Government by social network? US president Barack Obama with Facebook founder Mark Zuckerberg. Photograph: Mandel Ngan/AFP/Getty Images

Governments’ current favourite pyschologist, Daniel Kahneman. Photograph: Richard Saker for the Observer

For Agamben, this shift is emblematic of modernity. It also explains why the liberalisation of the economy can co-exist with the growing proliferation of control – by means of soap dispensers and remotely managed cars – into everyday life. “If government aims for the effects and not the causes, it will be obliged to extend and multiply control. Causes demand to be known, while effects can only be checked and controlled.” Algorithmic regulation is an enactment of this political programme in technological form.

The true politics of algorithmic regulation become visible once its logic is applied to the social nets of the welfare state. There are no calls to dismantle them, but citizens are nonetheless encouraged to take responsibility for their own health. Consider how Fred Wilson, an influential US venture capitalist, frames the subject. “Health… is the opposite side of healthcare,” he said at a conference in Paris last December. “It’s what keeps you out of the healthcare system in the first place.” Thus, we are invited to start using self-tracking apps and data-sharing platforms and monitor our vital indicators, symptoms and discrepancies on our own.

This goes nicely with recent policy proposals to save troubled public services by encouraging healthier lifestyles. Consider a 2013 report by Westminster council and the Local Government Information Unit, a thinktank, calling for the linking of housing and council benefits to claimants’ visits to the gym – with the help of smartcards. They might not be needed: many smartphones are already tracking how many steps we take every day (Google Now, the company’s virtual assistant, keeps score of such data automatically and periodically presents it to users, nudging them to walk more).

The numerous possibilities that tracking devices offer to health and insurance industries are not lost on O’Reilly. “You know the way that advertising turned out to be the native business model for the internet?” he wondered at a recent conference. “I think that insurance is going to be the native business model for the internet of things.” Things do seem to be heading that way: in June, Microsoft struck a deal with American Family Insurance, the eighth-largest home insurer in the US, in which both companies will fund startups that want to put sensors into smart homes and smart cars for the purposes of “proactive protection”.

An insurance company would gladly subsidise the costs of installing yet another sensor in your house – as long as it can automatically alert the fire department or make front porch lights flash in case your smoke detector goes off. For now, accepting such tracking systems is framed as an extra benefit that can save us some money. But when do we reach a point where not using them is seen as a deviation – or, worse, an act of concealment – that ought to be punished with higher premiums?

Or consider a May 2014 report from 2020health, another thinktank, proposing to extend tax rebates to Britons who give up smoking, stay slim or drink less. “We propose ‘payment by results’, a financial reward for people who become active partners in their health, whereby if you, for example, keep your blood sugar levels down, quit smoking, keep weight off, [or] take on more self-care, there will be a tax rebate or an end-of-year bonus,” they state. Smart gadgets are the natural allies of such schemes: they document the results and can even help achieve them – by constantly nagging us to do what’s expected.

The unstated assumption of most such reports is that the unhealthy are not only a burden to society but that they deserve to be punished (fiscally for now) for failing to be responsible. For what else could possibly explain their health problems but their personal failings? It’s certainly not the power of food companies or class-based differences or various political and economic injustices. One can wear a dozen powerful sensors, own a smart mattress and even do a close daily reading of one’s poop – as some self-tracking aficionados are wont to do – but those injustices would still be nowhere to be seen, for they are not the kind of stuff that can be measured with a sensor. The devil doesn’t wear data. Social injustices are much harder to track than the everyday lives of the individuals whose lives they affect.

In shifting the focus of regulation from reining in institutional and corporate malfeasance to perpetual electronic guidance of individuals, algorithmic regulation offers us a good-old technocratic utopia of politics without politics. Disagreement and conflict, under this model, are seen as unfortunate byproducts of the analog era – to be solved through data collection – and not as inevitable results of economic or ideological conflicts.

However, a politics without politics does not mean a politics without control or administration. As O’Reilly writes in his essay: “New technologies make it possible to reduce the amount of regulation while actually increasing the amount of oversight and production of desirable outcomes.” Thus, it’s a mistake to think that Silicon Valley wants to rid us of government institutions. Its dream state is not the small government of libertarians – a small state, after all, needs neither fancy gadgets nor massive servers to process the data – but the data-obsessed and data-obese state of behavioural economists.

The nudging state is enamoured of feedback technology, for its key founding principle is that while we behave irrationally, our irrationality can be corrected – if only the environment acts upon us, nudging us towards the right option. Unsurprisingly, one of the three lonely references at the end of O’Reilly’s essay is to a 2012 speech entitled “Regulation: Looking Backward, Looking Forward” by Cass Sunstein, the prominent American legal scholar who is the chief theorist of the nudging state.

And while the nudgers have already captured the state by making behavioural psychology the favourite idiom of government bureaucracy –Daniel Kahneman is in, Machiavelli is out – the algorithmic regulation lobby advances in more clandestine ways. They create innocuous non-profit organisations like Code for America which then co-opt the state – under the guise of encouraging talented hackers to tackle civic problems.

Airbnb: part of the reputation-driven economy.

Such initiatives aim to reprogramme the state and make it feedback-friendly, crowding out other means of doing politics. For all those tracking apps, algorithms and sensors to work, databases need interoperability – which is what such pseudo-humanitarian organisations, with their ardent belief in open data, demand. And when the government is too slow to move at Silicon Valley’s speed, they simply move inside the government. Thus, Jennifer Pahlka, the founder of Code for America and a protege of O’Reilly, became the deputy chief technology officer of the US government – while pursuing a one-year “innovation fellowship” from the White House.

Cash-strapped governments welcome such colonisation by technologists – especially if it helps to identify and clean up datasets that can be profitably sold to companies who need such data for advertising purposes. Recent clashes over the sale of student and health data in the UK are just a precursor of battles to come: after all state assets have been privatised, data is the next target. For O’Reilly, open data is “a key enabler of the measurement revolution”.

This “measurement revolution” seeks to quantify the efficiency of various social programmes, as if the rationale behind the social nets that some of them provide was to achieve perfection of delivery. The actual rationale, of course, was to enable a fulfilling life by suppressing certain anxieties, so that citizens can pursue their life projects relatively undisturbed. This vision did spawn a vast bureaucratic apparatus and the critics of the welfare state from the left – most prominently Michel Foucault – were right to question its disciplining inclinations. Nonetheless, neither perfection nor efficiency were the “desired outcome” of this system. Thus, to compare the welfare state with the algorithmic state on those grounds is misleading.

But we can compare their respective visions for human fulfilment – and the role they assign to markets and the state. Silicon Valley’s offer is clear: thanks to ubiquitous feedback loops, we can all become entrepreneurs and take care of our own affairs! As Brian Chesky, the chief executive of Airbnb, told the Atlantic last year, “What happens when everybody is a brand? When everybody has a reputation? Every person can become an entrepreneur.”

Under this vision, we will all code (for America!) in the morning, driveUber cars in the afternoon, and rent out our kitchens as restaurants – courtesy of Airbnb – in the evening. As O’Reilly writes of Uber and similar companies, “these services ask every passenger to rate their driver (and drivers to rate their passenger). Drivers who provide poor service are eliminated. Reputation does a better job of ensuring a superb customer experience than any amount of government regulation.”

The state behind the “sharing economy” does not wither away; it might be needed to ensure that the reputation accumulated on Uber, Airbnb and other platforms of the “sharing economy” is fully liquid and transferable, creating a world where our every social interaction is recorded and assessed, erasing whatever differences exist between social domains. Someone, somewhere will eventually rate you as a passenger, a house guest, a student, a patient, a customer. Whether this ranking infrastructure will be decentralised, provided by a giant like Google or rest with the state is not yet clear but the overarching objective is: to make reputation into a feedback-friendly social net that could protect the truly responsible citizens from the vicissitudes of deregulation.

Admiring the reputation models of Uber and Airbnb, O’Reilly wants governments to be “adopting them where there are no demonstrable ill effects”. But what counts as an “ill effect” and how to demonstrate it is a key question that belongs to the how of politics that algorithmic regulation wants to suppress. It’s easy to demonstrate “ill effects” if the goal of regulation is efficiency but what if it is something else? Surely, there are some benefits – fewer visits to the psychoanalyst, perhaps – in not having your every social interaction ranked?

The imperative to evaluate and demonstrate “results” and “effects” already presupposes that the goal of policy is the optimisation of efficiency. However, as long as democracy is irreducible to a formula, its composite values will always lose this battle: they are much harder to quantify.

For Silicon Valley, though, the reputation-obsessed algorithmic state of the sharing economy is the new welfare state. If you are honest and hardworking, your online reputation would reflect this, producing a highly personalised social net. It is “ultrastable” in Ashby’s sense: while the welfare state assumes the existence of specific social evils it tries to fight, the algorithmic state makes no such assumptions. The future threats can remain fully unknowable and fully addressable – on the individual level.

Silicon Valley, of course, is not alone in touting such ultrastable individual solutions. Nassim Taleb, in his best-selling 2012 book Antifragile, makes a similar, if more philosophical, plea for maximising our individual resourcefulness and resilience: don’t get one job but many, don’t take on debt, count on your own expertise. It’s all about resilience, risk-taking and, as Taleb puts it, “having skin in the game”. As Julian Reid and Brad Evans write in their new book, Resilient Life: The Art of Living Dangerously, this growing cult of resilience masks a tacit acknowledgement that no collective project could even aspire to tame the proliferating threats to human existence – we can only hope to equip ourselves to tackle them individually. “When policy-makers engage in the discourse of resilience,” write Reid and Evans, “they do so in terms which aim explicitly at preventing humans from conceiving of danger as a phenomenon from which they might seek freedom and even, in contrast, as that to which they must now expose themselves.”

What, then, is the progressive alternative? “The enemy of my enemy is my friend” doesn’t work here: just because Silicon Valley is attacking the welfare state doesn’t mean that progressives should defend it to the very last bullet (or tweet). First, even leftist governments have limited space for fiscal manoeuvres, as the kind of discretionary spending required to modernise the welfare state would never be approved by the global financial markets. And it’s the ratings agencies and bond markets – not the voters – who are in charge today.

Second, the leftist critique of the welfare state has become only more relevant today when the exact borderlines between welfare and security are so blurry. When Google’s Android powers so much of our everyday life, the government’s temptation to govern us through remotely controlled cars and alarm-operated soap dispensers will be all too great. This will expand government’s hold over areas of life previously free from regulation.

With so much data, the government’s favourite argument in fighting terror – if only the citizens knew as much as we do, they too would impose all these legal exceptions – easily extends to other domains, from health to climate change. Consider a recent academic paper that used Google search data to study obesity patterns in the US, finding significant correlation between search keywords and body mass index levels. “Results suggest great promise of the idea of obesity monitoring through real-time Google Trends data”, note the authors, which would be “particularly attractive for government health institutions and private businesses such as insurance companies.”

If Google senses a flu epidemic somewhere, it’s hard to challenge its hunch – we simply lack the infrastructure to process so much data at this scale. Google can be proven wrong after the fact – as has recently been the case with its flu trends data, which was shown to overestimate the number of infections, possibly because of its failure to account for the intense media coverage of flu – but so is the case with most terrorist alerts. It’s the immediate, real-time nature of computer systems that makes them perfect allies of an infinitely expanding and pre-emption‑obsessed state.

Perhaps, the case of Gloria Placente and her failed trip to the beach was not just a historical oddity but an early omen of how real-time computing, combined with ubiquitous communication technologies, would transform the state. One of the few people to have heeded that omen was a little-known American advertising executive called Robert MacBride, who pushed the logic behind Operation Corral to its ultimate conclusions in his unjustly neglected 1967 book, The Automated State.

At the time, America was debating the merits of establishing a national data centre to aggregate various national statistics and make it available to government agencies. MacBride attacked his contemporaries’ inability to see how the state would exploit the metadata accrued as everything was being computerised. Instead of “a large scale, up-to-date Austro-Hungarian empire”, modern computer systems would produce “a bureaucracy of almost celestial capacity” that can “discern and define relationships in a manner which no human bureaucracy could ever hope to do”.

“Whether one bowls on a Sunday or visits a library instead is [of] no consequence since no one checks those things,” he wrote. Not so when computer systems can aggregate data from different domains and spot correlations. “Our individual behaviour in buying and selling an automobile, a house, or a security, in paying our debts and acquiring new ones, and in earning money and being paid, will be noted meticulously and studied exhaustively,” warned MacBride. Thus, a citizen will soon discover that “his choice of magazine subscriptions… can be found to indicate accurately the probability of his maintaining his property or his interest in the education of his children.” This sounds eerily similar to the recent case of a hapless father who found that his daughter was pregnant from a coupon that Target, a retailer, sent to their house. Target’s hunch was based on its analysis of products – for example, unscented lotion – usually bought by other pregnant women.

For MacBride the conclusion was obvious. “Political rights won’t be violated but will resemble those of a small stockholder in a giant enterprise,” he wrote. “The mark of sophistication and savoir-faire in this future will be the grace and flexibility with which one accepts one’s role and makes the most of what it offers.” In other words, since we are all entrepreneurs first – and citizens second, we might as well make the most of it.

What, then, is to be done? Technophobia is no solution. Progressives need technologies that would stick with the spirit, if not the institutional form, of the welfare state, preserving its commitment to creating ideal conditions for human flourishing. Even some ultrastability is welcome. Stability was a laudable goal of the welfare state before it had encountered a trap: in specifying the exact protections that the state was to offer against the excesses of capitalism, it could not easily deflect new, previously unspecified forms of exploitation.

How do we build welfarism that is both decentralised and ultrastable? A form of guaranteed basic income – whereby some welfare services are replaced by direct cash transfers to citizens – fits the two criteria.

Creating the right conditions for the emergence of political communities around causes and issues they deem relevant would be another good step. Full compliance with the principle of ultrastability dictates that such issues cannot be anticipated or dictated from above – by political parties or trade unions – and must be left unspecified.

What can be specified is the kind of communications infrastructure needed to abet this cause: it should be free to use, hard to track, and open to new, subversive uses. Silicon Valley’s existing infrastructure is great for fulfilling the needs of the state, not of self-organising citizens. It can, of course, be redeployed for activist causes – and it often is – but there’s no reason to accept the status quo as either ideal or inevitable.

Why, after all, appropriate what should belong to the people in the first place? While many of the creators of the internet bemoan how low their creature has fallen, their anger is misdirected. The fault is not with that amorphous entity but, first of all, with the absence of robust technology policy on the left – a policy that can counter the pro-innovation, pro-disruption, pro-privatisation agenda of Silicon Valley. In its absence, all these emerging political communities will operate with their wings clipped. Whether the next Occupy Wall Street would be able to occupy anything in a truly smart city remains to be seen: most likely, they would be out-censored and out-droned.

To his credit, MacBride understood all of this in 1967. “Given the resources of modern technology and planning techniques,” he warned, “it is really no great trick to transform even a country like ours into a smoothly running corporation where every detail of life is a mechanical function to be taken care of.” MacBride’s fear is O’Reilly’s master plan: the government, he writes, ought to be modelled on the “lean startup” approach of Silicon Valley, which is “using data to constantly revise and tune its approach to the market”. It’s this very approach that Facebook has recently deployed to maximise user engagement on the site: if showing users more happy stories does the trick, so be it.

Algorithmic regulation, whatever its immediate benefits, will give us a political regime where technology corporations and government bureaucrats call all the shots. The Polish science fiction writer Stanislaw Lem, in a pointed critique of cybernetics published, as it happens, roughly at the same time as The Automated State, put it best: “Society cannot give up the burden of having to decide about its own fate by sacrificing this freedom for the sake of the cybernetic regulator.”