The Information Revolution as a Historic Phase Change and the Inevitable Decline of the Nation-State
The world is currently undergoing a “phase change” in social organization as profound and disruptive as the Agricultural and Industrial Revolutions. This is not merely an incremental development or an acceleration of existing trends; it is a fundamental transformation into a fourth stage of human society: the Information Society. The authors argue that this revolution, driven by the microprocessor, is fundamentally altering the megapolitical landscape by making the nation-state—the dominant institution of the modern era—anachronistic and unsustainable. Just as the Gunpowder Revolution made the feudal castle obsolete and shattered the power of the medieval Church, the Information Revolution is now dissolving the pillars upon which the authority of the centralized, territorial state was built. The consequence is not a reform of the state, but its terminal decline, leading to a new era characterized by devolved power, commercialized sovereignty, and the liberation of the individual from the constraints of geography.
To fully appreciate the gravity of this argument, it’s essential to understand the authors’ conception of historical phase changes. They see human history as having passed through three primary stages of economic and social organization. The first, which lasted for 99% of human existence, was the era of hunting-and-gathering societies. These were characterized by small, nomadic bands, minimal property, and a very low return to organized violence. The second stage was ushered in by the Agricultural Revolution. This created sedentary societies, fixed capital (land and crops), and, for the first time, a substantial surplus that could be stolen. This altered the logic of violence, making organized coercion profitable and leading to the emergence of states, armies, taxes, and social hierarchies. This stage lasted for millennia. The third stage was the Industrial Revolution, a transition that began roughly five hundred years ago. Driven by technologies like gunpowder and the printing press, and later the steam engine and the assembly line, it dramatically increased the returns to organizing violence and production on a large scale. This led to the consolidation of power in the hands of the nation-state, the rise of mass armies, mass production, and mass politics.
Now, we are entering the fourth stage, the Information Society. What makes this transition unique and far more disruptive than its predecessors are three key factors: its speed, its scope, and its nature. Unlike the Agricultural Revolution, which unfolded over thousands of years, or the Industrial Revolution, which took centuries to mature, the Information Revolution is happening within a single lifetime. Its impact is being felt almost simultaneously across the globe, rather than originating in one region and slowly spreading. Most critically, its fundamental nature is different. Previous revolutions were about new ways to control and manipulate matter—atoms. The Information Revolution is about the manipulation of information—bits. This shift from the material to the virtual is the key that unlocks its subversive power. Wealth is becoming dematerialized, and commerce is migrating into a new realm—cyberspace—that is inherently global, decentralized, and beyond the effective control of any single territorial power.
This phase change strikes directly at the foundation of the nation-state’s power, which is its territorial monopoly on coercion. For the past several centuries, the state’s authority has been absolute within its legally demarcated borders. It could effectively tax, regulate, and conscript people and assets located within that territory because there was no practical way for them to escape. The Information Revolution shatters this geographical trap. The authors use a powerful metaphor: for the modern state, its taxpayers have been like a herd of cows in a fenced field, to be milked at the farmer’s convenience. Now, with the advent of information technology, “the cows will have wings.”
This “liberation” of the state’s primary resource base manifests in several ways, each of which is a death sentence for the twentieth-century model of government. The most immediate and devastating impact is on the state’s ability to tax. In the industrial era, wealth was visible and immobile. Factories, mines, railroads, and large corporate headquarters were sitting ducks for the tax collector. A large workforce, concentrated in these physical locations, could be easily taxed through payroll withholding. In the Information Age, the primary source of wealth is intellectual capital. It is portable and intangible. A software designer, a currency trader, or a global consultant can earn a high income from anywhere on the planet with a laptop and a satellite link. Their “factory” is in their head. Their most valuable assets are algorithms and ideas that can be stored on a microchip or exist only as encrypted data streams in the global network.
This mobility creates a new and intense form of jurisdictional competition. When the most productive individuals are no longer tied to a specific location to earn their living, they can choose to domicile themselves and their business activities wherever the tax burden is lowest. A government that attempts to impose confiscatory taxes on its most successful citizens will no longer be able to do so effectively; it will simply drive them away. The very concept of “tax residency” becomes fluid and arbitrary. This will force governments to compete for productive citizens by offering better services at lower costs, treating them like customers rather than subjects. The high-tax, redistributive welfare state, which depends on its ability to charge far more for its services than they are worth to its most productive taxpayers, cannot survive in this competitive environment. The authors predict that tax revenues in advanced nations will plummet by 50-70%, precipitating a fiscal crisis of unprecedented proportions.
A second pillar of state power that is crumbling is the control over money. Throughout the modern era, governments have maintained a monopoly over the issuance of currency within their borders. This has been an immensely powerful and profitable tool of expropriation. By inflating the money supply, governments could impose a hidden tax—known as seigniorage—on everyone holding their currency, silently confiscating wealth to finance their expenditures. The Information Revolution makes this monetary monopoly untenable. The emergence of “cybercash”—private, digitally encrypted forms of money—will allow individuals to transact globally without using national currencies. This new money will be unique, anonymous, verifiable, and likely backed by real assets like gold, existing outside the control of any central bank.
When people can choose to hold their wealth in a secure digital currency that cannot be arbitrarily devalued, they will flee from inflating national currencies. The market will enforce a discipline that politicians have always lacked. This “denationalization of money,” as predicted by economist F. A. Hayek, will remove one of the state’s most powerful instruments of compulsion. Governments will no longer be able to finance deficits by printing money or to conduct social policy through monetary manipulation. Only those who are too poor or technologically illiterate to access the global cybereconomy will be left holding the bag of depreciating fiat money.
The third area of state authority to collapse is regulation. A state’s regulatory power is coextensive with its territorial reach. It can dictate labor laws, environmental standards, or financial rules for activities that occur within its borders. But in a globalized cybereconomy, these regulations become largely unenforceable. A business can be incorporated in the Bahamas, have its accounting done by a firm in India, and sell its products to customers in Germany, all orchestrated from a laptop on a beach in New Zealand. Which country’s labor laws apply? Which country’s financial regulations govern its transactions? The answer is: whichever the business chooses. Businesses will be able to route their activities through the jurisdictions that offer the most favorable regulatory environments, creating a global market that relentlessly punishes over-regulation. The ability of nation-states to engage in social engineering or protect favored domestic industries through regulation will be fatally undermined.
To illustrate the historical magnitude of this collapse, the authors draw a powerful and extended analogy between the decline of the nation-state today and the decline of the universal Catholic Church at the end of the Middle Ages. For five centuries, the Church was the predominant, overarching institution of European society. It held a monopoly on spiritual matters, was the largest landowner, operated its own legal system (canon law), and levied its own form of taxes (tithes). By the late 15th century, however, it had become, in the authors’ view, “senile and counterproductive”—a bloated, corrupt, and extractive bureaucracy that was a drag on the emerging commercial economy. Its doctrines, such as the prohibition on usury, and its endless holy days hampered productivity. Its sale of indulgences was a transparently corrupt revenue-raising scheme. Popular resentment against the clergy was widespread.
Into this decaying system, a new technology was introduced: the printing press. Printing was the first technology of mass production, and it shattered the Church’s monopoly on information. It made the Bible and, more subversively, the heretical tracts of reformers like Martin Luther, available to a mass audience. It made heresy cheap, easy, and widespread. It broke the Church’s intellectual authority and provided the tool for a “Reformation” that ultimately destroyed its universal monopoly. New, more “efficient” forms of religious organization—the Protestant denominations—emerged, competing for the allegiance of believers. They offered a more direct path to salvation, with less overhead, fewer intermediaries, and doctrines more compatible with the new spirit of commerce and individualism.
The authors argue that we are witnessing a secular version of this Reformation today. The nation-state is the senile, universal institution, and the internet is the new printing press. The state has become an overgrown and inefficient bureaucracy, imposing crushing tax burdens and counterproductive regulations. Its legitimacy is eroding, and popular contempt for politicians is at an all-time high. The internet and strong encryption are the new technologies that are breaking the state’s monopoly—not on spiritual salvation, but on protection, regulation, and control of assets. They allow individuals to escape the state’s jurisdiction, to manage their own affairs in a new, sovereign realm, and to choose their providers of governance on a competitive basis. The result will be the collapse of the state’s monopoly and the rise of new, competing forms of sovereignty.
In sum, the argument is a sweeping indictment of the nation-state’s viability in the face of a technological revolution. It is not a political critique, but a structural one. The authors are not arguing that the state should wither away, but that it will wither away because the megapolitical foundations upon which it was built are being systematically destroyed by the microprocessor. The very attributes that made the nation-state so powerful in the industrial era—its large scale, its territorial grip, its centralized control—are becoming its fatal weaknesses in the Information Age. The transition will be a time of crisis and chaos, but the outcome, in their view, is preordained by the new logic of violence and the irresistible efficiencies of the emerging cybereconomy. Power is devolving, and the age of mass, centralized, coercive government is coming to an end.