Freeports – special economic zones offering tax breaks, greater customs flexibility and other economic perks – have long been championed by Rishi Sunak for their capacity to ‘unlock opportunity and drive growth in communities.’ But these pocket Edens risk betraying their liberating potential if we allow them to be born out of compulsory purchase orders, special interest privileges and other corporatist machinations.
The UK and Welsh governments have announced two new Freeports in Wales, the latest in a dozen approved zones to be developed in Britain as part of post-Brexit regenerative efforts. The announcement has rekindled some heated discourse about such zones, with critics fearing tax avoidance, criminal activity and a lack of democratic control.
While many of these anxieties are fueled by contempt for free trade and a predilection towards centralised control, it’s worth considering how easily Freeports can be corrupted by the original sin of cronyism.
The country’s largest Freeport project in Teesside (which encompasses an industrial skyline said to have inspired the dystopian hellscapes of Blade Runner) has been lambasted by Private Eye, among others, for the method by which overall control of the site has been obtained.
A wrangle over prior property titles within the zone saw the presiding development corporation (the body in charge of the strategic direction of the site) employ Compulsory Purchase Orders to forcefully gain possession of the plots of land in question. In short, a government-created entity used force of law to seize control of specific areas within the site.
This struggle was further exploited by two private opportunists who acquired leverage to gain large stakes of the site through a joint venture with the development corporation.
While it’s the relinquishing of partial control to private hands that has gotten Freeport-sceptics reeling, free-market adherents should be more concerned about the methods used by the publicly-owned development corporation in administering control of the territory.
Compulsory Purchase – known as Eminent Domain in the US – allows state actors to expropriate property for public use, and its application has been long-scorned by free market advocates wary of allowing bureaucratic interests to seize private property. However, these same commentators have often harboured a blindspot when it comes to special economic zones — perhaps because they are ostensibly free trade havens. Take, for example, the ‘ZEDE’ policy in Honduras, which has been championed in the past by some pro-market commentators despite the fact that its implementing law gives the Honduran government the right to seize land by eminent domain.
Politically, it might make sense for the UK’s new Freeport zones to be controlled by public development corporations, particularly as the policy has been married to the development of key emerging industries such as sustainable energy. If one is approaching a zone as a comprehensive strategy with uniform goals dependent upon multiple participating actors, some modicum of control and direction can be achieved by having such an authority at the helm, expropriating and then leasing land to tenants who benefit from the tax incentives.
But as a step towards freer trade and decentralised economic power, it would be preferable for Freeports to embody the same principles they claim to promote – without succumbing to artificially-procured fiefdom arrangements like the one found in Teesside.
We’re a long way from the implementation of the kind of radical special economic zones advocated by the Charter Cities Institute and Free Cities Foundation, but the UK’s Freeports will be a useful testbed for further decentralised experiments in free trade. The government must ensure that these new zones remain open and competitive, with no room given to privileged interests or artificial power. Otherwise, they risk slipping into the same pitfalls of crony capitalism they should be seeking to uproot.