Zadekpedia2016-08-20 · Guest: Mark Lutter (PhD Candidate at George Mason University) · 8:44
Filed under: Elections and politics · Federalism and exit
Topics: Charter Cities · Public Choice Theory
The Free City Movement and proprietary cities
Bob Zadek interviews Mark Lutter, a PhD candidate at George Mason University, about the “Free City Movement” and proprietary cities. They explore the economic and political implications of devolving authority to the local level, allowing cities to compete for residents and businesses by offering superior legal and regulatory environments.
Topics: Free City Movement, Proprietary Cities, Regulatory Competition, Voting with Feet, Public Choice Economics, Charter Cities, Urban Policy
Speakers:
- Bob Zadek – Host
- Mark Lutter – PhD Candidate in Economics at George Mason University
Introduction to the Free City Movement [00:00]
Bob Zadek: Hello everyone, welcome to the Bob Zadek Show, the only live libertarian talk radio show on the air all weekend. This show is always and proudly the show of ideas, not attitude. Thanks so much for listening. I am broadcasting from my new home in Fremont, California. Thanks so much for listening, and any city with “free” as its first syllable has got to be a good place to broadcast libertarian radio from.
This morning’s show is about freedom. It is about the Free City Movement. The Free City Movement gives me goosebumps whenever I hear the concept or learn more about the Free City Movement. The Free City Movement is a fascinating, interesting, old yet very new concept that looks to give cities maximum political and legal autonomy, free of states and federal governments—not free of them, but mostly free of federal and state intrusion—so that cities can operate in competition with one another, finding collectively the best organization for their population.
And there is no one better to help us understand the Free City Movement than my guest this morning, Mark Lutter. Mark is a graduate of the University of Maryland in College Park, and he is working on his PhD in economics at GMU, George Mason University, soon to be home of the Scalia School of Law. He’s working on his dissertation under a former and frequent guest on my show, Professor Don Boudreaux. Mark, welcome to the show this morning and thanks so much for giving us an hour of your time.
Mark Lutter: Oh, thanks for having me on.
Defining the Free City Concept [01:55]
Bob Zadek: Now Mark, probably it’s the case that our audience this morning has at best a passing familiarity with the Free City Movement. And if they are like me, the second I read the opening paragraph of any discussion on the Free City Movement, I felt, “Wow, this is really—this is the way life and the political system ought to be organized.” Now, tell us about the Free City Movement. Give us a primer on the Free City Movement. How is life under a free city different than today in an unfree city?
Mark Lutter: Sure. So the idea of a free city is just to devolve political authority to the city level to allow cities to be able to use good laws, good regulations to attract investment, attract businesses, and jumpstart economic growth.
Bob Zadek: Well, cities have some political autonomy now, of course. There are city governments. So what’s different about the Free City Movement as you conceive it, as compared to what it is now?
Mark Lutter: Sure. Well, free cities would take laws and regulations that are traditionally thought of as belonging on a national level and bring them down to the city level. So imagine, for example, Amazon. Amazon recently moved their drone program from the United States to Canada. If the US had free cities, then—because Amazon moved their drone program because the FAA was unable to create regulations that would allow Amazon to experiment at the pace they wanted. And so if there was a free city in the US, they would be able to opt out of the FAA regulations on drones, create their own regulatory system that would be more conducive to Amazon developing their drone program, and then Amazon might keep their drone program in the United States instead of moving to countries that are better able to meet their needs. So free cities are a way to take regulations and laws that are typically thought of as at the national level and give them to cities that can be more adaptable and better able to meet the needs of the existing and current and evolving economy.
Voting with Your Feet [04:56]
Bob Zadek: Now, let’s—I’d like to interrupt just for a moment if I may, because in that very brief example of Amazon moving its drone program to Canada, you touched upon several very important political concepts. The first concept is—and this is crucial, I think, to the Free City Movement—and that is the concept of voting with one’s feet. And that concept is that a vote at the ballot box is relatively meaningless; it doesn’t cause change very often or very much. But when people vote with their feet, when people or companies—think about companies moving overseas, moving their headquarters—when companies or people move with their feet, they say, “I’m out of here,” and they leave. That sends a message that is very powerful.
And the concept, I think, Mark, of the Free City Movement is that as cities experiment, the population, which is what they need to function, will vote with their feet. And therefore, very quickly, we will find cities that provide what the customer wants and those that do not. And those that do not will change to conform to those that do. So it has a very small-d democratic effect as well.
Mark Lutter: Oh, yeah, I completely agree. I think the ability of any free city to attract residents, to attract businesses, to create jobs will need to have a good legal environment to ensure that these businesses want to do business there, to have a nice downtown, to have to be a livable city to make sure that these residents want to move to the city, that it provides the necessary amenities for these residents. And so it changes the typical dynamic of cities by treating residents, by treating businesses as customers by providing services that they want, which is a little bit different than the traditional conception of cities.
Bob Zadek: I ask the audience just to share my goosebumps at the very thought. Just imagine if the city in which you live treated you like a customer, one who they had to satisfy lest you move your business elsewhere. Just imagine how your relationship with all of the various local services would be different if you were looked upon as a customer, not as a captive audience who could not leave but had to buy the service. So Mark, that is the concept, I believe.
Global Applications of Free Cities [07:50]
Mark Lutter: Yeah, that is. And so if I can just take a brief overview of how I think about free cities, I see there as being two avenues for free cities: one in the developing world and one in the developed world. And so free cities are, in a way, a tool to get around political difficulties, around public choice problems, because it tends to be very difficult to change laws or regulations on a national level. However, by taking land that nobody lives on where there are no special interests, you can have a lot more autonomy, a lot more freedom than you might have if you try to effect those changes on a national level.
So in poor countries, such as India or Nigeria, they have large urbanizing populations. They need new cities to accommodate these large urbanizing populations. They don’t have good governance. They have low rule of law. They have business regulations that are highly burdensome. And so what these countries…
Show prep notes
Bob’s own preparation for this episode.
Mark Lutter on Free Cities
Follow him on Twitter at @MarkLutter and FreeCitiesInitiative.com.
BIO: Mark graduated from the University of Maryland, College Park with a BS in math. He is currently working on a PhD in economics at George Mason University on proprietary cities. More specifically, he is interested in how semi-autonomous proprietary cities can jump-start economic growth in the undeveloped world. He has been published in Newsweek, the Daily Caller, the PanAm Post, and The Freeman. Wrote his dissertation under direction of Don Boudreaux.
BLURB: The George Mason University economics department is known for developing new ideas into influential ideas. The Virginia-based bastion of free market thought has been producing groundbreaking scholarly work for decades, and shows no signs of slowing down. Last month, GMU PhD Candidate Mark Lutter defended his thesis, “Three Essays on Proprietary Cities,” in front of Tyler Cowen and Richard Wagner – both giants in the field of public choice economics. Lutter’s academic interest in proprietary, or “free” cities is part of a trend among scholars and thought leaders studying the incentives that drive government decision-makers. If politicians respond to rewards and punishments just like you and I do, shouldn’t we consider giving them a larger stake in the profits and losses of the underlying jurisdiction? A proprietary city, Lutter argues, could achieve this, with tremendous benefits for both the developing and the developed world. He makes a convincing case on his blog, FreeCitiesInitiative.com, and will join Bob this Sunday to defend the idea that the time for free cities has come.
About – Free Cities Initiative
“The Free Cities Initiative is dedicated to understanding and advocating for free cities. A free city is a city with partial or complete autonomy. Examples include Hong Kong, Singapore, Dubai, and Shenzhen. This blog believes that free cities can rapidly improve governance and spark economic growth in the developing world, as well as offer pockets of innovation to spur technological innovation in the developed world. While many organizations and blogs focus on cities, few consider legal autonomy, administrative organization, or the user experience of residents. Themes of this blog include trends of free cities, the autonomy of free cities, administration of cities, the history of free cities, and the user experience of city residents.”
Recent posts:
Free Cities as Moonshots - Aug. 15, 2016 - “Moonshots,” or improbable advances that enhance the lives of millions, are usually thought of as engineering feats. Lutter argues that a successful free city should be considered in the same light, and promoted by companies like Google. He says Google is too narrowly focused on moonshots of a purely technological variety, but that a proprietary city could create the kind of long-term thinking and investment that would make new technological developments possible.
Free Cities Trends - June 9, 2016 - Special Economic Zones and “New Cities,” like Dubai, point to the future emergence of free cities.
Introduction to Free Cities - June 2, 2016 - Lutter is agnostic between different governing structures (i.e., which rules are implemented), because the most important factor is institutional autonomy (the free environment in which rules are selected):
“Free cities offer an alternative. By taking land with few special interests or residents, free cities have little impact on the political equilibrium. This allows more rapid institutional improvement, and therefore economic development, than would otherwise be possible. The institutional improvements would not only help the residents of the city, but show the rest of the country the benefits of rule of law, property rights, and economic freedom.”
AUDIO: Free Cities Podcast interview with Mark Lutter
Overview of the concept and a review of potential free cities/special economic zones, including a Greek island that a billionaire was considering purchasing as a haven for refugees.
The investment proposition is to buy land, then make improvements and pay for public goods to increase the rents.
Concerns about proprietary cities for refugees: Will the islands have to follow all the same laws as mainland Greece (whose minimum wage is double the median Syrian wage)? What rights to exit will refugees have?
Building Autonomous, For-Profit Cities — Medium
Lutter notes how private space exploration has accelerated technology, and makes an analogy to the private city creation:
“There is another stagnant and unresponsive industry, dominated by governments, which the private sector can disrupt. Like space exploration, disrupting this industry could hugely benefit humanity. Instead of protecting humanity from existential threats, this industry can lift hundreds of millions of people out of poverty. This industry is territorial governance.”
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Proprietary cities have three defining characteristics. First, retained land ownership by a for-profit company, the proprietor. Second, substantial autonomy in governance from the host country. Third, the proprietor having meaningful influence over the construction of a new regulatory and legal system.”
Introduction to Proprietary Cities by Mark Lutter | Thinking Machine Blog
The philosophical foundations of free cities originate with Henry George, who proposed a single land-tax to subsidize public goods.
Spencer Heath further developed the idea, and his grandson Spencer MacCallum developed it even further, and got rid of the idea of the government altogether:
“A proprietary community is a territorial governance structure under a single owner. This more closely approximates private property, giving it an advantage over other governance structures. In a proprietary community, there is a single decision-maker with an interest in property values, which are highly correlated with economic development.
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The Heathian goal is to have cities and large land areas owned by single private corporations, which would own and rent out the land and housing over the area, and provide all conceivable “public services”: police, fire, roads, courts, etc., out of the voluntarily-paid rent. Heathianism is Henry Georgism stood on its head; like George, Heath and MacCallum would provide for all public services out of rent; but unlike George, the rent would be collected, and the land owned, by private corporate landlords rather than by the government, and the payment therefore voluntary rather than coercive.”
Dissertation Abstract:
“This dissertation contains three essays on proprietary cities. Proprietary cities have three defining feature: (1) a private, for-profit entity (the proprietor) retains land ownership; (2) the city has substantial legal and regulatory autonomy from the host country; and (3) the proprietor has a meaningful role creating and enforcing a new legal and regulatory system. The first essay offers an introduction to the idea of proprietary cities, investigating the incentives facing the proprietor and the policies the proprietor is likely to adopt. The second essay investigates governance in proprietary cities. It examines the literature on monopolies, private dispute resolution, and private police to better understand how proprietary cities might act. The third essay places proprietary cities in an institutional context. It develops an understanding of why such substantial policy changes might be allowed, and how to think about proprietary cities with regard to the new institutional literature.”
Google Should Liberate a City | Foundation for Economic Education, May 10, 2016
“Alphabet, Google’s parent company, is taking my advice and building a city.”
Google is mainly looking for places to test out new technologies like driverless cars, but Lutter suggests they should set their sights even higher and look into helping the developing world escape poverty (as well as looking in the developed world to create pockets of innovation through reduced regulation).
See also, Lutter’s Newsweek piece from April, 2015, “Would You Live in a Google City?”
“The idea of private cities typically invokes fears of a dystopian future where malevolent corporations ruthlessly exploit the population for profits. Government is seen as a last defense against private tyranny. However, by replacing a nameless corporation with Google, the thinking changes. Rather than fear predation, we appreciate the benefits of efficient administration.”
A New Place to Think About “Free Cities” – Hit & Run : Reason.com
Brian Doherty introduces Lutter’s blog and notes the many names and concepts that have been floated, including the Honduran ZEDEs (employment and development zones).
Honduras has not been in the news lately, but it may be stealthily moving forward with the ZEDE according to this article from last week (“Three Companies initiate efforts to make investment in ZEDE,” El Heraldo, 8/7/16). Apparently some Korean & American companies are doing studies and preparing tourism efforts, before establishing agricultural and hospitality businesses. The article also points out resistance and concerns about the country’s human rights record.
Doherty pulls choice quotes from several of Lutter’s posts:
“Consider the cities which have experienced the most growth in the post-war era. Of the top five, three are free cities, Hong Kong, Singapore, and Dubai. Their success was predictable and is replicable. Rule of law, property rights, and economic freedom are necessary, and arguably sufficient conditions for economic development. Unfortunately, history shows it is difficult for countries to rapidly improve their institutions on a national level.”
New Cities as a Solution to the Syrian Refugee Crisis — Medium
Dr. Mark Lutter on The Landscape of Innovative Governance – 7/1
Phone number: ****
BIO (Cato Unbound): PhD from George Mason, got his PhD under Don Boudreaux. Scholarly advisors for CIGR includes Tyler Cowen.
Dr. Mark Lutter is Founder and Executive Director of the Center for Innovative Governance Research. He has a Ph.D in economics from George Mason University and his work has been translated into three languages. He was previously employed as Lead Economist for NeWAY Capital.
His dissertation is on proprietary cities. More specifically, he is interested in how semi-autonomous proprietary cities can jump-start economic growth in the undeveloped world. He has been published in The Daily Caller, The Freeman, The PanAm Post, and Newsweek.
Find his work:
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Center for Innovative Governance Research (InnovativeGovernance.org)
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@MarkLutter on Twitter
ABOUT: The Center for Innovative Governance Research is a 501 c3 public policy research organization dedicated to advancing human flourishing by improving governance worldwide. Governance is the most important determinant of human flourishing. Unfortunately, current thinking about governance is dominated by an outdated paradigm, that the nation state is the most effective mechanism for the provision of governance. With technological innovation and shifting cultural norms, governance is changing, devolving to new, local jurisdictions. The Center for Innovative Governance Research offers original research and commentary on how humanity can best adapt to these changes.
The Zeitgeist:
Y Combinator – the most famous startup incubator – has a research project looking into smart cities - New Cities. They are looking to redesign cities from the ground up, figuring out better solutions for transportation, regulation, etc. They are not libertarian, and they make a point of distancing themselves from “those crazy utopian techno-libertarians.”
Big picture questions:
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What are nation-states?
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Why do we “bundle” governance by geographic region, with borders?
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Why do we accept the current boundaries as the only relevant regions for trying new laws?
There is a delicate balancing act of libertarian aims and (potentially) autocratic means. Honduras, in particular, shows how the goal of “innovative governance” was to be achieved through unconstitutional non-democratic means. Lutter addresses this in one of his papers, and concludes that there needs to be a way to connect special governance zones to representative bodies. These don’t necessarily need to look like our current democracies.
Articles and Research
The Landscape of Innovative Governance – Jacobite March 23, 2018 by Mark Lutter
Charts the rise and fall of the charter cities, focusing on the debacle in Honduras, which ended with the Supreme Court ruling the legislation unconstitutional that would have led to the creation of ZEDEs (pronounced Zeh-dehs).
Paul Romer invented the idea of the charter city – “a legally autonomous zone in a developing country that imports successful models of governance” – and popularized it with an influential 2009 Ted Talk.
The Honduran statute was declared unconstitutional. In 2013 a similar statute was passed, which, while still on the books, has not led to any successful projects. The Free Cities Institute rebranded itself as the Startup Cities Institute before closing its doors.
Therefore, it mostly looks like the idea is on the decline – at least if we look at libertarian groups.
But the big news…
Neom, a half-trillion-dollar, 10,000-square-mile autonomous city is being built in Saudi Arabia, and sharing sovereignty with Egypt and Jordan, was announced.
Lutter says that pragmatists around the world are embracing the concept of autonomous cities, less out of libertarian principle than a desire for commercial success where there has been none:
A practical approach must convince the ruling elites (“neoliberal ruling class”).
Credits seasteading’s limited success on the rebrand away from libertarianism towards eco-friendly technology for island nations. (I don’t disagree, but this is part of the reason why I left. Not that I’m against eco-friendly technology, but it just felt like a re-brand based on pragmatism. No real principles).
There are three groups interested in innovative governance: the heterodox, the mainstream, and the pragmatic.
Heterodox:
Techno-libertarians in Silicon Valley:
It originates with Spencer Heath, a dissident Georgist. Heath’s 1957 book, Citadel, Market, and Altar, argued for proprietary communities, where a single, profit seeking landowner, would govern communities. His grandson, Spencer MacCallum, carried on this strain of thought with his 1970 book, The Art of Community.
Mostly failed experiments in micro-nations like Operation Atlantis and the Republic of Minerva.
Characterizes seasteading as garnering bad press, but creating a broader conversation that led into the era of the “RED” (special employment zone) in Honduras, until the Supreme Court ruled it unconstitutional.
Heterodox groups/people:
Balaji Srinivasan – Successful entrepreneur and partner at Andreesen Horowitz who gave a talk called Silicon Valley’s Ultimate Exit, arguing “ that the United States is outdated, and exit, the creation of new political units, is necessary to escape our current trajectory.”
Titus Gebel, a German entrepreneur founded Free Private Cities, a corporation dedicated to building and managing an autonomous city.
Blue Frontiers – Seasteading offshoot negotiating with countries to locate within their territorial waters.
Mainstream
Paul Romer – a Professor of Economics at the Stern School of Business at New York University and former Chief Economist of the World Bank.
2009 TED talk triggered mainstream interest in innovative governance. The economist defined charter cities as having three necessary characteristics: a charter, which defines the rules of the city; a greenfield site, meaning an empty location for the city to ensure that nobody lived there before; and a partnership between nations, which determines which country’s governance structure will be imported.
Romer attempted charter cities in Madagascar and then Honduras, with Daewood (korean car company) leasing the land, and Mauritius administering an export processing zone.
The people protested Daewoo, leading to mass protests, violence, and the killing of protesters outside the presidential palace.
Later, Romer let an effort to get Honduras to pass legislation (which they did) paving the way for free(er) cities. He was appointed to a “Transparency Commission,” but the Honduran government went forward with agreements with private groups (such as MKG and Future Cities Development - founded by Patri Friedman). This led Romer to resign in frustration.
The Pragmatic
Those, i.e., China, who use innovative governance to advance their particular objectives.
Less about free market principles than the instrumental value of markets to achieving objectives determined the state or dominant party.
\Ed. note: I think this is the danger of “innovative governance.” Do we want a hyper-efficient government? I prefer the term competitive governance, because it puts the focus on choice. An autocratic regime can implement all kinds of innovations.
Middle East/Saudi Arabia
Another good example of the practical approach is Dubai, particularly the Dubai International Financial Centre (DIFC). In 2002, Dubai decided to create a financial center. They realized that Islamic law isn’t exactly conducive to finance, and after finding that the top four financial centers, New York, London, Hong Kong, and Singapore used common law, they decided to import common law for the DIFC. They hired a British judge, Sir Anthony Evans, be Chief Justice, becoming the top rated financial center in the Middle East.
Neom will “operate independently from the “existing governmental framework” with its own tax and labor laws and an autonomous judicial system.”
If Patri Friedman and Paul Romer can be considered “political entrepreneurs,” then the new round of cities are being spearheaded by regular entrepreneurs – developers, etc.
Free Cities, Startup Cities, Charter Cities, SEZs etc.
Independent city-states like Venice, Genoa, and Lubeck (headquarters of the Hanseatic League) – have existed historically. The term has not caught on in modern times.
Startup cities – buzzword – is not clearly defined, nor is it clear whether these have any legal autonomy.
Charter cities are defined above. A legally autonomous zone in a developing country that imports successful models of governance.
Some places are just zones, not full cities. They take advantage of loopholes to specialize in certain kinds of activities in countries that have other reasons for wanting to restrict economic activity, such as China (communism) and Saudi Arabia (Islam).
Refugee cities
Refugees don’t have the legal right to work or own property. People in camps are dependent upon aid. An innovative governance zone could create a legal environment to encourage employment.
Special Economic zones:
China’s path to prosperity – islands of free market capitalism within a sea of communism.
[How Special Economic Zones Lead To China’s Success — Startup Societies Foundation by Thibeault Serlet Feb. 2017
“On the day Mao died in 1976, China was on the brink. Chairman Mao had replaced the anarchy of warlords with the brutality of authoritarian communism. His purges and Cultural Revolution were the least of China’s troubles. It was his “great leap forward” which killed the most people. Poor incentives and weak property rights RESULTED IN A FAMINE WHICH KILLED 45 MILLION PEOPLE. Observers reported seeing peasants so famished they would eat the bark off trees.
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