The World Needs More Free Cities (The Economic Argument)

by | May 20, 2024 | Blog

Though we live in the world of nation-states today, this was not always the case. In fact, the modern nation-state is a fairly recent invention. For most of recorded history, the world was ruled by a slew of differently structured powers and systems. One of those models, surprisingly common throughout all this time, was the city-state.

Although the city-state was likely never the dominant political structure in the world, today it is very much at the margins. City-states do exist today, the most quintessential ones being Singapore and Monaco, as well as some micro-states, such as Liechtenstein or San Marino. These are, however, often seen as relics of the past, and as funny quirks that do not really belong in today’s world. Simply put, they are not seen as ‘proper’ political entities when compared to nation-states.

In my view, this assessment of city-states is not doing them justice by any means. Instead, a case should be made in defence of the idea of modern and future city-states. Not only that, however. Cities can exist on different levels of autonomy from nearby sovereign states. What we call Free Cities encompasses existing and potential cities almost anywhere along this scale.

The argument for (and the main potential of) Free Cities comes from several different angles – economic, political, and social. In each of these spheres, a Free City can offer us something that the system of today’s nation-states is not delivering. Even though Free Cities do not represent any kind of utopia, they can offer a much-needed alternative to the status quo.


The Economic Argument

To see what economic effect Free Cities could have on the world, we can look at a proxy – Special Economic Zones (SEZs). There are over six thousand of different small-ish areas in the world which have negotiated for themselves benefits from their Host States in the form of policy or fiscal concessions, or even partial policy-making autonomy. While a Free City that is a full-blown city-state is a fully independent entity free to govern itself, SEZs still move in this direction partially, managing to reach lower, varying degrees of autonomy. This means that observing the economic effects of SEZs can help us see the potential of more autonomous cities as well.

SEZs have become well-known for their high-growth, fast-development potential, sometimes creating booming cities out of backwater villages in a matter of one generation, as in the case of Shenzhen, for example. SEZs do this by being free to employ growth-oriented economic policies in contrast with those of their Host States. This does not mean that all SEZs are or have been successful. There have been many SEZs that turned out to be mismanaged or improperly established in the first place, resulting in them not achieving their original goals of attracting investments and economic growth.

It is almost impossible to calculate whether a particular SEZ is a net economic benefit for the country it is located in. As Lotta Moberg explains in her book The Political Economy of Special Economic Zones, it is almost never clear where an SEZ leads to economic gain which otherwise would not have been possible, and where it instead simple changes the geographic distribution of existing resources and economic growth – both within the Host State and globally.

Despite this drawback, certain conclusions about the overall beneficial economic effects of SEZs (and, by extension, Free Cities) can be drawn. Even if the primary effect of an SEZ is to re-direct growth, the secondary effect is likely to be to spur a ‘race to the top’ in economic policy-making.

For a significant number of economic policies, it is both quite clear and quite uncontroversial whether they are, on net, beneficial or detrimental to the economy of the country. The reason that many detrimental policies prevail and the beneficial ones are not more widely spread are often vested interests affecting the policy decision-making. While a given policy might be a net benefit to the country or its population, it can simultaneously be very negative to specific parties that benefit from the status quo instead. These interests will then understandably fight hard to resist the implementation of the beneficial policy. However, with SEZs or Free Cities as competitors on the governance market, states are likely to be put under more pressure to deliver economic results, making the influence of the vested interests mentioned above weaker in turn.

Even if some of the aforementioned detrimental economic policies turn out to be unreformable for any reasons, there is still a strong economic argument for SEZs and, by extension, Free Cities. They offer a possibility of positive change at least in some places. If progress in general is not practically possible, the potential of localized progress is always preferable to none at all.


The Political Argument

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The Social Argument

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