Mises Wire

Can Free Private Cities Replace the State?

[Titus Gebel’s new book Free Private Cities: Making Governments Compete for You is now available in audio format on mises.org. Recently, we spoke with Mr. Gebel about some common objections to the idea of totally privatized cities existing side-by-side with states of today. See also: “Private Cities: A Model for a Truly Free Society?”]

Mises Institute (MI): Given the power of large states in the world today, how could private cities even hope to exist? Wouldn’t they just be invaded or occupied by larger powers?

Titus Gebel (TG): Successful private cities would offer economic growth and value to surrounding areas. Violent intervention from other states would be damaging to this value. This is no different, however from the situation we see with many small states today. Only very few states can act total independently of major powers. Nevertheless, even powerful states cannot simply occupy other territories at will. Such aggressive actions tend to invite the intervention of other powers onto the scene which is a disincentive to violations of sovereignty. If this were not the case, none of the small states of today would exist.

MI: Can this model sustain itself over time? Wouldn’t significant changes in the governance model end up being imposed on residents, and thus convert the private cities into just another form of a conventional state?

TG: It should be possible for private courts to decide on new legal arrangement by recourse to the legal principles that have been in force for centuries and to achieve a reasonable balance of interests. That’s how common law works.

MI: In a market, it is inevitable that some city operators will miscalculate and go bankrupt. Are then all the life plans of the inhabitants of these cities doomed to failure?

TG: If the operator is threatened with or becomes insolvent, there is always the possibility, as with other companies, that a competitor, a part of the inhabitants or the inhabitants as a whole take over the city themselves (a “resident buy-out”). Moreover, insolvency enables a regular and debt-free new start for debtors. Our present world would also be a better one if bankrupt countries could go through insolvency proceedings in a more efficient way.

MI: Aren’t free private cities just free riders? They use the infrastructure of the host state surrounding them and its military protection, and could not exist on their own.

TG: Almost no state in the world is truly self-sufficient. This is also no problem if payment is provided to those outside the city who provide important infrastructure, such as infrastructure or military protection. It can also be assumed that successful independent private cities will build up their own sufficient infrastructure as well as a defensive capacity over time, like Singapore did.

MI: Aren’t the managers of the city like little dictators? Wouldn’t and the inhabitants of the city be at their mercy?

TG: The city operator is bound by contract between the city itself, and the residents. This limits the city managers’ prerogatives to only a few areas. Furthermore, the operator has submitted to an independent arbitration of disputes outside its own control. Of course, because of the territorial monopoly of force within city limits, he would in fact be able to exercise what some might call a “dictatorship.” However, given the ease of leaving a private city, city managers are under pressure to not abuse power. If managers did become abusive, most citizens would then leave the city and it would be impossible for the operator to successfully found new private cities elsewhere due to the loss of reputation. In this respect he is no different from the captain of a cruise ship on the high seas or the head of a remote holiday resort. Both theoretically have the possibility of acting as dictators, but they refrain from doing so because of their commercial interests.

MI: Many observers fear that due to the lack of a welfare state and the corresponding protective regulations, the weaker will be exploited by the strong.

TG: Even in a free private city, the weak are not defenseless because there is a private law system that protects against fraudulent or hidden clauses in contracts, for example. Finally, the objection ignores the fact that the protection of the weak and aid for the truly needy, who cannot help themselves, can also be guaranteed without state coercive systems. And this comes without the harmful side effects of state bureaucratic systems. As a result, free private cities will be able to give better social protection than so-called welfare states. However, the question of social security is legitimate and is dealt with in greater detail in my book.

MI: How can global human problems such as environmental and climate protection be addressed with free private cities?

TG: Most environmental problems are regional and can therefore also be solved at a regional level. The attractiveness of a free private city also includes a clean environment, so the regulatory regime will take this aspect into account. Free private cities or residents who affect the environment of other countries beyond their borders are also exposed to legal measures by those affected.

As far as alleged global problems are concerned, solutions are either possible without a uniform world government, as was the case with the restriction of chlorofluorocarbons (CFCs), or the problem or the proposed solutions are so questionable that different approaches are desirable. In 1972, for example, the Club of Rome predicted that many metals would be depleted by 1990. If the world had listened to this false prediction, the rise of the emerging economies, which brought billions of people out of poverty, would not have taken place, and probably millions would have died completely unnecessarily due to a planned and deficient economy. None of the catastrophes predicted in my lifetimes so far have materialized: famines caused by population explosion, nuclear war, world radiation caused by nuclear disaster, desertification, deforestation, the collapse of ocean species populations, the darkening of the northern hemisphere because of the burning of oil wells in the first Iraq war, the depletion of oil, lithium, and rare earths, etc.

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