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Private Cities: A Path to Liberty – Article by Titus Gebel

Private Cities: A Path to Liberty – Article by Titus Gebel

The New Renaissance Hat
Titus Gebel

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.

Private Cities

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.

Pursuing the Outcomes of a Free Market – Video by G. Stolyarov II

Pursuing the Outcomes of a Free Market – Video by G. Stolyarov II

What hope is there to actually achieve the ideals of liberty in our lifetimes? There is a promising approach, encapsulated in the following method. Ask yourself: What results would a fully free market, functioning in accordance with the principles of liberty and individual rights, bring about? Now go pursue those results directly, through your individual actions, without waiting for the system to change.

The Musical Compositions of G. Stolyarov II
– “Occupy Wall Street activists buy $15m of Americans’ personal debt” – Adam Gabbatt – The Guardian – November 12, 2013

Pursuing the Outcomes of a Free Market – Article by G. Stolyarov II

Pursuing the Outcomes of a Free Market – Article by G. Stolyarov II

The New Renaissance Hat
G. Stolyarov II
November 13, 2013

            Those of us who love liberty wish to see a free-market society in our lifetimes. But, as a near-term prospect, a society even approximating a thorough respect of individual rights and free exchange is not on the horizon. The best liberty-oriented activism, culminating in the passionate, motivated support for Ron Paul during his 2012 Presidential campaign, has only gained the ideas of liberty the sympathy of perhaps 15% of the United States population, with the ability to attract perhaps a few more percentage points in tactical alliances on specific issues. This is not enough to catalyze system-wide change and turn around the steadily deteriorating political situation. Probably the best near-term hope for the system is some semblance of the 1990s – a glorious time for liberty by comparison to today! This could be achieved if enough people are galvanized to oppose and overturn NSA surveillance, meaningless foreign wars, and the never-ending domestic “wars” on drugs and terror, which have always ultimately turned into wars on innocent, law-abiding Americans. Such an outcome would produce a sigh of relief from the liberty-minded, but it still would not be close to a free market; it would just be somewhat sane and non-totalitarian.

            But if persuasion has not succeeded in convincing even a plurality of the population (at least for now) and if political change in the near term would mostly consist of reversing the most blatant, egregious travesties of justice, then what hope is there to actually achieve the ideals of liberty in our lifetimes? There is a promising approach, encapsulated in the following method. Ask yourself: What results would a fully free market, functioning in accordance with the principles of liberty and individual rights, bring about? Now go pursue those results directly, through your individual actions, without waiting for the system to change.

            Yes, there are limits to this approach. One limit is the law, whose prohibitions and mandates today will certainly constrain certain beneficial courses of action that would have been possible on the free market, while requiring people to spend their time on other courses of action that the free market would have rendered unnecessary. Yet the approach I propose can still do considerable good within the bounds of current laws in any political system less oppressive than that of Oceania in George Orwell’s 1984. Another limit is that the outcomes of a fully free market are not entirely foreseeable. Future discoveries and innovations by free individuals are the currently unseen benefits of voluntary action and exchange, and we cannot always anticipate them in advance. Even with this recognition, though, it is possible to reasonably anticipate that a free market would uplift human beings materially, intellectually, morally, and culturally. People in a free society would be more prosperous, more knowledgeable (and better able to distinguish good ideas from bad), less inclined to aggression against their fellow men, and more inclined to refined tastes (as a result of increased prosperity, leisure time, and sense that life is generally good).

            Direct, peaceful, lawful action by individuals today can bring about many of the results of a free market even without a free market being legally in place or supported by the majority of people. Furthermore, such results can be brought about by actions that are themselves fully consistent with free-market principles, since they would be entirely voluntary and respectful of the rights of others. There is one catch: the activities that would be profitable on a free market would not necessarily be so today. Their cost would need to be absorbed using one’s own resources, and one would need to consider the outcome not a loss, or even a sub-optimal profit, but rather a moral profit that outweighs the material cost, including the opportunity cost, in time and money.

            To give an example, I compose classically inspired music and give recordings away for free online using a Creative Commons license. In a free market, which over time would uplift the tastes of the general public, the production of high music (which would be simultaneously sophisticated and appealing to the human ear) would be much more remunerative than it is today, and the likes of Justin Bieber and Miley Cyrus would be relegated to the ever-thinning ranks of the dregs of society. This hypothesis is supported by history: in prior, far less prosperous but economically freer eras, composers of high music were often seen as celebrities, with Wolfgang Amadeus Mozart, Felix Mendelssohn, Giuseppe Verdi, and Johann Strauss II being just a few examples. Today, creators of good music have to content themselves with far less remuneration than the dubious pop idols, manufactured by politically connected and protected record labels. However, no one inhibits the freedom to compose, and the available tools for doing so are more impressive than ever before. Voluntary private action can increase the abundance of newly produced high culture in music, art, and literature. Similarly, voluntary private research initiatives, ranging from the humanities to mathematics to DIY biology, can hasten the rate of meaningful discoveries in order to more closely approximate the pace of intellectual and technological progress that would occur in a free market. With the hyper-empowerment made  possible through recent electronic technologies, the opportunities for any individual to make a difference in a field today exceed those available to large laboratories, academic departments, workshops, and orchestras in the mid-20th century. Thus, one person with free-market sympathies, acting on his own time with his own resources, can often achieve more than teams of people working through established institutions using old patterns of production, whose obsolescence is becoming glaringly obvious to anyone who pays attention.

            As an added bonus, creating free-market outcomes in accordance with free-market principles will, in any system, highlight the benefits and possibilities of voluntary, private action to those who might otherwise be unconvinced. It appears to me, from observation and experience, that theoretical and abstract arguments for the benefits of liberty are not sufficient to persuade anyone who is not already extremely theoretically inclined – a tiny minority of the human population. For everyone else, practical demonstrations of how freedom would work are far more powerful than the most finely honed theory of liberty. Probably, the majority of people would only come to support free markets once liberty-minded people have, de facto, built an entire free market around them by informally approximating its outcomes and workings. At that time, achieving a formal free market would just be a matter of “flipping the switch” on the entire system and amending the laws (with popular consent) to recognize the kind of societal order that would have already formed in practice.

            Interestingly enough, Rolling Jubilee, a more recent initiative by the Occupy movement, has valuable lessons to teach free-market advocates regarding the approach of pursuing desired outcomes directly. No, I am not referring to physical occupations of public places, but rather the efforts to purchase consumer debt on the secondary market (at deep discounts) and subsequently to abolish such debt, freeing consumers of its burden.  While the economic ideas of members of the Occupy movement often differ from free-market views, this initiative has achieved an objective that free-market advocates should find salutary: the reduction of the total outstanding amount of consumer debt, much of which was the result of a credit bubble fueled by the reckless inflationary monetary policy of the Federal Reserve. Furthermore, much today’s outstanding consumer debt is an outcome of cultural malaise brought about by generations of unfreedom, as a result of which a condition of financial dependency has come to predominate instead of self-reliance and the robustness to contingencies that can only come about due to a buffer of present owned resources. Freer-market cultures tend to be more contemptuous of reliance on personal debt, and it is thus reasonable to expect the total amount of debt on a free market to be less than exists today. The Occupy movement did not wait for authoritative permission, or for majority agreement, or for system-wide change. Rather, members pooled their resources and, by paying $400,000, managed to annul $14 million of consumer debt. It is a drop in the bucket of the entire problem, to be sure, but it is also an invaluable proof of concept for the project of massive societal transformation through voluntary, private action.

            Direct, peaceful, law-abiding action to bring about the outcomes of a free market would also help in another crucial respect by rehabilitating the image of free markets in the eyes of skeptics. The outcome of the course of action I propose would not be profit maximization in the present day; indeed, it would often require working for free on one’s own time and engaging in acts that would be considered charitable or philanthropic by professed opponents of the market. Even businesses that espouse free-market ideas could join in on this project and pursue practices that, while they may not capture every morsel of profit out there for the taking, are more in accord with how a free market would behave. Such businesses could, for instance, voluntarily renounce lobbying for special privileges and barriers to entry that would keep competitors out of the market.  They could also spend resources to improve workplace conditions and surrounding neighborhoods in order to better approximate how workplaces and neighborhoods would look under a prosperous free market. Furthermore, internal salary schedules in such businesses could be based on an approximation of meritocracy as it would emerge on a free market, which would often mean higher compensation for innovative and talented employees (irrespective of age, origin, past socioeconomic circumstances, or connections), resulting in greater retention, improved morale, better products, and long-term competitive advantages for the business that undertakes such a step. To certain onlookers, these behaviors might seem consistent with what is today called “corporate social responsibility” – and perhaps they would be. But by engaging in these practices in the name of striving toward a free-market ideal, liberty-minded businessmen could perhaps for the first time break through to capture the hearts and minds of many present-day detractors.

            What outcomes do you think would be achieved by a free market but are deficient today? Now go work to make them happen.

Right to Work is Part of Economic Liberty – Article by Ron Paul

Right to Work is Part of Economic Liberty – Article by Ron Paul

The New Renaissance Hat
Ron Paul
December 18, 2012

Many observers were surprised when Michigan, historically a stronghold of union power, became the nation’s 24th “Right to Work” state. The backlash from November’s unsuccessful attempt to pass a referendum forbidding the state from adopting a right to work law was a major factor in Michigan’s rejection of compulsory unionism. The need for drastic action to improve Michigan’s economy, which is suffering from years of big-government policies, also influenced many Michigan legislators to support right to work.

Let us be clear: right to work laws simply prohibit coercion. They prevent states from forcing employers to operate as closed union shops, and thus they prevent unions from forcing individuals to join. In many cases right to work laws are the only remedy to federal laws which empower union bosses to impose union dues as a condition of employment.

Right-to-work laws do not prevent unions from bargaining collectively with employers, and they do not prevent individuals from forming or joining unions if they believe it will benefit them. Despite all the hype, right-to-work laws merely enforce the fundamental right to control one’s own labor.

States with right-to-work laws enjoy greater economic growth and a higher standard of living than states without such laws. According to the National Institute for Labor Relations Research, from 2001-2011 employment in right to work states grew by 2.4%, while employment in union states fell by 3.4%! During the same period wages rose by 12.5% in right to work states, while rising by a mere 3.1% in union states. Clearly, “Right to Work” is good for business and labor.

Workers are best served when union leaders have to earn their membership and dues by demonstrating the benefits they provide. Instead, unions use government influence and political patronage. The result is bad laws that force workers to subsidize unions and well-paid union bosses.

Of course government should not regulate internal union affairs, or interfere in labor disputes for the benefit of employers. Government should never forbid private-sector workers from striking. Employees should be free to join unions or not, and employers should be able to bargain with unions or not. Labor, like all goods and services, is best allocated by market forces rather than the heavy, restrictive hand of government.  Voluntarism works.

Federal laws forcing employees to pay union dues as a condition of getting or keeping a job are blatantly unconstitutional. Furthermore, Congress does not have the moral authority to grant a private third party the right to interfere in private employment arrangements. No wonder polls report that 80 percent of the American people believe compulsory union laws need to be changed.

Unions’ dirty little secret is that real wages cannot rise unless productivity rises. American workers cannot improve their standard of living simply by bullying employers with union tactics. Instead, employers, employees, and unions must recognize that only market mechanisms can signal employment needs and wage levels in any industry. Profits or losses from capital investment are not illusions that can be overcome by laws or regulations; they are real-world signals that directly affect wages and employment opportunities. Union advocates can choose to ignore reality, but they cannot overcome the basic laws of economics.

As always, the principle of liberty will provide the most prosperous society possible. Right-to-work laws are a positive step toward economic liberty.

Property Rights Aren’t Always the Libertarian Solution – Article by Sanford Ikeda

Property Rights Aren’t Always the Libertarian Solution – Article by Sanford Ikeda

The New Renaissance Hat
Sanford Ikeda
July 15, 2012

At FEE’s seminar last week on libertarian perspectives on current events, a participant asked: “How do we privatize the air?”

The student may have had in mind the economic principle, popularized by Ronald Coase, that externalities–especially negative externalities such as air pollution– result from ill-defined or unenforced property rights. The question also seems to reflect a common libertarian idea that in a free society all scarce resources must be owned by somebody. That would include the atmosphere when clean air is scarce.

Property Rights and Economic Development

The Coase Theorem is an economic proposition which says that when property rights are well defined and enforced, and the costs of search, bargaining, and enforcement are reasonably low, voluntary trade will tend to produce results that are economically efficient. Negative externalities will be internalized, as unowned resources are transformed into marketable goods. And if, because of incomplete property rights, entrepreneurs are unable to capture enough of the benefits from their actions (that is, if positive externalities would result), they will be less inclined to make the discoveries that drive economic development. Those benefits would be internalized, too.

There are some positive externalities that most, perhaps all, of those who favor tough property enforcement would hesitate to try to privatize. For example, cultures develop in part on the basis of imitation. Jazz musicians copy from one another all the time, from motifs to entire songs, and reinterpret them in their own creations. Classical musicians have also done this. As a courtesy, the protocol is to name the artist from whom you are copying, such as in “Variations on a Theme of Paganini.”

On an even higher level of abstraction, artists, writers, and even ordinary people partake in an esthetic ethos; scholars, intellectuals, and laymen draw on the intellectual milieu of a place and time. Without the experimentation that comes from such borrowing and give-and-take, cultures would stop evolving; they would die.

The same thing goes for economic development. One entrepreneur discovers a demand for flat-screen televisions and is soon followed by imitators, which in the long run results in lower prices and better quality–and often new products and uses, such as tablet computers.

Don’t get me wrong! Private property rights prevent the kind of free riding that hinders economic development. And of course private property is essential for personal freedom: Property rights not only help to avoid or resolve interpersonal conflict–such as the tragedy of the commons–they are what provide a person with a sphere of autonomy and privacy in an economically developed world where contact with strangers is commonplace.

Elinor Ostrom on the Establishment of Conventions

There are many instances where free riding is a net negative, and the overuse of the atmosphere in the form of air pollution is probably one of them. Despite the efforts of some economists, legislators, and policymakers to institute so-called “cap-and-trade”–which would attempt to establish property rights in the air through government policy–it may be impossible to do something similar for all scarce resources, either by legal mandate or market arrangements. But this need not discourage libertarians, of either the minimal-state or market-anarchist variety.

Consider the work of Elinor Ostrom, winner of the 2009 Nobel Prize in economics, the only women so far to be so honored. Sadly, Ostrom died on June 12, a great loss for social science. While few would consider her a libertarian–I don’t believe she thought she was–libertarians can learn a lot from her work. She is perhaps best known for her 1990 book, Governing the Commons, in which she presented her methods and findings regarding how people coped (or didn’t cope) with what has come to be known as “common-pool resource” (CPR) problems:

What one can observe in the world, however, is that neither the state nor the market is uniformly successful in enabling individuals to sustain long-term, productive use of natural resource systems. Further, communities of individuals have relied on institutions resembling neither the state nor the market to govern some resource systems with reasonable degrees of success over long periods of time.

Voluntary Conventions

In those instances the nonstate, nonmarket institutions she studied were, when successful, conventions that the users of common-pool resources agreed to and used sometimes for centuries. They were made voluntarily and evolved over time, but they were not market outcomes, at least in the narrow sense, because no one “owned” the resource in question and it was not bought and sold. Ostrom added:

The central question of this study is how a group of principals who are in an independent situation can organize and govern themselves to obtain continuing joint benefits when all face temptations to free-ride, shirk, or otherwise act opportunistically.

Her research covered the harvesting of forests in thirteenth-century Switzerland and sixteenth-century Japan and irrigation institutions in various regions of fifteenth-century Spain. Although not every community Ostrom studied was successful in establishing such conventions, it is instructive how highly complex agreements, enforced by both local norms and effective monitoring, were able to overcome the free-rider problems that standard economic theory–and perhaps vulgar libertarianism–would predict are insurmountable without property rights.

Dealing with air pollution is of course a more difficult problem since it typically entails a much larger population and more diffuse sources and consequences. But it’s important to realize that a “libertarian solution” to air pollution may not necessarily be a “market solution.”

Sanford Ikeda is an associate professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.