Our research shares various analysis on the case of special jurisdictions- Economic zones, charter cities and other innovative governance models as the future of development
Read our blog about special economic zones,
charter cities and other related topics by various authors in the industry
Michael Strong co-founded Freedom Lights Our World (FLOW) with John Mackey in 2005, which later spun off Conscious Capitalism and Peace through Commerce. He has also been a leader in the global Startup Societies movement, signing the first agreement with the government of Honduras to set up an innovative legal jurisdiction to create prosperity (a newer iteration of which is now welcoming its first residents) and coining the expression "Startup Cities" in a 2013 talk available here. He continues to speak and promote new jurisdictions to create prosperity to elevate the global poor.
He is a lifelong education entrepreneur who created and led a charter school in NM, one of the lowest ranked states educationally, that was ranked the 36th best public school in the U.S. by its third year and has remained a top ranked school. He also founded The Academy of Thought and Industry, a network of innovative high schools that serves as the high school program for the largest Montessori chain in the U.S. His current educational project is a virtual school, The Socratic Experience.
Michael is the author of The Habit of Thought: From Socratic Seminars to Socratic Practice, and lead author of Be the Solution: How Entrepreneurs and Conscious Capitalists Can Solve All the World’s Problems. He has written for academic journals (Economic Affairs, Critical Review, Journal of Business Ethics, etc.) as well as popular publications (Barron’s, HuffPo, RealClear Politics, etc.). He has spoken on entrepreneurial solutions to world problems at dozens of universities including Harvard, MIT, Columbia, Dartmouth, and University of Chicago, as well as many conferences around the world. He wrote his dissertation on "Ideas and Culture as Human Capital" under the supervision of Nobel laureate Gary Becker at the University of Chicago.
Administrative Apocalypse and the Prospects of Proprietary Cities,
“And just as you saw the iron mixed with baked clay, so the people will be a mixture and will not remain united, any more than iron mixes with clay.”
– Daniel 2:43
“For at that time the world was altogether home-bred, every nation looked little beyond their own confines or territories, and the world had no through lights then, as it hath had since by commerce and navigation, whereby there could neither be that contribution of wits one to help another, nor that variety of particulars for the correcting of customary conceits.”
– Sir Francis Bacon, On the Interpretation of Nature
Bacon’s words harken back to a time before any comprehensive globalizing projects were underway, a time when migration was nearly impossible for anyone outside the ruling class. The challenge of exiting a regime spelled doom for the common man: regimes whose citizens cannot leave their jurisdictions have less of an incentive to promulgate laws that benefit all its citizens.
In this respect, jurisdictional mobility, or exit, is a powerful economic force because it serves as a source of accountability for those who govern. Before the common man possessed the power to exit, regimes faced little competition from other jurisdictions over customers of their policy, customs, laws, and governing services—colloquially known as citizens.
Bacon wrote of this predicament on the eve of Modernity and speculated on the possibility of Enlightenment: a world in which humanity was liberated by global “commerce and navigation.” His vision was largely realized in the West from the sixteenth through the nineteenth century. Due to newfound competition between nations, Western jurisdictions saw their market power decline. Their subsequent adoption of the rule of law skyrocketed Western living standards.
Contemporary developments suggest the traditional means by which the Enlightenment proceeded—global navigation and commerce—may no longer be sufficient for accomplishing the ends sought by its founders. At the same time, the ends of Enlightenment are still crucial, perhaps now more than ever. Because of this predicament, Western Civilization should utilize proprietary cities more aggressively to restore economic development.
Historically, Enlightenment proliferated across the Anglosphere—with its cultural emphasis on commerce and its common law regimes—more extensively than any other region. The US, a startup nation founded on “reflection and choice,” was the apotheosis of the Anglosphere’s Enlightenment. As such, the US functions as a proxy for the Enlightenment’s progress. If productivity growth rates are an indicator of economic development and, therefore, the pace of Enlightenment’s progress, Enlightenment has slowed in recent decades.
The West’s slowed productivity growth rates suggest traditional Enlightenment mores, such as global mobility and commerce, no longer suffice to balance the power between government and the governed; all the world’s land has been discovered and staked by governing institutions. At the core of the predicament, said institutions belong to one of two extremes: relatively advanced nations stagnant from three centuries of Enlightenment or less developed nations not yet reformed by Enlightenment.
Regimes of the first category can be described as “post-rule of law”—in that all industrialized nations are governed by largely unaccountable, economically oppressive administrative states—while regimes of the second category are generally “pre-rule of law,” in that they are frequently run by literal tyrants. Regardless of their myriad differences, neither of these two kinds of jurisdiction supplies its citizens with the rule of law in sufficient quantities for development, growth, and, as it were, Enlightenment to manifest.
This global dynamic is worse than it appears on the surface. In the centuries since the Enlightenment’s onset, the West has largely forgotten its purpose: to create a global civilization predicated on development and commerce. On the one hand, the West’s amnesia implies that the economic dynamism released during Early Modernity will cease, causing a decline in growth rates. In turn, a decline in growth rates means the West’s living standards will stagnate or, perhaps, decline. On the other hand, the West’s decline creates but also obfuscates a more existential predicament.
Early Modern thinkers from Montesquieu to Locke to Kant to Bastiat all subscribed to some form of the Doux Commerce doctrine. Doux Commerce supposes that commercial activity mitigates societies’ violent behavior through the proliferation of trade relations and economic incentives. If Doux Commerce is an accurate description of human nature, then a no-growth future entails not just economic stagnation but also, in our post-1945 world, apocalyptic violence as the West’s trade relations sour and economic incentives dissipate. This is a dynamic the liberal West has all but forgotten.
Therefore, to the extent that they now constrain development, today’s Enlightenment-saturated regimes are essentially apocalyptic. Either they themselves will perish and give way to new modes of governance that restore development, or mankind as a whole will perish alongside them.
However, there needn’t be much despair over the no-growth apocalypse. As of late, the megapolitics of the world situation has undergone a fundamental transformation.
The rapidly growing number and political relevance of special economic zones in the form of proprietary or charter cities—privately owned, managed, and operated urban jurisdictions with laws distinct from its host nation—have opened a portal back to the Enlightenment’s promise of progress; albeit with a local rather than global animating principle.
Proprietary cities could play an essential role in thwarting economic decline and saving humanity by functioning as hubs for regulatory arbitrage and, therefore, economic development. Regulatory arbitrage is said to have occurred when actors capitalize on the gaps between jurisdictions’ costly regulations (time, monetary cost, etc.)
For instance, private actors today profit off of the discrepancies between jurisdictions’s stem cell laws. For quite some time, the FDA never formally required stem cell clinics to abide by its standard regulations for “biologics.” However, since United States v. Regenerative Sciences, LLC, the FDA has treated stem cell therapies utilizing “more than minimally manipulated stem cells” as drugs. Since this decision, it has taken action against several clinics for marketing stem cell therapies without its approval.
As a result, jurisdictions with comparatively less burdensome regulations, like Thailand or Caribbean islands, have become strongholds for stem cell therapies. In the Caribbean, the Cayman Islands is home to both Health City and Regenexx Cayman. Regenexx Cayman is an outpost of Regenerative Science’s operations that promises “higher cell dose” and “conditioning protocols” unavailable in the US. This jurisdiction and its tenant Regennexx are expanding the frontiers of biomedicine while serving Americans whose medical liberties have been trampled on by the administrative state.
In the financial technologies industry, similar developments are taking place. In recent years, several special economic zones have been founded or have established new laws intended to bolster the rate of financial technologies’ progress. This trend accelerated last year when jurisdictions that used to rely on revenue from office space leases had to make up for corporations’ switch to remote work.
To counteract declining revenue, jurisdictions offered greater regulatory leniency to tenants developing financial technologies. One of the most prominent cases is the regulatory autonomy granted to cryptocurrency exchanges last year. This autonomy empowers financial technology corporations to produce new products that could not be made in compliance with standards set by most nations.
These two examples are likely just the beginning of a trend that could awaken Western Civilization from its decadence. The number of special economic zones in the world has grown exponentially in recent decades; a 2019 UN report suggests there are as many as 5,400. While most of these projects are tiny processing zones meant to attract foreign direct investment and possess minimal political relevance overall, the recent founding of proprietary cities such as Próspera in Honduras demonstrates the feasibility of privatized local governing services.
Already, Próspera’s regulatory differential is enabling biomedical and fintech firms to provide value prohibited by Western Nations’ administrative states. The arguments laid out heretofore are of a certain variety of libertarianism. However, they are also compatible or even complementary to nationalist perspectives.
Indirectly, new proprietary jurisdictions might restore economic vitality and sovereignty in pre-existing nations through jurisdictional competition—lest older jurisdictions lose revenue sources and lag in the race for technological development. More directly, nations stagnant from administrative complexity might be prudent to host and strategically cede economic sovereignty to private cities in an attempt to steer development back to their shores.
The promises and prospects of proprietary cities are undeniably valuable for a civilization that has long forgotten its purpose. While global commerce was a traditional tenet of Enlightenment, the proliferation of proprietary cities might help humanity achieve the aims of Enlightenment in an era where its traditional practices have failed.
Not only would such an event extend liberties and opportunities that will advance the living standards of so many, it might just be necessary for thwarting a violent apocalypse and preserving civilization in the Third Millennium. Similar post here.