Libra signals the start of corporate neofeudalism

There are a few trends I’ve noticed in recent years that I want to discuss, because I think the implications for our future are interesting. You might have read cyberpunk fiction in which the world ends up essentially dominated by giant corporations. I want to discuss some of the reasons this development is anticipated by many people and how it emerges from the situation we currently live in.

The global world order after the end of the second world war was essentially based on an idealized concept of nation states. Ethnic groups live within their own political territories, through democracy those people elect governments that represent their interests. Other forms of human organization are subject to those governments, churches and corporations must adjust themselves to the dictates of the government.

This is the political evolution of an ideal that has been pushed over successive generations. We need to keep in mind that although nationalism is typically seen as right wing and conservative by most people today, for most of history nationalism has been a progressive ideal. The era of nation states grew out of an era characterized by empires. During the first world war, Woodrow Wilson went to war to promote the ideals of democracy and national self-determination. The war ended in the dissolution of three empires and the transformation of a fourth into a communist regime. After World War II, Roosevelt used his position of political power to dismantle the European colonial empires. The Netherlands for example sought to cling onto Indonesia, but only gave up on its colonial empire under strong American pressure.

The predominance of these empires themselves, is a product of earlier political development. It’s not self evident that there’s a single entity, in the form of a government, that has a totalitarian sense of control over a particular political territory. High Medieval Europe is characterized by the ongoing conflict between the Holy Roman Emperor and the Pope, over the right of the Emperor to have a say in promoting high church officials. At that time, the church had a significant political power in the world: Bisdoms owned vast amounts of land, the Pope could call for crusades and thereby unify the Catholic world as a political block. It is in response to the Investiture issue, that the church withdraws from the political domain. The church ends up with spiritual authority, but political authority is increasingly concentrated in the form of the government.

Political power in the medieval world was decentralized, but it was also chaotic and a source of endless disputs. Kings did rule over their vassals, but those vassals had a large degree of autonomy. Land was passed on through inheritance and Europe was covered in a puzzle of plots of land of varying sizes, spread out over the continent and owned by a variety of aristocrats.

In the Holy Roman Empire, the degree of control that the Emperor has over the policies and decisions of his subject states was a continual source of conflict and controversy. During some periods, there was no emperor at all, leading to all these different feudal lords to implement their own arbitrary laws. It was for example, a nightmare to navigate the rivers in the Holy Roman empire. A variety of aristocrats and clergy felt it was their right to charge tolls on anyone who sought to transport goods by boat. Chains were hung over the water and those who would not pay arbitrary fees could not pass.

These problems reached their epitome during the thirty year wars, when the rise of protestantism led to a violent war that killed an estimated 30% of the empire’s population. This war ended in the treaty of Westphalia, which set a precedent now referred to as Westphalian sovereignty: A state has exclusive jurisdiction over the territory that it controls. This is typically seen as an important point in the emergence of the nation state. From this point onwards, central governments begin to seize more power. The aristocracy gradually loses its political autonomy and transforms into a restricted social class. Eventually this culminates in the emergence of absolute monarchy as seen in France under Louix XIV, when nobility from all around France are expected to live near the king in Versailles, thereby maximizing his control.

This is, briefly, how we ended up in the current situation, where you take it for granted that your government has nearly complete control over what happens in the territory it controls. However, these political developments are not permanent. This is not the end stage of history. Even as political control ended up vested in a series of nation states with mutually agreed upon borders, there are other developments that run contrary to this trend. It is these trends, that are now pushing nation states to the brink.

To start with, the ideal of the nation state implies that there is in fact a nation, an abstract sense of community to which people belong, more loosely defined than an ethnic group. Today however, free immigration means that a growing number of people have increasingly weaker ties to the nation in which they live. During the heights of the nation state, elites had to change their name to fit in with the nation. The house of Windsor was named the House of Saxe-Coburg-Gotha, Prince Phillip’s family changed their name from the German Battenberg to the English sounding Mountbatten.

Today we see that elites are not so much defined by inherited status anymore, but by wealth and celebrity. Because material wealth has grown so important, wealthy individuals have grown willing to abandon their ties to any particular nation state to preserve their status. Consider that one of Facebook’s founders is a Brazilian who lived in the United States, but now lives in Singapore to avoid taxes. Some nations, like Monaco and Liechtenstein, base their entire economy around the ability of wealthy people to dodge taxes there. There are international agreements to address this phenomenon, but those agreements tend to fail. Defecting from an agreement to implement sufficient taxes on the wealthy is incredibly attractive to small nations, particularly when other nations refuse to defect from the agreement.

Simultaneously however, we see the emergence of other forms of organization that begin to undermine the authority of the nation state. Although most wealthy people tend to pay inheritance taxes upon their deaths, charitable organizations, religious organizations and corporations don’t pay such taxes. Wealth can thus accumulate in such organizations over successive generations. Even within a democracy, wealth ends up meaning power. The more egalitarian a society is, the more susceptible its political elite merely becomes to bribery in one form or another.

Importantly, the organizations that nations use to settle disputes and come to agreement with each other end up forming a life of their own. It’s not exactly clear in many cases, how much authority a non-governmental organization genuinely has. The European Union for example is an agreement that was created by nations in cooperation, but today we see how difficult it is to withdraw from the agreement. Nations that seek to withdraw end up in a state of uncertainty and endless diplomatic negotiation.

Equally important is the fact that the concept of a nation state as we know it ends up diverging from the reality experienced on the ground. Officially, there is a nation known as Somalia, recognized by all of the world’s other nations. In practice, there is no “Somali” government. For the past twenty years, Northern Somalia has been home to Puntland, a de facto state with five million people and Somaliland, another state home to three million people. Other governments awkwardly pretend that these are not independent countries in their own right, even though they have all the characteristics of countries.

The Soviet Union is similarly littered with “frozen conflict” zones, where awkward borders let to situations where particular ethnic groups don’t want to live under control of the nation they formally live in. In 2008, the Georgian president made a huge mistake, when he decided that South Ossetia, which formally belongs to Georgia, should be integrated into the nation. Russia would not accept this and intervened in the conflict. At that point a precedent was set: These frozen conflict zones might not be acknowledged formally as countries, but they will have to be treated as if they were. When a government seeks to incorporate such zones that it officially controls, they will be seen as the aggressor. The official reality thus increasingly begins to diverge from the reality on the ground.

Perhaps most interesting of all is to consider the impact that technology has on nation states. Technology originally gave rise to the nation state as we know it today. In the medieval era, military power was distributed unequally. A knight in armor stands better chances in battle than a peasant without. Thus we see a society in which power is vested in aristocrats. As firepower is invented, armor becomes increasingly irrelevant. To win wars, you now need large hordes of loyal men. Those men thus become the basis of political power. Social equality in the form of democracy and the abilition of hereditary privileges thus follows the military equality that had developed. There were exceptions, like Japan, where firepower was banned in a desperate effort to cling onto a society based on feudalism, but the general rule is that technological developments are difficult to prevent.

Today we see that military power is shifting again, from large crowds of men with guns, to the rise of machines that can make judgements independently. Some academics specialized in military history are very concerned by the rise of unmanned drones that decide for themselves whether to kill someone, because it represents such a dramatic shift in the balance of power.

More important however to me, seems the shift of conflict from military means to softer means. The Iraq invasion of 2003 might be seen as an achronicity: Bush sought to control a nation through means that belonged to the 20th century. The Russian government is accused of interfering with the American election, through targeted hacks and manipulation of social media. A lot of people dispute this assertion, but it seems that there is sufficient evidence to suggest this interference did in fact occur. Most importantly, the interference has been hugely succesful.

The people who control the channels of communication that we use, have a source of enormous political power at their disposal. This is sometimes referred to as the “post-truth” era. It’s now a struggle to know what’s real and what isn’t. This becomes worse, as artificial intelligence is now capable of synthesizing things that seem increasingly more convincing. American researchers keep their artificial intelligence systems secret, because they’re shocked by their potency. Computers can now generate articles on their own that we would struggle to tell apart from those written by humans. Even human faces and videos can be created, that leave us unable to tell apart reality from fraud.

Perhaps most interestingly, governments find themselves unable to maintain control over the economic transactions of their citizens. It used to be the case that every currency is ultimately controlled by a government. Attempts at non-government controlled currency, like the Liberty Reserve, became incredibly attractive to scammers and thus the governments had a justification to shut them down. Bitcoin has had a revolutionary impact, because it is similarly susceptible to fraud and scams, but the system is designed in a manner to make it difficult to hold anyone genuinely responsible. Most governments reacted to this challenge by tolerating the phenomenon, so today non-government controlled cryptocurrencies seem to be valued at around a quarter of a trillion dollar.

When this development emerged, corporations eventually began to make use of the opportunity too. This has now culminated in the development of Libra, a type of digital currency that is ultimately controlled by a series of big corporations, that plan to pass control over the system into the hands of a growing number of individuals. The plan is to give millions of people access to a bank account, who have no such access today. The thing to understand however, is that the development of a cryptocurrency gives huge power and wealth to these corporations.

Governments today benefit from seigniorage. When a government produces new currency units, it doesn’t pay a dollar in costs to produce a dollar. Rather, fiat money has value due to government regulation. The reason we ultimately seem to use fiat money, is because governments can force us to pay taxes in fiat currency. As a consequence everyone needs fiat currency and thus it is used on a broad scale.

With Libra, Facebook has the means available to seize the power of seigniorage for itself. If everyone has Facebook and transactions of Facebook are done through Libra, people need Libra. Libra in turn doesn’t have to be backed by anything. Although it’s said to have stable value, the dollar has a stable value without genuinely being backed by anything tangible.

Perhaps more importantly, if Facebook is capable of getting enough people to use Libra, Facebook ends up in a position that banks are known to actively seek out: The position of being too big to fail. Whenever big banks end up in significant trouble, governments tend to intervene by bailing out those banks. This creates a huge benefit for big banks: A big bank can make risky investment decisions that a small bank can’t take, as the small bank would be allowed to fail. Banks are known to seek out mergers, in an effort to become too big to fail. If everyone ends up using Libra, Facebook and the other companies that cooperate with Facebook end up in a position of being too big to fail.

This is unfortunately the kind of issue we will have to deal with in the decades ahead. Governments were supposed to represent the people, but in today’s era, governments are losing their power and end up as servants of a series of powerful corporations. Consider how in the Netherlands and most other Western nations, it is now too expensive for most people to buy a home. In the Netherlands, houses are being bought up by private investors, some of whom now own hundreds of houses. Governments have proved incapable of addressing this problem. We see the emergence of a rift between a shrinking number of homeowners and a growing class of people who have to spend their whole lives borrowing from one of these wealthy property magnates.

Most people tend to think that we witness bubbles around us, but it seems increasingly more likely to me that we’re witnessing a fundamental transition in how society operates: A new era in which the cost of everything inflates and most of the world is owned by a group of people of a few million at most. The rest of us end up existing in a state reminiscent of feudalism, subservient to abstract organizations owned and controlled by people whose names are unknown to us.

I should also note that in such a system it’s very difficult to escape from this state of permanent subservience. The era we grew up in was an era of significant economic mobility. We grow up, we’re all equal and then how your life turns out depends on the choices you make and the skills you develop. That’s increasingly not really how things work out anymore. Colleges have turned into certification mills that demand huge sums of money to grant people access to the labor market. This then leaves you with a debt that keeps you from buying a house and thereby forced to live hand to mouth for most of your life.

Zuckerberg, the genius computer-boy who stumbles upon a multibillion dollar business idea by accident, is not just a lucky fluke, but a product of an era that has passed. Cryptocurrency was an escape hatch for some people, but it is one of the last few significant windows of opportunity to escape the plight that lies ahead for most of us, which is to live in a state of permanent lifelong subservience as minimal wage slaves to an oligarchy of tech giants who figure out how to live forever and sit out the catastrophic collapse of industrial civilization in their bunkers in New Zealand.

The only real option available to most people who find themselves in such a situation is to game the system. In a world where all significant advances are the result of innovation by huge corporations, the only real means to social mobility available to people born without wealth is to find holes in the system. How those holes look and how to make use of them is a subject for a different essay in the future.