The Future of the World System

From Westphalia to Pax Americana

I think its best we begin by defining some terms. Five dollar words can make you feel smart, but only mean something if they have the intended impact.

World System Analysis: the multidisciplinary approach pioneered by Immanuel Wallerstein to understand the history and development of the modern world through its emphasis on world-systems, rather than nation-states.

Hegemony: leadership or dominance, especially by one country or social group over others.

Hegemon: the current political and economic leader of the world system.

Nation State: a contiguous sovereign territory who’s population shares a common history and ideological values.

Multilateral Institutions: formed by three or more nation states which work together on issues of common interest and of global priority. These organizations can finance various projects using funds from multiple governments.

Sovereignty: Sovereignty is the right of a nation or group of people to be self-governing. A sovereign nation is one who’s state and right to self govern is recognized by the other nations of the world as legitimate.

Leviathans: in a Hobbesian sense, Leviathans are a social contract and rule by an absolute sovereign. Hobbes wrote that war and the brute situation of man’s state of nature ("the war of all against all") could be avoided only by a strong, undivided force. The first Leviathan was God, the second Leviathan was the State, and the third Leviathan is the Network.

How did we get here in two minutes or less:

The current world system (known as the Rules Based Order) is a collection of loosely connected sovereign nation states which operates under the leadership of the global hegemon, the United States. It perpetuates itself via the economic system of industrial free market capitalism and is arbitrated by a collection of multilateral institutions such as the UN, IMF, Swift Network, and World Bank.

The Rules Based Order originated in the 1945 due to the unique positioning of the economic and militaristic dominance of the United States, which emerged as a latent function of the results of World War II.

This was the culmination of the trend of “the nation state”, which first began following the 30 Years War in 1618. The 30 Years War was one of the bloodiest conflicts in human history, and essentially began because there were no agreed upon borders in Europe, and serfs were being taxed by several different empires.

The war culminated in the Peace of Westphalia in 1648, after an estimated range of 4.5 million to 8 million people died, with Germany (then the Holy Roman Empire) suffering the loss of approximately 30% of its population.

The Peace of Westphalia essentially invented the concept of borders, which would be agreed upon by other state actors. And so, the sovereign state was born.

The nation state itself emerged as the primary way to organize the world system in the late 19th century as Germany, Japan, the United States, and several others all formalized their official borders and centralized their polities.

Which leads us to World War I, and the end of the Age of Empire. And then World War II, and the beginning of the Pax Americana.

If you want to dive deep on the history of this topic, I did my senior thesis on what I just summarized, which you can find → here.

The Conflicts Which Defined The 20th Century

The 19th century was defined by conflicts regarding colonial structures, such as the triangular trade, the chattel slavery which was an integral part of that trade, and empire as a way of organizing the world system.

By the end of World War I, those systems had largely been replaced by industrial free market capitalism vs mercantilism, nation state vs empire, and liberalism vs monarchy. And the Leviathan of God had largely been replaced by the Leviathan of the State. Theist religions were replaced by humanism.

The conflicts which shaped the 20th century were defined by the arguments about what “humanism” meant.

The United States promoted the idea of Liberalism: people have distinct internal voices and unique experiences, necessitating the need for personal freedom. The voter and the consumer are always right because their individual experience is what matters most.

The Soviet Union promoted the idea of Communism: humanity is a collective. Rather than privileging each person individually, it looks to benefit humanity as a whole. It values equality of humans: economically, politically, and ethically.

Nazi Germany promoted the idea of Evolutionary Humanism: and saw humanity as a mutable, changeable species. We are subject to evolution and therefore degeneration or improvement over time. Evolutionary humanists seek the preservation and improvement of humanity into superhumans or gods.

As abstractions, you can’t really argue with any of these ideologies. They all seem reasonable. It’s only when they’re put into practice do you see the results of such ideologies.

The Truth Wins:

Truth is always beneficial in the long term. Copernican theory led to satellites. In the short term though, you might have been burned at the stake.

During his trial for suspicion of heresy, Galileo chose his words carefully. It was only after the trial, angered by his conviction no doubt, that he was said to have muttered to the inquisitors, “Eppur si muove”(“And yet it moves”), as if to say that they may have won this battle, but in the end, truth would win out.

This is the paradox of a free society. If it’s really free, it may allow ideologies to flourish that result in violence, inequity, or the suppression of truth.

But in the end, facts really do matter because a system based on facts will, in the medium-to long term, have more favorable contact with reality and therefore, more technological and economic strength.

That last bit is critical. The reason the US eventually beat the Soviet Union is because Communism requires more lies to continue to exist. The Soviet Union had to make up factory production numbers. As such, supply chains didn’t work, which meant factories didn’t produce what they had projected, which meant people starved, which meant propaganda had to be made and dissenters silenced.

Holy lies, like the ones that animated the Soviet Union, unfortunately work surprisingly well in the short term, because you can bully or trick people into conforming with them.

But in the medium-to long-term, they don’t work. You become poorer as a society. You’re screaming these holy lies, but it doesn’t matter because other societies who found the real truths have exceeded you technologically and economically.

The ideas of evolutionary humanism, which were tried in the 1930s and 40s by Nazi Germany and Japan, did not survive extended contact with reality.

The idea of communism, which was tried by the Soviet Union and the People’s Republic of China, while more resilient, did not survive extended contact with reality.

At the Third Plenary Session of the 11th Central Committee of the Communist Party of China in December 1978, the then leader of the CCP, Deng Xiaoping, led a series of economic reforms.

These reforms, similar to the ones Mikhail Gorbachev would lead only a few years later, involved the incorporation of capitalist elements into China's communist system. These reforms led to significant reductions in poverty. It’s estimated that several hundred million people were lifted out of poverty as a result of these reforms.

Deng's policies, which included opening China to the outside world and allowing for elements of private ownership and market forces, contributed to substantial economic growth and poverty reduction in the country.

If that’s true, why does communism keep arising over and over again?

If communism was proven to been ineffective over the long term, why does it keep re-emerging in different forms? The de-growth movement, ESG, and Effective Altruism are all modern day reflections of communism.

Communist North Korea and Capitalist South Korea from space

One way of answering this question is that appealing to a communist or social justice argument is the easiest way to become a leader. You can always find some unjust axis and start agitating that issue. Conflict gets attention, and attention is currency. If you’re shameless, you can level up easily. Communism is the lowest-skill way to put yourself at the head of a mob. This and variants on it, like demagoguery, will work in almost every country in the short term.

The Conflicts of the 21st Century

If the Leviathan of the 20th century was the State, and the conflicts of the 20th century were based around what humanist software the State should run, the conflicts of the 21st century will be similar.

The Leviathan of the 21st century will be the Network, and the conflict will be between the State and the Network, and how we begin to organize ourselves on that Network.

In the 1800s you wouldn’t steal because God would smite you. In the 1900s you didn’t steal because the State would punish you. But in the 2000s, you can’t steal because the Network won’t let you.⁴⁰ Either the social network will mob you, or the cryptocurrency network won’t let you steal because you lack the private key, or (eventually) the networked AI will detect you, or all of the above.

Put another way, what’s the most powerful force on Earth? In the 1800s, God. In the 1900s, the US military. And by 2050, encryption. Because as Assange put it, no amount of violence can solve certain kinds of math problems. So it doesn’t matter how many nuclear weapons you have; if property or information is secured by cryptography, the State can’t seize it without getting the solution to an equation.

-Balaji Srinivasan

Is Your Leviathan a Player or a Reactor? 

Islam, Christianity and other traditional religions are still important players in the world. Yet their role is now largely reactive.

In the past, they were a creative force. Christianity, for example, spread the hitherto heretical idea that all humans are equal before God, thereby changing human political structures, social hierarchies and even gender relations.

In his Sermon on the Mount, Jesus went further, insisting that the meek and oppressed are God’s favorite people, thus turning the pyramid of power on its head, and providing ammunition for generations of revolutionaries. In addition to social and ethical reforms, Christianity was responsible for important economic and technological innovations.

The Catholic Church established medieval Europe’s most sophisticated administrative system, and pioneered the use of archives, catalogues, timetables and other techniques of data processing.

The Vatican was the closest thing twelfth-century Europe had to Silicon Valley. The Church established Europe’s first economic corporations – the monasteries – which for 1,000 years spearheaded the European economy and introduced advanced agricultural and administrative methods.

Monasteries were the first institutions to use clocks, and for centuries they and the cathedral schools were the most important learning centers of Europe, helping to found many of Europe’s first universities, such as Bologna, Oxford and Salamanca.

Today the Catholic Church continues to enjoy the loyalties and tithes of hundreds of millions of followers. Yet it and the other theist religions have long since turned from a creative, into a reactive force.

The State is slowly becoming a reactive force as well, rather than a creative force. In the 20th century, the US government was a huge player in the innovation of first the computer and then semiconductors at Bell Labs. They funded the creation of the Internet through DARPA, and NASA put twelve men on the moon.

Today, generative AI is being spearheaded by private companies like OpenAI, Anthropic, and Meta. SpaceX and Blue Origin are the ones innovating in the space sector, and Ethereum and Bitcoin are entirely decentralized platforms, which aim to be the world computer and the world reserve currency, respectively.

The State is largely becoming a reactionary force, rather than a creative one.

When a company announces a new contraceptive, the Pope reacts to it.

When a company announces a new technology, the State reacts to it.

Neither is innovating or shaping reality anymore.

When genetic engineering and artificial intelligence reveal their full potential, liberalism, democracy and free markets might become as obsolete as flint knives, tape cassettes, Christianity and communism.

A Butterfly Flaps Its Wings

History is not set in stone. Our future is determined by the choices we make today, and the intentions from which we make those choices.

A good way to think about this is counterfactual history. How could things have been different? History would have been better if Lincoln had survived. History would have been worse if the Cuban Missile Crisis turned out differently. These are both counterfactuals. 

So that being said, we have to examine the nature of the nation state, and whether it will continue to play a role as a creative force in the World System, or whether it will become a reactionary force to non-state actors, such as tech companies. 

As discussed, the nation state as a system emerged because sovereigns couldn’t agree on borders. A bloody war was fought and at the end, the concept of hard and fast borders emerged. Fast forward to the 19th century, the nation state emerges as the primary way to organize a state, based on geographically concurrent areas of land, aligned values, and shared history. 

But today we are seeing the fragility of the nation state. To use the United States as an example, the federal government is not enforcing the concept of hard and fast borders, the nation is not ideologically aligned, and seems to no longer have a shared history.

Derrick Bell, Kimberlé Crenshaw, and Ibram X. Kendi’s contributions to critical race theory have created a diametrically opposed narrative to the shared history of the United States. The latter having traditionally emphasized the liberal values of individual experience and personal responsibility, rather than homogenizing the experiences and perspectives of people within racial groups. Such a perspective is more consistent with the tenants of collectivism and communism, than it is liberalism.

Furthermore, the US federal government, and by extension the nation state, has largely become a reactionary force.

The Federal Reserve was taken by surprise as rising inflation occurred in 2021 and had to react and over correct.

The State has been forced to react to the emergence of Bitcoin, both in China and the United States. 

They don’t really know what to do with AI, and are unsure whether to regulate it or not.

No one in Congress seems to understand how to run an effective enterprise, continuing to authorize spending plans without the need for a true budget, and allowing deficits to skyrocket to $34 trillion dollars.

The good thing about democracy is its slow. The bad thing about democracy is its slow. It seems our current system is not fast enough to adapt to the breakneck pace of innovation currently occurring.

The systems of government are hamstrung by “political debt” and seem unable to make simple, common sense decisions like securing the border, defining American values that align with voters and consumers, and agreeing on shared history. 

This begs the question: has the nation state become a reactionary force?

And will a new force emerge in the global world system and begin to take precedence? 

Possible futures: 

The resurgence of the nation state: 

If the US establishment goes back to their bread and butter,

Namely: 

1. Secure borders

2. Protection of free trade 

3. Increase in diplomacy and reduction of global conflict

4. Alignment of domestic ideology and shared history

Then I think the current system will persist for a great many years without much trouble and there will be no challenge to either the Pax Americana or the nation state system.

It’s also important to note that it’s not a necessary condition for the world system to be run in a state of unipolarity. If anything, the opposite is true.

There can be no denying that China today is contained by the US military, in the same way that the United States contained the Soviet Union during the Cold War.

And yet, the unfortunate truth is that during the state of unipolarity that occurred following the collapse of the USSR in 1991, and before the ascendancy of China around 2004, the US military ran amok in the Middle East for decades, without a clear mission or mandate.

In the wake of Afghanistan 1999 - 2021, and Iraq in 2003 - 2011, the United States lost trust and legitimacy as a benevolent world hegemon.

As states lose trust, their soft power declines. Less soft power means less deference. Less deference means less voluntary compliance. Less compliance means more instances of hard power. More hard power means less compliance, and less trust. Which exacerbates the need for the state to use hard power.

This is the cycle we’re currently trapped in. As states like Russia and Iran openly refuse to comply with the Rules Based Order, the more the United States must institute uses of hard power. The more hard power it uses, the less compliance it can expect to receive. Which opens the door for:

Upheaval: 

China could collapse onto itself due to its demographic issues and flailing economy as India ascends. Not wanting to lose power or regional control, the Chinese communist one party system would be forced to rally the people to a cause outside themselves. They would annex Taiwan and TSMC, and begin to choke out the rest of the world from global semiconductor chip production. 

If Intel and Sam Altman have not created a fab competitor at this point in time, the US military will have no choice but to run the Chinese blockade of Taiwan, which would not be an assured victory. 

Because:

1. Attributable drones - China is already investing in single use drones (so is the US) but if the conflict with the Houthi rebels has taught us anything, it’s that using expensive ammunition to shoot down inexpensive ordinance is unsustainable.

2. Cuban Missile Crisis but reversed (Niall Ferguson) 

This is, of course, the worst case scenario because it would plunge us into WWIII and repeat the cycles of the 20th century, and whomever the winner is (if we don’t resort to the use of nuclear weapons) would be the new hegemon of a new world system shaped in their image. 

Current contenders would be US, China, Saudi Arabia, or India.

Metamodernism and Techno-Optimism

The third option is the slow malaise of the nation state. If the border of the US is not sealed, the debt that needs to be serviced continues to grow, and the ideological divide continues to splinter, the constitutional republic model of the nation state will enter a period of malaise and eventually breakdown.

But this would be a slow, relatively imperceptible process.

It took a long time for the idea of the Nation State to become the predominant force in the World System vs Empire. From Westphalia to Pax Americana it took 297 years. 

Meanwhile, the ideological alignment and agreement on common facts, values and even histories could diverge in certain segments of the populations living in nation states.

While still geographically centralized, they would become ideologically unaligned.

And people may begin to gravitate toward so called network states.

Network states are geographically decentralized but ideologically aligned. A network state, like a technology startup, would have a mission, culture and values. It would create a sense of online community, and it’s shared history would be recorded on a blockchain. Eventually, members would begin buying land and shelter, and living in real life communities.

If a Network State gets big enough, eventually Nation States would acknowledge their sovereignty and deal with them as if are a country in their own right.

In the early days of a network state, the first pioneers would get an amount of stable coin. Think equity in a company or the USD when it was still pegged to gold.

If the network state is efficient, ideologically aligned, and provides for a good quality of life, more people will want to be part of it, thereby increasing the value of the stable coin, and incentivizing future efficiency.

If a network state begins to degenerate, the coins will be worth less, and people will realize their losses and return to a nation state or go to a new network state.

If the nation state system returns to a state of efficiency, network states may not be needed. But if they continue to be reactionary and unaligned, people may slowly look to belong to network states that more align with their values.

Basically, network states introduce competition into a complex system which has been monopolized by a single Leviathan and has stagnated as a result.

Conclusion:

I am an optimist by nature, mostly because being a pessimist is a self fulfilling prophecy, and why would you want to root for bad things to happen?

But I’m also a rationalist and believe we must invest in the future we want to see: with our time, our talents, our resources and our attention. More on that next week when we cover the American Dynamism investment thesis from a16z.

Network state? Nation State? War? Who knows.

But at the very least, we can be aware of these trends and position ourselves and our decisions to create the world we want to live in.

The flapping wings of a butterfly can be felt on the other side of history.