Globalization has undermined national sovereignty.
In 5400 “special economic zones” worldwide, corporations are bypassing national controls and regulations – and no one is looking.

Flag map of the world including Exclusive Economic Zones. More on Vividmaps

After decades of dizzying globalization, the pendulum is swinging back toward the nation. Efforts are underway everywhere to bring supply chains home and thus reduce international economic interdependencies. The U.S. Congress just passed a nearly $400 billion bill designed not only to support the transition to green energy, but more importantly to increase domestic production and reduce dependence on foreign countries.

Experts proclaim the dawn of a new era: the age of economic nationalism. So says Quinn Slobodian (1), professor of the history of ideas at Wellesley College, in the New York Times of March 12, 2023. But he exposes this view of development as aberrant and badly truncated.

The principle of “proper and special treatment” for investors is booming

In reality, globalization is already so advanced that it even exists within national borders. But this is not so easy to see. Countries are peppered with unusual legal spaces, anomalous territories and peculiar jurisdictions. Slobodian points to the many city-states, sanctuaries, enclaves, free ports, high-tech parks, duty-free districts and innovation centers that are linked to other similar entities around the world, often bypassing the usual system of customs controls.

Anyone who does not recognize this interwoven structure does not understand the way capitalism works and the underlying economic-political development.

Slobodian groups the listed “geographic curiosities” under the common term of “zones.” Each of these zones, he says, is essentially an enclave exempt from otherwise applicable regulation. There, host states would mostly suspend their taxation rules to attract investors by allowing them to dictate their own rules.

There is a bewildering variety of zones. 82 different forms exist, Slobodian quotes an official count, and a total of more than 5400 such zones exist worldwide, about 30 times as many as the total number of sovereign states.

French Exclusive Economic Zone

The map shows the French exclusive economic zone. France has the largest exclusive economic zone in the world at 11.7 million km2 (4.5 sq mi), followed by that of the United States, which covers 13,000 miles (24,100 km) of coastline and includes 3.4 million square miles (8.8 million km²) of ocean, which is more than the land area of all 50 states combined. (Source: Vivdmaps)

Zones were once emergency measures against economic crises 

Slobodian locates the origin of such zones in the U.S. warehouses of the New Deal years (1933-1938). These were legally designated as being outside the domestic market to avoid tariffs. In the 1950s and 1960s, this strategy of special rights had led to entire islands such as Puerto Rico and Taiwan becoming sites for low-wage production. Three decades later, Russia and China in particular created more and more new zones to attract foreign investors.

Zones as private city-states are bait for big business

Slobodian locates yet other versions of zones in the self-governing financial center of the City of London, where corporations have a vote in local elections, and in Britain’s overseas territories such as the Cayman Islands, where transnational corporations hide their profits from taxation.

Urban megaprojects – such as New Songdo City in South Korea and Neom, currently under construction in Saudi Arabia – were planned from the outset as special zones, with their own regulatory authority like private city-states, he said. In 2021, Nevada lawmakers would have proposed a similar idea: allowing companies that locate in the state to write their own laws. Elon Musk is reportedly planning his own city near Austin, Texas, which would allow him to enact some of his own regulations.

Dubai as a hotspot

Zones are the redoubts of global fortune seekers. These interconnected hubs enable foreign ownership and management and often bypass the central government. Slobodian locates a weighty hotspot for zones in Dubai, which is a patchwork of what historian Mike Davis called “legal domes” devoted to various activities: Healthcare City, he says, lies next to Media City next to Internet City, each with a tailored set of laws and tax breaks crafted with foreign investors in mind.

Dubai as a hotspot

“In the 2000s, Dubai went global, acquiring ports on the African coast and in Southeast Asia and buying the P&O shipping company, once the pride of the British Empire. A once insignificant British colony now owns the crown jewel of the Empire’s merchant fleet,” Slobodian notes.

Globalization under the radar

Those who claim that globalization has regressed in recent years are ignoring the worldwide network of special zones. In Africa, Slobodian already counts 200 zones, and 73 more have been announced.

Since the beginning of the pandemic, he said, China has pushed ahead with plans to turn the entire island of Hainan into a special economic zone with tax breaks for investors, duty-free shopping and relaxed regulations on drugs and medical procedures. 

Even the Taliban recently announced plans to turn former U.S. military bases into special economic zones, he said.

Nationalists also court investors with zones

More and more zones are also being set up in countries most closely identified with right-wing nationalist politics, Slobodian reports. The government of Indian Prime Minister Narendra Modi, often described as a Hindu chauvinist, has set up special economic zones to compete with Singapore and Dubai for investors, he said.

Hungary under President Viktor Orban, who calls himself the standard-bearer of “illiberalism,” set up its first special economic zone in 2020 to lure South Korean tech giant Samsung, he said.

The only significant legislation – the 2017 tax cut – that Donald Trumps pushed through as president provided for a series of new “Opportunity Zones” where investors could cut their taxes to a “very big, fat, beautiful number of zero,” which amounted to subsidies for real estate developers and friends like Anthony Scaramucci, Slobodian clarifies. Perhaps the most notorious area of recent times, he says, was New York’s Hudson Yards development, which received huge tax breaks by paving an absurd connecting path from posh Chelsea up to poor East Harlem.

Special zones often produce the opposite of promises

“The capitalist Cinderella stories of Dubai and Shenzhen make zones seem like a magic formula for economic growth,” Slobodian analyzes. All that’s needed, he says, is to draw a line on a map, relax taxes and regulations, and wait for investors to rush in. But “dream zones,” Slobodian warns, rarely develop the promised magic. Often, quite unexpected consequences would occur.

In his first speech as British prime minister, Boris Johnson had touted the plan for a series of free ports on the coast as a “magic bullet” for bringing industry back north. The British Conservative elite sold these zones as a way to free freewheeling entrepreneurship from the burden of regulations on a small scale. The reality, however, had turned out quite differently: In the only successful example – Canary Wharf – property developers would have benefited from tax breaks and billions in government support, only to sell assets to offshore buyers who would have taken their own profits right back out of the country.

In the UK, the risks of this partial outsourcing of sovereignty became clear last year when the entire 800-strong UK workforce of P&O Ferries was summarily dismissed. This was made possible thanks to a trick in the zone, Slobodian explains. P&O’s ships continued to sail from British ports, but they were now sailing under the flags of other countries and subject to their more lax labor laws. They were in British waters but did not belong to the United Kingdom.

The claim by the “Brexit tribunes” that they were taking back control from Brussels was misleading. In truth, they would be ceding control to the zones, Slobodian makes clear. An analysis of the flourishing development of special zones around the world reveals gaping holes in the populists’ rhetoric.

Special zones undermine democracy and the welfare state

Countries compete with each other to offer more attractive incentives. But the zone strategy, with its accompanying partial surrender of sovereignty, does not always lead to better outcomes for citizens, Slobodian concludes. It is important to keep a close eye on this sector.

Even in the age of resurgent nationalism, he said, fenced-off territories with variously endowed special rights and privileges for international capital are a driving factor of economic activity and a permanent challenge to any democracy.

(1) Quinn Slobodian’s latest book: “Crack-Up Capitalism: Market Radicals and the Dream of a World Without Democracy.”