Free Cities Trends

For the second post of the Free Cities Initiative, I would like to discuss trends I see as leading to free cities. Most people I speak to are skeptical of free cities. I, on the other hand, am convinced that free cities are by and large inevitable. I believe this difference in understanding largely arises because of different information. Two trends, which are not yet common knowledge, point to the emergence of free cities. Those trends are the creation of special economic zones (SEZs) and new cities. In this piece I provide a brief overview of those trends and why they lead to free cities.

The first important trend is humanity’s rapid urbanization and the cities that must be built to accommodate it. The UN estimates there will be an additional 2.5 billion urban residents by 2050. While some of these residents will be accommodated by expanding existing cities, others will transform sleepy towns and rural areas to booming metropolises. Shenzhen, for example, was a fishing village of 30,000 people in 1980 and now the metropolitan area has over 18 million residents.

The New Cities Foundation gives the best overview of new cities being constructed. Their annual report from the King Abdullah Economic City forum profiles new city projects in the annex. Of course, cities which will grow organically are not included. However, the numerous multi-billion dollar projects suggest an opportunity for free cities. The new cities have capital, and some of them have the influence to receive a degree of autonomy. However, they do not appear to realize the importance of institutions in economic growth. The most recent report briefly mentions the legal side, only discussing taxes and business registration. While both important, ensuring long term growth potential for cities in developing countries requires thinking more radically about institutional reform.

With that being said, I believe the New Cities Foundation is slowly realizing the importance of institutions in economic development. Previous reports failed to mention legal autonomy. I suspect the next report will have more discussion on legal autonomy than the previous one.

The second trend is SEZs. SEZs are forerunners to free cities, they are pockets of autonomy where certain national laws and regulations do not apply. Of course, they differ in several important aspects. First, SEZs are typically small, rarely encompassing a city. Second, the autonomy for most SEZs is relatively minor. Such autonomy might encompass lower taxes or expedited customs, but does not represent a new legal system, merely slight alterations to the existing one.

Nevertheless, SEZs represent something of a challenge to the traditional notion of a nation state, an area where a sovereign body sets the baseline legal standard. As such, it is reasonable to suggest that the number and trend of SEZs is roughly correlated with the likelihood of building a free city. A world where minor autonomy is acceptable is more likely to accept major autonomy than a world where no autonomy is acceptable.

The trends of SEZs suggest that autonomy is becoming increasingly acceptable. Over the last thirty years, there has been an explosion in the number of SEZs. Ireland founded the first one in 1959. For the next twenty years’ growth in the number of SEZs was relatively slow. However, in the 80’s growth accelerated, accelerating again in the 90’s. Currently there are over 4,000 SEZs worldwide in 73 countries.

Since Dubai, Honduras has come closest to allowing the autonomy necessary to create a free city with the ZEDE (zona de empleo y desarollo economico) legislation. The legislation creates a process by which territories can opt out of Honduran commercial law and import common law. Unfortunately, politics in Honduras has slowed implementation of the law.

The final indicator of that free cities time has arrived is the recent discussions about them. For example, Paul Romer’s Charter Cities. There is a reason the proposal occurred when it did. Twenty years ago it would have been unthinkable. In another fifteen years such an idea could become common sense. Similarly, Naguib Sawiris proposed buying a Greek island to house Syrian refugees.

Such ideas are becoming increasingly commonplace. While they are still largely outside the range of acceptable political discussion, they will not remain that way. So long as these trends continue, free cities are coming.

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