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Saturday, September 26, 2020

Increasing Freedom and Prosperity by means of Private Cities

by Patrik Schumacher, London 2020, for Liberland Press

‘Honduras Prospera’ is a unique initative translating the ideas Titus Gebel formulated in his book on ‘Free Private Cities’.  Prospera is just getting off the ground. So far it is only a small seed of what is to come. The ambition is to create the Hong Kong of Central America, on the island of Roatan, Honduras.  The aim is to create largely autonomous free market enclave with its own jurisdiction and court system within the uniquely liberal framework of the ZEDE programme (Zone for Employment and Economic Development) established by parliamentary action in Honduras. The programme invites private entities to establish, regulate and run free enterprise zones anywhere in Honduras. This is not yet a fully autonomous micro-nation as Liberland aspires to become, as ultimate sovereignty is maintained by the host country Honduras. However, the degree of autonomy granted reaches far beyond what is usually granted for special economic zones.

The inspiration for the ZEDE programme came from Paul Romer’s idea and initiative to create so called ‘Charter Cities’ as a development tool for underdeveloped regions. Paul Romer is no Libertarian, as is evident by the fact that he was chief economist and senior vice president of the World Bank (from 2016 to 2018). Romer originated so called endogenous growth theory in the 1990s (which earned him the Nobel prize in economics in 2018). Endogenous growth theory emphasizes innovation as factor of economic growth. While this seems obvious and nearly tautological, Romer’s achievement was to include investment in knowledge production, i.e. education, science and R&D into mathematical growth models that had formerly treated technological advances as exogenous. Romer emphasized the non-rivalry of knowledge, i.e. the fact that knowledge resources can be used simultaneously by all without mutual interference or resource depletion. There is a mutual enhancement of knowledge uses, i.e. strong positive spill-over effects. Romer posits the importance of ideas and of so called meta-ideas for growth. A meta-idea is “a recipe for social interaction that encourages the production and transmission of ideas” and he calls cities, markets and science the three big meta-ideas. The 19th century idea of a new type of technologically and practically oriented university (like MIT) was another meta-idea. The idea of Charter Cities can also be classified as a meta-idea in this sense.

“One of the biggest meta-ideas of modern life is to let people live together in dense urban agglomerations. A second is to allow market forces to guide most of the detailed decisions these people make about how they interact with each other. Together, the city and the market let large groups of people cooperate by discovering new ideas, sharing them, and learning from each other.” Paul Romer, The Deep Structure of Economic Growth

Romer launched the idea of Charter Cities in a 2009 TED talk. It was primarily targeted at developing countries where the institutional prerequisites for growth  – reliable government, property security, the rule of all  – are lacking and preventing the take-off of development.  In 2010 Romer published a paper with the title ‘Technologies, Rules, and Progress: The Case for Charter Cities’. He published under the auspices of the Center for Global Development, a prominent Washington think tank for developmental policy, dedicated to reducing global poverty and inequality:

“In this century, new technologies can raise living standards at the fastest rate in human history. … It will happen only if our rules keep up with our technologies and the proliferating web of human interactions that these technologies make possible. The constraint we will face will come from neither scarce resources nor limited technological opportunities; if we falter, it will be because of our limited capacity for discovering and implementing new rules.”

While this paragraph is calling for political innovation in the face of technological transformations, most of the article has a more conservative outlook, focusing on copying established Western rule sets in Africa:

“If technologies are ideas about how to arrange physical objects, rules are ideas about how to structure interactions among people. Like technologies, rules can be shared and copied. … Developing countries pursue catch-up growth by copying technologies. … What types of mechanisms will allow developing countries to copy the rules that work well in the rest of the world?”

Copying rules is a rather conservative stance, perhaps safe and appropriate for catch-up development. Perhaps this is also what Honduras was expecting.

But with Prospera they are getting much more than what they have bargained for. A radically new type of polity, not a mere copy of current 1st world standards.

Harvard educated Honduran lawyer and presidential adviser Octavio Sanchez brought Romer and his idea to Honduras and a uniquely radical legal framework for autonomous economic zones was soon legislated in 2011. Romer served as chair of a “transparency committee” in connection with the ZEDE programme until 2012.

The most basic advantage of Titus Gebel’s Free Private City concept is that citizenship is based on voluntary, and in this sense “free”, participation.  It is not based on a political revolution where one group of political actors, whether minority or majority, is imposing the new system on a given population. Instead a Free Private City Corporation, like Prospera, appears on the scene, on the market for governance provision, with a competitive service offering focusing on security of life, liberty and property.  This is an invitation to join the city as a citizen, based on a real social contract specifying the terms of engagement between the prospective citizen and the governance provider. The offer includes a rule of law based on a newly packaged bundle of well-corroborated common law procedures, rules and rulings. More specifically it is implementing Ulex, an open source legal system, offered by legal scholar Tom W.Bell’s Institute for Competitive Governance (that counts Titus Gebel amongst its advisers). Further, Prospera has build up its own judiciary by inviting eminent judges, including former supreme court judges. The social contract itself will be adjudicated by an independent international arbitrator. The governance provider and citizen-client thus, unlike in all known states, stand on a truly equal footing with respect to dispute resolution.

This freedom of social or political contracting is mutual, i.e. both parties, prospective citizen and city, have to agree to the trade, as is always the case in proper markets. This, however, also implies that there is no general right to join, and therefore probably no free, unrestricted immigration. This is not only so because a governance services fee will be levied which not everybody might be able to afford, but the city might be selective and impose requirements with respect to language, skills, minimum capital endowment etc. In this sense a free private city might be compared with a club. Its business model might be premised on a certain vision of a successful society and the attempt might be made to curate the society accordingly. This might be compared with certain business park projects trying to curate a certain synergetic cluster of tenants, trying to brand the development with respect to a certain industry, i.e. trying to create a financial centre, or a new media district etc. Such attempts at selectivity might falter and the developer might have to become more indiscriminate, i.e. less selective, due to a lack of uptake. This might easily happen to a city that initially had a very strong, restrictive curatorial agenda. Early and intensive marketing should be key for an ambitious curation to succeed. A critical mass of tenants would have to be assembled is a short period of time. (Here a visually eloquent urban and architectural design might be a crucial component.)

We can probably presume that some minimal degree of selectiveness might have to be maintained, over and above the price mechanism that could always respond to overflowing demand by increasing the fees for newcomers. (The city might want to avoid becoming a sanctuary for drug lords.) While the main absorption and growth regulating mechanism of successful cities will be the price mechanism, either via land prices and rents, or via fees or taxes, some further control over immigration will properly be maintained. Therefore, a free private city would not add to the freedom of those who would not be eligible to join. However, there are reasons to believe that if the idea of free private cities takes off, there will probably be at least some cities with initially very liberal immigration policies. Since there will be many cities without existing populations that would want to be protected from immigrant competition, and because most of these cities, as start-up for-profit enterprises, will neither be willing, nor able to offer any welfare provisions or guarantees, immigration could be very much more liberal than most current states. (Instead insurance offers as well as mutual aid societies could and would deliver social security on the basis of voluntary participation. Some cities, Prospera included, might make insurance with a reputed life insurer or participation in a mutual aid society a condition of residency.) If there are no severe spatial constraints, it would make economic sense for the city operator to either expand its territory or else absorb an increasing population by means of densifying the build-up of the city. This would probably be in the interest of the operator, and probably also in the interest of private landowners, and employers too.  The presumption here is that the operator will, in its contract with its citizens, reserve its immigration authority.

As always, best protection against rising prices due to demand pressure will the additional competitive supply. This supply should be forthcoming as long as states do not continue to block the conversion of agricultural into urban land or the utilization of their uninhabited land.

A proper free competitive market in governance provision, as envisioned here, presupposes that there are many providers in the market, or at least a menu of many different cities to choose from, even if this market ends up being dominated by a handful of big corporations franchising their models like hotel chains around the world. The smaller the territorial units, the easier it will be for citizens to avoid lock-in, and to exercise their market choice and move to a different jurisdiction. This vision of a rich choice menu of jurisdictions, small and perhaps differentially curated or specialized, within relative proximity, stands in stark contrast with the USA as huge political monolith that locks in most of its citizens from cradle to grave. The majority of US citizens do not even hold a passport, let alone consider which government they should live under to be a matter of individual market choice. In addition, and this is mostly relevant to high performers, exit from the US is costly. The relinquishment of US citizenship is penalized with a imposition of a hefty Exit Tax.

The switching between governance regimes might further be eased due to the possibility of decoupling jurisdictions at least partially from territorial boundaries.  The ZEDE framework allows for non-contiguous communities and new businesses from anywhere in Honduras to opt into the Prospera jurisdiction. In general business law does not need to be tied to a territory and switching between providers should be as easy as switching insurance providers. Tom Bell’s Ulex offering was initially developed for non-territorial governance and dispute resolution, primarily targeted at the crypto-space, i.e. for distributed protocols like Etherium, Tesoz, EOS and Dash as an alternative to governance via hard forks.

Rules and laws concerning spatial co-location, physical property and physical interactions remain tied to territory. However, rules and laws might be varied, street by street, or even block by block, and much might be devolved to individual condominiums or owners of individual establishments. The risk of this adaptive diversity becoming disorienting will probably be avoided via a spontaneous self-regulation and balancing of divergent and convergent tendencies, via the spontaneous aggregation of individual decisions making this trade-off locally.

Let us presume that current states bent to a future popular demand for allowing the secession of charter cities, just as governments are now pressured to allow for charter schools to compete with state schooling. Then, once the idea of private cities takes off, we can assume that initially as many forms of cities or polities would form as there are ideologies, secular or religious. What guarantees that all or even most of these private cities will be free cities in the libertarian sense of offering a laissez faire regime based on individual liberty, private property and far reaching economic freedoms, giving as much scope as possible to freedom of contract?

Libertarians would agitate for laissez faire and a socially liberal regime but would not want to see any restrictive impositions coming from an overarching authority. The ideal of libertarianism ultimately presumes the absence of any such overarching authority. Instead the overall disciplining and ordering of the whole field of interacting private cities or polities is expected to be delivered by the competitive market process via the profit-and-loss system, and guided by a parallel discourse involving the social sciences as well as public proselytizing efforts. An informed critical discourse will discourage and discredit questionable or unviable private city concepts in advance, so that many projects that are likely to fail will never get off the ground. Others might go ahead undeterred only to be weeded out by the market process. Discourse will also be a crucial facilitator in the generation of new projects. Together discourses and markets will deliver the rational selection process that is required in any progressive evolutionary process.

In a previous paper (and my contribution to the 2nd Liberland conference) entitled ‘Corporate Governance Structures as Models for Micro-nation Constitutions’, I distinguished various forms of corporate ownership, including various types of cooperatives, that might enter the market of competing private cities. Now, we might further extend what might be possible, for instance monarchies, perhaps ethnically based, even openly discriminatory polities, or illiberal theocracies using draconian forms of social control, perhaps also communist communes. Whether such communes would be tolerated as districts or enclaves within a private city would be up to the operator to decide. Titus Gebel, in the recent Liberland conference on Free Private Cities explicitly welcomed that communist communes to form within the bounds of Prospera, while expressing historically based doubt about the longevity of such communes beyond the initial generation of enthusiasts.

Why would libertarians wish and call for a world of private cities, a world where all this is possible and might come to pass? Well, freedom of voluntary association, including the right to discriminate concerning participation, is a core tenet of libertarianism. If people freely chose to segregate or to subject themselves to a draconian religious regime, then we might warn and proselytize against this but would at the same time oppose any coercive measures or violent intervention trying to prevent or break up such associations. Can we really know in advance whether these forms are always detrimental for all? The crowd will show the way via voting with their feet. Discourses are important in trying to anticipate and guide, but the final selection comes via market action on the ground, sometimes only after discursive guidance was ignored, or worse after guidance turned out to be misguided.

Honduras Prospera_Zaha Hadid Architects

While the very conception of free private, for-profit polity emerged, naturally and congenially, from within libertarian political discourse, and could probably not have emerged from within socialist or conservative political discourses, there is indeed nothing that stands in the way of the founding of socialist or conservative private cities, once this theoretical possibility has become a real opportunity for entrepreneurial initiative, as it has been in Honduras. Indeed, there have been historical examples of socialist communities that started on the basis of privately funded initiatives. The fact that these ventures failed, as well as why and how they failed, is material historical evidence that should alleviate the worry of preparing the turf on which for regressive regimes might flourish.

The question which of these polities should be preferred is, according to this paper, not a moral question, neither a question of personal preference, but a question of which constitutional form will be most conducive to the development of the forces of production and thus economic growth leading to ever higher levels of prosperity. So far all migrations followed a prosperity gradient.

Libertarianism’s essential message here is not moral but economic, it is an historically located socio-economic hypothesis. The essential message here is not a moral dictum like “the principle of self-ownership and respect for private property is sacrosanct” but a theoretical thesis about the current historical conditions of prosperity, namely that increasing degrees of freedom for individual autonomy, free contracting and free exchange in markets, as well as unconstrained freedom of speech, communication and discourse, are advantageous for general prosperity. This thesis then also translates into a prediction, which at the same time becomes advice for would be governance entrepreneurs, namely that those “free” polities that are based on libertarian principles will economically out-compete both its conservative-traditionalist and its socialist-interventionist competitors, at least with respect to those private communities that attempt to function as production centres, and that means, increasingly, as creative knowledge economy hubs. Traditionalist or socialist entities might survive as retirement communities.

Libertarians should therefore be relaxed about these other possible private cities because we can presume that even the initial popularity of such regimes will be limited and since we are convinced that the prosperity potential of such regimes is minimal, they will soon shrink and disappear rather than proliferate. There is plenty of evidence that prosperity, material freedom, the general availability of a prosperous standard of living is an irresistible attractor, even for many or most at the same time still caught up in a deeply religious or otherwise culturally backward ideology. The advantages of material affluence are obvious enough for everyone. This affluence is based on productivity levels and competitive productivity gains that will best be attained by the laissez faire regimes preferred and advocated by libertarians. Libertarians are convinced that the competitive market process in the market for living and working together will select and proliferate free private cities. The concept of free private cities does not only make sense for us as libertarian political activists, fueling our missionary zeal to create a better world for all, but it also makes eminent business sense for entrepreneurs and investors in the market for living together.

The relative marginality and economic desperation of a country like Honduras made breaking through the usual political barriers here more likely, and the chances for success are great due to the fact that there are many low hanging fruits of development in Honduras that allow for rapid catch up growth (as was seen in Asia in recent decades). This implies that Prospera’s economic success is indeed likely. Such catch-up growth would be a signal to the developing world but with respect to world political discourse mere catch-up growth will probably not be perceived as something earth shaking that would be seen as challenging the political status quo in the central, most advanced arenas of the world. A similar experiment in the heart of Europe that would have the chance to break the stagnation at the frontier of productivity development would, in contrast, immediately irradiate the collective imaginary within the advanced societies, and become a torch leading the way forward for a long overdue political revolution. This political revolution is necessary to unleash the politically enchained potentials for accelerated progress that the AI revolution promises.

Jillian Godsil
Blockchain Advocate, Founder, Conference Chair, Women in Blockchain Advocate, Keynote Speaker, Crypto Journalist, Broadcaster, CEO, Writer, Homelessness Advocate, Former European Parliament Candidate, Law Changer, Mother, Choir Member, Hill Walker, Dreamer

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