Data sovereignty. Financial sovereignty. Regulatory sovereignty. National sovereignty.

These loaded terms creep into today’s policy debates across issues and across geographic borders, amplifying increasingly polarized ideological wars within countries large and small.

— Increased control over personal data through permissioning systems (including, but not limited to, distributed ledgers) clashes with government efforts to exert control over and retain access to information in the data sovereignty and data localization debates.

— Policymakers have been wrestling with each other for decades over economic/financial sovereignty issues from the Bretton Woods conference to the OECD debates in 1968 (see this Foreign Affairs article) to today’s Brexit quagmire (see this Atlantic Council post and this this Banque de France speech).

— The cryptocurrency craze provides individuals with the means and ability to “vote with their feet” by choosing alternative mechanisms for exchanging value. The only thing that is certain is that policymakers and central banks will not recede without a fight.

Let’s all take a deep breath. Step away from the rhetoric and hype. Let’s get centered with a little bit of perspective on sovereignty.

This essay sprints through a few hundred years of political theory and technological advances. It closes by highlighting the promise and pitfalls of the sovereignty rebalancing act ushered in by mobile devices and social media.

A Quick History

Merriam-Webster’s primary definition of “sovereignty” contains three parts:

(i) supreme power especially over a body politic;

(ii) freedom from external control; and

(iii) controlling influence.”

Sovereignty is thus the ability to exercise authority without having to obtain the advance consent of another party. In the political context, it describes the authority to articulate and enforce rules by which all people sharing a specific physical geographic area will be governed. As noted in this recent Atlantic Council post, this week's United National General Assembly discussions indicate these issues remain as relevant today as they were in 1648 and 1944.

The Treaty of Westphalia in 1648 ended the Thirty Years War in Europe. It established the foundation for modern nation-states by carving up territories owned by vanquished feudal lords and awarding authority over those areas to the winners. Governance may have been allocated by victory on a battlefield, but rhetoric wrapped the leaders in a mantle of divine selection.

18th century Enlightenment thinkers proclaimed an alternative organizing principle. They were the original decentralizers.

Locke, Rousseau, the American Founding Fathers all shifted the center of sovereignty to the individual rather than a divinely appointed or militarily victorious feudal lord. Their social contract theory asserted that people delegate authority to government in order to address common needs. By 1783, the Treaty of Paris recognized the first government chosen by the consent of the governed: the United States.

By the early 20th century, certain elected populist governments in Germany, Italy, Japan, and elsewhere were giving sovereignty a bad name by carrying out immoral policies internally and generating destabilizing influences externally through attempted territorial conquest. The end of World War II launched the multilateral era with the Bretton Woods Agreements (which created the International Monetary Fund and the World Bank) and the San Francisco Conference (which created the United Nations and the International Court of Justice).

Today, many assert incorrectly that multilateral organizations operate independently of sovereign states. Some bemoan the rise of nationalism and the demise of multilateral authorities, positing a universe where economics and geopolitics operated within hermetically sealed environments. Others, from the anti-WTO riots in Seattle on the left to the ultra-nationalist movements on the right, champion national priorities and reject policies purported created and imposed by unelected international bureaucrats.

When the multilateral era began after World War II, some famously proclaimed that “the age of nations is past.” The full quote was enshrined in a plaque in a building at my college alma mater: “The age of nations is past. It remains for us now, if we do not wish to perish, to set aside the ancient prejudices and rebuild the earth.”

It was a lofty ideal; it was not invented in Silicon Valley in the last ten years. And it was not entirely accurate.

No multilateral organization operates independently from sovereign states. Ever. Governed by boards comprised of sovereign stages, these entities articulate the political will of governments which exercise delegated authority from the populations that elected them (if they have been elected). They are not sovereign; they do the bidding of sovereigns when consensus on the way forward exists.

Note as well that this was never designed to be an egalitarian system. Voting rights allocate more authority to countries with larger economies (the IMF) and to countries with greater geopolitical power at the start of the Cold War (the Security Council veto powers provided to the Permanent Members of the Security Council -- the United States, the United Kingdom, France, China, Russia).

The Distributed Age Returns Sovereignty To The People

Mobile devices empower individuals to exercise more of their sovereignty than in the past.

As noted in this Bretton Woods Committee post and in this Medium post, we live in a Distributed Age in which individuals can organize, pool resources, and take action without the help of elected governments…and without as much compromise as in the past. People can charge forward with pet projects so long as they can find a sufficiently large community of like-minded people or an echo chamber.

Technology thus amplifies the influence of micro-interests and political polarization; social media turbo-charges it without regard to jurisdictional boundaries or election results.

The mechanism may be new but the dynamic was the center of attention in Federalist 10 and Federalist 51, (the full text appears HERE) by James Madison to support ratification of the U.S. Constitution. Consider in particular Federalist 51:

If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself…This policy of supplying, by opposite and rival interests, the defect of better motives, might be traced through the whole system of human affairs, private as well as public.” Federalist 51

The defect of better motives. In other words: even when individuals or groups of individuals (including governments) have good intentions, their collective action may be counterproductive to safeguarding liberty. It is possible to see a tyranny of the minority drive policy.

Madison and his compatriots would have had a field day with the issues raised by social media and cryptocurrency issuance.

Social media and distributed ledgers provide perspective on how truly radical the American and French revolutions were and remain. These technologies operationalize a level of individual choice regarding self-expression and economic activity that challenge existing governance structures across economies and political systems.

It is not all good. The altruism that permeates much of the distributed ledger and cryptocurrency communities does not address sufficiently how technology has solved for the Federalist 51 dilemma. Technology also turbo-charges illicit efforts to interfere with the exercise of personal sovereignty.

—Fake news, disinformation, and hacking of electoral systems pose grave dangers to the legitimacy and effectiveness of the voting process, as noted in this Atlantic Council report.

—In addition, increased reliance on “big tech” platforms requires individuals to surrender ownership of key data points and personal privacy to companies that arguably are far less transparent and accountable than elected governments.

—Ironically, participants in distributed ledgers surrender some personal sovereignty to a centralized algorithm that provides no audit trail and no redress in the event of a mistake or a crash.

—By eliminating audit trails, the technology also creates an inappropriate equality between honest, law-abiding individuals and individuals pursuing a range of illicit, illegal activities (including, but not limited to, terrorists and money launderers).

21st Century Sovereignty

No matter how distributed we all become, the reality is that we must also all share a variety of spaces. Some of those spaces are physical (e.g., roads) and some are virtual (ecommerce). We need spaces for interaction that deliver reliable, safe outcomes. This means we need mechanisms for articulating shared rules that deliver roads that are safe when autonomous vehicles join the driving community and securities markets and banking markets that are safe from scam artists, thieves, and terrorists.

Will people really choose to replace one centralized authority (elected governments, which are temporary and can be removed from office via elections) with an alternative centralized authority (distributed ledgers owned, operated, and managed by unelected private sector companies)?

In order to remain relevant and to continue inspiring the confidence of the governed, institutions like central banks and multilateral organizations like the World Trade Organization will have to evolve quickly.

The value proposition for elected government will have to return to core principles. This will not be easy.

— Promising to deliver public safety sounds nice, but in a technology-powered world going too far down that road leads to repressive central government.

— Promising to deliver liberty and freedom sounds nice, but when people begin articulating hateful speech and get large followings of supporters, going too far down that road leads to censorship from private corporations or governments or both.

--Promising to expand financial inclusion through alternative payment systems and cryptocurrency sounds nice and is a laudable goal, but when a financial panic or inflation hit the system, the automated execution mechanisms hardwired into these systems could easily generate chain reactions that destabilize economies.

There are no easy answers here. Some problems can only be solved by governments if the rest of us want to live in safe environments and free societies. Finding ways to mobilize technology for this purpose while safeguarding freedoms we have come to cherish will be the great challenge of this generation.

An earlier version of this post originally appeared on Medium.


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