Who Built the Zones?

Who Built the Zones?

Special economic zones are not just a product of the effort to free capitalism from democratic authority. They are a response to a broader anxiety about power imbalance between multinational corporations and national governments.

Crack-Up Capitalism: Market Radicals and the Dream of a World Without Democracy
by Quinn Slobodian
Metropolitan Books, 2023, 352 pp.

Just three years after his famous declaration that history had come to an end, Francis Fukuyama published a little-noticed piece, in the now-defunct journal New Perspectives Quarterly, suggesting the need for a caveat. In some Asian contexts, he noted, an alternative framework had taken hold that presented an implicit competitor to the model his more famous publication had hailed. Some states were embracing market competition, but shorn of the democratic political system that was often presumed to be its cognate. Perhaps, he now implied, the ascent of capitalism need not entail the triumph of democracy.

Fukuyama was not sanguine about the long-term prospects for what he called “soft authoritarianism.” It relied on an unlikely presumption that societies would remain “childishly obedient” even after achieving widespread prosperity and participating in the global marketplace of ideas. Regardless, it would almost certainly not be “exportable outside of culturally Confucian areas.”

Surveying global politics three decades later, however, this model looks more prescient than Fukuyama’s famous proclamation of a liberal-democratic “end of history.” The intervening period has been marked not by the inexorable spread of democratic institutions, but rather by a cascade of experiments in authoritarian capitalism. The freedom to choose one’s goods and services, it has become clear, need not entail the freedom to choose political leaders.

The historian Quinn Slobodian has emerged as the great chronicler of this authoritarian turn in the theory and practice of capitalism. His last book, Globalists, showed how some of the leading neoliberal thinkers of the midcentury years embraced transnational financial institutions as a check on the interventionist and redistributive capacities of the nation-state. In Crack-Up Capitalism he turns his attention to the past half-century, explaining how market advocates pioneered a different approach to restricting the state: the special economic zone.

The result is a remarkably ambitious work, covering, in little more than 200 pages, the complex legal, financial, and jurisdictional history of an awkward contrivance of twentieth-century political economy that has grown ever more ubiquitous in the twenty-first. With characteristic acuity and admirable concision, Slobodian reveals how members of the authoritarian right encouraged the development of these zones. But some aspects of this history that are less expedient for his narrative get left on the cutting-room floor.

Where Globalists detailed the ways that transnational institutions impose limits on the state from above, Crack-Up Capitalism foregrounds legal incursions on its authority from below. “The world of nations,” he writes, “is riddled with zones.” Zones can take many forms—“city-states, havens, enclaves, free ports, high-tech parks, duty-free districts, and innovation hubs.” What links them is an exceptional legal status, distinct from the rules and regulations applied to their surroundings. The book opens with a map of the global distribution of these zones, which makes tangible their stunning proliferation over the past forty years. In the brave new world of twenty-first century political economy, the exception has increasingly become the rule.

In line with Fukuyama’s prediction, such zones are far more common in East Asia than in other regions of the world. Almost half appear within China alone. But Crack-Up Capitalism traces their appearance in a growing number of geographical contexts—traversing from Singapore to London, Dubai, South Africa, Honduras, and even the “cloud countries” of the metaverse. These zones tend to share certain characteristics: sharp limits on democratic control over economic rulemaking, often bolstered by harsh restrictions on free speech and political protest; startlingly high degrees of economic inequality, with few protections for a largely captive labor force; and the ardent support of free marketeers in the ambit of the Mont Pelerin Society. Their spread signals a global rollback of democratic authority over economic exchange—which, he argues, is precisely what the elites who champion them intend.

Much of the book is devoted to showing the myriad—and often shockingly explicit—ways in which right-wing theorists abjured democracy in advocating for the model pioneered by Hong Kong under British colonial rule. They celebrated the region’s spectacular rates of economic growth, the insulation of its political leadership from electoral oversight, and its capacity to foster stable and predictable decision-making oriented around the interests of economic elites. And they believed this model could turn into a fleet of Trojan horses, gradually eroding the settled conventions of the era’s advanced industrial democracies from within. In their telling, the economic dynamism of these special zones would provide a striking contrast to the decay of surrounding regions, choked by the burdens of regulatory and redistributive politics. For a certain kind of market enthusiast, the potential was captivating.

Milton Friedman claimed in his 1962 classic Capitalism and Freedom that “competitive capitalism . . . promotes political freedom” by separating economic from political power. Yet one of Crack-Up Capitalism’s indelible images is of Friedman gazing upon an audience of students in Hong Kong and announcing that “political democracy has elements which tend to destroy economic freedom.” His goal, Slobodian writes, was to create a “Portable Hong Kong,” offering a ready-made “escape from the dilemmas and pressures of midcentury democracy.” The book follows Friedman’s colleagues, supporters, and progeny as they did exactly that—using perches at think tanks, positions as government advisors, and connections in the financial press to preach the wonders of economic zones for governments facing the challenges of economic underdevelopment.

Slobodian foregoes the alarmist gravity characteristic of most academic writing on neoliberalism. He makes it clear how much his globe-trotting subjects enjoyed their agreement with one another: they are repeatedly seen humming the same tunes, swallowing each other’s ideas whole, and engaging in collective fever dreams. Readers are treated to detailed descriptions of Friedman’s son David, an enthusiastic member of the Society for Creative Anachronism, where he was known as Duke Cariadoc of the Bow and refused to use his left hand when eating. When Slobodian describes one of his subjects as a “gift to caricaturists,” readers can be confident that it will not go unopened.

But this emphasis on his subjects’ eccentricities only accentuates their underlying malignity. The dark underbelly of the libertarian impulse to carve the world into competitive zones is laid bare in the chapter on the later career of Murray Rothbard, which shows how easily such visions aligned with white-nationalist fantasies of a racial exit from multiethnic democracies. Rothbard and his followers came to see the creation of ever-smaller economic subregions as a promising sign of the growing acceptance of a “right of secession,” allowing “different regions, groups, or ethnic nationalities” to free themselves from the troublesome burdens associated with membership in a broader and more heterogeneous community. As the closely associated Ron Paul Survival Report stated in 1994, “The Old South had it exactly right: secession means liberty.” Slavery itself could be rendered a beacon of freedom if it was linked to efforts to contest the sovereign remit of the national government. Economic zones would serve as way stations on the road to ethnically homogeneous micro-nations, where the bonds of racial solidarity would provide yet another means for private association to supplant the role of the state.

In the final chapter of the book, Slobodian argues that the recent vogue for the metaverse is an extension of efforts to erode state sovereignty. From its emergence three decades ago, “cyberspace” struck some observers as a realm uniquely conducive to libertarian experimentation. Digital geographies mapped awkwardly, at best, onto the long-standing physical territories of nation-states, and the absence of prior inhabitants made them seem natural playgrounds for those eager to experiment with alternative forms of jurisdictional oversight. The implicit prophet of Crack-Up Capitalism is the science fiction author Neal Stephenson, whose dark vision of a world carved into discrete “burbclaves” with fractured lines of authority, offering escape only into a highly commercialized metaverse, looks more prescient with each passing day.

There is much to learn from Slobodian’s chronicle of right-wing antiheroes waging a Manichean battle against democracy. He has an unmatched eye for offhand remarks that reveal his subjects’ hidden beliefs and ambitions. But at times, perhaps in pursuit of coherence and moral clarity, he renders his story in terms that are a bit too clean and consistent. Readers of Crack-Up Capitalism will emerge with an impression that special economic zones are a contrivance of right-wing economists, ethnic nationalists, and authoritarian administrators, working in conjunction to protect the financial interests of corporations and elites. Other scholars have revealed a story that is considerably messier.

Historian Sam Wetherell has clarified that much of the impetus for “enterprise zones” in the United Kingdom derived from left-leaning artists and intellectuals who began advocating in the 1960s for “non-plan areas” freed from the bureaucratic rigidities of economic and architectural regulation. He also showed that proposals to institute enterprise zones in the United States attracted a broad range of advocates, including the NAACP and the Congressional Black Caucus. They became parts of the economic tool kit for both left- and right-wing state governments.

As many of the best recent works on neoliberalism have argued, its characteristic techniques have often become more influential in the hands of policymakers on the center-left than among the right-wing figures most associated with its rise. Those who want to understand the causes for the proliferation of special economic zones, therefore, need to look beyond their obvious appeal to free-market enthusiasts and understand why they gained acceptance among those still committed to the redistributive and regulatory capacities of the state.

This line of inquiry raises difficult questions about the degree to which such zones can be construed as necessarily authoritarian and antidemocratic. According to Slobodian, the contagiousness of “zone fever” was reflective of a right-wing frustration with the perceived haphazardness and inefficiency of democratic oversight. No small number of right-wing theorists extolled the virtues of zones on precisely such grounds. But this enthusiasm cannot adequately account for their adoption and implementation by many democratically elected officials who credibly abjured any sympathy for the free-market right.

That story is less about the broad interest of right-wing intellectuals and financial elites, and more about the structural conditions confronted by the center-left since the 1970s. Politicians who remained committed to a redistributive agenda were beset by the challenges of deindustrialization, worried about diminished capital investment amid waves of outsourcing and offshoring, and confronted by a voting public that had grown skeptical of the competence and capacities of government officials. They increasingly sought to achieve progressive goals through mechanisms that appealed to market advocates and required limited cash transfers from the state. Special economic zones were among the many ad-hoc solutions to these predicaments. They often appealed precisely because they allowed state governments to foster capital investment in marginalized regions without requiring an influx of resources that voters were disinclined to approve. For some politicians, they were reluctant concessions to democratic constraints, rather than deliberate plans to constrain democracy.

The rise of the special economic zone, then, may be less about the triumph of authoritarian governance than about the weakness of all state actors in the age of globalization. As the anthropologist Aihwa Ong has observed, the neoliberal fixation on creating states of “exception” was not inherently attributable to any specific form of government. While in East Asia it was often reflective of “robust and centralized” states, in Africa it tended to emerge from “weak and decentralized” structures of authority. The heterogeneous history of the special economic zone fits into just such a pattern: it was embraced by both centralized dictatorships and decentralized federations, amid both authoritarian crackdowns and conditions of democratic sclerosis. The underlying continuity is not the policymaking prowess of right-wing zealots but a broader anxiety about the prospect of capital flight, prompted by the power imbalance between multinational corporations and national governments.

By attributing the rise of special economic zones to the outsized influence of a right-wing economic cabal, Slobodian makes the search for the causes of the problem too easy—which, ironically, renders the task of finding solutions too difficult. Our current predicament, he suggests, is attributable to the undue influence attained by elites who wanted to protect the market from democratic oversight; the solution, therefore, is an uprising from the dispossessed.

His hopes for the latter become clear in his discussion of the metaverse. “The cloud floats because the underclass holds it up,” he writes. “Time will tell if they drop their arms one day and make something new.” But like many works on neoliberalism, Crack-Up Capitalism devotes little attention to the role of the underclass: the focus is on elite manipulation from above, even if the hopes for social transformation are invested in revolutionary praxis from below. 

The continued proliferation of enterprise zones in the United States—from Al Gore’s “empowerment zones” at the turn of the millennium to Donald Trump’s “opportunity zones” just a few years ago—has yet to be met by a popular uprising against such legal engineering. At times Slobodian seems resigned to that outcome—concluding, at one point, that the United States as a whole “looks more like a zone all the time.”

But over the past decade, policymakers across the political spectrum have been experimenting with a variety of ways to reassert the power of the territorial state over mobile capital. Progressives have targeted tax avoidance and worker exploitation, conservatives have contested the authority of transnational institutions, and both have shown a new openness to tariffs and industrial policy. In conjunction, they have thrown many of the economic conventions of the high age of neoliberalism into flux. The implications of this transition remain unclear, but it shows a renewed interest in using a wide range of policy levers to prevent the malign effects of the legal and regulatory race to the bottom. However universal liberal democracy may have appeared a generation ago, and despite the astonishing spread of authoritarian capitalism in the decades that followed, the end of history remains as elusive as ever.

Angus Burgin is Associate Professor of History at Johns Hopkins University and author of The Great Persuasion: Reinventing Free Markets since the Depression. He is currently writing a book on the intellectual history of the internet.