The Sovereign Individual is subtitled How to Survive and Thrive During the Collapse of the Welfare State, by James Dale Davidson and Lord William Rees-Mogg and copyrighted in 1997. The edition I read was published by Simon and Schuster.

The authors (who are investors) predict a world where the welfare state is no longer regarded as a force of nature and where cyberspace frees the elite from the constraints of national boundaries. The forecast outcome is the collapse of the welfare state as the wealth producers move their operations elsewhere.

The authors look at history, from the age of the hunter/gatherers, to the first city dwellers through the feudal times and the industrial revolution and observe how economic realities shape and reshape the nature of government. In context, the modern welfare state, just over 100 years old is a different take on the same old theme – that government treats those who produce as cows to be milked for the benefit of special interest groups.

Economic reality has several aspects that change the nature of the game, and the major themes are explored in this book.

Firstly, businesses can now be run in cyberspace, and work can be done anywhere in the world. A highly paid New York investment analyst may find his work outsourced to India. Software development may be done in Uruguay. The concept of a “job for life” will disappear, replaced by contract work.

Similarly, the entrepreneur will not limited to his or her own country. Instead of paying high taxes for government “services”, she may relocate to a tax haven, or keep traveling to avoid being a resident of any country.

The Sovereign Individual is no longer the property of the State, but maximises his own benefit by selecting a state that provides a menu of services at the most attractive price. No longer will the individual pay high prices for poor services, or pay more than what is fair. Certainly, the individual will not pay extra taxes to support wars, or the welfare state.

Existing governments will be threatened by the exodus of their most productive people because they pay the highest taxes, which will ultimately lead to collapse of the existing systems. The IRS, CIA and NSA will launch a counterattack against individuals and groups who seek to circumvent taxes. On one side will be cyber currencies and hard encryption, on the other will be increasing harsh penalties to those who rebel.

Ultimately, the authors believe the current system will collapse as millions of the productive exit their low growth, restrictive and high taxing economies and go elsewhere, taking their skills and taxes with them.

The authors draw clear conclusions from history, and I don’t think that anyone can argue that the rules of the game have changed. What is unclear is the extent to which these changes will undermine the status quo.

Whilst digital technology increases the ability for anyone to work offshore, run a business or source talent overseas, and even bank offshore, it also enhances the capability of governments to control the flow of funds and the monitoring and cross referencing of citizens. This has increased since the start of the “War on Terror” which has been used as an excuse to clamp down on freedom.

At the same time, cyber currencies have not achieved widespread appeal and there is some evidence that the government is blocking development and use of alternative payment channels. There are not widely accepted forms of anonymous payment, despite the introduction of digital gold.

Ordinary people are increasingly mobile, chasing better opportunities, but there is not yet a critical mass of people on the move. Most people still accept the idea of being tied to a particular nation, although this is a relatively recent idea.

In summary, although this book is ten years old, I believe that the authors’ conclusions are correct, but it is currently too early to tell exactly what will happen. We are seeing some signs of the best and brightest leaving the overtaxed countries of continental Europe and moving to areas of opportunity, such as Dubai. At this point, the welfare state has not collapsed, despite looming insolvency as populations age. The US economy is showing signs of exhaustion as spending on the war drains finances.

The conclusions are challenging and the authors include an action plan. They recommend preparing for an exit from high taxing or repressive states, moving businesses offshore and developing cognitive skills that are portable and in demand. These points are similar to those made elsewhere on this site.

This book is not a light read. There is a lot of content and detailed research to digest, and the conclusions are controversial. Nevertheless, I recommend that you read it so that you can put the changes that are occurring around us into historical context.

Tags: book review, the sovereign individual

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