The Future Is Already Here

In Mark Lutter’s lead essay, “Local Governments Are Changing the World,” he provides an interesting and timely overview of a wide array of innovative urban ideas and projects built from scratch, including special economic zones, charter cities, seasteading, new cities, and other jurisdictions with varying degrees of autonomy.

His essay chronicles decades of libertarian failure to get projects off the ground, which reads as a forceful indictment against the capacity of grass roots libertarians to become city-builders. As Lutter points out, startup societies have a unique knack of getting kicked out of the places where they are trying to build and have struggled to apply a Burning Man / Silicon Valley / libertarian ethos to real-world contexts in their city-building endeavors.

As Lutter outlines, projects from Operation Atlantis, seasteading, and charter cities, to attempts in Madagascar, Honduras, and French Polynesia have failed to materialize. He neglects to mention that some of the luminaries pulled momentarily into the orbit of the startup cities world have since departed, notably Peter Thiel and Paul Romer.

In stark contrast, Lutter goes on to summarize some of the innovative urban spaces underway in China, Saudi Arabia, and the United Arab Emirates. The main difference is that the projects materializing are driven by strong, authoritarian states and corporations who have the connections, financial backing, negotiating skills, technical expertise, and organizational capacity to pull off engineering feats and governance innovations that were unimaginable ten years ago, and that remain far out of reach for American startup cities movements.

The new types of city building, governance, and urbanization of the ocean that startup societies describe are already underway. For better or for worse, government regulations are being dismantled or circumvented in specialized zones in dozens of countries at an unprecedented scale. Autonomous and semi-autonomous zones to which host states have largely conceded sovereignty are popping up in such places as east Africa, the Arab peninsula, and southeast Asia.

The American startup cities crowd is dreaming about a future that is already here.

So why are startup cities folks not talking about these projects? The invisibility of these projects is partly due to the fact that they are very new and are located far from the United States, largely in non-English-speaking places. But they are perhaps also invisible due to the unfamiliar faces at the helm. It is not American men at the forefront of this radical experimentation – current projects are conceived, financed, and executed by Chinese and other Asians, Arabs, and Africans.

What needs further teasing apart among startup cities advocates is how they philosophically align with the proliferation of these new autonomous zones. Lutter does not make any distinction between or hierarchy among projects he surveys, perhaps because the brief format did not allow for this level of elaboration.

However, aside from the many failed startup city projects, there is a wide range of negative impacts that deserve careful study. There is growing evidence that the collateral damage produced by many projects is severe and unacceptable to many: there are ecological disasters; many have demonstrated little respect for human rights, dignity, or lives; they are not accountable to any public, and they are sites of unprecedented corruption. There is a consistent disregard for legally protected tribal and indigenous land. They are certainly zones of experimentation with new forms of governance and unique levels of autonomy, but at what cost and to whom?

If the libertarian position is that you can’t make a startup city omelette without breaking a few human rights and ecology eggs, their projects may continue to be thwarted by angry and rightfully suspicious citizens.

The pockets of autonomous zones are proliferating, yet like any utopian idea their fortunes and fates are still tied to the rest of the world. They rely on governments to invest in research, telecommunications, transportation networks, security, and stable financial markets.

Lutter is right to point out that startup cities are inherently both political and business endeavors. Startup city advocates tend to gloss over politics and the troubling colonial dimension of their projects. Libertarians may not feel like colonial entities, yet it sends a disturbing message to accept tracts of land from the corrupt and undemocratic leadership of other countries, and then proceed to reject their laws and social norms. This type of acquisition of foreign territory, also called “land grabbing,” is broadly perceived as a provocation that will continue to enrage and mobilize citizens around the world.

Chinese companies and the Chinese state have been the most high profile in acquiring land and sea rights in foreign countries where they construct strategically located (semi-)autonomous zones. Forest City, the largest Chinese investment outside of China, is a new private enclave being built by a Chinese company for 700,000 on four artificial islands in the territorial waters of Malaysia. The company has negotiated major concessions of sovereignty: no Malaysian police or military are allowed, freehold property can be sold, and Malaysian law does not apply. It has faced sharp criticism by the former leader of the opposition-turned-Prime Minister, who attacked the selling of land to foreigners, arguing it was a form of colonialism.

Other experimental urban enclaves are being created in Saudi Arabia, Zanzibar, Ecuador, Oman, and more. These projects have varying levels of autonomy and special incentives and more liberal rules on personal freedom than the rest of the country, often governed not by national law but by a city charter.

It is a wild west out there without any semblance of the checks and balances, regulations, and moderating effects that responsible government provides.

China: A Flawed Model for Startup Cities

In his essay, Lutter points to China as the greatest economic and humanitarian miracle in the post–World War II era. He attributes this success to China’s Special Economic Zones (SEZ), and proceeds to connect China’s success to the libertarian dream of creating new cities from scratch.

Lutter states that the particular reasons why China’s special economic zone success has never been replicated elsewhere is “beyond the scope of this essay.” I suggest that if they are to be claimed as a model for startup cities, China’s SEZs require careful and rigorous study by libertarians, seasteaders, advocates of charter cities, and by anyone else looking to China for inspiration.

While not to deny China’s extraordinary economic growth since the reforms of 1979, looking to China as a model is cherry picking of the highest order, and flawed for a number of reasons.

First, context matters, and the success of Chinese SEZs cannot be celebrated in isolation from broader demographic factors and economic history. China has controlled between 25% and 35% of the global economy for much of recorded history, except for a brief period roughly between the Opium Wars and Deng Xiaoping’s economic reforms.

Second, after China shut its doors in 1949, the capitalist world was eager for access to the world’s largest market. The United States was so desperate to establish ties with China that it swallowed its pride and ended its diplomatic relationship with Taiwan, a democracy that it had supported since China’s communist revolution ended in 1949. This external demand for trade is unique to China.

Third, Lutter refers to the location of Shenzhen, China’s first SEZ, as a “relative backwater.” China’s population has always been extremely unevenly distributed, and the coast has long been the economic heart of the country and where the vast majority of the population is concentrated. The Pearl River Delta, where Shenzhen is located, has historically been a trade entrepot for southern China that had sustained contact with other countries through emigrants, and via neighboring Hong Kong and Macau. Shenzhen’s economic success as a space of liberal experimentation in a country stifled by top-heavy and unrealistic policies is not easily replicable in areas with low populations.

In analyzing the winners and losers of experiments in governance, applying lessons learned from China’s experience with SEZs may not provide the economic rocket fuel startup cities advocates imagine in truly isolated “backwaters” with small populations, such as French Polynesia.

Can “Total Freedom” Be Achieved on Leased Land?

Various startup city advocates Lutter references generally seek to escape what they feel are the suffocating constraints of government. Ironically, seasteaders, formally the most ideologically pure libertarian advocates of startup cities, are now approaching governments around the world cap in hand and trying to negotiate the lease of land and SEZ status for their floating city scheme. They yearn for freedom yet align themselves with charter cities.

As conceptualized by Paul Romer, charter cities are not a rejection of government, but are intended as a way to encourage government reform to take place. According to Romer, charter cities should have “electoral accountability for the people who run the zone” and a government:

Any sensible reform zone will still have government, some type of government. It will be accountable in the way that governments around the world are accountable. We give government special powers, like the ability to put people in jail, but we also impose special mechanisms of accountability to make sure that those powers are not abused.

Far from being bastions of freedom on the high seas as conceptualized by Patri Friedman, startup societies are embarking on a journey of being free from the United States government, only to be embedded in the legal system and economy of a possibly corrupt or undemocratic host country with some degree of negotiated autonomy on leased land.

In essence they are trying to do in Honduras and French Polynesia what various Chinese players are already doing in Malaysia, Sri Lanka, Pakistan, Oman, and more, yet without China’s political clout, financial strength, technical skills, or negotiating leverage. As such, China and startup cities advocates have similar instincts for sniffing out corrupt and institutionally weak host countries that are desperate for foreign investment. This is not a recipe for an equal or stable partnership.

Herein lies an important question: how “libertarian” or radical are the visions of American startup cities advocates when their ambitions align with projects like Forest City? How much can pure libertarian visions of “autonomous ocean communities” be compromised by working with corrupt and dysfunctional states to acquire leased land, until nothing remains except the impulse to dodge tax obligations and seek out pockets of deregulation?

Few regulations, tax-free zones, and varying levels of autonomy can readily be found in recent zones created by China, Saudi Arabia, and other wealthy and powerful states and corporations to support their geopolitical, economic, and social interests. In contrast, startup cities advocates are vying to be consultants and middlemen in the birthing of SEZs, seasteads, and other libertarian-inspired endeavors, while also seeking to permanently be in charge of running them. Lacking financing and land, they have very little skin in the game, little to offer, nothing to lose, and everything to gain.

In the crowded marketplace of schemes vying to attract investors, this is a tough sell.

Also from this issue

Lead Essay

  • Mark Lutter points to the success of China’s Shenzhen Special Economic Zone, and of many others like it, as a model for the extension of economic liberalization elsewhere in the world. While economic reforms could not happen nationwide, their demonstration at the local level built support for new ways of thinking and doing business.

Response Essays

  • Prof. Sarah Moser is skeptical of libertarian interest in special economic zones, startup cities, and seasteads. She notes that many of these projects as undertaken in the real world are being run by untrustworthy and illiberal regimes. It is therefore doubtful that they offer prospects for better governance in the long term. And it is unseemly for the self-described advocates of liberty to go begging favors from such regimes. The success of China’s Special Economic Zones is unlikely to transfer elsewhere, owing to demographic and geographic features unique to China and to certain of its regions.

  • Tom W. Bell says that in special economic zones, the secret to success is competition in governance. There’s no magic to being a special economic zone; zones may be governed either better or worse than other areas. But when the zones have to compete for residents and businesses, they will have to answer some tough questions about what sorts of legal and public service options the public really wants. And there is an incentive to improve.

  • Lant Pritchett doubts that charter cities can do much to help the developing world. If a developing state already has good institutions, the model is useless; if it has bad institutions, then it will plunder or otherwise undermine the experiment. Total factor productivity has been a difficult problem for economists, and much about it remains mysterious. But China appears to be the only place in the last forty years where special economic zones have worked, and this suggests that they are not as promising as their proponents think.