FAQ about Free Cities Program

A: The concept of Treaty-Based Free Cities is modeled on the agreement between China and Britain that created today's post-colonial Hong Kong.

On September 26, 1984 the PRC Government and Margaret Thatcher’s UK initialed a Joint Declaration which committed the Communist government to maintaining a capitalist enclave in China for 50 years. The PRC agreed to maintain all existing Hong Kong laws, the judicial system, an elected legislature, the capitalist economic and trade systems, and education policies. Hong Kong was allowed to levy its own taxes--all of which were to be retained, to decide its own monetary and financial policies, and to maintain its own convertible currency.[1] China calls this remarkable arrangement “One Country, Two Systems.” It echoes the free cities (freistadte) that developed in Italy and Germany’s Holy Roman Empire in the Middle Ages.

After WWII Britain had allowed Hong Kong (400 sq. miles) to pursue classical liberal, laissez-faire economic policies. As Milton Friedman points out, even during their own dalliance with socialism and a mixed economy, Britain allowed capital and information to flow where it pleased in Hong Kong. Taxes were kept very low. There were no exchange or trade restrictions, and minimal labor legislation. These policies allowed Hong Kong to develop one of the freest, fastest growing and least corrupt economies in the world--and to play a crucial role in the globalization of China.[2]

A: The U.S. Government should adopt a new international development strategy to organize a band of Free Cities, the size of Hong Kong or Singapore, located within and chartered by developing countries, under bilateral treaties allowing the U.S. to guarantee the rule of law, democracy and free markets in the Cities for 50 years. Free Cities would be established as joint ventures between the U.S., an international financial institution (IFI) such as the World Bank, and host countries. They would be safe havens for both local and global investors and entrepreneurs, allowing them to attract capital and skills from around the world, and build globalized private sector economies. Free Cities offer a powerful new development mechanism for the U.S. They would allow us to provide mentoring in the Free Cities and urgently needed models and examples for all countries that genuinely want to root out corruption and build democracies.

A: Free City Charters, created under bilateral treaties, would establish, and the U.S. would guarantee:

4. Q: How would people qualify to live and become citizens in Free Cities?

A: As in America, Free City immigration policy would be as open as possible for as long as possible. Social contract in Free Cities would be modeled on American style, charter-based, pluralism. These communities would practice and demonstrate multiethnic meritocracy and individual freedom. Citizenship would be based on swearing to adhere to and defend the values embodied in the City Charter. It would NOT depend on ethnicity, “blood & soil,” joining an established religion, or accepting state imposed secularism. Social cohesion would be based on voluntarism rather than solidarism. The opportunity to live in this kind of free society would be revolutionary in the third world. These outposts of freedom would undermine statism and oligarchy everywhere.

A: The U.S. Government would commit to providing start-up assistance to the Cities. This would include:

6. Q: Why should the U.S. establish a Treaty-Based Free City Development Program?

A: Because it would make America more secure, more influential globally, and a lot more prosperous.

More Secure: The overwhelming military and economic supremacy of the U.S. today has made it seem unlikely that we would be seriously challenged by a peer nation for some time to come. But 9/11 dramatically demonstrated our continuing vulnerability to asymmetric attacks by terrorists, who see no stake or future for themselves in the global economy. Countries that cannot, or will not, join the global economy are breeding grounds of poverty, repression, terrorism and disease. As author Thomas Barnett explains in The Pentagon's New Map, "It is disconnectedness that defines danger. Disconnectedness allows bad actors to flourish by keeping entire societies detached from the global community and under their control. Eradicating disconnectedness, therefore, becomes the defining security task of our age."[3] Free Cities are a powerful strategy to fight disconnectedness, and drain the global swamp of the hatred and isolation that breed terrorism.

More Influential: America has always been the hope of the world. More than a nation of immigrants, we are a unique community of diasporas from nearly every other land, bound together by a common set of ideals, articulated in our charter, the Constitution. The freedom and opportunity we offer has allowed immigrants from every third world society to improve their standard of living dramatically. A Free City program would allow us to share much more than our wealth. It would allow us to make a gift of our most valuable institutions--the ideas that have made our prosperity possible. Free Cities would allow many third world people to become stakeholders, and build wealth in the global economy. Free Cities would bring hope, opportunity and freedom where there is none. Free Cities would conclusively demonstrate to the people of the world that wealth is generated by risk taking and hard work, under honest governments--thereby mortally wounding the ancient myth of prosperity through redistribution.

This program would provide a badly needed alternative to our current, government-to-government foreign aid model, which has survived the Cold War without fundamental reexamination. William Easterly’s classic study, The Elusive Quest for Growth, thoroughly documents the failure of our current paradigm to stimulate third world development.[4] Free Cities would allow us finally to stop treating symptoms and attack the root causes of underdevelopment: corruption, ethnic strife, disconnectedness, despair and the paralyzing culture of passivity that defines the third world.

By seeding outposts of freedom, democracy and non-corruption in destitute countries, Free Cities would appeal directly to the greatest force for good in the world today--the innate idealism and generosity of the American people. Free Cities would inspire financial and in-kind support from both Americans and the friends of freedom around the world. Free Cities would give supporters of free markets a way to take the initiative and go on the offensive in the worldwide battle of ideas, offering hope and jobs as antidotes to poverty and despair. They would allow America to midwife a new era of freedom and opportunity around the world.

More Prosperous: Free Cities would open up enormous new markets for U.S. firms. There are billions of people living in poverty in third world countries, who could become valuable consumers of America's goods and services--if we gave them hope and a way to work themselves out of their desperation. This program would allow the USG to “break trail” to those people. It would provide hope, jobs, and concrete opportunity to motivate people around the world. It also would encourage individual initiative by allowing investors and entrepreneurs to reap the rewards of their own efforts. Their success would lead others to seek Free Cities in their own countries.

A: Third world governments that genuinely want economic growth and democracy are always looking for closer ties to the U.S. It's difficult to overstate the value to developing countries of attracting the sustained attention and assistance of the U.S. Government. “The Mouse That Roared” makes this point. A Free City Development Program would allow the U.S. to choose where and when to make such commitments, without requiring a war to trigger them. The resulting jobs and globalization would transform the economies of the host countries and raise the standard of living of all its citizens, in or out of the Cities.

People trapped in disconnected, thuggish regimes would be able to see that peaceful change in social contract is possible because America’s Free City Program would offer them and their country a credible way out of their poverty and despair.

The challenge for most third world countries is to jump-start a globalized, non-governmental private sector that can attract foreign direct investment, and persuade its own citizens to invest at home, rather than sending their capital abroad. The list of barriers to safe investing and transparent commerce in third world countries is long and deadly. It includes the absence of capital and infrastructure, extortion by government officials, racial and religious discrimination, the absence of dependable law enforcement and independent courts to hear either civil or criminal cases, the inability of entrepreneurs to take advantage of limited liability companies, and the absence of public registries of real property. Painfully, most of the missing legal institutions can’t function without the others. With a few glittering exceptions like Hong Kong and Singapore, assembling all of these institutions together in an entire third world nation has been impossible. Free Cities would allow us to start from scratch and do it right.

With all the legal institutions and infrastructure needed to support unfettered global trade guaranteed by the U.S. Government, Treaty-Based Free Cities would be powerful magnets for capital. The Cities would immediately attract global manufacturing and service firms from many nations. They would allow the host countries’ overseas population to return home and contribute their capital, skills, and knowledge of global business practices to building their own countries. They also would provide an alternative to emigrating to the U.S. for the host countries’ most highly educated and motivated citizens. All Free Cities would include an American university to teach business, economics, public administration and journalism.

Since land and businesses in Free Cities would have clear, fee simple titles, honest law enforcement and reliable civil courts to handle disputes, local investors could be expected to repatriate some of the capital they are now forced to keep offshore. And the Cities would dramatically stimulate business in the adjoining regions of the host countries, as Hong Kong’s freedom and opportunity stimulated the adjacent mainland Chinese district of Shenzen.

Advocates of free markets believe that government should create an environment that allows people to pursue their own best interests, and making that possible is the best way to generate dynamic growth across an entire economy. The spectacular success of Hong Kong and Singapore certainly supports this proposition. Free Cities would be invaluable laboratories to try out free market approaches to third world problems. After the initial pilot program, the time and expense required to launch successive Cities would plummet. And the lessons learned would allow us to climb a steep learning curve as the program proceeds.

A: First, the real stakeholders in Free Cities would be the people who live there. The courage and commitment of freedom-loving citizens has great power, as we have seen recently in Iraq, Ukraine, Krygystan, Georgia and Hong Kong. Once the benefits of democracy, open trade and reliable flows of foreign exchange become tangible and depended upon, it will be much easier for the friends of freedom in the Cities to go public, and use their own free press, to protect themselves from host country corruption or interference.

Second, bilateral treaties would allow the negotiation of a series of pre-agreed conditions and sanctions to assure host country compliance with treaty undertakings. The foreign exchange generated by the Cities, the tariff-free status of the Cities, and the other business benefits offered in the Cities could be woven into a web of incentives for good government and non-interference.

Third, even though the existence of Hong Kong diminishes the sovereignty of China somewhat, that city has always been much too valuable for the leaders of China to usurp. Mao could have swept it away anytime, but chose not to. The main reason the PRC regime agreed to give Hong Kong its amazing Basic Law is that the huge investments held in the city by the PRC’s cadres would have been severely devalued by imposing a Communist government. Similarly, Treaty-based Free Cities would demonstrate to the host country regimes that they could gain much more from investing and trading in the global, first world economy than they would ever be able to pocket from "squeeze" or foreign aid. Foreign aid also is unreliable and comes with onerous reporting requirements.

It is therefore unlikely that the U.S. would have to intervene directly to enforce the rights it would be granted under the treaties. But granting those rights explicitly in the treaties is still vital to attracting FDI to the Cities and to giving credibility to the guarantees of freedom in the Free City Charters.

A: The U.S. would not have to bear the direct cost of acquiring Free City land or building their infrastructure. Guarantees of Free City bonds would provide access to global capital markets at sovereign rates. An international financial institution (IFI) such as the World Bank, would float bonds and purchase the City land, survey it, and institute a comprehensive real property title registration system. The land would then be resold for development, capturing the substantial appreciation generated by clear, fee simple titles and U.S. guarantees of freedom, rule of law, democracy and pluralism.

Revenue from resale of Free City land and internal City tax receipts would repay bond expenses and finance construction in the Cities of: an international airport and seaport; a public telecom system; a civic center; K-12 education facilities; a local transportation network; an American university and a vocational education system.

The increased market value of the Free City land, after it is titled and invested with guarantees of the rule of law, would provide a series of dramatic, virtually scientific demonstrations to the world of how capital is formed and how positive legal and economic policies generate wealth.

Treaty-Based Free Cities would be a non-military program our allies could help us with, to mutual advantage. City launch costs would be offset by: financial and in-kind contributions from allied countries and companies seeking business in the Cities; by contributions from NGOs, faith-based groups, expatriate citizens from the host countries; and by global auctions of City utility franchises.

It’s important to notice that ultimately this is not a traditional government development program. Instead it’s a strategy for U.S. leadership in engaging the global private sector in building globalized private sector economies inside otherwise destitute, third world countries.

A: A: Free Cities would not be colonies. They would be established as joint ventures between the U.S., a multinational IFI, and host countries. They would provide the combination of freedoms, rights and responsibilities that allow democratic private sector economies to flourish.

The post-Cold War globalization system gives people in third world nations access to the global economy on their own account, as valued customers and suppliers--if they learn its rules and develop goods and services that are relevant to the global market. Free Cities would provide safe havens where developing countries could learn the rules of global trade and develop products and services that can compete in global markets.

11. Q: Would the benefits and results of a Free City Program be quantifiable?

A: Definitely. A significant advantage of a Free City program would be the large number of relevant metrics it would generate. Because Free Cities would be discrete communities, it would be easy to measure changes in economic growth, trade flows, business start-ups, job creation, bond ratings, corruption indexes, and impact on the host country’s economy. Both Congress and the American people would easily be able to assess the return on their investment.

A: Successfully launching a new strategy of this scope requires the active involvement and support of Congress. Fortunately, there is growing recognition in Congress that our military defense and effective third world development have become two parts of the same challenge. Our current foreign aid paradigm has been unable to drain the global swamp of hatred, despair, disease and disconnectedness that breed terrorism. Early consultations with Congress should generate enthusiastic support for this new approach, as a supplement to our existing international development programs.

13. Q: Who could advise the U.S. in designing and implementing this program?

Milton Freidman, Nobel laureate, the greatest living prophet of free markets, father of the Chicago School of economics, and advisor to many nations;

Lee Kuan Yew, progenitor of modern Singapore, author of the classic textbook on free market nation building From Third World to First, The Singapore Story; and

Hernando DeSoto, President of the Peru-based Institute for Liberty and Democracy, author of The Mystery of Capital, and advisor to many nations.

[1] Frank Welsh, A Borrowed Place, The History of Hong Kong; Kodansha America, New York, 1993, pg.511-512.

[2] Milton and Rose Friedman, Free To Choose, Harcourt/Harvest, Orlando, FL, 1990, pg. 34

[3] Thomas P.M. Barnett, The Pentagon’s New Map, Putnam, New York, 2004, pg. 8 (www.thomaspmbarnett.com)

[4] William Easterly, The Elusive Quest for Growth, MIT Press, Cambridge, MA, 2001