Eli Dourado

Sovereignty and statelessness on the Internet

The release of the Afghan War Diary by Wikileaks has drawn a lot of praise and ire. Bizarre examples of the latter include Washington Post columnist Marc Thiessen’s apparent call to classify Wikileaks as a terrorist organization and Rep. Mike Rogers’s demand for the alleged leaker, Bradley Manning, to be executed.

I don’t care too much about the day-to-day politics of the War Diary, but what does interest me is NYU Journalism professor Jay Rosen’s observation that Wikileaks is the world’s first stateless news organization. Wikileaks is of course not literally free of state control; it operates out of Sweden. But the logic of the Internet is that if the Swedish government shuts Wikileaks down, it will move somewhere else. Moreover, Wikileaks is hosted by the same ISP that hosts The Pirate Bay, and they maintain backup servers at undisclosed locations. At least at currently-anticipated levels of government aggressiveness, Wikileaks can publish what it wants with impunity.

The Internet has elements of anarchy. Yet many businesses do not take advantage of the freedom the Internet affords. They choose, instead, to be subject to state law. This was initially puzzling to me. Why don’t all Internet businesses operate like Wikileaks, avoiding regulation and taxes imposed upon them by the state?

The answer, at least in part, is that some companies benefit from the credible commitment that an external enforcer enables them to make. Thomas Schelling makes this point:

Among the legal privileges of corporations…are the right to sue and the “right” to be sued. Who wants to be sued! But the right to be sued is the power to make a promise…a prerequisite to doing business.

Diego Gambetta, in his book on the Sicilian Mafia, also recognizes the value of buying protection against oneself.

This is why companies like PayPal (and its parent company eBay) don’t follow the Wikileaks strategy. Instead they happily make their headquarters and host their servers in the United States. If they get sued and lose the case, the US government will force them to pay up. And for the privilege of being forced to pay up, they abide by US regulations and pay significant sums in taxes. The ability to successfully sue PayPal is why so many of us fork over our bank account details to PayPal.

It’s tempting to think that as the Internet matures, governments will become increasingly irrelevant. Perhaps they still will. There are other mechanisms that can be used or discovered to credibly commit to honest dealing. Since information is transmitted rapidly and at low cost over the Internet, reputation mechanisms are appealing. But it is unlikely that governments will go away completely, even on the Internet. As long as some firms find government’s enforcement role to be worth the regulatory and tax burden, the virtual world will be tied to the territorial one.

Even if some companies choose to remain subject to government law, we can all benefit from the increased ability to opt out of the law, as Wikileaks has effectively done. If the cost of opting out fell to zero, Internet firms would bear the regulatory and tax burden only if the benefits of enforcement exceeded those costs. This would yield not only greater freedom of expression, but greater economic and personal freedom. To the extent that the Internet can be reengineered to be more decentralized, self-healing, encrypted, reputation-based, and so on, we can limit the pernicious effects of unwanted government involvement in commerce and communication.