Network States and Nation SPACs, or Westphalia Redux

The Ratification of the Treaty of Munster, Painting by Gerard Ter Borch (1648)

The title of this piece is of course a play on The Peace of Westphalia, the name for the two treaties signed in 1648 between various delegations representing the micronations and provinces of Europe. The Peace of Westphalia brought into being the concept of the sovereign nation state. One that has a monopoly on state violence and is not subject to a supranational authority (such as the Pope). Much of what we take granted today as the rights of the nation state, and its independence from a transnational authority, comes from the Westphalian Treaties.

Nearly 375 years hence, it is time to reimagine the Westphalian peace. The near universal internet, the inexorable rise of crypto, the zero interest rate regime, the rise of innovative financing mechanisms, all are giving us the ability and tools to reimagine the nation state, and give us a new grammar for nation-building and nation-creation.

Now historically the emergence of any new nation has been marked by bloodshed and violence (there are exceptions like Singapore where there was much angst but little violence). But thanks to tools such as crypto, SPACs etc., we have the ability to create new nations with minimal violence.

The Network State

One version of this nation state is the Network State that polymathic thinker and intellectual provocateur, Balaji Srinivasan, has written on in his extraordinary recent essay — ‘How to start a new country’. This isn’t a new topic for Balaji — it is one he has been covering in several recent podcasts and interviews. See these tweets for instance.

Per Balaji, a network state begins as a grouping of likeminded people rallying around a common set of interests and principles online, who then organize themselves into an online community, and then network / string together the enclaves or houses they live into a cloud country, and then gradually explore settling into a contiguous geographical unit. Balaji prefers that the community organize itself as a cloud community first, and then worry about land.

Remember, Israel and Pakistan, two nation states that emerged in the first half of the 20th century, followed much the same script as Balaji details — emerging as virtual communities dispersed across the world (in Israel’s case) and across South Asia (in Pakistan’s case) who then canvassed to win a defined geographic region.

The Network State is an elegant construct, especially for the fact that it bypasses all the attendant challenges of cobbling together land, and the political troubles that come with creating a new geographical entity. Given that we are increasingly living online, and spending the majority of our working hours online, an online-only nation to begin with is a clever hack.

But the Network State is, I believe, only one of the two ways to create a neostate or new nation state in todays’ world. The other is the Nation SPAC.

Nation SPACs

An extraordinary confluence of trends and developments –

- the near universal internet and the ability it offers to coordinate moves (from democratic movements as in Hong Kong to r/WallStreetBets)

- the rise of large private fortunes and the ability it offers to influence smaller nation states

- the depopulation and decline of tax base in many Western and Eastern European countries

- the rise of global warming which makes previously uninhabitable regions hospitable for life

- the rise of crypto which makes it easy to mint a new currency, and finally

- the rise of instruments like SPACS, Crowdfunding etc that can be used to raise monies

…all lead me to believe that we will start seeing the emergence of what I call Nation SPACs. Just as we are seeing the creation of SPACs (Special Purpose Acquisition Companies), which are entities that raise money (anywhere $1b to $20b or even larger), list themselves on the market, and who seek to buy other companies (thereby merging and listing these entities), we will see the emergence of Nation SPACs.

Nation SPACs are regular SPACs as we know it, only that instead of buying another company, they will seek to negotiate to buy large pieces of land from another country to settle the ‘citizens’ or shareholders of these Nation SPACs to create a neostate. These are effectively country-building projects, raising funds from 1–5m ‘citizens’ who vest power w the SPAC CEO to hunt for a geographic enclave where they can settle down.

As a hypothetical example let us say that a group of politically liberal Hong Kong-ers raise US $50–100b via a SPAC to set up a micro nation state. The SPAC hunts for potential geographies — they could openly announce they are looking for land, similar to how Amazon encouraged US States to offer sites for HQ2 — or they could privately approach governments to lobby for land. In turn for the land, they could offer a US $25–50–100b price and a certain percentage of the tax that they levy.

This could appeal to countries that are seeing depopulation and declining tax bases such as Bulgaria for instance.

There could possibly be many other examples as well. Some of the Balkan countries too have similar depopulation. Then there is the prospect of Global Warming which could open up the Arctic and Antarctica for settling down.

Soft Independence

It isn’t necessary that this new nation state or neostate have full independence and sovereignty the way say India or US has. Let us stick with the hypothetical Bulgaria example and believe that a small city on its depopulated Northern coast has been sold to the SPAC. Now this city state / micro nation could be organised as a dependency, protectorate or a suzerainty. In all of these three constructs, the nation state has significant internal political autonomy, but not full or hard independence (e.g., it cant wage war or keep an army). Call this soft independence.

A spur to these nation-building is what I feel as the unbundling of citizenship. Historically citizenship meant a full bouquet of rights — including voting or whatever participation in law making the country provides and obligations such as paying tax etc. We are beginning to see a dilution in this definition, e.g., the unbundling of these rights and obligations and new definitions or variants of citizenship. For example, Singapore has an immigration status called Permanent Residency or PR which allows you to stay, obliges you to pay tax, but doesn’t allow you to vote in elections or stand for public office.

We could have similar lighter definitions of citizenship baked into the constitution of this microstate. In the hypothetical Bulgarian city that becomes a nation state there could be a variety of rights and obligations between Bulgaria and the nation state. In return for paying tax and pump priming the economy, all law and order (or defence) will be governed by the mother state. And so on.

Nations as Kickstarter Projects

Cut to 2100. A child who turns 16 (or any adult citizen) could chose to transfer his citizenship to a network state or even sign up to one of many SPACs to found a nation state. Perhaps nations will be akin to kickstarter projects then.

Just as it is hard for someone born in the 16th century to understand how little religious beliefs and identity matters today, similarly in 75–100 years, I believe that the importance of national identity will matter much less. People will pick and drop their citizenship (like skins in a role playing game), decoupling their destiny and trajectory from that of the nation state they were born in, so as to better realise and fulfil their potential.

‘VC’ at Blume Ventures, an early-stage fund from India | Writings on startups, venture capital & other miscellany at sajithpai.com