Free Cities represent an ideal mechanism to transform the world into a more peaceful and prosperous place. They provide more options and more creative innovation in the market of living together which can lead to a transformation in governance services. What is also remarkable about Free Cities is how they transform the incentives of a governance service provider.

Here are some examples:

Profit

Free Cities operate as businesses. Details may vary, but they must provide a sufficiently attractive alternative for people to move to the city and pay the associated fees. As advocates of free markets, we understand that competition in governance services is likely to lead to lower fees and better service over time. Perhaps one of the underrated transformations that the fee-for-service model will bring to residents is the massive decrease in compliance and overhead costs. The payment of a service fee is very simple and easy to accomplish. Compare this to the immense administrative burden of the payment of taxes in the US, for example. The benefits both in time saved and peace of mind arguably compete with the cost savings for the greatest value added. 

Loss 

Equally, if not more important, the quality of governance can also be dramatically increased through entrepreneurial loss. It is very likely that some Free Cities will be unsuccessful. This could be for any number of reasons ranging from poor management, poor relations with the Host State, poor international relations, or even something as simple as poor geographic situation. In this author’s estimation, the most likely reason for the failure of Free Cities will likely be the City Operator’s attempts to provide too many services. Each company can and should provide what they are best at providing but trying to cover everything cannot be done efficiently. This likely means we will see varying levels of service from Free Cities Operators but the more successful ones are likely to tend towards minimal ‘governance’. The exposure to the threat of loss severely limits the ability of Free Cities to impose arbitrary decisions on market outcomes, providing essential ‘checks and balances’.

Accountability 

Free Cities also transform governance providers from being mostly unaccountable to being held to the same standard as every other individual and business in society. The City Operator of a Free City is a standard company providing services on the market/ and as such, it is subject to liability for its errors. While Free Cities do not have political power in the same sense that states do, they have the power to provide a service as they see fit within the confines of the contract they sign with residents. The flip side is that City Operators are then responsible for providing this service in a way that meets or exceeds market standards. In the case where the City Operator does not provide adequate service, they must go out of their way to make the aggrieved party whole again. Compare this to the usual state mechanism of using force to punish the transgressor while the aggrieved party gets zero compensation. 

Beyond the legal liability for errors, it is also worth keeping in mind the market mechanism for holding City Operators liable. City Operators, being subject to market forces, are likely to go above and beyond in making sure consumers (i.e., residents) are happy. To illustrate this, consider the case of the unsatisfied shopper on Amazon. Frequently, if the purchase price of the item is relatively small and Amazon has no reason to suspect they are being cheated, they will simply refund and/or reorder the same goods at no cost to the supplier or the consumer. Amazon simply covers the cost as an expense for keeping the consumer pleased with their service. This happens regularly with lost packages. In this sense, Amazon is liable for errors (even if they didn’t make them)! The same incentives and market forces are in place for City Operators. Of course, this mechanism is stronger the more competition among different Free Cities there is but as the Amazon case shows, even when they don’t have massive, equal-size, non-differentiated competitors, Amazon does respond to consumers to make them happy.

A Real Social Contract 

The City Operator of a Free City will actually sign a contract with each and every resident above a certain age (i.e., 18). The contract will have standard terms which can be in place amongst most residents, with certain sections remaining flexible as negotiations between operator and resident take place. Contracts would be for a certain period and would require occasional re-verification after a period of time. Such a social contract, in the form of an actual signed contract, would exist for all full-time residents. Visitors or workers in the city would likely either sign a simplified agreement upon entry or be given notice that their presence subjects them to abide by the rules and regulations of the city. This is much like movie ticket stubs or parking garage tickets with basic legal language notifying visitors that they must follow the rules or be subject to the consequences. With regard to the enforcement of the rules, the City Operator is again seemingly free to do as it pleases, but in reality, it remains subject to the pressures of market competition and the need to attract people (both residents, workers, and visitors) to the city. Therefore, the Operator must maintain peace but also enforce rules. This represents a harmonious alignment of incentives where tradeoffs must be considered in all decisions. 

Contrast this with the existing ‘social contract’ that we supposedly are subject to in traditional nation-states. By virtue of being born in a certain physical location, an accident of circumstance, we must therefore abide by the rules of an elusive social contract. Even worse, that ‘contract’ regularly changes but only from one end – the state. The government changes the rules of the social contract whenever it changes tax rates, laws, and regulations. In a Free City, City Operators and residents are subject to an actual physically signed contract. This contract, like all legitimate contracts, cannot be changed unilaterally. Updates and amendments are always possible but cannot be forced on the other party. This requires measured and reasoned approaches as well as solving issues to the benefit of both parties. This also gives a much stronger legal standing to residents which can remove uncertainty and encourage more innovative and entrepreneurial activity. One of the central reasons for less entrepreneurship in countries without a strong rule of law is the lackadaisical approach to property rights and legal certainty. This is not the case in Free Cities, which will secure property rights and rule of law, alleviating one unnecessary element of uncertainty from any individual’s plate. Most importantly, this removes the one-sided, top-down authoritarian nature of the social contract we currently live under, creating a fairer and more just society. 

Conclusion 

These are just a few examples of the ways Free Cities can and will transform the market of living together. They highlight some of the major transformations and the results we might see. Introducing governance providers that 1) learn from losses 2) are rewarded with profits for making good decisions 3) are held accountable for their actions to the same extent as everyone else and 4) maintain a real social contract, Free Cities provide a clear way to transform governance and ensure a higher quality product to the benefit of all customers and residents involved.

This blog post is an amended version of an article originally published in Escape Artist Insiders Magazine in November 2022. Visit their website for more articles, information and advice on becoming an expat or digital nomad.