Ever since I came across Patri
Friedman’s writings on Seasteading, I have been very interested in the
long-term need for frontier spaces where alternative forms of government can be
tried. When Paul Romer made
the case for charter cities, it took the idea of competitive governance to
a level that seemed to have less technological risk involved.
Hong Kong is an early modern example of what we now think of as a charter city. It took a population that mostly resembled those on China’s mainland, gave them a different set of rules and regulations to live under, and demonstrated that a capitalist system with a rule of law was vastly superior to whatever we want to call the disaster that occurred under control of the Chinese Communist Party on China’s mainland. Hong Kong’s positive example led to numerous special economic zones inside China, and their explosion of wealth might be directly tied to the example set by Hong Kong’s success.
Broadly, there are three types of charter cities to be explored:
Developing world charter cities
The goal here is letting people see what people inside a country are capable of building if they import a rule of law system from the developed world. This is basically trying to kickstart conditional economic convergence in countries whose economic growth has otherwise fallen into a rut. There are many promising projects in this area, but there have also been many setbacks as governments in the developing world are often not stable enough or do not care enough about their reputation for trustworthiness to follow through on promises made to those organizing charter cities.
It is also often a mistake to take a Field of Dreams, and “If you build it, they will come” approach to charter city development. The most successful new charter cities are likely to be in Africa where new cities are being built regardless of whether they would be charter cities. A city that was going to be built anyway will have stronger economic fundamentals that a more efficient governmental system can then make even more efficient.
Refugee charter cities
The second category has to do with either reforming refugee camps or creating a space where refugees can move, live, and most importantly, work. Currently, refugee camps are not great places for people who are unable to have much control over their lives. Allowing them to participate in a modern economic system, either in the camp location or at some new city they can enter, would enable a level of self-actualization that is currently denied to them. They would also be given the opportunity to develop skills that they are currently denied in their current positions of sitting around in refugee camps and wondering if it will ever be safe for them to go home. This is not to suggest that refugees should not be fed and housed gratis, but systems which do not allow refugees even the option to work for fear of exploitation are hurting both themselves and the refugees.
This is an idea whose time has not yet come, neither the countries of the developed world nor the countries of the developing world seem eager to give up effective sovereignty over any piece of land. And in the developed world, they are incapable of welcoming refugees only into a refugee city without allowing them full access to society, which is a political nonstarter for many constituents. Creating a refugee city on national land would be a political disaster waiting to happen to all but the strongest political leaders, even if the lives of people within the city were an order of magnitude better than those inside the refugee camp from which they left.
Developed World Charter Cities
Creating charter cities with relatively uneducated workers, whether they are from stable or unstable parts of the developing world, is a tough task. Not only does lower average education imply a lower average productivity level per worker, but their lower-trust cultures might take time to adjust to fully take advantage of rulesets that allow the developed world to be relatively wealthy. It would be a much better shortcut to just take developed world workers and give them an environment with new rules where they can potentially thrive.
When thinking about new cities in the United States, Las Vegas comes to mind as the most populous city founded in the 1900’s. Since its founding, it has benefited from having a different set of rules than other places. With its legalized gambling, tolerated prostitution and mob activity historically funneling money into and around Vegas, it benefited massively from having different rulesets. But it is not exactly the type of example that inspires policymakers in other jurisdictions.
The better ideas for special economic zones in the United States to date have revolved around allowing new rulesets which might enable additional innovation in healthcare, aerospace or finance. People are moving less these days, finding a way to get lots of people to move for anything other than job opportunities has been difficult in a country whose annual mobility rate has fallen by almost half since the 1980’s. This might have just changed, as it now appears that a population of skilled developed world citizens might be induced to leave their country for one where they might find freedom.
A Hong Kong Exodus?
When China decided to pass a national security law for Hong Kong, they effectively ended the one-country two-systems policy that they had agreed to keep for 50 years past the 1997 handover. It will likely be enforced with a light touch at first, as they want to make sure that Hong Kong remains a viable financial center. But the situation has changed, and any local or even foreigner can be arrested by the CCP in Hong Kong, without recourse to Hong Kong’s famously impartial judicial system.
The United Kingdom has indicated that this is a breach of their 1985 agreement with China and indicated that they will be offering the three million plus Hong Kong residents that have or are eligible for British National Overseas status and their dependents a pathway to citizenship.
If Hong Kong citizens decide that flight is the answer, it will be one of the first large migrations of a highly productive and educated population since the Cold War ended. This potential influx of people has excited people in the broader charter city movement – a highly productive city demonstrating the benefits of alternate government rules seems within reach. And any opportunity is not going to be seized by just one group. There is going to be competition.
Old Networks vs New Networks
The problem with seasteading and charter cities has always been about core productive activities and how dependent they are on networks. If there is value without a local network of people working on various interweaving complementary and competing goods and services, as we see with offshore oil production, then there will not be the type of economic activity that can sustain a new city. A city only arises when there are valuable activities with significant network effects in various complementary industries which are able to operate relatively efficiently.
Hong Kong worked because it was a place that could handle manufacturing, or later coordinate manufacturing and other economic activities within China, along with services such as shipping and finance. If Hong Kong were relocated by an act of god, or by the great programmer of the vivid simulation, to the other side of the world, they would immediately become far less productive. With no geographic proximity to China, even with every local network intact, they would no longer be the gateway to China.
Moving people out of Hong Kong and into a new city would not just be weakening their China-dependent network, it totally snaps it. The relevant historical analogy might be the long-term decline of Venice after trade routes started going through the Atlantic around Africa, except with the trade routes shifting all at once instead of over many years. It is imperative that the professionals who are leaving behind their China-based connections find attachments to other productive networks which they can both support and benefit.
And setting up a new city somewhere far from existing cities, as various people have been proposing in the UK, is not going to cut it. Any new city needs to be close enough to existing cities to be intertwined with their networks, or those of the coming Hong Kong exodus would be better off focusing on finding their place among the many Cantonese Chinatowns around the world.
The Most Important Regulatory Change
Many people who think about charter cities like to think about fixing things that are obviously wrong. In the developing world, that is the rule of law. In the developed world, that is removing some of the burdensome regulatory overhang that is preventing the fast-moving iterative processes which can lead to significant technological advances and productivity growth in certain industries.
But for the people leaving Hong Kong, the most important factors will be whether they will be able to practice their jobs in their new location. A fast track towards approval for doctors, nurses, lawyers, teachers and other specialists would go a long way towards convincing them that your destination is right for them. Attracting the doctors, lawyers and teachers will make the destination that much more appealing to their friends and family members, some of whom might consist of specialists in technology or restaurateurs who would otherwise be able to work from anywhere.
The United Kingdom or Canada, with their parliamentary systems and historical ties to Hong Kong, might have the best shot at doing this. In the United States, once the more difficult immigration issue has been solved, the question comes down to which state to pick. States like California and New York might seem like potential cultural fits, but they have made building so expensive that they are out of the question. It would have to be a state with empty land near major cities that are willing to grow. Texas, Nevada and Arizona all come to mind. Arizona is the only state that has so far demonstrated that it is worth recognizing occupational licenses from other jurisdictions (within the US) for people who move to Arizona. It might not be a large stretch to get them to apply the same standards to Hong Kong emigrants.
Do you have a plan?
And finally, for those directly focused on building something – it may be popular to talk about charter cities but convincing a government to give up any sovereignty is always a tough fight. It is better to focus on a brand that has worked in recent history in the United States, and that has been master plan cities. Donald Bren, who acquired the Irvine Company in the late 70’s and early 80’s and built out Irvine into a city of around 280,000 people, is now worth over $10 billion dollars. Among the many advantages of the Irvine Company’s master plan community were the size of its land, its undeveloped nature despite being relatively close to a major metropolitan area, its single owner, and how it welcomed a public university into the center of its city. These advantages enabled them valuable connections to important networks combined with a level of control and flexibility that should not be underrated by those looking to achieve something similar.
Rather than ask for a country to give up sovereignty, it will be easier to ask for some HQ2-type support for a new master plan community. Amazon had cities and states around the United States bid on how much of the tax revenue that would be generated by Amazon moving into the area that Amazon would be able to keep. Arlington, Virginia agreed to give some of the extra money raised in payroll taxes and hotel room taxes generated by Amazon back to the company and promised to spend almost $200 million on infrastructure improvements. This is credited against the almost $3 billion in extra revenue that Amazon expects to generate for them over the next twenty years. Amazon has a lot to promise a region, but an influx of potentially hundreds of thousands of developed world workers should be even more valuable. And while discounts on state taxes or help with some infrastructure funding will be important variables, it will be more important to negotiate with agencies at the state level who will have the authority to authorize specialists to continue practicing their previous jobs with minimal retraining periods.
Starting any new development is not going to be easy and for a project that aims to provide a place where fleeing Hong Kong residents can find their freedom, there is a need for a big start. It will be interesting to see if any of the Hong Kong billionaires manage to get the bulk of their wealth out of Hong Kong before they, too, are subject to Chinese capital controls. In terms of evaluating projects for relocating Hong Kong people, the presence of people with those types of resources will be a key factor for ensuring success. Having people on board who are credibly committed to investing hundreds of millions to billions of dollars to get a project off the ground will be key for convincing both people in Hong Kong that it could make sense to move and to convince the authorities in the new destination that it makes sense to give them the type of support that they were willing to give to Amazon’s HQ2.
When talking about where people from Hong Kong might make new lives if China makes remaining in Hong Kong untenable for a large fraction of the population, it is important to remember that those who choose to and are able to flee will end up where they can make the best lives for themselves. Cities across the world are poised to benefit from an influx of smart, hardworking people who value their freedom enough to take drastic measures to ensure that they do not fall under China's thumb. Communities built specifically for them will be just one of their potential options, but the governments, organizations and individuals who take that option seriously are poised to benefit massively from China's mistakes... if they can get it right.