Inside Story

Stateless, and loving it

Inspired by Hong Kong’s rise, countries all over the world created free-market enclaves. But who has really benefited?

Ryan Cropp Books 25 May 2023 1911 words

“Laboratory experiment”: economist Milton Friedman (left) in Hong Kong for the free-market Mont Pelerin Society’s 1978 general meeting with fellow member Friedrich Hayek.

When you close your eyes and picture a map of the world, what do you see? Is it that familiar jigsaw puzzle of nation-states, the slightly disorganised, colour-coded patchwork quilt of polities spread across six continents that you once had blu-tacked to the back of your bedroom door? The one that corresponds to all the flag emojis in your phone, and all the groups marching across your television screen at the beginning of every Olympic Games?

If, like me, you spent countless childhood hours hunched over the pages of an atlas (and an entire school year in the late 1990s getting hyped for the Sydney Olympics), this map is your mental default. It is the first thing you see in your mind’s eye when someone says “Central Asia” or “St Vincent and the Grenadines.” It had the same formative effect that maps of the British Empire had for generations past, a timeless, divinely ordained organisation of the world’s landmass, flattened and abstracted.

Despite all the inroads globalisation has made into our consciousness over the last forty years, when we imagine the world, we still tend to think of these large, territorially bound, centrally administered nation-states. And we also tend to assume that while laws can differ between these states, within them we are subject to more or less the same rules as everyone else. One people, one nation, one territory, one set of laws.

Maps can always mislead, but on the evidence of historian Quinn Slobodian’s new book, Crack-Up Capitalism, this picture of the political world is looking distinctly sepia-tinted. Over the past four decades, he writes, large parts of the map have been quietly (and not so quietly) unmade. The jigsaw puzzle now has more pieces than we could possibly comprehend. But it isn’t the borders of the existing states that need updating: it is the thousands of legally distinct “perforations” that exist within them.

The thing that is doing most of the perforating, writes Slobodian, is the “zone.” A zone is best understood as a kind of quasi-extraterritorial enclave carved out of an existing nation-state, within which a different set of laws is allowed to apply. Zones are “both of the home state and distinct from it”: freeports and export-processing areas, tax havens, private islands, special economic zones, gated communities, alpine principalities, “seasteads.” In 1986, he calculates, there were 186 worldwide. By 2023, there were around 5400.

To say zones are business-friendly would be to understate the case. Within them, ordinary forms of regulation are rarely enforced. Taxation is usually low or non-existent. Many are simply a place for the global super-elite to park their wealth. Some residential skyscrapers in London’s Canary Wharf, for example, are almost permanently empty, functioning exclusively as anonymous, tax-effective offshore bank accounts for billionaires and oligarchs.

Zones have many boosters in the West, but they seem to proliferate most happily in the Global South. This pattern is clear right from the book’s opening pages, which recount the American economist Milton Friedman’s visit to Hong Kong in 1978. At a moment when many parts of the West were grappling with high inflation, record-breaking strikes and the prospect of long-term economic stagnation, Friedman saw that Southeast Asian city-state as a vigorous outlier, a place where commerce might escape the uncomfortable constraints that hamstrung it in other parts of the world.

Hong Kong, Slobodian argues, was the ur-zone. Jurisdictionally ambiguous, it was the former colonial outpost that never fully decolonised. It became a “tycoon city,” a place that capital built in its own image. It was administered almost exclusively by a handful of hyper-wealthy families; its residents were always subjects before they were citizens. It ranked highly on dubious global rankings of economic freedom, and not so highly on measurements of political freedom. It was a “laboratory experiment,” Friedman once said, in “what happens when government is limited to its proper function.”

For most of the market radicals who appear in Crack-Up Capitalism­, that proper function appears to be remarkably consistent with the interests of capital itself. As a rule, each character in the book identifies as some brand of don’t-tread-on-me, taxation-is-theft libertarian, but at heart their desire is never really to eliminate the state: it is to capture it. Most of their crackpot schemes work best when governments play along.

These visionaries dream not of a world without rules but rather of a world with a very specific set of rules: ones that protect the heroic, enterprising owners of capital against the greedy, redistributive impulses of the masses.

In eleven colourful, globetrotting chapters, Slobodian takes us into the dreamworlds of this weird collection of free-market economists, philosophers and — let’s be honest — cranks. In some chapters, we see their ideas reflected in the exponential growth of the familiar hubs of global finance: places like Hong Kong, Singapore, London and New York. In obvious but rarely recognised ways, the rise of hyper-localised, business-friendly policies in parts of these cities have even changed their physical shape. In the 2000s, he writes, the world built skyward.

Other chapters, though, unfold like a nightmare you might have after reading Atlas Shrugged. In 1990s Somalia, a Dutch interloper attempts to reframe the collapse of the state as the creation of an anarcho-capitalist paradise. In America, a group of cosseted weirdos imagine a return to the legal pluralism of the middle ages. In apartheid South Africa, the leaders of a racially segregated “homeland” try to stimulate investment by completely eliminating taxes and regulations. And in Honduras, a bunch of Silicon Valley “countrypreneurs” attempt (and fail) to set up their own privately run “charter city.”

The people who vouch for these schemes are at best politically naive and at worst authoritarians with little interest in anything other than their own bank balances. You can be sure that almost all of them keep a bunch of cryptocurrency locked away on a USB stick or bars of gold buried in their backyard. Like all goldbugs, they are obsessed with fantasies of exit and secession, of “sovereign citizenship.” They have spent so much time thinking about societal collapse that they seem to yearn for it.

Most of their theories, though, involve radical simplifications of complex social and political realities. When the state fails, thinks the tech guru Balaji Srinivasan, the citizens of the “cloud nation” will gather in a “new hub” to build their own libertarian society. Exactly where they would find this empty land is beyond the bounds of this thought experiment. The only real-world example he can offer is, tellingly, Israel’s settlement of Palestine. As Slobodian writes, this is “a PowerPoint slide in place of understanding.”

Enjoyably, then, every chapter of the book closes with a kind of tyre puncturing, a thorough accounting of all the flaws in the libertarian logic. In Somalia, the anarcho-capitalist rhetoric is revealed to have disguised the de facto survival of many state functions in urban areas. In Honduras, the “start-up nation” proved almost cartoonishly neo-colonial and was eventually rejected by voters. Those seeking their exit via the metaverse, meanwhile, papered over the fact that the internet is as physical as it is virtual, built on immense farms of privately owned servers, themselves powered by energy sources that are increasingly destructive.

Which is not to say that zones haven’t been remarkably effective at attracting vast flows of foreign capital. It is just that the claims about freedom and liberty are almost always bogus. The book’s subjects like to imagine that if you can outsource politics to the market, it might all just go away. They dream of a world of a thousand sovereign city-states, each competing in a tax-cutting race to the bottom.

Conveniently, though, in this Darwinian fantasy, it is they who always seem to come out on top. They are rarely able to imagine a freedom for anyone other than themselves and the people they know.

The uncomfortable fact about zones is that most of the places where they have had any serious success are single-party states, among them Saudi Arabia, the United Arab Emirates, Singapore, and the great zone entrepreneur, China. If your goal is to draw a line around an area and declare it free from labour laws, it helps to be able to deal with any dissent that might result. The spectacularly successful zone-induced foreign investment boom in Dubai, for example, has been built on a vast supply of migrant labour, housed behind barbed wire, possessing little to no rights and kept in check by the ever-present threat of deportation.

These days it’s fair to assume that most people who claim to believe in democracy can stomach the existence and even the usefulness of capital, markets and private property — or have at least resigned themselves to some degree of accommodation with them. But, as Slobodian shows, the reverse is not true among the free-market fanatics. In their view, democracy is not just a handbrake on the excesses of capital: it is its enemy. Democracy means regulation, taxation, labour unions. Removing these impediments is not only desirable but necessary.

This sounds authoritarian, but it is perhaps more accurately described as an extreme case of business brain. The market radicals seem to want the whole world to be organised and run like a business. The most important attributes of their ideal society are growth and efficiency. Everything is a transaction. The ideal leader is not a prime minister elected to carry out the wishes of the people, but a CEO appointed to impose order and purpose from the top down. The population are there to be managed, not governed, either as loyal employees or as customers who might choose to opt out and shop elsewhere.

This is the logical end point of finance capitalism, the ultimate product of the assumption that what is good for business is good for the economy and what is good for the economy is ultimately good for everyone. There is no greater sin in the business world than inefficiency, and for business types — the kind of people who see the entire world through company balance sheets and P&L statements — democracy is simply an inefficient organisational structure. The solution to society’s ills lies in submitting to the business world’s nihilistic logic: cut costs, maximise revenues.

Mercifully, of course, not all states are run this way. If anything, there is a growing distaste for such ideas among policymakers in the world’s major liberal democracies. American workers are engaged in several high-profile fights for their right to unionise. Authorities are taking a tougher stance on monopoly power and corporate tax dodging. Liz Truss’s attempts to turn Britain into Singapore-on-the-Thames lasted less than fifty days.

In the long run, it is not even clear that these schemes are particularly good for business. As Martin Wolf — the most senior economics columnist at the most prestigious business newspaper in the world — argued at great length recently, “democratic capitalism” has historically delivered much better outcomes than despotism. When democracy and capitalism are in some kind of equitable and sustainable balance, people are both more prosperous and more free.

There will always be those among us who cannot comprehend this, and who are unable to resist the siren song of the Hong Kong model. But with Crack-Up Capitalism, Slobodian has given us plenty of reasons why we should. •

Crack-Up Capitalism: Market Radicals and the Dream of a World Without Democracy
By Quinn Slobodian | Allen Lane | £25 | 352 pages