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The Future of the Nation-State

How the nation-state can find a way through digitalization. 

 

Note: This essay is published as chapter 17 in the book Digital Transformation and Public Services: Societal Impacts in Sweden and Beyond. The book is the final report from The Internet and its Direct and Indirect Effects on Innovation and the Swedish Economy—a three-year research project funded by The Internet Foundation in Sweden (IIS) and led by Professor Robin Teigland, whom I had the great pleasure to collaborate with in this project, as well as with editor Anthony Larsson.

An e-book edition of the book can be downloaded for free from Amazon, and a pdf version can be downloaded from Taylor & Francis.

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1   Introduction

It is commonly recognized that the Internet and digital technologies are bringing about a fundamental and sometimes disruptive change to businesses, society, and the lives of individuals (Kenney, Rouvinen and Zysman, 2015). The overall phenomenon is often referred to as digitalization, whereas the process of effectively adapting to digitalization is called digital transformation.

This chapter aims at investigating the potential future of the nation-state in the context of change brought about by the Internet and digitalization. Will the nation-state go through a process of digital transformation, altering its characteristics to be more in line with the conditions of a digitalized world and with the changed expectations of its citizens, maintaining their support? Or will it be completely disrupted and potentially replaced by some other organizational structure, better adapted to meet the future demands of people and organizations living together on our planet, in a world shaped by digital technologies?

 

2   Methods

The underlying theory that will be used in this chapter is a framework called the innovation loop, developed by the author, loosely inspired by evolutionary theories, mainly the concept of natural selection and the survival of the best adapted1 by Charles Darwin, and the theory of how innovations diffuse, presented by Everett Rogers in his seminal work Diffusion of Innovations (Rogers, 1962).

Figure 1 The innovation loop
Source: Model by the author.

The basic principle of the innovation loop (see Figure 1) is that evolutionary steps in the biological system can be compared to human inventions and that, in a generalized sense, the evolution not only of species but also of technology, businesses, and society can be seen as a result of natural selection and survival of the best adapted – be it organic beings, individuals, products, services, processes, organizations, or societal structures.

A natural phase of the loop to start looking at is the point of an invention. Although human inventions are mostly made through human thinking, while biological evolutionary steps occur through random variations such as mutations, both are based on previous steps, and both, if favorable, diffuse gradually.

Biological evolutionary steps diffuse through inheritance and natural selection and human inventions through individuals’ varying tendency to adopt them, as described by Rogers with concepts such as early adopters, early majority, late majority, and laggards.

When a favorable evolutionary step or an invention reaches a certain level of diffusion, it starts changing the conditions for everything in the surrounding system. This is most notable for larger evolutionary steps and larger inventions, with examples ranging from sexual reproduction and sight to the wheel, the printing press, the steam engine, and the Internet.

As a consequence, organic beings, individuals, and organizations will have to adapt to the new conditions, and those who are best adapted will be the most successful. This is arguably also valid for products, services, and structures, which are being adapted by humans according to changed conditions. The adaptation process is similar in the biological system and in the innovation system, especially regarding behavioral adaptation, and it is effectively described through the concept of natural selection.

One recent example could be a person adapting to the availability of an Internet connection, starting to write emails instead of letters and searching for information on the web instead of in libraries and books.

It is worth noting the importance of diversity in the process of adaptation – the less diversity, the less variety of ways to adapt. Moreover, the less variety of ways to adapt, the higher the risk of weak points being shared by various, multiple entities in the system. This would in turn make the system, as a whole, more vulnerable. To a certain extent this is also true for the diffusion phase, and altogether this is arguably the fundamental reason for striving for increased diversity of all sorts in all systems and in all situations since change and innovation occur continuously everywhere.

Once the initial adaptation process has been established, an extended form of adaptation takes place. This phase consists of various types of experimenting, for example, combining the initial invention or evolutionary step with others already existing in the system, or exploring opportunities to build inventions on top of the initial one. Humans do this through innovation, while nature uses random variations such as mutations. Since this phase leads to new inventions, it completes the cycle: innovation, changed conditions, and success of the best adapted.

An example of the last phase would be the combination of the Internet and of commerce, paving the way for E-commerce.

A few more observations can be made regarding the innovation loop:

  • It’s not a serial process. Many loops are running in parallel, interacting with each other.
  • The result of each cycle can be described as increased self-organization and increased efficiency. This can be better observed looking at a large time span, billions of years back. Early life started with single-celled prokaryotes that evolved into multicellular eukaryotes, then into plants and animals – animals through reptiles and mammals, into apes, eventually walking on two legs, gaining intelligence, and evolving into homo sapiens, inventing the spoken language, agriculture, the wheel, the written language, the printing press enabling the scientific revolution, the steam engine enabling the industrial revolution, electricity, telephone, radio, the Internet, the World Wide Web, the smartphone, and further inventions now being developed. Unless there is a divine power influencing this evolution, what we are looking at is one single self-organizing system. Although the smartphone should hardly be considered the “crown of creation,” efficiency is steadily increasing in the meaning that what can be achieved with a certain amount of energy, resources, and number of organic beings has never been more than today.
  • The pace of change is constantly increasing, which can be concluded noting the time span between early evolutionary steps, for example, about two billion years from eukaryotes to prokaryotes, and comparing it to the time span between recent major inventions, for example, about 17 years from the World Wide Web to the smartphone. Ray Kurzweil has proposed an explanation for this increase in pace of change in his essay “The Law of Accelerating Returns,” where he argues that “Evolution applies positive feedback in that the more capable methods resulting from one stage of evolutionary progress are used to create the next stage. As a result, the rate of progress of an evolutionary process increases exponentially over time. Biological evolution is one such evolutionary process. Technological evolution is another such evolutionary process” (Kurzweil, 2001, paras.11, 15, 16).
  • The evolution described by the innovation loop will arguably continue, resulting in increased self-organization and increased efficiency at an ever-increased pace of change until it potentially fails because of lost stability, for example, due to failure to balance available resources with consumption and recycling of resources.

The framework of the innovation loop will be used in this chapter to analyze the roots, the construction, and the development of the nation-state from the perspective of change brought about by inventions. Specifically, it analyzes the future evolution and the fate of the nation-state under the influence of the Internet and digital technologies – arguably the most important field of inventions of our time. The invention-related analysis will be integrated with ideas and findings on the topic of the future of the nation-state presented in a number of articles and academic papers, and with opinions and ideas expressed in personal interviews with a series of people throughout April 2018 to May 2018.

 

3   Results and discussion

 

3.1     Definitions

Essential to this analysis is a definition of the nation-state. There is some common confusion about the use of the terms nation, state, nation-state, and nationalism. The definitions that will be used here are that nation is a cultural term referring to a body of people bound together by certain aspects that give them a sense of unity, making them feel that they have something in common and differ from other people; state is a political term, referring to a body of people who live on a definite territory and are unified under a set of institutional forms of governance, which possess monopoly of coercive power and demand obedience from people; and the nation-state is a merger of the two terms, implying that politics and culture support each other (Lu and Liu, 2018).

It must be noted that although nation is a cultural term, what gives people a sense of unity does not have to be a common history and a culture derived from a common descent or ethnicity. The source of unity might also be democracy and a common political will where the members have equal rights. These two approaches are commonly called the ethnic approach and the civic approach (Hutchinson, 2003; Lu and Liu, 2018).

This is also why the nation-state is not immediately related to the concept of nationalism, which could be seen as a strong emphasis on the ethnic approach of the nation, often better explained by the term ethno-nationalism.

Also, the state can be related to the two approaches. The ethnic approach argues that people’s trust in the state derives from deeply rooted cultural values that are learned from an early age, leading to an interpersonal trust, which in its extended form builds trust in the state. The civic approach, on the other hand, maintains that the trust in the state is built on the performance of political institutions (Lu and Liu, 2018).

 

3.2      Origins and development of the nation-state

Looking at the nation-state from the perspective of innovations, its early roots can be considered to go far back in human history. Spoken language – one of humans’ first and most important inventions, which is believed to have evolved between 50,000 and 200,000 years ago – changed the conditions for human interaction by introducing the oral tradition. This is arguably an important base for human culture and thus for building culture-based communities, which in turn are a building block for the nation according to the ethnic approach.

The invention of agriculture from about 10,000 years ago brought people closer together in villages, and a reasonable adaptation might have been improved methods for defining property and for resolving disputes. Another communications technology, written language, which was invented about 5,000 years ago, probably helped in that matter. This could be seen as the early roots of the state.

Going ahead in history, there are different opinions among scholars whether the nation was formed as a consequence of the state or the contrary.

Early forms of modern states from the 13th century and onward are by some considered to have been formed through war, where warfare contributed to an increasingly centralized administration in order to impose taxes and enforce order (Hutchinson, 2003). Centralized and more complex administration was also developed due to improvements in agriculture productivity, which made it possible to sustain larger populations. Inventions and discoveries in other areas such as political economy, mercantilism, and cartography further strengthened the state, all leading to people in nations being more united, thus indicating that the nation emerged as a result of the state.

On the other hand, inventions such as the printing press gave rise to increased literacy, strengthening of national languages, and sharing of common knowledge, tales and culture, while it also led to increased reliability of trade for example, through the spreading of knowledge of techniques like double-entry bookkeeping, all entailing an increased interconnection between people, potentially building a sense of unity, which in turn could support the state. This consequently suggests that the state was built on the nation (Anderson, 1991).

Regardless of whether the nation led to the state or the other way around, or  a combination of both – which might seem reasonable – another observation remains: inventions in fields such as warfare, agriculture, printing, trade, and communications all changed the conditions for people and society. Consequently, people and society had to adapt to these changed conditions in ways that gradually strengthened both the nation and the state.

The merger of the two, that is, the nation and the state, and the subsequent establishment of the nation-state in its modern form, is commonly considered to be a result of the Treaty of Westphalia in 1648 (Schwartzwald, 2017). Until then, many different powers, religious as well as civic, had an overlapping authority on nations, territories, and populations. The essential outcome of the Peace of Westphalia was that states were guaranteed sovereignty over a nation, its territory, and its population, thus forming a nation-state, and thatother states would refrain from interfering with internal affairs in neighboring territories, for example, by supporting foreign co-religionists in conflict with their states.

The resulting international system of independent and sovereign nation-states has been compared to billiard-ball interactions – an anarchical society of external interactions between states (Thompson and Hirst, 1995).

From an internal perspective, it did not matter in this system whether states were empires or based on homogenous nations or if they were autocratic or democratic. But again, inventions influenced the evolutions of states. It has been argued, for instance, that improved communications technology – roads, rail, and the steam engine – made it technically possible to bypass local leaders and impose direct rule as opposed to indirect rule, thus ending the age of empires (Hechter, 2001; Hutchinson, 2003). Reasonably, other communications technologies – printing, telegraph, telephone, and radio – over time reinforced this trend. Such technologies also supported the spreading of information and the evolution of democratic systems. And, in fact, democracy is often considered to have given legitimacy to the sovereign power of the state, replacing a sovereign autocrat or king, eventually including citizens and binding them together and thus strengthening the nation-state (Thompson and Hirst, 1995).

Representative governments could also create uniform national systems for administration, education, and public health, again supporting increased inclusiveness and homogeneity of the population. During the 20th century, states also acquired the means to manage national economies– through state planning in the Communist world and by Keynesian measures in the Western world.

This is seen by many as the final glorious days of the nation-state before its demise under the pressure of globalization and digitalization. One early blow to the logic of a world composed by independent and autonomous nation-states was the end of the Cold War in 1989, when the Berlin Wall came down and when US President George H. W. Bush and Soviet General Secretary Mikhail Gorbachev met at the Malta Summit, making declarations of cooperation and peace. Already the Cold War in itself, emerging as a result of nuclear weapons technology, had destabilized the idea of independent nation-states, since the devastating power of nuclear weapons had made it essentially impossible for nuclear powers to win a war. The prospect of a nuclear conflict was unthinkable destruction on both sides, and thus the idea of settling disputes with war in the anarchical system of independent nation-states became impassable.

Yet, a nuclear attack remained a palpable threat and a possible scenario for many during the Cold War, making states necessary. With the end of the Cold War, however, this argument became more diffuse, while the effects of an increasingly global economy gained more attention.

A common view since then, summed up by the term globalization, is that in a global economy, market forces are stronger than any nation-state. Capital is mobile, while labor is not, meaning that capital moves where the conditions are most favorable, forcing nation-states to compete by providing such conditions. The nation-state thus has had to give up some of its autonomy and sovereignty – the exclusive power to independently manage instruments such as national labor rights and monetary and fiscal policies. From this perspective, nation-states are becoming to the world what local authorities used to be to the state – providers of desired conditions for attracting businesses without the power to shape economy or employment within its territory.

This view, at least in its most far-reaching form, has been contested, for example, in the article “Globalization and the Future of the Nation-State” (Thompson and Hirst, 1995). The authors admit that there is some truth in the globalization view – states are less autonomous, they have less exclusive control over the economic and social processes within their territories, and they are less able to maintain national distinctiveness and cultural homogeneity.

Thompson and Hirst (1995) argue, however, that the changes are not as profound as they may seem for a series of reasons, among them that the number of genuine transnational companies (TNCs) is small, foreign trade flows and patterns of foreign direct investment are highly concentrated to advanced industrial states and a small number of newly industrialized countries, the thesis that capital is moving inexorably from high-wage advanced countries to low-wage developing countries is inaccurate in aggregate, and the evidence that world financial markets are beyond regulation is by no means certain.

An example of the last point is a series of international investigations, blacklists, and measures against tax havens in recent years, in order to reduce tax avoidance, estimated at £506 billion each year (Boffey, 2017).

Thompson and Hirst (1995) also argue that the reduced autonomy of the nation-state doesn’t deprive it of an important role in a global system of governance. Instead, because of its relationship to territory and population, the role of a nation-state is pivotal as a source of legitimacy for transferring power both “above” it and “below” it – above through agreements with other states in various international organizations and bodies, and below it through a constitutional balance within its own territory among central, regional, and local governments, and also with publicly recognized private governments in civil society.

According to Thompson and Hirst (1995), nation-states can do this in a way no other agency can, because they provide legitimacy as the exclusive voice of a territorially bounded population. They admit that such representation is very indirect, but that it is the closest to democracy and accountability that international governance is likely to get.

 

3.3      The impact of digitalization

In the last decades, global mobility of technology has been added to that of capital. With the broad diffusion of the Internet, technology and information are vastly more mobile than they ever were before.

From the perspective of the innovation loop, a few of the major changed conditions brought about by the Internet and by the first wave of digital technologies are that:

  • Computer software can be used to effectively manage, process, and analyze most kinds of information and contents, making an increased level of automation possible.
  • The cost of a digital copy is essentially zero – thus, once information, processes, contents, services, products, or even weapons have been digitalized, they can be copied at large scale at a minimal cost.
  • The whole world can be reached with one click, not just with a phone call as through the telephone network, but with basically anything that can be digitalized.
  • Once products and services have been digitalized, they can be mixed with other products and services much more easily than ever before.
  • The Internet connects people peer-to-peer across the world, which means that horizontal structures for human activity, as opposed to hierarchical or vertical structures, which have been the norm for thousands of years, are becoming functional at a large scale.

Among the consequences or adaptations to these new conditions are:

  • A major change in business models with a general shift from owning to accessing and from products to services, since what is digital can be copied almost infinitely and what is not digital can be shared efficiently on digital platforms (often referred to as the sharing economy), with a subsequent concentration of users to a few large digital platforms through the network effect2
  • An increased reliance on horizontal structures such as social networks and informal networks for knowledge and news distribution, with partially unexpected effects such as trolling and fake news
  • An increased focus on purpose in human activities – for example, in businesses where purpose may become as important as the basic requirement of long-term profitability – reasonably as a consequence of the opportunities the Internet offers for horizontal collaborative work with significant global impact at a scale that was only attainable by states and global corporations a few decades ago, for example, Wikipedia and open-source software
  • An increased focus on customer experience since it is easier than ever to launch a product or a service offering with limited resources, targeting the whole world, and since this entails intensified competition for people’s attention and steadily higher expectations among users and customers for ease, convenience, and transparency
  • The emergence of a fourth military branch beyond Army, Air Force, and Navy – a cyber-warfare branch, along with a generally increased focus on cybersecurity in businesses and in society, as a consequence of the growing possibilities to perform highly effective cyberattacks, ranging from criminal activities aiming at economic gain, to state-supported activities with the purpose to inflict damage on enemy countries

The collective term for these phenomena is digitalization, whereas the ways in which businesses or public entities or agencies adapt in order to remain competitive and relevant in a digitalized world is often called digital transformation.

Although digitalization is regularly perceived as an established and stable ongoing process, it can be argued that it is only at its beginning, noting that most organizations, private or public, only just started their digital transformation.

Furthermore, before the first wave of digitalization has even reached its full power, a second wave is emerging with technologies such as AI and machine learning; natural language processing and cognitive computing, with effective voice interaction and human-like dialogue; the Internet of Things with networks of sensors and actuators – being to AI what our senses and limbs are to the brain; advanced automation also mastering mental work; and blockchain-based applications distributing a range of services and structures, potentially eliminating the need for controlling bodies and institutions such as banks, governmental agencies, and even courts.

Combining these technologies, the second wave will bring changed conditions that are difficult to anticipate, to say nothing of people’s ways to adapt to such changes. As mentioned before, the pace of change is also increasing, which gives a hint about further inventions adding up to a third wave, and a fourth, and so forth.

The main question that this chapter aims at addressing is whether it will be possible for nation-states to remain relevant through digital transformation, and in that case how, or if they might be disrupted or become obsolete and replaced by some other structure for governing the world’s populations and territories.

To understand how the nation-state can adapt to digitalization, it may first be useful to establish what the nation-state offers that is adaptable. From the initial definition, we find that the nation-state provides unity, a territory, and a form of governance. Through its institutions, it also supplies a number of services.

Out of these four aspects, both services and governance can be effectively adapted from a digital transformation perspective. Unity, in contrast, could be considered to depend on second-order effects of digital transformation, while territory is a physical aspect that turns out to remain important in a digitalized world. This will be discussed later.

Adaptation of services in a digitalized world involves not only services offered by the nation-state itself. Also, services offered by alternative providers must be taken into account, since digital technologies and the Internet, as noted before, make it possible for service providers to target the entire world, even with fairly limited resources.

The ways in which governance may be adapted to digitalization, on the other hand, depends largely on the form of governance. Noting that democracy is considered to have strengthened the nation-state through increased legitimacy, the question of governance will here be focused on adaptation of the democratic process, although effects of digitalization on authoritarian states will also be discussed further down.

Hence, from a digitalization perspective, there are three important aspects of digital transformation of the nation-state – efficiency of services offered by the state to citizens, alternative providers of those services, and the structure of the democratic process.

1. Among the main services offered to citizens are health care, child/elder/social care, education, infrastructure, law and order, and defense, all paid for by tax revenue.

Like any other service, all these can be made more efficient through digitalization. This is necessary since the expectations of individuals and organizations are increasing, while tax revenues will not grow substantially. The increased expectations derive partly from people’s experience of the large range of various services offered online, with a significant increase in convenience and ease of use compared to only a decade ago, all at a low cost or for free (in exchange for access to people’s personal data).

In this way, people have an indirect understanding of the quality improvements and efficiency gains that are possible through digitalization, using, analyzing, and combining data flows; providing well-designed user interfaces; and so on, and they naturally expect the same improvements in public services. In short – the conditions have changed and public services have to adapt in order to remain relevant, which also goes hand in hand with the increased focus on customer experience brought about by digitalization.

In many nation-states, the digital transformation of public services is ongoing, but since these services are normally not exposed to market competition, there is not any immediate risk of being outcompeted, and the driving force for change must, therefore, derive largely from an insight among leaders and those responsible.

An example of a country that is considered to have reached far in its efforts to digitally transform its services is Estonia (Heller, 2017). Apart from many services being accessible online, three technology-related aspects creating conditions for the Estonian digital welfare state are:

  • A government-issued electronic ID for all citizens
  • The “once only” principle, which means that no single piece of data should be entered or collected twice
  • The governmental data platform X-Road, which links servers and systems to each other through encrypted connections

From a privacy and integrity point of view, it can be noted that any access to an individual’s personal data by a public officer or a professional is recorded and reported.

Besides improving services and making them more efficient, there are also discussions about the possibility for the public sector to partner with alternative providers from the private sector and with civil society. An example is the Swedish Association of Local Authorities and Regions (commonly known internationally as “SALAR,” or “SKL” in Swedish).3 Klas Danerlöv, Innovation Manager  at SALAR, refers to the demographic challenge, to steadily increased expectations among citizens, and to the need for working in smarter ways due to lack of resources already visible in budgets, and he discusses a change in definition of the role of the public sector, from producer to facilitator, collaborating with private service providers and with civil society in areas such as digitalized health care and emerging mobility solutions. He explains that such a change depends partly on legislation since today’s rules for procurement are rigid and prevent the public sector from cooperating with industry in a development-oriented manner. He also envisions that the fundamental responsibility of the public sector might become narrower, caring for exposed groups and for those not able to use digitalized services (K. Danerlöv, personal communication, April 16, 2018).

Regarding digitalization of national defence, it may be noted that with the emergence of cyber-weapons and of the military cyber-warfare branch, military activity is becoming increasingly digital since it is possible to inflict significant harm to enemy states by attacking essential infrastructure through digital networks and devices, with a minimal risk for human and material losses. Also, since it is also possible to make attacks without being directly exposed, it becomes less evident who the enemy really is, making warfare less effective for supporting national identity.

2. The aspect of alternative service providers goes further due to the Internet’s global reach. Such providers can essentially be located anywhere in the world and, depending on local legislation, provide their services to citizens of various countries on a global market. The same goes for nation-states that can offer services to their own citizens worldwide, through the Internet and through collaboration agreements with local or global providers.

Interestingly, nation-states can also offer their services to citizens of other countries, which they already do. Estonia offers an e-Residency – a kind of limited citizenship in the form of a government-issued digital ID available to anyone in the world, offering the possibility to easily start and run a business in Estonia, which is part of the EU (Republic of Estonia, 2014).

Quite obviously though, the digital ID is not valid as a physical identification or a travel document, it does not serve as a residency permit, and it does not grant its holder the right of physical residency in Estonia. This aspect, regarding physical territory, people’s physical movements, and the rule of law, will be discussed further below.

The concept of e-Residency is also related to private service offerings from alternative providers and to the question of how extended these offerings could eventually become. Let us say that a digital giant like Google, Apple, Amazon, or Microsoft puts together packages of social services such as online education, digitalized health care, cybersecurity, transportation as a service, and more, and combines these packages under the umbrella of a private digital citizenship – and in this way takes on the role of a private virtual state, PVS. At what extent would that be an alternative to a citizenship in an existing nation-state?

Essentially, this comes down to two considerations:

  • First, the PVS offering the services will probably not have its own territory, and thus it will have its head office in some jurisdiction, having to obey the corresponding legislation. Potentially, it could acquire e-Residencies like the one offered by Estonia, for local branches in countries offering this opportunity, thus adapting to the local legislation in each country.
  • Second, users acquiring private citizenship will live in other territories. Either they will have a citizenship and a residency in the corresponding nation-state or the PVS will have to enter mutual agreements with nation-states, defining matters for users such as residency, work permits, taxation, and also the validity of some kind of passport or other travel document issued by the PVS.

Both considerations highlight an opportunity for nation-states to systematically offer extended versions of Estonia’s e-Residency, targeted toward PVSs, paving the way for what could be called the State as a Platform, SaaP.

A PVS successfully concluding such agreements, attracting a large number of users, could be described as a popular state owning no territory, fitting into an often-cited pattern in digitalization: Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. Moreover, Airbnb, the world’s largest accommodation provider, owns no real estate.

It also fits one of the main adaptations to digital technology mentioned above – a general shift from owning to accessing.

However, a citizenship is different from a taxi ride or a night’s accommodation. If Uber or Airbnb goes out of business, users might suffer a short inconvenience. But if this happens to a PVS, users might become stateless.

This would be acceptable only if there are a number of PVSs for users to immediately choose from, a situation that could possibly emerge after years of trial and error with pioneering PVSs offering services to early adopters who maintain their original citizenship as a back-up.

A number of PVSs for users to choose from would also in a way solve the issue with lacking democratic influence by citizens on a PVS. Since a PVS is a private company, it is essentially autocratic, being controlled by its owners who are not substituted through elections. If there are other PVSs available, users or citizens could simply “vote with their feet.“ If, on the other hand, one major PVS dominated, for example, due to the network effect, this would not be the case and the lack of a democratic process would become a serious issue.

Other aspects of the PVS scenario are economic, social, and political. Would PVSs paying for SaaP manage to provide citizenship and social services more efficiently than nation-states, at a lower cost than ordinary taxation? Or would they profile citizenship as a premium product for which people would be willing to pay more? If so, would such a selection be acceptable? Could PVSs over time become the partners that organizations such as Swedish SALAR envision, while nation-states take care of exposed groups? Or should PVSs, through international regulation, be obliged to receive all users, and if so, at what cost?

Adding to this is a final question – whether a PVS would need something corresponding to a nation, that is, a sense of unity among the users or the citizens, in order to survive. As will be discussed below, this is also a challenge for multicultural federations of nation-states, and for this reason, it’s not obvious that a PVS could ever reach the stability of a nation-state, strong enough to keep it united in situations of crisis. Rather, also with regard to the issue of lacking democratic influence, PVSs are more likely to be what they are – commercial entities offering convenient and attractive services, entities that may come and go, with a limited long-term engagement from the users.

However, the PVS model also exposes an opportunity for nation-states to adapt and remain relevant to citizens with a growing interest in a cosmopolitan set of values. Building on the kind of agreements that PVSs would have to enter with nation-states, such agreements could also be made between nation-states in a systematic way, similar to the roaming agreements between mobile telephone operators in different countries that allow their users to continue using their mobile  phone while traveling abroad, paying for the usage to their home operator.

In a corresponding way, citizen-roaming agreements between nation-states would allow citizens to move freely between the two countries, benefitting from social services and rights as local citizens, also paying local taxes and being answerable to local duties. It could be seen as an extended version of the freedoms in trade blocks such as the EU, with obvious challenges, not the least regarding interstate trust, but also with increased possibilities from an administrative point of view in a digitalized world, with conceivable digital entities such as clearing houses for citizen-roaming. As opposed to a PVS, a nation-state offering citizen-roaming would be able to provide long-term stability and democratic influence, but whether one model would be better adapted than the other to future conditions in a digital world remains to be seen.

Related to this topic, leaving the physical world behind, are virtual worlds, which could be seen as a kind of private virtual reality states. Existing only in virtual reality, there’s no need for agreements with states in the physical world nor for travel documents or for physical services such as health care, transportation, and so on.

Not providing for people’s physical needs, virtual worlds can hardly be considered an alternative to nation-states. They may, however, have a certain influence on real-world economies – substantial economic transactions are already made for virtual goods in virtual worlds such as SecondLife, and this may increase with improved technology for virtual reality. It is also likely that when virtual reality reaches a sufficiently high-quality experience, people will spend significant time in virtual worlds, both for work and for pleasure.

3. The third aspect mentioned above regarding the digital transformation of nation-states is the structure of the democratic process. Two issues emerge on this aspect.

First, there seems to be a possibility to effectively manipulate individuals’ opinions and world views through digital means, without people knowing it or noticing it. This would put democracy, as we know it, at risk.

Second, today’s democratic systems have not yet adapted to the way the Internet and digital technologies have changed the conditions for information distribution, making geographic distances essentially irrelevant from an information perspective.

The first issue – manipulation of individuals – came to general attention in  the late 2010s partly due to events regarding the company Cambridge Analytica. The company had reportedly collected massive amounts of personal data through Facebook, and built individual profiles from the data, relying on research in psychometrics. The profiles had then been used to expose individuals at a large scale through social networks to personally tailored political advertisements designed to activate a certain response, with the aim to move the electorate in a desired direction (Cadwalladr and Graham-Harrison, 2018).

Although not conclusively proved to be effective, the basic idea is in line with the capabilities of digital technology today – analysis of large amounts of data, personalization based on such analysis, and individual targeting through social networks, all at a massive scale. Exploiting the human nature with its fairly predictable responses to certain stimuli also seems to be viable, but possibly further progress has to be made – a few cycles in the innovation loop – until the method becomes effective.

Possible scenarios could include tuning the output from AI-based personal digital assistants or finely manipulating the search results of a large search engine – a plot that has been credibly described in the novel 11 Grams of Truth (Swe: 11 gram sanning) (Akenine, 2014).

Any such scenario becoming reality would be a significant threat against the democratic process and also to any nation-state that depends on democracy for its legitimacy.

One proposed model that could be resilient to such manipulation attempts is deliberative polling, which is a version of deliberative democracy, a term coined by Joseph M. Bessette in 1980, meaning that democratic decisions must be preceded by authentic deliberation – long and careful consideration or discussion – not just voting (Bessette, 1980). The idea behind deliberative polling, which was proposed by James Fishkin (1988), is that rather than having a whole population of relatively uninformed people make decisions in a matter, it is better to have a random, representative sample of the population make an informed decision after thorough briefing and discussion. Such a deliberative process normally takes place at a physical meeting during a whole weekend, with the model having been tried out in a number of countries in the world on various occasions (Center for Deliberative Democracy, 2019).

The second issue – adaptation of the democratic process with regard to new conditions for information distribution – is connected with an often-expressed worry over a general decline in political activity and political interest in democratic states, particularly in younger generations. Although it is contested that Millennials are less politically active, it has also been found that a decline in voter turnout in established democracies during the last four decades coincides with decreasing levels of people’s personal interest in politics and a declining trust in traditional democratic institutions as vehicles for personal fulfilment and well-being (Dalton, 2016). This decline in interest and trust can be effectively explained by a shift in priorities and values of Western citizens. As people have begun adapting to a higher material living standard, they are increasingly prioritizing autonomy and individual lifestyle choices over more basic economic necessities and class divisions, while traditional forms of community life and interaction have largely eroded, giving space to individualism and social isolation (Ferrini, 2012).

More specifically, from a digitalization perspective, it has been found that improved digital infrastructure and increased digital freedom in a country have opposite effects on people’s trust in the state and their sense of unity as a nation, counterbalancing each other.

Improved digital infrastructure increases people’s trust in the state for providing effective tools and services, while it also brings about social fragmentation and cultural individualization, which weakens national identity. On the other hand, digital freedom strengthens national identity since offering everyone an opportunity to speak constitutes an essential feature of democratic fairness, and democracy is found to serve as an ideological link to unite people into a nation. But digital freedom also has a negative effect on trust in the state since no institution in an open and free society can escape criticism from some segment of society.

According to these findings, the nation-state can reach increased strength through digitalization only if there is a balanced development of digital infrastructure and digital freedom (Lu and Liu, 2018).

The same study also finds that as a country becomes more Internet-connected, people’s attachment to the nation-state tends to derive more from the universal appeal of democracy (the civic approach mentioned before) than from the particular appeal of ethnicity (the ethnic approach) (Lu and Liu, 2018).

Hence, the question we ask is how the democratic process could adapt with regard to:

  • Internet-based information distribution, which has made geographic distances essentially irrelevant
  • People tending to prioritize individual choices while yet placing great value on digital freedom and democracy as unifying aspects

It is probable that a democratic process offering citizens a more direct influence at regular occasions, from wherever they are located at the moment, would be a favorable adaption to such new Internet-related conditions.

One proposed model for democratic processes, which could fit this requirement, is liquid democracy, a system where voters can either vote directly or delegate their vote to other participants. Voters may select different delegates for different issues, and they are free to withdraw their delegation at any time. People who have received the right to vote for other voters can in turn delegate these votes to other delegates.

Even though this kind of voting system has roots going back to the 19th century, digital technology can help to make implementations of liquid democracy substantially more effective, flexible, and easy to use.

It is worth noting that digital voting through the Internet is generally met with significant skepticism, mainly for lack of transparency and for the risk of voters being exposed to coercion when voting at home or in other non-controlled environments. However, there are solutions to both these issues, which have been implemented, for example, in digital elections in Norway, but for such solutions to gain trust among voters, more time will probably be needed with successful experiments (Lewan, 2013).

Finally, regarding the aspect of the structure of the democratic process in a digital perspective, it can be noted that both deliberative polling and liquid democracy are in line with an increased reliance on horizontal structures and an increased focus on purpose, mentioned above as adaptations to new conditions brought by digitalization.

These three aspects of the digital transformation of the nation-state – efficiency of services, alternative providers of those services, and the structure of the democratic process – can be considered fields where the nation-state has to adapt in order to remain relevant to citizens or, in other words, successful.

A fourth aspect as a consequence of digitalization can be added – the issue of future taxation and revenue sources. Since one main part of today’s tax revenues comes from income taxes, the main question here regards the future of work. Recent progress in AI and machine learning, specifically in the field of deep learning, has shown that increasingly advanced tasks that only humans used to be able to perform can be automated, not only physical work but also mental work. In many cases machines even outperform humans, and there’s a general concern that machines eliminating human work will lead to high levels of unemployment. However, efforts at predicting whether AI and automation will eliminate more jobs than they will create, or the contrary, provide results pointing in all directions and differing by tens of millions of jobs only in the US, indicating that it is difficult to know which effect will prevail (Winick, 2018). It is also true that rather than eliminating jobs, AI and automation are expected to eliminate tasks within jobs, while jobs will be transformed to focus on tasks that humans still do better than machines, such as creativity, convincing and motivating other people, empathy, and fine dexterity.

Thus, whether tax revenues from income tax will decrease drastically due to unemployment is unclear, but it is certain that the future of work will be different than work of today. In the case that unemployment would rise significantly, solutions such as negative income tax or unconditional basic income have been proposed as solutions for distributing resources to citizens. As for an alternative tax revenue base, different forms of increased sales taxes are often suggested, with generous tax deductions for consumption that can be connected with present or future professional activity, ranging from equipment to investments in education, as an adaption to the trend of increased self-employment in the gig economy.

 

3.4      Threats from supra-states, localism, and cosmopolitanism

Apart from changed conditions due to digitalization that force nation-states to adapt, the most commonly discussed threat to the nation-state is perhaps the combination of supra-state and intergovernmental institutions such as the EU on one hand, and localism with claims of independence by populations such as the Kurds and the Catalans and by regions such as Scotland and Quebec on the other.

As for the EU, which could be seen as the most advanced attempt at a modern federation of nation-states, there are different ways to explain the main reasons for building the union, ranging from national interests of gaining influence by being members of a larger player in world politics and international economy, to an effort for peace and collaboration, or a step toward a European state. The main question, however, is if it would be possible to build a sense of national unity among Europeans – either through the civic or ethnic approach – strong enough to mobilize the population to collective action in a crisis. This is effectively contested by Hutchinson (2003), who notes that the EU does not even possess a common language, let alone a bank of myths, memories, and symbols to convey a sense of belonging in a community of sentiment.

Referring to the United States, Australia, or Canada as successful models for building multicultural federations is of limited relevance for Europe since these are countries founded by immigrants who have found a common identity in the willingness to build a new culture in a new territory.

From a larger perspective, looking beyond “immigrant nations,” it is also worth noting that what characterizes successful constructions of multicultural federations, as opposed to federations that keep suffering from fragmentation due to cultural divides, can be explained by three elements – first, building political alliances on already existing cross-cultural voluntary organizations, such as reading circles, trade unions, political clubs and so on; second, providing public goods in exchange for taxes across all regions of a country; and third, having a shared language with which individuals can communicate and converse (Wimmer, 2018). None of these could be considered viable for the EU, except maybe the second under the condition that a federal tax is introduced, which is a remote option as of today.

Rather than becoming a European state, the future role of the EU and other large federations is more likely to be in line with what Thompson and Hirst (1995) argue – trade blocks that, together with international organizations and bodies, can exercise some governance over international economic activities, labor market policies, social and environmental protection, and so on, based on legitimacy derived from national-states.

The threat posed to nation-states by localism is somewhat different. Although it might lead to a few more new small states, trying to build strong societies on a local homogeneous unity as an answer to what might be perceived as an increasingly hostile globalized world is essentially a dead end.

From the perspective of the innovation loop, it is undeniable that the world is becoming increasingly interconnected, multicultural, and diverse through steadily more efficient and pervasive communications technologies. Any attempt at modelling a society on cultural homogeneity and exclusiveness will therefore necessarily lead to a society that is less adapted to the changed conditions in the world, and thus less competitive. Furthermore, as already noted, the more a society becomes Internet-connected, the less people will feel attached to the nation-state based on ethnicity, in favor of the universal appeal of democracy (Lu and Liu, 2018). In other words, the wave of ethnic and nationalistic ideologies sweeping over the world during the mid-2010s – promoting harder delineations of national borders, tighter immigration controls, stronger trade barriers, stronger celebration  of national symbols and of authoritarian regimes, more idealized depictions of nationalistic history, and so on, entailing increased racism and nationalist xenophobia, could be seen simply as a temporary swing of the pendulum of history.

If the innovation loop is a valid model for describing the origin of change, the pendulum could be expected to swing back and forth around a center that moves along the trajectory of continuous innovation and of adaptation to changed conditions. In that case, it is just a matter of time before ethno-nationalist and isolationist ideologies will turn out to be unsuccessful as a way to improve the workings of the nation-state, which in turn will make the pendulum swing back toward more open, interconnected, and multicultural societies. However, the attempt at turning back the clock with nationalist and separatist values is understandable, not only because of increased migration, which is often the main reason for making nation-states more closed. Some view the world as increasingly divided into two categories of people – one cosmopolitan with mostly urban people, sharing an international set of values, interests, and culture, communicating globally and, to some extent, also travelling globally, and another category of more locally rooted people, typically rural to a larger degree, and less able to harvest the opportunities offered by an increasingly interconnected world.

Since the latter category could be considered less adapted to new conditions emerging in a digitalized world, wanting to go back in time to a situation with more closed nation-states – the billiard balls mentioned before – is a natural reaction. Another important reason making many people wishing for time to stop is arguably a general fear of the future, which is vague to many, for natural reasons. While the pace of change is increasing, most political leaders themselves have vague ideas about the future, and credible, long-term, positive visions for a future world are clearly lacking.

This is not to say that the opinions expressed by the second category mentioned above are not important. On the contrary, what is important, and in everyone’s interest, is keeping society united, learning from diversity, and helping everyone to take part in the ongoing digitalization process since high tensions in society will be unfavorable for everyone.

On the other hand, one may ask whether the cosmopolitan category has such values and motivations that people in this group would rather abandon the nation-state in favor of some global alternative state, such as a PVS, uniting, for example, people living in large urban environments across the world.

Anthropologist Ulf Hannerz (2004), investigating the nature of cosmopolitanism, sketches a wide range of different flavors and origins. The range of these flavors and origins stretches from the international elite working in global organizations, moving across the world, to a Pakistani villager, not particularly well-educated, but a member of a Sufi cult and formerly a migrant laborer in the highly mobile, heterogeneous society of the Gulf, there picking up a series of foreign languages. Hannerz further notes that cosmopolitanism has two faces; one side aesthetic and intellectual with a happy face, and one political side with a worried face.

He raises the question of whether there could be a “thick” cosmopolitanism, corresponding to the unity required for building a national identity, and without coming to an answer, he observes that while cosmopolitans are often seen as root-less, cosmopolitanism can also be seen as the “privilege of those who can take a secure nation-state for granted” (Hannerz, 2004, p. 78).

It is thus not obvious whether a growing cosmopolitan tendency could be seen as a threat to the nation-state, or even as a support. It’s also clear that the number of far-reaching ideological cosmopolitans in the world is dwarfed by the sheer number of involuntary cosmopolitans – international migrants – reaching 258 million worldwide in 2017, up from 220 million in 2010 (United Nations, 2017).

The  increasing international migration thus appears as a stronger threat to nation-states, not only since it is a main reason for the backward-aiming forces striving for closed and isolated countries, poorly adapted for the world’s changing conditions. Migration is also likely to continue growing since the interconnectedness of the world lets information flow more easily, making the differences and the injustice in the world more apparent to everyone. This is further enforced since cultural homogeneity will be increasingly difficult to use by advanced states as an argument for exclusion, and closed borders will thus appear as what they are, a mere refusal of entry based on the lottery of birth.

Such a world order will become untenable, and it will remain a major threat  to advanced nation-states unless the differences decrease. Just like within Western nation-states, where improved communications technologies over time made a levelling of resources and opportunities between classes inevitable in order to avoid unsustainable tensions in society, it is unlikely that the world’s poor will passively accept their poverty, and a levelling of resources in the world will become necessary.

Apart from limiting the migration pressure on advanced nation-states, such a leveling would also strengthen the opportunities for the concept of citizen-roaming mentioned before, through improved conditions for interstate trust, and thus support nation-states in more than one way.

 

3.5     The rule of law

The final consideration to be made on the nation-state is the rule of law. A declining autonomy for nation-states to exclusively decide over internal politics does not diminish the importance of the state’s monopoly as a lawmaker in its territory. On the contrary, in a world that is more complex and interconnected on the one hand, and more individual and diversified on the other, the rule of law as a guarantee of stability, limiting the harm that individuals, companies, and the government itself can do, is of increased importance. The rule of law is also necessary for a structure of global governance to be effective, as a way for transforming international agreements into national laws and imposing such laws on the citizens. And although cities are often considered to be the main future actors of global collaboration since a majority of all people in the world now live in cities, nation-states are important for making cities and regional governments accountable according to the rule of law.

Apart from this, however, the rule of law is also a tool of power in the hands of the nation-state, which eventually comes down to the monopoly of coercive power and to the fact that, even in a digitalized world, all individuals have a physical body and all cables and servers that make up the Internet have a physical location.

The combination of the monopoly of coercive power and the control of a physical territory gives the nation-state a significant power over individuals and their movements, and also of the organizations they make up, which together with digital tools such as surveillance cameras, facial recognition, data analysis and so on, is strengthened rather than weakened. The power can be used by authoritarian states for control and oppression. However, also in democracies, even where the level of corruption is low, it remains a strong foundation for the nation-state to build its survival on, even when challenged.

We can look at the cryptocurrency Bitcoin as an example of such a challenge. Although the future of Bitcoin today is unclear, not the least for the unsustainable level of energy consumed by the Bitcoin system and for the low transaction speed, future versions might offer interesting opportunities for international peer-to-peer transactions without the need for controlling parties such as banks or financial institutions. Crypto-libertarians and/or crypto-anarchists,4 however, often consider Bitcoin one of the tools that could make the nation-state irrelevant, due to its distributed, noncentralized nature.

Also, the underlying database technology, the blockchain, may offer attractive distributed applications in a wide range of contexts, eliminating the influence and bias of controlling parties, but again, crypto-libertarians and/or crypto-anarchists see many of these opportunities as ways to subvert the state and its institutions.

Confronted with such a challenge, before it reaches critical levels, the nation- state could use the rule of law to effectively defend itself by drastically limiting the use of such applications. It is true that software applications through virtualization can be made to jump seamlessly in real time between physical servers across the world, but eventually, the ability of the state to reduce the usage is significant.

In the context of rule of law and digital technologies, a special note may be made on what could become a global competition between liberal democracy and digital authoritarianism (Wright, 2018). Digital technologies, in particular the latest evolution of artificial intelligence, have turned out to offer authoritarian regimes – for the first time in decades – a possible way to sustain long-term economic growth while controlling their citizens. China is by many considered to lead this development with large-scale Internet censoring and widespread surveillance through technologies such as face recognition, and with machine learning tools in combination with a “social credit system,” which according to the Chinese government will be rolled out nationwide for every citizen by 2020 (Munro, 2018).

Many AI-based machine-learning technologies depend on access to large amounts of data for training. Authoritarian regimes like China therefore have a significant advantage over liberal democracies in using such technology for analyzing and controlling citizens’ behavior, being able to access and combine people’s personal data with few restrictions and privacy concerns.

The official scope of the “social credit system” is to increase trust and to decrease the level of corruption and fraud in Chinese society. This is admittedly needed and some citizens also welcome it, but it is also clear that citizens will have limited opportunities, if any, to challenge the system.

It is an open question whether citizen control realized through digital authoritarianism will make countries like China more competitive and better adapted than liberal democracies to a digitalized world, but it is undeniable that China will give it a try. According to a recent report by the US government-financed democracy watchdog Freedom House, China is also actively spreading its methods and technology in this area to tens of other countries (Shahbaz, 2018).

Speaking against the success of digital authoritarianism is the aforementioned finding, that is, that the nation-state can reach increased strength through digitalization only if there is a balanced development of digital infrastructure and digital freedom (Lu and Liu, 2018).

However, as described by the innovation loop, neither democracies nor authoritarian states, will, in the long run, be able to resist necessary adaptations to new technologies changing the conditions for their existence; otherwise, they will collapse and be disrupted. Yet, the rule of law will give nation-states substantial capabilities to delay such a development, providing extended time for implementing change.

On the other hand, there is already another strong technology trend, apart from Bitcoin and the blockchain, hinting at a more decentralized model of society: local energy production with renewables such as solar and wind, but also with yet unexplored small-scale energy sources such as low-energy nuclear reactions (LENRs). If such energy sources over time can make wide-area power grids unnecessary, they will also bring the advantage of making societies less vulnerable to cyberattacks and cyber warfare, which typically target crucial infrastructure systems.

In a distant future, distributed technologies such as blockchain and hyperlocal energy production may one day provide the basis for a completely decentralized world order, akin to nature itself where all individuals and entities are independent of any state structure and free to interact globally, but where – in a difference from nature – an AI-based rule of law is built in to the decentralized system, limiting the harm individuals and organizations can do and thus avoiding the cruel aspects of the law of the jungle. However, it is only when humans may merge with machines (making it possible to transcend the physical body) that the power over physical territories will eventually lose its importance.

 

4 Conclusion

In an increasingly globalized, digitalized, and interconnected world, with mobility for capital and technology and for digital services and products, the nation-state is challenged but may remain a fundamental building block for governance and international collaboration. Nation-states are losing some of their sovereignty regarding exclusive control over economic and social processes within their territories, and they are less able to maintain national distinctiveness and cultural homogeneity. On the other hand, their role as a source of legitimacy for agreements made in international institutions, organizations, and bodies is becoming more important, as well as for ensuring accountability of cities and regional governments. From an innovation perspective, losing independence and gaining another role in an increasingly interconnected world can be seen as a natural evolution, being a consequence of steadily improved communications technologies through human history.

In order to remain relevant to citizens and to the world, however, nation-states need to adapt to new conditions posed by digitalization. These adaptations can be found in three fields – efficiency of services offered by the state to citizens, alternative providers of those services, and the structure of the democratic process.

Efficiency of services needs to increase through digital transformation, in order to address a combination of increased expectations and limited resources. The increased expectations derive partly from people’s experience of the large range of various services offered online, with a significant increase in convenience and ease of use compared to only a decade ago.

Alternative providers of social services may partner with public agencies that in turn may transform their role from producer to facilitator ofservices. Such service providers could also extend their offerings into a private virtual state eventually providing an alternative to traditional citizenship. However, since a PVS will depend on legislation in the nation-state where it is registered as a company, it will need to enter agreements with nation-states where its users live and work, and it will need to solve the issue of lacking democratic influence on the owners. Meanwhile, nation-states could offer services to PVSs through concepts such as State as a Platform, and nation-states could also make agreements with other nation-states for citizen-roaming, allowing their citizens to live and work in other countries.

The structure of the democratic process needs to adapt to decreased political involvement and to the risk of advanced manipulation of people’s opinions on one hand, and to the fact that geographic distances have become irrelevant on the other. Two possible models addressing those issues are deliberative polling and liquid democracy.

It is also found that the nation-state can reach increased strength through digitalization only if there is a balanced development of digital infrastructure and digital freedom.

Another question related to digitalization regards a future base of tax revenue in the case that AI and automation would lead to massive unemployment and to reduced tax revenues from income taxes. Although it is unclear whether automation will eliminate more jobs than it creates, an often-suggested alternative tax base is increased sales taxes, while alternative ways of distributing resources to citizens are negative income tax or unconditional basic income.

Nation-states are also considered to be threatened by a combination of supra-states, localism, and cosmopolitanism. However, since it will be hard for a supra-state to build a national identity strong enough to keep it united in crisis, the nation-state will likely have a role as a source of legitimacy for larger international structures, as mentioned before. Localism, on the other hand, will, in the long run, have limited opportunities to be successful due to the increasingly interconnected nature of the world. Specifically, with regard to ethnic homogeneity, it has been found that as a country becomes more Internet-connected, people’s attachment to the nation-state tends to derive more from the universal appeal of democracy than from the particular appeal of ethnicity. Regarding cosmopolitanism, it is not clear whether a growing cosmopolitan tendency could be seen as a threat to the nation-state, or even as a support. However, the increased number of involuntary cosmopolitans – international migrants – constitutes an increasing threat to nation-states, reinforced by improved communications technologies highlighting the injustice of the lottery of birth, and, eventually, the only way to remediate this threat is through a levelling of resources in the world.

Even though it is difficult to define a valid alternative that would threaten or disrupt the nation-state, the need for the nation-state to adapt as described above in order to remain relevant is urgent since digitalization is a process that arguably has just started and since the pace of change is accelerating. Not adapting is not an alternative since no entity can avoid adaptation to new conditions brought about by inventions without collapsing or being disrupted. However, the combination of the rule of law, the monopoly of coercive power, and the control of a territory gives significant power to the nation-state even in a digitalized world, which eventually comes down to the fact that all humans have a physical body and that the Internet is built on servers and cables that all have a physical location. This power gives nation-states substantial capabilities to delay any challenging development, providing extended time for implementing change.

 

Ethical considerations

The persons interviewed and named throughout this chapter (wherever applicable) have all provided their informed consent to appear in-text.

 

Acknowledgments

The author would like to thank the following persons for providing their views on this topic in personal interviews through April and May 2018: Anders Sandberg, Carl Heath, Darja Isaksson, Jan Nolin, Jan Söderqvist, Klas Danerlöv, Leif Edvin- sson, Matthew Zook, and Stefan Fölster.

 

Notes

  1. The term “best adapted” is a more accurate, and less problematic, representation of the source material than the popularly used term “fittest.”
  2. Network effect: a phenomenon whereby a product or service gains additional value as more people use it.
  3. Swe: Sveriges kommuner och Landsting.
  4. Crypto-anarchists or crypto-libertarians refer to people who use cryptographic software striving for total or a high degree of anonymity, freedom of speech, and freedom to trade.

 

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Eight + one megatrends you need to check out in 2018

A new year has just begun, with phenomena and trends that were mere ideas just a few years ago. Change will never be as slow as today, and therefore it is important to look up to see the big picture. Here are eight megatrends, plus one upcoming hot topic, you need to keep an eye on.

1. AI

If digitalization is what many have been wrestling with in recent years, artificial intelligence could be called digitalization 2.0. AI systems are not yet smart as humans, but once information flows and processes have become digital, AI can help with three things—optimizing and streamlining entire businesses, prediction of everything from market reactions to legal decisions, and personalization of services and products to individuals. The challenges are many, both ethical and practical, but AI will change all industries, from manufacturing, finance, and law to healthcare and retail. Start with a small project with direct business benefits.

2. Automation

Robots have long been used for automation in manufacturing, but with AI, automation now enters offices and takes over routine tasks in all possible areas—from sales and customer support to administration and financial advice. Everything that can be automated will be automated, and this also allows people to work with more interesting and stimulating tasks.

3. Internet of Things

More and more products will be connected. The networks of connected things are for AI what the human senses are for the brain—they collect information that enables new, smart, customized services to be delivered. The devices can also talk to each other, on their own, and for example order service or spare parts. Or warn that they are about to break. Through this increased efficiency, the trend is that ownership is shifted towards access, just like in the music industry where we now pay for access to music instead of owning discs and music files.

4. Devices that talk to you

Computers are now learning one of the most human things of all—our spoken language. Soon, we will get used to talking to our devices, from smart speakers like Amazon’s Echo or Google’s Home to digital customer support assistants who even understand if we’re angry, annoyed or happy. For companies in all industries, it will be crucial to follow the development of automated customer support based on natural language processing. A significant advantage is that it will become easier for everyone—elderly people, not the least—to use digital services.

5. Blockchain

The Blockchain is what everyone talks about but few understand. Don’t worry—it’s not rocket science: A blockchain is a kind of database, with multiple identical copies, that everyone or many people manage together. This entails two things:

1. A blockchain has got superior security since it cannot be manipulated on one single computer or server.

2. It replaces the need for an independent third party, such as a bank, a lawyer or a supervisory body.

There are two other important things distinguish the blockchain—it can contain smart contracts, a kind of application that automatically performs agreed actions, and it can manage both money and other assets in the same system so that transactions of assets and money are carried out in one single process. Altogether, this opens opportunities for the blockchain to dramatically change everything from financial systems and real estate business to consumer services. Many experiments are now being set up, and it is a good idea to start testing blockchain-based applications on a small scale.

6. Self-driving cars

By 2018, the first cars that will let you take your hands off the steering wheel for a long while will be sold, and in a few years, cars will be fully autonomous. The upcoming change will be enormous, not only for transportation. One potential outcome is that the second-hand value of your car may fall to zero when cheap transportation services with electric self-driving cars become widespread. Another is that the price of downtown hotel rooms and short time offices can fall when self-driving hotel rooms and office spaces can be positioned where you want, and get you where you want, whenever you want. The combination of electric power, connected cars, and self-driving cars will lead to a perfect storm and a brand new market—the passenger economy. And the car industry will be tremendously challenged when demand for new cars will start to decrease heavily.

7. Virtual reality

Virtual reality, and augmented or mixed reality—where computer images are “stuck” to physical objects in the real world—are still in their infancy. But the technology is intensely fermenting, from Facebook’s VR mask Oculus Rift to Microsoft’s AR mask Hololens and not least, the intriguing company Magic Leap with its AR system Magic Leap One. Applications range from virtual meetings and tourism to visualization of building projects and tools for service technicians. Definitely worth keeping an eye on.

8. IT security

IT security has always been a race against increasingly smart attacks. Soon, or maybe already, there are AI-based systems that are looking for new weaknesses on their own and that perform attacks without human intervention. Today, the average time to detect a data breach is over six months, and IT security is therefore as much about finding hidden intruders as preventing attacks. The threat is directed towards companies and organizations as well as society’s infrastructure. There is no simple solution—the takeaway is that IT security continues to be increasingly important.

+ One upcoming hot topic—Disruptive Energy

Although yet little talked about, two disruptive and abundant carbon-free energy sources, potentially helping to solve the climate crisis and much more, are approaching commercialization. One is called LENR and could be described as radiation-free nuclear power, suitable for everything from households and vehicles to industry. The other one is hydrogen, producing only pure water when burned. Hydrogen is now facing new possibilities through a new carbon-free process for producing abundant amounts of the gas. This will be discussed at the New Energy World Symposium in Stockholm, Sweden, June 18-19, 2018. Don’t miss it!

So what should I bet on?

As everything is getting increasingly digitalized, automated and streamlined, four human qualities will increase in value: Creativity, the ability to convince and motivate other people, empathy, and fine dexterity. Unique human experiences based on these four abilities—whether it’s a different shopping experience, a travel experience, a visit to a restaurant, or a business encounter—will always be requested. These four areas are where you can look for new opportunities in 2018. Equally valuable is our human ability to see large perspectives, and therefore, as the pace of change increases, never forget to look up, and around!

PS. Want to learn more of one or more of these megatrends? Don’t hesitate to contact me!

Let’s talk about TRUST—in finance and in business

[Presentation at a launch event of a new book on FinTech in Sweden, see below].

Trust is a funny thing. It’s a very human condition, which most people would consider absolutely essential in financial services and in business. Yet, we don’t reflect much on what trust really is. Most often it’s a gut feeling, not very well defined.

If you look it up in dictionaries you will find definitions such as ‘firm belief in the reliability, truth, or ability of someone or something.’

Note the word belief.

And here’s the first take-away—things that we’re using regularly without knowing well what it is and how it works, are likely to be unexpectedly changed or disrupted by digitalisation since we don’t analyze the mechanisms in play.

I started to look at the concept of trust for a contribution to a research project at the Stockholm School of Economics which has resulted in the upcoming 23-author book ‘FinTech: Accounts of Disruption from Sweden and Beyond’, and this is a short summary of the presentation I recently gave at a launch event in Stockholm.

First—what is trust:

Then, in interviews with ten individuals (see list at the bottom), I investigated how FinTech companies and people in the financial industry build trust and relate to trust:

And here are some main findings:

  1. Markers. Fintech startups build trust by using markers such as well-known people on the board or among the investors, tests by external experts, media reports, using established tools such as Bank-ID, getting an ISO certification, a banking license (makes you less global!) and through compliance. Other markers that build trust over time are reliability and good functionality. Note that almost nothing of this relates to whether the service is objectively trustworthy or not. But the markers give users a sense of predictability.
  2. Social. More than markers, the interviewees considered the users’ friends and social networks to be important today. People trust their friends, or essentially they know that if anyone among their friends’ friends’ friends would notice something unreliable, this information would spread very quickly. Not having heard anything negative, it’s probably trustworthy. You could also argue that this regards millennials more, being more used to interacting and giving away data on the Internet. Or as one of the interviewees put it: They are ‘trusting online, or mistrusting, as the case may be, or being wary but in a different way than people who are pre-internet are wary.’ This is in line with digitalisation: The Internet enables peer-to-peer communication across the world, as opposed to hierarchies we have built for thousands of years.
  3. Two kinds of trust. You can have trust regarding security, and regarding whether a financial institution will give you good advice and manage your funds in a good way. Some interviewees thought that traditional banks are trusted for security but that users’ trust in banks with regard to managing funds is decreasing. Some also thought that millennials have more trust in Internet giants such as Google, Facebook, Apple, and Spotify, than they have in banks, and that these will be more successful launching new financial services, such as direct payments through messaging services, launched by Facebook among others, and recently announced by Apple. This was considered to be an opportunity for FinTech companies.
  4. Trust is two-way. For FinTech companies, it’s essential not only to be trusted but also to have trust in their customers, to some extent by regulation e.g. regarding KYC rules (Know Your Customer). The Swedish bank-owned digital system for identification, Bank-ID, has been a door-opener for digital financial services, making it possible to identify people remotely. However, Bank-ID has also been criticized, partly for being privately owned by major banks with a potential self-interest of not being challenged, partly for lacking security (more about this in our report).
  5. Digital trust—Blockchain. As mentioned above, digital technology is efficient for prediction. One example is the startup Hiveonline, building a system for automatic credit rating, as opposed to human judgment. The system collects data on interactions between parties, and through an algorithm, it calculates a credit score which is not influenced by judgment and supposedly holds a higher quality with regard to prediction about how individuals will behave. In other words, trust. (The collected data is stored in a Blockchain—the distributed ledger system which is the basis of Bitcoin and which could be considered to provide distributed trust, since it eliminates the need for a trusted partner which controls and guarantees transactions. Note that Blockchain technology is not yet considered mature and some believe that it can not be used effectively for other applications than cryptocurrencies such as Bitcoin).
  6. Possible effects of automated credit ratings: In developed economies: a rebalance between large businesses and micro businesses. In developing economies: two billion unbanked, of which 1.5 billion people without even ID, birth certificates or other documents, could get a credible credit score and go to the bank to get a loan.
  7. Culture. Discussing global systems for digital trust, it’s important to remember cultural differences in people’s perception of trust. One such main difference is the scale between cognitive and affective trust, where cognitive trust is based on the confidence you feel in someone’s accomplishments, skills, and reliability, whereas affective trust arises from feelings of emotional closeness, empathy, or friendship. It turns out that in business contexts, cognitive trust is predominant in the US, in Australia, and in northern Europe, whereas affective trust is more important in Asia, in Africa, in the Middle East, in Mediterranean countries, and in South America. Possibly, affective trust is more important in countries where the legal system is less effective. US businesses, on the other hand, rely much on written agreements and consider mixing cognitive and affective trust unprofessional. Yet, proposing a written agreement in a country where affective trust is predominant could even be seen as offesive—you don’t trust me? All these cultural differences are important to recognize and relate to in a potential global system for digital trust, as in all other contexts of digitalization, where human aspects are half of the equation.

    Erin Meyer—The Culture Map

  8. The Trustnet—a possible evolution of the Internet. This would be a part of the Internet which you can only access if you identify yourself with a global, non-govermentally controlled ID system, e.g. based on Blockchain technology. In this way, everyone on the Trustnet would see whom everyone else is—even governments or companies wanting to do surveillance would need to identify themselves. In this way, surveillance becomes symmetric, as in a small village where everyone knows everything about everyone, as opposed to asymmetric as of today when we don’t know who is watching us. You would then see if people would ‘vote with their feet,’ and for different activities move between the Trustnet (where everyone is identified and visible), the Internet (where you can be anonymous and visible), and the ‘Darknet‘ (where you can be anonymous and invisible).

The book ‘FinTech: Accounts of Disruption from Sweden and Beyond’, expected to be released later this year, is part of the three-year research project The Internet and Its Direct and Indirect Effects on Innovation and the Swedish Economy—led by Professor Robin Teigland at the Stockholm School of Economics, with funding from IIS, The Internet Foundation In Sweden.

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List of persons interviewed:

Cecilia Skingsley, Deputy Governor of Sweden’s central bank, the Riksbank, Henrik Rosvall, CEO of the savings app Dreams, Johan Lundberg, Co-founder at the FinTech focused VC-firm NFT Ventures, Daniel Kjellén, CEO at the integrated bank information app Tink, Ulf Ahrner, CEO at the investment digital advising company Primepilot, Danny Aerts, CEO at IIS (Internetstiftelsen), Lan-Ling Fredell, Head of Operations at Stockholm FinTech Hub, Sofie Blakstad, CEO and Founder at the financial trust platform Hiveonline, Frank Schuil, CEO and Co-founder at the Bitcoin-focused startup Safello, and Jonathan Jogenfors, researcher at the University of Linköping.

Note: I also do seminars and workshops on digital transformation, and if you want a deeper look at digitalization, please don’t hesitate to contact me.

Seven Things You Should Know to Be a Digital Winner

It doesn’t matter whether you’re a doctor, a bus driver, a lawyer, an economist, an industry worker, a salesman, a trader, a teacher, an engineer or a customer service agent—your job won’t exist in a decade or two. Not in the form it exists today.

The reason is that machines are getting better and better at doing what humans do, in almost all fields. And they’re making progress quickly—faster than many would have believed. Google’s AI (artificial intelligence) based system AlphaGo recently beat the world’s best player in the world’s most complex board game—Go—ten years earlier than expected.

AlphaGo now stops playing games and will instead focus on solving world-class problems—finding new treatments for diseases, dramatically decrease energy consumption, and inventing new revolutionary materials. In other words, it’s a fairly smart machine, and it’s self-learning too!

Within all professions I mentioned initially, and in others too, there are already advanced AI based systems taking over more and more of people’s work tasks.

So now you’re asking, how will all this affect me and my job?

The bad news is that you won’t escape.

The good news, however, is that there are tons of opportunities if you develop an understanding of the ongoing change and if you build a strategy on that understanding.

To help you on the way, I will share some insights, built on my experience and focus on future, technology and digital change for individuals, organizations, and society.

  1. Start discussing digitalization and automation in your organization, in particular with the top management, which has to understand its importance and be ready to take action. If the top management doesn’t show this understanding, consider looking for a new job. Your company or organization will be in trouble.
  2. Get rid of boring work. Ask yourself which of your daily tasks you wouldn’t mind at all if a machine would do for you. Most repetitive work is boring, and the good thing is that machines are particularly skilled at repetitive tasks. Let them do it and free your time for work that you find more interesting.
  3. Be curious! Start investigating digital and AI-based tools in your field, and learn about them. Remember that such tools will help people to work faster and more efficiently through automation—be it lawyers, researchers, doctors, or analysts—and that those who are learning ahead of others will be winners.
  4. Collaborate with machines. No, machines won’t steal your job, at least not for a good while. In contrast, collaboration with machines is a winning formula. The best chess teams are humans together with computers, and that will be true for most other areas. So investigate how you can collaborate and build a team with AI-based systems, and even learn from them.
  5. Become better than machines. Four main areas will be the most difficult for machines to master: Creativity, ability to convince and motivate other people, empathy, and fine dexterity. Find out which of your work tasks are related to any of those areas and try to develop them further.
  6. Get more social. Remember that the Internet helps people connect, peer-to-peer, across the world, in contrast to all hierarchies we have built through thousands of years. This goes also for machines, but people are more social (so far). Use and develop this opportunity in your work, and reinforce your informal networks, not only in your own industry. Also—always try to share your insights and your journey with others. Together you are stronger!
  7. Pay attention to digital strategies. In the long run, digitalization will require a transformation of everything at work—from organization, development, and sales to the core business model. A digital strategy that is a separate part of your organization’s operations might be a good and careful start, but over time it’s not enough. Contribute to digitalization becoming a part of everything your organization does in a longer perspective—this will increase the chances that your own job can evolve.

In other words—your job will disappear, but digitalization, automation, and AI are bringing great opportunities to create a new one. And the earlier you start investigating these opportunities, the bigger the chances that you will be successful.

Note: I also do seminars and workshops on digital transformation, and if you want a deeper look at digitalization, please don’t hesitate to contact me.

Nine Things You Should Know to Be Smart About Driverless Cars

Just a few years ago, not many people realized what digitalization of transportation would be. Now, autonomous cars are the talk of the town, and carmakers, tech giants, and start-ups are racing to stay ahead in the mercilessly competitive transformation of the mobility industry.

It could turn out to be the most profound of all digitally driven transformations. Some call it a perfect storm, because of the fast convergence between autonomous driving, electric vehicles, and connected vehicles. The convergence is explosive and will result in so many secondary effects that it’s hard to even imagine them.

Such effects will hit you too, which might get you worried. The good news, however, is that you’ve got great business opportunities ahead if you develop an understanding of these effects and build a strategy on that understanding.

To help you on the way, I will share some insights, built on my experience and focus on future, technology and digital change for individuals, organizations, and society.

Here we go:

  1. Driverless cars will save lives. Over 3,000 people get killed every day on public roads in the world—more than two people every minute (not to mention those injured). Few diseases kill more people. Autonomous cars will be safer. They never get distracted, irritated, emotional, tired or drunk. The funny thing, however, is that even if all cars were autonomous, and maybe 1,000 people were killed every day, we would not be happy. Somehow we excuse people but not machines. Be ready for this debate. Eventually, though, humans will probably not be allowed to drive cars, except for at remote locations, and in an emergency, at low speed.
  2. Jobs will be displaced big time. Autonomous cars will lead to a substantial loss of jobs. Primarily drivers—both of cars, buses, and trucks. Goldman Sachs expects the decline to be 25,000 jobs a month in the US only when vehicle saturation peaks some years ahead. Since most vehicles will be electric (see below), a secondary effect will be the loss of jobs at gas stations, garages (electric vehicles require significantly less maintenance), spare parts providers, the oil industry and more. If you have such a job, let machines do the boring tasks and focus instead on things that machines are not good at. Essentially this regards four areas—creativity, ability to motivate and convince other people, empathy, and fine dexterity. Find out which of your daily tasks are related to one of those areas and develop them further. Bus drivers could e.g. shift towards bus hostesses.
  3. Fossil fuel cars will be displaced big time. According to Stanford University economist Tony Seba, no more petrol or diesel cars, buses, or trucks will be sold anywhere in the world within eight years. A twin ‘death spiral’ will hit those vehicles—since electric vehicles are ten times cheaper to maintain than cars that run on fossil fuels and have a near-zero marginal cost of fuel, people will switch, making it harder to find a petrol station, spares, or anybody to fix an internal combustion engine. Sell your petrol or diesel car before it’s too late. One fundamental issue, however, will be how to charge massive amounts of electric vehicles. Another issue is the environmental impact of battery production. Therefore expect the need for new energy sources to provide electricity on-board—consider for example LENR.
  4. Car-owning will change. As with most digital transformations, autonomous cars will push a shift from owning to accessing. Most people will access mobility as a service, potentially at a fixed cost a month. As for owners, there are four good owning cases: 1. People who want to own a self-driving car, for convenience and status. 2. Taxi or transportation firms such as Uber, Lyft, Otto and others. 3. Car-sharing firms such as Zipcar. 4. Cars will own themselves, doing business, occasionally driving to motor vehicle inspection, repair garage etc. And if they get rich they will buy another car and become two. Or more. Get ready to choose your owning or accessing strategy.
  5. Policymakers will have to regulate. Driverless cars will require fewer parking spaces in cities, but if unregulated, they will lead to more traffic since it will be easier and cheaper to use transportation. People could, for example, choose to let the car circulate when shopping in crowded cities, and soon streets will be congested. The risk for terrorists using autonomous vehicles for attacks is obvious too. This, and more requires wise regulation.
  6. Real estate values will be affected. Locations that are a little too distant for people to commute by car today will be more attractive since you will be able to work when commuting, instead of having to drive the car. Check for such real estate opportunities, before the value increases.
  7. Car ethics will be hot. Autonomous cars will have to make decisions, and such decisions need to be certified. However, don’t expect the decisions to be clearly programmed. Autonomous cars are self-learning and will take decisions in a way similar to humans, although many decisions will be taken together with other nearby cars. The upside is that cars can learn, become better, and immediately share their knowledge with millions of other vehicles. The challenge will be how to certify such self-learning vehicles—maybe with a driving license test? Be sure to understand this as a user.
  8. Privacy to the next level. If privacy on the Internet is already a complex matter, privacy for autonomous car users will be the advanced level. An autonomous car will have AI inside to provide help, service, answers, and entertainment, while also communicating with other vehicles. This will expose your activities more than normal Internet usage does. On top of that, autonomous vehicles will know where you need or like to go, with whom and when. Think well about who can access this data.
  9. Car security will by fundamental. With so much responsibility in the hands of the car itself, cyber security for cars will be of fundamental importance. No details need to be explained. Make sure the car provider is top notch on this point.

These nine insights might help you to prepare for choices you will need to make with regard to driverless vehicles.

But also remember that huge business opportunities will emerge for digital products or services—from finance, law, entertainment or any other field—that can be mixed into the autonomous and electric mobility industry from this perspective. Start investigating today!

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Note: I also do seminars and workshops on digital transformation, and if you want a deeper look at digitalization, please don’t hesitate to contact me.

Eight Things Retailers Should Know to Be Digital Winners

The digital transformation of retail has been going on for some years now, and as a retailer, it’s easy to become worried over how to remain competitive in such a fast changing environment.

The bad news is that this change still has a long way to go. The good news, however, is that you shouldn’t worry if you develop an understanding of the change and if you build a strategy on that understanding.

To help you on the way, I will share some advice, built on my experience and my focus on digital change for individuals, organizations, and society.

Here we go:

  1. Investigate your business model. Digital goods can be copied infinitely, and non-digital goods can be shared efficiently on digital platforms. And you reach the world with one click. Generally, this combination is what breaks traditional business models and also creates a push from owning to accessing, as for example in the music industry. Investigate to what extent your offerings are purely digital, or shareable on digital platforms, and play with ideas on business models taking advantage of the digital economy. Maybe you could design new digital services to go with your existing products or mix your digital offerings with digital content from other fields. Don’t stop. Ever.
  2. Be local (or niche). E-commerce is continuously growing, but essentially there are four ways to stay ahead online: Lowest price (hard to compete with Amazon and Aliexpress), Well-known Brand (hard to compete with Adidas and Nike etc), Niche Products (yes, you might sell sheep shears from Sardinia), Local Presence (yes, you might have a local store, which is more common than having niche products).
  3. Become Phygital. Local is good, but in a digital world, you also need online and mobile presence. And once you have both it’s important to integrate your Physical store with your Digital store, seamlessly—into Phygital: One single cash system, one single stock system, one single sales system, one single marketing system etc. Many providers offer these solutions (some call this Omnichannel, but that doesn’t underline integration, which is essential).
  4. Be social locally. The advantage of local presence is that it’s easier to meet people—managing returns and being able to offer additional items at the same time, building a brand experience in your store where people want to hang out, offering customers a pick-up location for goods ordered online, and more. This is why even Amazon is experimenting with local stores.
  5. Be social online. Naturally, you need to take advantage of all the opportunities offered on the Internet to be digitally social. Listen to advice from experts on social networks and always aim at creating an online presence that people might want to share with each other. Here’s where you can build digital momentum.
  6. Be super transparent. Customers visiting your physical or digital store should always know exactly what they can find in each of them, at any moment. Your physical store might be small, and could yet offer digital ways of discovering a large stock of products. Customers should be able to place orders in both stores and get deliveries at home or in the physical store, independently of where the order is placed.
  7. Develop logistics. Logistics is key for retail, and logistic services for phygital commerce is evolving. Investigate what new opportunities are offered, for example integrating delivery with nearby stores or having stock delivered to you in real time.
  8. Be predictive. With big data analysis, it’s possible for large online businesses to know what customers will order before they order it. Today, Predictive Analytics is also available for small businesses. The two top benefits are:
  • Customer Retention—for example predicting when existing customers will come back and buy more of something. Reminding them before they think of it will make them happy.
  • Demand Forecasting—tracking inventory, discovering trends and forecasting demand at different times can significantly help improve the top line.

In other words—digital is still a great opportunity in retail, and the earlier you investigate its opportunities further and keep track of new trends, the bigger the chance that you will be a digital winner.

Note: I also do seminars and workshops on digital transformation, and if you want a deeper look at digitalization, please don’t hesitate to contact me.

Seven Things Lawyers Should Know to Be Digital Winners

Many lawyers and law experts worry about how their professional opportunities are changing with digitalization, observing how some daily tasks are already being taken over by digital automation and artificial intelligence, AI.

And yes, the ongoing change in the legal sector is significant, and moreover, it only just started. The good news, however, is that you shouldn’t worry if you develop an understanding of this change and if you build a personal strategy based on that understanding.

To give you some help on that journey, I will share some important advice, grown from my daily focus on technology and digitalization and its impact on businesses and on society through many years.

Before getting to the advice (jump down if you’re in a hurry), let me just highlight three core pieces of the digitalization puzzle that many people struggle to put together.

First of all, remember that digitalization has become a hyped term, meaning all and everything. And instead of scratching the surface, looking at apps and social networks strategies, try to focus on what really makes digitalization a powerful driving force for change.

These three aspects of digitalization are fundamental:

  1. The cost of a digital copy is basically zero, and you reach the whole world with one click. This means that once you have digitalized content, tools, processes, products, services or methods, you can spread them over the world at a very low cost. This is what makes traditional business models break, pushing a shift from owning to accessing, among other things. Think of how the music industry went from owning discs to accessing music, but also of any kind of digital tool in the legal sector.
  2. People—it is people using, investigating, and taking advantage of the low cost of digital material and the possibilities of reaching the world, that really makes digitalization explode and disrupt many industries. And since the Internet is not hierarchical, people are networking, connecting with individuals all across the world, changing the way we organize, collaborate, build things, provide funding, distribute news, recruit collaborators and much more. And people are already building network inspired legal services, such as Swedish Lawline.
  3. Algorithms and AI. Algorithms are what let Amazon effectively tip you off with ‘Customers who bought this item also bought…’ while AI, which is now evolving rapidly, adds a why-dimension to that kind of advice, making it possible to answer more complex questions. Both can be learning, making them richer, more accurate or individually adapted over time.

In the legal space, the use of algorithms and AI is spreading quickly (remember that they are spreading and evolving because of point 1 and 2 above).

Key areas are:

  • Research tools—such as ROSS, built on IBM’s system Watson that won over humans in Jeopardy in 2011. ROSS answers advanced legal questions in plain language.
  • Contract Review—AI-based tools that assist attorneys in analyzing contracts and other legal documents, pulling out key points of interest. One example is Extract by the UK based company RAVN.
  • Electronic Discovery—tools for technology-assisted review, aka TAR, helping attorneys with the hugely time-consuming work of going through documents, searching for relevant facts, cases, relationships and more.
  • Prediction—AI-based tools that effectively predict the outcome of a case, court decisions and more, based on the currently available information. These tools help to assess whether it’s worth pursuing a case or not.

On top of these, there are other areas, such as tools for assisting courts with certain tasks. Meanwhile, important research is being done to verify that bias is not integrated into such tools—the systems are prone to bias since they learn from data that might be biased.

As you can see, digital technology is starting to transform the legal sector, and yet this is only the beginning. So, as a legal professional, how can you prepare for, and take advantage of this change? Here we go.

Seven digital tips to lawyers:

  1. Start discussing digitalization in you organization, in particular with the top management, which has to understand its importance and be ready to take action. If the top management doesn’t show this understanding, consider searching for a new job. Your company or organization will be in trouble.
  2. Start investigating digital and AI based legal tools on the market, and learn about them. Remember that such tools will help legal professionals to work faster and more efficiently through automation, and those who are learning ahead of others will be winners.
  3. Collaborate with machines. No, machines won’t steal your job, at least not for a good while. In contrast, collaboration with machines is a winning formula. The best chess teams are humans together with computers, and that will be true in most other areas. So investigate how you can collaborate and build a team with legal AI-based systems.
  4. Get rid of boring work. Ask yourself which of your daily tasks you wouldn’t mind at all if a machine would do for you. Most repetitive work is boring, and the good thing is that machines are particularly good at repetitive tasks. Let them do it and free your time for work you find more interesting.
  5. Remain better than machines. Four main areas will be the most difficult for machines to master: Creativity, ability to convince and motivate other people, empathy, and fine dexterity. Find out which of your work tasks are related to any of those areas and try to develop them further.
  6. Get more social. Remember that the Internet helps people connect, peer-to-peer, across the world. Use and develop this opportunity in your work, and reinforce your informal networks, not only in the legal sector.
  7. Beware of digital strategies. Don’t contribute to building digital strategies that risk remaining a separate component of an organization’s operations. Essentially, digital technology is just a new tool and as any other technology it changes the conditions for what you’re doing. What’s particular with digital technology is that it’s a hugely powerful driver for change and it requires an adaptation to the new conditions—of everything from organization and sales to the main business model. Any digital strategy including less is not enough.

In other words—digital is an opportunity in the legal space, and the earlier you investigate its opportunities, the bigger the chance that you will be a digital winner.

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Note: I also do seminars and workshops on digital transformation, and if you want a deeper look at digitalization, please don’t hesitate to contact me.

Also, feel free to register for the legal innovation event VQ Forum, on October 19, 2017, where I will give a keynote on ‘digitalization—a threat or an opportunity.’

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