Mises Wire

Private Cities: A Model for a Truly Free Society?

Imagine a system in which a private company as a “government service provider” offers you protection of life, liberty, and property. This service includes internal and external security, a legal and regulatory framework and independent dispute resolution. You pay a contractually fixed fee for these services per year. The government service provider, as the operator of the community, cannot unilaterally change this “citizens’ contract” with you later on. As a “contract citizen”, you have a legal claim to compliance and a claim for damages in the event of malperformance. You take care of everything else by yourself, but you can also do whatever you want, limited only by the rights of others and the other moderate rules of living together. This includes teaming up with others for all sorts of purposes. Disputes between you and the government service provider are heard in independent arbitration courts, as is customary in international commercial law. If the operator ignores the arbitral awards or abuses his power in another way, his customers leave and he goes bankrupt. He therefore has an economic risk and therefore an incentive to treat his customers well and in accordance with the contract.

This system is called Free Private City. At first glance, it may seem outrageously radical or utopian. However, we are already using the service approach very successfully in other areas of our lives. The transfer to our social order is only the last step in a development already under way. What is new is that coexistence in this system takes place on a purely private basis, but the system is nevertheless able to provide all those services (especially security) requested by residents of previous states, and indeed better, cheaper and with far greater degrees of freedom for customers, the contract citizens. The main elements of the free market are simply applied to our living together, namely the voluntary exchange of services, the right to reject offers and finally competition as a method of discovery, a means of limiting power and a quality filter. Since participation in the Free Private City is voluntary, the concept must be permanently attractive, otherwise no one will come or the residents will leave again.

Especially the design as a service contract has the advantage that it has already been tested and proven. It corresponds to what we know from the private businesses of everyday life, be it the purchase of bread from the baker, the conclusion of an insurance policy or the appointment of a tax consultant. A reciprocal, mutually agreed contract is always the basis. It regulates which product or service is to be supplied at what conditions and at what price. This applies even if the contract - as with the baker - only came about through implicit action. The buyer knows that his contractual partner has an economic interest; he does not have to pretend to be motivated by either the common good or the rescue of humanity. Disputes may be referred to independent courts or arbitration bodies. No salesman would get away with changing the contents of the contract later unilaterally (”From now on you pay twice as much, but get an additional service for it, which you did not order”) or having a dispute settled exclusively by his own institutions.

In a Free Private City, everyone is the Sovereign of Himself who, by voluntary agreement, has concluded a genuine contract with a more or less ordinary service provider, the Citizens’ Contract. Both parties have the same formal rights and are therefore legally on an equal footing. The relationship between authority and subject is replaced by the relationship between customer and service provider. In contrast to conventional systems, where the citizen is obliged to pay tax without having a corresponding right to benefits, in a Free Private City service and consideration are directly related. Both contracting parties are entitled to fulfillment of the contract, i.e. the operator can demand payment of the fixed contribution from the contract citizen, but no additional fees. In turn, the contract citizen can sue the operator for compliance with his contractual obligations, for example by ensuring security and a functioning system of civil law. Who is currently in charge of the operating company or to whom it belongs is of no relevance for the functioning of the model.

A Free Private City is therefore not a utopia, but rather a business idea whose functional elements are already known and which need only be transferred to another sector, namely that of living together. Basically, as a service provider, the operator only provides the framework within which the society can develop openly in the sense of a “spontaneous order.”

Main Features of the Free Private City

Free Private Cities are characterized by the following main elements:

  1. A Free Private City is a sovereign or at least semi-autonomous local authority with its own legal and regulatory framework, and its own tax, customs and social regime, as well as its own administration, security forces and an independent dispute resolution system.
  2. A Free Private City is run by an operating company as a for-profit business. For a fixed basic fee, it guarantees the inhabitants protection of life, liberty and property.
  3. Participation and residence in the Free Private City is voluntary.
  4. There is no legal claim to admission to the Free Private City; the operator decides on this according to his criteria and his discretion.
  5. Each individual resident has concluded a written citizens’ contract with the Free Private City or its operating company, which conclusively regulates the mutual rights and obligations. This includes the services to be provided by the operator and the amount to be paid for them, as well as the rules applicable in the Free Private City.
  6. This Citizens’ Contract cannot be unilaterally changed; it represents the “personal constitution” of every contract citizen.
  7. Furthermore, contract citizens can do as they please, provided that they do not violate the rights of others or the other rules laid down in the Citizens’ Contract.
  8. All adult and legally capable contractors are responsible for the consequences of their actions themselves, not “society” or the city operator. Apart from claims for contractual or family support, there is no right to live at the expense of third parties.
  9. Any resident can terminate the contract at any time and leave the Free Private City again, but the operator can only terminate the contract for good cause, e.g. for breach of contractual obligations such as continued non-payment of the fee.
  10. In the event of conflicts with the operating company, each party is entitled to appeal to independent (arbitration) courts that are not part of the operator’s organization.

The operator’s basic package, which must be accepted and paid for, comprises security and rescue forces, a legal and regulatory framework, a certain infrastructure and independent courts and dispute resolution bodies. To ensure voluntary participation, ideally the area should start out uninhabited.


In order to implement a Free Private City, internal autonomy is necessary. This does not necessarily mean sovereignty under international law, but at least the right to regulate one’s own affairs independently. The establishment of a Free Private City therefore requires a contractual agreement with an existing state. In this agreement, the Host Nation grants the operating company the right to establish the Free Private City on a defined territory in accordance with the agreed conditions.

Free Private Cities therefore do not correspond to privately administered new cities or gated communities that are fully subject to the laws of the respective state, or authoritarian city states such as Singapore or Dubai, which can unilaterally change the rules at any time. They also go well beyond special economic zones, but rather correspond to independent special administrative zones, comparable for example to Hong Kong’s relationship with China. States can be attracted to such a concept if they expect advantages from it, like they do when establishing Special Economic Zones. Getting existing states to give up part of their sovereignty is certainly not an easy task. Nevertheless, this path seems easier than changing existing systems “from within” towards more freedom, legal security and self-responsibility.

Take a look at Hong Kong, Singapore or Monaco. Near each of these city states, a kind of belt of prosperity has grown up around them in the neighboring countries. Its inhabitants pay taxes in the neighboring countries. In addition, these city-states create many jobs for commuters from the surrounding countries who might otherwise have remained unemployed. If a Free Private City is created in a previously structurally weak or uninhabited area, then the host state has nothing to lose and everything to gain.

Living together in a Free Private City is based on just a few principles. The guiding principles are self-determination and private autonomy. The Golden Rule applies to living together as it is expressed in the proverb “Do not unto others what you do not want others do unto you.” In addition, the principle do ut des (”I give so that you give”), i.e. the recognition that merit is based on reciprocation; finally the principle of voluntarism or non-aggression, i.e. the priority of voluntary cooperation over coercion and expropriation, including expropriation for allegedly good causes. In order to comply with these basic rules, coercive measures can or must also be applied. Serious or repeated violations also lead to exclusion from the private city. The right to end one’s stay in the Free Private City at any time is part of the concept of voluntariness.

Free Private Cities expect their citizens to be mature and independent. This includes taking responsibility for oneself and others, strengthening family and small communities, as well as using imagination and ingenuity to overcome difficulties. In return, there is the joy and satisfaction of being able to master your life by your own efforts according to your own ideas. In the long term, a community of self-confident, bright and realistic people will grow up in this way. If everyone is free to decide what they want to do and how they want to live, there is also no real need for participatory bodies such as parliaments. They are always at risk of being hijacked by interest groups or the government for their own purposes. The freeze on change in favor of freedom and self-determination in a Free Private City is the Citizens’ Contract. Thus, the residents can agree on a representation of their interests and, for example, establish a municipal council. But even though 99% of the population participate and voluntarily submit to majority voting, this body has no right to impose its ideas on the other 1%, who want nothing to do with it. This is precisely the point at which state systems regularly fail: the long-term guarantee of individual freedom.

The city operator’s profit requirement is of central importance. Many people consider the pursuit of profit to be immoral and prefer to have nothing to do with it. They fail to recognize that there is no better incentive to make the best use of scarce resources. It also ensures transparency. The operator of a Free Private City wants to earn money, that is clear. But what are the motives and rationales of politicians? Almost nobody believes that they are driven solely by concern for the common good. The incentive of meeting with presidents and kings as heads of state, seeking recognition by announcing world rescue plans to the United Nations, being prominent and wielding power over people – in Free Private Cities all these things play second fiddle to the profit motive. Of course, such considerations will also be of concern to the city manager or mayor appointed by the operator. But in the end he has to do what is good and profitable for the operating company and therefore cannot simply change the rules (customers would go away), join international organizations, participate in the worldwide conference circus, or frequently receive famous personalities (additional expenses for “pomp” without measurable value). The incentive system is therefore very different from that of a politician in conventional systems. There the politician can pursue the described personal interests to increase his fame at the expense of the citizens, while the head of administration of a Free Private City cannot for the reasons mentioned.

Rather, competition and the requirement to turn a profit force the operator of a Free Private City to permanently improve his product and optimize the use of resources. Every decision he makes has immediate effects. Does this increase the satisfaction of the residents or is it not reduced by cost-cutting measures? In other words: will this ultimately generate higher revenues than expenses? If so, profit is made and the enterprise value of the Free Private City is increased. If not, the measure must be reversed or improved. Such efficiency will never be achieved by public state systems.

What Could Life in Free Private Cities Look Like?

Innovative service providers such as Uber or Airbnb are not prohibited but a matter of course. There are private entrepreneurs who cover everything that is in demand, from hospitals, schools and kindergartens to waste collection. If desired, residents can insure themselves privately against all eventualities of life or set up self-help groups, be it to protect against illness, death, need of care or accidents. Highways, ports and shopping centers are constructed and operated by investors. Anyone can offer new products and services without authorization or license, and get paid in any desired currency. There is also use for unskilled workers - for lack of minimum wage regulations. Cheap products can be imported from all over the world because there is free trade and therefore no customs duties. New drugs and treatment methods are available to any adult who wants to test them with knowledge of the potential risk. Environmental thresholds apply only to truly dangerous products and processes as determined by serious scientific research.

There is freedom of speech, even a certain religion can be criticized, and full freedom of contract. Cigarettes are again traded and advertised without ugly warnings. High-performance vacuum cleaners and shower heads are available, even old-fashioned light bulbs (in the European Union, conventional light bulbs are forbidden today). The city makes its own immigration rules. It can summarily throw out anyone who becomes a criminal or, for example, causes a nuisance by propagating the primacy of religious dogmas over the rules of the city. Due to this positive selection, contract citizens do not require a visa for most states. Free Private Cities that belong to the same operator or are otherwise associated also have a globally uniform emergency number as well as consulates abroad, in which contract citizens are helped in emergencies.

Crime and vandalism hardly exist, you can even let your children out on the streets at night without worrying about them. Sociologists, political scientists, art historians and other humanities scholars, who usually populate the civil service and state-funded NGOs, have become rare. Since their studies have to be paid for themselves, training courses that promise the prospect of real customer demand are generally preferred. Some companies, including well-known names, have failed to settle here. There are neither new laws that can be influenced in their own favor nor subsidy pots that can be tapped. Hosts of clever people who would have become civil servants, tax consultants, lawyers or auditors elsewhere work in the private sector and increase productivity and value creation.

Political activism, missionary zeal, distributional struggles and the stirring-up of social groups against each other have practically disappeared. The contract citizens respect each other’s different views and assessments. People are once again responsible for taking care of themselves and are thus automatically more self-confident, more stable and more realistic in their assessments.

After two generations at the latest, Free Private Cities would be wealthier, freer and more peaceful than anything we have known so far.

This article was adapted from the book Free Private Cities: Making Governments Compete For You.

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