Are American Cities Ready for Special Economic Zones?

American cities are full of problems that their political institutions will not solve because of failed public choices. They have housing shortages thanks to land regulations captured by NIMBY interests. Their deadlock in transport is due to a reluctance to take advantage of market prices and competition. They have financial difficulties due to special interestsfrom unions to infrastructure lobbieswho are going into debt. Don’t even start to wonder if they can take advantage of cutting edge technology like blockchain.

Despite this, cities remain powerful engines of economic growth. But their political inefficiencies are so ingrained that they seem insurmountable, preventing them from offering opportunities to the average citizen.

Is there a better way? It’s hard to say: The debate over ideal political systems has been going on for millennia, and the best way to resolve this debate is for people of varying interests to form diverse communities that match their needs. Unfortunately, such competition does not exist in the United States. As different as the regions of the country are, municipal governance has been normalized through the intervention of states and the federal government.

One experience that would shake things up is that of the different private models of municipal administration that allow alternative legal structures and autonomy from surrounding jurisdictions. These range from charter towns and start-up towns to free and private private towns. special economic zones (ZES).

None of them are as far-fetched as they seem; private governance models are indeed commonplace around the world. Here, I will explain why they are worth pursuing in the United States, what examples of semi-private control currently exist, and other opportunities. For the sake of brevity, I’ll use SEZ as a catch-all to describe the model.

The case of private cities

The reason why SEZs fascinate me so much is that they are a pathway towards market town planning (that is, the functioning of cities according to the principles of the free market).

For me, Urbanism Market has always had a “pragmatic” side and a “theoretical” side. The pragmatic version consists of minor, incremental reforms that are not entirely libertarian, but politically realistic enough to be adopted in cities today. I write about these reforms all the time for Catalyst, ranging from zoning relaxation to the end of parking minimums.

But the aforementioned flaws in public choice make these reforms difficult. The very notion of people working in government loosening their power and deregulating society is unlikely, creating disillusionment among reformers.

Those interested in the implementation of a real vision of market town planner – the “theoretical” side – could rather bypass the current systems by building their own carte blanche. This would be done in the physical sense by assembling land and financing infrastructure; and legally by drafting charters that ensure limited governance. Better yet, this could be done through a SEZ model that grants certain mainland areas of the United States full autonomy from state and federal governments. While the territory could still trade with the United States, it would not be subject to U.S. taxes and regulations, but instead contract with the United States for certain services (such as the military).

Why America?

According to a newly released map of the Adrianople group, there are 5,000 SEZs in 70 counties. They tend to be outside of Western society and have no mainstream coverage in the United States (the United States has several hundred SEZs called “foreign trade zones,” but these are mostly industrial parks rather than towns).

Still, there are good reasons America can be a prime location for such a SEZ city experience. One reason is the US legal framework: the country is 20th in terms of economic freedom and has a stable overall legal arrangement and a commitment to personal freedom. This is important, because one of the fears about SEZs is that if they are too successful, they will be overtaken by the host country (just look at Hong Kong for reference).

The United States is also a wealthy country, ranking tenth in terms of GDP per capita, meaning this is the type of place where an internal tax haven would have an appeal. With a shortage of 5 million housing units, there is a clear demand for housing in the United States, and if a territory offers high-quality housing in a good location, people will flock to it even if they have no ideological commitments. to the idea behind the city.

Private governance in America today

The other advantage of the United States is that it already has private governance. 53% of owner-occupied US households live in one of the 370,000 homeowners associations (HOAs), which operate with their own rules on development and other neighborhood functions. These organizations have their flaws – often being more restrictive than municipal governments – but this nonetheless speaks to a demand for privatization.

These HOAs are often formed within special districts, which exist in all 50 states and sometimes activate the private city model, in which corporate developers plan and build neighborhoods. Reston, VA is a long-standing example of a private town, and was elected on 29th best American city To live in. Other examples include Celebration, FL, Irvine, CA, and Buckeye, AZ.

But the most interesting example of the development of private cities comes from Texas, whose Municipal Utility Districts offer great freedom to developers. These neighborhoods are created by private developers who issue bonds and use the income from home sales to repay them. Like I wrote earlier this year, when MUDs “still have to follow county and state rules…. This helps MUDs adapt to market forces and popular demands in ways that traditional American cities do not.

The path to follow

Pursuing more MUD-type developments in more places could prove promising. But a more radical step would simply be to legalize the SEZs.

By radical, I don’t mean that it would be difficult from a planning or engineering standpoint; but that there is currently no legal way for this. To build a SEZ that is more than just a foreign trade zone, an organization would need intense lobbying and marketing, and then federal approval to run a self-governing city in the United States.

At first glance, this seems unlikely. Mark Lutter, executive director of the Charter Cities Institute, is skeptical of the potential of private American city experiences due to the bureaucracy.

“You’re just not going to create political traction” if private cities are seen as tax sanctuaries for the rich, he said.

Thibault Serlet, co-founder of Andrinople Group, added that resistance can even be global; the World Trade Organization has taken action against countries whose tax policies it considers too lax. He also warned that collective action issues, such as climate change, can be difficult to resolve with a private city setting.

But the benefits of SEZs are clear enough that they are worth trying. Even if a small American town were to enjoy, say, an exemption from federal and state taxes (which for high incomes can exceed half of their income), this tax haven would likely attract a flood of people and businesses. Rather than cannibalizing from the United States, the growth would spill over into the surrounding jurisdiction (as Hong Kong did with Shenzhen).

Even though SEZs never exist in the United States, aspiring private city developers may, depending on the state, experiment a lot with special neighborhoods. Followers of market town planning or other freedom-based ideologies who wish to create their own companies have ample legal leeway in which to work.

This article is re-adapted from a talk I gave at the ArchAgenda conference. You can watch it here.

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