The State Got Smaller Than the Things It Regulates, and Our Fear Did Not Move

There is a picture of the world that most political intuition still runs on. In it, the state is the large thing. It has the army, the police, the treasury, and the law. Everything else in society, firms included, is small by comparison and lives at the state's sufferance. The danger to be guarded against is therefore the state, and the tradition of political thought from Locke onwards is mostly a set of devices for keeping it in check.

That picture was accurate when it was drawn. I want to argue that it stopped being accurate some time ago, that the change was gradual enough that nobody updated, and that the mismatch between the picture and the situation explains a good deal of why representative government now fails at things it used to manage.

The Ratio Moved

Consider the relative size of a government and the largest private actors it deals with, at three points.

In the early industrial era the state, even a weak one, dwarfed any firm. It could seize, conscript, tax, and print. No company could match its resources or its reach.

By the middle of the twentieth century the balance had shifted but the state was still clearly the larger party. It nationalised industries when it wanted to. It broke up trusts. It set exchange rates. When it moved, the economy adjusted.

Now hold the two side by side in the present. The largest firms command resources comparable to mid-sized countries. They operate across every jurisdiction at once, while each government operates in one. They can move capital, operations, and tax residence faster than a legislature can convene a committee. A firm whose product is used by a third of humanity is regulated, in principle, by a body elected by a fraction of one percent of its users.

I have written elsewhere about what this shift does to the honest analyst's political affiliation. Here I want to look at what it does to the state itself.

What a Weaker Regulator Can Still Do

Ask what a government can do to an actor that is larger, faster, and more mobile than it is.

It can still legislate. But legislation binds only within the border, and the actor is not within the border in any way that matters. It can fine, but a fine that is a rounding error on the balance sheet is a fee, not a deterrent. It can prosecute, and the prosecution takes a decade, during which the conduct continues and the market moves on.

What it cannot do is the thing the old picture assumed: compel. A regulator that depends on the cooperation of the regulated is not a regulator. It is a negotiating partner, and a weak one. That is the actual position of most governments toward the largest firms, and the record of the last thirty years, in finance, in technology, in pharmaceuticals, reads exactly as you would expect from that position. Rules are written with the industry in the room. Enforcement is settled rather than pursued. The people who staff the agency move to the firms they oversaw, because that is where the power went.

The Fear That Did Not Update

Now look at where political fear is pointed.

The vocabulary of liberty is still almost entirely about the state. Overreach, tyranny, surveillance, the boot on the neck: all of it names the government as the agent. An entire political movement is organised around shrinking a body that has already shrunk relative to the things it was supposed to contain, and it has succeeded, and the success has not produced the freedom it promised, because the freedom was never being taken mainly by the state.

Meanwhile the private actors that actually determine what you can say, what you see, what you pay, what you earn, and what is known about you are described in the language of commerce, and the language of commerce has no word for tyranny. A firm cannot oppress you. It can only offer you terms.

We are aiming a two-hundred-year-old instrument at the smaller of two targets, because the instrument was calibrated when that target was the larger one, and nobody recalibrated it.

Why Nobody Updated

The change was slow. No single year marked the crossing. There was no event to hang the recognition on.

The shrinking was also welcomed at each step, by different people for different reasons. Privatisation, deregulation, free movement of capital, each was argued for on its own terms and each was reasonable on its own terms. Nobody was asked to approve the aggregate, because there was no moment at which the aggregate presented itself for approval.

And the old picture is comfortable. It has a villain that can be voted out. The new picture has no such villain, only a structure, and structures do not stand for election. Given a choice between a fear that points at something you can act on and a fear that points at something you cannot, people keep the first fear long after it has stopped being the right one.

What Follows

I am not arguing for a bigger state. A larger version of the current representative state would be a larger body for the same actors to capture, and capture is cheaper than compliance at every size.

The argument is narrower. The premise on which the old checks were built, that the state is the large actor and the rest of society is small, is false, and a political theory built on a false premise will keep producing remedies for the wrong disease. What is needed is a body that is actually larger than the largest private actor, in the only currency that cannot be bought: the number of people who have to be persuaded before it moves.

There is exactly one such body, and it is the whole population deciding directly. Not because the population is wise. Because it is the only thing left that is bigger than the firms.