But in many other dimensions, we can all sense how the growing power of ubiquitous computing and networks is being translated into the tangible world. In the Entrepreneurial Age, cross-border trade is less easily measured; the changing geography of value creation casts doubts on traditional macroeconomic indicators such as GDP; our very understanding of well-being and growth is radically changing. As underlined by W. Brian Arthur, “we have entered a different phase for the economy, a new era where production matters less and what matters more is access to that production: distribution, in other words—who gets what and how they get it”[282].
In this context, there are many reasons to think that the current Entrepreneurial Age could see a retreat of the nation state and a rebirth of sub-national and trans-national systems. Many signs are pleading for that to be the case: the fragmentation of society, with individuals increasingly trapped in filter bubbles and connected mostly to people who share similar views; the rise of individuals as an active multitude rather than a mass falling prey to the influence of large organizations; the many practical purposes of individuals as they gather in online communities to form a network; the possibility of tying those online communities together by harnessing the power of technology to advance a political agenda.
In this new world rendered more open by ubiquitous computing and networks, the current fascination for the model of the city state[283] is understandable. For Silicon Valley, the idea of empowering cities flatters the taste for changing the world by founding new ventures—a preference for ‘exit’ as opposed to ‘voice’, as pointed out by Balaji S. Srinivasan[284]. This is a sentiment that is only being amplified by the repulsion inspired by Donald Trump[285].
For others, having cities gain their autonomy would be a way to affirm a clearer direction when it comes to imagining a new socio-institutional framework for the new age[286]. For those with faith in public policy, the city emerges as the main level for experimentation[287] in a world where the the state has shrunk from its role as a positive agent of change. That’s because most social innovations in history were first implemented at the local level, either by the authorities, by activists, or by individuals themselves: this was notably true for the European mutualist movement in the nineteenth century, which anticipated the Great Safety Net through many experiments within local communities. Later in the US, Supreme Court Justice Louis Brandeis dubbed the states the “laboratories of democracy” to stress how much the US federal system provided room for experimenting with new policies at the local level[288].
And so in a way, this temptation of the city-state can be explained by the flowering of the Entrepreneurial Age[289]. Many countries are relying on that model to harness the power of technology-driven networks. One example is China, which is a large country whose national economic strategy originated in special administrative regions such as Shenzhen and the Pudong district in Shanghai. Now the Belt and Road Initiative is providing China with an infrastructure to expand its power along the new digital trade routes of the day. Another example is Israel, which more resembles a city-state. There the government-sponsored Yozma program has contributed to forging strong links between the Israeli entrepreneurial ecosystem and the US venture capital industry, thus helping Israel make the most of a more digital world. A third example is Estonia, an even smaller country whose famous e-Residency program enables anyone in the world to access the pioneering, digital, seamless infrastructure that is e-Estonia and use the nascent ecosystem of business services that is growing on top of that revolutionary platform.
But I believe that there’s another historical precedent that more closely matches the Entrepreneurial Age than even the city-state. And it is a model that can provide significant insights on how nations can best position themselves for future prosperity and economic security.
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The thalassocracies
Although I live in Europe, my first trip to Venice, one of the most famous destinations in the world, was only in 2013, when I was 35 years old. It was a rewarding experience because I had already read a lot about the place. I remember having my mind blown by Giacomo Casanova’s legendary memoir The Story of My Life, which I read one summer during my years as a student. I’m also a fan of a Hugo Pratt comic series, in which the hero Corto Maltese, a rogue sailor, crisscrosses the world from Central Asia to Argentina to Manchuria to Switzerland in the early twentieth century. One episode is set in Venice, Pratt’s home town, and tells the complicated story of freemasons hunting a legendary treasure during the rise of Italian fascism[290].
Apart from the extraordinary sights, what’s stunning in Venice is the vibrancy that surrounds you, as is common in such very old places. Even though history is not actually written on the walls, you can feel, simply by walking along them, the depth, complexity, and violence of a multi-secular historical legacy. Terrible things happened there. And massive amounts of wealth were accumulated as well.
Back when it was an independent republic, Venice dominated the Mediterranean Sea and the trade routes for silk and spices through the Bosphorus to the vast plains of Central Asia[291]. To assert power so far beyond its tiny territory, the Stato da Màr needed a unique strategic positioning. The Arsenal, an industrial facility for manufacturing munitions and galleys, became a platform for experimenting with assembly-line methods of production, anticipating the Industrial Revolution by several centuries[292]. It was also in Venice that modern patent law was first enforced, with a 1474 statute designed to make sure that “most clever minds… would exert their minds, invent and make things that would be of no small utility and benefit to” the Republic[293]. Throughout the centuries, the strength of Venice’s institutions provided the tiny republic with the sense of urgency and cohesiveness necessary to take bold risks and affirm its power—from hacking the Fourth Crusade in order to encourage the sacking of Constantinople in 1204 to negotiating a trade monopoly with the Great Khans of Mongolia from 1267 forward.
The Venetian Republic is an illustration of a rare model of power: the thalassocracy, or a state with primarily maritime realms and the means to defend and expand them. History provides us with only a few examples of that combination of political, military, and economic resources, from the Republic of Venice to the Portuguese empire in the fifteenth and sixteenth centuries to Victorian Britain following the repeal of the Navigation Acts that had previously restricted colonial trade to England[294]. As noted by historian Fernand Braudel, long-distance maritime trade was the epitome of pre-industrial capitalism[295]. And oddly enough, there are many parallels to be drawn between the thalassocracies of the past and the current Entrepreneurial Age.
A first trait of thalassocracy is that it’s not about the resources you own, but about the resources you exploit by way of superior strategy. Old thalassocracies didn’t own the sea as much as they used it as a means of communication and exchange. As put by French scholar Hervé Coutau-Bégarie, this presupposed “a large and efficient merchant fleet, ports capable of receiving and distributing continuous flows of goods...but also a system of credit superior to that of the competitors, insurance, information control”[296] as well as the military seapower necessary to ensure continuity of trade.
Likewise in the Entrepreneurial Age, tech companies don’t own the multitude to which their users belong, yet they exploit it as a strategic resource thanks to the superior design of their applications, the regular and systematic monitoring of their users’ activity, and the increasing returns to scale they derive from networks. It’s not about mastering the sea through superior maritime power but rather about mastering the multitude by way of trust inspired in billions of individuals all around the world.
Another trait of a thalassocracy is that, as always with strategic positioning, trade-offs are essential[297]. Most old thalassocracies mastered the sea because they didn’t have much land to defend. Conversely, most countries with vast swaths of land had a hard time competing on the sea, because they lacked the focus and cohesiveness that made i
t possible for maritime powers to concentrate and occasionally give all they had to defend their realm. This is what the Republic of Venice achieved when its Genoan nemesis almost destroyed it during the War of Chioggia from 1378 to 1381[298]. As for Britain, it took the 1846 abrogation of the infamous Corn Laws to convert it to international trade at the expense of its domestic agriculture. Only in the following Victorian era was British maritime power radically reoriented toward global commerce and mastery of the sea[299].
In the Entrepreneurial Age, it takes focus and clear strategic positioning for certain countries such as the US, China, Israel[300] and Estonia[301] to prosper in an economy driven by the multitude. Meanwhile other countries are still competing in a lesser league because they remain trapped in their focus on legacy industries such as tourism and agriculture in France, finance in the UK, and manufacturing in Germany. You can’t succeed on the sea if land remains your primary focus.
A third trait of a thalassocracy is that the state cannot succeed alone. Mastering a resource as unruly as the sea eventually requires the assistance of a thriving ecosystem of entrepreneurs and financiers with whom the state must share the profits of trade. In Britain and the Netherlands, conquering new trade routes was an opportunity to organize and enrich a new class of merchants. Conversely, countries in which the state retained a tight monopoly over trade, such as France and Spain, failed to establish lasting commercial and financial empires at a large scale[302].
The same can be observed in the Entrepreneurial Age. The US owes its power mostly to the strategic moves by the US government to lay the ground on which US tech companies are now able to thrive[303]. Infrastructures such as the Internet and GPS, ruled by principles such as (the now-temporarily defunct) net neutrality, are the contemporary equivalents of the settlements and trading posts established by old thalassocratic regimes to secure their trade routes[304]. Like the modern law of the sea was inspired by the British to consolidate the superiority of their fleet and maritime posts[305], the current rules governing the Internet, such as the limited liability of Internet service providers, were set up by the US government with the goal of enabling a level of innovation at which only US technology companies could compete[306]. Finally, it should come as no surprise that contemporary entrepreneurs are supported by financiers, the venture capitalists, whose model was precisely inspired by the financing of risky maritime expeditions in the past[307].
All in all, old thalassocracies help us understand what it means for a national economy to prosper in the Entrepreneurial Age. With borders now closing in every part of the world, most big countries are somewhat blinded by their own size, with their larger domestic market and diversified industries providing them with the illusion that they can go it alone in a divided world. Meanwhile, other countries are working hard on their strategic positioning to try and make the most of the new landscape. With a characteristic sense of urgency and cohesiveness, tiny states and dense cities, but also very large countries such as China, appear more prone to understanding the shifts in the global economy and taking action[308]. Drawing lessons from history, they convert to the practice of old maritime empires and try to master the Internet like the Republic of Venice once mastered the sea.
And so the model of the thalassocracy emerges as the most useful precedent to understand the current challenges related to the competitiveness of nations. In the Entrepreneurial Age, what matters is less the enclosed land than the wider sea; less asset ownership than the mastery of non-appropriable resources (the sea yesterday, the multitude today); and less the crown than the entrepreneurs and financiers that the state brings along in its effort to conquer and secure new trade routes.
To go beyond simply understanding and move into making the most of a more open world, nations would be well served by following the thalassocracy model: instead of retreating within national borders, conquer the many strategic resources that are there to be taken, beginning with the multitude itself; instead of catering to both the old and the new economy, focus on the opportunities brought about by the Entrepreneurial Age; instead of relying on the state only, enroll a class of entrepreneurs and financiers; instead of looking inward, affirm an agenda of economic security and prosperity and imagine a global order to foster it. Like with the Republic of Venice, it’s about exploiting the global resources necessary to grow in power and prosperity while building and maintaining strong, inclusive institutions at home. Alas for the moment that is not the path being taken by most traditional twentieth-century powers.
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A more open world calls for greater economic security
Globalization is old news nowadays. When I grew up, tech companies were not the enemy yet—they barely even existed. But people were already hating multinational corporations that were relocating their supply-chain in cheap-labor countries. And the 2016 presidential campaign in the US has only revived this old fear of international trade as a danger to our way of life.
There’s a paradox here. For most of the twentieth century, free trade was not seen as a danger for the Great Safety Net. On the contrary, promoting free trade long went along with shared prosperity and economic security for both households and businesses. In some cases, those advocating a stronger safety net were promoting international trade with a clear conscience of how much it contributed to providing their constituents with good jobs and sustained prosperity. But much of the time, the key reason was found in the mere necessity of forming an alliance with business leaders. In exchange for more economic security for workers, the corporate world demanded that a practical government should support them in their conquest of foreign markets and ensure access to cheap supplies wherever they could find them[309].
US history lets us understand the complicated path through which a part of the political spectrum unexpectedly came up in favor of both free trade and more economic security. In the nineteenth century, the new Republican Party had inherited the interventionist ideas of Alexander Hamilton and Henry Clay: protective tariffs plus direct subsidies for local investments in canals, turnpikes, and then railways. As for the Democrats, they were largely Southern but also allied with the big urban financial centers at a time when finance was principally oriented towards foreign trade, and hence they were all for laissez-faire (except, of course, when it came to enforcing the Fugitive Slave Act).
As a result, the issue of free trade figured prominently in the challenges that led to the Civil War. The southern slave states, ruled by the Democratic Party, wanted to increase international trade to the benefit of their largely cotton-exporting economy as well as that of the financial industry. The northern states still preferred a protectionist regime, one that nourished their still-developing industrial concerns. After the Civil War, the Northern Republicans, who ruled at the federal level for most of this period, retreated from interventionist economic policies but stuck to protectionism and installed a series of tariffs. The Democrats, out of federal power for long stretches, were only able to promote free trade again beginning in 1932 with the election of Franklin D. Roosevelt.
Under the administration of FDR’s successor Harry Truman, in the early months of 1947 George Kennan and William Clayton laid out the groundwork for what would later become the Marshall Plan. They insisted on imposing the principle of free trade between European nations as a counterparty for massive American aid. Progress would then be made for decades within the framework of the Marshall Plan and the Bretton Woods compromise. In this favorable context of stable exchange rates and international cooperation, Western governments were standing on two legs: one which lowered tariffs to stimulate growth, and one which put in place the Great Safety Net to protect individuals against the more critical risks that were inevitably found in a more open economy.
In the US, the New Deal was the end of tariffs, but it also put in place the rudiments of a modern welfare state. It was an agreement with big business as well as a never-before-seen base for unions that could now better defend workers’ interests. This
was a winning combination. Thanks to free trade, America’s corporations created and captured more and more wealth throughout the world. And thanks to the Great Safety Net at home, that prosperity turned into more economic security and distributing wealth to the many rather than holding it entirely in the hands of the few.
The origins of today’s anti-trade mood go back to 1971, the year that marked the end of the Bretton Woods international monetary system. Advised by the likes of John Connally, then Secretary of the Treasury, Richard Nixon decided to suspend the convertibility of the dollar into gold[310]. The outcome of what came to be known as the ‘Nixon Shock’, a direct reaction to speculative market pressure against the dollar, was the end of stability in exchange rates, increasing uncertainty when it came to international trade.
Until that period, you could be forgiven for thinking that free trade was the key to widespread prosperity and never-ending expansion. But from the 1970s forward, global competition reached a new level of intensity[311]. Many countries, making the most of US support within the Marshall Plan and lower trade barriers, were busy completing their catching-up process. As they reached levels of performance closer to that of the US economy, global markets became more competitive. US car manufacturers found their match in Japanese competitors producing smaller, more energy-efficient cars. European countries also took initiatives in leveling up their competition with dominant American firms: this was when the Airbus consortium started its long journey to toppling Boeing in aeronautics. The post-World War II global covenant had initially enabled all countries to actively support their national champions. But domestic industrial policy was only tolerated as long as cross-border competition didn’t pass a certain threshold of intensity. With the post-war boom slowing down, competition between firms turned into an entirely different game.
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