Odesa’s Economic Miracle: This 19-Century Free City Holds Lessons for Ukraine’s Recovery

by | Aug 21, 2023 | Blog, Featured

Odesa’s Economic Miracle: This 19-Century Free City Holds Lessons for Ukraine’s Recovery

by | Aug 21, 2023 | Blog, Featured

Ukraine’s largest seaport, Odesa, has been making headlines recently — for a grim reason. In the past month alone, Russian drones and missiles have disfigured a fair share of the city’s UNESCO-listed historic centre, including the Orthodox Cathedral, the House of Scientists (the former Counts Tolstoy palace), three museums, and a range of 19th-century mansions. Optimism prevails nevertheless: for the first time since the start of the full-scale invasion in 2022, the city is reopening its beaches. 

Earlier this year, when the war was already in full swing, in what may sound like a more astonishing manifestation of optimism, Odesa unveiled its bid to host Expo 2030 — something I personally contributed to, as our team at Zaha Hadid Architects had developed the master plan. I have visited Odesa innumerable times while working with Ukrainian free-market think tanks, inevitably falling in love with the ‘pearl of the Black Sea’, as locals fondly call it. Odesa’s character — entrepreneurial, cosmopolitan, fiercely optimistic — is rooted in its history as the freest city in a suffocatingly autocratic Russian Empire. The tale of Odesa’s economic miracle, in turn, may hold lessons for the post-war recovery of the whole country.

ZHA Odesa Expo 2030 render by JKLab 9

Odesa Expo 2030 master plan designed by Zaha Hadid Architects. Source: zaha-hadid.com

A Textbook Case

Odesa’s early story is also a textbook case of how special jurisdictions work. At the dawn of the 19th century, in a matter of just two decades, what was merely a dusty village — where even drinking water was in deficit — has turned into a major trading metropolis and one of the most fashionable resorts in Europe. One French traveller called it “a town of pleasure and luxury”; an American one compared it to Paris. “I was almost tempted to believe that, by some hocus-pocus, we had tumbled on an Italian town”, wrote another tourist, adding that “there was little or nothing Russian about it”. Mark Twain was impressed by its “stirring, business-look”, and even Gustave de Molinari, one of the forefathers of anarcho-capitalism, praised Odesa’s free spirit. 

How did Odesa achieve that? By implementing the same old recipe: free trade, low taxes, and minimal bureaucracy. From its founding in the 1790s, Odesa was conceived as what today we would call a special economic zone. In 1782, all duties on imports and exports through its port were reduced by one-quarter. Needless to say, proximity to major trade routes and a modern approach to urban planning also played their role. And yet there were many other ports on the Black Sea, so something extraordinary was needed to attract all those wealthy merchants, skillful planners, and foresighted city managers. But above all, the brand-new city was in desperate need of people.

Aivasovsky Ivan Constantinovich The Harbor At Odessa On The Black Sea

“View of Odessa on a moonlit night” (1855) by Ivan Ayvavovsky, a Crimea-born painter who is considered one of the greatest masters of marine art. Source: Wikimedia Commons

A Magnet for Free Minds

In a sense, Odesa was a ‘startup city’. Much like Dubai two centuries later, it stood in anticipation, between inert sands and empty sea, anxiously waiting for residents to come. In the book Odessa: A History, 1794–1914, Harvard historian Patricia Herlihy provides an astounding number: at the beginning of the 19th century, a third of Odesa’s inhabitants did not have a Russian passport, meaning they were either foreign ex-pats or runaway serfs. The city’s authorities made a bold decision to turn a blind eye to the influx of thousands of fugitives — the young city, after all, needed thousands of working hands. Naturally, St. Petersburg wasn’t happy about the whole situation — Russian emperor Nicolas I even dubbed the city “a nest of conspirators”. But St. Petersburg was far away, and municipal authorities, many of them foreign-born technocrats, placed economics well above politics. 

As a result, everyone who felt uneasy under Russian rule, from religious dissenters to Jewish traders to creatives of all sorts, found refuge in Odesa, adding something to the melting pot. One English traveller noted upon visiting the city, “There is probably more political freedom here than anywhere else in the whole empire.” Political liberalism nourished human capital, attracting exceptionally educated and innovative minds. It soon became one of the most literate cities in the Russian Empire — the local Literature Museum (one of the three damaged by the recent air strikes) stands as a testament. “Here one felt freer than in the rest of Russia — national oppression and the arbitrary rule of the police were felt less”, Odesa-born Jewish historian Saul Borovoi wrote. Having narrowly escaped Stalin’s purges, he knew not to take freedom for granted. 

Flickr …trialsanderrors Rue Richelieu Odessa Ukraine Russian Empire ca. 1895

In 1810, Odessa became only the third city in the entire Russian Empire, after St. Petersburg and Moscow, to have an Opera House — a proof of its booming cultural life.

A Melting Pot

Anyone remotely familiar with the economic history of the world knows well: not only are special economic zones, or SEZs, possible in autocracies — they thrive especially in autocracies, for the contrast between life in the host country and in those enclaves of freedom is so stark. So it was only a matter of time till Odesa became a magnet for dissidents from all corners of the Russian Empire. Attracting foreigners, however, was a next-level challenge. To them, Odesa was offering all sorts of preferences, from profitable loans to tax breaks to free land giveaways. By 1799, as a result, some 40 per cent of the city merchants were foreign-born. 

Among the first immigrants were the French, Italians, and Greeks, followed by Moldovans, Turks, Armenians, Albanians, and even the British. French-born Duc de Richelieu, mayor of Odessa in 1803–1814, made a special effort to attract wealthy Jewish families. Architecture soon resembled that of France and Italy at once, and at least 20 languages were spoken on the streets. This cosmopolitan vibe lives on today in the city’s toponymy. Consider French Boulevard, Italian Boulevard, Polish Street, Jewish Street, Bulgarian Street, Green Street, Moldovan District, and Armenian Lane — for all those ethnic groups peacefully coexisted in Odesa, attracted by its lucrative business opportunities. 

Potemkinstairs

The 142-metre-long Potemkin Stairs, the formal entrance to the city from the seaport, made worldwide famous by Sergei Eisenstein’s 1925 film “Battleship Potemkin” Source: Wikimedia Commons

A Free Port – And the Fastest-Growing City in Europe

As if all of that was not enough, Odesa had a trump card in stock: a porto franco regime. The establishment of the free port in 1817 marked another milestone in the city’s history. Customs fees were cut ten times — making Odessa one of the fastest-growing cities not just in the country but in the whole of Europe! Multiple observers, as cited by Herlihy, called it an “instant city”, that “rose like a mushroom after a heavy rain” and practically “had no infancy” — such rapid growth, in the words of one German engineer, was “unheard of in Europe”. 

Founded by an imperial edict, the city grew largely bottom-up, in an organic manner, its physical layout a reflection of its multicultural ambience. Those who had made fortunes in Odesa invested back in the city, through paving its streets, providing sewage and street lights, and taking care of the less fortunate. Unlike in the rest of the Empire, wealth rather than class or occupation was the sole basis for voting rights — in other words, it was effectively a taxpayers’ democracy. 

Belgian economist Gustave de Molinari, who is often credited as the first-ever theorist of anarcho-capitalism, visited Odesa twice, in 1860 and in 1877, during his travels through the Russian Empire. While the rest of the country, he concluded in his memoirs, suffered from “excess of administration” (“In Russia, all is forbidden except what the law permits”), Odessa had “more successfully than others followed the model of decentralisation.” So much so that when in the 1870s the central government was considering a nationwide urban reform, they regarded Odesa as a role model.  

генерал губернатору Новоросійського краю А.Е. Ришельє Одеса DSC8083

A monument to Duc de Richelieu is one of the symbols of today’s Odesa. His ingenuity and determination helped to transform Odesa into a wealthy European metropolis. Source: Wikimedia Commons

Rebuilding Ukraine: Odesa 2.0

One in a long line of dazzled visitors, diplomat Alexander Ribeaupierre saw Odesa as “a most extraordinary place”, which “seemed as if created by a magical wand.” But what looked like magic was simply economic pragmatism. Odesa’s early governors, many of them foreign-born like Count de Langeron and José de Ribas, didn’t mind accidentally creating “a nest of conspirators” (read: dissidents) as long as it boosted trade and urban growth, and St. Petersburg was simply too far away to micro-manage them. In tight competition with Turkish and Greek ports, a brand-new city required an instant influx of capital, knowledge, and labour. The chosen recipe — strong property rights, low tariffs, minimal regulation — worked spectacularly for Odesa. 

Fast forward to the 20th century, a similar recipe helped to create cities like Hong Kong and Dubai — economic freedom, once and again, can turn a humble fishing village into one of the richest cities in the world. Be it 19th-century Greek merchants or the 21st-century digital nomads, people are quick to vote with their feet, choosing locations that give them more liberty to follow their dreams. 

Ukrainian dreams today stretch beyond victory — they envision the country’s monumental rebuild, and that would require the participation of the private sector and of many creative minds, locally as well as globally. When the war is over, the country will desperately need all sorts of capital — above all, human capital (nearly 6 million Ukrainians have left the country because of the ongoing war) — to rebuild its cities. Some places, like Mariupol, another Black Sea port, will have to practically rise from the ashes. The country doesn’t need to look far in search of models for its post-war recovery. The creation of multiple free cities across the country, especially along the seashore (including Crimea), would accelerate the recovery, transforming intangible things like optimism and creativity, which Ukrainians seem to have in abundance, into steady growth.