Economics

Georgism and proprietary cities

The Economist’s newest issue is dedicated to urban land and space. The most widely accepted critique of Piketty is based on the importance of land in inequality. Henry George is proposed as a solution to Silicon Valley’s housing woes.

The common thread to these ideas is, well, Henry George. George is a figure who is very difficult to describe in modern terms. He was a combination of JK Rowling, Milton Friedman, and Ralph Nader; JK Rowling because his book, Progress and Poverty, was the most read book second only to the bible,  Milton Friedman, because he founded an intellectual movement, Ralph Nader because he entered politics as an outsider, coming in second running for governor of New York City.

Even this combination fails to do justice to George. His book was a dense treatise on political economy, hardly a bestseller today. And while Friedman was the public face of libertarianism, the movement came with a rich history and many other scholars. Further, George’s influence was so high that several communities were founded on his principles.

Looking back, the man who George most resembles in terms of influence is Karl Marx. Both wrote hugely influential treatises on political economy, inspiring both political movements and actual communities. The difference is, George’s influence waned sharply after his death, to the extent he is largely a footnote today.  People have forgotten the immense cultural influence he once was.

Unfortunately today George is only remembered for his idea of a land tax. He was also a staunch advocate of free trade. According to Tyler Cowen, one of his books, “Protection or Free Trade remains perhaps the best-argued tract on free trade to this day.” In fact, both Frank Chodorov and Albert J. Nock, now integrated into the libertarian tradition, were both heavily influenced by George.

George is coming back into the foreground primarily because of the increase in housing prices over the last few decades. After decades of land falling in importance compared to other factors of production, it is making a comeback. The rise of the knowledge economy has coincided with a rise in the importance of networks. As in person meetings are valuable for networks the land on which those networks exist rose in value as well.

The rise of property values is not the only factor sparking an interest in George. With crypto-currencies and the sharing economy income is becoming harder to track. Such factors raise the marginal cost of taxing income forcing governments to look for alternatives. As land is easy to appraise and tax, as well as necessary to live, expect governments to tax land to make up for lost revenue from taxing income.

As others have taken up the mantle for free trade, George’s legacy remains land. George argued for taxing only the unimproved vale of land, not the value of a building or agriculture on the land, only the land itself. His arguments for a land tax are relatively straightforward and can be split into economic and moral arguments.

In economic terms, land is inelastic. While taxing labor decreases the supply of labor, and taxing capital decreases the supply of capital, taxing land leaves the supply of land unchanged. His moral argument is that ownership of land is unjust because land is not created. If people own what they mix their labor with, they cannot own land as land exists independently of whether humans mix their labor.

George’s economic arguments have found a degree of popularity among well-known economists. Milton Friedman called the land tax the least bad tax. Joseph Stiglitz showed spending on public goods could increase the value of the land by the same amount as the spending itself. Even Adam Smith wrote sympathetically.

Ground-rents are a still more proper subject of taxation than the rent of houses. A tax upon ground-rents would not raise the rents of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist, and exacts the greatest rent which can be got for the use of his ground. More or less can be got for it according as the competitors happen to be richer or poorer, or can afford to gratify their fancy for a particular spot of ground at a greater or smaller expense. In every country the greatest number of rich competitors is in the capital, and it is there accordingly that the highest ground-rents are always to be found. As the wealth of those competitors would in no respect be increased by a tax upon ground-rents, they would not probably be disposed to pay more for the use of the ground. Whether the tax was to be advanced by the inhabitant, or by the owner of the ground, would be of little importance. The more the inhabitant was obliged to pay for the tax, the less he would incline to pay for the ground; so that the final payment of the tax would fall altogether upon the owner of the ground-rent.

Now, before continuing it is worth noting some of the flaws of George. He did not believe he was advocating for a more efficient form of taxation.  He thought a land tax would stop business cycles and end poverty, a rather tall order. Further, a land tax is second to a pigouvian tax in efficiency terms. A pigouvian tax limits negative externalities, optimizing the level of production.

Granted, knowing the ideal level to impose a pigouvian tax is virtually impossible. Being able to differentiate between the value of a building and the value of the land on which the building is constructed is done every day by insurance companies.

The difficulty in implementing a land tax is that it is inherently redistributive. Landowners lose and renters win. As landowners typically have stronger roots in the communities they also tend to have more political power, ensuring their ability to block taxes which primarily burden them.

Land taxes would also not solve the primary problem of expensive housing, which is regulations. Nimbyism leads to onerous building codes, raising the price of housing several fold, 800% in London and 300% in Paris and Milan. The Economist reports “lifting all the barriers to urban growth in America could raise the country’s GDP by between 6.5% and 13.5%, or by about $1 trillion-2 trillion.”

The other problem that a land tax fails to solve is public choice. Even if a land tax is more efficient at generating revenue, governments rarely spend their money wisely. Spencer Heath, a follower of George, realized this. Turning Georgism on its head, Heath argued for proprietary communities, where a single owner would provide public goods. A shopping mall is a prime example of a proprietary community, providing security, lighting, public spaces, and other public goods.

The broader argument for proprietary communities is Disney World, arguably the best run city in the US. With tens of millions of annual visitors, it manages to remain clean, safe, and fun. I doubt there is major metropolitan area in the US with no dangerous parts.

Of course, Disney World is a resort, but the logic applies more broadly. Disney does a very good job taking care of Disney World because their profit depends on it. If someone is hurt or has a bad experience, Disney loses customers. The link between actions by the governing body and outcomes is much more direct than in most city governance structures.

A proprietary city would be able to gain revenue by enacting policies which increased the value of its land. While not necessarily desirable in the US, a proprietary city would likely be able to outperform many third world cities. I lived in Tegucigalpa Honduras the last five months so I will use the dysfunction there as an example, though it is hardly unique.

Tegucigalpa had several very nice bike lanes on major roads. Except they were not bike lanes, they were bus lanes. However, the buses the city had bought were too big to fit in the lanes, so the lanes were taken over by bicyclists and pedestrians. A large minority of the cars were also missing license plates. Apparently the budget for license plates ran out a few years ago and now new cars come with a letter which is stored in the glove compartment and gives the car permission to use the roads. Public schools are also atrocious, some are controlled by gangs and the leaders of several student protests were recently murdered.

Ultimately, the real problem in Honduras is the security. It remains the murder capital of the world. Having your phone stolen is an expected occurrence. Some people do not buy smartphones for this reason. Single murders are barely reported any more, there have to be two or more dead. And many people fear the police more than they do the gang members.

It is important to keep in mind the reasons above when considering proprietary cities. They do not need to be better than the first world, merely better than the competition, which in many countries is not a very high bar.

Security can be used as the most basic example. It is simple to imagine a proprietary city offering far better security than exists in Honduras today. First of all, private security tends to be more trustworthy than government police. If a private security guard is corrupt, they can be easily fired. Second, carefully monitoring the entrance and exit, as is done in all hotels and apartments already, ensures anyone committing a crime can be easily caught.

Of course, this remains speculation for now. No land developers I know of are creating open access privately administered cities on the scale I am considering. However, given the history of George’s influence. It is not unreasonable to think that a version of his ideas is revived and used to improve the living conditions in the third world.

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Typology of property and anarchists

I wrote two pieces arguing for a typology of property rights. Short story shorter. Because property is a relation among men with respect to an object, we can classify property according to the relationship the property owner has with other people. The other people can be family/friends, anonymous strangers, and government. Property can also be distinguished by contracts and personal property which has the threat of violence and theft. These distinctions result in this chart.

Contracts Violence/theft
Family/friends 1 2
Anonymous strangers 3 4
Government 5 6

Below is a quote from Further typologies of property rights. 

The second part is more interesting, how to enforce contracts among anonymous strangers, 3 in the table, and how to ensure there is no violence and theft against anonymous strangers 4. Most economists are unclear on the distinction between the two options, however it is an important one. There is much evidence, international trade being the primary one, that state enforcement is unnecessary to protect contracts among anonymous strangers.  However, as Gurri pointed out, the state is likely necessary to protect against violent expropriation from anonymous strangers.

As such, the state exists less to protect private property per se, and more to protect against a specific type of encroachment on private property. In fact, given that many major American cities did not have police departments until the mid 19th century, it seems state exist primary to prevent large scale violence.

I would like to use this framework to critique academic anarchists. They tend to focus on 3 in the table, whether the state is necessary to enforce contracts among anonymous strangers. Some academic anarchists also investigate whether stable rules can emerge in chaotic situations. However, both research agendas miss the hard question 4, whether a non-monopoly of force can prevent theft and violence by anonymous strangers in a modern city like environment or larger.

To the extent anarchism is a normative project, whether it is a desirable alternative to modern first world governments is an important question. This requires a mechanism to protect against anonymous third party theft and violence. David Friedman provided the theoretical mechanism, as well as an important case study. Unfortunately, there has been little focus on this question since.

The future evolution of proprietary cities

We live in the era of urbanization.  Currently 54% of the World’s population lives in cities, up from 34% in 1960.  Such urbanization combined with political decentralization has led to the increasing importance of cities.  Cities have been inserting themselves into conversations which earlier only included nation states.

With that in mind I would like to examine the potential growth path of proprietary cities, cities where the land on which the city is built is owned by a single proprietor.  Such cities offer two advantages.  The first is better administration.  Many developing countries are riddled with corruption.  New cities can start with a blank slate in such areas as education and public safety, escaping often dysfunctional government bureaucracies.  The second is institutional change.  Proprietary cities can offer an island where there exists rule of law and property rights protections in countries that sorely need them.

So, why would a country offer a private developer institutional autonomy?  There are a number of reasons.  The private developer could show how increased economic activity would generate more taxes.  The private developer could guarantee the creation of a certain amount of jobs.  The private developer could ensure a certain amount of investment, alleviating the need of the state to build infrastructure.  Perhaps the state realizes territorial change is far easier than country wide institutional change.

Regardless of the reason why proprietary cities are spreading, the fact remains they are spreading.  However, proprietary cities are spreading under different institutional arrangements with their host states.   There are three categories of such arrangements.  First, some are being built as joint ventures with the host state.  Second, other proprietary cities have contractual arrangements with the host state.  Lastly, some host states create a legal framework for the creation of competing proprietary cities.

A public private venture, like King Abdullah Economic City in Saudi Arabia, has several advantages.  First, governments typically have deeper pockets than private developers.  This allows greater initial investment.  Second, government involvement in the project could allow for greater institutional autonomy as the city is not entirely private, diminishing potential fears about a corporatist dystopia.  The downside is that greater government involvement means greater government involvement.  This will likely slow down any project with bureaucratic delays, as well as increasing the likelihood of further government intervention in the future.

While I do not expect public private ventures for proprietary cities will go away, they will not be the dominant form of proprietary cities either.  They will likely occupy a middle ground, used by corrupt governments to showcase a big project as well as to hand out favors to politically connected cronies.

Honduras has taken the furthest step in creating a legal framework for the creation of proprietary cities with ZEDEs.  While not proprietary cities, ZEDEs will be run by a technical secretary appointed by a government established committee, they do come close.  The ZEDE law allows for the creation of numerous competing zones.  Different developers can try different strategies to attract residents, the best strategies winning.

If Honduras sees success with the ZEDEs, similar laws will likely multiply throughout Central America.  Successful ZEDEs being copied along with the law.  It is possible other parts of the world, Africa for example, could notice the ZEDEs and copy them.  However, ultimately I am skeptical ZEDE style laws will grow beyond Central America.  Drafting such laws so as not to be corrupted by the political process is extremely difficult and there is no interest group which would push for the passage of such laws.

The most promising long term strategy, but likely the most difficult short term, is proprietary cities having exclusive contracts with their host states.  A city developer could draw up a contract and offer it to several different governments, promising increased tax revenue and the creation of new jobs.  The developer in return would ask for a degree of institutional autonomy to help the city flourish.  The main stumbling block is there does not exist any developer with enough experience or expertise to credibly offer such a contract.

However, as proprietary cities achieve success in other areas, such as Honduras, the skills necessary to create such a contract and credibly offer it will emerge.  Companies investing in ZEDEs and similar autonomous zones will begin to acquire the skills necessary for large scale expansion.  Eventually, private companies will competently be able to offer hundreds of millions to billions of dollar investments in new cities.  Such potential investments will give them strong bargaining power in asking for institutional autonomy.

Proprietary cities are likely to continue to compete with traditional city governments.  The success of proprietary cities will depend on the degree of institutional autonomy they obtain from host countries which in turn will depend on the mechanism by which they are able to exist in the host country.

Market panic attack, Greek edition

Never have I seen Wall Street and the stock markets this scared in my life, in anyone’s lifetime. You don’t see it in the numbers or trades, but in the periphery, the things they talk about. They’ve realized that people are starting to notice a detachment between how the markets work and how reality works. You see the paranoia in Greece and Spain. Something’s coming for them, not in the way they wanted to.

Karl Polanyi, that venerable economist, once referred to the economy as merely another social institution. Social institutions last only as long as the people believe in them. What we have seen in the past couple is an indication that people are slowly starting to the realize that the market economy, by default, does not benefit them but benefits from them. When they stop believing in the market, it starts to really panic.

The market economy has become the golden idol of the mainstream left and right since the hammer and sickle fell from the Kremlin, and loyalty to its whims is the truest symbol of elitism there is. There’s a reason the term “caviar socialist” exists, after all. But when the market, in its Molochian chaos, decides to step on a nation, the situation tends to not end very well for it.

Greece will be the first example of this. Today, the general election triggered by the Hellenic Parliament’s refusal to elect Wall Street/World Bank fat cat Stavros Dimas into the sinecure position of President will bring about a massive change. For the first time, a leftist party not directed by a single Marxist idea but rather broad range of thinking will enter government. The Coalition of the Radical Left, known by its Greek shorthand SYRIZA, will win the election. It’s only uncertain just how much.

The handwringing I noticed in the weeks leading up to this election reflects the paranoia of the markets. The Independent, that piece of toilet paper that happily wipes the ass of the market after it shits, called SYRIZA, a legitimate political party that has been in existence for more than two decades and has no militant wing to speak of, “rebels,” and its leader Alexis Tsipras a communist Harry Potter. Some call that “cheeky British humor.” I call that “pissing in your trousers.”

Bloomberg, run by a man who practically played a lapdog to Goldman Sachs and J.P. Morgan while he was Mayor of New York during Occupy, wasn’t that much better. It has flustered at the thought of SYRIZA winning the election, but at least acknowledged it happening. But it tried to soothe old Dimon and his gang of losers first by saying that former political scion George Papandreou’s new party To Kinima would prevent the markets from being troubled. Once it realized that Papandreou was merely leeching off voters of the sclerotic Panhellenic Socialist Movement/PASOK, it, along with the Financial Times, fawned over Stavros Theodorakis’ To Potami as being a “kingmaker” that will tame SYRIZA’s supposed ambitions. Now they’re saying that Tsipras might find it easier to have a coalition partner, simply because he can backpedal on his rhetoric. As if he has to do that. It’s laughable, really.

What the markets fail to realize is that a lot of this is their doing. Greece is in a mess because the markets begged for them to act like Americans upon joining the Euro, along with taking a sour bet by running a Summer Olympics that will take as much time to pay off as the Vietnam War. Then, when it was clear that this was a terrible idea, they expected the country to turn arch-conservative with its finances.

These efforts at market excess were curried by the elites, led by PASOK and the conservative New Democracy. It is elite by every standard: Papandreou is a member of a dynasty that dates back to the first Prime Minister after liberation from the Germans, and whose father was the first socialist PM in Greece after the end of the junta in the 60s and 70s. His family had emigrated to America before he was born, only to immigrate back when it seemed like a good idea. He was roommates at Amherst with his eventual rival and current Prime Minister Antonis Samaras. Both went on to even more elite schools after that: Papandreou to the London School of Economics because they tend to shun foreigners at Oxbridge, Samaras to Harvard. How posh can you get?

So it’s obvious that the power structure, despite looking like there’s some political spectrum, was built entirely on keeping the markets happy. While the Greeks enjoyed somewhat decent economic growth bolstered partly by the Olympic Games, ND cooked the books and PASOK allowed it to happen, creating an illusion of glory. The establishment had it under control, with the only release valves being the Communists under Joseph Stalin and the Popular Orthodox Rally.

Then the banks of Wall Street overcooked their books and screwed everyone over.

When Papandreou came to power in 2009, his lieutenant, the somewhat less posh Evangelios Venezelos, discovered the cooked books. The PM announced the problem and tried to get it under control, but this being the Great Recession, the odds of that happening were similar to finding water in California these days. One thing led to another, and the next thing you know, the Greeks became the storied boogeymen that were out to destroy the somehow already haggard European Union, setting off a chain of bailouts on the continental periphery. It was only by imposing severe and draconian austerity measures that supposedly were in the best interests of the Greeks that the continent was saved. The country was expected to become Germany, and suffer while they do so. The markets were relieved.

This latter narrative is what the markets, and the EU, would like to believe. In the country itself, however, we see a different narrative: If you aren’t in the elite, chances are you’re unemployed, or you know a friend who was. Maybe you know some friends who are homeless and are transient, especially if you’re young. If you have a job, you took a massive pay cut back in 2011 if you were lucky enough not to get laid off. You feel worthless. You don’t need to go far to know that, outside of your country, your nationality is now an epithet for sloth and dubiousness.

The markets, symbolized by the Euro, had betrayed you. Economists would say you deserve it, citing the overwrought Summer Olympics and that you have a hard time paying taxes. But those excuses can only last so long. While you don’t hate Europe, you don’t like the fact that it’s stepping on your head for something you don’t entirely control.

More importantly, the establishment betrayed you. PASOK first, then ND. Sure, Samaras put up a nice facade at first, attacking the bailouts and throwing out one of his most significant rivals in the party for daring to support them. But when push came to shove, he turned heel the moment it became clear that his continued control of the country would count on it. So both parties are still shamelessly praying to the golden idol.

The feeling of anti-establishment thinking has never been stronger in Greece. And there are few people who come close to leading that sentiment than Alexis Tsipras. Born mere days after the fascist junta fell, he’s as anti-elite as they come: Local to Athens, his parents were from the countryside. While active in politics, he studied engineering at a great local university and worked in construction for a while.

Tsipras has come to represent a unique strain of leftist thinking: One built on the diversity of opinion rather than a singular agenda. Unlike the American left, overtaken by social radicals intent on squabbling over who is the biggest victim in the room, he’s kept everyone on the same page. After all, everyone in the room is equally in the room is a victim, for they are Greeks beaten down by the bean-counters in Brussels and New York as well as the elites in PASOK and ND.

He cuts himself as young (only 40), charming and cunning. But more importantly, he’s actually competent as a leader: With such strains of thinking as classical Marxism, Trotskyism, feminism, ecosocialism, eurocommunism, even super minor strains of leftist thought like Luxembergism, you would think that SYRIZA wouldn’t last a few weeks as a small group, let alone 10 years as an electoral coalition and political entity. But that is a testament to Tsipras’ leadership.

He’s also a fighter, and that’s what makes him dangerous. Rather simply making a case on being a leftist party, he turned this election and the previous two into a referendum on the euro that has been stepping on them. Just by being that alone and unique in how they handle it was SYRIZA able to take over PASOK as not only the party of the left but also a legitimate alternative to what had been standard European politics.

It’s important to understand this election is not a referendum on the European Union. Outside of the neo-fascist Golden Dawn, the nationalist Independent Greeks and one or two factions of SYRIZA, everyone in Greece wants to stay in Europe. Their problem has never really been with Europe as a whole. The problem is the market economy that seems intent on ensuring the only thing Greece is allowed to do is suffer. It’s just that SYRIZA is more willing to let an exit from the euro be an option than anyone else in the room, and that’s what scares the markets. It means the Greeks don’t believe in them anymore.

Which brings me to To Potami, or The River. The current estimates are saying that SYRIZA will be a few seats short of an absolute majority (though it’s possible that they could still get it, especially if the Independent Greeks don’t get enough votes), meaning they will need to partner with another party to run the government. Golden Dawn is out of the question, the Independent Greeks are bit too rightist for their own good (though they could still join on a patriotic front), and the Communists are still run by Joseph Stalin.

Which leaves To Potami, run by talk show host Theodorakis. People are making them out to be some form of “taming” force because SYRIZA will need the votes, and To Potami would rather stay on the euro. The problem is that they are not taking into account a couple key points:

  1. Theodorakis and Tsipras are closer in belief on the bailout documents that have been harming Greece than most believe,
  2. Theodorakis has no political experience whatsoever.

The last two TV personalities that started a political party and entered a democratic parliament were Beppe Grillo in Italy and Yair Lapid in Israel. The former has let his 5-Star Movement self-immolate due to Occupy-level infighting, while the latter was eating out of Bibi Netanyahu’s hand until he realized the food was shit and called his Yesh Atid out of the Knesset. Both are polling poorly now. The odds are likely that Tsipras could easily outplay Theodorakis. If the former can control a bunch of Trotskyists and feminists with giant egos, what’s one talk show host?

ND will not win reelection this time around, that much is certain despite bailed out Goldman Sachs’ claims to the contrary. They betrayed the populace, and their partners will be either non-existent (the Democratic Left) or close to it (PASOK). They were very close to defeat the last time, and were likely only saved because their friends in Brussels still had some sway over the populace. Not anymore.

So what happens after the election? Things get fun. Over the course of the election campaign, outsiders from Europe, including World Bank snout and EU prez Jean-Claude Juncker, had made the ever ominous elitist threat that they “hope” the Greeks will make the “right decision.” ECB president Mario Draghi has threatened to prevent access to the way-too-late quantitative easing program if SYRIZA dares to try to move the foot off the country’s head.

However, the last time the Greeks were asked to be treated like this, their response was a rather simple one: “όχι!”

No wonder you can smell the markets’ fear.

(Image source)

Review of The End of Power

The End of Power by Moises Naim is the most interesting book I have read in a while.  It advances the simple thesis that power, defined as “the ability to direct or prevent the current or future actions of other groups or individuals”, is declining.  The way I prefer to put it, the choice set of our leaders has become more constrained.

Naim argues that power, not just political power, but corporate and military power is declining.  A thought experiment can be as follows.  Compare Barack Obama to a 13th century king.  While Obama undoubtedly commands more resources, his choice set is fairly limited.  There is constant pressure applied by various interest groups which constrain him.  A 13th century king, on the other hand, has a wider choice set.  He likely has a few advisors, but is largely free to act in any way he so chooses.

Naims thesis can be interpreted as a generalized form of the trend toward political decentralization that some have documented.  In fact, Naim discusses such political decentralization, both arguing for and admitting the inevitable political innovation.  He puts his thesis in grandiose terms, comparing the coming innovation to the Greek city state democracies and the French Revolution.

What Naim didn’t include was an explanation of why power is ending or a judgement of whether such an end is a good thing.  I’ll try to provide a brief account of both.  First, the world can be imagined as a series of networks representing the relationships between people.  The further intertwined the networks are, the less power individuals have.  They are constrained to follow the rules put in place by those in their networks.  In other words, the decline of power is inevitable as the world becomes more interconnected.  This is a good thing because making actions predictable is a necessary, though not sufficient, step for long term planning and economic development.

Naims book is also interesting because he represents the power elite.  He was both a former executive director of the World Bank as well as editor in chief of Foreign Policy.  The book has a blurb by Bill Clinton on the front.  Other reviews include The Wall Street Journal, The Washington Post, and George Soros.

I highly recommend this book to anyone interested in changing forms of governance and politics more generally.

Private cities and public places

Have you heard the old libertarian joke?  It goes like this.  Should heroin sales to minors be legal on public sidewalks?  The libertarian responds, why are there public sidewalks?  The libertarian answer captures a certain truth.  Conflict arises when spheres of action, the set of actions deemed by others as reasonable, are ill defined.  Private property denotes clear spheres of action, thereby minimizing conflict.  By resorting to private property instead of public property, questions of appropriateness of certain courses of action are taken out of the public sphere.  In essence, the joke says the sales of heroin (I will ignore the aspect of children) should be a private matter.

However, while I believe the public sphere is currently too big, I do not believe the optimal size of the public sphere is zero.  The following essay is my attempt to square my advocacy for private or proprietary cities, cities where a single entity owns the land on which the city is constructed and leases it to renters, with my belief in a public sphere.

First, one can distinguish between what might be termed an economic (or crude) defense of proprietary cities vs a holistic (or liberal) defense.  An economic defense would solely consider whether people vote with their feet.  If people choose to move to the proprietary city, it is better than their alternative options.  A holistic defense considers more than just people voting with their feet.  It questions whether proprietary cities can offer adequate protections for civil rights.  Will there be a healthy civil society, freedom of speech, freedom of association, due process for those accused of crimes.  In short, will a proprietary city be an extension of the modern liberal order, or a subversion of it.

As an economist I am very sympathetic to the economic arguments.  In fact, all other things being equal, more crude proprietary cities are better than fewer.  However, all other things are not equal.  Crude and liberal proprietary cities are, to some extent, substitutes.  This is especially true for the first proprietary cities, whose success (or failure) will likely determine the future evolution of proprietary cities.

Dubai, though not a proprietary city itself, offers a glimpse of what crude proprietary cities could become.  A society segmented by class, South East Asians providing the manual labor, admittedly at higher wages than they could get at home, but without many basic freedoms, and Europeans.  There is little mixture between the classes, and no hope for the South East Asians to enter the upper class.

On a more theoretical level, we can consider the limits of proprietary cities.  Private spheres allow for action that is unacceptable in public spheres.  If you visit my house, I am perfectly within my rights to restrict your actions.  I may ask you not to voice certain opinions or to enter without my permission.

This line, however, becomes blurry as private spaces enter commercial arrangements.  The argument for banning discrimination based on race is that business is fundamentally different from residence.  The sphere of action businesses can take is more restricted than the private sphere one can take in one’s home.

As nominally private enterprises scale, the distinctions further blur.  In a company town, should the company be legally allowed to restrict speech critical of the company?  Aside from legality, morally, should it?

When considering proprietary cities, we can compare Dubai and Hong Kong.  Do we want a city where manual laborers are second class citizens, unable to participate in the public sphere, or a city where the poor have comparable opportunities to the wealthy?  Hong Kong is obviously not an ideal liberal city, but it is far ahead of Dubai.

I have argued that proprietary cities be given institutional autonomy as well.  With such autonomy it seems reasonable for the host country to ask for certain procedural safeguards for civil liberties.  A bill of rights, if you will, protecting the residents rights to speech, religion, association, protest, fair trials, and more.

While I strongly support political decentralization, there are differing visions on how a decentralized world would appear.  It could be fragmented into different groups, with little trust and interaction between the groups, with no group representing liberal ideals.  On the other hand, decentralization could allow us to escape modern tyranny, experiment with better governance, and kept intact basic values which continue to hold us together.  With regard to proprietary cities, the latter must be fought for.