Given Voluntary Cooperation, Everything Is Possible
Let us analyze the market for governance: states exist, at least in part, because there is demand for them. A functioning state offers a stable framework of law and order, which enables the coexistence and interaction of a large number of people. This is so attractive that most people are willing to accept significant limitations on their personal freedom in exchange. Probably even most North Koreans would prefer staying in their country compared to living free but alone as a Robinson Crusoe on a remote island. Humans are social animals.
However, if you could offer the services of a state and also avoid its disadvantages, you would have created a better product. But after decades of political activity, I have come to the conclusion that real liberty, in the sense of voluntariness and self-determination, can’t be achieved by tinkering with existing states through the democratic process. There is simply not enough demand for these values at the moment.
However, someone could offer this as a niche product for interested parties. It might be possible for private companies to provide all of the necessary services that government normally monopolizes. I want to start such a company.
All that we know from the free market could be applied to what I call the “market of living together”: voluntary exchange (including the right to reject any offer), competition between products, and the resulting diversity of the product range. A “government services provider” could offer a specific model of living together within a defined territory and only the ones who like the offer settle there. Such offers have to be attractive — otherwise there will be no customers.
This is the idea of a private city: a voluntary, for-profit, private enterprise that offers protection for life, liberty, and property in a given territory — better, cheaper, and freer than existing state models. Residence would depend on a predefined contractual relationship between residents and the operator. In case there is a conflict about the interpretation of the contract, there will be independent arbitration.
Private cities are not meant as a retreat for the rich. Run properly, they would develop along the lines of Hong Kong, offering opportunities to rich and poor alike. New residents who are willing to work but without means could negotiate a deferral of their payment obligations, and employers seeking a workforce could take over their contractual payment obligations.
The incentive for the operator of a private city would be profit: offering an attractive product at the right price. This would likely include public goods, such as a clean environment, police, and fire protection, as well as some infrastructure and social rules. But the operator’s main service is to ensure that the free order is not disturbed and that residents’ life and property are secure.
In practice, the operator can only guarantee this if he or she can control who is coming (prevention) and is entitled to throw out disrupters (reaction). For everything beyond this framework, there are private entrepreneurs, insurance, and civil society groups. Of course, all activity ends where the rights of others are infringed. Other than that, the proper corrective is competition and demand.
Order and Exit
Will the threat of competition bring sufficient protection to the residents? Consider this: the Principality of Monaco is a constitutional monarchy. It concedes zero political participation rights for residents without Monegasque citizenship — some 80 percent of the population, including myself. Nevertheless, there are far more applicants for residency than the small housing market of this tiny place (two square kilometers) may take.
Why is this so? Three reasons: there are no direct taxes in Monaco for individuals; it is extremely secure; and the government leaves you alone. If Monaco changed this, people would just move away to other jurisdictions. Thus, despite the prince’s formal position of great power, competition with other jurisdictions — not separation of powers, not a constitution, and not voting — ensures the residents’ freedom.
Accordingly, there is also no need for parliaments. Rather, such representative bodies are a constant danger to liberty, since special interest groups inevitably hijack and mutate them into self-service stores for the political class. Unfortunately, the rule of law does not provide adequate protection against this tendency in contemporary Western societies. If laws or constitutions are standing in the way, they will be quickly modified or interpreted in a politically convenient way.
Competition has been proven as the only effective method in human history for limitation of power. In a private city, contract and arbitration are efficient tools in favor of the residents. But ultimately, it is competition and the possibility of a speedy exit that guarantee that the operator remains a service provider and does not become a dictator.
A private city is not a utopian, constructivist idea. Instead, it is simply a known business model applied to another sector, the market of living together. In essence, the operator is a mere service provider, establishing and maintaining the framework within which the society can develop, open-ended, with no predefined goal.
The only permanent requirement in favor of freedom and self-determination is the contract with the operator. Only this contract can create mandatory obligations. For example, residents can agree on establishing a council. But even if 99 percent of the residents support the idea and voluntarily submit to the council’s decisions, this body has no right to impose their ideas on the remaining 1 percent. And this is the crucial point, which failed regularly in past and present systems: a reliable guarantee of individual liberty.
Where to Begin
In order to start this project, autonomy from existing sovereignties must be secured. It need not entail complete territorial independence, but it must include the right to regulate the city’s internal affairs. The establishment of a private city therefore requires first an agreement with an existing state. The parent state grants the operator the right to establish a private city and to set its own rules within a defined territory, ideally with access to the sea and formerly unincorporated.
Existing states can be sold on this concept when they can expect to reap benefits from it. The quasi-city states of Hong Kong, Singapore, and Monaco have a cordon of densely populated and affluent areas adjacent to their borders. These areas are part of the parent states and their residents pay taxes to the mother country. Now, if such structures are formed around a previously underdeveloped or unpopulated area, this is a gain for the parent state. Negotiating with a government to surrender partial sovereignty is certainly no easy task, but it is in my view more promising than attempts to “change the system from within.”
Private cities are much more than just a nice idea for a few people on the margins. They have the potential to subject existing states to creative destruction. If private cities are developed across the world, they will put states under considerable pressure to change their systems towards more freedom, or else they may lose subjects and revenue.
It is precisely this positive effect of competition that has been lacking in the state market to date. Not all private cities need conform to my own ideal rules. Specialized cities offering social security or catering to specific religious or ideological concerns are conceivable. Within this framework, even socialists would be free to try to prove that their system done properly really does work. But this time one thing is different: others do not have to suffer from this (or any other) social experiment. The superstructure of voluntary association allows many different systems to flourish. Given voluntary participation, everything is possible.
This simple rule has the potential to disarm and transform even a totalitarian ideology into just one product among many. I firmly believe that private cities or similar autonomous regions, such as charter cities or LEAP-zones, are inevitable. People of all social and economic groups will not forever agree to be looted, bullied, and patronized by the political class, without ever having a meaningful choice. Private cities are a peaceful, voluntary alternative that can transform our societies without revolution or violence — or even majority consensus. My guess: we will see the first private city within the next ten years. I hope to see you there.
Titus Gebel is a German entrepreneur with a PhD in law. He previously founded Deutsche Rohstoff AG, among others, and now lives with his family in Monaco.
This article was originally published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.