Gone are the times in which a simple tax cut created prosperity.
There are currently more than 3.000 Special Economic Zones in operation worldwide. 153 countries, or 80% of all countries, already have some kind of special zone¹.
For this reason, simply creating a zone without one of the existing taxes is hardly a competitive advantage anymore. Investors already have hundreds of places where they can go and not pay taxes. Why would they go to your zone?
Real development requires more. It requires zones that go beyond, that address further factors that hinder development. The economist Mark Klugmann said that a zone which only addresses the economic aspect is like a chair with a single leg. It won’t stand. And indeed, it is the case: Many underdeveloped countries already have low taxes. What they lack are reputable institutions, that can guarantee property rights, enforce contracts, resolve disputes fairly and provide security.
Thus, countries should instead look at their entire institutional framework. For this, Mark proposed the LEAP Zone concept. A LEAP zone, as a balanced chair, has four legs: The Legal, the Economic, the Administrative and the Political. By taking all these aspects in consideration, underdeveloped countries would be able to do what is called “institutional leapfrogging”.
Third world countries that do not have telecommunications infrastructure don’t need to take the same route developed countries took, first creating the infrastructure for landlines and later that for mobile use. Instead, they can leapfrog one generation of technology and directly develop first world mobile communications. Just like third world countries can “leapfrog” in telecommunications, LEAP Zones allow them to jump from third to first world institutions.
Free Private Cities, as the next development in Special Economic Zones, also offer the complete package. As a LEAP zone, they consist of the following aspects:
Legal: World-class legal system. Independent arbitration. Contract enforcement. Defense of property rights. Efficient dispute resolution.
Economic: Low or zero tax. Duty free. Flexible labor rules. Low regulation. Permissionless innovation.
Administrative: Private Governance. Competitive Mindset. Executive efficiency. Liability for Errors. Profit incentive. Guaranteed security.
Political: Legal Certainty. Rule of law. Clear principles. Transparency. Limited government. Political Autonomy.
With all these advantages, Free Private Cities are the perfect catalyst for the creation of new Prosperity Hubs.