The Sovereign Individual is a future-looking book written in 1997 about the coming of “the information age”. Here’s my review on how it might apply to a financial independence audience.
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First things first – it’s written by Rees-Mogg…
If you read the reviews on Amazon, you’ll see a political discussion on the merits of libertarianism vs. collectivism. Very little about the actual content of the book.
I suspect that a lot of this is because the authors are James Dale Davidson and Lord William Rees-Mogg. Yup, the dad of one of the darlings of the current Conservative Party regime. Simply saying “Rees-Mogg” in a pub is a sure-fire way to start an argument, which is probably why this book gets such controversial treatment.
I… don’t care, and nor should you. The book tries to interpret trends in developments, rather than making a comment about whether they’re good or bad. You can definitely read this apolitically. Even if you can’t, I have a great quote for you:
It is right to learn, even from the enemy
Ovid, Metamorphoses
Full disclosure: I’ve never read Ovid. However, I played a lot of Rome: Total War as a kid, and this quote was on the loading screen. That game was awesome.
So, with that out of the way – if you’re willing to learn what you can from the dad of a controversial political character, let’s continue with the review!
The overall premise – what is the “sovereign individual”?
The general argument is that technology – particularly the internet – is bringing us to the point that democracy as we presently have it is outdated. Individual people can, through the wonders of technology, pick and choose where they work, where their money is invested around the world, and therefore where they live. Thus, they can take greater control of their lives than they could in the past and therefore have the kind of sovereignty that only nation-states could provide historically.
Given that this was predicted in 1997, that’s a bold and remarkably accurate prediction. In 2000, we were happy to have 56kB downloads in our house, and my mum had only just discovered eBay.
This argument is pretty chunky and there are a lot of concepts, so I’ll break them down into stages.
State sovereignty
As a quick primer to understanding this review, you’re going to need to learn about the concept of state sovereignty. This is something I covered a lot in my military academic syllabus and in my undergraduate law degree with the Open University. Please excuse the lack of references.
Anarchy between nations
“International order” isn’t really a thing. Yes, there’s the UN and other international bodies, but generally countries (“nation states”) have their own personality and can interact with each other how they see fit. This is sometimes referred to as an “anarchy” of international politics.
What this means is that countries have their own personality, like kids in a playground. However, also like kids in a playground when there are no teachers around, they are free to interact with each other how they want. They can follow popular kids, cooperate and play games, bully other kids, fight amongst themselves… yeah. If you thought that the world was better ordered than this, sorry to ruin the illusion.
Treaty of Westphalia?
The idea that nations are their own people and comes from something called the Treaty of Westphalia. Basically, a bunch of kingdoms and princedoms decided that one country shouldn’t be able to interfere with the inner workings of another.
It’s sometimes called “the Westphalian system”. Basically, it’s the idea that you can’t go and intervene in China or the UAE over human rights violations, unless you’re declaring a war. If you want them to change, you have to persuade/ bully them into doing it.
Sovereignty and individuals
Within a country, there are individuals, companies, associations and so on. However, these only have status within countries. As in, their rights and ability to do things like make contracts are covered by the law of whatever country they’re in.
Yes, a person or company can do business abroad. You can go to France and buy stuff in the shop. What I mean is that you have to play by the rules of whatever country you’re acting in.
This also means that if your country decides “no, we’re not trading with China this year”, you can’t go and trade around that trade embargo without your country catching and punishing you. You can’t interact without your country saying so.
You don’t have sovereignty – your country does, and you’re a citizen in it.
This is an important concept to get to grips with, as the book’s argument makes no sense without knowing this.
The supporting arguments: what would make the sovereign individual possible?
Davidson and Rees-Mogg suggest that the 21st century will see more people becoming sovereign in their own right. This is based on the following developments, as they saw them in 1997:
- Historically, nation states were able to be sovereign because they could command violence and the individual couldn’t really threaten them. This is no longer true.
- Historically, you had to do business in your own nation state, due to limits of geography. This means that you had to accept the terms your state offered its citizens. This is no longer true.
- The nation state is now restricted in how it can enforce its will on citizens, thanks to the internet.
- Wealth and people are now mobile. They can vote with their feet and move away from countries whose laws (especially taxes) don’t suit them to countries that do suit them. They can even have their wealth in one country but live in another.
- This means that nations will likely decline and will need to compete to offer value-for-money to proposed citizens.
Whether you agree with these or not, there are some interesting arguments and some of them can be seen already. Remember: this book is 24 years old at the time of writing.
1. Historically, nations could command violence and individuals couldn’t threaten them
It struck me quite early on that this book was written before the War on Terror.
The argument is that countries emerged because successful warlords after the fall of the Roman Empire eventually got so well armed that the peasantry weren’t much of a threat to them, so had to allow themselves to be ruled in exchange for protection from rival warlords.
I… don’t think this is necessarily historically accurate, but whatever. It doesn’t matter. The point is that by the 1970s there wasn’t much that an individual or small group could to to really threaten a country.
Then, by the 1990s, the USA was interested in hunting Osama bin Laden with cruise missiles. Yes, pre-2001. This suggests that individuals are gaining the ability to threaten nations. Of course, in 1997, there was no reason to suspect that bin Laden would arrange to have aircraft captured and flown into the World Trade Centre, bringing an entire coalition into war in the Middle East and South East Asia.
Years later, we have seen lone hackers break into government websites, so I guess this is becoming more true over time.
2. Historically, you had to accept the terms offered by your country
Back in time, people relied on having a fixed control of land. Farming required actual land. Their economy and ways of life depended on this.
Naturally, that means that any country who rules the land can offer terms (i.e. laws) that people using the land had to accept.
In the modern era, most people aren’t agrarian. You can do business from wherever, even remotely. Thus, you don’t need to accept citizenship in a country to do business there. For example, you could move to Thailand and fall under their law but offer services to British customers over the internet.
The point is that citizens no longer need to accept the laws made by their government to survive.
3. The nation state is now restricted on how it can enforce its will on citizens, thanks to the internet
As well as the taxes point, there’s a limit to how else your average country can enforce its will.
We’ve seen this with social media, culminating with the so-called Arab Spring and our own interference of Facebook into politics. This blog is a good example, too: I have hosting in the US (I think…), and my domain name is registered in private via a proxy company. I could put whatever I wanted onto the blog and the UK government would have a fight to get it taken from the internet.
It’s also increasingly difficult for a lot of countries to prevent its citizens leaving. That’s more of a legal development than an internet development, but it’s undoubtedly true. If you have the money, you can be pretty confident that you can relocate to another country quite easily. Most countries won’t be too confident about stopping you leaving, without a good reason.
The argument posed by Davidson and Rees-Mogg is that countries will be less and less able to control citizens as more and more of life takes place on the internet.
4. Wealth and people are now mobile
Even in 1997, buying shares and investing was quite difficult for your average investor. You had to go to your local bank and hope that they had an investment specialist or place a telephone order with a stockbroker. There would be significant fees and minimum investment amounts.
Davidson and Rees-Mogg argue that the (then) new technology of the internet would mean that individuals could start to do business around the world, from anywhere. Any citizen could have their wealth tied up in any asset in any country. They even predicted “internet money”, i.e. Bitcoin, which would eventually be released after 2008.
This part is now true. You can invest in shares and ETFs on any public exchange around the world. The world tracker in my ISA allows me to indirectly own shares in any country where public stock markets exist.
The argument here is that by having assets around the world, it’s difficult if not impossible for any one country to prevent all of your wealth leaving the country. You could stash it offshore through trust structures, buy overseas assets then relocate yourself, or buy internet money assets (i.e. crypto) to keep your wealth outside of the reach of your government.
It’s now possible to move your business, your wealth and yourself wherever you fancy. Thanks to the internet, being a digital nomad is now possible.
5. This means nations will decline and will need to compete for value-for-money
Here’s the bit that might make for uneasy reading, but from what I have seen is probably true.
If there’s very little to stop people moving themselves and their wealth, then logically people are likely to move to the places that offer them the best deal.
For example: if you’re already a millionaire, wouldn’t you want your wealth to be offshore, where it’s only taxed 20% instead of additional rate at 45%?
If capital gains tax increases to 40%, wouldn’t you invest your money in overseas capital assets?
If your career field pays better in Europe, wouldn’t you consider emigrating?
It’s argued that the wealthiest pay the most tax. The Institute for Fiscal Studies declared that the top 1% of taxpayers accounted for about a third of all income tax receipts as of 2019, so this is probably true. Thus, it is predicted that more and more of these 1% will realise that they can move either or both of themselves and their wealth.
Ideally, countries will want that wealth to fuel their social security and infrastructure.
Logically, Davidson and Rees-Mogg argue that this will force governments to make their laws and arrangements more attractive to these people as time passes. As such a trend continues, the wealthier and more mobile individuals will even be able to negotiate exactly how much tax they are willing to pay, making tax treaties with countries as individuals. The Independent newspaper has recently reported that taxes are unequally paid amongst the 1%, and I suspect that this is evidence of the prediction becoming true.
This would make individuals able to play in the same playground as countries, effectively being true sovereign individuals on the global stage.
Other interesting ideas
Davidson and Rees-Mogg predicted two other interesting things:
- They believe that nations will eventually decline, giving birth to city-states and small local communities with special rules. I’m not totally convinced on this point, but it’s true that things like freeports are coming about.
- They suggest that technology now makes it possible to reform democracy so that individuals can vote on any individual issue, meaning that modern representative democracy – i.e. where your MP represents the best option for their constituents – is no longer the most democratic way to rule. What’s interesting is that they way they propose democracy will rebalance is the way the Tezos blockchain runs governance proposals today.
I’m not going into these points because I don’t think they’re relevant for financial independence campaigners. Still, they’re interesting ideas, worth a read.
My assessment of The Sovereign Individual
The concept of the sovereign individual – is it possible?
I think that the general predictions have proven remarkably accurate, and I agree with the general argument.
My own wealth is largely in globally diversified public equities and crypto. I’m not even a big dog on the world stage: I’m not in that 1% of earners in the UK.
I believe that decentralised finance will keep growing, allowing more and more of the world’s wealth to be hidden from governments.
We’re fortunate in the UK that we have a strong rule of law (well, relative to much of the world) and a fairly strong currency, so it’s easy for a UK audience to dismiss this kind of claim. However, Chainanalysis’ crypto adoption index shows that crypto is a trusted asset in countries that don’t have a strong currency.
The UK doesn’t have a monopoly on wealthy people. It seems reasonable to assume that many people around the world will look at their investment options and will be more than happy to put their wealth into crypto.
Even if that doesn’t happen, it’s now possible to invest in overseas countries, if you have the money.
Simply put: I think that new technology has made it possible for anyone, anywhere, to move their money away from their national governments. That means that at least some individuals are likely to become the sovereign individual described.
How might The Sovereign Individual apply to a financial independence audience?
Global diversification
It’s easy to make a globally diversified portfolio. You can do it through a single fund. That’s what I try to do with my ISA and pensions.
This isn’t the same as putting your wealth out of reach of governments, but it does mean that your capital isn’t tied up in the country you live in. You can choose to put your money wherever you like in the world.
Geoarbitrage and relocation
This is something that Tim Ferriss talks about in The Four Hour Work Week. I’ll review that in a different post, but the idea is that you should consider working remotely from a country where your money goes further than in the UK.
This is actually something digital nomads are doing already. There’s a cool website called The Nomad List that helps people with this. Check out their FIRE calculator to see what net worth you need to retire in different countries.
Relocation is something I’m considering, which will become clearer in my 2022 financial independence campaign plan.
Controversial points
Obviously, this book is a prediction based on the information as it existed in 1997.
Davidson and Rees-Mogg suggest that there will be a decline of the importance of countries and governments. While I agree that there will be people willing and able to be globally mobile, I don’t think people will be willing to let go of having a national identity so easily. Well, not in the UK. I don’t think Rees-Mogg Snr would have expected the Brexit outcome that Rees-Mogg Jnr would be so excited about years later.
The authors also say that the “losers” of the changing world order – i.e. people who aren’t able or willing to become sovereign individuals themselves – will be the ones who fight hardest to keep the current state of affairs. On first reading, this sounds like it’s talking about, well, poor people.
However, if you read closely, it simply means people who are stuck to a location. With modern technology, like remote working, it’s now possible to become a sovereign individual without being amongst the super-rich.
Overall thoughts
Although a bit dated, this book offers an interesting perspective on global trends. A lot of the predictions have already become true.
This isn’t necessarily the best reading if you’re new on your financial independence campaign. There are easier, more accessible and more readily applicable reads. Still, it’s a good book for any financial independence campaigner and I’d recommend it for longer-term planning.
How I plan to use the Sovereign Individual in my own financial independence campaign
I’m considering relocating or working remotely, in the long term.
I’ve mentioned before that I want to travel (indefinitely) after achieving CoastFI. One of the options for doing that would be to work remotely as a freelance content creator. Under that plan, I’d use this blog as a portfolio so that I could offer my services as a writer.
The other options would be to build some kind of online business or to have enough in income-producing assets to live on while travelling.
I’m also doing more research into crypto, beyond Bitcoin. There are some interesting savings protocols, such as Anchor, which I am already using. Then there are synthetic investment protocols such as Mirror which track real world assets such as the S&P 500 index. There are also payment options emerging, such as the Crypto.com visa card I’m using and the upcoming Ledger Visa.
In the long term, this might mean that I can have the bulk of my wealth either invested or in assets that I control the custody of. Now that would open the way to being bankless… potentially.
If you are considering this book after this review, why not consider purchasing through this affiliate link? It costs you nothing and allows me to rob about 12p from Jeff B’s space travel fund.
If you’re curious about the Ledger crypto Visa card and are considering one yourself, I’d be grateful if you could use my referral link when you register your interest. It costs you nothing, and allows me to boost up the waiting list. I don’t get any other reward for that link.
