In the Zone: Quinn Slobodian’s Crack-Up Capitalism

Quinn Slobodian’s new book, Crack-Up Capitalism is an original and striking analysis of a weird apparent disjuncture. Libertarians and classical liberals famously claim to be opposed to state power. So why do some of them resort to it so readily?

In his previous book, The Globalists, Quinn argued that globalization was poorly understood. It wasn’t – as Polanyians thought – a simple triumph of the market. Instead, it was the partial victory of Hayekian constitutionalism, embedding rules at the global level that prevent democracies or other states from interfering with the catallaxy that Hayek sees as the wellspring both of liberty and economic discovery. The rules of organizations such as the WTO or the European Union shared many characteristics with the Hayekian vision, although they couldn’t fully be reduced to them.

Crack-Up Capitalism doesn’t start from the world of ideas or international organizations, but it too shows how market making depends intimately on institutional politics. It argues that international politics has been quietly transformed by the creation of thousands of “zones,” which are carved out of ordinary regulatory structures. These zones are the product of state policy, and of the willingness of many libertarians (as in The Globalists to embrace rigid state constraints in order to curtail democracy.

The book starts with the musings of Peter Thiel, who notoriously announced in a Cato Unbound seminar that he “no longer believe[d] that freedom and democracy are compatible.” Thiel proposed that the “great task” for libertarians “is to find an escape from politics in all its forms,” and that the best way to do this was to “increase the number of countries.” Quinn argues that Thiel’s stance is not an aberration. There are a lot of people who believe that the politics of Snow Crash – franchise government, and the traditional state shrunk down to a pathetic cult of bureaucratic true believers – sound positively utopian. The result has not just been the exotic plans to set up Galt’s Gulch on atolls and abandoned offshore fortresses documented by people like Raymond Craib, but quieter, more boring-seeming, and ultimately far more important efforts to create special zones that are exempt from ordinary rules and regulations. Crack-Up Capitalism says that there are over 5,400 such zones in the world today. We don’t pay much attention to them – there is no developed international relations literature on them for example, even though they arguably have large-scale implications for international politics. Crack-Up Capitalism explains why we should take notice.

The beau ideal of the zone is a small geographic area with curtailed or non-existent democracy. In 2022, the Simon Fraser Institute’s rankings of the world’s ‘freest economies’ announced that Hong Kong and Singapore were number one and number two respectively, “as usual.” This came after the introduction of the notoriously draconian “National Security Law” in 2020 (which in fairness, the Simon Fraser Institute noted briefly had possibly contributed to a fall in Hong Kong’s overall score – still number one, but maybe not quite as number one as in the past). This high acclaim for a regime that is brutally hostile to civil liberties, and has never had a genuine democracy, says that there is something weird happening in libertarianism.

Crack-Up Capitalism suggests it has been happening for a long time. Libertarians have been fascinated by the Hong Kong and Singapore models for decades. Milton Friedman proclaimed in 1990 that the “right model” for Eastern Europe was not the democratic states of the West, but Hong Kong. Hong Kong provided the model for Deng Xiaoping’s program for making Shenzhen province into a deregulated economic “zone,” and launching the remaking of the Chinese economy, without any significant move towards democratic rights. Notably, it wasn’t only authoritarian governments that wanted to build Hong-Kong type zones. In the UK, Geoffrey Howe, the shadow-chancellor of the exchequer for Margaret Thatcher, turning UK inner cities into “Crown colonies” like Hong Kong, liberated from regulation, so that free markets could let rip. Thatcher’s house intellectual, Keith Joseph wanted to make parts of the UK places where “the Queen’s writ does not run,” eliminating tax, labor laws and health and safety regulations. When Thatcher came to power, eleven “enterprise zones” were created. They didn’t work very well, but they provided a model for Canary Wharf, and the recreation of London as a city where developers could get their way. Slobodian stresses that this was not a fight between the government and the market, but a bitter dispute over two different understandings of the state, one centered around Thatcher, and the other, the socialist friendly Greater London Council (GLC), which the Thatcher government abolished. “Thatcher’s government and the GLC were both part of “the state.” Where they differed was in their conception of what the state was for” (48).

Crack-Up Capitalism goes on to explain how this notion of deregulated zones has colonized the world. When apartheid South Africa created Bantustans like Ciskei, the idea was to create an “African Hong Kong,” an “Export Processing Zone,” with fewer and laxer regulations and taxes. Leftover countries from the era of European state consolidation like Liechtenstein found a new business model, helping rich people in other countries avoid taxes. The Liechtenstein chapter is worth the price of the book alone, describing how its Hayek-worshipping ruler, Prince Hans-Adam, engineered a referendum that allowed him to put forward and veto bills and dissolve parliament – but also allowed Liechtenstein’s communes to succeed (originally, he wanted individual citizens to be able to secede if they wanted). The capital of Dubai and the United Arab Emirates is now less an ordinary capital city than “part of the tool kit for assembling legal modules inside nations, a piece of patchwork that could be lifted up and set down anywhere” (179). And Silicon Valley is, of course radicalizing this ideology, from Underground Man cosplay fetishists like Curtis Yarvin (who I was recently delighted to discover had denounced Crooked Timber in his Mencius Moldbug days), to Balaji Srinavasan’s terribly written musings on the forthcoming victory of the “Network State.”

The book provides copious evidence that many libertarians have a deep regard for the anti-democratic aspects of the state. It emphasizes how a set of projects that claim to promise an escape from politics do anything but that: “No matter the rhetoric, zones are tools of the state, not liberation from it” (236). The concept of the zone encompasses Saudi Arabia’s proposals to build linear cities in the desert. It’s a version of authoritarian politics under which urban developers take on the role of philosopher-kings. It’s no surprise that Donald Trump was an early champion of zones, which gave him millions in tax breaks. Two months ago, the Washington Post ran a story on how some Trump allies:

give him credit for what they see as a bold new idea. One campaign adviser compared the proposal’s ambition to the “Opportunity Zones” economic incentives in Trump’s 2017 tax legislation, scaled up to emulate historic Republican achievements such as Abraham Lincoln’s Homestead Act and Dwight D. Eisenhower’s Interstate Highway System. “There is this broad recognition that we don’t build enough things in America and that, you know, obviously, we have great American cities, but we haven’t really built a new model city,” said Sen. J.D. Vance (R-Ohio), who has endorsed Trump’s presidential bid. “There are a lot of other countries that are trying different approaches out, and I think it’s fine for us to think about doing that here, too.”

Crack-Up Capitalism isn’t just a critique of the right. Slobodian’s arguments hint too that there is a dark side to Yimbyism, which is no more and no less than an alliance between the state and development interests to push past local objections. When he describes the Hong Kong model of “administrative absolutism” as one where “appointed officials and representatives of big business made the decisions with no input from ordinary residents” (46), he provides reasons to worry that big sweeping proposals to do away with local vetos can have a very obvious failure mode. Maryland’s Democratic senator Ben Cardin has threatened retaliation against the left-wing government in Honduras, which wants to withdraw from a system of ““Economic Development and Employment Zones” … where private investors have outsized power to shape labor laws, judicial systems, and local governance. These zones have garnered fierce opposition in Honduras for undermining the basic tenets of democracy.”

But libertarians are likely to see themselves as the main intellectual targets of Slobodian’s book. They have some grounds to protest – not all of them are as hostile towards, or indifferent to democracy as the people described in the book. There is an important Ostromian strain of thinking that runs counter to the strains that he emphasizes, and people will argue over whether Milton Friedman was as unequivocally enthusiastic for restrictions on democracy as Slobodian suggests. Where that possible counterblast crashes into its own limits, is that Milton Friedman is no longer, for obvious reasons, directly engaged in libertarian debate. Peter Thiel, on the other hand, very definitely is, and is arguably the single most prominent figure in the libertarian extended universe right now, less because of the quality of his ideas, than the quantity of readies he is willing to put behind them. As the book emphasizes, there is a lengthy tradition behind him, as well as a consistent demonstrated pattern of libertarians striking deals with autocrats, motivated by a disdain for the messiness of political bargaining, and a desire to put the muscle of the state behind economic freedom. Chile is only one notorious example.

There are flaws to the book. It’s aimed at a popular audience, and hence over-simplifies (I’m about to be guilty of the same, in my own book with Abraham Newman). Too many things are lumped together under the book’s broad argument. Does libertarian rhetoric about the “soft secession” of suburbs justify their inclusion as part of the phenomenon? Maybe – but there is a point at which the argument may be stretched too far. How do zones vary? Are some more successful (however you want to construe success) than others? In non-democratic countries, is it better or worse to have zones like Shenzhen or the proposed Saudi cities than straight totalitarianism? One of the great things about The Globalists was that it grappled with the counter-arguments, and acknowledged where they might have force. I would have liked more consideration of whether there is something important about institutional experimentalism and utopianism amidst the wallops, maybe along the lines of the scattered comments in this piece China Mieville did way back.

But this is still a very sharp and very strong book, which uncovers something important. I recommend it highly, and if I have the chance in future, I’ll be teaching it.