Free Cities represent a promising option for countries and individuals looking for a “plan B”. They can be a backup plan for any country willing to give them a shot. I would even venture to say that Free Cities represent a plan B for global society at large.
Allow me to explain.
The very concept of a Free City is aimed at expanding the governance alternatives available for residents to choose from. Free Cities represent the next level of development of traditional Special Economic Zones (SEZ). There are thousands of SEZs around the world, and they are located in the majority of countries on Earth. Each one is unique but they all share an aim to reduce the friction in doing business to promote development in a given area or country.
SEZs used to represent a plan B for many countries. Each existing country has its strengths and weaknesses. Some countries are blessed with resources, and some find themselves in crucial geographic regions for water- or land-based world trade. On the flip side, some have no resources, some are very rural, and some don’t have much land at all. Regardless, most countries have found that in the world of increasing competition for investment, they must propose a plan B to provide an edge that attracts development from abroad.
As our world progresses and as technology develops, the competition for investment continues to expand. China benefited greatly from SEZs in the past as they catapulted it to world economic powerhouse status. But many other countries in the world have not benefited to the same degree.
It is clear that countries establishing SEZs benefit from a first-mover advantage. When nobody else has an SEZ, establishing one represents a very significant benefit to potential investors. However, once many countries have done the same and many SEZs have been established, the marginal benefit for any given country to develop an SEZ diminishes. Now that SEZs are now so common, establishing them only brings the Host Country back on par with the others.
The number of SEZs in the world has skyrocketed over the last two decades.
Free Cities, however, are the next step in the development of SEZs development. They represent a plan B for any country bold enough to be an early mover. They expand on the SEZ model by extending the purview of the zone beyond the general customs and tax relief of a typical SEZ — primarily to target the residential market. Free City models have various unique structures but they all attempt to provide the benefits of liberty and entrepreneurship to the individual resident foremost, on top of making it easy for globally-connected companies to do business.
Free Cities may include many innovative features that provide the Host Country with significant competitive advantages, such as innovative and effective dispute resolution systems that enable residents to feel secure in their life, property, and outlook for the future. Many studies show that if one is confident they will be able to reap the benefits of their labor and personal choices, they are much more likely to make long-term decisions. This often manifests in increased entrepreneurship which creates prosperity and jobs.
By providing more regulatory flexibility, Free Cities serve to expand the benefits of SEZs to the average person. While many traditional SEZs lower taxes on corporations, Free Cities may do the same for residents. In addition, Free Cities frequently provide a more à la carte fee structure so that residents may opt into the services they want and are not forced to pay for services they do not. This allows residents to spend more on goods and services produced by other entrepreneurs as well as increase their ability to start a business with founding capital and a larger savings buffer in case things don’t work out.
The benefits that Free Cities bring to the table are tailored to promote investment in small businesses, increase entrepreneurship, and provide the stability needed to make long-term decisions, be it in business or in one’s family life. This represents an enticing option for many people around the world. A genuinely attractive plan B (or even plan A) might just consist of taking up residence in a Free City.
Visitors touring a construction site at Próspera, Honduras, a special zone where new mixed-use real estate is being developed.
Suppose a Host State can tap into even a small portion of the immense potential embodied in the human capital and financial capital discussed above, by establishing Free Cities. If it does, it can bring paradigm-changing levels of investment, economic growth, and skilled migration into their country. At a time when uncertainty is on the rise across the world, Free Cities — as the next-level SEZs — represent a readily available plan B to countries ready to be early movers.
Free Cities avoid the foremost risk of traditional SEZs: becoming so-called ‘white elephants’. While many SEZs have failed to deliver results, this typically happens when the SEZ is established and developed using public funds. Research shows that privately developed SEZs tend to have much better results than their state-funded counterparts. Since Free Cities are developed privately without the involvement of public funding, they build on the SEZ model that has proven to be the most successful and risk-free.
Finally, while Free Cities represent a plan B for individuals and for individual nations, they may also represent a plan B for society at large. Free Cities are not a panacea where all the world’s problems are solved but they provide more choices in the most fundamental market — the market of living together. They improve improve access to good governance, high-quality services, and individual freedom across the world.
The diversity of Free Cities will allow residents to opt in to the system they feel represents their needs the best. In addition, Free Cities can and must remain competitive and so they always keep learning from each other. If certain policies within a Free City work well, they will likely be replicated elsewhere. On the other hand, if certain ideas don’t work out, it is in the interest of the Free City to quickly change course or risk that their residents move to a jurisdiction that serves them better. The incentives of such a competitive market result in greatly improved governance — a much-needed development in today’s world. As we see traditional development models falling short of expectations, Free Cities are the natural plan B for society at large to provide and enjoy much better governance services at a fraction of the current price.
This blog post is an amended version of an article originally published in Escape Artist Insiders Magazine in August 2022. Visit their website for more articles, information and advice on becoming an expat or digital nomad.