Charter cities make sense in Europe
Charter cities are a great idea. You take a poor country, create a special zone in it where the country won’t exert its usual harmful influence, and allow that special zone to grow to a self-managed city. The idea is that if you just change governance, you can create real economic growth with mostly the same resources that the host country already has.
The Charter Cities Institute lists several examples of this on their website: Shenzhen, which was a village and is now a futuristic city; Singapore, which was a swamp and is now a futuristic city; Dubai, which was a desert, and is now a futuristic city; Hong Kong, which was a less than futuristic city, and is now – a futuristic city.
The main issue with new charter cities, at least according to the very sparse Wikipedia article and what little info I could scrape from Claude, is not the idea or even the execution of charter cities themselves, but the country where they are founded.
Próspera, one of Honduras’s ZEDEs, is apparently facing problems with the Honduran government. One government decides it’s constitutional and good for Honduras; the second one overturns the decision. It seems that the founders of Próspera were ready for this because they managed to set up international agreements and penalties, so that it isn’t trivial for an unfriendly government to just hit the undo button.
But the story of charter cities having trouble getting off the ground is not exclusive to Honduras, and in fact Próspera seems to be closer to success than to failure.
The main problem is, and will likely continue to be the host country. Charter cities can self-govern in many areas: immigration, economic policy, building and zoning code, civil courts, even policing. But they are not countries, and they (usually) don’t have authority in criminal law, nor a standing army. And if they happen to be situated in unstably governed countries, then all this autonomy is exactly as stable as the weakest chain in the link – the host country’s government.
What charter cities need are, therefore, not poor and undeveloped countries (which are often paired with unstable governments). They need stable, reliable, boring governments, in countries with stagnant economies.
Could we think of a place with a boring, stable government, but slow economy? Hmmm…? Probably Europe in general, and European Union specifically, and certain countries inside the Union even more specifically.
The European Commission should create a charter cities program, where member states can apply and form special economic zones that are excluded from the tax code of the host member state (and from most other legislation). Maybe existing villages or cities could apply, and be converted; or literal empty patches of land could be marked for future development.
The point is: Europe needs to grow its economy, and needs to run experiments which would combat the overall stagnancy.
I imagine a future where there are numerous cities operating as European Free Cities, or European City-States, exempt from the taxation of the host member state, and from most of its legislation. Tens of small European Singapores, scattered around the map, attracting investors, builders, workers, families, both from within and without.
Some of these Free Cities would fail, no doubt. But that is the point of an experiment, to try something “crazy” out without rolling it out to an entire population at once.
The European 28th regime is the perfect context for this, Europe’s supposed equivalent of the Delaware S-corporation. These Free Cities could use that as their incorporation scheme, or could run their own scheme.
Europe is known for stability, and experiments need stable environments to be run. Moreover, Free Cities are lindy, as throughout Europe’s history there have been many charters given to such cities. Not to mention the foundation of Western civilization: the city-states.
Abandon modernity, return to the Hanseatic League!
I like the idea, but I wonder how possible it is. In particular, it would seem to me that to make sense it would require that EU citizens who move to a charter city would also have to give up many of the social benefits they get living in other parts of the country, otherwise the economics probably don’t work. And while that might be fine for everyone at the start, what happens if one of those cities fail? Will they go back to getting services, and importantly services that may have been predicated on paying while young and healthy (like retirement and health benefits) to cover costs when old and frail.
I’m not saying it’s impossible. I do really like the idea! I think there’s just likely a lot of sticky details to work out given the relationship EU citizens have to their national governments.
Weakly pushing back on bare optimism about this—not saying it makes no sense in any form:
Within OP a rare concrete advantage mentioned is ‘tax code’. And rightly, tax is a super key domain. Issue: First solve asymmetric tax competition, else you just introduce a new type of race-to-the-bottom elements that are more parasitic than genuinely productive.
It’s trival to attract big money as minuscule charter city within the large EU pond. But it subverts the idea of a functioning overall redistributive ecosystem.
Stability vs. Instability as ideal ground: Yes stability is helpful. BUT, the other way round: Charter cities’ theoretical potential is also greatest where we have instability and a failure to enable labor to be productive and where sunk investments are subject to hold up/expropriation one way or other. The latter is usually not an issue in EU. And there are many places in Europe that allow labor to work reasonably productively and without prohibitive taxes. Backfiring labor protection in many places yes, but some states even design template engagement forms to purposely circumvent official employment in what clearly is employment. So you’re free to hire persons close to how you want. High taxes in many places yes, but some places have simply reasonably low or maybe arguably too low taxes e.g. in some places due to three-fold tax competition (country/state/commune each in competition with their peers at the same level). Basic economic liberty mostly given—well, arguably a ton of bad laws wherever you look, but does lifting them really make the big bang for most of society? Not automatically convinced about that.
Finally: We anyway already have a ton of implicit, small special regional zones in Europe. Many are countries or other subnational jurisdictions whose main advantage is not innovation but indeed: simply low taxes/great conditions for the rich. One of them is indeed so successful atm they literally ran out of good ideas how to spend the excess money they get[1] - though for its original citizens the situation isn’t automatically great as many complain they cannot afford housing anymore as the region is too attractive (if you search a room you will stumble upon people offering one on the condition for you to not be there—as many seek the location just to benefit from low taxes).
Surely you can theoretically with smart policies find great ways to foster innovation etc., and to reign in govt overreach by having competing small jurisdictions. All for it. Before you get my support though, show how you avoid simply becoming yet another Monaco or Zug or what have you with doubt-able net benefit for the world.
Sounds implausible right? It’s true still. They were searching for ways to redistribute the money back to the economy/people. They now even open a new fund of dozens of millions for “blockchain research”—doesn’t quite appear to be the lowest hanging fruit for what to do with random spare money.
Neat! I’d love to see Hamburg and Lubeck return to their former glories—but there is a wrinkle comparing China of 1970/1980s to Europe of today.
China in 1980s, Singapore in the 1960s, and to a lesser extend Dubai in 90s, is that they are desperate in a way that the Europeans are not. And they have taken advantages of having either a vast pool of
exploitablecheap labor in its hinterland, or exceedingly liberal immigration policies (Will the Europeans of today want this?). SEZs cannot be cutoff from the mother country/host country, and I suspect Europeans are just not desperate enough to make a gamble like this.