Charter city

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A charter city is a special, magical place of prosperity and freedom, at least in the minds of right-wing libertarians. To right-wingers, the dream is a city that is run by a corporation with its own laws, particularly in areas like taxation, trade, and employment; naturally these laws are pro-business and anti-worker, with low taxes and tariffs, few protections for workers, and big businesses having the freedom to do what they like.

The idea builds on existing concepts such as special economic zones (SEZs) and freeports, which offer low taxes and other pro-business policies to entice investment in a particular area. SEZs can create jobs, but are associated with problems such as tax dodging, money laundering, smuggling, environmental damage, poor treatment of workers, and other human rights abuses. But charter cities take this to the next level.

The policy is associated with vulgar libertarianism, the subset of libertarians who don't actually care about freedom, just about unfettered capitalism and freedom for the rich. They have been proposed by various right-wing politicians in the UK and US. At least one proposed charter city, Próspera in Honduras, planned to use cryptocurrency instead of proper money, so the crypto bros are also involved.

Alternative names for the same concept include enterprise cities (favored by proponent Shanker Singham) and home rule cities.^[1][2]

Special economic zone[edit]

Definitions[edit]

A special economic zone is a designated area in a country which has different rules around investment, labor law, etc. The justification is that it can encourage investment in a struggling area by encouraging companies who would not normally do business there. In 2019, it was estimated that there were 5,383 zones in 147 economies.^[3]

A freeport is a special economic zone based around a port. They offer exemption from tariffs, quotas, and other checks on trade, and allow businesses to import and export goods with little or no oversight.

SEZs evolved after World War Two. A precursor or early example was the export processing zone developed in the US colony of Puerto Rico in 1947. This was followed by Shannon Free Zone in Ireland, often considered the first true SEZ. The phrase special economic zone was first used by the Chinese government in the 1980s, as part of its economic liberalization.^[4][5][6]

Examples[edit]

• Shannon Free Zone, Ireland. Shannon airport was a stopover for early transatlantic flights but by the 1950s they no longer needed to refuel there, so measures were needed to keep the place going. In the 1950s, 2.5 sq km of land in rural Ireland was designated a free zone, to encourage foreign corporations to invest; Some taxes were waived, others were reduced. Shannon Free Zone's managers also promoted free trade zones internationally, particularly in east Asia, with Chinese premier Wen Jiabao visiting in 2005. Gradually Shannon's economic significance has waned: corporation tax is now the same as the rest of Ireland, while EU membership in 1973 changed the situation with tariffs.^[5]
• Shenzhen Special Economic Zone, China. Established by Deng Xiaoping in 1980, it offered tax breaks and allowed businesses to operate in a more pro-business environment than in the rest of China. SEZs proved key to China's transition to a capitalist economy.
• United Arab Emirates now has more than 40, which allow foreign investment and ownership of companies.^[7]
• The European Union (EU) allows regions to designate free zones where duties and taxes are not paid unless the goods are taken out of the free zone and into the rest of the EU; examples include the ports of Bordeaux in France and Bremerhaven and Cuxhaven in Germany.^[8] However, many EU regulations, such as on employment, still apply, which is less attractive to people who want to pay slave wages and mistreat their workers.^[9]
• In the UK. Boris Johnson's government designated eight freeports in 2021, which were allowed lower taxes, "streamlined" (i.e. reduced) environmental controls, and the possibility of reduced regulations in other areas.^[10]

Criticisms[edit]

SEZs and freeports offer two classes of benefits to companies operating there: direct benefits such as low taxation; and indirect benefits such as proximity to other businesses, suppliers, and customers, and hopefully to a trained, experienced workforce (as with any other concentration of industry in a specific area). However it's not all prosperity and sunshine, with problems including:

• Pollution. Zones often host heavy industry producing a lot of pollution.^[3]
• They cause serious problems around taxation, which governments need to fund social spending, wars, and other things. Firstly, there is a loss of direct tax revenues as businesses relocate there. They also provide a way businesses can evade taxation by pretending to move even more activities to the zones than they actually carry out there. And over a much wider area, they can lead to a race to the bottom on taxation, with other regions forced to slash corporate tax and duties in order to compete.^[11]
• Money laundering. This is possible due to the lack of financial controls and weak checks on imports and exports.^[12] There is concern that they can aid in the funding of terrorism and organised crime.^[13]
• Smuggling. They can allow high-value items to move without being inspected or recorded.^[12]
• Reduced employment protection, leading to poor treatment of workers, especially more vulnerable groups such as women.^[9]
• Often involve seizing land and (especially in the developing world) displacing native populations.^[3]
• To be successful they require national planning and proper infrastructure provision.^[3] It's not enough just painting a line around a place and saying "go business!". This kind of puts the lie to the idea of a SEZ as a libertarian thing; like most areas in life, it benefits from well-planned state support.

The World Bank suggests that in many cases a conventional industrial park operating under full national law might be a better alternative to an SEZ.^[3] But that isn't as sexy or dangerous.

Charter cities[edit]

A charter city is an extension of the SEZ concept from industrial areas to entire cities full of people. Everything will be privately owned and controlled by corporations: the private owners of the city will set laws, provide public services (housing, utilities, garbage collection, roads and transport, security and law enforcement, a justice system, and if you're lucky healthcare, education, social security, social care, and the other necessities of life for those who aren't super-rich).^[14]

For extreme right-wingers e.g. anarcho-capitalists they provide a way to dramatically reduce the power of the state, while having the side effect of forcing other, more responsible nations to lower taxes and reduce regulation if they want to compete economically.

The origination of the idea is often credited to Nobel economics laureate Paul Romer, who suggested in 2009 that you might create a city in the developing world and have the city administered by a foreign (western capitalist) government rather than subject to local laws; this would supposedly provide stability for external investors. Romer at least believed in some concept of good government, even if he was shakier on things like sovereignty and democracy, but other proponents are less scrupulous.^[14]

Another center of advocacy was Babson Global Inc, an offshoot of Babson college, part of the network around the Heritage Foundation and Kochs, where Shanker Singham was a key figure.^[14] Singham used the term Enterprise Cities for his imaginary places of wonder, and was celebrated by proponents of seasteading.^[1]

UK[edit]

In 2010, minarchist lobby group TaxPayers' Alliance suggested the establishment of charter cities in the north of England, possibly in Kingston-upon-Hull, as a better alternative to entirely closing the cities and shipping their populations south. Citing Paul Romer as an inspiration, they recommended transforming declining post-industrial cities into charter cities with

minimum wage and working hours regulations abolished, social benefits for working age citizens abolished (maybe a 5 year phased withdrawal), central government economic and planning and regulations abolished, no more central government development assistance but a 10% flat rate income tax, 10% Corporation Tax rate, and no capital gains tax.

They noted at the time that European Union regulations would prevent that.^[15] Since Brexit, charter cities have become a lot easier for the UK government to implement.^[14]

Robert Skidelsky, a British economist and member of the House of Lords, and another peer, David Alton, proposed a charter city in the north of England populated by refugees from Chinese oppression in Hong Kong, which would in theory replicate Hong Kong's success as a center of free trade while also preserving the former British colony's lack of democracy.^[16]

The American economist Shanker Singham became one of the leading proponents in the UK. He worked at British right-wing thinktanks the Institute of Economic Affairs and the Legatum Institute and later became an advisor to Liz Truss when she was the UK government's Trade Secretary.^[17][18]

British Conservative politician Rishi Sunak is also keen on the concept, apparently under the guidance of charter city proponent Paul Romer.^[14][19]

Honduras[edit]

One example that nearly happened was Próspera, on the island of Roatán in Honduras. Loosely influenced by Romer, in the early 2010s, Honduras passed laws allowing for Employment and Economic Development Zones (Zede) which would have their own civil law code, police, courts, and government, but follow Honduran criminal law and still be under Honduran rule. There were plans for a city at Puerto Castilla on the coast, but locals were less keen than American investors. In 2012 the Honduras Supreme Court seemed to rule against the idea.^[20]

For a while nothing happened, but in 2019, a committee of 49 residents of Crawfish Rock on Roatán decided they would establish a Zede. And inevitably its currency would be Bitcoin. However in 2022, new Honduran president Xiomara Castro announced that the Zede legislation would be repealed; Próspera's backers tried to raise legal challenges but the scheme seems mired in litigation.^[21]

Republika Srpska[edit]

According to OpenDemocracy, in 2014 Singham met the government of the Serbian half of Bosnia and Herzegovina, to agree the construction of an "entrepreneur's city" in the region. This hasn't happened either.^[22]

See also[edit]

• Libertarian paradise
• Micronation

References[edit]