073 - Peter Young: Special Economic Zones, Autonomy and the Future of Free Cities

[Music] Welcome to the Free Cities Podcast. My name is Timothy Allen and this is the official podcast of the Free Cities Foundation. [Music] Hello and welcome to episode number 73 of the Free Cities Podcast. Well, number 73 significant in many ways, for me at least not just because it's the 21st prime number but today it's significant because we have Peter Young back on the show. Peter is of course the managing director of the Free Cities Foundation and the last time I spoke to him on this podcast it was actually episode one more than a year ago which was an episode about Free Cities in general. Well this time he's back and he's talking about special economic zones, free zones and autonomous cities. We're basically giving you the 101 on what we both discovered during the making of our film "Zones of Progress". Now there's a lot of great insights here in this episode into the evolution of Free Zones and what their future might look like if the trend continues along the same trajectory. Peter is super knowledgeable on this subject so pay close attention and soak up all the knowledge. I personally think that understanding the history of S.E.Zs is hugely important if you're interested in the establishment of new autonomous territories. Also while you're listening look out for my penny drop moment with the concept of democracy. It's been a long journey for me on that subject but now it appears that I may be ready to tackle hand-term and hoppers democracy, the god that failed. Wish me luck on that one. And of course while I'm doing all that you can yourself grab a cup of tea or whatever you drink, locate your favorite chair, sit back, relax and enjoy my conversation with Peter Young. [Music] We're in Dubai and we're nearing the end of a very long round of interviews with people connected with Special Economic Zones past, present and future. And I thought what might be an idea actually is to try and sort of reveal what we've learned because I've learned a load over the last couple of weeks. And so why don't we go back right into antiquity because we didn't really explore this in the film. The very part that the deep past of Special Economic Zones but we can hear. We can do that. So tell me what you know about the Special Economic Zones of the past as in historical past. Well, when you look back at history, cities precede countries and empires. So we first started building urban and global operations before there was really an idea that there was a wider kingdom associated with them. We've got records from ancient Mesopotamia and we can see that the cities they're operated in a fairly autonomous way. That's going back a long way, a couple of thousand years BC. But if you look across the world, you know, it happened in various cultures independently in South Asia, in Mesoamerica, so under the Aztecs in Europe, cities developed autonomously first. And it's only a place that we start to get these broader concepts. So it's kind of easy to look at the way the world is today, the world of Westphalia and nation states and think that this is how the world has been for all of history. But in fact, the reality is quite different. You know, Italy as a country has only existed for 160 or so years. Previously it was broken down into several constituent parts. Borders of Europe have changed very frequently. And it's only really in, you know, since the Second World War that we've had this relative stability in country borders. Okay, so what I discovered in making this film was that there is a historical precedent for special economic zones, but really they they have a modern incarnation and their modern incarnation started in 1959 when in Ireland, in a place called Shannon, which was an airport. What can you tell me about Shannon, the airport? Well, Shannon was used as a fueling station for planes that were crossing the Atlantic. So it's located right on the west coast of Ireland. And because of that location, it's basically at the narrowest point for crossing, for making a crossing between Europe and the United States. So it was used as a airport for refueling. But following it sort of in the 1950s, planes were starting to gain a longer range, able to carry more fuel with them. And so this idea of having a place where you could stop off and refuel on the way was no longer necessary. So the government decided that they were going to try and take steps to counter the natural decline in traffic coming to their airport by setting up a special economic zone. The first one in the modern era, the official name is Shannon Freezone, Shannon Airport Freezone. And they did this, what they did in order to make this zone more attractive was they provided some preferential policies regarding customs and excise. They provided some preferential taxation to corporations. And they also provided some infrastructure so that companies had the basic necessities in place in order to succeed. So this was one of the free zones, it was relatively successful. It was built on an area of a couple of square kilometers. And at the time that area had something like 250 people, and today the number stands at around 10,000. So it's still a free zone now? It's still a free zone now, but the Irish government has rolled back on some of those preferential policies. It still exists, it's still used as a kind of industrial area, but some of the initial policies have been rolled back then. Why do they do that then? Did they notice they weren't working or is that just government being doing government things and spoiling it for everyone else? Yeah, I'm listening to this story of why they rolled it back. I think it had something to do with wanting to harmonise policy across the whole country. So one of the things that you have to be careful about with special economic zones is that you're not providing, you're not distorting your base economy. So if you've got a particular geographical area, which has say 5% corporation tax compared to 25% across the country, then all of the other businesses that are receiving that 25% corporation tax are going to be at a comparative disadvantage. And that can create distortions. It's almost like providing a disincentive to the companies that have chosen to come and invest in your country early. So if you come and you set up an office in Dublin and you invest all of that money to build your physical offices, your capital equipment, your locally sourced employees, and then you find out that your competitors have been able to set up in Shannon and receive that preferential rate, then that might not be a good thing. So I think they will roll back partly due to concerns with some internal competition. Okay, so Shannon, as it turns out, was quite an inspiration. People saw all the success of it. And I think really if you look at the arc of evolution of special economic zones because they certainly are evolving, Shannon was a port. So a lot of their policies were to do with tax and import duties and all that kind of stuff. China was one of the main players in the market shortly after that in the world scene. What was China's stance on special economic zones and economic development? been in general at the time. China underwent a very tumultuous 20th century in general. At the start of the 20th century they had an emperor based on an imperial system that had been in place for thousands of years. One of the oldest continuous political systems really. I mean it changed quite a lot with its dynasties but they still had this emperor figure and this idea of China. That really all started to change with the nationalist revolutions in the early part of that century and then there was this big change when the Communist got into power in 1949 and China traditionally being quite a bureaucratic system. So it was never a sort of super free market system but really the Communist coming into power. I mean they were inspired by Lenin and the system that was in place within the Soviet Union and they really pushed a centrally planned socialist driven economy under the era of Mao Zedong, the first leader of modern China. During that period people in China couldn't really operate private business. They closed off China to a very large extent to the outside world. The exception during the early years being other Communist countries in particular the Soviet Union and then they had the Sino-Soviet split in the 1950s and then following that China was like not only a very state-driven economy it was also closed off from the outside world and that time was very difficult for Chinese people. Living standards remain pretty low. There were obviously people within the society that were ideologically committed to this particular system and there were some people that did better from the situation but overall it was a very difficult time particularly during the late 1950s with the Great Leap Forward campaign that began in 1958 and then the Cultural Revolution after that. So China had gone through this very difficult political period and under the leadership of Mao it's very difficult to change course. He eventually died in 1976 and following his death there was kind of this period of internal introspection. It wasn't known who was going to be the next leader. There was another guy called Huagoufeng who was a Mao-like character who kind of became prominent for a year or two but after two to three years it became apparent that another leader called Deng Xiaoping was on the ascendancy and Deng was still very much a communist in terms of his ideology and his background but he was more open to alternative ideas and you could call him a pragmatist. He was a socialist but he looked at different systems and he said well it's working there so maybe we can call this socialism but change it so that it has Chinese characteristics and today in China they use the term socialism with Chinese characteristics to describe the political system they have. So after this guy came to the ascendancy there was various people that were pushing China to pursue this different pathway. There were internal elements within Guangdong and the south of China that were saying we need to open up we've got Hong Kong across our border. There's some opportunity here to pursue a former development that could be quite beneficial and those voices in combination with Deng Xiaoping's more open-minded approach led to China establishing four special economic zones. They were Shanto, Shaman, Zhuhai and most famously Shen Zhen. Shen Zhen is probably the most famous special economic zone in the world today and it's famous because it's located directly across the border from Hong Kong. In 1979 the area that comprises modern day Shen Zhen there was a town called Shen Zhen that had about 30,000 people but the area that comprises modern day Shen Zhen is actually much bigger that that area had about 300,000 people and between the designation of that zone in 1979 and the year 2020 the zone grew on average 20% a year in terms of GDP. The population grew from 300,000 to 12 million. If you compare that to other great urban transformations in history, for example Chicago the city that had the world-first skyscrapers. This story of Chicago's development was known around the world. In 1870 it actually had a very similar population to Shen Zhen around 300,000 people and there was this great story about how it quadrupled its population by the year 1900 and so on to build skyscrapers. In a same 30-year period Shen Zhen's population went from 300,000 to 12 million so that's 10x what Chicago did and not only did Shen Zhen itself as a special economic zone undergo this really remarkable transformation in terms of economy in terms of population but it also went on to have a huge impact on national policy in China. What out of interest and we probably should have given a definition of what a special economic zone is at the beginning of this but I don't think it's necessary now but loosely speaking there's their areas that have different policies, different privileges to the rest of the country. So what was it about let's use Shen Zhen as an example. What could you do in Shen Zhen, Shen Zhen that you couldn't do in the rest of China? So one of the key areas was foreign direct investment. In the rest of China it wasn't possible for foreigners to have a significant ownership in a Chinese company. In Shen Zhen they allowed firstly the establishment of jointly owned enterprises so foreigners could come in and have basically a 50/50 stake in a company with a local partner and that allowed all of the investment from Hong Kong to come in. Another area is capital controls. If you were one of the few businesses that was able to operate in China as a foreigner getting money out of the country or really this wasn't just foreigners they were very few at the time. This was Chinese people as well. If you wanted to get money out of the country then the only way you could do that was to exchange the Chinese RMB with a foreign currency according to a fixed exchange rate set by the government. That would be incredibly preferential for the government rather than the business person. They didn't want people to be transferring capital out of the country. That was a relaxed in Shen Zhen. Another major thing was land use rights. Shen Zhen initially started off by taking a liberal approach to how land could be used which meant that more construction could happen. And then towards the late 80s they actually pioneered the first ever land use sale. Prior to 1987, well prior to 1988 there was a prohibition in the Chinese constitution article 10 which said that you cannot buy and sell an exchange land. What this meant is that if an individual enterprise was mainly state owned enterprises in that era but if an individual enterprise gained permission to build say a factory they had that individual permission from the government. They couldn't then sell that factory to another enterprise. It was all regulated. That was in 1987 the first transaction of land use rights was tested out in Shen Zhen even though it was technically against the constitution. They allowed Shen Zhen to experiment with this. And as a result there was some development that took place that proved to be very successful and China then ended up amending its constitution to allow land use rights. And that was really the starting gun that triggered the boom in Chinese real estate market that went on to create the largest market of its kind in the world. And something else I very much have learned from making this film about special economic zones is that quite an important role they play in countries is as a place to test out policies in particular legislation like you're describing there. Maybe you could just speak a little bit about that. So most of the policies that China went on to to implement on a national scale were tried out in the special economic zones first. All of those that I've just mentioned were very significant. The ability to buy and sell land, like there was no market in land before. That was first tried out in Shenzhen. The ability to bring in foreign investment to have jointly owned enterprises. Lots of the first foreign companies that have a presence now all across China. Many of those started out in Shenzhen or other special economic zones as well. The first McDonald's was built in Shenzhen in 1990s. Now a site that people go and visit because it's like there's so many in China now, but it started there in Shenzhen. There's this ancient Chinese phrase, "Morjashrutol gorka", which is to feel for the stones as you cross the river. That represents really the attitude that China took in the 1970s. They had a country with a population of about a billion people. They didn't want to just decide to open up to the outside world immediately because maybe that would have pretty dire consequences. Compare that to say what happened after the Soviet Union collapsed. Many people are critical of the privatisation that took place wholesale across Russia in the early 1990s due to the speed of which they occurred and due to the manner in which the privatisation took place. This was actually before that, but maybe China had some foresight in saying we're not going to just suddenly open up. We're going to test things out one at a time. This is what China did. They decided to set up these geographically distinct areas where different rules and regulations apply. They proved to be successful. This was really a catalyst for change across the whole country. We see a really phenomenal example of that right here in Dubai where we are now. Also, I think what's happened in Dubai with Special Economy zones definitely represents an evolution from the zones of China. The one that is the most fascinating, I think, and now one of the most influential is the DIFC Dubai International Financial Centre. I was going to say his own centre. The reason it's so phenomenal is because why don't you say what they did, their major innovation? Dubai International Financial Centre was the first place in the world where a government decided that a different legal system was going to apply within their own territory. There are other examples of places where another country's legal system applies, like Hong Kong, for example. Hong Kong was a colony. It started as a result of the opium wars in the 1830s. And it was by force that Hong Kong ended up having this different legal system from the traditional legal systems of the mainland. But Dubai in the early 2000s was looking at different ways that it could improve its economy, attract international business, and create high paying jobs for the local population. And one of the things that was discussed at the time was that actually the legal system within the UAE does not really have the experience of dealing with some of the complexities of the modern financial world. So they were keen on bringing in financial companies, but the globally, it's really a British common law that serves as the financial foundation for international finance. It was Sharia law, right? It still is Sharia law. Yes, it's a civil law system with Sharia law elements they have here in the UAE. And the UAE leaders said we're going to take this area of Dubai and we're going to allow exemptions from that Sharia law and we're going to allow a version of English common law to apply instead. And basically it was remarkably successful. Since it was established in 2004 and 2004, they've been able to attract 4,300 companies, which are still active. And those companies have 36,000 employees, most of which are white collar workers. The average contribution of someone living in DIFC or sorry, working in DIFC to Dubai's GDP is roughly five times that of the average person as well. So it's a very productive part of the economy. There's various estimates for how much of the GDP it accounts for ranging from 3 to 10 to 10 plus. So this model has been very successful when it's since been copied in a number of places. Obviously, free cities, foundation people will be very interested in this concept because it's very easy to look at Dubai and notice the similarities between the way Dubai operates and the way of private city might operate. And it's been fascinating actually talking to people who are living here. We've spoken to a lot of entrepreneurs and digital nomads as well for this documentary. And what I found fascinating was how many of them said that living here in Dubai actually feels like the ruling people are treating you like a customer rather than just a place to derive tax. Is my comparison with private cities? Is it relevant, you think? Yeah, a lot of people have said that thing to us. They've said that they feel more like customers than than tax cattle for one of a better price. No, that's what everyone heard that. I heard that a number of times. Yeah, I think part of the reason for that is that Dubai in itself is an incredibly international place. Only about 9% of the population are Emirati here. So it's 90% foreigners. And with that comes links to other places of the world. And you're necessarily working with a population that is more mobile, potentially more transient, that has other options. And so if you want to keep that population within your zone, paying taxes where you are contributing to the local economy, bringing investment to your local area, then you have to be mindful of meeting their needs. And you can't sort of take them for granted. So I think that dynamics played out here and it seems to have done so in quite a successful way. And it's a very intricate part of the free private cities thesis as well. And even in the free city ecosystem in general is to create some form of competition which necessitates that government's vie for your business rather than the model that we tend to see back home, certainly in our country, where we're from the UK where I've never felt that the government saw me as a customer. I don't know. Have you ever felt that? No, especially not when I go to local government offices. It's the complete opposite. So and I'm interested to have a discussion about why this is. Obviously, I've got my own theory. And that is Dubai, in a way was it was forced into a situation where it had to compete. It wouldn't have been and most people that have moved here, I would imagine it wouldn't have been a it wouldn't have been high on their list to move to the middle of the desert in the early days. So it made Dubai for it forced Dubai's hand or it forced the UAE's hand to become super confetted, super competitive and they obviously did that with tax, they did that with various other legislations. But now we enter this interesting evolution of the zones, I think, where you're not necessarily where you are but your primary objective may not be to attract capital rather than human capital. What do you think about that? Yeah, human capital is very important. We live in a digital world where you know, when you look back at history, like look at the Industrial Revolution, urban centers developed around capital equipment, the factories, the manufacturing capability that was used for producing the products and services that were distributed around the world and manufactured never-great quantities during that economic boom period. Today, much more of the world is based around intangible capital, intellectual property, products and services that don't require you to be in one particular location. You might have servers that are storing your data somewhere, but the world has never been more-the economy of the world has never been more information focused and information can be sent at the speed of light across the world. So with that comes an additional bargaining power for people that provide their services in the digital realm. Previously, it was easier for governments to tax populations that were pretty much tied to a particular work unit where a particular language was spoken. Italian worker couldn't very easily move to Britain. They'd have to bring all of their belongings a long way. They'd have to learn a new language. It did occasionally happen, but it was pretty rare. For that reason, it was easier to tax. Now, that dynamic is changing due to the rise of intangible capital and the rise of digital economy. Interesting, as well. When I was talking to Vera about this yesterday, but quite a few private cities evolved around industrial capital. Her, she was talking about various private places that were built specifically to house workers who worked in those factories. It's interesting. I've never thought of it like that. So Dubai is basically a city built around it built around intangible industry. So it could be anywhere. It could literally be anywhere. I mean, and it really is anywhere. I wouldn't have chosen the desert myself. It doesn't strike me as the kind of place you would choose to build a city unless you absolutely really wanted to. But that's interesting. So yeah, now, this idea of treating your customers better, obviously, leads quite nicely into the idea of the kind of future cities that we're all interested in. So talk to me a little bit about where we've seen some evolutions in the special economic zone model, which started with ports, then moved on to manufacturing. Now they're moving into the realm possibility of, oh, they moved into services. Now, maybe lifestyle becomes a component and it's very hard not to then look at private or autonomous cities as being some kind of a natural evolution along this timeline. What do you think? Yeah, I do think they're a natural evolution. I think good things can happen when you give autonomy to regions. They don't always succeed. And there's various reasons for that. But there have been some incredibly successful case studies of not just autonomous zones, but also small metropolis that have implemented ideas that are sort of different from the surrounding area. Hong Kong and Singapore are two great examples of that. And they of course have, they are of course cities with fully residential components as well. The laws and regulations there don't just apply to business. They apply to the residents too. So I think there's a lot of lessons to learn from their history. And we've already had this proliferation of special economic zones across the world. Not many people know quite how many there are, but it's taken off. Since that first one was built in 1959, the idea caught on. They started building zones in Latin America. By the mid 1990s, there were 500. It then went up to 3000 in the 2000s. And then today it stands at around 7000. There's been this huge growth in these zones. And I think that's going to continue. And there's going to be more of an opportunity for the people that have the pioneers to say, well, let's take this concept that we're applying to business. And see also if it applies can be applied to individual residents too. I think there's a great opportunity there. Autonomy is the contentious word, though. And I don't know how many governments aren't a little bit scared of the word autonomy. So what's your take on why governments shouldn't be afraid of autonomy? Or maybe they should. Maybe you think they should. If your goal is to create a country where your citizens are able to thrive and live their best life, then I think there's a really strong argument for granting a lot of autonomy. The reason for that is that if you create an entity, an area of land that's operated by a private company that has the ability to set rules, regulations for the local population and has an incentive to develop the infrastructure required to make that an attractive place to live, then they have an incentive to make their project a success. Within the traditional context of nation-states, I mean, there are various kinds of government in the world. There are countries that are more autocratic and there are countries that are democratic, particularly in the democratic countries. The incentives are not necessarily aligned to the long-term prosperity of your citizens. You've got a system where individual politicians are in power for, you know, maybe it's, if they're lucky, it's going to be 10 years, but normally in electoral term is four or five years. And you've got politicians that are really like caretakers of the national resource. They're not actual owners and cultivators of it. It's like they're given the keys to an individual factory or an individual house for four-year period. If you get given those keys, the way you act is going to be very different to someone who actually owns the house or the factory outright. So take the factory as an example. If you've got an automotive factory and you know that you're only going to own this for four years, you're probably not going to spend a lot of money on paying for people to maintain the equipment in the right way. You're probably going to let the equipment run down because it's probably going to carry on for the four years and work okay. But if you're really the owner and you're going to have this for decades, you want to make sure that you're regularly oiling everything regularly, getting in the repair guys to make sure that things are working correctly. Same with like an apartment, you're probably going to paint the walls, you're probably going to get the carpet replaced, you're probably going to upgrade to a more efficient refrigerator. So the energy use is a lower in the long term. But those incentives will change if you're just a caretaker. You think, oh well, I'll just maximize what this asset can offer me right now. And I think that's a very different incentive model to ownership. So for country leaders that are looking to increase prosperity, I think it's worth allowing people to try out this alternative model where there is more of a role for that long term ownership so that you've got those incentives in place to allow entrepreneurs to create businesses, create areas that they can invest in so that they can build a long term future for the population. Do you know what's funny? I've just had a penny drop moment. And it's so simple, you're probably laugh because you probably knew this already. But I was trying, when we were talking about zones, economic zones as testing grounds, and I was thinking of communism, you know, in China, thinking obviously good idea to test it out because communism to a free market is such a tumultuous move. You do want to try it out first. And I was thinking, well, why would you ever have a special economic zone in Europe on that on that reason? But obviously, you could try out something that isn't democracy within a special economic zone. It's the same thing. It's a very, because democracy is the, you know, it's an untouchable concept in the West, isn't it? You can literally, you know, if you speak badly of the democratic process or if you're not fighting for democracy, you'll create your you're committing almost like a thought crime these days. The question is, is there ever going to be a forward-thinking government that might want to try out a system that isn't democratic? It's going to be more difficult in certain countries where you have democratic leaders who have, by definition, risen through that particular process, gained their status through that particular process. It's going to be difficult probably to convince them to give grant this autonomy, but it may be that there are some people that understand the arguments for this and look at some of the historical examples of success and decide that actually this would be a good legacy to have to actually create these autonomous zones. I mean, this is what happened in Honduras with the passing of the 2013 Zeday Law. The leader there at the time obviously thought that this would be a good thing for the country in general as a way of attracting foreign investment. I think he was right in that respect that they did bring in foreign investment. They did create jobs. And he heard about it in a TED talk, right? He did, yeah. He heard about the idea in a 2009 talk by Paul Roma who is the inventor of the charter cities concept. Tell me more because that was something I discovered making this film that I didn't realize before. And it just shows you. I mean, you could go and do a TED talk and you could literally change the course of history. Or make a special economic zone's documentary, hopefully. Well, yeah, I mean, good, good point. I mean, it has been a massive learning journey. But before you could talk about the charter city thing, it is true that I mean, I was just thinking how the hell did communist China have the foresight to try out, you know, free market policies in a country like that. It seems, but there were obviously were people. There were people in there, as you said, who who wanted that. So obviously there are people within democratic systems who are going to look at different governance models. And often maybe in communist China, the thought of a free market policy was as as ridiculous as the thought of a non-democratic one is to me now. But yeah, I can't believe I'm the penny hadn't dropped on that because it's that's that's the point. That is the point of a special economic zone amongst other things is to be able to try things out. And a private city or some kind of an autonomous private city is a zone in which you try out a different governance model. QED. Anyway, back to charter cities. Yeah, so in 2009, Paul Roma gave this TED talk about why some countries develop and other countries don't. And he gave an example of a country in Africa where there was and there were children who were studying using streetlights rather than in the electricity in their homes. And the reason for this wasn't that this place didn't have electricity provided to homes in general. It was that politicians had introduced price controls to electricity on the electricity companies. So this is a kind of populist policy whereby the politician said, if you vote for me, I'm going to keep your electricity prices low. So electricity prices were kept at a certain level. And what this meant is that the electricity companies had lower revenues coming in and they weren't able to invest in the capital equipment necessary to provide electricity 24 hours a day. So they had controlled blackouts. And that was the reason why the kids were using the street lighting rather than the domestic electricity in order to do their homework. And he gave this example because he said, actually, it's the main reason why some countries succeed in others don't. It's not because of natural resources because you've got countries like Venezuela that have got masses of oil and you've got African countries that are not doing too well economically but have got masses of mineral resources and other resources. But then you've got places like Hong Kong and Singapore which are not very resource rich but do fantastically economically. So he said that the key thing is that you need to have good governance and good institutions in place. And there were already examples of countries that have strong institutions. He gave the example of Canada as a country that has a relatively politically neutral history. It's not sort of gone out on colonised countries around the world in the way that Britain and arguably the US have done. So he said maybe countries were considered choosing some of the rules and regulations of a country like Canada and adopting them locally. And what this would do is stem some of the flow of people leaving these less developed countries to more developed countries. Allow them to work and do high quality jobs closer to home. And service may be a test bed for some broader policies that could be tried out in the country. So this broader charter cities idea differs a little bit from free cities because free cities really are not suggesting taking another country's rules and regulations and just applying them. They're more saying let's hand that decision to private entrepreneurs who may decide to pick and choose certain regulations from different countries but they wouldn't sort of necessarily wholesale adoptor countries. Business law for example. And didn't that in the case of Honduras the reason that didn't happen in the way that was explained in the TED talk was because the dealing with the government was too complicated and as I understand it because it was trialed initially. I think the initial way that the ZAs were trying to set themselves up were using that model which was dealing with the Canadian government which actually failed. Is that right? So the main reason why the initial push for autonomous cities was not passed in Honduras is Congress. There was a kind of a zone called a red and the main reason why it wasn't passed is that there was it was regarded that these zones have too much autonomy. So for example they could sign international treaties independently of the Honduran government. That was roll back and this still very autonomous but not quite as autonomous concept known as the zone for employment and economic development was then introduced in 2013. Quite a few of the people that I've spoken to on this documentary who are very deeply embedded in the world of special economic zones have. Well I've had a couple of attitudes really. One is skepticism and the main skepticism for the private autonomous city idea is that in a democratic system you will never be able to de-risk the government. I've heard from, obviously I can't say who they were because a lot of these opinions came off record, off the record. But a couple of people said this is the best model but it's too early. What do you think about those kind of opinions? So the idea of there being risk from the host government is definitely a valid concern. But we have to look at what are available options are as people that believe more in free markets, more in societies that prioritize individual rights, the ability for people to freely exchange ideas, freely trade. We have to look at what are options are if we want to create those kinds of societies. One option is to try and find a terror nulla so areas of land that are not occupied by governments but unfortunately there aren't really any of those left. There are the Libelandas that are trying out something in the Danube between Serbia and Croatia and hopefully they will succeed in that endeavor but I think everyone would agree that so far it's proved to be very complicated and they've certainly met a lot of resistance particularly from the Croatian side. So there's this terror nullis approach which has its own difficulties. Another approach is to look at the high seas and we have had some people on this podcast and at our conference who are doing some very interesting work on creating floating communities. I think technologically that stuff is very much in an early stage but it makes sense as a longer term project and there is a lot of promising work being done there. But I think in terms of technology and in terms of actually envisaging life as part of a sort of floating free city that's a long way off and also that won't be a lifestyle that's for everyone. A lot of people will want to be based on land. So if you do want to be based on land you're left with either the teranolous or working with existing governments and it's not a perfect system but there are ways that you can firstly try and create zones in a way that is a win-win for governments and I do think it can be a win-win and it is generally a win-win if done in the right way to have an autonomous zone within your territory. Look at Shen Zhen for example it had a great impact on surrounding cities like Guangzhou and Foreshan. Look at Singapore it's had a great impact on the areas that surround it in Malaysia. Look at Monaco and the area of southern France near Tunis and how that's benefited from having this economy. Those situations have proved to be pretty stable because in a large part they're mutually beneficial and I think you can recreate that for government. But in addition to that you also want to have some legal protections in place. There are various views on how effective these are. We spoke to Mark Beer last week in London who was kind of quite pessimistic about the efficacy of international agreements to really protect a system in the long term. But I mean my take is that if they they weren't effective then why would there be so many international treaties and international agreements? Why would countries be going to the trouble of putting them in place? They are still very common and I think as the world continues to globalize there's going to be a greater role for international arbitration centres to resolve trade disputes between international companies and nations or between nations. So I think there is also a role for having treaties in place, international treaties that protect investors that come in and establish a zone. And I think there's also a place for like working within the existing political system. Like in Honduras for example they did have a constitutional change in order to bring in the Z.A. program. And while that was later repealed I think that at least provide some protection from changes in the long term because it's harder to repeal a constitution which changed than it is just to change political party for example. The alternative strategy I suppose is to choose a place to create your autonomous city in a country that has a long term thinking governance model. It's blatantly obvious that Dubai's success is down to the fact that it's run by a family. It's a kind of like or as someone on the book on the film commented Dubai Inc runs Dubai. And as a result it can think 50 years into the future. Honduras is problem and it is affected both more as an and prosperer is that shortly after they started building a few years the government changed the democratic system kicked in and now they're illegitimate. So that would be a very important strategy I think picking your country well. The other thing the thing that Mark Beer mentioned about not trusting the legal process. When I kind of drilled down a bit to sort of I had the same opinion as you initially and when I drilled down a bit he kind of alluded to the fact that it's the times we live in you know. Reneging on agreements is much more in fashion at the moment than it ever was. I think and you know that that might just be some anecdote that I've just invented but you know institutions of the world seem far less trustworthy now than they did even 25-30 years ago. So and what do you think? Do you think he's got a point? Do you think that a lot of these agreements aren't worth the paper they're written on in this day and age? I think he's definitely got a point that I think his key point was if you want a zone to be successful you have to align to the objectives of the government and career win-win situation and I would agree with that. That's the primary thing you should be aiming to do with your zone. But at the same time if you're an international investor and you know that this country has got a track record of Reneging on its agreements it's a much less attractive proposition. I mean remember what we learnt from Jan Bladden when we spoke to him last week. Jan Bladden had senior roles in Divine National Financial Center and one of the things he described was how the reputation of Divine National Financial Center was established because it set up a truly independent arbitration center for dealing with disputes between domestic companies and foreign companies and the first ever case that was brought to that court was won by the international company over the domestic company and he described how that provided a very powerful signal to other international companies that actually this court is impartial they're not just going to favor the domestic interests over the international interests and that in turn played an important role in bringing additional investment into Dubai and making D.I.F.C. the huge success story that it is. So I think that those kinds of considerations are very important and countries that are smart will realise that and they'll be more likely to be bound by the agreements that they sign up to. One of the questions I asked everyone during the making of this film was what would your advice be to host governments, leaders, states who are thinking about setting up some form of let's call it a special zone and I include autonomous zones in that category. So what would your advice be to a government thinking about pursuing some kind of zone within their country? I would say the first thing would be to look at an area of land that is unpopulated. One of the most important aspects of the Free Cities model is that it's a voluntaryist idea which means that the primary thing about the model is that we seek that everyone that is involved consents to being part of the community. So it's important that you establish a zone on unoccupied land. So if you're in the Middle East there were parts of the desert which is very easy to define that are unoccupied, plays like Mazda city that we visited last week were built in the desert. So that would be a good place to start because it means that you don't have those complications of existing property owners that may not be willing to be part of the community. And the other thing I would say is that look at your domestic market and try and make sure that what you're doing in the zone isn't going to sort of blatantly undermine the base economy that you have. I think there's an argument for providing some special incentives to certain companies but if you create a system where certain kinds of industries that already exist in your base economy can move in and out compete those industries that already exist then you're potentially going to have a problem so that's going to look very carefully out before moving ahead. What about an autonomous city? Do you imagine that an autonomous city might go from north to autonomous city in one hit or do you think it's more likely that an autonomous city may arise out of a special zone? Autonomous cities I think will develop naturally if they're given the legal framework to do so. So at the moment most special economic zones have policies that apply to businesses and they're targeted at creating like industrial space or space that is focused on a particular sector. I think if you allowed that to be extended to residential components and had rules for living together as well as part of your framework then you could see this naturally develop. So I think it's going to be an evolution like you're already seeing in Prosper and COD at Morazan. They already have residents moving in. You're already starting to see how they're dealing with particular issues, how they deal with noise, how they deal with litter, how they deal with dogs that bark, how they deal with some of the public space issues. This is kind of already happening on a scale of Morazan's case, 170 odd people. And Prosper is now embarking on a similar journey. They've so far been a business zone but they're about to finish construction of around 80 residential properties in the largest, the tallest building on the island of Raya Tan. So I think these things will be discovered as they go on. I think they'll happen naturally but the first thing you've got to do is provide the right regulatory government's frameworks that allow that autonomy to be achieved. Final question. Follow the trend into the future 100 years. What do you see as the future of cities, the future of governance, the future of the world according to you? I think we'll live in a world where there are many more smaller political entities. And what I don't think that will mean is that there are more borders, like hard borders between countries. There may be technically borders but when you have lots of small jurisdictions, what that incentivises is free trade with the rest of the world. If you're only a very small part of the global economy, then that doesn't make any sense to put up tariff walls around your economy because the world will just choose someone that hasn't got those tariffs in place. They've places without the tariffs will be able to outcompete you. So I think the reason why we'll see move towards small political entities is that they work better because the political leadership is kind of closer to the people it affects. And you don't have this sort of very large political centre that's trying to make decisions for hundreds of millions of people at the same time. You have people that are much more attuned to their local setting. You have places like Hong Hong and Singapore which have between five and seven million people living there. A governance there seems to much work much better. But like Hong Kong and Singapore, I think you're going to see a much bigger emphasis on free trade. I think that organisations like the European Union that get together and say we're going to perform a sort of tariff wall around all of our countries where everyone who wants to sell us wine has to pay us a tariff to sell into our market. I think places that don't have those policies in place will become more attractive because the consumers living within them will be able to access things at global prices and that will make life they're more cost effective and overall those places will start to outcompete others. So I think that's the general trend we'll see. But obviously, a hundred years is a very long time. A lot of things can happen in terms of technology, in terms of governance. Overall, just thinking about the economics and the general trend we've seen in special economic zones becoming more numerous, I think it's fair to expect that to continue. And I think the economics would suggest that the more smaller, freely trading autonomous jurisdictions are on the rise. I look forward to a global network of free cities, Pete. Thanks for talking, mate. Really fascinating conversation and everyone listening look out for our film. I don't know when it's going to be available but we've definitely been on the learning journey with this film, haven't we? Yeah, we have. It's been good fun. [BLANK_AUDIO]