An Open Letter to the Leaders of Emerging Nations

By Titus Gebel

Dear Leader,

I can only assume that you want the best for your people. Perhaps you have been looking for a way to become a highly developed country soon. But you know you will be met with resistance. And at some level you know that to fundamentally change the nation’s trajectory, you would have to completely change the laws, regulations and supplicants that make up the structure of your society. I understand that’s nigh impossible.

With this open letter, I offer a modest proposal. And yet variations on this proposal have worked all over the world, cutting the Gordian Knot between revolutionary overhaul and the malaise of inaction.

The world has learned a lot after 60 years of foreign aid. It took us that long to ask the right questions. For example, we don’t need to ask why poor countries are poor; but rather why are rich countries rich? When we look at the most successful places around the world, we can learn a lot.

Consider Hong Kong, Dubai, Switzerland, Mauritius, and Estonia. Among them, millions have risen out of penury–some in only the last 30 years. Each comes from different circumstances, with different cultures; and yet they share some common aspects:

  • Sound property rights
  • Rule of law and independent dispute resolution
  • Stable financial system and sound money
  • Open to domestic and international markets
  • Non-burdensome tax and regulatory regimes

The above is not exhaustive, but it’s a good start. It’s certainly what foreign direct investors are looking for. When we begin to think about how to implement these common aspects, matters become more complicated. But they needn’t be.

I humbly suggest an experiment: the next evolution of a special economic zone (SEZ). You certainly have heard about SEZs before, but I don’t just mean any SEZ. I’m referring to a Prosperity Zone which goes clearly beyond the traditional SEZ.

Imagine a small carve-out of territory in your home country, preferably near a body of water. A company offers residents and entrepreneurs the basic governmental services, such as the protection of life, liberty and property, within that defined territory. The residents pay an expenditure-based amount for those services. The rules are simple but in line with international best practices and human rights.

The residents’ and businesses’ rights and obligations are laid down in a contract with the “government service provider”, the Resident’s Contract. Conflicts about the contract go to renowned independent arbitration. Thus, they are a contracting party on an equal footing with the provider and have a secured legal position. It’s a real social contract.

The operating company has been granted this right by a long-term agreement with the host nation, which covers the nation’s specific political and legal requirements, as well as the fulfillment of international treaties.

So why are Prosperity Zones better? Allow me to offer six reasons:

  1. Certainty. In a Prosperity Zone, reliable, unchanging principles apply on the basis of the Residents’ Contract that enable private individuals and companies to plan for the long term. The city operator cannot change the contract unilaterally, reducing so-called “regime uncertainty”. Such clarity and stability makes it more likely that investors and residents will send capital into support new enterprises. Certainly it means businesses can trust the governing organization is there to do a specific job–namely what it wascontracted to do. The Resident’s Contract is real, and the provider can be brought to court on an equal footing.
  2. Best Practices. Given that the Prosperity Zone has the right to create large portions of the regulatory framework, best practices in law, administration and enforcement from all over the world can be introduced. By employing judges, arbitrators, administrative and security personnel from internationally renowned countries, the Prosperity Zone will create trust for its residents, investors and businesses from day one.
  3. Attracting High Potentials. Traditional SEZs are targeting businesses. Prosperity Zones are targeting individuals and businesses. With guaranteed liberty, security and a long-term plannability, Prosperity Zones are especially attractive for international and domestic high-potentials, who otherwise would have overlooked or left the country.
  4. Competition. The difference between a collection of small jurisdictions and one massive monolithic jurisdiction is that, in the former, you get pluralism, experimentation andcompetition. In short, if you don’t like Singapore, you can vote with your boat and move to Hong Kong. Likewise, if a Prosperity Zone fails to offer its citizens security and opportunity, people will just leave. To keep people and capital from leaving this small jurisdiction, things have to be better than the alternatives.
  5. Skin in the Game. This model has significant advantages over conventional systems, because of its incentive structure. First, the operator as owner of the project has a direct economic interest in the success of the Prosperity Zone. Second, like any contract provider, he can be held liable for errors. He cannot conceal his responsibility or pass it on to third parties. He bears his own personal risk. Third, he cannot force customers to accept his product, but must attract residents through the attractiveness of his product.
  6. Win-Win Big Scale. Imagine Singapore went public at a stock exchange! It would get a tremendous valuation. Prosperity Zones can turn into cities and, given their private form of organization, they can eventually go public and get a valuation. It is only fair, that the host nation gets a share of the project and the profits. In this way, everyone’s incentives are aligned: The wider nation benefits from revenues of this new economic engine, not to mention from the jobs and innovations likely to arise there. The revenues can be used to improve infrastructure and social projects in other parts of the country.

Indeed, the only political hurdle to overcome is ensuring the establishment of a special jurisdiction in a small territorial carve-out. Once that happens, the rest is up to the government services provider. And the only way that firm can profit is by creating a Prosperity Zone that benefits everyone.

As the CEO of TIPOLIS, I lead an organization that will help bring Prosperity Zones into existence. I am looking forward to talking to you.

Titus Gebel