The Technology of Freedom

Wriston, Walter B.

2007

"People who think about social change in traditional political terms cannot begin to imagine the changes that lie ahead. Conventional reformers cast their programs in terms of national policies, or in terms of laws and central planning. But in the end, what will shape the future is a creative potential that inheres in the new technologies (of freedom)." --Ithiel de Sola Pool (1983)

Many of the histories of the world mention in passing great technological inventions that appeared during the period under study, but seldom relate the events of the time to any invention. It is as if science and technology are exogenous to the human saga. An exception to this generalization are the inventions that influence wars, like the introduction of cannons in 14th century Europe and much later, the use of dynamite. Sometimes the inventions are very simple and yet have far-reaching social effects. The great historian, Barbara Tuchman, tells us how the invention of a chimney changed society. "As distinct from a hole in the roof, these chimneys were a technological advance of the 11th century that by warming individual rooms, brought lords and ladies out of the common hall where all had once eaten together and gathered for warmth, separated the owners from the retainers. No other invention brought more comfort and refinement, although at the cost of a widening social gulf."[1]  In short, the lowly chimney made privacy possible, and all of the societal changes that flowed from that concept.

Although a little more complicated than a chimney, when Jacob Perkins put together a coil, a condenser, a fan and a motor in 1834, he produced the forerunner of a modern air-conditioner, an invention which changed not only American politics, but the industrial map of the world. At the time Alexander Hamilton made a political trade for having the Federal Government assume the debts of the states, the price was to move the capital from New York to Washington with a stop in Philadelphia. Then, as now, Washington was almost unlivable in the summer months, and indeed President Jefferson moved to Monticello for two months each summer and Congress was adjourned. Today air-conditioning allows our Government to operate 365 days a year. Whatever one may think of this, few would deny that it has had a profound effect on the very nature of Government. Air-conditioning also made it possible to turn many tropical lands into economic powerhouses. Both of these events are examples of the unintended consequences of technological advances.

The technology we are talking about today is a good deal more complicated than either air-conditioning or chimneys, and has had and is having a profound effect on the way the world works. Indeed John von Newman, one of the great computer pioneers, expressed the belief that technology increases the rate of change not so much by shortening the time line, but by broadening the areas affected- political, economic and social. Actually it does both. The marriage of the computer to telecommunications has created a difference in kind and not just in degree. It has touched a great many aspects of our life, not the least of which is the relationship of one government to another, of the citizen to the government, and of nationalized industries to the private sector.

To some extent we are all prisoners of our own experience. Not long ago I spoke to the students at the University of Texas in San Antonio, and as I was walking out onto the stage, the President whispered to me, "Just remember that none of these students were alive when President Kennedy was shot." It was a sobering reminder that one's concept of the relationship of the present to the past is not always a shared vision. Each generation tends to think what it inherited has always been there. And so it is with the nation-state, a fixture in our lives, but in historical terms a relatively recent invention, cobbled together from the city states which wielded all the economic power. Indeed the city states in what is now Italy initially rejected the idea of unification. In the words of the historian Brudel "...a gulf developed between nation-states on the one hand, the locus of power, and urban centres on the other, the locus of wealth."[2]  Originally the concept of a "nation" and of the "state" were quite separate. Indeed it was our own Alexander Hamilton who was among the first to link the concept of the nation, the state, and the economy to support his argument for a strong central government. This linkage achieved its ultimate strength when Hitler used the word "Volk" which means both people and the nation, and combined it with "Reich" in his famous phrase "Ein Volk, ein reich, ein Fuehrer." Today, as we enter the millennium some scholars have written that "the history of the world...can no longer be contained within the limits of "nations" and "nation states" as these used to be defined, either politically, or economically, or culturally, or even linguistically."[3]  While there are always many factors contributing to a given result, I would argue that one of the most powerful forces contributing to the twilight of national sovereignty and the expansion of freedom is the new information/network economy we are now entering. The design of a network disperses power from the center to the periphery because more and more people have access to information that was once closely held. Since a network has no center of control and few if any boundaries, it is very difficult for a state to control it.

The political governance of the nation created a legal framework for society, but it also created many of the barriers to economic growth and commerce. Foreign exchange controls, capital controls, state-owned banks and enterprises are all man-made impediments. While the accident of being born in a particular location created certain opportunities tied to geography, the great transnational corporations learned to overcome geographic barriers by building from within political boundaries. As the world goes digital, and broadband availability explodes, the cost of transmitting information of all kinds moves toward zero. This sea change allows today's enterprises to integrate their activities globally in a way never before possible. Not only business, but other institutions from medical centers to universities can no longer define scope by national borders. This new economic model is like a huge overlay over the old political model.

The fallacy of national centralized planning and control is writ plain, and although politicians may mourn their loss of power, if they don't want their country to fall hopelessly behind in economic development, they must dismantle controls and open their borders. Once the barriers come down the nation is flooded with new ideas and products. Since there are now global markets in money, in information capital, in a steadily growing portion of the world's products and services, and even in human intellect--all utterly dependent on the new world communications network--no nation can hope to prosper in the future unless it is fully hooked up to the network and its citizens are free to use it.

A nation can walk this path to prosperity only if its government surrenders control over the flow of information. In the world we are building today it is almost impossible to assert sovereignty over information because information and the pathways over which it travels, including the heavens themselves, are shared in common. The sovereign can, at enormous cost, cut the nation off from some of those shared pathways by blocking the repatriation of foreign capital, by shutting down the international phone circuits, or shooting anyone caught with a fax machine, a radio, or a tiny satellite dish. Even then he cannot succeed entirely, because it is virtually impossible to block all pathways. It is worth remembering that the proximate cause of the impeachment of the President of the United States was information posted on a Website by a writer all but ignored until then by the main stream press. With millions and millions of Web pages it is harder and harder to hide malfeasance.

For centuries the sovereign was able to exert control over what news a government released. In the "Road to Serfdom," Hayek wrote that "If all the sources of current information are effectively under one single control, it is no longer a question of merely persuading the people of this or that. The skillful propagandist then has power to mold their minds in any direction he chooses, and even the most intelligent and independent people cannot entirely escape that influence if they are long isolated from all other sources of information."[4]  All rulers understand this with great clarity. Indeed in the American Colonies, one needed a license to own a printing press. The first two newspapers in Boston, the "News-Letter" and the "Gazette," "announced on their mastheads that they were printed by authority - that is, their texts were read over and approved by the Governor...before publication..."[5]  It was not until September 1725 that "Printed by Authority" was dropped from their mastheads. Governments were aware that the printing press turned a theological dispute in a small German province into an enormous movement called the Reformation. In addition to its religious connotations, power shifted from the monasteries, whose monks had a steady stream of income from copying manuscripts, to the private printer guilds which could produce books in volumes never before seen. This lesson has not been lost on political leaders. When Woodrow Wilson went to Paris to negotiate the Treaty of Versailles he ordered his postmaster-general to assume control of all transatlantic cables in an attempt to control the news. One can contrast that with the fact that what was perceived as one of the greatest powers in the world, Soviet Russia which made an art form of controlling information was forced to change its public statement about the nuclear disaster at Chernobyl when pictures from the privately owned satellite SPOT began to appear in the world press. Indeed, in many ways the actions of governments are more and more exposed to view and thus to criticism and second guessing. Indeed spin control has replaced censorship, but the pathways on the Net are now so diverse even that can be by-passed.

For centuries the sovereign held a near monopoly on secret writings of all kinds that often were the province of the military. All this began to change when the Internet gave almost anyone the ability to communicate with anyone else, and people began to look for a secure way to do so in a timely manner. We have always valued the privacy of the mails, and with the explosion of E-mail all the computer nerds who understood mathematics jumped into the fray to make transmissions on the Net secure. It didn't take long before RSA a fairly secure cipher was free goods on the Net. The U. S. Government made futile attempts to block its use, but the Net knows no borders. The basic system of public key cryptography was indeed invented by two men working for the British Government, James Ellis and Clifford Cocks in the 60s. The people in charge thought that public key encryption sounded like an oxymoron and never authorized its use. Like many inventions it was rediscovered in 1976 by Whitfield and Heillman. A year later three MIT mathematicians implemented the theory and developed the RSA algorithm. When all this was published, it effectively broke the monopoly of the sovereign and turned crypto from an exclusive tool of state secrecy to one of insuring individual privacy. Indeed public key encryption now protects the individual against the state instead of the other way around. While the people at NSA can still work magic with their massive computer power, ordinary citizens by enlarging the key groups make their work harder, almost to the point of impossibility. All of these things, together with digital signatures, put more power in the hands of the citizen, and tend to limit the power of the state bureaucracy.

While the tendency of any bureaucracy is to grow and protect itself and thus prod creeping socialism along, there is another totally new phenomenon beginning to act as a counterbalance in this country. The number of Americans owning stock has exploded in the last ten years. Some call this group the "equity majority" and others the "investor class," but by whatever name it is becoming a potent political force. Driven in part by a lack of faith in Social Security and in part by two-family incomes and the long boom there has been an explosive growth in Keoghs, IRAs, and 401Ks, and ESOPs. The funds now owned by the 55 million participants in Defined Contribution Plans now total an astonishing $2.2 trillion, of which 70% are invested in equities.[6]  While figures of the Federal Reserve Bank are somewhat out of date, in January 1997 they reported that families owning stock directly or through mutual funds or trusts rose from 32% in 1989 to 41% in 1995. Today most estimates put that number at well over 50% of all households. People who own stocks to provide for their retirement tend to take a dim view of government rules which hurt their investment. Never before in history has ownership of capital been so widespread. So far, neither political party seems to be aware of this enormous block of voters who have a very personal interest in the free enterprise system, nor has either party mobilized this growing barrier against creeping socialism. As de Sola Pool pointed out, politicians are still thinking about social change in old political terms. This new group might be called investment-side politics in favor of supply-side economics. This new equity majority made possible in part by the technical ability of stock exchanges to handle billion-share days is a brand-new phenomenon in America and over time its power will be felt.

The technology of freedom is often in a state of tension with the power of the state, but no path of human freedom has ever been smooth. There will always be setbacks as well as victories. But the Net and the Web will not go away--they will only get better and faster--and so the ideas of political and economic freedom will take root and grow in more and more places. They really do give power to the people.

Socialism, generally defined as government ownership and management of the means of production, will have a harder and harder time surviving in this new world. Not least of its problems is that the means of production have shifted from the corporation to the individual. Indeed, the new economy has altered the traditional relationships of employer/employee in some very fundamental ways. The man in the grey flannel suit has seen his best days. Not many years ago a private- or state-owned company owned the capital invested in the land, the buildings and the factories. The industrial worker's job was dependent on the use of a company- owned machine. Today the knowledge worker owns the means of production which is his or her own skill and knowledge and is totally independent of the company's fixed assets. This gives the work force a mobility that is unprecedented and is reflected in the movement between companies at volumes never before seen. Since all products and services can be duplicated over time, and the progress of technology is moving at flank speed, companies must sponsor lifelong learning as the only way a competitive advantage can be sustained. You have to use talent where you find it. Today software written in India rides the satellite to a building site in Chicago or an accounting firm in New York, or anywhere else in the world. The writer requires no green card, no entrance visa or physical journey to earn his or her money. Immigration laws and quotas become increasingly irrelevant. This phenomenon constitutes a new kind of economic organization and seriously changes the dynamics of how and where people can earn their living. It is possible to have full employment in some remote village even though no businesses are hiring people in that neighborhood, or even in that nation. The new generation coming into the work force is far more comfortable with technology than the current generation--it may be the first time in history that children are authorities on innovation. Indeed some companies have mentoring-up programs where the newly hired are put together with older members of the firm.

All of this is almost the exact opposite of the way a socialistic bureaucracy operates. While the new economy calls for speed, socialism calls for delay. While the civil service represents lifetime job security, the new economy produces an unparalleled churn of employees. While company newspapers for years have intoned that people are our most valued asset, it turns out that in the new economy the care and feeding of innovative talent will make the crucial difference between the quick and the dead. It will be a good time for the small and the agile and a bad time for the slow and the ponderous. This is true because innovation, not the refining of the known, is now the driving force of wealth creation. And innovation is not the hallmark of the bureaucrat. Huge sales volumes are being leveraged from innovative ideas. James Daly has even postulated that "companies will be a collection of smart people who come together for brief periods, then disperse, a model that Hollywood has turned into an art."[7]  Whether companies move this far or not, it is true that all business must design and implement structures that allow them to be quick and nimble. Interconnecting people produce the same kind of leverage as interconnecting desktop computers. Larry Keely put it succinctly when he said: "No one is as smart as everyone." The existence of innovative people organized in a way to exploit and leverage their talents cannot be discerned by studying the balance sheet. The accounts of the Industrial Age are seemingly incapable of measuring the factors of production that will make or break a company in the new economy. We were told to write off software, for example, and to capitalize hardware. It turns out that the Y2K problem is caused by software that in some cases is 20 years old and still running big mainframes. Accountants were unable to visualize an asset like software that they could not feel and touch, so we wrote it off while the hardware we capitalized has in many cases been replaced. Intellectual capital, which is the whole future of business, is now America's greatest asset. The market knows this, that is why Microsoft with trivial fixed assets has a market cap exceeding that of the Big Three auto makers combined.

In addition to nationalized companies' increasing inability to compete in the new global economy, in the last analysis socialism rests on the power of the state to compel people to do things they would not do of their own free will. This use of force goes by many names, but rests on the concept of sovereignty which, according to Jean Bodin who probably coined the word, was what might be called the court of last resort function. The sovereign was himself unrestrained by law because he was the law. As one historian put it, "The law of the land is simply the sovereign's command and accordingly any limitation on the power to command must be extra- legal."[8]  A whole series of checks and balances from the Magna Carta to the American Constitution put severe limitations on this concept, but the most draconian restrictions have been imposed on the sovereign by the information revolution which made many of the sovereign's actions transparent. This has stood George Orwell's vision on its head. Instead of Big Brother watching us, we are now watching Big Brother. The sham elections that were common in some parts of the world in the early 20th century were exposed for what they were. In an action that Bodin could not even have imagined, one nation after another has called in a group of retired Heads of State to observe and validate their own national elections. Former President Jimmy Carter and former Prime Minister Ted Heath have been regulars in this endeavor. This action vitiates the whole concept of unfettered state power.

In addition to this action by some states, whole new virtual communities have been formed to overturn the state's role of court of last resort. The Internet and the World Wide Web have made it possible for people to have what amounts to a global conversation. The implications of the global conversation are about the same as the implications of a village conversation, which is to say they are enormous. In a village there is if not exactly a free and efficient marketplace of ideas, then a rough-and-ready sorting of ideas, customs and practices over time. Certainly a village will quickly share news of any advantageous innovation; and if anyone gets a raise or a favorable adjustment of his or her rights, everyone similarly situated will soon be pressing for the same. And why not? These people are just like you and me, the villagers say. I can see them and hear them every day. Why is our economy so poor when others are thriving? Why should I not have what they have?

The global conversation prompts people to ask the same question on a global scale. In the past the educated elites could read about democracy or free market prosperity. But hearing or reading of such things is not at all like having them happen in your village, happen to people you can see and hear, people just a few streets or broadcast frequencies away. A global village will have global customs. In a global village, to deny people human rights or democratic freedoms is not to deny them an abstraction they have never experienced but the established customs of the village. It hardly matters that only a minority of the world's people enjoy such freedoms or the prosperity that goes with them. Once people are convinced that these things are possible in the village, an enormous burden of proof falls on those who would deny them. People all over the world can now learn of a different way of life that was hidden from them before.[9] 

The natural world runs itself, not always to the taste of some environmentalists, as many species die and disappear as new ones are formed. Similarly, with no central planning a global capital market has emerged--the eurodollar market which represents the greatest floating pool of capital in the history of the world. It is a totally new phenomenon with profound implications both for nation states and for business. Since there is a limited amount of capital in the world and an unlimited number of projects looking for finance, capital goes where it is wanted and it stays where it is well treated. It flees restrictive laws and regulations. This new so-called stateless capital operates in real time, relentlessly seeking the best blend of safety and return and is thus often criticized by those who long for a more orderly and predictable process. Indeed this market has become a giant voting machine, casting its ballots against bad political and economic policies and in favor of good ones. It is what I call the Information Standard, and it operates far more quickly than the old gold standard. Bad economic policies appear almost instantly on the computer screens around the world and exchange rates move and capital flows out. The sovereign is forced by external forces to alter his policies. Recently, the Finance Minister of the new German Government, Oskar La Fontaine's policies were perceived by the market as harmful to the value of the new euro, and he was forced from office. Governments responsible for poor policies naturally want to quarantine themselves from the consequences of their own actions and cry for regulation.

It is true that these massive capital flows can create huge troubles for a nation state with bad economic and foreign exchange policies. But it is also true, as Milton Friedman has pointed out, that no country with a true floating rate policy ever got into a foreign exchange crisis. It is the halfway measures, like a so-called managed float or what used to be called a crawling peg, that create these problems. In any event, the power of the market is now such that it severely limits the power of the state.

The bad news about creeping socialism is that bureaucracies never die, they just transform themselves into new configurations when their original function disappears. Their major objective remains the same, to hold on to and, if possible, enhance their power. Today there are more government workers in the United States than there are employees in the manufacturing sector, and not surprisingly, recent surveys indicate they tend to be in favor of an activist government and against tax cuts.[10]  They were true to what Adam Smith described as "The natural effort of every individual to better his own condition." The good news is that the "equity majority" which now is believed to number 100 million marches to the same music and wishes to preserve their savings and may support pro-growth, free market policies. This growing segment of our population on the side of individual liberty is assisted by technology that enhances transparency and thus shines a light on efforts to reassert socialist programs. As David Brin has written: "We all stumble a lot less if we can see where we are going." The path away from central planning and toward freedom is being illuminated by the flood of information that becomes available and is spread by the global conversations. The unprecedented explosion of private stock ownership is made possible in part by giving everyone access to information that is much better and more current than that obtained by the robber barons in their heyday. All these things we have been talking about put power in the hands of the people, but they do not insure automatic victory for free markets. Only people can do that. What these technologies of freedom do is furnish new and powerful tools to those willing and able to do the job.

 
 
Footnotes:

[1] Tuchman, Barbara W., A Distant Mirror, Alfred A. Knopf, Inc., 1978, p 12

[2] Braudel, Fernand, The Perspective of the World, Harper and Row, 1984, p 288

[3] Hobsbawn, E. J., Nations and Nationalism Since 1780, Cambridge University Press, 1992, p 191

[4] Hayek, F. A., The Road to Serfdom, University of Chicago Press, 1972, p 154

[5] Brown, Richard D., Knowledge is Power, Oxford University Press, 1989, p 41

[6] Data assembled by "Profit Sharing/401K Council of America", Chicago, IL

[7] Daly, James, Business 2.0, Jan. '99

[8] Sabine, George H., A History of Political Theory, George G. Harrap & Co., 1935/1960, p 345

[9] See my book, The Twilight of Sovereignty, Charles Scribner's Sons, 1992

[10] Rasmussen Research's telephone national poll of 6400 randomly selected adults.

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  • The document was created from the speech, "The Technology of Freedom," written by Walter B. Wriston for the Mont Pelerin Society on the 100th Anniversary of the Birth of Friedrich Hayek on 1 September 1999. The original speech is located in MS134.001.014.00007.
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