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Special Economic Zones

7 min read

Part of Federalism and exit.

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Every episode (4)

Who argued it

Joe Quirk ×2 · Patri Friedman · Tom W. Bell · Mark Lutter · Charlie Deist

Seasteading · Charter Cities · Foot Voting · Competitive Governance · Libertarianism

Background

Definition and origins

Tom W. Bell, whose specialty is special economic zones and special jurisdictions, defines them as places where a country governs under different rules: the country sets aside part of its territory and says that within that area different rules apply Vote to Float (2020). Bell’s research uncovered the earliest example in the Roman Empire in 166 BC, a free port at Delos, and he describes zones as an old idea that has taken off in the last 50 or 40 years, creating competition for governments and allowing people to obtain a better legal regime without leaving their country Vote to Float (2020).

Patri Friedman describes charter cities as developments that are different jurisdictions from the surrounding country, with their own laws, courts and police, and says the business model for a land community generally involves a share of the land, with revenue from rent and taxes Patri Friedman’s Plan to Accelerate the Free Cities of the Future (2022). Bob Zadek frames the field as competitive governmental units competing for customers, or citizens, and lists seasteading, ZEDEs, nation-states such as Singapore, Dubai and Hong Kong, and the Free City Movement Patri Friedman’s Plan to Accelerate the Free Cities of the Future (2022).

Dubai and the common law

Michael Strong says Dubai went from basically an empty place in the desert to the leading cosmopolitan innovative city in the Arab world in the last 30 years, and that one innovation accelerated its progress: free zones dedicated to different industries Michael Strong on Creating a World in Which All Humanity Flourishes (2017). The most innovative was the Dubai International Financial Centre, where 110 acres of land were placed under British common law while the rest of Dubai and the UAE is under Sharia law. Strong says the rulers looked at the world’s leading financial centers—London, New York, Chicago, Sydney, Hong Kong, Singapore—noted they all run British common law, put a retired British commercial law judge and a retired Singaporean commercial law judge in charge, and with credible judges administering common law Dubai is now a top 20 financial center Michael Strong on Creating a World in Which All Humanity Flourishes (2017).

Friedman says Dubai viewed its laws and institutions as a startup would view the tech stack, copied British regulations in English, and applied them to the zone—and that any corporation incorporating there is under this law anywhere in the United Arab Emirates Patri Friedman’s Plan to Accelerate the Free Cities of the Future (2022).

Honduras and the ZEDE program

Strong says Honduras passed legislation a few years ago allowing jurisdictions similar to the Dubai International Financial Centre, with common law and free markets within Honduras, in the hope of creating pockets of prosperity and preventing Hondurans from leaving for the US Michael Strong on Creating a World in Which All Humanity Flourishes (2017).

Friedman gives the mechanics: in 2010, 2011 and 2012 Honduras changed its constitution to create a program called the RED or ZEDE program, zones of economic development, which he calls the first modern version of a special economic zone, since traditional zones offer only shallow differences such as tax or tariff breaks Patri Friedman’s Plan to Accelerate the Free Cities of the Future (2022). A private developer applies to a regulator with the investment behind it, the industry it will bring and the jobs it will create; at least 90% of jobs must be for Hondurans. The zones follow the Honduran constitution and international treaties and Honduran criminal law, but can create their own commercial law with the regulator’s approval. Friedman says Honduras has since changed its mind and shut the program down, and that it remains to be seen what happens Patri Friedman’s Plan to Accelerate the Free Cities of the Future (2022).

Singapore, Hong Kong and Shenzhen

In a later episode, a guest says Singapore holds the distinction of being the only country that exists because it was kicked out of a union: it joined Malaysia after independence from Britain, was expelled a few years later, and at that time per capita income hovered around $1,000 per year with ethnic riots every few years The End of Nation-States? (2018). The guest, reading Lee Kuan Yew’s biography, says the first chapters are devoted not to building markets but to building the government—protecting citizens and preventing large-scale riots and civil strife—after which Lee focused on creating a market for entrepreneurs and overseas capital The End of Nation-States? (2018).

Hong Kong, as a British colony, had the common law system, and John Cowperthwaite, a British appointee and classical liberal, pursued a policy called positive non-interventionism, allowing people to live as they saw fit; Hong Kong rose to become a leading manufacturing and then financial center in Asia The End of Nation-States? (2018). Hong Kong, along to a certain extent with Singapore, inspired China’s special economic zone reforms; China created four special economic zones in 1980, the most prominent being Shenzhen, then a fishing village of 30,000 people The End of Nation-States? (2018).

Strong calls China the most extraordinary moral victory in respect to prosperity creation in world history: average GDP per capita went from $1,000 per person 30 years ago to about $6,000, and the average urban worker makes about five times as much as 20 years ago, across about 700 million urban Chinese Michael Strong on Creating a World in Which All Humanity Flourishes (2017).

Seasteading and the scale of the trend

Joe Quirk, president of the Seasteading Institute and co-author with Patri Friedman of the Seasteading book, says more than 4,000 special economic zones are sweeping across the world and have city-states vastly outnumbered, and that 45% of the world’s surface is unclaimed by any existing nation-state Michael Strong on Creating a World in Which All Humanity Flourishes (2017). Through Blue Frontiers he plans small floating islands with significant regulatory and administrative autonomy in French Polynesia, unleashing choice among jurisdictions on the oceans starting in 2020 Michael Strong on Creating a World in Which All Humanity Flourishes (2017).

Across episodes: from Dubai to Honduras

The same question—whether zones can substitute for leaving a country—runs through the 2017 and 2022 episodes, and the treatment changes. In 2017 Michael Strong presents Dubai’s common law zone and Honduras’s legislation as bright spots and hopes they will produce pockets of prosperity Michael Strong on Creating a World in Which All Humanity Flourishes (2017). By 2022 Patri Friedman describes the Honduran ZEDE program as the one program fully operating, then notes Honduras changed its mind and shut it down, while still using it as the example of how a modern zone is structured Patri Friedman’s Plan to Accelerate the Free Cities of the Future (2022). The 2018 and 2020 episodes add the historical cases and the definitional frame.

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