By Erik Sass, Editor-in-Chief
An old international system no longer fit for purpose. Unaccountable local governments indulging in waste and corruption. Then a sudden shock, producing chaos and collapse – and finally a surprising rebirth, embodied in a new generation of vibrant human communities, created using new technologies and mediums of exchange.
This amazing story of renewal has already happened numerous times in history – and it’s about to happen again, as visionary pioneers work to create a network of new cities and special economic zones, some using cryptocurrencies like Bitcoin, to revive the global economy in the wake of COVID-19. Their projects, showcased in the Startup Societies Foundation virtual summit on May 1-2, offer a chance to rebuild the post-pandemic global economy in a safer, more robust, and more flexible form, while spurring competition and reform in legacy nation states.
Strange as it may sound, there is a long history of founding new cities during periods of massive upheaval, and each time it was these very “frontier” settlements that drove broader economic and social recovery after the crisis passed. In each case the collective strength of the new cities was based in network effects, as decentralized webs of trading partners stitched international commerce back together in new, more efficient systems, enabled by new currencies.
The first great disruption came in the eastern Mediterranean around 1300 BCE, when mysterious invaders known as the “Sea Peoples” smashed into the ancient, brittle civilizations of pharaonic Egypt and the Hittite Empire. During the ensuing ancient “Dark Ages” trade and culture collapsed around the Mediterranean world, bringing the end of the Bronze Age: the fall of Mycenean Greece and Minoan Crete saw the end of written language there for hundreds of years (the reason the Homeric epics were first oral traditions) and the Hittite Empire disappeared completely.
But the catastrophe also contained the seeds of a new order reuniting the ancient world. As Egyptian influence in the eastern Mediterranean declined, the invaders mingled with previous inhabitants to form a dynamic new culture of long-distance traders, the Phoenicians, who built (or rebuilt) independent city states and sent traders and colonists all over the Mediterranean and beyond, founding new settlements like Carthage as well as the modern cities of Tangier, Algiers, Tripoli, Cadiz, and Palermo.
Emerging amid chaos, the Phoenicians built a complex new commercial network spanning the ancient world, trading Egyptian linen and papyrus for copper from Cyprus, embroidered cloth from Mesopotamia, spices from Arabia, and ivory and gold from Africa. They brought new technologies and new ideas to Europe, perfecting glass-blowing and introducing the Semitic alphabet to the ancient Greeks – the predecessor of the Roman alphabet we all use today. The Phoenicians also employed a proto-currency, in the form of metal ingots with a standard measure of weight, the shekel, and eagerly adopted metal coinage soon after its invention in Lydia. Phoenician achievements helped set the stage for the Classical period, when the Greeks adopted their model of maritime trade and colonization, giving the Phoenician network a central place in the story of western civilization.
Fast forward 2,400 years to a very different context – medieval Europe – for another incredible story of human resilience in the face of chaos. In the 12th century CE the decline of the Holy Roman Empire’s power in northern Germany set the stage for a political free-for-all, as a patchwork of petty princedoms fell to violent feuding, with trade and prosperity the collateral damage. Weak nobles left merchants and peasants prey to roving mercenaries and bandits on land, and the absence of navies meant piracy was the rule, not the exception.
Once again, upheaval called forth the innate creativity and ambition of human beings. This time their answer was the Hanseatic League, a loose federation of independent city states who rebuilt and extended the trade networks of the Baltic and North Seas, leading to a period of unparalleled prosperity. Beginning in the 1100s cities like Lübeck, Hamburg, and Bremen won a measure of political independence – including the right to make their own, commerce-friendly laws – from local leaders who realized their depressed realms needed free trade to prosper. At its height the league numbered over 200 cities, including ports and inland river towns.
The Hanseatic League was a pioneering decentralized organization, with no government or ruler – yet its members, motivated by shared self-interest, cooperated to field a powerful navy to protect their merchant shipping. It succeeded in reviving commerce across Europe in part thanks to its own currency, witten, a standard silver coin whose value was famously stable compared to other medieval currencies (at least until Lübeck, the main coiner, debased it in 1468). The Hanseatic League was also an engine of innovation, with Hanse merchants introducing printed books to England as well as supplying saltpeter for new gunpowder weapons.
Today the world is facing an unprecedented array of challenges, as the COVID-19 pandemic sharpens and amplifies long-term trends such as the rise of political populism, the accompanying backlash against globalization, and controversies over climate change and income inequality. Overmatched by global events, legacy nation states also appear unable to engage in the type of meaningful reforms needed to return the world to economic growth, for example by lightening regulatory burdens, trimming the public sector, or curbing runaway spending.
The answer proposed by Startup Societies and its fellow travelers, showcased at the recent summit, is innovative but also established: in fact dozens of projects to found new “special jurisdictions” are already underway around the world, and there are thousands of special economic zones already in existence worldwide. As Startup Societies founder Joe McKinney writes with me in RealClearPolitics:
In 2017 there were over 230 foreign-trade zone projects and nearly 400 subzones across America, handling $756 billion worth of imports and exports… SEZs across the world have various forms and goals, but their collective track record is one of reviving moribund economies. They accomplish this by concentrating talent and labor, cutting taxes and regulation, and providing testing grounds for experimental policies. The resulting growth and innovation can then spill over to benefit the host country’s economy.
Looking ahead, Startup Societies calculates that special economic zones, properly managed, can add up to 3% per year to their host country’s economy. Although SEZs are often symbiotic, existing to facilitate trade or with much larger entities, their economic potential depends in large part on a guaranteed measure of independence, and here technology once again plays a role, in the form of cryptocurrencies. In his keynote address to the virtual summit, Roger Ver, founder and former CEO of Bitcoin.com, argued that new “special jurisdictions” would be particularly well-positioned to benefit from cryptocurrencies, which would afford them freedom from national fiat currencies and facilitate transactions, finance and investments.
Indeed it’s easy to imagine a global network of new special economic zones and free cities, connected and empowered by a new, more efficient and more trustworthy currency, just as during the Phoenician and Hanseatic periods. And like its predecessors, this loose collection of new commerce-oriented communities can help fuel innovation and economic expansion far beyond their own borders, benefiting future pandemic response, as we note in RealClearPolitics:
Spaces where pharmaceutical companies can more easily conduct clinical trials will accelerate development of new cures and treatments. They’re well-suited to handle production of medicines on short notice through promising new techniques like continuous manufacturing. And, as pioneers in remote work on everything from services to software development, they anticipate the new constraints on physical contact that will reshape our post-COVID work lives. Responsible, high-quality medical tourism will offer much-needed price competition to high-cost healthcare systems in America and beyond.
History never repeats itself, but past examples provide powerful arguments for future actions, and ample testimony to human resilience; today that hopeful message is echoed by organizations like Startup Societies. Catastrophes have served to unleash human creativity before. Don’t panic. Build!
Erik Sass is editor-in-chief of The Economic Standard.