The End of Nation-States?

The governments of tomorrow may look nothing like today’s countries.

28 min readJun 29, 2018

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Ever since Francis Bacon’s The New Atlantis, men have dreamed of using science to advance empirical knowledge and bring relief to the human condition. But in the area of law and governance in particular, some countries have tried to apply rational principles (i.e., Marx’s supposedly scientific laws of history) with disastrous consequences. The common law tradition — with its protections of private property and individual liberty, plus stable rule of law — has proved the best system so far, despite being an emergent, system rather than the creation of an all-wise leader or bureaucracy.

Ironically, the countries that have tried the hardest to engineer social outcomes are now implementing special zones where more organically-evolved legal systems are the law of the land. China’s SEZs — free trade zones modeled on western governance — are credited with bringing close to a billion people out of poverty. This economic miracle has spawned copy-cat experiments around the world, but they are not necessarily the end-all-be-all of good governance. Newer concepts like charter cities, technological zones, and startup cities have been proposed to jumpstart growth in dysfunctional jurisdictions around the world.

A few years ago, before a series of high profile failures in places like Honduras and Madagascar, these ideas seemed to be gaining traction. There was cross-spectrum support, ranging from “crazy utopian techno-libertarians” (like the “seasteaders”) to establishment-types like former World Bank Chief Economist Paul Romer.

Mark Lutter straddles these two worlds. He knows what drives libertarian aspirations for free cities, having recently received his PhD from George Mason University (under Don Boudreaux, no less). But Lutter also knows what it takes for radical ideas to get a hearing with the people with the authority to implement it. He recently founded the Center for Innovative Governance, a new think tank, to fill the vacuum in credible academic literature and guide pragmatic policy-makers who see the potential for more innovative governance.

Although it has become a cliche in some circles, governance matters — more than many realize. Writing for Jacobite Magazine, Lutter notes that a practical approach must convince the ruling elites. Our empirical knowledge of what works (rule of law, property rights, etc.) needs to be transmitted to the parts of the world where darkness, superstition, and authoritarianism still reign.

Why City States?

Nation-states have been the default configuration for governance for 400 years. Static in their geographic boundaries, and sclerotic in their administration, nation-states are like lumbering giants that frequently start wars against other countries and shackle their own citizens with one-size-fits-all laws. When it comes to economic activity, however, cities are by far the more dynamic relevant unit. They are also where most of the problems requiring government need to be solved. As Richard Florida, founder of CityLabs, recently wrote:

“Local governments tend to be less ideological and more focused on problem-solving, and they know intimately which problems actually need to be solved. They are more accountable to the people they represent, because they interact with them every day. And because people pick where they live by “voting with their feet,” constituents tend to share the same values as their leaders.”

The push for more innovative governance builds on the on-going devolution of power from dysfunctional nation-states to cities and neighborhoods. Where this devolution is stalled, we see widespread human misery: Honduras, Venezuela, and much of Africa.

This brings up the possibility of cities wresting even more autonomy from their Federal counterparts, and implementing best practices or trying out new ones in the competition for tax-paying constituents. Florida and Lutter suspect that cities that are most attractive to knowledge workers — and those that innovate — are most likely to win.

Lutter is also working on a narrative that will make it easier for policy-makers to implement the changes that will help cities evolve into hubs of next-generation governance. He returned to the show this Sunday to talk about his new organization’s work on this crucial dimension. As a think tank, the Center for Innovative Governance Research aims to provide a menu of policy options, and even more importantly, to cast these options in a compelling light that captures people’s imaginations. He and Bob discuss some of these options, and the surprising places where innovative governance is taking off.

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An Introduction to “Free Cities”

Bob Zadek: Thanks so much for listening this morning. We are going to learn about an issue which most libertarians don’t fully appreciate.

Libertarians strongly support free minds, free markets, and limited government. However, the concept of a small or limited government is kind of misleading. Libertarians, especially those who look forward to free markets and economic growth, desperately need a strong government in certain respects. We need strong governments because without a government that enforces the rule of law, contract obligations, and peaceable dispute resolution, the free market would not function.

It is this important link that is the subject of this morning. This morning’s talk is of free cities. Now, free cities are an often misunderstood, if not a totally misunderstood concept. Dr. Mark Lutter is the founder and executive director for the Center for Innovative Governance Research. He has a Ph.d in economics from George Mason University and his dissertation, interestingly enough, was on the subject of proprietary cities.

This morning we will examine how important it is for governance to be the “petri dish” that free markets need in order to survive.

Mark, welcome to the show this morning.

Mark Lutter: Thanks for having me on.

Bob Zadek: Broadly speaking, the subject is free cities — sometimes also called “proprietary cities.” I think it’s fair to say that our audience may not be so familiar with the subject of free cities or proprietary cities. Help us understand the big picture. What are we talking about when we talk about free cities or proprietary cities?

Mark Lutter: A free city is basically just a city that has substantial or complete legal autonomy. Examples of this in the modern world are Hong Kong, Dubai, and Singapore. Of course, there are many more examples throughout history, such as imperial cities in the Holy Roman Empire as well as in Venice and Genoa, which created what might be described as the first examples of a modern Republican government.

Free cities are an important concept because oftentimes it can be very difficult to change government on a national level. We see this in the U.S., but also with other high-income countries as well as low and middle-income countries.

The idea behind the Center for Innovative Governances Research is to develop the ideas surrounding free cities as a mechanism for policy change, because by targeting greenfield sites that do not have a lot of special interests, it can be possible to implement more substantial policy reforms, which can better protect property rights and create a legal environment that is conducive to investment, employment, and economic development. And this can help create the economic freedom that is necessary for sustained economic growth and poverty alleviation.

Bob Zadek: When you think about free cities or proprietary cities, you probably think about personal freedom. However, free cities are far more important than that. Indeed, they are considered to be instruments of economic growth. They do not necessarily provide maximum personal freedom of the type libertarians tend to focus on. So, help us understand how free cities are essential for economic growth, and tell us about the link between functioning free cities — what they are free of — and how that is important for economic growth, poverty relief, etc. and then we’ll get into some examples of how effective they have been.

Mark Lutter: A free city is best defined as a city with substantial legal autonomy from a host country. It is an independent city state. Modern examples include Singapore, Hong Kong, Dubai and Shenzen. The idea behind a free city is political autonomy.

It is often very difficult to implement reforms at a national level. There are a variety of interest groups you have to build coalitions with that make it challenging to implement the reforms that are necessary to create jobs and investment. However, by creating a free city, especially in land that is relatively unoccupied, where special interest groups don’t have a vested interest (a greenfield site), you can get much deeper reforms than otherwise possible.

Effectively, this is a strategy to implement the reforms that lead to relatively free markets and a good governance system with little corruption, that can attract the investment and create the jobs necessary for economic development.

One of the most important examples in history was in China. In 1980, China designated Shenzhen as a special economic zone. At the time it was a fishing village of 30,000 residents. Now, Shenzhen, depending on how you want to define metropolitan area, has about 18 million residents. It is the manufacturing capital of the world and it played a crucial role in the economic growth that we have seen in China. Over the last four years or so China has lifted about 800 million people out of poverty, largely based on this strategy of zone-based reforms, because they would not have been able to pass the legislation to make these reforms on a national level.

They basically identified some backwaters that were on key trading routes and allowed the reforms to be implemented there. Once those were successful, they spread throughout the country. This is important because I think this model can be replicated in other low and middle-income countries, for example, in Africa and in Latin America, to help create the the legal environment and governance system that can generate economic growth and alleviate tremendous amounts of poverty.

The Center for Innovative Governance Research, as a relatively new think tank launched three months ago, focuses on creating ecosystems within which free cities can be developed.

About nine years ago Paul Romer gave a TED Talk on charter cities, which is a concept very similar to free cities. Paul Romer is a world famous economist who is probably on the shortlist for a Nobel prize. After the talk he gained a lot of attention. He had one opportunity in Madagascar to create a charter city, and then, he had another opportunity in Honduras. There were political challenges in both countries and ultimately the projects were unsuccessful. Paul Romer more or less walked away, at least publicly, from the concept of charter cities.

After that, however, there was a lot of energy and attention with regards to the subject. So, our goal at the Center for Innovative Governance Research is to develop the set of ideas and ecosystems surrounding free cities or charter cities such that it is not dependent on a single person. When it is dependent on a single person or under a single country — if the projects run into any challenges with that person or with that country, there are too many points of failure. Our goal is to develop some foundational research to get the ideas out there, so that when entrepreneurs approach governments or when new city projects approach financiers, these groups are able to speak the same language — allowing them to communicate more effectively and be able to implement the projects on a better timeline.

It’s also important to bring together the interest groups that are approaching these types of projects from different angles. There are separate interest groups that can be brought together, which I think can have a strong positive impact on the development of free cities around the world. One of these interest groups is Silicon Valley entrepreneurs.

I would estimate about 10 to 20 percent of “unicorn” founders — the unicorn being a one billion dollar company — are interested in building a free city. I have had the conversation multiple times where they say they are building up a warchest, such that when they have their exit they can go and build their free city. Secondly, you have economists. Most economists are sympathetic to the concept of charter cities.

However, they don’t get career points for discussing them. It is difficult to publish an academic paper on charter cities or free cities, because there is not a lot of data. We’re creating an avenue within which there are opportunities to discuss this idea. There are a lot of economists — most of whom are sympathetic and some which are more critical — who can help add to the discussion.

You also have the humanitarian community in Europe, with a lot of a high profile people, such as George Soros and Gordon Brown, who have supported what they usually describe as economic zones for refugees, which are reasonably similar to the concept of free cities but which are targeted at refugees because Europe is still straining under the refugee crisis. You have dozens of these new city projects around the world, which are multimillion dollar real estate projects. For example, on my podcast, the Innovative Governance Podcast, which I will be publishing tomorrow, I had Mwiya Musokotwane, who is building a new city project in Zambia outside of the capital city of Nusaka. These projects are usually multi-millions of dollars. They have 100,000 residents who would clearly benefit by improving governance because their property values would increase.

By bringing these groups together and by having these conversations, we believe that it is possible to create the ecosystem within which some of these projects are able to take the next steps in terms of getting the legal authority from the potential host country to be able to create a new governance system as well as to be able to raise the capital necessary for the massive infrastructure investments that are necessary to create a new city.

The Honduras Experiment

Bob Zadek: This movement has been around for quite some time. There was an experiment in Honduras — the first attempt to develop and enable a free city movement to flourish. Why Honduras? What was the plan, what went wrong, and what have we learned from that?

Mark Lutter: About four years ago, I lived in Honduras for six months. I wouldn’t say Honduras is the first attempt, but it is certainly the most prominent. The most widely accepted story — and there are different stories depending on who you talk to — is that after Paul Romer’s TED Talk, he was invited to Honduras to help design legislation that would create a free city. Given that Paul Romer was involved, he would probably prefer the term “charter city.” Honduras was just coming out of a semi-coup in 2009, where the president was removed by the military. The president was also violating constitutional mandates, which is why describe it as a semi-coup. At the time, Honduras was one of the most dangerous countries in the world and was relatively desperate to figure out how to reform the system.

The Hondurans were were bouncing these ideas around in terms of how to create sustainable reforms that would allow Honduras to transform itself into a upper or middle-income country. Right now, the per capita GDP is hovering around $3,000. The idea behind the legislation was to propose projects to the government, which would create a commission to approve the projects. It would allow for these experiments to take place. After approximately a year of the legislation — the acronym was RED (Regiones Especiales de Desarrollo) — the Supreme Court voted the legislation down, and around the same time Paul Romer left the project because he had been getting in fights with the government.

Bob Zadek: And what was the plan that was hoped for but never reached fruition. What did this free city look like? What made this city special in Honduras? And what was hoped for?

Mark Lutter: The hope was to create a system of good governance. Honduras does not rank very well on most governance indicators. For example, if you look at economic freedom indexes or the World Bank Doing Business Index, Honduras is a middle country at best. The idea would be to create a blank slate in commercial law within which a new legal system could be created, thereby allowing for much greater investment and development in human capital. Ultimately this would lead to more job creation, at least to a greater extent than than Honduras is currently able to have.

Given that Honduras has a very high degree of violence, there is also a distrust in a lot of public authority. For example, when I lived there, several of my friends, who were middle class Hondurans, told me that they were more afraid of the police than they were of the gangs. This is a country that at the time was the murder capital of the world, and yet you have productive people who are more afraid of the police because they are so corrupt and can act with impunity. I think that represents challenges that Honduras has among all facets of society and governance. So the idea behind the free city would be to create a blank slate of governance — not in criminal law, but in commercial law — which would allow the creation or importation of improved governance systems.

So for example, common law, which is generally regarded as the best legal system for economic development, could be brought in. There could be low taxes. It could be very easy to start and register a business, and that would allow the swelling in of investment and the creation of jobs. This is similar to how Dubai transformed itself from a desert into a giant metropolis in a 30 year period.

Bob Zadek: So, the goal was to build a new city from scratch. Were the proponents going to select an existing city and say we are in charge now, and have that city be somewhat independent of the country in which the city resided? Was it going to be something like a city-state with its own rules? What would have been the relationship between this free city within the geographical boundary of Honduras to the country itself? What would be its political and economic relationship to Honduras?

Mark Lutter: Under the ZEDE legislation, which is the second legislation that passed in Honduras, the city would have relatively close to a blank slate in commercial law. Criminal law would still apply. The city would pay about 12 percent of tax revenues to the government. The Constitution of Honduras would still apply, as well as all international treaties.

However, the charter city or the free city would have effectively complete autonomy in commercial law. That would mean that it would be able to set up its own judicial system for civil and commercial cases. It would be able to set up its own system for registering a business. It would be able to set up their own labor regulations and environmental regulations. It would have a very wide latitude in what it means to implement and create this legal system which would apply to the residents of the new city.

It is important to clarify that this would be a new city. The Honduran legislation allows for areas that have relatively high population densities to vote to join a ZEDE, but they would have to have a democratic vote to make sure that people could feel that their rights were not being trampled on. The most likely outcome is that a developer would buy farmland and then develop it into a new city project there.

Challenges for Free Cities

Bob Zadek: So, the plan was to get some relatively unproductive farmland and set up their own government where taxes are paid to the host country, Honduras, to create economic development and provide jobs employment to tax-paying Hondurans. The plan was not to mess mess with anybody. So, who is the loser?

You say this failed because it was found to be unconstitutional. I am going to be a bit cynical, so my apologies in advance. Let us assume it was unconstitutional. Because it offered so much profound benefit, if the Honduran government was sincere in its hope to give this a try, it seems to me they could have overcome that by legislation or whatever. There had to have been a failure in the political process. It seems to me that there was something about it that made those in power reject the concept. And yet everybody would win!

What went wrong in the political process that Honduras as a country and its political class didn’t embrace it and make it happen?

Mark Lutter: To clarify, they did actually overcome the constitutional barrier. The original legislation was voted unconstitutional by the Supreme Court. Honduras made several constitutional changes and passed legislation that was later upheld by the Supreme Court. The ZEDE legislation, which is the second legislation, is still on the books today. However, to my knowledge, no project has yet to be approved. So what is the reason for the failure? There are two primary factors. The first is this concept of national sovereignty. When I lived in Honduras, most of the pushback I got was regarding the concept of national sovereignty. There were a lot of people who felt that this idea of national sovereignty is sacred. To give up commercial law, even if it doesn’t include the constitution, it doesn’t include criminal law, and doesn’t include international treaties, violates this concept of national sovereignty and wasn’t something that was really feasible from the basic idea of a nation state.

I don’t think the project was publicly framed in the right manner. I don’t think the discussion was in the right manner. If you look, for example, at the Committee for the Adoption of Best Practices, most of the appointees were people who identify strongly as libertarians or who identify strongly with the political right.

I think by branding the project as a libertarian project, it set off alarm bells in a lot of people on the left because they naturally oppose anything that’s associated with anything libertarianism or conservativism. I don’t see these projects as particular libertarian. I think there are a lot of people on the center-left who have agreed with these sort of high-minded principles regarding rule of law, regarding property rights, and regarding the ease of doing business.

For example, Hillary Clinton during her presidential campaign mentioned in a speech to bankers that she wanted open borders and free trade in the Western Hemisphere. And so I think at least amongst a reasonable percentage of people on the center-left there is this broad idea that markets work. I think that they value regulation a lot more highly than somebody like myself would, but there is this agreement that markets are generally a good tool for poverty alleviation. However, they were not brought on as allies to this project, which I believe partially resulted from this sort of failure to position this project publicly in a manner that would be beneficial.

I think the third aspect that is important to consider is that there would be a few losers to a project like this. They would effectively be the monopolists in Honduras who would see, for example, lower-cost banking companies come in and provide banking services more effectively, or lower-cost manufacturing come in and be able to manufacture goods more effectively. This is the classic challenge with any type of reform. There is going to be one group, or maybe more than one group, that has an existing rent, based on the existing system. If you come up with reforms that liberalize the market or liberalizes trade, there’s going to be a new competitor to that group that has this set of rents that allows them to basically live without innovating. They can live just because they have this business set up, even though there could be a more competitive business that is currently legally banned.

A free city would, in the medium or long term, effectively challenge some of those established interests and would cause them to lose on some profits that are currently effectively guaranteed by the host country. So I think the net outcomes would be very positive for all of Honduras, but there would be some powerful people and groups and families that would see their income decrease. And so I imagined that some of the opposition is based on self interests that realizes that this would effectively create an avenue for economic development that might lead these big these families to become less competitive because the free market encourages new entrants into the market.

Living Examples of Free Cities

Bob Zadek: An important lesson you will learn from Mark this morning is that libertarians don’t simply want less government. That’s only part of the equation. What we need, of course, is effective government. There are certain areas when, without effective government, economic growth is almost impossible. Mark will explain to us miracles in the Far East in China. These economic miracles could not have taken place without the creation of free cities. With the creation of free cities, economic growth boggles the imagination.

Mark, tell the audience some stories of the success of the free city movement.

Mark Lutter: Just to clarify, I wouldn’t call them successes of the free city movement per se. I think these are successes of free cities in general. For example, looking at Hong Kong, Shenzhen, and Singapore, it shows how on a city level, with the rule of law, property rights, ease of business and enforcement of contracts, it is possible to grow from a back water into a thriving metropolis in a matter of two or three generations.

Singapore, for example, holds the glorious distinction of being the only country in the world that exists because it was kicked out of a union. When they gained independence from Britain, I believe it was 1961, it joined Malaysia, and Malaysia kicked them out because Singapore is majority Chinese where Malaysia is majority Malay. At the time when they got kicked out, their per capita income was hovering around a thousand dollars per year.

There were ethnic riots every few years because it had this mix of Malays, Chinese, and Indians and so almost nobody gave them any hope for becoming successful. And now Singapore is one of the wealthiest countries in the world. They are one of the finance leaders in the world. They were successful because they were able to create an effective government. Not only are markets essential, but effective governments are as well. I was recently reading Lee Kuan Yew’s biography (Yew was the first prime minister of Singapore and was largely considered responsible for its economic success). The first few chapters are devoted not to building markets but to the government. The government had to able to protect the citizens and make sure the government is able to prevent large scale riots and large scale civil strife from happening. After that he focused on creating a market within which entrepreneurs can invest and be successful and where capital could be attracted from overseas.

Hong Kong has a somewhat similar story because, as a British colony, it had the common law system. Looking at Hong Kong, John Cowperwaithe, who was a leader in Hong Kong and a British appointee, was a classical liberal. He had this policy that was called “positive non-interventionism”, which effectively allowed the people in Hong Kong to live their lives as they saw fit. And with that, Hong Kong was able to rise and become a tremendous success. It was able to become one of the leading manufacturing and financial centers in Asia. Hong Kong further aligned to a certain extent with Singapore and inspired China to implement this policy of special economic zone reform.

Over the last 40 or so, China has been the greatest humanitarian miracle since World War II. They have lifted approximately 800 million people out of poverty according to the World Bank. China saw the success of Hong Kong and saw the success of Singapore and thought, “If these basically Chinese cities can be successful, why are we still so mired in poverty?” They created four special economic zones in 1980, the most prominent being Shenzhen at the time.

Special Economic Zones: An Ode to Federalism

Bob Zadek: Tell us what you mean by special economic zone? What makes that different? What makes that special?

Mark Lutter: A special economic zone can be thought of as a territory within which some of the national level laws and regulations on business do not apply. There are a lot of examples of this around the world. Most of them have lower taxes. Some of them make it easier to export or import.

What made Shenzhen special, however, were several things. First, foreign direct investment was legal. In the rest of China at the time foreign direct investment was illegal. Second, Shenzhen had a unique labor policy that allowed for a market and labor to exist. At the time in China, because it was a communist country, there was no market and labor. And over time, they implemented several more reforms that allowed them to to attract more capital and to develop more successfully. These reforms were unique to them and were not being applied to the rest of China. The special economic zone is simply an area of the country within which the national level business laws and regulations do not apply.

Bob Zadek: Why not make all of China or the U.S. one big special economic zone? Why make it special? Why not just make it regular?

Mark Lutter: That’s what ended up happening in China. After Shenzhen was successful, economic zones spread, until most of the country had this set of rules. In general, it would be better to implement most of these changes on a national level.

There is, I think, a broad consensus of what works in terms of promoting economic development. Again, this is rule of law, property rights. and a relatively open business environment, and these things would be better to implement on a national level. However, oftentimes politically it can be very difficult to implement them on a national level, and so a special economic zone or a free, or charter city is a second-best solution that might be more possible in the real world. The other thing to consider is that sometimes you want to test the policy out before implementing it on a nationwide level.

So if there is a policy that you think is a good idea, but you’re not sure, you might decide to test it out in an area. If it’s successful there, then you can expand it to the rest of the country, but if it’s unsuccessful there, then the negative consequences of that policy test would be relatively limited.

Take self-driving cars — it might make sense to have an area of the country where you test self-driving cars before you roll them out to the rest of the country, because there is the possibility that if the self-driving cars are not sufficiently developed, they could lead to more accidents — at least in the short term. So, to limit that possibility, we test them in part of the country before making sure that they’re safe enough to roll out to the rest of the country.

Bob Zadek: My audience is savvy enough to immediately leap to the conclusion that what you are talking about is kind of an ode to federalism. Justice Brandeis observed that our federalist system of coequal governments at the state and federal levels were “incubators” of democracy. They were the place where one state could experiment. If something worked, other states would adopt it, and if something didn’t work, that state and other states would reject it. That is what makes federalism such an interesting political system.

You are describing federalism — except not at the state level, but at the city level. Try an idea, and see if it works. If it works, it will spread because it is a good idea.

Is this nothing other than a strong, profound reaffirmation of federalism?

Mark Lutter: Sure. I certainly think that is one way to interpret this. There are some policies that you want to be done on the national level, like national defense, which is obviously more efficient on a national level. But there are a lot of other types of policies that you want to be done on a more local level, whatever that level is — whether it is the state, or the city government level, because they might be more responsive to the needs of the citizens.

If it’s possible to change gears a little bit, the most exciting area of charter cities or free cities is probably in Africa — as well as parts of Asia — because these places are urbanizing extremely rapidly and cities are growing extremely rapidly. You saw this in China over the last 30 or 40 years and now you are seeing this occur in Africa.

Previously, small cities are becoming these major metropolises. So there is great opportunity here because a lot of these cities are relatively poorly governed. They are not even providing basic public goods such as effective roads, sewers, and electricity — much less things like governance.

So for example, in sub-Saharan Africa, the country that ranked highest on The World Bank Doing Business Index, which is an index that is relatively similar to economic freedom, ranks it at 50. And so you can imagine, if somebody creates a charter city that does a little bit better on the Doing Business Index and ranks 40, it will suddenly becomes a magnet for every entrepreneurial person in sub-Saharan Africa, and that would entirely change the dialogue on the continent to push towards more economic liberalization, toward freer markets, and toward more trade, which can really create some of the investment and the economic growth that Africa needs right now.

Bob Zadek: You and your colleagues are offering a proven way to exit poverty on a staggeringly quick, effective, and painless level by creating the environment for businesses to thrive. You’re not selling a theory. You are showing all of these examples.

What I don’t understand is how the governance in parts of the world can be so mean-spirited or ignorant that they don’t see the obvious way out of poverty and embrace it? What is preventing hundreds of cities such as those in China, Hong Kong, Singapore, from springing up? It’s a way out of poverty. Everybody wins except for the entrenched economic interests who lose their monopoly control.

Mark Lutter: I think that’s an important point. I believe charter cities and free cities are inevitable, and our goal as an organization is to help accelerate that, because if we’re able to create them one year, or two years, or five years sooner, that is people being lifted out of poverty much sooner. If we are able to push them in a good direction of not only greater economic liberalization but greater political liberalization as well — towards classical liberal ideals such as free speech, freedom of contract, and freedom of association.

As to why these projects aren’t happening, I think the primary constraint up until recently, and still currently, has been political. I wouldn’t say that the politics are any more mean-spirited in other countries than they are in the U.S. It doesn’t take much to see how mean-spirited politics can be in the U.S., and I think a lot of the people, the politicians or their advisors, to certain extent, understand the values and the ideas that I am professing. The challenge is, as you mentioned, these special groups that might come out against these projects.

This is a new idea. Singapore, Hong Kong, and Shenzhen are seen as anomalies. They are in Asia as well, so people in Africa don’t necessarily see them as a model that can be replicated in their country. I think the idea has to be developed a little bit more. I have a friend at the World Bank who mentioned that there was a country in Africa that proposed creating a charter city to the World Bank. The conversation at the World Bank was whether they really knew what a charter city was, or were they just using the right buzzword? Right now, although I think there is an agreement on some of the concepts, the idea hasn’t penetrated enough minds or enough people.

There is still this challenge of coordination when you’re trying to bring together all of these different groups. For example, in the classic Silicon Valley startup, you lock up three people in a basement, and after six months they have a minimum viable product.

A charter city is much more complex than that. You need to bring together all of these different interest groups, they need to have the same conception of what a charter city is and what their role in the development of a charter city is. That is challenging.

Until now, the conversations have unfortunately been a little bit siloed. The people in Silicon Valley who are interested aren’t talking to economists, who aren’t talking to the humanitarians, who aren’t talking to the new city developers, who aren’t talking to the financiers, who aren’t talking to the politicians. So there are all these groups that have these interests that aren’t effectively communicating with each other. Our goal at the Center for Innovative Governance Research is to bring these groups together to be able to start the conversation that can lead to what we see as the necessary ingredients to make a charter city or free city a success.

The Free Market is Humanitarian

Bob Zadek: Why I find this discussion so interesting is that you are proposing a government which does nothing other than encourage free market activities, protect the rule of law, honor contracts, and give parties to a contract a peaceful way to resolve disputes. Basically, you are advocating the core of essential government. But you are really proposing a massive humanitarian system. The ultimate goal is not, “Hey, we will all get rich.” The ultimate goal is not to be able to sit around, have all this freedom, smoke pot, and do what we want. That is not what you are proposing. At the core, you are this very ambitious, effective humanitarian. You are using the tool of free market to accomplish humanitarian goals. That’s what gives me goosebumps when I hear you talk.

Mark Lutter: I completely agree. I think traditionally that the humanitarian community has focused too much on aid and not enough on achieving sustainable policy reform that can lead to economic growth. I think the beauty of of charter cities or free cities as a project, unlike many social movements, is that once that idea takes off, it will replicate itself because there is this inherent profit motive in the idea. So, for example, the developers who build the real estate and infrastructure of a charter city will become very wealthy. Because there is this body that has this interest in promoting this idea, I think once you get the ball rolling, it will become effectively unstoppable. Participating in the market is the best way to alleviate poverty, as well as I think a very effective mechanism. Contrast this with something like a food program where you have to give money or food every year for it to exist.

This is more like teaching a man to fish. Once you set it up, then it has its own mechanism to continue and sustain itself. Once this organization is up and running and once the worldwide community of people that are believers of charter cities are in communication, my goal is actually to move over to the for-profit side and see what I can do there.

Bob Zadek: Tell us about charter cities that have been blazing success stories under a socialist or communist model. And finally, tell us how you can follow your writings and your work.

Mark Lutter: Estonia is not exactly a charter city per se. It is a small country that broke away from the Soviet Union and embraced the free market. The legend says that the prime minister read one book on economics by Milton Friedman and since then they have become an extremely successful country and have an e-governance system that is the envy of the world.

As to how you can follow me and my organization, our website is innovativegovernance.org. We have a Facebook page. We have a Twitter account, We have a newsletter. You can sign up for those. You can shoot me an email. My email is listed on the website. We’re always looking for people to write for us. So if you’re interested in this idea of these, reach out and I’ll be happy to chat and get you involved in any projects in any way.

Bob Zadek: Mark, you’re doing God’s work. Thank you so much for all the good work you’re doing. We appreciate you giving us an hour of time this Sunday morning.

Seasteading, with Patri Friedman, September 13, 2009

Joe Quirk on Seasteading 3.0, August 21, 2015