Charter Cities: Methodology Review

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charter cityIn the first article of this cycle we’ve discussed the basics of Paul Romer’s concept of “Charter Cities”. In the second we’ve talked about the two failed realization attempts – one in Madagascar and one in Honduras. In this article we will give a brief analysis of the past mistakes and also attempt to develop the insight which might aid in avoiding future ones.

Romer’s two major mistakes were: bad choices of countries and insufficient media coverage. The things is, a charter cities usually changes the rules of the financial game, effectively shutting out the traditional national elite. Such a city is, basically, an autonomy, with its own laws, complex diversified economy tied in with the international corporations, a very liberal taxation system and an independent legal structure. Thus, it’s easy to see that the elite clans natural to the developing agrarian societies, each controlling its own slice of the local market (meat, leather, fruits, etc.), will be displaced once more serious players enter the game. National construction companies, retail trade and food producers won’t be able to compete with the large construction corporations, retail chains and fast food industries, respectively. Unregulated competition will inevitably bring about the victory of McDonald’s, Subway, Walmart and Jumbo over weak and non-competitive Honduran or Madagascan companies. Foreseeing this loss of financial and, as a result, political influence, the national elites would, quite understandably, oppose the building of a charter city.

Add to this severe lack of media coverage, and the end result is unsurprising: the nationalist-oriented government disposed of the project on the quiet, and everything can “remain as it always had been”. A wide media support coupled with resolute investors and demanding shareholders could have shaken the elite’s resolution, maybe change their decision and make them reconsider – but there was none. So the projects were buried: in the case of Honduras, quietly; in the case of Madagascar, with noisy distractions.

There are two main reasons we claim neither of these countries – Honduras especially – are suitable for such a project. On one hand, they are both too politically stable to risk a massive libertarian undertaking take place on their territory; the national elites would feel too jeopardized. On the other, they are not advanced enough for even the Chinese “two countries – two systems” model, leave alone allowing a fully autonomous enclave there. Honduras has a tendency towards political stability. It had its share of military coups and dictatorships, but overall it is mostly democratic, and even the coups became part of the national political paradigm and didn’t upset the stability too much. The latest political upheavals, through which the Honduran government system came unscathed, show just what a fine art this has become with them. The president Zelaya, who tried to usurp the power, had been quietly, politely and, above all, lawfully (by the Supreme Court decision) replaced with Micheletti, a “crisis manager”, who then transferred the power to the newly elected Porfirio Lobo Sosa.

Remember, Pol Romer’s goal is “building new Hong Kongs” in the developing countries, which he sees as a radical solution to poverty and instability, and also as a means to even out the skewed concentration of the finances and the intellectual potential, currently concentrated in the First World countries. Thus, in our opinion, the following types of countries would be best suited for his project.

1. Countries with strong predisposition towards the West, finding themselves in need of financial aid and guarantees of national security. Such guarantees can be given by the British legal system and by the multinational corporations. A good example of such a country would be Ukraine.

After the anti-corruption, pro-West “Maidan revolution”, and the Crimea annexation following on its heels, this country requires both the financial aid and the international protection. It has a progressively thinking government, whereas its people – like that of Georgia – is very liberal and private property-oriented. Ukraine is preparing the most substantial privatization of the last 20 years, it puts up a huge effort to resolve the financial disaster it has found itself in, recently S&P upped its credit rating to “stable”. Weigh all this against the background of the post revolution and a severe civil war in its South East, if you please.

A charter city would provide Ukraine with a significant development boost. Russia would never dare a military intervention or any sort of aggression towards a country invested with serious corporations, international organizations and media. It would also reduce the danger of terrorist separatism financed by Moscow (as are most of the terrorists in the Ukrainian East): it is one thing to play this game against a newly appointed government, and a completely different one to try it against corporations supported by Western powers and, incidentally, maintaining their own, highly professional, security forces. As George Soros has recently commented, the Ukrainian legal system is not up to any modern standards. They are corrupted and unreliable, and most of Ukrainian citizens are aware of this. One of the things a charter city introduces is its own legal system in its territory.

For its part, Ukraine is favorably located, has a pro-Western government, its people are well-educated and it has a lot of economic potential. It has a lot of raw materials, developed agriculture, intellectual resources and, with some additional effort, industrial resources. Its geographical location makes it noteworthy for transportation and logistics companies. A charter city in such a country could bring great profit to its investors.

2. Countries with large instability areas – mass protests, civil conflicts, disturbance-prone regions with separatist tendencies. A necessary condition is that these separatist regions should be more open to reform and less afraid of international influences than the main body of the country. Some of the examples are Bolivia, Venezuela and Libya.

In the year 2008 a civil conflict shook Bolivia. The opponents were the Eastern pro-capitalist regions and the Western pro-communist ones (these were on Evo Morales’s side). The Eastern regions held a referendum on secession, but the federal government led by the president Morales, notorious for his formidable Constitution-rewriting skills, declined to acknowledge its results. The civil protest was crushed by the army assisted by the ultra-leftist paramilitary forces.

The Venezuelan protests of 2014 caught the attention of all the world’s leading media. Tired of the corrupt and irresponsible government, the populace demanded Maduro’s abdication and liberalization of the state’s financial and political policies. The government sent the army, aided by the paramilitaries and the Cuban “military aides” to squash the protests. This brutal process was not opposed by anyone in the world, even though a logical solution of gathering all the protesters in one state, holding a referendum, secession and creation of a new state could have been a viable solution.

The Libyan civil war created several hotbeds of riots and turned the country into a confederacy, each region of which strives towards its own government and policy-making. The Libyans, who were for a long time artificially united by Gadhafi’s regime, began building their own, regional economic structures. Many ethno-religious conflicts, long repressed, surfaced and started to interfere with attaining any kind of stability and either federalization or unification. Charter cities, by definition politically neutral, secure and wealthy, could have become a symbol of conciliation and unity for this country.

The best possible use of the existing unstable regions could be learned from the Russian behavior in Georgia and Ukraine. The goal would be different, of course: not installing corrupted puppet regimes or annexing territories, but creating autonomous liberal and democratic enclaves in totalitarian countries. The fight against tyranny and poverty is very important, and it makes sense to give the people fighting for their freedom both financial and legal support. Russia’s actions during the Crimean crisis were swift and unexpected; they expeditiously supported the addition of this province to their country and passed relevant laws before anyone in the world was able to react. This is how those interested in promoting the free market and democracy should act as well. If the Bolivian “Media Luna” states are trying to detach themselves from the center, they should be backed without hesitation, their independence internationally acknowledged, and the new state given full financial, globalistic and capitalistic support.

By building charter cities on the territory of the new state, the multinational corporation can at the very least obtain for it a partial acknowledgement and provide it with legal protection. Morales and his Ponchos Rojos psycho-goons (who excel at maiming people and cutting heads off dogs to scare Evo’s enemies) do not threaten the financial structures whose budget exceeds that of Bolivia a hundred times over. Moreover, the army divisions who decide to swear loyalty to the new state, together with private security companies can easily repel Morales’ military provocations. Neither Maduro nor Morales would attack the newly separated regions if those are invested with international corporations and media. Their forte is saber-rattling and lurid threats, similar to what was happening in Honduras during Zelaya’s displacement. Chavez, who was still alive at that point, threatened a military intervention, Nicaragua even started pulling her troops towards the border, but Honduras stood firm and the communists went back to their quarters.

It is very important, in this case, to ensure the media’s support. The political conflicts in this time and age happen not only in the material world but also, or even mostly, in the media-space. The leftist news agencies, hopped up on “total power to the state” and “the worse the better” would raise a howl and start throwing “fascists” and “colonialists” around (for they have learned no new words since the 1930s). This should be foreseen and appropriate responses readied. The world should be told again and again that helping someone attain their freedom is not fascism, and that helping them create a liberal state is no colonialism. The media should attend all the referendums, everything should be out in the open – this will be most effective when contrasted against the opacity of the tyranny from which the new state is seceding.

By supporting the secession subject to the agreement of building the charter cities, the transnationals kill two birds with one stone. They will achieve good relations with serious media, and create a symbiotic relations between themselves and a liberal, reform-oriented government of the new state. The charter cities will ensure the financial and military safety of the new state, whereas the international business community will have a free hand in the project.

3. Failed or non-existent states. A good example is Somalia. This state has disintegrated into several autonomous regions (like Somaliland, Puntland and Ogaden), some of them have already been acknowledged as future states, while other have not. They cannot effectively control their own territory, and some of them exist virtually, only in the minds of tribal chiefs. It is interesting to note that several experts have reported an unusual rate of economic and technological growth of Somalia, which, in turn, gave birth to a “libertarian utopia” myth about that place. Somalia is, of course, no such thing, as it lacks many key features of libertarianism: inalienability of private property, civic liberties, independent legal system. However, even under these detrimental conditions the observed growth, especially viewed against the other, stable African countries, is quite real. An involvement of transnational corporations, hired security companies and British legal system in the regions not controlled by any significant powers can lead to spectacular results. A charter city as a catalyst of stability, facilitating national reconciliation and easing the problem of poverty could become a shining example for the future generations.

While it is true the warlords and their barely-controlled gangs could become a major impediment to such an undertaking, this can be resolved by increasing the defense costs. The financial and, more importantly, image-building profits would recoup these increased costs many times over.

Contrary to the popular opinion, an involvement of major businessmen and international corporations helps people, solves their problems and advances their interests. Chile, Singapore, South Korea, Guatemala, Taiwan – these and more speak for themselves. The charter cities would become oases of prosperity and high standards of living, they will attract new investment, grow in strength, acting as a ram or a locomotive for the regional economics. Forsooth, when the traditional methods of fighting poverty don’t work, maybe a new approach is prescribed — vigorous and technology-oriented. It is important, of course, to take into account the experience of the past mistakes.

Let’s review.

Not any Third-World country can host a charter city. The Third World is very diversified. Countries with stable political systems, conservative social structures and strong national elites would not be interested in changing their lifestyle and divest the traditional players of their power. Their legal system may be corrupted but it’s functional enough to terminate the charter city project at any time. The “irrational voter” would, in turn, vote against any innovations, for he greatly prefers the known to the unknown, even if the known is known to be worse. And the Third World, unfortunately, is full of the irrational voters. The countries that have managed to leave it behind, like Singapore, Chile, South Korea and Jimenez’s Venezuela (it had seen regressed and then some) achieved this through a dictatorship, against the will of the majority who, given that choice, would back time and again the familiar evil.

To qualify for a charter city the country should be either non-existent, like Somalia; or torn apart by internal conflicts, like Libya; or it could be a region vying to free itself from a central tyranny, like Camba in Bolivia; or a pro-Western but very poor and threatened by a monstrous neighbor, like Ukraine and Georgia. It’s not enough to be poor: the governing force should be either capable of negotiation and, more importantly, controlling its territory, or completely absent. A charter city in this case would become a focus of national reconciliation and salvation. This would guarantee the media’s attention, and, in case of success, turn the country into a flourishing financial center, a leader of its region.

These issues should be taken into account when considering the next target for the project – a country willing to swiftly and effectively solve its poverty problems and build a new, open society with help of charter cities.

Kitty Sanders, 2014

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