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The Rise of the Virtual State

By Richard Rosecrance

TERRITORY BECOMES PASSE

AMID THE supposed clamor of contending cultures and civilizations, a new reality is emerging. The nation-state is becoming a tighter, more vigorous unit capable of sustaining the pressures of worldwide competition. Developed states are putting aside military, political, and territorial ambitions as they struggle not for cultural dominance but for a greater share of world output. Countries are not uniting as civilizations and girding for conflict with one another. instead, they are downsizing--in function if not in geographic form. Today and for the foreseeable future, the only international civilization worthy of the name is the governing economic culture of the world market. Despite the view of some contemporary observers, the forces of globalization have successfully resisted partition into cultural camps.

Yet the world's attention continues to be mistakenly focused on military and political struggles for territory. In beleaguered Bosnia, Serbian leaders sought to create an independent province with an allegiance to Belgrade. A few years ago Iraqi leader Saddam Hussein aimed to corner the world oil market through military aggression against Kuwait and, in all probability, Saudi Arabia; oil, a product of land, represented the supreme embodiment of his ambitions. In Kashmir, India and Pakistan are wing for territorial dominance over a population that neither may be fully able to control. Similar rivalries beset Rwanda and Burundi and the factions in Liberia.

These examples, however, look to the past. Less developed countries, still producing goods that are derived from land, continue to covet territory. In economies where capital, labor, and information are mobile and have risen to predominance, no land fetish remains. Developed countries would rather plumb the world market than acquire territory. The virtual state--a state that has downsized its territorially based production capability--is the logical consequence of this emancipation from the land.

In recent years the rise of the economic analogue of the virtual state--the virtual corporation--has been widely discussed. Firms have discovered the advantages of locating their production facilities wherever it is most profitable. Increasingly, this is not in the same location as corporate headquarters. Parts of a corporation are dispersed globally according to their specialties. But the more important development is the political one, the rise of the virtual state, the political counterpart of the virtual corporation.

The ascent of the trading state preceded that of the virtual state. After World War II, led by Japan and Germany, the most advanced nations shifted their efforts from controlling territory to augmenting their share of world trade. In that period, goods were more mobile than capital or labor, and selling abroad became the name of the game. As capital has become increasingly mobile, advanced nations have come to recognize that exporting is no longer the only means to economic growth; one can instead produce goods overseas for the foreign market.

As more production by domestic industries takes place abroad and land becomes less valuable than technology, knowledge, and direct investment, the function of the state is being further redefined. The state no longer commands resources as it did in mercantilist yesteryear; it negotiates with foreign and domestic capital and labor to lure them into its own economic sphere and stimulate its growth. A nation's economic strategy is now at least as important as its military strategy; its ambassadors have become foreign trade and investment representatives. Major foreign trade and investment deals command executive attention as political and military issues did two decades ago. The frantic two weeks in December 1994 when the White House outmaneuvered the French to secure for Raytheon Company a deal worth over $1 billion for the management of rainforests and air traffic in Brazil exemplifies the new international crisis.

Timeworn methods of augmenting national power and wealth are no longer effective. Like the headquarters of a virtual corporation, the virtual state determines overall strategy and invests in its people rather than amassing expensive production capacity. It contracts out other functions to states that specialize in or need them. Imperial Great Britain may have been the model for the nineteenth century, but Hong Kong will be the model for the 21st.

The virtual state is a country whose economy is reliant on mobile factors of production. Of course it houses virtual corporations and presides over foreign direct investment by its enterprises. But more than this, it encourages, stimulates, and to a degree even coordinates such activities. In formulating economic strategy, the virtual state recognizes that its own production does not have to take place at home; equally, it may play host to the capital and labor of other nations. Unlike imperial Germany, czarist Russia, and the United States of the Gilded Age--which aimed at nineteenth-century omnicompetence--it does not seek to combine or excel in all economic functions, from mining and agriculture to production and distribution. The virtual state specializes in modern technical and research services and derives its income not just from high-value manufacturing, but from product design, marketing, and financing. The rationale for its economy is efficiency attained through productive downsizing. Size no longer determines economic potential. Virtual nations hold the competitive key to greater wealth in the 21st century. They will likely supersede the continent-sized and self-sufficient units that prevailed in the past. Productive specialization will dominate internationally just as the reduced instruction set, or "RISC," computer chip has outmoded its more versatile but slower predecessors.

THE TRADING STATE

IN THE PAST, states were obsessed with land. The international system with its intermittent wars was founded on the assumption that land was the major factor in both production and power. States could improve their position by building empires or invading other nations to seize territory. To acquire land was a boon: a conquered province contained peasants and grain supplies, and its inhabitants rendered tribute to the new sovereign. Before the age of nationalism, a captured principality willingly obeyed its new ruler. Hence the Hapsburg monarchy, Spain, France, and Russia could become major powers through territorial expansion in Europe between the sixteenth and nineteenth centuries.

With the Industrial Revolution, however, capital and labor assumed new importance. Unlike land, they were mobile ingredients of productive strength. Great Britain innovated in discovering sophisticated uses for the new factors. Natural resources--especially coal, iron, and, later, oil--were still economically vital. Agricultural and mineral resources were critical to the development of the United States and other fledgling industrial nations like Australia, Canada, South Africa, and New Zealand in the nineteenth century. Not until late in the twentieth century did mobile factors of production become paramount.

By that time, land had declined in relative value and become harder for nations to hold. Colonial revolutions in the Third World since World War II have shown that nationalist mobilization of the population in developing societies impedes an imperialist or invader trying to extract resources. A nation may expend the effort to occupy new territory without gaining proportionate economic benefits.

In time, nationalist resistance and the shift in the basis of production should have an impact on the frequency of war. Land, which is fixed, can be physically captured, but labor, capital, and information are mobile and cannot be definitively seized; after an attack, these resources can slip away like quicksilver. Saddam Hussein ransacked the computers in downtown Kuwait City in August 1990 only to find that the cash in bank accounts had already been electronically transferred. Even though it had abandoned its territory, the Kuwaiti government could continue to spend billions of dollars to resist Hussein's conquest.

Today, for the wealthiest industrial countries such as Germany, the United States, and Japan, investment in land no longer pays the same dividends. Since mid-century, commodity prices have fallen nearly 40 percent relative to prices of manufactured goods.[1] The returns from the manufacturing trade greatly exceed those from agricultural exports. As a result, the terms of trade for many developing nations have been deteriorating, and in recent years the rise in prices of international services has outpaced that for manufactured products. Land prices have been steeply discounted.

Amid this decline, the 1970s and 1980s brought a new political prototype: the trading state. Rather than territorial expansion, the trading state held trade to be its fundamental purpose. This shift in national strategy was driven by the declining value of fixed productive assets. Smaller states--those for which, initially at any rate, a military-territorial strategy was not feasible--also adopted trade-oriented strategies. Along with small European and East Asian states, Japan and West Germany moved strongly in a trading direction after World War II.

Countries tend to imitate those that are most powerful. Many states followed in the wake of Great Britain in the nineteenth century; in recent decades, numerous states seeking to improve their lot in the world have emulated Japan. Under Mikhail Gorbachev in the 1980s, even the Soviet Union sought to move away from its emphasis on military spending and territorial expansion.

In recent years, however, a further stimulus has hastened this change. Faced with enhanced international competition in the late 1980s and early 1990s, corporations have opted for pervasive downsizing. They have trimmed the ratio of production workers to output, saving on costs. In some cases productivity increases resulted from pruning of the work force; in others output increased. These improvements have been highly effective; according to economist Stephen Roach in a 1994 paper published by the investment banking firm Morgan Stanley, they have nearly closed the widely noted productivity gap between services and manufacturing. The gap that remains is most likely due to measurement problems. The most efficient corporations are those that can maintain or increase output with a steady or declining amount of labor. Such corporations grew on a worldwide basis.

Meanwhile, corporations in Silicon Valley recognized that cost-cutting, productivity, and competitiveness could be enhanced still further by using the production lines of another company. The typical American plant at the time, such as Ford Motor Company's Willow Run factory in Michigan, was fully integrated, with headquarters, design offices, production workers, and factories located on substantial tracts of land. This comprehensive structure was expensive to maintain and operate, hence a firm that could employ someone else's production line could cut costs dramatically. Land and machines did not have to be bought, labor did not have to be hired, medical benefits did not have to be provided. These advantages could result from what are called economies of scope, with a firm turning out different products on the same production line or quality circle.

Or they might be the result of small, specialized firms' ability to perform exacting operations, such as the surface mounting of miniaturized components directly on circuit boards without the need for soldering or conventional wiring. In either case, the original equipment manufacturer would contract out its production to other firms. SCI Systems, Solectron, Merix, Flextronics, Smartflex, and Sanmina turn out products for Digital Equipment, Hewlett-Packard, and IBM. In addition, AT&T, Apple, IBM, Motorola, MCI, and Corning meet part of their production needs through other suppliers. TelePad, a company that makes pen-based computers, was launched with no manufacturing capability at all. Compaq's latest midrange computer is to be produced on another company's production line.

Thus was born the virtual corporation, an entity with research, development, design, marketing, financing, legal, and other headquarters functions, but few or no manufacturing facilities: a company with a head but no body. It represents the ultimate achievement of corporate downsizing, and the model is spreading rapidly from firm to firm. It is not surprising that the virtual corporation should catch on. "Concept" or "head" corporations can design new products for a range of different production facilities. Strategic alliances between firms, which increase specialization, are also very profitable. According to the October 2, 1995, Financial Times, firms that actively pursue strategic alliances are 50 percent more profitable than those that do not.

TOWARD THE VIRTUAL STATE

In a setting where the economic functions of the trading state have displaced the territorial functions of the expansionist nation, the newly pruned corporation has led to the emerging phenomenon of the virtual state. Downsizing has become an index of corporate efficiency and productivity gains. Now the national economy is also being downsized. Among the most efficient economies are those that possess limited production capacity. The archetype is Hong Kong, whose production facilities are now largely situated in southern China. This arrangement may change after 1997 with Hong Kong's reversion to the mainland, but it may not. It is just as probable that Hong Kong will continue to govern parts of the mainland economically as it is that Beijing will dictate to Hong Kong politically. The one country-two systems formula will likely prevail. In this context, it is important to remember that Britain governed Hong Kong politically and legally for 150 years, but it did not dictate its economics. Nor did this arrangement prevent Hong Kong Chinese from extending economic and quasi-political controls to areas outside their country.

The model of the virtual state suggests that political as well as economic strategy push toward a downsizing and relocation of production capabilities. The trend can be observed in Singapore as well. The successors of Lee Kuan Yew keep the country on a tight political rein but still depend economically on the inflow of foreign factors of production. Singapore's investment in China, Malaysia, and elsewhere is within others' jurisdictions. The virtual state is in this sense a negotiating entity. It depends as much or more on economic access abroad as it does on economic control at home. Despite its past reliance on domestic production, Korea no longer manufactures everything at home, and Japanese production (given the high yen) is now increasingly lodged abroad. In Europe, Switzerland is the leading virtual nation; as much as 98 percent of Nestle's production capacity, for instance, is located abroad. Holland now produces most of its goods outside its borders. England is also moving in tandem with the worldwide trend; according to the Belgian economic historian Paul Bairoch in 1994, Britain's foreign direct investment abroad was almost as large as America's. A remarkable 20 percent of the production of U.S. corporations now takes place outside the United States.

A reflection of how far these tendencies have gone is the growing portion of GDP consisting of high-value-added services, such as concept, design, consulting, and financial services. Services already constitute 70 percent of American GDP. Of the total, 63 percent are in the high-value category. Of course manufacturing matters, but it matters much less than it once did. As a proportion of foreign direct investment, service exports have grown strikingly in most highly industrialized economies. According to a 1994 World Bank report, Liberalizing International Transactions in Services, "The reorientation of [foreign direct investment] towards the services sector has occurred in almost all developed market economies, the principal exporters of services capital: in the most important among them, the share of the services sector is around 40 percent of the stock of outward FDI, and that share is rising."

Manufacturing, for these nations, will continue to decline in importance. If services productivity increases as much as it has in recent years, it will greatly strengthen U.S. competitiveness abroad. But it can no longer be assumed that services face no international competition. Efficient high-value services will be as important to a nation as the manufacturing of automobiles and electrical equipment once were.[2] Since 1959, services prices have increased more than three times as rapidly as industrial prices. This means that many nations will be able to prosper without major manufacturing capabilities.

Australia is an interesting example. Still reliant on the production of sheep and raw materials (both related to land), Australia has little or no industrial sector. Its largest export to the United States is meat for hamburgers. On the other hand, its service industries of media, finance, and telecommunications--represented most notably by the media magnate Rupert Murdoch are the envy of the world. Canada represents a similar amalgam of raw materials and powerful service industries in newspapers, broadcast media, and telecommunications.

As a result of these trends, the world may increasingly become divided into "head" and "body" nations, or nations representing some combination of those two functions. While Australia and Canada stress the headquarters or head functions, China will be the 21st-century model of a body nation. Although China does not innately or immediately know what to produce for the world market, it has found success in joint ventures with foreign corporations. China will be an attractive place to produce manufactured goods, but only because sophisticated enterprises from other countries design, market, and finance the products China makes. At present China cannot chart its own industrial future.

Neither can Russia. Focusing on the products of land, the Russians are still prisoners of territorial fetishism. Their commercial laws do not yet permit the delicate and sophisticated arrangements that ensure that "body" manufacturers deliver quality goods for their foreign "head." Russia's transportation network is also primitive. These, however, are temporary obstacles. In time Russia, with China and India, will serve as an important locus of the world's production plant.

THE VESTIGES OF SERFDOM

THE WORLD IS embarked on a progressive emancipation from land as a determinant of production and power. For the Third World, the past unchangeable strictures of comparative advantage can be overcome through the acquisition of a highly trained labor force. Africa and Latin America may not have to rely on the exporting of raw materials or agricultural products; through education, they can capitalize on an educated labor force, as India has in Bangalore and Ireland in Dublin. Investing in human capital can substitute for trying to foresee the vagaries of the commodities markets and avoid the constant threat of overproduction. Meanwhile, land continues to decline in value. Recent studies of 180 countries show that as population density rises, per capita GDP falls. In a new study, economist Deepak Lal notes that investment as well as growth is inversely related to land holdings.[3]

These findings are a dramatic reversal of past theories of power in international politics. In the 1930s the standard international relations textbook would have ranked the great powers in terms of key natural resources: oil, iron ore, coal, bauxite, copper, tungsten, and manganese. Analysts presumed that the state with the largest stock of raw materials and goods derived from land would prevail. CIA estimates during the Cold War were based on such conclusions. It turns out, however, that the most prosperous countries often have a negligible endowment of natural resources. For instance, Japan has shut down its coal industry and has no iron ore, bauxite, or oil. Except for most of its rice, it imports much of its food. Japan is richly endowed with human capital, however, and that makes all the difference.

The implications for the United States are equally striking. As capital, labor, and knowledge become more important than land in charting economic success, America can influence and possibly even reshape its pattern of comparative advantage. The "new trade theory," articulated clearly by the economist Paul Krugman, focuses on path dependence, the so-called QWERTY effect of past choices. The QWERTY keyboard was not the arrangement of letter-coded keys that produced the fastest typing, except perhaps for left-handers. But, as the VHS videotape format became the standard for video recording even though other formats were technically better, the QWERTY keyboard became the standard for the typewriter (and computer) industry, and everyone else had to adapt to it. Nations that invested from the start in production facilities for the 16-kilobyte computer memory chip also had great advantages down the line in 4- and 16-megabyte chips. Intervention at an early point in the chain of development can influence results later on, which suggests that the United States and other nations can and should deliberately alter their pattern of comparative advantage and choose their economic activity.

American college and graduate education, for example, has supported the decisive U.S. role in the international services industry in research and development, consulting, design, packaging, financing, and the marketing of new products. Mergers and acquisitions are American subspecialties that draw on the skills of financial analysts and attorneys. The American failure, rather, has been in the first 12 years of education. Unlike that of Germany and Japan (or even Taiwan, Korea, and Singapore), American elementary and secondary education falls well below the world standard.

Economics teaches that products should be valued according to their economic importance. For a long period, education was undervalued, socially and economically speaking, despite productivity studies by Edward Denison and others that showed its long-term importance to U.S. growth and innovation. Recent studies have underscored this importance. According to the World Bank, 64 percent of the world's wealth consists of human capital. But the social and economic valuation of kindergarten through 12th-grade education has still not appreciably increased. Educators, psychologists, and school boards debate how education should be structured, but Americans do not invest more money in it. Corporations have sought to upgrade the standards of teaching and learning in their regions, but localities and states have lagged behind, as has the federal government. Elementary and high school teachers should be rewarded as patient creators of high-value capital in the United States and elsewhere. In Switzerland, elementary school teachers are paid around $70,000 per year, about the salary of a starting lawyer at a New York firm. In international economic competition, human capital has turned out to be at least as important as other varieties of capital. In spite of their reduced functions, states liberated from the confines of their geography have been able, with appropriate education, to transform their industrial and economic futures.

THE REDUCED DANGER OF CONFLICT

As nations turn to the cultivation of human capital, what will a world of virtual states be like? Production for one company or country can now take place in many parts of the world. In the process of down-sizing, corporations and nation-states will have to get used to reliance on others. Virtual corporations need other corporations' production facilities. Virtual nations need other states' production capabilities. As a result, economic relations between states will come to resemble nerves connecting heads in one place to bodies somewhere else. Naturally, producer nations will be working quickly to become the brains behind emerging industries elsewhere. But in time, few nations will have within their borders all the components of a technically advanced economic existence.

To sever the connections between states would undermine the organic unit. States joined in this way are therefore less likely to engage in conflict. In the past, international norms underlying the balance of power, the Concert of Europe, or even rule by the British Raj helped specify appropriate courses of action for parties in dispute. The international economy also rested partially on normative agreement. Free trade, open domestic economies, and, more recently, freedom of movement for capital were normative notions. In addition to specifying conditions for borrowing, the International Monetary Fund is a norm-setting agency that inculcates market economics in nations not fully ready to accept their international obligations.

Like national commercial strategies, these norms have been largely abstracted from the practices of successful nations. In the nineteenth century many countries emulated Great Britain and its precepts. In the British pantheon of virtues, free trade was a norm that could be extended to other nations without self-defeat. Success for one nation did not undermine the prospects for others. But the acquisition of empire did cause congestion for other nations on the paths to industrialization and growth. Once imperial Britain had taken the lion's share, there was little left for others. The inability of all nations to live up to the norms Britain established fomented conflict between them.

In a similar vein, Japan's current trading strategy could be emulated by many other countries. Its pacific principles and dependence on world markets and raw materials supplies have engendered greater economic cooperation among other countries. At the same time, Japan's insistence on maintaining a quasi-closed domestic economy and a foreign trade surplus cannot be successfully imitated by everyone; if some achieve the desired result, others necessarily will not. In this respect, Japan's recent practices and norms stand athwart progress and emulation by other nations.

President Clinton rightly argues that the newly capitalist developmental states, such as Korea and Taiwan, have simply modeled themselves on restrictionist Japan. If this precedent were extended to China, the results would endanger the long-term stability of the world economic and financial system. Accordingly, new norms calling for greater openness in trade, finance, and the movement of factors of production will be necessary to stabilize the international system. Appropriate norms reinforce economic incentives to reduce conflict between differentiated international units.

DEFUSING THE POPULATION BOMB

So long as the international system of nation-states lasts, there will be conflict among its members. States see events from different perspectives, and competition and struggle between them are endemic. The question is how far conflicts will proceed. Within a domestic system, conflicts between individuals need not escalate to the use of physical force. Law and settlement procedures usually reduce outbreaks of hostility. In international relations, however, no sovereign, regnant authority can discipline feuding states. International law sets a standard, but it is not always obeyed. The great powers constitute the executive committee of nation-states and can intervene from time to time to set things right. But, as Bosnia shows, they often do not, and they virtually never intervene in the absence of shared norms and ideologies.

In these circumstances, the economic substructure of international relations becomes exceedingly important. That structure can either impel or retard conflicts between nation-states. When land is the major factor of production, the temptation to strike another nation is great. When the key elements of production are less tangible, the situation changes. The taking of real estate does not result in the acquisition of knowledge, and aggressors cannot seize the needed capital. Workers may flee from an invader. Wars of aggression and wars of punishment are losing their impact and justification.

Eventually, however, contend critics such as Paul Ehrlich, author of The Population Bomb, land will become important once again. Oil supplies will be depleted; the quantity of fertile land will decline; water will run dry. Population will rise relative to the supply of natural resources and food. This process, it is claimed, could return the world to the eighteenth and nineteenth centuries, with clashes over territory once again the engine of conflict. The natural resources on which the world currently relies may one day run out, but, as before, there will be substitutes. One sometimes forgets that in the 1840s whale oil, which was the most common fuel for lighting, became unavailable. The harnessing of global energy and the production of food does not depend on particular bits of fluid, soil, or rock. The question, rather, is how to release the energy contained in abundant matter.

But suppose the productive value of land does rise. Whether that rise would augur a return to territorial competition would depend on whether the value of land rises relative to financial capital, human capital, and information. Given the rapid technological development of recent years, the primacy of the latter seems more likely. Few perturbing trends have altered the historical tendency toward the growing intangibility of value in social and economic terms. In the 21st century it seems scarcely possible that this process would suddenly reverse itself, and land would yield a better return than knowledge.

Diminishing their command of real estate and productive assets, nations are downsizing, in functional if not in geographic terms. Small nations have attained peak efficiency and competitiveness, and even large nations have begun to think small. If durable access to assets elsewhere can be assured, the need to physically possess them diminishes. Norms are potent reinforcements of such arrangements. Free movement of capital and goods, substantial international and domestic investment, and high levels of technical education have been the recipe for success in the industrial world of the late twentieth century. Those who depended on others did better than those who depended only on themselves. Can the result be different in the future? Virtual states, corporate alliances, and essential trading relationships augur peaceful times. They may not solve domestic problems, but the economic bonds that link virtual and other nations will help ease security concerns.

THE CIVIC CRISIS

Though peaceful in its international implications, the rise of the virtual state portends a crisis for democratic politics. Western democracies have traditionally believed that political reform, extension of suffrage, and economic restructuring could solve their problems. In the 21st century none of these measures can fully succeed. Domestic political change does not suffice because it has insufficient jurisdiction to deal with global problems. The people in a particular state cannot determine international outcomes by holding an election. Economic restructuring in one state does not necessarily affect others. And the political state is growing smaller, not larger.

If ethnic movements are victorious in Canada, Mexico, and elsewhere, they will divide the state into smaller entities. Even the powers of existing states are becoming circumscribed. In the United States, if Congress has its way, the federal government will lose authority. In response to such changes, the market fills the vacuum, gaining power.

As states downsize, malaise among working people is bound to spread. Employment may fluctuate and generally decline. President Clinton observed last year that the American public has fallen into a funk. The economy may temporarily be prosperous, but there is no guarantee that favorable conditions will last. The flow of international factors of production--technology, capital, and labor--will swamp the stock of economic power at home. The state will become just one of many players in the international marketplace and will have to negotiate directly with foreign factors of production to solve domestic economic problems. Countries must induce foreign capital to enter their domain. To keep such investment, national economic authorities will need to maintain low inflation, rising productivity, a strong currency, and a flexible and trained labor force. These demands will sometimes conflict with domestic interests that want more government spending, larger budget deficits, and more benefits. That conflict will result in continued domestic insecurity over jobs, welfare, and medical care. Unlike the remedies applied in the insulated and partly closed economies of the past, purely domestic policies can no longer solve these problems.

THE NECESSITY OF INTERNATIONALIZATION

The state can compensate for its deficient jurisdiction by seeking to influence economic factors abroad. The domestic state therefore must not only become a negotiating state but must also be internationalized. This is a lesson already learned in Europe, and well on the way to codification in East Asia. Among the world's major economies and polities, only the United States remains, despite its potent economic sector, essentially introverted politically and culturally. Compared with their counterparts in other nations, citizens born in the United States know fewer foreign languages, understand less about foreign cultures, and live abroad reluctantly, if at all. In recent years, many English industrial workers who could not find jobs migrated to Germany, learning the language to work there. They had few American imitators.

The virtual state is an agile entity operating in twin jurisdictions: abroad and at home. It is as prepared to mine gains overseas as in the domestic economy. But in large countries, internationalization operates differentially. Political and economic decision-makers have begun to recast their horizons, but middle managers and workers lag behind. They expect too much and give and learn too little. That is why the dawn of the virtual state must also be the sunrise of international education and training. The virtual state cannot satisfy all its citizens. The possibility of commanding economic power in the sense of effective state control has greatly declined. Displaced workers and businesspeople must be willing to look abroad for opportunities. In the United States, they can do this only if American education prepares the way.

1 See, for example, Enzo R. Grilli and Maw Cheng Yang, "Primary Commodity Prices, Manufactured Goods Prices, and the Terms of Trade of Developing Countries: What the Long Run Shows," The World Bank Economic Review, 1988, Vol. 2, No. 1, pp. 1-47.

2 See Jose Ripoll, "The Future of Trade in International Services," Center for International Relations Working Paper, UCLA, January 1996.

3 Daniel Garstka, "Land and Economic Prowess" (unpublished mimeograph), UCLA, 1995; Deepak Lal, "Factor Endowments, Culture and Politics: On Economic Performance in the Long Run" (unpublished mimeograph), UCLA, 1996.

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RICHARD ROSECRANCE is Adjunct Professor at Harvard's John F. Kennedy School of Government, a Research Professor of Political Science at the University of California, Los Angeles, and a Senior Fellow of the International Security Program at the Belfer Center for Science and International Affairs.

Source: Foreign Affairs, Jul/Aug96, Vol. 75 Issue 4, p45, 17p, 1bw.


How to sell a square mile of wasteland for 2.6 billion dollars? A micronation proposes new way to raise money to help developing countries


Wirtland, an internet community which considers itself a micronation, invented a new way to generate funds to help small developing countries.

Many small third world countries have scarce resources, almost non-existent economies, and extremely high levels of unemployment. However, even the smallest of them possess territory - and that's what matters in Wirtland’s plan. According to it, all currently unused, barren or abandoned territory, including mountains, wasteland left over after mining, or even adjacent sea, lagoons, coral reef can become a source of immediate income. How?

Wirtland proposes to sell the plots of such territory. Though the current market price of such plots is close so zero, Wirtland knows how to make them attractive to buyers. Here's the catch: first Wirtland proposes to formally acquire this territory, because this web-based micronation aspires to become a real sovereign country, and therefore needs own legitimate land. This is not as fantastic as it sounds – the international law (Montevideo Convention) leaves the door open for formation of new states. To be eligible for international recognition Wirtland needs territory - even a symbolic piece of land, which is not under jurisdiction of any other country. It can be achieved through a contract with a country, which wants to cash in on its unused land resources and agrees to transfer a piece of its territory to Wirtland.

Such an agreement will be the world’s first case of legal formation of a new country from a virtual community. It will be an unparalleled global sensation, and immediately will bring the agreement in the focus of world attention. This is one of reason why Wirtland hopes there is market for its plots. Another reason is citizenship of the world’s newest state and other benefits which come along with passport of Wirtland, which will no longer be just a virtual micronation, but a fully-fledged sovereign state. Yet another reason of high demand in Wirtland property will be its competitive pricing – many times lower than other options for second citizenship on the market today. Of course, no one will physically move to a Pacific island or other remote property. Wirtland will remain a virtual country, so all its citizens will safely remain in their homes, but with legitimate second passports, certificates of land ownership, and full sets of human rights including free travel, or rights to elect and be elected for various positions within the ever-growing global state.

As Wirtland divides the land into tiny plots and offers them for sale, all the profits will go into the budget of the donor country. This is how the developing nation will financially benefit from the deal: its government will receive income from otherwise worthless land. A simple calculation shows that, if Wirtland sells symbolic 1 square meter of land for a symbolic one thousand dollars, just one hectare (100m x 100m) of territory will bring 10 million dollars to the developing nation. And a single square mile may bring in a hefty 2,6 billion addition to the country’s budget!

Wirtland’s gain from the deal is not financial – by acquisition of a formal territory it becomes eligible for international recognition, for the first time in the world history. This is why the size and quality of territory are not important for Wirtland. In fact, Wirtland may sell plots from more than one developing country, strengthening its statehood by stepping into several regions of the world – in case of sufficient demand for Wirtland’s plots and alternative citizenship.

It is known officially that Wirtland started its contacts with potential partner countries with Nauru, a tiny Pacific nation. How the developing countries will react to Wirtland’s proposal is yet to be seen. There are dozens cash-strapped third-world nations in the world today. Even if just one of them takes the virtual micronation seriously, it will be a major sign of the times, showing that virtual life is firmly setting its rules everywhere, and changing profoundly the life of 21 century.

Reprinting is permitted with reference to Wirtland Institute

Address of Chancellor of Wirtland

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Happy Wirtland Day! Please accept my best wishes for happiness, good health, successful and prosperous life within our world-wide internet community.

1. Two years of Wirtland

Wirtland is two years old. Not much for a country. But a lot for a micronation. Starting from zero in 2008, Wirtland became the world’s largest micronation. We are happy to welcome new citizens almost daily. They come from every country of the world. Wirtland’s plastic ID cards are being used for identification by people on all five continents. Our Citizenship Application Form is now available in 12 languages (English, Spanish, Bulgarian, Turkish, Portuguese, Russian, Thai, Korean, Dutch, Italian, Chinese, Japanese), and all translations have been done by our citizens. It’s not a big exaggeration to say that Wirtland is everywhere.

Like any new project, we had our ups and downs. Our gold and silver coins have been a fantastic success, instantly making Wirtland the world’s only micronation to produce such objects. But direct retail sales of coins became too expensive for the mint, because sending precious metals to many countries is restricted. That’s why the coins are now available only from re-sellers. Our mint is ready to produce the coins in bulk. We still need to find the way to distribute them.

Wirtland ID cards are becoming popular. The orders have come from a wide range of countries – from Canada to Turkey. Obviously, the witizens find ways to make them useful for real life purposes, for instance to use along with a credit card, or to prove one’s age. Though we had to increase the card issuance fee in accordance with our printshop’s pricelist, the demand for the cards remains stable. In future, we want to make the cards much more useful. As IDs have names and unique numbers, they can be used as discount cards. We are seeking merchants willing to accept them, offering discount to citizens and attracting new clients.

One of more serious landmarks of Wirtland’s history was development of our plan for real land acquisition. This plan is a barter deal between Wirtland and a recognized country. According to it, Wirtland helps such a country to make financial profit out of its unused territory, in exchange for a transfer of symbolic piece of land to us. Fantastic as it sounds, this plan has nothing impossible about it. Of course, we are realists and did not expect success after one or two attempts. We will continue to carefully identify potential partner countries and work to establish contact with them.

One of our top priorities, if not the highest one, is raising awareness about Wirtland in the world. In accomplishing this aim, the first year of Wirtland was very successful, with dozens of articles and two television shows: on America’s FOX Channel, and on Bulgaria’s main BTV Channel. I have to admit that the second year was less bright. One of the reasons was, probably, the painful exodus from our hosting provider, caused by change in its pricing policy. However, a large part of responsibility remains on Wirtland’s administration, and personally on me. In the future I will take more active part in the popularization of Wirtland. Also, I want to facilitate contact with the citizens and the press, and establish a direct questions-and-answers hotline with my office. At the same time, I strongly believe that citizens of Wirtland also need to play a more active role in spreading the word about our project.

Economic sustainability of Wirtland is another core priority. Many ideas have been proposed, but no considerable business projects have been realized or even developed so far. I believe this is natural. The number of our population is still very low, while for business projects we need highly experienced professionals. But they are too few, and in high demand – even in the big countries. So, we do not dramatize the lack of business activity, but we want to encourage more initiative in the business field. One of promising directions is the “Wirtland Franchise” model, which serves a dual purpose: profit generation and popularization of Wirtland. “Wirtland Franchise” is, essentially, use of word Wirtland as a part of brand name for various new products. This model was first proposed by a South African winemaker, who wanted to sell wine under Wirtland label (“real wine from virtual land”). The same approach may apply to a variety of products and services, and we hope it will prove successful eventually.

2010 was also marked by establishment of Wirtland Institute. Wirtland Institite (WI) and Global Antiwar Party (GAP) are two Wirtland’s pilot projects in the humanitarian field. They are conceived to demonstrate Wirtland’s stand in the theory of statehood (WI) and in the practice of political life (GAP). Of course, they are still in embryonic phase, just like Wirtland itself. But we believe they serve as an important message, that Wirtland is more than just another online game or business venture, and has ambitious goals in politics and policy as well.

2. Witizen Services

After this overview, let briefly touch upon our new initiative - Witizen Services.

Wirtland’s overall concept is simple. We want to build the country around the person. We are not starting with institutions, laws and other mechanisms. We want to address person’s needs, first and foremost. This is why we are now developing Witizen Services.

First, we want to learn what services are most needed by the people.

Second, we will define what services Wirtland can render, taking into account our natural limitations as non-recognized country. We will hire qualified personnel and start rendering the services. The personnel will receive salary. The salary will be formed from the service fees.

What services will that be? Let witizens decide. It will depend on the people’s demands, and Wirtland’s ability to find appropriate professionals. From legal services to consulting, from information and translation services to security, from medical to religious. As witizens come from every professional sphere, our range may be rather broad.

Among the most obvious services that Wirtland should offer to our citizens is protection and legal advice. If you believe that you are in trouble and need legal support, perhaps contacting Wirtland’s lawyer would be a good idea. If you feel you were offended, maybe Wirtland can protect you. There is a chance that a witizen, who is willing and able to help, is nearby. We just need more information to release the full potential of witizenship. That’s why we are starting Witizen Services and looking forward to hearing from you!

With best regards,

Alexander, Chancellor of Wirtland

[This text will be updated with more information and hyperlinks. Please come back later for links to appropriate pages]

Wirtland sends condolence letter to Poland


April 10, 2010

The Honorable Donald Tusk
Prime Minister of Poland

Dear Mr. Prime Minister

On behalf of citizens of Wirtland, I extend to the people of Poland and to the families of those killed in the tragic accident my deepest condolences. Wirtland is not listed on the geographical map, but it represents over 1000 people from five continents, and we would like to add our voices to the thousands of expressions of deepest sympathy to the Polish nation on this tragical day.

Wyrazy szczerego żalu i współczucia.

Alexander, chancellor of Wirtland
www.Wirtland.com

The Virtual Country: Six Possible Scenarios for the Creation of Viable Virtual Countries


By Thomas Frey, Juan F “Kiko” Suarez and Eduardo Suárez

The Internet, while still in its infancy, has created borderless economies, that are confusing the issues of power and control, and even the sovereignty of nations. We are now entering into a new era of public power and control. The true power that is beginning to emerge is Technocratic, meaning that we are beginning to reorganize the world around the technical imperatives of global competitiveness and economic efficiencies.

The nation-state has only been around for roughly 350 years. It is ludicrous for us to think that it will still be around 1,000 years from now. So if it is going to change, how is it going to change, and when is it going to change?

The surge in interest in online communities has given rise to unique groupings of people based on cross-cultural commonalities. The strength of many of these commonalities often transcends present loyalties to country or nationality. In short, the driving force of money will, in many people’s minds, force the issues of culture and heritage to take a back seat.

Emerging forces in globalism has given rise to the notion of creating Virtual Countries, countries without land and without borders. Citizens of Virtual Countries will live in existing land-based countries; abide by their laws; and, at the same time, hold two or more citizenships.

On the following pages we will look at how new countries are born, the evolutionary forces that have created our present nation-state, and some possible scenarios that may create the next Copernican Shift in the global political arena.

What exactly is a country?

The dictionary definition of a nation is “A part, or division, of the people of the earth, distinguished from the rest by common descent, language, or institutions; a race; a stock.”

Law professor, Pastor Ridruejo, defines a nation as an entity with a government that totally controls a stable population in a delimited territory.

In the past we have associated the concept of country with attributes such as a single geographical territory, a common people with a common language, a common government with its own currency and its own set of laws and regulations, and a series of systems that tie the country into a functional entity.

Not all nations have their own land. Throughout history there are many examples of people in exile or nationalities with a strong heritage and a differentiated culture that exist as a people within one or several countries.

The concept of a virtual country brings into questions some of the traditional notions about what creates the cohesion or loyalty within a group of people.

Today’s Nation-State

Countries today are described as nation-states. The concept of a nation-state took root in the little remembered Treaty of Westphalia that was signed in 1648 AD. The Treaty of Westphalia sorted out some of the land issues in Europe and opened the doors to religious freedom by creating some separation between church and state. But a very significant part of this Treaty involved the recognition of one country’s ability to sign a treaty with another country. This became the operational ground rule for all major countries – self defined relationships with other countries.

Traditionally, governments that operate as a nation-state provide a protective bubble over their people, giving them systems and structures within their borders to live and operate businesses by. But several forces are beginning to complicate governmental control over their own citizens.

How Are New Counties Born?

A sovereign Nation can emerge in the international society in many different ways. The most common ways are:

1. Dismantling an existing nation, like Bangladesh in 1971, segregated from Pakistan.

2. Splitting an existing nation in two, like Germany after World War II, divided in Federal Republic of Germany and Democratic Republic of Germany.

3. Fusion of various nations into one, like Italy in 1860.

4. De-colonization – either through peaceful or violent means – like on the American continent at the end of the 18th Century, and on the Asian and African continents during the second half of the 20th century.

Recognition

Once a new country emerges, the issue of recognition comes into play. Recognition is a primary factor in an emerging country’s credibility and often determines the stability of the new government and the role the country will play in the international arena. There are two primary forms of recognition:

1. Internal – Recognition by the people living inside that country.

2. External – Recognition by other countries, or people or organizations outside the country.

The Institute of international law stated in its Brussels session in 1936:

“Recognition of a new Nation is a free decision by which one or several Nations corroborate the existence on a DETERMINED TERRITORY of a human society, POLITICALLY ORGANIZED, INDEPENDENT of any other nation, capable of complying

with International Law, and their decision is made public, recognizing the new Nation as a member of the International Community”.

Some European nations have taken the step of formalizing recognition standards, stating that any new nations must satisfy certain legal requirements. On Dec 16, 1991, the Foreign Affairs ministers of the European Union decided to adopt a set of criteria that new member states emerging from the old Eastern Europe and Soviet Union must satisfy in order to become officially recognized. The criteria includes the following four items:

a) Respect all points of the Charter of the UN, Helsinki Summit Final Act and Charter of Paris for a New Europe.

b) Guarantee rights for minorities and other groups as per the agreements of the CSCE (Conference for Security and Co-operation in Europe)

c) Respect the unchangeable nature of national borders that can only be changed peacefully through common agreement.

d) Commitment in reaching common agreements on all matters related to State succession and regional controversies.

The Principle of Self-Determination

At the end of WW1, USA President Woodrow Wilson promoted the concept of “self-determination”, a powerful idea in the 19th century, particularly for Europe. The message from President Wilson on Jan 8, 1918 stated:

“…every peace-loving nation which, like our own, wishes to live its own life, determine its own institutions, be assured of justice and fair dealing by the other peoples of the world as against force and selfish aggression. All the peoples of the world are in effect partners in

this interest, and for our own part we see very clearly that unless justice be done to others it will not be done to us.”

Wilson’s efforts led to the formation of the League of Nations, the forerunner to our present United Nations. Although it did not formally recognize the principle of self-determination, it did promote the concept, going so far as to introduce a new legal framework for allowing colonies to determine their own fate.

Later, in the United Nations Charter, the acquisition of territory by force is prohibited, soas to ensure that existing right of self-determination will not be extinguished by military conquest.

“the principle of equal rights and self-determination of peoples’ is said to be the basis for ‘the creation of conditions of stability and well-being which are necessary for peaceful and friendly relations among nations”.

But the Charter also emphasizes the principles of territorial integrity and of non-interference in the internal affairs of member states, provisions that may have encouraged leaders to think that self-determination would be applied only to colonial dependencies. The incompatibility between the principles of self-determination and territorial integrity was overlooked, and both were reemphasized in the Declaration on the Granting of Independence to Colonial Countries and Peoples.

Modern International Law grants a basic right to people, its own survival as a social group. “All peoples have the right of self-determination. By virtue of that right they freely determine their political status and freely pursue their economic, social and cultural development.”

The Forces of Global Change

At this point, the strength of technology’s influence on global politics is still unknown. Some of the key deciding influences will be:

Unregulated Transportation. Technology has begun to outdate the old systems used by governments to monitor and control activities of their citizens. When people were first able to communicate, without restriction, across country borders, governments began to loose control of commerce. When people are able to travel, without restriction, across national borders, traditional governments will lose control of their captive citizens. This is an impending eventuality. As we begin to open the doors of technology to private air cars and space tourism, restricting people to the confines of their own country’s borders will no longer make sense. Geographical territory will diminish as a determining factor in deciding citizenship.

The “Peeling Apart” Process. It is our belief that we will begin to see a “peeling apart” of the Law of the Land and the Law of the People. People are the mobile entities that will travel freely around the globe and from planet to planet. They will require a very different kind of governance than what we have today. Traditional governments will become entities serv

ing as landlords, responsible for handling territorial issues, property rights, and providers of emergency services.

Another way to view this separation in government is by looking at tax revenue streams. A government that controls the land will be funded with property taxes and other types of tax generated from the land. A government that controls the people will be funded through income taxes and other types of tax levied on the individual.

Degrees of Loyalty. The degree of loyalty that people will form with the various online communities. As an example, it is still unknown as to whether or not people will feel a greater affinity towards an online community centered around artistic freedom or to their own Norwegian heritage.

Future Technology. New technologies will enable the governance of people as they travel through the Universe. This governance will insure the rights of individuals and their business enterprises, and the protection against illegal actions and natural disasters.

What is a Virtual Country?

Probably the simplest definition of a virtual country is a country without land and without borders. The country, or land, on which members of a Virtual Country reside will be referred to as a host country.

Throughout history we have had many examples of displaced people without a land of their own. In December 2000, the United Nations High Commissioner for Refugees (UNHCR) reported a caseload of 22.3 million refugees and displaced people resulting from fighting in some of the most difficult and dangerous places on earth. The UNHCR also estimates that some 25 million ethnic Russians are currently living outside the borders of the Russian Federation.

The idea of people without a country is not new. However the concept of giving these people legitimacy to permanently exist outside of their former government is a new concept.

Possible Scenarios

Since the evolution of earth politics is never linear, we have developed some possible scenarios that may foster the development of virtual countries.

In each of the following scenarios, the United Nations will play a critical role as the legitimizer of the Virtual Country. If the UN itself initiates the formation of a virtual country, it will have instant legitimacy.

Listed here are examples of events that could possibly trigger global changes in earth politics.

1.) The UNHCR Scenario – After carefully mapping out all the options, the United Nations High Commissioner for Refugees will establish a series of virtual countries for administrative purposes. With over 20 million displaced people roaming around the world trying to carve out a new existence, the UNHCR will establish a series of Virtual Countries to give legitimacy to groups of people that have been driven from their homeland. As an example, a virtual country called New Bosnia might be established for the purpose of granting temporary citizenship, handing out passports and visas, opening bank accounts, granting authority to travel internationally, and to help unify a people whose lives were uprooted after the ravages of war in Bosnia.

2.) Immigration Scenario – Immigration laws have continually evolved over time. Every country on earth contains people who are not citizens of their country. People wishing to become citizens of a country often have to wait many years before the process is complete. In Germany, as an example, the right to asylum is enshrined in Germany’s constitution. The country commits itself to offering refuge to people persecuted for political or racial reasons. One controversial aspect of this law is whether to recognize those persecuted by non-government groups in their home countries. And secondly, how to deal with those seeking asylum on the basis of gender discrimination, as in the situation of women coming from Afghanistan.

In this scenario the country of Germany, in an effort to preserve their national heritage will create a Virtual Country, Germany 2, to enroll and govern all people seeking refuge in their country. Germany 2 will overlay the existing country of Germany, but will have separate laws governing it. While this may easily deteriorate into an unintended class system, the creators view it as a solution to their perceived cultural deterioration.

3.) Open Enrollment Scenario – The Cayman Islands begin to openly enroll citizens. If people around the world were given the option of becoming citizens of the Cayman Islands, while continuing to live in their existing country, how many would opt to take advantage of this offer?

The idea of offering an “open enrollment” by countries to attract a national following around the globe is not unique. However, aggressively marketing it is. While the value proposition of creating this relationship with people living in foreign countries may be undefined, there are no doubt many who would relish the opportunity of becoming part of a new country.

Countries will do this as a way of extending their influence and to attract revenue streams from outside their borders. Political motivations will vary greatly.

Individuals will take advantage of this option as a way to opt out of their present political environment, and to gain new freedoms and rights.

4.) Corporate Nation State Scenario – Microsoft declares itself a sovereign nation. At a

point where the antitrust actions against Microsoft becomes too unreasonable, the company makes a bold move to declare itself a sovereign nation, setting itself up to be the world’s first corporate nation state. In doing so, they establish themselves outside of the US rule of law, not subject to the rulings of the court. Invariably this would take their legal arguments into a completely different realm as they attempt to set a precedence through which many other large corporations would follow.

To add legitimacy to their claim of being a sovereign nation, Microsoft approaches the United Nations and requests admission. They also form political alliances with several “friendly” nations.

Microsoft is a multinational corporation with offices around the world. Having the corporate headquarters in the US is not a requirement of the company’s existence, and the rule of law governing corporate activities changes when they declare their independence. The headquarters could be moved to an island in the Pacific, or on to a ship, or even into a satellite in space for that matter. Even the location of corporate executives is a separate matter from the rule of law governing the company.

When it comes to money, Microsoft already has its own form of currency – Microsoft stock. They could choose to monetize their stock in a way that could be used for paying salaries to employees and for making vendor payments. Employees, as an example, may get 13.8 shares of stock on payday rather than the equivalent amount in US dollars. International smart cards are already programmed to instantly convert money from one country’s currency into another, such as Japanese yen into German marks. With a little effort, Microsoft could design a new breed of smart card that would instantly convert their stock into spendable dollars. So employees, living in any part of the world, could make purchases at their local grocery stores.

5.) Tax-Free Government Scenario. Throughout history, the most contentious issue between governments and their citizens is taxes. The “take away” process of extracting taxes from individuals is seldom deemed fair, and the extraordinary efforts taken to make the implementation of taxes fair to everyone has evolved into a system so complicated that it absorbs a huge percentage of a country’s intellectual bandwidth.

In conceptual terms, a tax-less government is one that operates on the principal of “parallel prosperity”. In this context, a government creates an operational fund by self-generating it’s own revenue streams based on a small percentage of GNP, somewhere in the range of 3%. As an example, a small country with a GNP of $1 billion would self-generate operational funds of $30 million. Any other money needed to run the government would be levied in the form of fees-for-service.

Monetary supplies are never static. The fine art of making new money appear before your eyes is not just some magician’s trick. It’s a legitimate way of managing a country’s monetary supply, and is steeped in rich governmental tradition. All countries have devised methods for printing money from thin air. While this process is typically cloaked in some politically approved framework to give it legitimacy and authenticity, the fact remains that this is not a new concept.

Economics is a complicated science. We know what works and what doesn’t based on a long history of trial and error. Self-generated monetary supplies that are used to fuel a government will effectively set the stage for a continually expanding economy, which may or

may not be the best approach in the future. But neither is the “take away” system of taxation that we presently have in place.

National Security Issues

Governments do not like the idea of having citizens under someone else’s control in their own territory. This creates the potential for developing an enemy army within the confines of it’s own territory, with the potential for disrupting domestic peace and tranquility.

However, all nations have “outsiders” existing within the confines of their own borders. Whether or not the person is a citizen of a virtual country is of little consequence to the host nation provided the person abides by all the laws and pays all the necessary taxes.

But one of the big attractions of joining a virtual country will be the ability to operate outside of the bounds of your existing country. The idea of being able to say “these laws don’t apply to me” is a huge incentive for some people. And that is where the security issues become a massive concern. Forcing an equitable rule of law among all people in a country is one of the founding principles of democracy.

For this reason, virtual countries will, by necessity, have to guarantee non-interference in the laws of the host nation. They will also have to guarantee that all of their citizens will abide by the laws, and be subject to any legal or judicial system serving to enforce compliance.

Dual Citizenship

The concept of dual citizenship means that a person is a citizen of two countries at the same time.

In general, countries define citizenship based on a person’s descent, place of birth, marriage, and/or naturalization. The exact details will, not surprisingly, depend on the laws of the country in question. Automatic citizenship via marriage is rare nowadays; more commonly, marriage may allow one spouse a “fast track” to immigration to the other spouse’s country, but a period of non-citizen permanent residence will still be required before the immigrant spouse can obtain a new citizenship via naturalization.

Since there can be several ways to acquire a given country’s citizenship, it is possible for someone to be considered a citizen under the laws of two, or more, countries at the same time.

Countries usually frame their citizenship laws with little or no regard for the citizenship laws of other countries. Sometimes a country may seek to restrict dual citizenship by requiring one of its citizens born with some other citizenship to renounce or give up the other citizenship upon reaching adulthood. In some cases, a country will automatically revoke the citizenship of one of its citizens who acquires another country’s citizenship by naturalization. Where one country requires a citizen to renounce the citizenship of another country, this renunciation may or may not be recognized by the other country. This can sometimes lead to sticky legal situations.

As a general rule, dual citizens are not entitled to any sort of special treatment by their two countries of citizenship. Each country will usually consider the person as if he were a citizen of that country alone. However, dual citizenship can have distinct advantages. In particular, a person with dual citizenship has greater flexibility in his or her choice of where to live and work.

Rich Man Scenario

After thoroughly researching this topic, we have concluded that a likely scenario for creating a virtual country will happen with a wealthy person who owns a small island.

Starting with an innocent request for recognition from surrounding countries and from the United Nations, the little island country will gain prominence through savvy political maneuvering and well-placed lobbying money.

Once established, the tiny island country will begin a process of open-enrollment citizenship, which will be marketed aggressively. Dual citizenship will allow all new citizens to remain where they are, maintain their present employment, and not affect their present standing in their home country. The incentives for joining the new country will be economic, either freedom from taxation or freedom to create some business venture outside of their present country.

The island country will have its own banking system. The banks will be touted as the most safe and secure in the world. The banks will have alliances with Swiss, Japanese, and American banks to give customers the feeling of security.

Utilizing a first-of-its-kind tax free form of government based on the concept of “parallel prosperity,” the little country gains a reputation of being a tax haven for wealthy individuals, thereby attracting an elite constituency. And this constituency will give the country its

much-needed credibility.

Conclusion

The creation of Virtual Countries will be fraught with many problems. Recognition of new countries is discretionary and mainly political. New Nation-States must be recognized implicitly or explicitly by other nation-states.

It is our conclusion that a new type of country, a Virtual Country, can evolve out of the global political community, provided the following requirements are in place:

a.) Bylaws of the Virtual community cannot grant immunity to its members, so they must be subject to the law in the countries where they reside. However, the Virtual Country must retain a certain level of sovereignty that no other country can violate or cancel. Treaties will make it plausible for the establishment of a Virtual Country within one or more host countries.

b.) In order to guarantee international security and avoid conflicts, an International Organization, such as the United Nations, must exercise some controls. The UN could go a step further and create a framework, such as a Virtual Country Constitution, and a legal framework around that constitution. Provided all citizens are “connected”, the legal framework could implement some degree of direct democracy and electronic voting as part of its creation.

Competing for citizens is not a concept that will be easily accepted by existing countries. The United Nations will invariably play a significant role in the formation of Virtual Countries. But it will be the “will” of the constituency that will determine a Virtual Country’s viability.

Presently, many Internet users have voiced strong opinions against any kind of regulated environment, so any proposal for a new form of government will need to be well conceivedand very attractive to prospective members.