Recently, Sam wrote about Paul Romer’s idea to bring ‘Charter Cities’ to the developing world. An innovative variant on Romer’s proposal is a project called “Free Cities”, which I believe shows even greater promise and adaptability. In the Wealth of Nations, Adam Smith wrote of independent, commercial cities in the Middle Ages as bastions of liberty in a sea of serfdom:
“If in the hands of a poor cultivator, oppressed with the servitude of villanage, some little stock should accumulate, he would naturally conceal it with great care from his master, to whom it would otherwise have belonged, and take the first opportunity of running away to a town. The law was at that time so indulgent to the inhabitants of towns, and so desirous of diminishing the authority of the lords over those of the country, that if he could conceal himself there from the pursuit of his lord for a year, he was free forever.” (Wealth of Nations)
In this passage, Smith foreshadows the work of development economist Hernando de Soto. De Soto writes that ‘dead capital’ lies hidden from public view: unable to be used by entrepreneurs in the developing world because they lack the legal mechanisms to protect the sanctity of their private property.
Free Cities, like Charter Cities, proposes to bring new legal rules and institutions into developing regions of the world. But Free Cities are less restrictive. A Free City, like Smith’s cities, could have varying degrees of independence from their host nations and no necessary ties to an foreign government.
Free Cities could be in autonomous zones granted to NGOs, who often have local knowledge and humanitarian connections in the resident nation. They could be in zones that already claim some independence such as on American Indian Reservations. Or, like the Songdo International Business District, they could be built by private developers who would provide modern legal and physical infrastructure for commerce.
Few would trust the United States government to administer a Charter City in the Middle East, however useful U.S. law has proven for development. But few would deny the success of Dubai which, in zones like the Dubai International Financial Center, deliberately designed and marketed its independent legal system. The DIFC, somewhat like Smith’s cities, is an island of commerce-friendly British Common Law in a sea of Sharia Law.
Rather than relying on the decaying political machinery of Western nations, Free Cities can embrace a legal pluralism and a spirit of experimentation in legal rules. No one nation can claim a silver-bullet for ‘perfect’ economic development. Free Cities allow endless variation in combining laws, new and old, tempered by the circumstances of time and place, to best suit the ends at hand.
But more than this, the rules themselves can achieve humanitarian ends without costly foreign aid payments or the intervention of agencies like the World Bank. A “Fair Trade” Free City has been proposed to Transfair, who could certify all commerce in the zone. Another could be used specifically as a City for Women’s Empowerment. A Free City has also been suggested to the Jane Goodall Institute as a means of saving chimpanzees and halting destruction of the rainforest. In addition to providing an incentive to slash-and-burn subsistence farmers to move from the rainforest to cleaner, modern urban environments, a dividend from the ever-growing commerce in such a city could go directly to reforestation efforts -- alleviating the harm already done. The meteoric rise of property values and commerce in places like Hong Kong or Dubai suggest that such dividends could prove a massive boon to financing humanitarianism and environmental restoration.
The risk of zoning uninhabited land with new rule systems is small: people can simply opt not to enter. But by unleashing the creative powers of the world’s poorest through trade and entrepreneurship, the potential gains from Free Cities are enormous. Followers of Adam Smith should be especially keen to favor Free-Cities as a development project: it harnesses the liberating and wealth-generating power of a “system of natural liberty” and channels it to the beneficent ends that those of Smithian ‘moral sentiments’ should applaud.
Zachary Caceres lives in New York and works on the Free Cities project with Michael Strong, author of "Be the Solution: How Entrepreneurs and Conscious Capitalists Can Solve All the World's Problems".