will be placed under
ever-increasing fiscal pressure. To the extent that loyalty to states
depends on the delivery of such elaborate benefits, economic states
will become decreasingly cohesive.

Some politicians believe that immigration of enough young
wage-earners will make cuts from the retired generation's benefits
needless. This contains a hidden assumption: that young immigrants,
often poorer and from different cultures, will feel sufficient
solidarity with the retirees to continue to support the necessary
high levels of taxation. Without assimilation, this is a dubious
prospect.

The decline of the economic state will mostly be a quiet and gradual
affair, a revolution made of many individual decisions that, when
taken together and augmented by technical developments like
high-speed air travel and satellite communications, have a cumulative
effect. A Canadian executive may take a job in the United States
because the income tax burden is so much lower. Continental Europeans
might move to London to start a company in order to escape the
"social burden" of regulation in France or Germany. And a company
could outsource software development to India, where the workers
speak English well and are cost-competitive. These are the sort of
individual decisions that will shape the emerging world.

What Lies Ahead

a group of people, the self-described "cryptoanarchists", maintains
that the availability of cyberspace transactions beyond the ability
of the state to monitor or control will destroy the ability of the
state to maintain itself. Those who adhere to this school of thought
foresee an era of essentially chaotic social organization, in which
market forms predominate in both the economy and other relationships.

Although many of the individual premises of that argument have some
validity, the results will not be as extreme as envisioned. Rather
than ending the state, it is more likely that these changes will
substantially transform its nature. Most states will either adapt to
those changes, decline in wealth and importance or, in extreme cases,
split apart. The ongoing technological revolutions mean that states
will depend increasingly on voluntary forms for cohesion. Successful
states are likely to have one or more of the following
characteristics:

*Small populations with a relatively confined geographical spread.
Consensus and coherence are easier to achieve among a limited number
of people in territorially-compact areas. This will favor small
jurisdictions ranging from Caribbean island states to what Kenichi
Ohmae terms "region-states." Jurisdictions larger than that will
probably be structured as federations of civic states.

*Ethnic or religious homogeneity. Religious or ethnic ties form a
strong bond for cohesion. Israelis put up with the inordinate fiscal
and regulatory interventions of their state because to leave Israel
is to leave the community that supports their identity.

*Visible success. Singaporeans put up with their intrusive
government, even when few have any ideological, ethnic or religious
reason to do so, because it has delivered visible prosperity and
security to its inhabitants over their lifetimes.

*Market-ordered economies with scope for individual enterprise.
Citizens will tolerate state interventions in a market economy so
long as they are not visibly harmful, leave room for individual
enterprise, and allow the state to perform more reasonably the
services people require. Citizens have stayed in social democracies
with state-protected corporations and heavy taxation and regulation,
but they tend to flee state-socialist regimes in droves whenever
possible. Swedes have always been free to leave their country, while
East Germans were not. Yet the latter fled in great numbers when the
opportunity arose (to the ultimate demise of their state), while
relatively few Swedes have exiled themselves.

*Low transaction costs for leaving. It is far easier to maintain
cohesion if unhappy persons are permitted and even encouraged to
leave, rather than facing heavy penalties for doing so. Exit taxes
are signs of a loser state. The Soviet Union was rightfully despised
for levying one, and the United States should reconsider its plans to
follow in its wake. Many malcontents will leave; more than a few will
decide to return. And, having returned, they will be less
discontented. Even permanent expatriates should be encouraged to
maintain family and social ties with the home country. Expatriates
can deliver useful business and political contacts even when they are
not paying taxes.

*Serving as the home base for a diaspora. A diaspora provides an
environment for useful commercial relationshipsworldwide. Having even
minuscule territory with sovereign characteristics (such as the
ability to issue passports) makes life far easier for members of a
diaspora. The Internet facilitates personal ties and continued access
to one's home culture.

*Maintaining enough international associations to enjoy the security,
economic and cooperative ties formerly enjoyed only by large states.
Iceland maintains a unique culture and language in a prosperous civil
society with a population of only 270,000 people. As such, it would
seem to be an advertisement for the viability of very small states.
It is not at all clear, however, that it would be nearly as
prosperous, secure or independent if not for its active memberships
in nato, the European Economic Area and the Nordic Council.

*Sharing a positive, self-affirming narrative. Many such narratives
are provided by religious, national or ethnic identity. Israel has a
simple and effective narrative--exemplified in phrases such as "Hear,
O Israel, the Lord thy God, He is One", and "Never Again." Political
entities that do not have ethnic or religious cohesion need a
sophisticated and equally compelling narrative. The United States has
a complex and compelling narrative--exemplified in the phrases, "We
hold these truths to be self-evident" and "the wretched refuse of
your teeming shores." Both have worked. Nations that lose the ability
to sustain a positive narrative, on the other hand, lose coherence
and identity, and thus voluntary citizen support. In the new
environment, such nations will find it difficult to maintain revenue
bases, enforce regulation or defend their citizens.

In this world, civic states that are able to generate an essentially
voluntary adherence on the part of their populations will dominate.
The things of value that civic states provide for their
citizens--principles, identity and a sense of community--are
fundamentally intangible things that, unlike the economic aspects of
sovereignty, cannot become commodities in the world marketplace.

Such civic states are not likely to be able (or want) to form or
sustain large-area organizations with tightly integrated populations
that generate a consensus to pay for and share an elaborate structure
of state-provided and state-mediated benefits consuming high (33 to
60 percent) proportions of the state's GDP. The decline,
decentralization and, in some cases, destruction of economic states
will strengthen civic states by providing impetus to the search for
newer, more flexible and less centralized mechanisms linking
large-scale activities.

Do larger-scale economic areas like the European Union offer a
potential solution to this perfect storm of the economic state? To
the extent that such unions concentrate on the positive
accomplishments of the Union, the answer is a qualified yes. The EU
has had some success in promoting free movement of people, capital
and ideas throughout its internal area, and facilitating cooperation
in all areas where existing commonalities permit greater cooperation
between similar cultures. A union that would seek to create a common
economic, informational, and residency space for the citizens of its
member-nations could be of benefit.

However, to the extent that the EU has ended up dictating the social
policies of its member-nations, attempted (with some success) to
relocate executive power from national bodies under democratic
scrutiny to unscrutinized bodies on Union-wide levels, and maintained
large cross-regional subsidies to buy assent, it is not only not a
solution, but becomes a new type of problem in itself. The EU has
become to international cooperative organizations what the economic
state has become to the nation-state. By trying to become an economic
state on a wider scale, the EU has increased the amount of
bureaucracy, top-down planning and intervention.

Additionally, it has replaced some of the barriers with which small
states have tried to insulate themselves from economic reality by a
new, Union-wide set of more insidious non-market barriers,
particularly in the area of rigid and expensive standards, and
subsidy programs that have the same ultimately futile goal in the
world economy. By trying to maintain an already strained entitlement
and dirigisme-based political and social model, the EU will find
itself under ever-increasing pressure in the coming decade because of
these structural weaknesses, aggravating an increasing demographic
crisis.

The Rise of the Network Commonwealth

In discussions about these changes and their effects, two schools of
thought seem to have emerged to date. One is a gloomy and apocalyptic
vision of many small, essentially unconnected mini-states engaged in
intermittent low-level conflict and confrontation, reminiscent of
Hobbes's "War of All Against All." It is a vision of a few rich
Singapores and many poor, conflict-torn Kosovos. This view is
reflected in political works such as Robert D. Kaplan's The Coming
Anarchy, and in the imagined worlds of futurist fiction such as Neal
Stephenson's The Diamond Age.

The other could be described as a "One World via Internet" vision of
increased communication (with English as the universal language),
omnidirectional cooperation and networking on a world scale. Its
proponents, such as the cyber-futurists of Wired magazine, envision
that lowering the transaction costs of cooperation to a uniform level
worldwide will make it equally likely for any one person anywhere to
cooperate with any other person anywhere else.

In many versions, less futurist, less libertarian, but more typical
of Hegelian-Kantian internationalists, it leads to a vision of world
governance--of increasing integration into regional transnational
organizations, such as the European Union and NAFTA, in parallel with
single-purpose world-level structures such as the World Trade
Organization, ultimately all merging into a mode of world governance.

If the one vision leads to a few Singapores and many Kosovos, the
other, it is thought, will spawn a multicultural Golden Era, benignly
presided over by an enlightened United Nations and its international
organs. Neither vision is likely to be realized. The breakdown of the
old structures need not, and probably will not, continue infinitely.
If it were to persist, the ongoing division of national communities
would result in an undifferentiated and disconnected mass of
ever-smaller nation-states--or, more honestly said, tribal states.
The dissolution of the USSR and of the Socialist Federative Republic
of Yugoslavia show what the human costs of such processes can be.

Equally, there is an inherent limit to the prospect of any form of
universal or global governance in the near future. Such a government
(unless it is a disguised empire of a major power imposed on the
rest) would have to be constructed on a lowest-common-denominator
basis to include a substantial collection of hapless dictatorships,
rotten oligarchies and shabby kleptocracies. One need only look at
the ineffectiveness of the United Nations in coping with many global
issues to see the limits of this approach.

In between the old natural unit marking the limits of easy
cooperation, namely the nation-state, and the distantly (and perhaps
chimerically) glimpsed vision of universal civilization, we must
interpose a middling form: a set of like, but not identical,
societies sharing a number of common characteristics, within which
social cooperation bears significantly lower transaction costs than
without. This now-emerging entity is the network civilization--a new
civilizational form enabled by networks.

Consider the visible effects of the current phase of the
scientific-technological revolutions: the Internet; the communication
satellite and high-bandwidth fiber-optic cable; fast, cheap
intercontinental air travel; and all the rest. Even today, these have
brought geographically distant areas into close proximity for many
purposes. The acceleration of these technological and economic trends
will make this "tele-proximity" even more significant. Collaboration
in all areas--economic, educational, political--is becoming
relatively easier at a distance. But asthe old natural barriers to
trade and communication--mountain ranges, wide oceans, and other
natural barriers--no longer need be borders, the next most
significant set of barriers remains--differences in language,
customs, legal systems, religions, and other significant values, and
particularly things like trust.

The network civilization is associated primarily on the lines of
cultural contiguity: groups of nations sharing language, customs,
legal systems, religions and other significant values, most
specifically, trust characteristics. It has sometimes been asserted
that the global adoption of English will abolish transaction costs of
cooperation between civilizations, or that automated translation will
do so. Although both phenomena are real, it is unlikely they will
have the expected effect, for it is precisely the unexpressed web of
assumptions behind the formal words that create the barriers between
cooperation. "We must make an accommodation" has a different nuance
in a business discussion in Lima, Ohio from one in Lima, Peru.

On the other hand, the unprecedented rapidity, cheapness and ease of
use of modern telecommunications, particularly the Internet and World
Wide Web, knits together culturally similar societies into what is
rapidly becoming a single cultural artifact subdivided along many
different lines. Consider one example: the changes in the public
debates in the English-speaking world at the time of the Gulf War,
the Balkan interventions of the mid-1990s and the Iraq War. The
debates over the Gulf War were overwhelmingly conducted in the
traditional style of the 20th century, somewhat accelerated by
satellite television. That is, America, Britain and other nations
each witnessed a debate among their traditional policy elites in
legislatures, the media, and academic circles. The American media
analyzed, summarized, and then presented their summary of "British
opinion" on the matter; the British media likewise encapsulated their
impression of American debate and presented it domestically.

During the Balkan crises, Americans began to be able to follow
lengthy sections of the British parliamentary debate directly on
cable television; the proliferation of cable services and cable
channels, particularly ones devoted entirely to news and politics,
suddenly made it possible for millions of Americans to follow a
debate that previously would have been scrutinized in such a level of
detail by mere hundreds, or at most thousands, of diplomats and
academics. Although the speed at which events unfolded was far
faster, Americans and British debaters spoke as much for and from
their national communities as an Athenian or Corinthian might have 22
centuries previously.

By the time of the Iraq War, the proliferation of the Internet and
such phenomena as Web logs--individually produced Web diaries updated
daily or even hourly, with direct links to other "blogs", often
linking to eyewitness accounts to current events, and to a huge host
of media sources--created a situation in which political debate
effectively occurred seamlessly across the English-speaking world
without the intervening mediation of cultural and political elites.
It was a debate segmented primarily by political position rather than
by nationality. In fact, both pro- and antiwar opinion was often
elaborated by group blogs, each of which were collaborative efforts
stretching from London to Sydney and everywhere in between. Both
because of direct contact across the Web, and by the indirect effect
of subjecting traditional media to criticism and feedback of a scope,
level and intensity never before experienced, political debate over
the Iraq War has experienced a remarkable degree of disintermediation
and popular involvement. This experience promises to become a new
benchmark for future reportage and debate.

All indications suggest that these patterns will intensify rather
than abate. Network civilizations appear to be the next step in
expanding the circle of civil society, which has elaborated itself
over time from local and regional networks of commercial,
intellectual and civic collaboration, to networks of national scale.

The Industrial Revolution made continent-spanning nation-states
possible. The Information Revolution offers the possibility that
civil societies may link themselves on a globe-spanning--although not
universally inclusive--scale. Such is the network civilization. It
can hardly fail to call forth political and economic forms to
parallel its effects. The Network Commonwealth is an effort to name
an equivalent form for the network civilization, and to identify its
emerging precursors in existing institutions. Just as the ethnic
nation was the raw material from which the classical nation-state was
built, so the network civilization is the raw material from which the
Network Commonwealth is being built.

This facilitates the movement of people, goods and services across
borders, forming and strengthening shared cultures (both elite and
popular) and experiences--for example, common publications read by
the publics of all of the nations of a particular network
civilization. In turn, this lays the foundation for greater
institutional cooperation (in the form of common markets, permanent
security alliances and joint scientific and technological projects).
A Network Commonwealth would build on these existing forms of
transnational cooperation and thus emerge along existing
information-oriented lines of linguistic and cultural affinity. It
would be defined by close trading relationships and substantial
military cooperation and intelligence-sharing among its constituent
states, as well as a high degree of intra-network flows of migration
and investment.

The Network Commonwealth is not a nation-state of the historical
type. It is not a state at all, although it has the potential to
offer an alternative means for fulfilling some traditional functions
of economic states. It is a means of linking smaller political
communities so that they can deal with common concerns. It is a way
to provide opportunities to their members--opportunities that cannot
be provided