I know of no more encouraging fact than the unquestionable ability of man to elevate his life by conscious endeavor
– Henry David Thoreau
Dear tech entrepreneurs,
The ground you’re working on, technology by definition, not only opens up business opportunities for you, but affects you holistically, and empowers you, in particular, to make active, and for the first time, truly impactful decisions about the literal ground you wish to work and live on. Technology makes entrepreneurs and individuals, in general, more sovereign than ever before.
Information technology, radically altering information and transaction costs, transcends the tyranny of place by facilitating choice, genuine consumer choice of customized sovereignty services. The instantaneous sharing of information is becoming like a solvent dissolving large state institutions, automatically exposing jurisdictions everywhere on the world to de facto global competition on the basis of quality and price of state services. In other words, governments exercising local territorial monopolies, like most other entities, finally are becoming more and more subject to real market competition on the basis of how well they serve their customers. In the following, I’ll show how and why and why you play a crucial role in that development.
As a tech entrepreneur myself and liberal by heart, I wish to raise your awareness about a fundamental problem, namely that of how we wish to live together from a different angle and how, I think, it will be tackled. As the ambassador of Free Private Cities in Switzerland, I also provide some evidence for my conjecture. In the same capacity, I invite and encourage you to not only spread the idea, but also help implement it.
An ideological problem transforms into a business problem
Liberals’ critique of what’s going wrong in the world is clear and could run as follows: Today’s political and social systems provide incentives for the minority in power to enrich themselves at the expense of the majority, to waste other people’s money to enhance their own fame, and to buy votes through alleged free benefits. Intervention, then, begets cronyism. Their/our conclusion is that a system legitimate in any way, which by law provides for expropriations in favor of third parties (e.g. in the form of taxes and social security contributions) and which not all those affected have agreed to in advance, can in the long run create neither a peaceful nor a predictable coexistence. It destroys what makes a society successful and attractive, leading to a battle of all against all for the enforcement of favorable regulations.
You may or may not buy this interpretation and argument, depending on your ideological viewpoint and what you deem to know on social order. Therefore, I’m not asking you to buy my liberal’s view (which could easily become a non-liberal endeavor), but to first pay attention to some facts relevant to you and their consequences. Second, cherish your entrepreneurial perspective and apply it here too: disagree with an obsolete definition and think of governments as competitive service providers, regard yourself as customers and customers normally wish to see the prices they pay for any product or service, including infrastructure and protection.
The aforementioned battle for the enforcement of favorable regulations which we can indeed observe in many jurisdictions paves the way for complicated regulatory regimes, tax codes or licensing rules, which naturally select for larger and larger corporations with market caps of up to more than USD 1T (such as Apple at the point of writing). It is no surprise that these increasingly large corporations such as the GAFA then capture those rules, codes, and regulations to disadvantage or exploit their competitors, especially including you with your challenging, but less powerful startups.
Be aware that you are no longer obliged to live in a regulation jungle, an environment contaminated by market power, nor in high-tax jurisdictions. Most wealth can be generated anywhere, and even spent anywhere. States unable to provide legal certainty by means of lean and transparent regulation or that attempt to charge too much as the price of domicile will merely drive away their best customers. This will make smaller jurisdictions, from Switzerland to Liechtenstein to Free Private Cities, in the logical extreme, more successful.
The Don Quixote of the 21st century is not a knight-errant struggling to revive the glories of feudalism, but a bureaucrat and tax collector yearning for a citizen to audit.
– Lord William Rees-Mogg
Demand creates supply: A new market, a new product
There can be no dichotomy between economy and society, simply because the overwhelming majority of the “society” is active in the “economy”. From this angle, it is evident that we can, and maybe should treat (fundamental) problems in our current social and political systems as business problems to be sorted out. We ought to address them on the free market which is, Ludwig von Mises described this impressively, the most powerful instrument of disempowerment in the history of mankind. And competition emerges on that market of living together. Apart from the international supplier Seasteading Institute or the Swiss initiative Freies Winterthur, I’m pleased and honored to be part of bringing Free Private Cities into existence.
So what is a Free Private City? Imagine a private company offers you the basic services of a state, such as the protection of life, liberty and property, within a territory. You pay a contractually fixed fee for those services. Apart from that, you’re free to do as you choose (limited only by the rights of others and some limited rules of living together). Your rights and obligations are laid down in a contract with the government service provider, and this operator of the community cannot unilaterally change this “citizens’ contract” with you later on. Conflicts about its interpretation go to independent arbitration. Thus, as a contracting party, you’re on an equal footing with the governance service provider. Your legal position is secured as opposed to being subject to the whims of politics.
Some might now say this is all wishful thinking. After all, why should existing states, whose consent is needed, get involved at all? As with Singapore, Hong Kong or Monaco in the not too distant past, there is only one reason: self-interest. States may agree to surrender part (not all) of their sovereignty over a given territory when they expect to benefit. And they will (as empirical evidence suggests, e.g. think of Singapore and its exurbs). And yes, negotiations with interested governments for the first Free Private City have already begun in parts of the world where those pressures are felt more vigorously early on due to the respective nation-states’ weak balance sheets.
What’s in it for you?
The straightforward response to this question might be threefold: place of residence, e-residence, business domicile. The follow-up question might be more interesting for the moment though: Why should you consider one or more of these options in the first place? Here are five reasons:
- Legal certainty and lean regulation. Clear, stable and understandable rules of the game – the result of an actual real contract struct between citizen and city (in the spirit of Rosseau) – reduce what economist Robert Higgs refers to as “regime uncertainty”. Such an environment makes it more likely that budding enterprises emerge, that your own companies will thrive there, and that overall tech clusters attract even more market players.
- Skin in the game. Today, politicians bent on optimizing votes have little incentive to grasp problems coherently, not to speak of immense challenges such as fighting climate change. It is hardly surprising, therefore, that their records in actually solving problems are so pathetic as compared to your achievements as entrepreneurs and business executives who are awarded according to performance. As the founder, President & CEO of Free Private Cities Inc., Titus Gebel, points out, the incentives for the Free Private City operator are fundamentally different from legacy states. First, the operator has a direct economic interest in the success of the community. Second, the operator can be held liable for errors and cannot conceal responsibility or shift costs. Finally, unhappy customers and entrepreneurs will exit.
- Proudly small. What is the optimum size of a corporation? Big business is slow, bureaucratic and hierarchic (and this is probably also a reason why you became an entrepreneur): Administrative and management teams in big businesses monitor and coordinate production, and since such administrators held crucial knowledge necessary to operate the business, they were usually paid a premium above what their skills would have commanded in the spot market. In the Information Age, most tasks that were formerly captured within large firms as an expedient to reduce information and transaction costs (Ronald Coase), will be taken over by much smaller entities, (small) startups, or even migrate back to the spot market. What is the optimum size of a jurisdiction then? I let you draw the conclusion by analogy.
- Liabilities. Be aware that the top percent of taxpayers, where you easily end up once your startups go through the roof, shoulder the lion’s share of the total income tax burden. Not only are the rich obliged to pay for service that, as Frederic Lane reminds us, is “of poor quality and outrageously overpriced”, but their payments are often not proportionate to any service whatever. For example, you go to a state office to register your company, you hand in a few papers which you sign, then the bureaucrats will process those documents and ask you for a sum in the three or even four figures “in return”. Realizing this doesn’t make you asocial. Instead, reason gives voice to those that know of the inherent flaws of redistribution-based state interventions to establish and secure social cohesion.
- Experimentation. Nobel laureate in economics Douglass North reminds us that “[t]he organisations that come into existence will reflect the opportunities provided by the institutional matrix.” Based on the rules, you’re more likely to get either more piracy or more productivity. But to find out what works best, let’s embrace pluralism, experimentation and competition, which is in line with the trial and error approach (Karl Popper) you adopt for developing successful products. Let the market, the most powerful tool we possess, decide what social system or what Free Private City works best and turns out to be most attractive to Sovereign Entrepreneurs.
What should you do now?
Passively wait until that glorious future of Free Private Cities unfolds? That’s not in your nature as entrepreneur. The future is now and it’s yours. As I argued before, we expect to see something new emerge to replace politics in a corset of the Industrial Age. It will not be reformed or improved, but antiquated and, in most respects, abandoned in favor of entrepreneurial governments – the commercialization of sovereignty. It will permit you greater practical scope for expressing your views, for decision-making and self-determination than any form of social organization (from dictatorship to mass democracy) that has heretofore existed.
Entrepreneurs who change and challenge the status quo are brave and uncomfortable. You found your ally in the Free Private Cities movement that changes and challenges the status quo on the most important market of all, namely the market of how we wish to live together. Vote with your feet, and free yourself to negotiate a private tax treaty that obliges you to pay no more for services of government than they are actually worth to you. As the ambassador of Free Private Cities in Switzerland, my colleagues and I can help you negotiate your own zona franca from a recognized government that is prepared to sublet its sovereignty under the right circumstances. Success is a choice. If you’re to succeed, you must arm yourself with the perspective and habits that characterize successful personas.
Christian Hugo Hoffmann
You can reach the author at: [email protected]
 The GAFA are the four US multinational online service or computer and software companies that have dominated cyberspace during the 2010s: Google, Amazon, Facebook, Apple.
 The fact that there are more controversial examples too such as Shenzhen and Hong Kong where the contract between the latter and their citizens is completely broken as we can see through the last 6 months of heavy protests shows us that a simplistic call for special economic zones is not the solution for overcoming current problems.
 It is not be forgotten that the most costly part of what modern nation-states do – reallocating income – is not the provision of a public good at all, but the provision of private goods at public expense. “Public expense” here is a euphemism for “at the expense of those who pay the taxes”.
 In principle, they can include hippie communities, dictatorships or libertarian minimal states, etc. Furthermore, nothing speaks against a variety of free private cities between which we will migrate over our lifespan.