The Network State

Our book club’s core principle is that we read books that we would not otherwise go out and read on our own, together. The Network State proved the point. But while we pretty much universally rejected the author’s premise, our discussion was robust and we stayed on topic.

One difficulty with the book was the order; author Balaji Srinivasan pitched the idea of creating a digital state - a sovereign country - and then began his augments how to and why. The core idea is that like-minded people no longer need physical boundaries, that communications, currency (more on that later) and associations can be arranged on today’s digital platforms more efficiently, more fairly, offering utopian networks underpinned by shared values.

Most of us began the book wondering, “Wait, WHAT?”

It’s unfortunate to have begun with such a wild idea without having laid the groundwork for the idea to emerge, to evolve more logically. Rick pointed out, and most agreed, that the first third or so included a lot of platitudes and ideas, while the middle third actually had interesting and insightful observations about today’s states’ dysfunction; the third third was a combination of repetition and rabbit holes. The author is clever, well informed and financially successful in his lane, but other brilliant and successful people also miss the forest for the trees. “Who you gonna believe? Me or ya lyin’ eyes?” It began to feel a bit self-indulgent, in spite of strong beliefs and credible supporting evidence.

All that aside, Rick added that the book got us thinking differently about some things we thought to be foundational. Many of the structures our civilization has been built on seem to be in play, under attack today.

The themes in the middle part of the book were relevant and insightful for many conditions that ail our current world. On the world stage, he wonders whether “American Anarchy” or “Chinese autocracy” will get it right first. American anarchy’s culture wars and loss of seriousness are symptoms of decline, and yet we’re still an island of freedom and top innovator on the planet. We don’t see humanity rushing to get into China, a theme we covered in Piketty's Capital in the 21st Century. With bi-polar competition, these giants are ceding political and economic leadership to the rest of the world. Witness long established strategic partnerships dissolving around the world replaced by something… less durable?

A quick sidebar commentary about ai, which we have covered over the past few years, which includes cryptocurrency implications from the book:

Yuval Noah Harari: (O)ver the past couple of years new Ai tools have emerged that threaten the survival of human civilization from an unexpected direction. ai has gained some remarkable abilities to manipulate and generate language, whether with words, sounds or images. Ai has thereby hacked the operating system of our civilization. Language is the stuff almost all human culture is made of. Human rights, for example, aren’t inscribed in our dna. Rather, they are cultural artefacts we created by telling stories and writing laws. Gods aren’t physical realities. Rather, they are cultural artefacts we created by inventing myths and writing scriptures. Money, too, is a cultural artefact. Banknotes are just colourful pieces of paper, and at present more than 90% of money is not even banknotes—it is just digital information in computers. What gives money value is the stories that bankers, finance ministers and cryptocurrency gurus tell us about it.

But I digress… back to the book.

American anarchy was chronicled well beyond comparisons to China. A glimpse at our cities, Chicago, Baltimore, San Francisco, Portland are functional dystopias, with abysmal education, dangerous public transit, and zombie financial health. Contrast these to new infrastructure and functioning systems in India and other emerging economies; no wonder these societies seek a third path. As Larry Summers recalled a diplomat’s summary: ‘When emerging market states go to China, they get an airport; when they go to the US, they get a lecture’.

On America’s culture wars, Srinivasan has little good to say about New York Times’ owners the Ochs / Sulzbergers: Slaveowners back in the day, misogynists till the ‘90’s, anti-gay until the ‘00s, and nepotists since forever. In 2008-2009 advertising revenue collapsed and they needed a new formula to justify a paywall. They decided to sell readership the new ideas out of the Academy, the latest progressive imaginary constructs. The table of word count from the past few decades - linked in the book - appears below for illustration. The success and the influence in defining today’s culture wars has been nothing short of remarkable. Do these owners worry they sow anarchy?

One thing we already knew: the large so-called "news organizations" monetize tribalism through confirmation bias. Curating slices of information into narratives gets past the legal eagles, even when the conclusions may be false. NYT is hardly the only one; just the first, and arguably still the most influential.

Culture wars have eclipsed other things that used to matter. Chuck told about his personal experience with financial analysts. Until just a few years ago, analysts asked questions about growth strategies and markets, and forced management to defend assumptions and forecasts. Today’s portfolio analysts are singularly focused on ESG, and especially index fund managers. The economics of the business doesn’t matter as it used to.

Our political system is in shambles for some of its own financial idiosyncrasies. Political fundraisers get around 20% of the take for their efforts. There’s no money in the middle of the political spectrum; it's all at the ends of the spectrum. Chuck described a 20-something young man he knows who has been making millions through political donations by text. Find an atrocity story, sell it, make 20% of the take. No anarchy here; buy into your bias.

Srinivasan also included plenty of space to digital currency, Bitcoin primarily. His comfort arises out of his own success in the digital currency game, but was notably silent on its value collapse prior to publication. He did describe the paradox on privacy with blockchain based currency. Everything in blockchain becomes part of the ledger, meaning we can figure out exactly where every bitcoin, including fractional ones, have been. If an arms dealer or cyber ransomer took your bitcoin, somewhere that’s been added to the ledger. Where’s the privacy? Anyone who values privacy must ask about permanent placement on the ledger.

An additional comment: Bitcoin mining takes tremendous electrical power. That’s a tough pull in today’s environment where gas stoves, dishwashers and air conditioners are under attack.

We circled back to the original premise by the end of our discussion adding questions such as, how can a digital network survive an infrastructure failure? Is the concept of a network state simply another manifestation of the fractious nature of a digital society? Tribalism attracts money, could that be the angle?.

Last thought: the book is not available in paper, only digitally. Because the work contains so many links, the kindle for ipad, or similar internet connected devise worked better than straight kindle. As described above, the content gave us great material for reconsidering some of our foundational thoughts, but it’ll never happen. Unless ai makes us.

Next book: a fun light and lively spring read: The Hitchhiker’s Guide to the Galaxy