Thursday, July 28, 2016

“Start-up cities” for refugees as a long term solution to the refugee and migration crisis

Published on CapX and by the Foundation for Economic Education.

It was also translated into French by Contrepoints and into Czech by It was also highlighted here as well as on Spanish free market newssite

Much has been written about how to deal with the current refugee and migration crisis, but an actual comprehensive solution hasn't been provided. According to some estimates, one year ago, there were around 60 million refugees in the world. In 2015, around one million of these 60 million entered Europe by sea, which already caused a massive political crisis. Even those who’re keen to allow more migration should realise that even tripling the numbers allowed in last year would only provide solace to a tiny part of those in need. There is a more structural and comprehensive solution however. It combines the idea of “start-up cities” with simple historical precedents: to create a new city, very similar to Hong Kong, to welcome refugees. 

The example of Hong Kong

What was Hong Kong otherwise than a city governed by Western officials and populated largely by refugees from Maoist China? If it was possible for the British to provide a safe home for millions of people on the run in much more challenging times, why wouldn’t it be possible for the whole of the developed world – not just Western countries – to give any refugee the most precious thing the developed world can offer them: the protection of the rule of law, which has propelled the US, Canada, Europe, Japan, and parts of East and Southeast Asia to the levels of wealth they enjoy today.

I propose to create what I call “free havens”, which really are newly created cities, governed by officials from countries with a high level of rule of law, and where any refugee could go to. This idea is very similar to the concept of “startup cities” or “private cities”, whereby cities would be created by private investors from scratch in a bid to create a much nicer place to live than in existing cities and to provide a more beneficial investment climate by offering a much stronger protection of property rights than elsewhere. A territory should be rented from a state, similar to how the British leased Hong Kong from China for 100 years, but this time a fair price should obviously be paid to the landlord.


Where would this be located? It could be anywhere really where nobody lives, given that only around three percent of the world is urbanised. A similar proposal was made by Egyptian businessman Naguib Sawiris, one of the richest men in Africa, who has offered to buy an island off Italy or Greece in order to rehouse hundreds of thousands of refugees. He has identified 23 uninhabited islands of which he’d like to buy one to host refugees, but the Greek government wasn’t interested. Other alternatives would be to create it inside Syria or Libya after liberating an area from terrorist groups. Perhaps an offshore territory owned by Britain or France could be suitable, for example one of the two areas in Cyprus which currently host British military bases. If no State would agree, a more ambitious variety of the plan could be to locate these cities on newly created islands.

Politically unrealistic? Less than one would think: the only proven method to protect external borders results in the emergence of large off-shore centers for refugees:

Does this proposal sound politically unrealistic? Less than one would think. A similar campaign to create a “refugee nation” was started by American entrepreneur Jason Buzi, and many other prominent people have endorsed the idea, including Bob Pleysier, who headed the Belgian government’s asylum department for a long time and knows the ins and outs of the problem. The more people realise this challenge can’t be dealt with by tampering in the margins, the more they are warming to the idea.

Reality is slowly pushing politicians towards the idea, but rather indirectly.

Both in Australia in 2013 and in Europe in 2016, the so-called “Australian solution of border control was implemented when the pressure on the external border really became too massive.

This solution involves telling anyone who tries to enter illegally to await their asylum a
pplication in refugee shelters near the border or off-shore, so they no longer have a terrible incentive to risk their lives but still retain the right to apply for asylum.

In Australia, this effectively brought down the recorded number of people drowning in Australian waters to near-zero from at least 1000 in the 13 years before . To realise this, Australia created off-shore shelters in Papua New Guinea.

In March 2016, Europe’s politicians decided to try a whole new approach in Greece, in desperation to avoid another Summer of discontent, following a strong increase in the popularity of right wing populists across Europe. Since then, only five people would have died in trying to make it from Turkey to Greece, a sharp decrease from the 805 who died last year in Greek-Turkish waters. This coincided with a sharp 95% drop in asylum seekers arriving in Greece from Turkey.

In implementing something like the “Australian” approach, Greece prevented asylum seekers from continuing their journey from the Greek islands close to Turkey to mainland Greece, while before they could make it to Greece’s mainland and then on to the Balkan and Germany very easily. However, despite the success of cutting the number of deaths-at-sea, just as in Australia’s case, the conditions in Greece’s so-called “hot spots”, where people are detained, are very troubling. The same must be said of Australia’s off-shore shelters. Of course the EU and Greece could have only copied the good aspects of Australia’s approach, while avoiding the bad ones, bud sadly, this didn’t happen.

Apart from this EU-induced policy change in Greece, two other major factors contributed to a sharp drop in drownings between Turkey and Greece. In the first place, there was the closure of the so-called “Balkan route”, with countries from Austria all the way to Macedonia implementing border controls, thereby preventing asylum seekers from making it to Germany and Sweden, where many desire to go. Secondly, there was the “EU-Turkey deal”, whereby Turkey promised to crack down on human smugglers and accept to “take back” both irregular migrants and asylum seekers, with Greece declaring Turkey a “safe country” so this would be legally possible. The implementation has been fraught with problems, but both factors did disincentive people not to risk their lives.

How different this is from the situation in the water between Libya and Italy, where an increasing number of people is trying to make the risky journey, with a lot of drownings as a result. There, on the “Central Mediterranean Route”, almost 2.900 refugees died in 2015 and already 2.606 in the first half of 2016 alone.
So far, well-intended coordinated military actions to save the lives of those trying to make it and combat human smugglers, have largely failed to stop human smuggling. More problematically, they have served to convince more people to risk their lives at sea. A well-intended operation to save lives is seen by many as a ferry for migrants keen to cross the Mediterranean. The House of Lords has acknowledged there is some validity in claims that these operations “act as a magnet to migrants and ease the task of smugglers”. Also the Libyan coastguard explicitly warned, to no avail, that the EU's "Operation Sophia" boosts migrant smuggling, explaining that "people, when they get rescued, call their friends to tell them that there are EU vessels only 20 miles from Libyan waters to save them."

To have a deal with chaos – ridden Libya is much harder still than it is with Turkey, so eventually also Italy will be forced to consider what Greece has done: to tell those applying for asylum that they need to await their asylum claim somewhere.

If the EU would create more temporary refugee shelter where asylum seekers are told to await their asylum claim, the pressure to provide decent standards will increase. Some people will be granted asylum, but others won’t. If the numbers remain as big as they are today, these kind of temporary refugee shelters may be overwhelmed and people may be forced to stay there for longer periods.

According to a top UN official, Europe must prepare for the arrival of millions more refugees from the Middle East and Africa as “young people all have cellphones and they can see what’s happening in other parts of the world, and that acts as a magnet.” 

Given the pressure which can be expected in the new few decades, with Africa’s population expected to more than double in 40 years, creating an actual city with law enforcement will then seem much less like an overambitious, costly plan than welcoming lots and lots of people in dodgy off-shore shelters where they have no perspective. Hence, events on the ground may drive policy makers to this solution.

How would such a “startup city” for refugees look like?

Would companies invest in such a “startup city” for refugees? Certainly. When facing the choice between Ethiopia, Pakistan, or a place run by countries with a high level of rule of law, it shouldn’t be excluded for the likes of Ikea, Nestle, Coca Cola or Apple to consider moving production capacity over there.

When wondering how to run such a place most efficiently, Hong Kong springs to mind. Sir John James Cowperthwaite was the British civil servant who acted as Financial Secretary of Hong Kong after World War II. He's considered the architect of its economic success. Having watched Chinese refugees arriving, he concluded they seemed to be getting along fine if left to themselves, so he made it the crux of his policy for the government not to do much to help refugees, beyond giving them freedom, security, the rule of law and a hard currency. His administration did provide public housing, but not much more. This policy of positive non-interventionism has been extremely successful despite later developments of more intervention. That some Chinese capital had moved to Hong Kong did play a role in the Crown colony’s success, but the fact that the Chinese border was closed meant the city experienced an economic miracle in the decades following World War II against all odds. The Economist described it in 1977 as follows: “A businessman setting up shop in Hong Kong finds low taxes, no foolish government interferences…a government leaning over to encourage him to make as much money as he can. He finds, blessed discovery, no politics.”

Crucial for the success of the development of Hong Kong was of course the fact that it could rely on British rule of law. This is also what proponents of “startup cities” want: to enable people living in corrupt juridisdictions to somehow enjoy the benefits of a higher quality of legal protection.

One example is a project to develop so-called “LEAP-zones”, something which Honduras allowed, under the name “ZEDE”. These are semi-autonomous zones on the territory of a certain state, with distinct legal, economic, administrative, and political (LEAP) protection for job creators. There, investors can count on the protection of US rule of law, which makes the project different from more traditional schemes to boost investment through reduced regulations or lower tax rates. The LEAP-zone project in Honduras may however not be a roaring success yet, given reports that it seems to be struggling with disputes over who owns the land identified for it.

This reminds of prominent development economist Paul Romer’s project to develop a foreign-run “charter city” in Madagascar and therefore lease out farmland to South Korean concern Daewoo, opening up the hub both to migrants from nearby countries as well as to locals. Regretfully, the project collapsed in 2009 after the country experienced a coup, apparently partly triggered due to anger towards the project, which was denounced as treason.

The lesson of these two experiments is obvious: such projects can only work if they are being developed on land which isn’t claimed by anyone and if they enjoy the same level of rock-solid independence from foreign intervention of Hong Kong.

Who would take the lead?

The European Union may not be perfect, but it does has some experience with “rule of law”-missions. Part of its EULEX-mission in Kosovo was to administer justice in the most delicate sectors over there. There have been major problems with the implementation, but at least Kosovo has known some kind of stability. Either way a crucial difference between free havens and the mission in Kosovo or historical Western “colonies” would be that anyone moving to such a place would do so voluntarily.

Of course, it’s clear that if the whole thing would be a private venture, things may be run much more efficiently, given that it’s not weak taxpayers but assertive shareholders of companies keen to see return on their investment that would be monitoring the project. Still, as Paul Romer’s experience in Madagascar teaches us: this is such a massive project that recognition by State actors in any way or another will be vital for its success.

What about the cost?

The Belgian State’s police and justice system costs around 3 billion euro per year, to serve 11 million people. Obviously a lot more would be needed to provide basic infrastructure, but to find funding, the EU’s 130 billion euro budget could be used. Anyone dealing with it knows massive spending improvements could be made. More than 270 billion euros are still being transferred to the already plentiful pockets of agricultural landowners, including the Queen of England, between 2014 and 2020. With Brexit, a major reform of the EU Budget is needed and given how the EU’s agricultural policies have been hurting developing countries for decades, it wouldn’t be such a bad idea to start looking there.

In any case, the refugee crisis has so far proven to impose a very high cost anyway. Germany's IFO institute has estimated the cost for Germany to be about 20 billion euro per year, although many other economists have claimed that to the extent these people can be integrated they’ll prove an economic boost.

Why would such a “Free haven” offer standards of justice and safety that are sufficiently high to make such a project succeed, so people would actually voluntarily want to go there, and companies would actually want to invest, thereby freeing up the resources needed to compensate the host State to actually allow such a Free haven to exist on its territory?

The answer is simple: For this project to be a success, it needs to become more safe than the most unsafe place in the world and its investment climate should beat the most horrible place on earth to do business, to attract those fellow human beings who actually have to survive there at the moment. Surely that shouldn’t be too much of a challenge. Would it really be so hard to do better than North Korea, Syria or Congo? Either way, the modest solutions have failed.

Saturday, July 16, 2016


My comment in The Economist regarding the EU-Canada trade deal CETA, on how supranational overreach fuels populism and hostility to free trade: “Brussels has received a message: people do not feel like they have enough control over their own fates”   

Sunday, July 10, 2016

Roll back protectionism

Published on

For the first time since World War II, those arguing to remove barriers to trade are on the defensive in Europe. The ghost of protectionism haunts the Continent.

We see this play out in protests against EU trade deals with the U.S. and with Canada, where the agreements’ opponents consciously avoid the debate that lower tariffs benefit consumers, and choose to focus on side issues. They take issue with the use of private arbitration courts to settle disputes, despite the fact that the system has worked successfully since the 1950s. They also stir up fear that “regulatory cooperation” will endanger sovereignty, when in truth it’s no more than a burdensome process that identifies incompatible and protectionist elements in EU and U.S. legislation.

The debate over whether to grant market economy status to China, which would deprive the EU of possibilities to impose trade restrictions on the country, is also making waves. The European Parliament is very much on the protectionist side of this debate. Surprisingly, so is business.

All kinds of protectionist instincts surfaced in the campaign for the U.K.’s referendum on its membership in the EU. In the aftermath of the Brexit vote, some EU capitals are keen to restrict the City of London’s access to the EU, despite the fact the move would drive up the cost of financing big projects in the EU, and hurt consumers.

Likewise, some Brexit campaigners have discussed engaging in silly tit-for-tat protectionism strategies, such as threatening to impose tariffs on German car imports into the U.K. This, again, would hit consumers hardest.

Europe has enough debt, regulations and taxes already. It shouldn’t add protectionism to the mix. Consumers should be the focus of debates on trade agreements.

Monday, July 04, 2016

The Brexit referendum - my take

Interview with Euronews TV:

Interview met Elsevier (in Dutch):

Interview with BBC World Service programme "The Inquiry":

Brexit : the EU and Britain will work this out, but don’t hold your breath

Published on PublicAffairsEU

Last week’s vote in Britain to leave the EU truly shocked Brussels. Whereas many had anticipated a narrow win for "remain", as indicated by some opinion polls, not so many had realised that "narrow" also meant the “Brexit” - camp could win.

A whole range of reactions followed. While the six Foreign Ministers of EU "founding states" and EU Commission President Juncker sent out hostile messages, German Chancellor Angela Merkel was more concilliatory, warning there is "no need to be nasty" to the UK. 

At this week’s EU Summit, EU leaders stated that “access to the single market requires acceptance of all four freedoms, including the freedom of movement”, which really should be seen more of a negotiation statement rather than a prediction. They also granted some time for the UK to figure out who’ll become PM. After that, some kind of official negotiation is due to start.

It’s still not certain that the UK will opt to use the EU procedure for member states to leave the Union, which is layed down in article 50 of the EU Treaty. The UK may be frightened by the prospect that not only ultra-federalist MEPs have a veto over this, but also that the EU controls the timetable in this procedure. This because from the moment it is triggered, a period of two years starts, after which Britain automatically leaves the EU. This two-year period can however be prolonged, with the consent of each member state, which is likely, given that tariffs on UK exports which would be swiftly followed by tariffs on German or Benelux imports into the UK isn’t something the likes of Germany are looking forward to. A lot of jobs would swiftly be lost, for example in the German car manufacturing industry.

On Thursday, a bombshell hit UK politics, with the announcement of former Conservative London Mayor Boris Johnson, the most prominent campaigner for Brexit, that he wouldn’t be running to become PM. The consequences of this aren’t entirely clear yet. That Theresa May, who now looks to be the favorite to succeed David Cameron, has campaigned for “remain”, may make a deal between Britain and the EU perhaps a bit easier.

Any UK government is likely to demand restrictions on freedom of movement and market access to the EU at the same time. Given that nobody is ready for a trade war, some deal should be feasibly at some point, although there may be restrictions for Britain’s financial services, as much as this would also hit investment on the Continent. It’s not so intelligent to cut of one’s financial bloodline, but Continental politicans have proven in the past to sometimes opt for politics over economics, even at great cost. The EU will at some point also need to close a deal with Switzerland on freedom of movement, given that the Swiss people have demanded this in a referendum in 2014. So far, Brussels has refused to negotiate over this, but when the Swiss are joined in their demand by the British, the EU may like to offer some kind of solution which could be applied to both, especially when the stakes are so high, given the size of trade between the UK and the EU.

Many in Britain are currently requesting a deal similar to the one Norway enjoys, which includes automatic access to the European Economic Area (EEA). When it will sink in that this means taking over a lot of EU rules automatically, which effectively reduces Parliament’s sovereignty as compared to now, while remaining under the jurisdiction of the EU’s Court of Justice in Luxembourg, it can be expected that the preferred solution will be to close a bilateral Free Trade Agreement (FTA). This however can take years. Seven years, according to EU Council President Donald Tusk. This means Britain is unlikely to leave the EU anytime soon. Given the stakes, a deal between the EU and Britain is ultimately likely. Many proponents of Brexit will at that point claim that Britain is still a member of the EU in all but name, perhaps a stretch. Many of those who currently refuse to believe Britain won’t leave, will in any case be proven wrong. The full force of popular power in one of the world’s oldest democracies shouldn’t be underestimated