Imagine a nation formed around shared interests, goals and ideas that operates outside the reach of traditional governmental control – and geographical boundaries. Welcome to the digital state.
While still in the realm of speculation, the concept draws some parallels with historical precedents like the British East India Company and United Fruit (see box), companies that once held quasi-governmental power due to their close ties with influential jurisdictions. But could this kind of corporate sovereignty be viable today?
‘The notion of a corporation founding a “nation” could perhaps sound appealing to some’
The concept
Network states propose a model in which wealthy individuals or corporations could establish their own communities or even micro-nations, built on ideals of economic freedom and technological independence. In theory, these communities could create their own rules, digital economies and currencies outside the purview of central banks.
However, such ambitions also bring complex challenges around accountability, regulation and practical governance.
‘The notion of a corporation or a wealthy individual founding a “nation” could perhaps sound appealing to some, particularly if established in poorer developing countries or island nations,’ says ACCA chief economist Jonathan Ashworth.
‘Host countries might be initially attracted by promises of investment and expertise. However, any significant success by such ventures would likely prompt concerns about a loss of power or influence, especially if they became overly independent or began to involve themselves in the wider political discourse.’
‘Companies in wealthy nations remain deeply interconnected with those economies’
He continues: ‘Similarly, companies in wealthy nations typically remain deeply interconnected with those economies, making the idea of total autonomy very challenging.’
And, as history has shown, governments are not inclined to cede control, and most corporations are unlikely to risk significant investments without assurances of stability and backing from powerful governments.
Currency question
An essential part of the network-state idea is the potential use of digital currencies within these new entities. Decentralised, privately operated currencies could, in theory, replace traditional money, allowing these communities to operate independently of national central banks.
‘Digital currencies like bitcoin are notoriously volatile, making them a much less reliable store of value compared to traditional currencies,’ says Ashworth. ‘The authorities in many countries are also considering the possibility of introducing their own central bank digital currencies and will not want to allow any alternative to challenge or potentially displace their own national monetary systems.
‘The economic benefits of digitalisation are widely recognised, as seen in industries like healthcare, where digitalisation can streamline operations and improve efficiency. However, setting up entire digital economies presents unique challenges, not least since many important economic and social activities remain firmly of a physical nature,’ Ashworth continues.
‘Clearly there are significant challenges and barriers to creating a stable and self-sufficient economic system within these communities.’
Futurist Balaji Srinivasan believes it should be possible to choose citizenship like a gym membership
Selecting citizenship
The rise of network states could theoretically alter the landscape of global economics and national sovereignty. The concept remains speculative but tech start-up entrepreneur and futurist Balaji Srinivasan believes it should be possible to choose citizenship like a gym membership. He envisions a network state where communities form online based on shared interests, eventually acquiring land and establishing their own laws. These start-up nations would exist alongside traditional countries but could ultimately replace them.
Srinivasan argues that if tech can disrupt industries like media, finance and education, it can disrupt government functions, too – allowing people to pick their ‘cyber-state citizenship’ much like they choose a service provider.
‘The world is constantly evolving in unexpected ways’
Considering the profound changes the world has seen in recent decades, from the global financial crisis to the pandemic and geopolitical upheavals, it would be unwise, Ashworth says, to completely dismiss the notion of network states in some form.
‘Although establishing such communities on a meaningful scale seems highly improbable today, the world is constantly evolving in unexpected ways,’ he says. The rise of network states remains a fascinating, if distant, possibility, offering a glimpse into what the future might hold for the relationship between corporations, technology and global governance.
Past parallels
One of the most notable historical comparisons is with the East India Company, which wielded significant power in India with the backing of the British government. Established in 1600, at its height it dominated global trade between Europe and South and East Asia, fought wars using its own army and navy, and conquered and colonised modern-day India, Pakistan, Bangladesh and Myanmar.
In the early to mid-20th century, meanwhile, US company United Fruit dominated large territories and transportation networks across Central America, the Caribbean coast of Colombia and the West Indies. It maintained near-monopolies in regions such as Costa Rica, Honduras and Guatemala. It was often criticised for its exploitative practices and influence on local governance, and had a profound impact on the economic and political landscapes of these nations.
These corporations operated with a degree of sovereignty, yet their influence was largely contingent on governmental backing. Without similar backing, any attempt at corporate sovereignty today could face significant obstacles from host governments wary of losing control.
