SOLVED: What is a Net State and is Facebook the first?

Inet-state-facebook-american-flag-apple-googlen 1602 the Dutch East India Company made history as the first entity to trade stock.  While they did not appreciate it at the time, this bringing together of wealthy people in a single financial interest also brought power: financial power, political power and social power.  In the past there have been some companies that rivaled the financial and political strength of governments but none have had the social might that comes from daily interaction with billions of people.  Working primarily from the internet with all three sources of power makes a Net State.

Put simply, a Net State is a primarily web based organization with near limitless funding, political authority and frequent interactions with billions of people.

Net States exist in a plane above normal multinational companies.  They rival even large governments and dwarf small governments in nearly every respect.  As such it is reasonable for society to consider:

  1. what responsibilities Net States should be assigned
  2. how those responsibilities will be enforced

facebook-historical-user-count-graph[1]The purpose of this article is not to delve deeply into those issues but simply to raise the questions and spark a larger debate.

Facebook is the closest the world has yet seen to a Net State.  Facebook has a fast growing user base of more than 2 billion active users, enormous wealth and (ignorantly?) have notable influence on elections.  As Apple’s hardware business falters and they continue to push into services, they may yet evolve into a Net State.  Google’s current drive in the physical world (think cell phones,  autonomous cars and NEST products) may take focus off of their staggering control of the internet, but they are a sophisticated machine that can easily grow to Net State status.

corporate-life-expectancy-s-p-indexWe can argue over details but it is unquestionable true that:

  • even the most powerful organizations eventually fail and as shown in the chart to the right, corporate life expectancy is getting shorter all the time
  • web based companies have had a very poor survival rate
  • social media sites are even more particularly prone to fast growth and even faster decline.  Think of Friendster and Myspace
  • social media and web search companies have enormous access to our data and when they get under pressure from activist investors or aggressive management, bad things will happen

It is also true that corporate lobbying resulted from growing corporate power has a ‘bad rap’ but it has produced many positive outcomes for society.  When companies lobby they are trying to expose issues that they see an impediments to growth.  Naturally, both political and corporate corruption have also been a byproduct of this corporate strength.  As a result, governments and self regulating bodies (i.e. the Society For Business Ethics, IEEE, and even American Medical Association) have created regulations to set limits.

To date, very large web based organizations have operated by trial and error rather than by following a set of guiding principles.  In fairness, this is often how business works.  You do something innovative; it goes bad; you apologize; you (or a regulatory body) make changes to ensure it won’t happen again; you move on.

Net States are first and foremost corporations and corporations are necessarily psychopathic.  This word is not use to inflame the debate .  It is simply used to explain that companies have a legal requirement to maximize shareholder value at any cost within the legal framework in which the operate.  That means if a chemical company has the legal choice to dump toxic waist or treat it and they see no financial benefit to treating it (i.e. consumer good will, staff retention, future clean up costs…) they are REQUIRED to dump it.

In the late 1990’s a new website named Toys.com had a privacy policy they took very seriously but when the company began to fail one of the first things that sold off was their client list because there was (and is) no legislation in place to prevent it.

What does this ‘me first’ corporate logic do to a Net States interactions?  Keep in mind that a Net State’s interaction is often with you.  They know your medical information, your future travel plans, when you house is empty, your inheritance, your children’s photos, your banking information…

All is good, until it isn’t.  This means that societies around the globe need to consider many questions before Net States become uncontrollable:

  • how is data is stored (What is secure?  What country is the data stored in and does that even matter?  How long can data be kept? Can client data be sold without express permission?)
  • should Net States be allowed to provide financial donations to political parties (Is it enough that Net States can mobilize millions of people?)
  • what scale makes a company a Net State that is subject to additional regulation (when they have more than USD$1 billion and more than 1 billion active users?)
  • do we need a new form of multinational incorporation that requires both profit and social good?
  • who will regulate Net States (the UN, the Electronic Frontier Foundation, the United States Federal Government, a new association)
  • are ANY controls going to be effective on an entity that is not bound to a country or even region?
  • is any Net State control a good idea?  (maybe they will all just ‘do the right thing’, never make a mistake, and never do nasty things when they start to fail)

There is some existing guidance in the corporate world that we can look to for curbing the financial only interests of a Net State.  The names vary by jurisdiction but a Benefit Corporation, a Social Purpose Corporation or a B Corporation provide structures that require organizations to make money but not at the expense of society.   Even if these types of corporate structures were created in a multinational legal framework, they will surely not keep us safe from failures and malicious intent, but they will provide some guiding principles that C-Level management and Boards would need to follow.

While Net States can do enormous good (connecting people, crowd sourcing solutions to intransigent problems, …) they can also damage the global economy and billions of lives.   I do not think we are ‘there yet’, but more than one true Net State are coming soon and we should be thinking about the implications now.

Questions or Comments?