The Future of the Market of Living Together

Alexander Voss identifies eight decentralization trends that should give us optimism.

Today’s guest essay is from Alexander Voss, co-winner of the Constitution of Consent Contest. Voss is CFO of Tipolis, a Singapore-based firm “committed to becoming the creator, owner, and operator of a global portfolio of International Cities characterized by a high degree of autonomy.” The Tipolis team includes experts who’ve been involved in some of the foremost success stories of wealth creation. These include the world-renowned special zone of Dubai International Financial Centre (DIFC). Voss believes—as I do—that the future of the market of living together will be characterized more by consent than coercion. In the near future, people will contract with their municipalities. Both parties will be expected to honor their side of any agreement. Accountability is assured through the enforcement of contract law rather than elections.

To peek into the future, we need to understand the past. Specifically, we should explore the history of how we live together as it has unfolded up to this point.

In that vein, we begin this analysis by looking to understand a few recent trends in governance. We will conclude by putting forth a state-of-governance prediction that we believe reasonably follows from what we have observed in the past.

Special Economic Zones

Special Economic Zones (SEZs) have become an increasingly popular trend among countries seeking to stimulate economic growth, attract foreign investment, and boost exports. SEZs are designated areas within a country where business and trade laws differ from the rest of the nation. They typically offer more liberal economic policies and regulatory environments, aiming to foster a more business-friendly setting that can drive investment, industrial development, and economic reform.

Initially popular in East Asian countries, the SEZ model has since spread globally. Countries in Africa, the Middle East, Latin America, and Eastern Europe have established SEZs as tools for economic development. SEZs vary in their structure and focus. Some are geared to manufacturing, others to services or high-tech industries. There are also free trade zones, export processing zones, and technology parks—each with specific objectives and target industries.

SEZs often serve as testing grounds for new policies and reforms. Governments use them to experiment with deregulation, labor market reforms, tax incentives, and streamlined administrative procedures before implementing these policies nationwide. As more countries adopt SEZs, people discover best practices and learn from successes and failures. This knowledge exchange is leading to the evolution of SEZ policies and strategies to maximize their effectiveness.

SEZs are increasingly being integrated into broader national economic strategies as opposed to being understood as standalone projects. Such integration aims to ensure that the benefits of SEZs contribute to the overall economic development of the country.

Increasing Autonomy

Special Economic Zones are also becoming more autonomous. This shift reflects a growing recognition that greater autonomy can enhance adaptability, ensuring the effectiveness of SEZs in driving economic growth, attracting investment, and fostering innovation.

Regulatory sandboxes are a significant aspect of increased autonomy in SEZs. This involves allowing SEZs greater latitude in setting their own legal and administrative frameworks—distinct from the national laws. The idea is to create a more business-friendly (often less corrupt) environment to attract investors and spur economic activity.

More autonomous SEZs often have their own governing bodies or administrative units. This localized governance can make decision-making processes faster and more responsive to the needs of businesses and inhabitants operating within the zone. It also allows for tailored policies that suit the specific focus of the SEZ, whether it’s manufacturing, finance, technology, or another sector.

Autonomy in fiscal matters is another critical aspect. SEZs may be able to set their tax regimes, including corporate tax rates, customs duties, and VAT/sales tax policies. These preferential tax treatments are a major draw for foreign and domestic investors.

In some cases, SEZs have been granted the authority to formulate their labor laws. These can include flexible labor regulations, different wage structures, or distinct labor dispute resolution mechanisms aimed at making the zones more attractive for investment—though these can spark debates about workers’ rights. On the other hand, such debates are generally centered around the divergence in regulation rather than actual material outcomes for workers in SEZs.

Enhanced autonomy can also extend to land use and property rights within SEZs. This might include streamlined processes for land acquisition, development rights, and property leasing, making it easier for businesses to establish and expand their operations.

Greater autonomy can lead to more effective SEZs, increasingly recognized as engines for economic growth, technological advancement, and job creation. Increased autonomy can make SEZs more attractive to foreign and domestic investors seeking a more favorable business environment. With the right mix of policies, autonomous SEZs can become hubs for innovation, especially in technology and high-value industries.

Private Governance

The trend toward privatization in the management and operation of Special Economic Zones reflects a third significant shift in how these zones are conceptualized and administered. This approach involves entrusting private entities responsible for developing, managing, and operating SEZs, even though such tasks have traditionally been reserved for government agencies.

One of the primary arguments for the private management of SEZs is that the private sector often brings more efficiency, innovation, and responsiveness to market demands. Private companies have strong incentives to adapt to changing economic conditions and find greater efficiency in resource management.

Private firms often have specialized expertise in the development and operation of SEZs. They also have a more flexible capacity to mobilize capital for infrastructure development, which can be a significant hurdle for government-run SEZs. Finally, they are subject to the constraints of profit and loss, leading to a market-based allocation of resources and efficiency.

Governments can thus reduce the fiscal burden associated with developing and maintaining SEZs by involving private players. This approach allows limited public resources to be allocated to other critical areas. Private operators can bring in global best practices and establish connections with international business networks, enhancing the competitiveness of SEZs.

The trend towards more private governance worldwide is a significant shift in how public services and traditional government domains are managed and operated. This trend, often called privatization, involves transferring the responsibility for certain services or functions from the public sector to private entities. This movement is rooted in ideological and practical considerations, but more recently, it has unfolded from the proven ability of market actors to provide superior outcomes even in industries commonly considered to be core government provisions.

Water supply, electricity, and public transportation are examples of traditional government domains that have significantly improved due to privatization. Private companies are often tasked with operating and maintaining these essential services. But such arrangements invite skepticism from those concerned about access and affordability. Still, as countries such as Singapore have moved towards greater privatization in healthcare, private entities are playing a larger role in providing medical services. This can range from privately run hospitals and clinics to patient-centric, insurance-based models of healthcare funding.

Privatization in education includes the expansion of private schools and universities, as well as public-private partnerships in managing public educational institutions. The trend also includes the growth of for-profit educational services and online learning platforms. Services like waste management, park maintenance, and some emergency services (like ambulance services) are increasingly being outsourced to private companies in many municipalities worldwide.

Governance as a Service

The trend toward more private governance is reshaping the relationship between the state and the market in many domains traditionally reserved for the government.

Governance as a Service (GaaS) is an emerging concept in public administration and political science, reflecting the increasing incorporation of technology and private sector principles into the governance process. This trend is part of the broader movement towards digitalization and privatization in various aspects of governance. GaaS involves outsourcing certain governmental functions and services to private companies, especially those that are technology-driven, to improve efficiency, reduce costs, and enhance service delivery.

GaaS heavily relies on technological solutions such as cloud computing, big data analytics, and artificial intelligence to manage and deliver public services. This approach allows more efficient data management, decision-making processes, and service delivery. Unlike traditional public service delivery models, GaaS offers modular and scalable solutions. Governments can choose specific services based on need and scale up or down as required.

GaaS strongly emphasizes the user experience, borrowing from the private sector’s customer service models. This approach aims to make interactions with government services more user-friendly, responsive, and accessible. Governments aim to reduce operational costs and improve efficiency by outsourcing to specialized service providers. GaaS models often employ a pay-as-you-go approach, which can be more cost-effective than maintaining extensive in-house capabilities.

Governance as a Service represents a significant shift in how public services are conceptualized and delivered. It embodies the intersection of technology, privatization, and public administration, offering opportunities for more efficient and user-friendly governance.

Competition in the Governance Market

The trend of new countries emerging over the past 50 to 100 years reflects global political, social, and economic shifts. Decolonization movements have influenced this trend, the dissolution of empires and federations, and the drive for self-determination among various ethnic and cultural groups. Below is a table of some countries established in the last century, along with their year of creation and the primary reasons for their formation.

In the context of newly-formed countries, we can observe a specific trend. Regarding land area, the average size of nations has generally been decreasing. This trend is primarily due to large empires and countries breaking up into smaller sovereign states. For example, the dissolution of the Soviet Union in 1991 and the breakup of Yugoslavia in the 1990s resulted in the creation of numerous smaller countries.

The mid-20th century witnessed the end of colonial empires, with colonies gaining independence and becoming sovereign nations. This process created many new countries, particularly in Africa and Asia, which were often smaller in land area compared to the vast colonial territories controlled by European powers.

The recognition and establishment of numerous small island nations, particularly in the Pacific and the Caribbean, have also contributed to reducing the average size of countries in terms of land area.

The trends of city-states and semi-autonomous regions present another intriguing aspect of global geopolitics and governance. These entities represent unique governance models, blending the forces of national sovereignty and localized control. Their roles and significance have evolved over time, influenced by historical, economic, and political factors.

Semi-autonomous regions are areas within a country that have been granted a degree of self-governance, often due to cultural, ethnic, or historical reasons. Examples include Hong Kong (China), Kurdistan (Iraq), and Greenland (Denmark).

These regions often have distinct cultural or ethnic identities different from the dominant groups in their parent countries. Their semi-autonomous status is typically a result of historical agreements, conflicts, or compromises.

Some semi-autonomous regions leverage their special status to develop unique economic models. For instance, Hong Kong has been a global financial center with a separate economic and legal system from mainland China.

In addition, the global trend toward urbanization has increased interest in the city-state model, particularly regarding efficient city management, sustainability, and economic specialization. As a result of these factors, both city-states and semi-autonomous regions have become increasingly relevant in a globalized world. They often serve as hubs for innovation, trade, and cultural exchange. City-states and semi-autonomous regions offer unique models for governance, economic development, and cultural preservation. They provide valuable case studies in managing urban spaces, regional autonomy, and cultural diversity.

Secession

The next trend is secessionist movements. Secessionist movements around the globe have been a prominent feature of the international political landscape, particularly in the post-Cold War era. These movements are driven by various factors, including ethnic, linguistic, cultural, economic, or political grievances. The character of secessionist movements varies greatly depending on regional contexts and global dynamics. But the trend remains.

Many secessionist movements are rooted in ethnic or cultural identities. Groups that feel marginalized, oppressed, or culturally distinct from the dominant national identity often seek greater autonomy or independence. Examples include the Kurds in the Middle East, the Catalans in Spain, and the Uighurs in China.

Economic disparities and the perception of unequal resource distribution often fuel secessionist sentiments. Regions that are economically prosperous but feel their wealth is disproportionately redistributed to the central government may seek independence to retain more control over their resources, as seen in the case of Scotland and the UK.

In some cases, the impetus for secession is a response to political repression, lack of representation, or civil rights violations. Secessionist movements often emerge in contexts of perceived or real political disenfranchisement.

Secessionist movements represent a significant and ongoing trend in global politics, reflecting deep-rooted issues related to identity, governance, and resource distribution. They pose considerable challenges to national and international political structures, often requiring a delicate balance between self-determination, territorial integrity, and regional stability.

The table shown below summarizes notable secessionist movements around the globe over the last half-century, indicating their time period, the country they sought independence from, and whether the attempts were successful:

*While the EU is not a sovereign entity, the process of exit from that Union is largely analogical to other, more traditional secessionist movements.

Decentralization Through Emerging Technologies

A final trend we must consider is technology enabling greater decentralization. Driven by innovations in various fields, this trend is reshaping how businesses operate, governments function, and individuals interact with each other and institutions.

Bitcoin enables decentralized financial systems. It obviates the need for financial intermediaries such as banks and monetary policy monopolists like central banks. Blockchain-based smart contracts may automate and enforce agreements without centralized authority, significantly impacting fields like law, finance, and real estate.

Technologies like BitTorrent have popularized decentralized file sharing, reducing reliance on centralized servers. P2P networks enable decentralized marketplaces for goods and services, allowing direct interaction between buyers and sellers without central platforms.

Technology in energy enables the creation of microgrids, small-scale power grids that can operate independently, democratizing energy production and distribution. Open source projects represent a decentralized software development model, relying on community collaboration rather than centralized planning. Nostr creates a decentralized form of communication.

These are powerful examples of the trend toward decentralization, and such a trend presents opportunities for more democratic, efficient, and resilient systems across multiple societal domains.

Future Outlook

Let’s review and then take these trends in their totality:

1. More SEZs in more countries,

2. Increasingly autonomous SEZs,

3. Increasingly privately operated SEZs,

4. More private entities entering the traditional realm of government,

5. Treating governance as a service,

6. Increased number of smaller, sovereign, and semi-autonomous jurisdictions,

7. Increasing push by minority groups for local autonomy or self-determination,

8. Technology enabling and promoting more decentralization in numerous arenas, we now turn towards a view of the future.

When we combine these trends, a clear direction emerges. The future of governance may be centered around smaller polities, increasingly acting as service providers competing to provide a higher quality product at a lower cost. The push for representation at the increasingly local level is leading to the emergence of new sovereigns and the creation of semi-sovereign regions and networks. Technology works in the background to enable all of this, whether in enforcing property rights, serving as money (Bitcoin), or enabling computing and communication.

Polycentrism

The Special Economic Zone and Special Administrative Region (SAR) models can contribute to the development of polycentric governance systems. Polycentric governance refers to a complex form of governance involving multiple overlapping, self-governing centers of decision-making authority, each operating under its own set of rules but within the overarching rules of the larger system.

SEZs often have a certain degree of autonomy in decision-making regarding economic policies, regulatory frameworks, and administrative procedures. This localized autonomy can introduce a layer of governance that operates differently from the national framework. As SEZs become more autonomous, this trend will accelerate.

The presence of multiple SEZs within a country, each with its unique focus and regulatory environment, can lead to a polycentric economic governance model, where different economic policies coexist and compete within the same national economy. By allowing for localized autonomy and diverse approaches to governance within a broader national framework, they can offer a more adaptable and resilient model of governance that can meet various local and national needs.

While this may not hold for every country around the world, it seems increasingly self-evident that as governments continue to struggle under mountains of debt, increasingly high (but underenforced) tax rates and mediocrity become the norm, private enterprise will step in to pick up the slack. Given that governments are not quick to cede power, they will likely remain in the picture to some degree but will come to the table to find arrangements with private operators, giving them special autonomy and legal jurisdiction under the conditions of continued adherence to their sovereignty.

While it‘s impossible to predict the future, the trends described above will likely continue to strengthen. This would naturally lead to a new world of numerous competing “Hanseatic Leagues” worldwide, cooperating in some ways and competing in others. These leagues will likely differ in their autonomy, not to mention their relationship with any host-state sovereigns. While most will be internally autonomous, some, similar to Luxembourg, Liechtenstein, or Singapore, may become fully sovereign.

A widening network of competing polities may initially seem haphazard. Still, I would argue that such a vision is very optimistic for humankind. We can find great precedents for this. For example, the success of the European continent since the Middle Ages was due to the kaleidoscope of small and competing jurisdictions and polycentric governance between local authorities, the monarch, and the Catholic Church, despite religious and territorial conflicts

It is hard to know the future of governance, as there are also troubling trends in centralization, which run in parallel. However, I have painted a picture based on several positive trends. These trends flow from human ingenuity and a push for increasing self-governance, that is, the desire to take charge of one’s life rather than delegating it to others. The result will be more freedom-oriented competition in governance, yielding more peace, happiness, and abundance.

You can read more from

Alexander Voss

.

---