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Charter Cities: Vernian Fantasy or Human Reality?

Charter Cities: Vernian Fantasy or Human Reality?

In 1895, the French novelist Jules Verne launched one of his many visionary ideas that either became reality or something future next generations are expected to achieve. Propeller Island follows the story of four musicians whose services are demanded on Standard Island, a floating fabricated island which is the home of Milliard City, the capital city inhabited only by remarkable and eccentric American millionaires and wealthy and adventurous Yankees who gathered into what can be considered a self-governing city-state. Notwithstanding the particular adventures of the quartet, the requirement of being a millionaire and certain technologies which facilitate life in the fictional Milliard City, the idea of an independent city, built from the ground up in this way, with its own jurisdiction and socio-economic system, may not be so ahead of our times. History is littered with city-states and there are some still existing today, but since all land outside of Antarctica is claimed by sovereign entities, it seems impossible to create such a city by design. Standard Island is still unrealizable for us and, while we applaud Verne’s imagination, we should turn to the closest form of organization that could resemble this island – that of the charter city. If fully realized, the masterminds behind this audacious project can end up with their own novel and with the satisfaction of having advanced the good of humanity, as the objective of charter cities is declared to be. 

What are charter cities? 

Standard Island was an island driven by screws... the town of the millionaires, a Gouldian, Vanderbiltian, Rothschildian city”. But a charter city is simply a city which is allowed to have its own special jurisdiction in order to set up a new system of governance. It does not fly, does not cut the sea waves or take in only heirs and magnates (which is beyond sci-fi in lack of realism, since great wealth is always accompanied by a menial and servile class, at least). One of the aspects which makes a charter city unique from any other city is that it is fully market-oriented and benefits from a soft system of taxation, a well-defined set of rules concerning entrepreneurial activity and a friendly environment for investors. It is a project for the people, be them Tom, Dick and Harry or Musk, Gates and Buffet. As a precondition at least for the very moment, a city and only a city can be founded on its own charter: a village would be too small and people would not get all the benefits that emerge from a rapid economic development; a nation is too big and most likely only a tiny percentage of the population will follow and adapt to the new rules. By taking one more step ahead, in the renowned growth economist Paul Romer’s words, charter cities are newly created municipalities governed by a nation other than the one in which its borders are contained. This latter definition refers to international charter cities, as designed by the same well-known World Bank economist and Nobel Prize winner in Economics. An international charter city presupposes the following elements:

  • a host country – it has to provide the land on which the charter city is going to be built;
  • a guarantor country – it has to build the city on the provided land; this is why the guarantor country must generally be a developed country. Moreover, it has the role of administrator of the region, the latter having to set its particular laws and policies. The guarantor country is motivated by a significant, low-risk profit on their investment;
  • a source country – it provides the necessary human resources.

In Verne’s book, Standard-Island Company Limited retains all the three roles described above: it built the island with a capital of 500 million dollars provided by its wealthy residents, who are the main “human resource” for the lavish Milliard City. The same company is responsible for the protection and security of the island. On the other hand, nor are the above roles rigid and one-to-one assignments for international charter cities, since one nation can play multiples roles, while multiple nations can play only one of these roles. For instance, a country like Nigeria, whose population has been substantially growing and whose cities have to take more and more people year by year, can play all of these roles – the government can make available a piece of the country’s land for the future charter city, while making sure that any of the laws designed to protect a market economy, private investors and the agreements between them are respected. And ultimately, it can fill the city with its own Nigerian citizens, willing to take part into such a project and become inhabitants of the charter city. In any already-existing charter city, the inhabitants are still affiliated to their “original” country where they have citizenship rights. 

Historical precedents… 

Striving for economic, social and political independence has remained a constant in the known history of our world. Throughout time, we can remark various deeds and calculated endeavours of particular segments of a society to gain this said independence. Therefore, there should be no surprise that factions similar to these of the charter cities have been once set up. Thus, the memory of the Hanseatic League recalls the unity of a transnational confederation of merchant guilds based in various commercial towns across Northwestern and Central Europe. The three-century active existence of the League was made possible by the common wish of merchants of the Hanseatic towns to obtain commercial advantages from independent national governments. Protection and autonomy were insured against possible perils by the League itself, which provided military assistance for its members in case of foreign interference in their affairs. Exemption from tolls, taxation and other requirements was in the common interest of each of the members. The League was able to gain significant political power in order to be enabled to deal with the crowned heads of the European continent. Countries less favourable to the League were dealt with in a decisive manner, as the League intended to gain a primary spot within the trade relations with the respective country. On a few occasions the League either financed or participated into conflicts whose outcome would be detrimental to their cause if certain rulers would eventually be victorious, such as in the Dano-Hanseatic War (1426-1435). Here, the Hanseatic City of Lübeck led the struggle against the Kalmar Union, the latter being a political counterreaction to the growing might and influence of the League.

The analogy between charter cities and the independent Hanseatic cities, unsubordinated to a central and regulating authority, is available to the point of observing that the individual interest of the merchant was doubled by the larger interest of the merchant guild and free Hanseatic cities, while in the same manner the individual interest of the citizen who disposes of a certain capital is doubled by the emerging development of the charter city. Even on the Propeller Island, each millionaire was interested in maintaining the existing state of affairs of the island, that of a totally independent city-state governed by its own laws and rules, which were made to the best interest of the citizens of the island, the latter united by the shared trait of possessing large capitals. In comparison, merchants of the guilds that belonged to the Hanseatic League and citizens of the charter cities with an industrious mind and lucrative capital were and would be first and foremost concerned with conducting successful businesses that would return a satisfactory profit and enable them to further expansion. 

…and actual endeavours 

Surprisingly or not, the existence of Propeller Island can be possible at least in the measure in which a floating or still island can serve as land for the building of a charter city. More recently, the “seasteading movement” has prevailed among these who believe in charter cities. Seasteading presupposes the creation of a floating structure on which a potential charter city or any other form of organization independent from a central government could be built. Blueseed, a start-up company which attempted to put the bases of an offshore city outside of San Francisco in order to ameliorate the lack of real estate in San Francisco, intended to create a functional city in the proximity of the great financial and technological centre. In spite of the early optimism of its developers, this daring program came to an “indefinite postponement” relatively quickly. Anyway, Blueseed remains until today a startup community which is actually located on a ship in international waters in the vicinity of Silicon Valley.

Last but not least, when it comes to precedents, past or recent, we ought to remind of the dreamy entrepreneur and engineer Elon Musk and its self-declared interest in sending 1 million people on Mars by 2050, his intent to create “a lot of jobs” on the red planet and make life possible outside Earth. There are still many unknown elements of this courageous enterprise, but the very idea of creating enduring conditions for humans in an extraterrestrial environment is more than suitable to serve as a basis for the creation of something similar to a charter city, as no government has entitled itself in seizing the entire surface of Mars or any other planet of the Solar System. 

Why set up a charter city? 

A charter city is said to be an investment haven. Sumptuous and luxurious Milliard City is by no means concerned with any reason other than serving as an ultra-exclusivist resort for Verne’s heroes. The approach of a real charter city is concentrated around the idea of attracting innovative individuals who are ready to begin a new journey in a new place. By favouring free trade with as little regulations and trade barriers as possible, a flourishing economy is expected to bloom and raise the city to ever-increasing levels of prosperity. Hong Kong is often offered as a successful example of a charter city – the English provided advanced governance tools (rule of law, the Common Law, classical liberal outlook) while the vast majority of the inhabitants were Chinese and their mother country had a significantly different system of economic governance. Thus, English expertise met Chinese capacity for work and created one of the most successful small polities in history, especially in comparison with its surroundings. 30 kilometres away, the city of Shenzhen (otherwise a modest fishing village within recent memory) benefitted from a change in Chinese policies as the country opened up and began to implement a Special Economic Zone with particular rules and trade policies created for stimulating economic growth. The case for Hong Kong is a suggestive example: Hong Kong does not subordinate to the Chinese economic system, but has managed to build a prosperous society by the governance of its own rules which favour free trade, a market-oriented policy and a particular taxation system, characterized by its simplicity and transparency.

The greatest problem for a charter city is to establish the most effective system of “rules that can change rules”, as economist Romer puts it. The ideal policy of a charter city can be made possible by a volatile system of coordination of trade and fiscal policies whose ultimate goal is to assure the best conditions for investors.

A charter city is advanced as a possibility for developing nations to overcome certain limitations. That is because such nations do not have a high degree of urbanization and thus feature large and inexpensive tracts of land. Besides this, by creating a charter city in partnership with a contractor nation, its citizens benefit from the great opportunity of improving their situation, getting rid of the corruption and misrule of the rest of the country which is so common in developing countries and build a developed and prosperous zone inside the country. But this raises various questions: what could be the interest of a national government of a developing country to allow its tax-paying citizens to obey the jurisdiction of a new organizational entity? The citizens who choose to emigrate to charter cities might well feel detached from their home country and acquire new information that could make them disagree with the policies of the national government of the host country and the ideologies behind it. And that is surely not going to happen on any politicians’ watch.

Who lives in a charter city? 

The host country is usually expected to be one of the source countries. Anyway, many other developing and even developed countries can be source countries, for people will always strive for the betterment of their condition. Anyway, the real challenge resides in what type of migrant charter cities will attract. Before everything else, charter cities can set their own migration policy. It is expected that no non-industrious migrant would come to a place totally opposed to a welfare state. Instead, charter cities would supposedly attract only hard-working people ready to make something of themselves. For a very good reason, this is certainly not Standard Island, a place destined solely for American millionaires. Therefore, is it fair that possible inhabitants must have an established capital to begin with in order to be successful investors in such entrepreneurial havens like the charter cities? If not, their condition as employees depends on the range of possibilities offered by the investors of the charter city.

Anyway, this might not solve everything – in order to attract highly skilled migrants and convince them to leave their homelands it is expected that wages would have to be significantly higher than their other available options in the places where they live. One might say that the host country, usually being a developing state, would certainly be able to supply a number of skilled migrants to the charter city. On the other hand, can it really? Or better said, does a developing and not so wealthy state have the necessary number of skilled people that can satisfy the demands of a wealthy charter city? Attracting more and more migrants with superior skills from many other developing countries would be an overly complicated process, at least at a first glance. It is also a problem from the perspective of disloyal competition and resource extraction – a poor country invests scarce resources to develop some human capital in the hope of achieving sustainable growth and development, and then loses its small educated workforce in favour of another place, where they can arbitrage significant differences in development, which can pose existential, not just economic risk. And then, in spite of the most modern technological developments, low-skilled workers would still be needed and must be paid with higher wages than the ones they normally receive. Low-skilled workers have a lower chance to accumulate enough wealth that could enable them to launch into an entrepreneurial enterprise, and thus a charter city might not be in the long run a fully entrepreneurial-motivated entity.

Normally, there is a contract that needs to be signed between the governance of the charter city and the migrant that is willing to relocate to such a city. This can imply a whole series of conditions which must be respected by both sides. Then what happens when certain conditions are not respected? Let us make our point. Among others, in a charter city from Honduras, Prospera, “residency costs $1300 annually, unless you’re Honduran, in which case it costs $260”. What would happen if a non-Honduran citizen fails to pay the 1300 dollars or a Honduran the required 260 dollars after having lived for years in Prospera? Will the citizen be kicked out of Propera to the home country? What will happen to any property he may have in the city? 

Is establishing a charter city neo-colonialism? 

Since charter cities have been proposed overwhelmingly in developing countries with a colonial history, its citizens might easily associate a charter city built in cooperation with a wealthier country as “imperialism”, since it usually involves foreign elites bringing a foreign governance system. Politicians of the host country are extremely attentive to the reaction of their citizens when this happens. It is desired that only an empty piece of land be used for a charter city, a place on which nobody lives, so that nobody needs to be evicted and relocated.

In the same way, charter cities are based entirely on voluntary actions. Only a country that wants to establish a charter city will do it and only people who want to live and work under the rules specified in the city’s charter will relocate to it. Standard Island was not accessible to the common American citizen.

Professor Romer’s words make our point when he declares: “...charter cities are based entirely on voluntary actions. Only a country that wants to establish a charter city will do so. Only people who want to live and work under the rules specified in the city’s charter will move there”. Consequently, charter cities are supposed to work on the free choice of the individual and not on the power of coercion and eliciting obedience assigned to colonial authorities. By enriching a developing country with better options of living, charter cities become important and might attract migrants who actually remain within the boundaries of their country. It is a question of national judgement whether providing land and people to a charter city under the administration of a foreign entity is “exploitative”, but many people do not completely put up with the idea that this would be another form of neo-colonialism. Resources come from all the 3 types of countries (host, source and guarantor). Is a charter city “estranged” from the rest of the host country if it is obviously still located in the same country, but has different rules and a separate jurisdiction? One would ask whether we would witness social and cultural conflicts and civilizational clashes if citizens of the charter city will differ in opinions and ideas with citizens or governments of one of the three types of countries mentioned above.

To conclude, the guarantor country might be accused of playing the role of an overbearing imperial authority over a piece of land belonging to the host country, in spite of the initial agreement between the governments. Not only this, but let us not forget that a third-party government might also have a word to say in this. 

How to establish a charter city 

Although this seems to be the most important matter under question, there is no calculus or schema that, if followed, will lead to success. The main principles have already been exposed. Charter cities have not been built in wealthy lands, but countries desiring to grow wealthy have created special economic zones with inducements for foreign capital, though at no time did China, for instance, concede its right to regulate the new zone.

The equivalence between charter cities, real or not, and a place like Hong Kong may be faulty, as the latter had to pass through multiple stages. Hong Kong has developed to an amazing degree from its humble beginnings, but it was also a safe haven acting as middle man between a vast, underdeveloped country, China, and the rest of the world, a situation which no longer holds and has made its future uncertain. There is also the security problem – Hong Kong was a British colony that reverted peacefully to Chinese rule with guarantees in place for the continuation of its system, though this agreement has become strained. A charter city has a guarantor country and a police force (“Were there any police on Standard Island? Yes, a few companies sufficed to keep the peace of a town there was no reason to trouble”), but what happens if the guarantor country has to deal with unexpected challenges to its own security? 

What could a charter city succumb to?

To everything, really. This is not a glib statement. We have exposed various problems that charter cities may encounter. The citizens of the guarantor country might not feel comfortable with money being invested in what may be deemed as “an enclave state” or an imperialist or parasitic project. The use of money provided by taxpayers will always be a sensible subject, no matter how wealthy a tax paying people is.

But the most important one is this problem: charter cities are projected to encourage free trade and liberal policies with a “meek” and soft government that only has to make sure the economic process goes straight. A charter city is nevertheless the creation of not one single government, but of multiple governments! Can the charter city resist eventual political pressures and establish a powerful enough charter with the rule of law? The land belongs to the host country, security depends on the guarantor country (“Were there any soldiers on Standard Island? Yes, a militia of five hundred men under the orders of colonel Stewart”) and inhabitants cannot feel an immediate sense of belonging to the charter city. They would not manifest strong feelings and patriotic sentiments to a city, less to its government. Civic duty and spirit would also be in short supply in a collective of strangers not united by shared blood, traditions, history but only by dreams of profit. Would a charter city be otherwise merely a money bag with maybe some museums filled with foreign sculptures, paintings and artifacts and no specific local culture (remember that a charter city would be built on an empty land), no monuments and so on (in Milliard City one could admire foreign paintings purchased with “scandalous” amounts of money by its citizens)? Or would it generate its own culture over time, like the Anglo-Chinese mixture of Hong Kong? And again, this city government might not be a democracy, since people would be tempted to vote for bailouts and welfare for themselves rather than the maximum practicable extent of economic freedom.

It is highly possible that the social norms of the city may be chaotic or fluctuate greatly with rapidly changing demographics and it is especially vulnerable to the impact of ineffective economic policies, a lack of enforcement of law or a bad or ignored immigration policy. A charter city cannot make too many mistakes, for it is subjected to fierce and immediate criticism. Every mistake would be blamed on the eccentric idea of establishing such a kind of city. 

Outlanders and landowners 

A charter city would have a hard time with designating its immigration policy. It needs to be careful not to be accused of being a plutocracy and an opportunity only for the rich who import poor people to keep wages down and prevent social mobility. Fear of monopolies is also genuine, for any wealthy state or charter city is endangered by the possibility of being overwhelmed by mercantilist approaches and unholy agreements between big companies. The human resource provided by the host country (and other developing countries), as it is composed of not-so-wealthy people in general, would have to have the wisdom to accumulate wealth and surpass the condition of the average labourer. From here, we are not a long way away from someone saying that this human resource is treated only as a convenient and disposable and derided workforce, which is what people say about the Eastern European workforce which works in the wealthiest countries of Europe. However, one should not forget that, in a charter city, the central goal is to establish a hard-working community guided by a favourable set of rules which encourages economic growth and gives residency to the active persons who join the charter city.

The land on which a charter city can be built is no easy find, although there is plenty of it. Why is that? One answer can be that most politicians are not attracted by the idea of being so benevolent as to cede a part of the country they govern to a group of economists, builders and visionaries or to allow the creation of a more successful model of society within their own countries, as people could compare the successful charter city with the usual corruption and poverty of a developing country. And, as mentioned, fears of accusation of neo-colonialism are one more danger for politicians. President Ravalomanana of Madagascar was accused of collaborating with colonialist forces and called a traitor when a charter city under the direction of professor Romer was being set up on this African island. The land must also not be completely worthless. It should at least not be plagued with earthquakes, flooding, a pestilential environment, it should have access to water and position may also be important, since the best charter city will have easy access to multimodal transport, by for instance being located in a natural harbour like Hong Kong or Singapore. Politicians may not want to part with such valuable real estate and truly worthless land may doom the charter city before it starts.

What is also true is that charter cities initiated by Romer failed before they even got off the ground. They either failed because of corruption on behalf of the host country, accusations of imperialism, lack of democracy or corporate takeover. Professor Romer proposes a new solution to reduce the dangers of ineffective cooperation between countries – wealthy countries ought to acquire empty territory from a poorer country and set up their own charter cities. Not only is this very unlikely to ever happen, but the concept of international charter city would reduce the equation to a state which is both guarantor and host country and one or more source countries. Would this not be like the usual situation of a wealthy nation where everyone comes to work for high wages? 

Democratism versus contractualism? 

In the end, whether or not a charter city should be democratic is more than debatable, as the potential elected representatives would always have to promote and support the unchangeable principles of autonomy and independence on which a charter city is based. There would be no place for ideologies which do not come to the enterprising citizens’ assistance, but to the help of those who expect bailouts, unmotivated advantages and other sort of assistance unsustained by a clear prospect of future development to the good of the charter entrepreneurially-motivated charter city. A charter city is rather based on the freedom of contract entry, uninfluenced by potential enforcements of the democratic law. Once again, individual responsibility and assumption of responsibility for the chosen undertakings concluded by mature debate and thought ought to be the primary rationale behind a charter city. The traditional elements of democracy, mayors, representatives and counsellors would have little to no role within the administration of an entity formed by self-administering individuals. In what situation or measure could a third party involve itself in the affairs of at least two other parties willing to respect other persons’ independence and liberty to choose? Furthermore, past attempts of establishing a charter city were hindered by such recurrent democratic ideas, namely when political control was “felt” as much needed over charter cities, and in the long run dissensions would prevail regarding the direction that charter cities were meant to take.

Professor Paul Romer believes that democracy can be established as long as it would limit itself to “essential preconditions that I would look for”, such as “democratic accountability and control of the security forces”. In his opinion, voters are the ones who have to hold officials accountable, while residents who do not have the possibility of voting and citizenship yet pursue the opportunities offered by their new home until they do obtain citizenship in the state or charter city where they chose to migrate.

A concrete example: Nkwashi 

Zambia is the country where the most promising charter city is being built. If we visit the future city’s website, we learn that it “is a new town that is being developed 36 kilometers east of the City of Lusaka (Zambia’s capital). It is situated along Leopards Hill Road, approximately a 20-minute drive from Crossroads Shopping Mall and about a half hour drive from the Lusaka CBD. Nkwashi will include more than 9460 residential plots, as well as hundreds of acres of green areas and parks, 9 schools including an International School and an American University with a Teaching Hospital”. Nkwashi is being developed by Thebe Investment Management Limited, based in Zambia. The website provides a comprehensive and fully-detailed explanation. Green spaces, a shopping mall, an industrial park, a university campus or two large lakes are among the promises made by the real estate developer. Inhabitants can choose from plots of different sizes on which they can build three types of houses which can be paid with “a lump sum payment to 2 years, 5 years, 10 years or the full maximum length of 20 years”, as can be observed in the following table.

The city plan is already designed. All services which are normal in a usual city are made available in Nkwashi as well: road maintenance, garbage collection, maintenance and upkeep of public parks, green spaces and recreational areas, maintenance and cleaning of communal areas and grounds, communal Security, communal Fire Safety, education (schools, an American University and other higher education institutions are expected to be built) and health, public transport.

The project seems to be going strong and applicants are showing up day by day asking for information, housing plans and other usual questions. As a “satellite city”, Nkwashi is a daring attempt to establish “a fully self-contained and modern city”. So far, Nkwashi is on par with its host country: a developing place. The future will tell us if its 12 residential districts and 3 suburbs will be flourishing with people of high quality, entrepreneurs, wealth and a normal life, unaffected by the hardships which the rest of the country endures. The previous attempts, like the city of Prospera from Honduras, have proven futile and unable to resist hostility and other challenges.

Will things go differently if the “guarantor country” is actually a private investment group, and not a national government that might easily cede to petty interests? This is a question yet to be answered. 

Conclusion – is it still worth a try? 

In Propeller Island, the end of this magnificent project is brought about by the irreconcilable disagreement between opposing political powers. Cyrus Bikerstaff’s death had left the city without a mayor. Jam Tankerdon and Nat Coverley, the two candidates preferred by each of the two distinct parts of Milliard City (the Port Side and the Starboard Side), cannot agree about the direction Standard Island should take. Commander Ethel Simcoë is helpless against the two stubborn but ambitious men. In the end, the engines of the island overheat and fail and “half of the island sinks into darkness”. The entire futuristic structure is ruined!

In what measure would such democratic battles affect a charter city, which is not an island built by unusual billionaires? The lack of transparency, the interventionism and the lack of genuine political help made the majority of charter cities become unfortunate attempts of men with great vision. Port Side or Starboard Side, Jam Tankerdon or Nat Coverley, host country or guarantor country, local or international, independent or governmental are options to choose from and, more important than anything else, harmonize. A charter city is not a propeller island for billionaires, but an attempt for the improvement of human condition and to counteract challenges created by poverty, uncontrolled population growth in underdeveloped countries, corruption and ineffective response of global institutions to change the situation in states which will probably never change solely under their own efforts.

...to create an artificial island, an island which lords over the seas, does it not mean to overcome the limits imposed to the human genius and is it not forbidden to man, who does not dispose of the currents and the waves, to usurp the divine power so bravely?...”. 

Photo Credit #1: https://www.newgrounds.com/art/view/atisuto17/the-propeller-island

Photo Credit #2: https://www.flickr.com/photos/jurvetson/14022593000

Photo Credit #3: https://nkwashi.com/wp-content/uploads/2019/10/20190821-NkanshiZikoPhotography975A9968104.jpg 

References 

Lutter, M. (2019) “Give Charter Cities a Second Look” [Online]. Available at: https://www.city-journal.org/charter-cities

Ikeda, S. (2016) “Are ‘Charter Cities’ a Solution?” [Online]. Available at: https://marketurbanism.com/2016/12/27/are-charter-cities-a-solution/

Woolf, M. (2019) “Why Charter Cities Have Failed” [Online]. Available at: https://devpolicy.org/why-charter-cities-have-failed-20190716/

http://nkwashi.com/

https://www.thebe-im.com/

https://www.seasteading.org/

 
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OEconomica No. 1, 2016