Government isn't disappearing. It's being disintermediated.
Last September, the creator of modern Malaysia, Prime Minister Mahatir bin Mohamad, stood before the World Bank's annual meeting in Hong Kong and cursed George Soros and currency traders everywhere. Mahatir demanded that the assembled politicians and financiers stop Soros and his ilk from ever again selling short the economic plans of a developing economy. His audience merely fidgeted. Nobody is in charge, they muttered, not Soros and certainly not us. Governments don't govern; they are only players in the markets - and decreasingly powerful ones at that.
That is the new consensus: the state is withering away. But like most tales told by politicians, it is not really true. Government may not be growing as fast as it has in the past, but it is certainly not shrinking. Even as they pay lip service to market forces and empowered citizens, governments are in fact spending more and regulating more. Old habits are hard to break.
In a recent survey of the world economy, The Economist's Clive Crook examined official spending in 17 rich, developed nations. Between 1980 and 1996, governments at all levels increased their share of the economy in all but three countries - the UK, the Netherlands, and Ireland. Even in the United States, during 16 years of Reagan-inspired government bashing and market promoting, government spending still grew from just under 32 percent of the economy in 1980 to just over 33 percent in 1996.
As at home, so abroad. Global markets limit the effectiveness of national regulation. But even as they whine about their own powerlessness, politicians are busily erecting new global regulatory machinery, covering everything from the rules of world trade and copyright to global warming. And who controls access to global regulators? Why, national politicians, of course.
This is why the next five years will be so tumultuous. Politicians are extending their power even as they say they are retrenching. But as they do so, they are in fact undermining their own authority. The problem isn't the old one: saying one thing and doing another. Lying never hurts politicians as much as politicians say it should. The real problem is that national politicians are moving outside the realm of their own competence. The longer they lie about that, the harder they'll fall. And when they do tumble, they will redefine the notions of fairness that are the raison d'être of the modern nation-state. To see why, start with the global economy.
Governments can no longer define the rules of competition. The US now exports 20 percent of its manufactured goods, up from 5 percent in 1960. In the UK and Germany, manufactured exports have doubled to two-fifths of production over the same period. And the growth of global finance has outstripped even the growth of trade. The average weekly turnover of foreign-exchange markets now exceeds the value of goods traded internationally in a year.
But nations manifestly still do control access to the fast-growing international economic regulatory system. In every branch of regulation, global networks of professionals are starting to subsume work previously done by governments alone - the World Trade Organization, the World Intellectual Property Organization (WIPO), the Kyoto conference on global warming, and networks of financial regulators both formal and informal. South African and Israeli judges now cite the US Supreme Court in their decisions.
Anne-Marie Slaughter, a professor at Harvard Law School, argued last fall in Foreign Affairs that this new "transgovernmental" system in fact constitutes "the nationalization of international law." The representatives to international regulatory bodies are all effectively nominated by national governments, and usually bound to a single "national" position. International agreements get legal force only through their incorporation into national law.
The weakness at the heart of this new order is that the interlocking trading relationships that draw governments onto the world stage in the first place also make it more difficult to define a single, coherent national interest. And that makes inevitable increasing collisions between officials and the powerful private interests they ostensibly represent. At the WIPO conference on digital copyright in Geneva in December 1996, for example, the staunchest opposition to the US government's position came from US companies - whose lobbyists helped cobble together an alliance of developing nations to defeat Washington's proposals.
Rather than suffer regulation without representation, corporations and even wealthy individuals become diplomatic players themselves. Bill Gates pays a personal visit to Boris Yeltsin to talk about software piracy - and maybe drop a few hints about the availability of Russian-language versions of Windows 98. George Soros finances a grassroots campaign to promote cyberdemocracy in Eastern Europe. Disney hires Henry Kissinger to catch flak from China over movies about Tibet. And Ted Turner promises US$1 billion to help the United Nations promote global development.
Power is diffusing. Not only are there more players in the global game, but they gain their right to play for different reasons. Companies now constitute 51 of the 100 largest economic entities in the world. That wealth makes them diplomatic players. So can technology, traditional political power, and, sometimes, simply the ability to broker new compromises among other players. For now, all the players officially work through nation-states. But there is no reason that the wealthy new arrivals should be forced to wait in the corridors of power forever. As overseas, so at home.
Two pieces of research from the British elections of 1992 sum up the dilemma of the modern welfare state. One poll, seized upon by the Labour Party, found that most Britons would be willing to pay higher taxes if doing so would improve education, health care, and social services. A later piece of research conducted by the Tories - who won the election - found that people did not really believe that government was capable of improving education, health care, or social services, no matter how much money it spent. The problem was not cash, but competence - which is why Labour's Tony Blair, having won the 1997 election, has promised not to raise taxes, but to reinvent government instead.
The same problem plagues the United States. Harvard's Martin Feldstein calculates that the average US citizen can expect a return on Social Security payments that averages about 1.5 percent a year. If the typical person invested the same amount on their own, the expected return would be somewhere between twice that (the long-term average return for US Treasury bonds) and 10 percent (the long-term stock-market average). So why should the middle classes be forced to give government increasing shares of their income to do inefficiently things they can better do themselves?
Reformers like Tony Blair and Al Gore answer that question by promising to use technology to transform government into something dynamic, efficient, and effective - just as technology has already transformed private companies. But there is a reason that governments employ bureaucrats: to make people follow rules. Being "fair" to all - indeed, the very definition of fairness - lies in having everybody follow the same rules. Companies can, and do, encourage workers to "throw away the rule book" and "do whatever it takes." Governments - lawful, democratic ones, anyway - can't. They exist precisely to make the rule books.
Ironically, the very success of governments at monopolizing rule setting is gradually corroding their legitimacy. Fewer and fewer people want to play by the rules - not because they don't care for their fellow citizens, but because they feel that government is hidebound and inept. If "government of the people, by the people" means anything, then government is itself a medium, a way of expressing the popular will. If people can do better for themselves, then government should be disintermediated - and this, indeed, is happening. Thousands of Americans have joined NetDays, pulling donated fiber-optic cable into their own children's classrooms. In Britain, Tony Blair is planning a national Grid for Learning to improve British schools, based on the Net and with private-sector help. In New York City, welfare agencies have enlisted churches to bring moral fervor to the fight against inner-city drugs.
Most politicians, though, instinctively resist do-it-yourself welfare and corporate diplomacy. They play on citizens' fears, insisting that the state address every need and grievance. This approach is remarkably effective; it has kept the state's influence growing, even as officials pledge to cut back. But it is also doomed. National government is no longer the best - or even a very good - instrument for delivering fairness. It no longer brings the right people to the table to deliver consensus, and lacks the tools to deliver results.
There are two ways the story can end. One is a new medievalsism: a jumble of overlapping centers of power - governments, corporations, individuals, whatever - each begrudging the other across a range of shifting alliances. It is a freer and more entrepreneurial place, but a more divided and less secure one.
A second possible future is a secular reformation. In the 16th century, Martin Luther and the printing press enabled people to forge a direct relationship with God without going through a priest. In the 21st, the Internet may enable people to govern themselves directly, without bureaucrats. Whatever nation-states no longer do, they will still have immense power in spreading the word - that is, providing the information people need to govern themselves. Instead of national curricula to improve education, governments can provide information on local experiments in education reform. Instead of Social Security schemes, they can provide tools to let even the most helpless individuals invest for themselves. Instead of mandating equality, governments can highlight inequality and work with those who have the means to alleviate it. Instead of claiming sole right to negotiate international law, they can try to build more truly representative forums. Instead of shipping development aid overseas, they can help create networks that link the developing world directly to leading-edge companies and universities.
If national governments do accomplish these things - and some are starting to - actual implementation of policy migrates away from national government. Some institutions - social services, for instance - move naturally toward local government. Others, like the regulation of competition, move to international bodies. But all can see what the others are doing - and debate whether it is fair and how it might be made more effective - because national governments are committed to using the new technologies of networked communication to create a whole. Communication alone can make that process greater than the sum of its parts.
