Utopia Watch  

From Upstate New York to the Horn of Africa

by Spencer MacCallum

Some people talk about what a free society would look like. Others try to build one.

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I believe, as an act of faith, that human social organization in the future will be stateless. Such an assumption is warranted for the same reason as the scientist's assumption that the universe is a cosmos and not a chaos. That is to say, it's a productive assumption. The scientist can't prove the universe can be understood rationally, but if he didn't make that assumption, he wouldn't make any discoveries. He wouldn't expend the effort. In the same way, it is productive to assume that human society (which after all is very young) is a work still in progress and that we are outgrowing the conflicted behavior of politics.

Such an assumption prompts the search for new understandings of the peacefully evolving social process. To engage in such discoveries is inspiring, and inspiration lifts our spirits. Inspiration is the fountain of creativity — and creativity is what being human, in the best sense of that word, is all about.

For this general perspective, I'm indebted to my grandfather, Spencer Heath. He was attracted early on, in the 1890s, to the strongly free-trade stance of Henry George. From his ensuing close acquaintance with the Georgist movement over the next 40 years, his attention was drawn to the institution of property in land. Instead of condemning it, as many Georgists are inclined to do, he made the productive assumption that it performs a vital function in human social organization and set about to understand what that might be. In 1936, he wrote up and self-published his findings in a monograph entitled "Politics versus Proprietorship."

I became aware of my grandfather's ideas while I was an undergraduate at Princeton in the mid-1950s. I've been hooked ever since, fascinated by the idea of social evolution and particularly the notion of human society as an emerging spontaneous order. A few years later, studying social anthropology at the University of Washington, I did a master's thesis based on those ideas. I received a lot of encouragement from Baldy Harper, who was then in the process of founding the Institute for Humane Studies. My thesis became the basis for "The Art of Community," which the Institute published in 1970.

My main focus over many years has been a vast and virtually untapped body of empirical data from the field of commercial real estate, namely, the emergence since the mid-19th century of many forms of multi-tenant income property, such as hotels, shopping centers, office buildings, business parks, and marinas. What all of these have in common is that title to the land component of the development is not fractionated by subdividing but is held intact, and the parceling is done by ground-leasing. Leasing sites instead of selling them off preserves the concentrated entrepreneurial interest in the whole development that allowed it to be planned and built in the first place, and this permits it to be operated as a long-term investment for income. The result is very different from a subdivision, such as a condominium or other form of common-interest development, which are governed nowadays by a homeowners' association. A subdivision is an aggregation of consumers looking to their own purposes and not in any sense a business enterprise serving customers in the competitive market.

Around 1970, I made the acquaintance of Werner Stiefel. Shortly after that, he began work on a new project: devising a constitution for an altogether stateless community. While the community needed to be effectively governed, its government was to differ from governments as we know them in being internally consistent. In no way should it infringe upon property rights. There was to be no taxation or other discretionary authority over anyone's person or property.

Stiefel had been inspired and awakened philosophically by reading "Atlas Shrugged." But unlike a great many Randians, he saw an inconsistency in her tolerance for the state. He realized that men act in their own interest as they perceive it, and that is no problem when they are dealing with their own person and property. But when they acquire discretionary authority over persons and property not their own, problems arise, since their perceived interest and that of the owners must at some point diverge. The private individual must then resist, even to the forfeit of his life if he cannot prevail, or live for the sake of another.

Stiefel's family had experienced Nazi Germany in the 1930s. Unable to rescue any assets from their family soap manufacturing business in Germany, Stiefel, his father, and brother set up a new business in the United States, based on what they carried in their heads. Today Stiefel Laboratories, a family-owned company, produces dermatological soaps and related products in more than 40 countries.

When Stiefel read "Atlas Shrugged," he woke up to a sobering question. When conditions had deteriorated in Germany in the 1930s, many people had fled to the United States. But even then, in the United States, Stiefel saw symptoms of the same thing happening that he had witnessed in Germany. When the time came, he asked, where could people flee from the United States?

Taking his cue from Rand, Stiefel conceived of a "Galt's Gulch" somewhere on the oceans, a community on the high seas outside the political jurisdiction of any nation. Adopting the name "Atlantis," he set about to make the dream a reality, using his private resources and not any of those of the company. His endeavor was a fit subject for a heroic novel.

Stiefel began by purchasing a motel near the company's main plant in Saugerties, N.Y., and inviting libertarians to come and live there while they worked in the surrounding area and, in their free time, helped to plan the Atlantis Project. He conceived of the project in three stages. Atlantis I was the Saugerties Motel. Atlantis II would be a ship at sea, and Atlantis III would be a community on floats or on dredged-up land on a submerged seamount. The ship would play an indispensable role in the construction phase for Atlantis III.

At Saugerties — Atlantis I — Stiefel undertook to transform those who had joined him into a seasoned team that could work under any and all conditions. He did this by assigning them the daunting task of building the ferro-cement ship that would be Atlantis II. The team passed this first test and sailed the ship south into the Caribbean, where a tropical storm destroyed it.

Undaunted, Stiefel constructed four sea walls at a spot in the Caribbean outside any political jurisdiction where the depth was only four feet at low tide. While he was dredging sand to create his first bit of artificial land on which to stand while extending Atlantis III, one of Haitian dictator "Papa Doc" Duvalier's gunboats showed up and leveled its guns. Someone had found silver nuggets on the sea bottom nearby and had cut a deal with Papa Doc for protection from pirates. The gunboat captain had no idea who these people were or what they were doing in the area, but thought it best to run them off. Forced to make a quick decision, Stiefel abandoned the site.

Stiefel then leased a site for his base in a freeport operated by the Haitian government. But when a copy of Werner's newsletter, "The Atlantis News," fell into an official's hands and revealed his underlying philosophy, the government canceled the lease. Stiefel learned the importance of keeping a low profile.

He next set about to create land on the Misteriosa Bank, a submerged seamount midway between Cuba and Honduras, the same location that self-styled Prince Lazarus Long would later publicize as the site for his ill-starred New Utopia. Stiefel bought and towed to the site an oil rig that, once on location, would be inverted to stand on three legs. Before it could be put in place, a hurricane blew it out to sea and destroyed it.

Undismayed still, Stiefel purchased property on Grand Cayman and constructed an attractive building complex for his center of operations, one that would also serve as a retreat for staff of Stiefel Labs. This setting still exists. It became, among other things, the office of the Atlantis Trading and Commodity Purchasing Service (ATCOPS), which Stiefel had established as the forerunner of the Bank of Atlantis. ATCOPS made profits for many clients, including me, over the years and minted an attractive silver coin, the deca, so-called because it contained a decagram of silver.

From his base at Grand Cayman, Stiefel bought an island off the coast of Belize and built improvements on it, with the ultimate goal of negotiating, if not full sovereignty, then at least freeport status from the government of Belize. But in time, with age now advancing on him, Stiefel tired of dealing with the bureaucracy and put up the island for sale.

Beginning with Atlantis, Steifel's goal was to develop one or more freeports at sea that would function much like new countries. His approach had many practical features. Atlantis would start small and grow by increments. It would aim at attracting business residents, starting with one of his own plants — Stiefel Laboratories. It would not aim at attracting a residential population. Businesses would bring their own personnel and their families, and these would require ancillary services, which services in turn would require personnel, and the residential population would grow naturally. This would enable the Atlantis community to develop without fanfare; promotional advertising of casinos and other recreational amenities of tourism would follow much later. Until then, the fledgling community could maintain a low profile, almost under the political radar screen. Stiefel's approach was also nonideological, aimed at effective, entrepreneurial people of business and the professions regardless of political persuasion or lifestyle.

The most innovative aspect of Atlantis is that the provision of governmental services would be a business in and of itself, creating value in the competitive market and subsisting on the market revenues those values induced. There would be no need to appeal to philanthropy or to have recourse to taxation. Because the provision of public goods would be a business, specifically a multi-tenant income property, taxation of the residents would be intolerable, anathema to the enterprise because destructive of the values on which it depended.

From Werner's Herculean effort came an intellectual achievement that survived Atlantis and has influenced others who have been similarly taken with the notion of apolitical countries on Earth or on the frontiers opening in outer space.

Unlike Ayn Rand, Stiefel was not treating his "Galt's Gulch" as a literary device. He was setting out to apply it in the real world. Consequently he was not privileged, as she had been, to ignore the question of how it would be administered. In 1972, he reached a low point, almost despairing of the project, over the question of how Atlantis could be administered as a community and yet leave its inhabitants free. What form of government ought he choose? Surveying the history of human society and government, he could find no form of government that would not be prone to repeating the tired cycle of tyranny the world has always known.

At that point, he came upon the ideas of Spencer Heath and saw their relevance. Heath had written of the advantage of keeping intact the title to the land underlying a real-estate development by parceling the land into leaseholds instead of subdividing it. Doing this would enable the owners to administer the development as a long-term investment for income, rather than selling it off piecemeal for a one-time capital gain. To the extent that, by supplying public services and amenities, owners could create an environment the market found attractive, they would recover their costs and earn a profit to themselves and their investors. Heath forecast that in time whole communities would be managed on this nonpolitical basis. He saw this becoming the future norm for human settlements, each competing in the market for its clientele. Community services would become the major new growth industry.

Heath's pilot demonstration was a hotel. The hotel resembles a community in having private and public spaces. Its corridors are its streets, and its lobby the town square. It offers public transit, which happens to operate vertically rather than horizontally. In-house medical and security services assure round-the-clock safety of guests, their visitors, and their property. The hotel controls its climate and administers utilities. It allocates space in an orderly manner for many uses. All the hotel lacks that we are accustomed to find in communities is a city hall exercising the power of taxation and other discretionary authority over the inhabitants and their property. A shopping mall or any other multi-tenant income property would have served as well for a demonstration.

Stiefel had just such a working community in his Saugerties Motel — Atlantis I. Here he administered all necessary community services contractually on an ordinary, businesslike basis. Pragmatic businessman that he was, he realized that here was his desired form of government — a proprietary, free-market government in which there was no violation of private property but all relations were contractual, freely negotiated among the parties. All he needed was to preserve this form of organization and move it out to sea.

Why had no one thought of this before? Why wasn't it common wisdom? Doubtless the reason is that the dynamic, evolving market process, is recent in human history, and our understanding of it is nascent. Boston's Tremont House, acknowledged within the industry to have been the first modern hotel, was built only 175 years ago, and all subsequent forms of modern, multi-tenant income property have evolved since then. We are not habituated to thinking of a community as an entrepreneurial undertaking. Only with the advent of modern technology and business practice, including banking and finance, insurance, innovation in communications, modern accounting methods, and so forth, could a community conceivably take the form of a competitive business enterprise.

The wording of Stiefel's master lease form would be critical for the success of Atlantis. In the absence of a vast body of law to fall back upon, it would have to provide for every conceivable contingency. Stiefel commissioned me to carry out this writing assignment, since I had already investigated the matter. In "The Art of Community" (1970), I had written the first study of multi-tenant income properties that outlined something of their history and recognized them as a special class of social phenomena. Stiefel assigned me the task of writing Atlantis' social software in exchange for a 2% equity in the venture.

Steifel's master lease form not only survived Atlantis, it took on a life of its own as people criticized it and offered improvements. It was published in several iterations with his permission, but not under the name of Atlantis. Stiefel had learned the importance of keeping a low profile in the developmental stages of a project, and was leery of prematurely drawing the attention of the world's governments to the idea of private interests settling the open seas. Consequently the master lease form was published, without reference to Atlantis, as a purely heuristic exercise in the free-market provision of community services. Its setting was given as "Orbis" — one of a hypothetical cluster of settlements in outer space.

Twelve years ago, Orbis' master lease form was adapted for the Somali Freeport project, a proposed freeport development in northern Somalia on land that the Samaron Clan, the fifth largest clan in Somalia, is considering offering on long-term lease to a private consortium. The Samaron Clan is a traditionally stateless society, so no governments or government agencies need apply. The project was promoted by a Dutch lawyer, Michael van Notten (1933–2002), who had married into the Samaron Clan and lived with his adoptive kinsmen during the last ten years of his life. (See "From Nation-State to Stateless Nation," April 2003.) Van Notten is the author of the "The Law of the Somalis: A Stable Foundation for Economic Development in the Horn of Africa," forthcoming in 2005 from the Red Sea Press.

The idea of the Somali Freeport project is to develop a large, multi-tenant income property. Provisionally called "Newland," it is conceived as a purely private business venture, with no flags, anthems, or any of the ritual panoplies and paraphernalia associated with political nations. If successful, it would become something like a small, latter-day Hong Kong, offering a business and professional environment free of all burdensome bureaucracy and taxation. Located in their own back yard, it could become the Samaron's stepping stone to full economic, scientific, and cultural participation in the developed world. The Samaron aspire to such participation, provided it won't bring them under the domination of a political government, their own or any other.

The master lease form would be Newland's social software from which would be generated an elaborate but internally consistent web of relationships spelled out in the wording of the leases, subleases, sub-subleases, etc. The agreements in effect at any given time would comprise the written constitution of Newland. Each agreement could be as specialized and distinct as circumstances might warrant, so long as it did not contradict the master lease form.

In adapting the "Orbis" open software to the Somali situation, Michael van Notten made an important contribution. A trained lawyer and student of law, he sketched out a set of natural-law principles together with supporting procedural rules that could be incorporated in the master lease form. This would enable a system of law to be in place from the beginning of the development, from which point it could evolve of its own accord. It would be a system of law, moreover, to which all members of the community, including administrative and service personnel, would have freely consented in their lease agreements or their terms of employment.

Natural-law scholar Roy Halliday writes of this innovation that it "comes as close as anything I have seen to establishing the framework for a civil society consistent with liberty and natural rights. The idea of incorporating a description of natural rights into the master lease for a proprietary community is brilliant. It satisfies both the strong natural rights advocates . . . and the skeptics who believe rights are created by contracts. The lease contract provides a way to specify how rights are to be enforced."

In pursuing his vision of freeports at sea, Werner Stiefel put into motion in a practical way a plan for a wholly proprietary, nonpolitical public authority. Here was his answer to the question of how to have public administration and yet have each person be fully empowered over his own person and property. He believed that humankind will outgrow government as we know it today. Perhaps what is most intriguing and heartening about his formula for an internally consistent, open social software is that it is not merely conjectural. It is extrapolated from a century and a half of empirical data gleaned from observation of development in the marketplace.

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Orbis is an evolving venture, and it naturally raises a lot of interesting questions. Here are some of them:

Q: What about the possibility of warfare developing between Orbis communities? How would that be handled? Might not the need to establish a defensive force lead to state formation?

A: Look at experience. You don't find hotels taxing or drafting their guests, or shopping malls their merchants, to fight a hotel or shopping mall across the street. In the case of Newland, moreover, an insurance requirement in the lease agreement makes it costly for members to behave in ways that would endanger its political neutrality.

Q: What will prevent the proprietors from becoming tyrannical and taxing their tenants?

A: Competition and the fact that they are in business to serve their clientele, and an impoverished customer is a poor customer to have. "Taxation" is clearly defined and forbidden in the lease agreement. For the proprietors to break the lease agreement in this or any other particular and then to disregard the law would be self-defeating, as the consequences would quickly cascade and undo the entire enterprise, leaving it open to being acquired by new interests who could manage it better and restore its profitability.

Q: The costs to a tenant of leaving a remotely situated Orbis settlement are likely to be high. Might not this high cost tempt the proprietors to unilaterally raise rents, thereby in effect imposing a tax?

A: The lease agreement provides for such an eventuality by underwriting the member's cost of returning with his personal belongings to his place of origin or moving to another place of his choosing, and recompensing losses associated with the move. However, for the proprietors to violate their agreement in the first place, especially with competition factored into the equation, would be tantamount to relinquishing their business. In practical terms the likelihood would be remote, for they would also face insurance cancellation or raised premiums, and their mismanagement would be an invitation to others to seek to acquire a controlling interest. All of these considerations may be academic, however. For the intent in Somalia is to develop as much competition as possible as quickly as possible. A start has to be made with a single freeport where there are none now, but the object is for it to become a model that will be imitated.

Q: How can a system of law evolve and grow if it is written into the master lease form?

A: The lease agreement provides for periodic review of the law and allows it to be amended by the unanimous recommendation of a panel consisting of the proprietors and five judges who have practiced continuously in Newland for more than five years, and during each of those years earned the highest certification from a major consumer rating service.

Q: If the proprietors have the right to inspect tenants' premises in the interest of health and safety, might not this right be abused?

A: The proprietors would not have to engage in inspections or policing. Because all members of the community are insured against legal liability as a condition of their lease, inspections could be left to the insurers who, owing to the competitive nature of their business, could be depended upon to treat their customers with courtesy. Should a tenant be found to be endangering others, his insurance would be revoked by the insurer who understandably would not want to pay for liabilities. This would put the tenant in violation of his lease, and he would soon find himself on his way out of Newland unless he succeeded in rehabilitating himself. An insurer who engaged in collusion, on the other hand, would find himself answerable to the law, boycotted by other insurers, left with a ruined reputation, and likely banished from the community.

Q: Would zoning need to be imposed to prevent the community from growing in a disorderly manner?

A: One of the lease obligations of the proprietors is to assist existing and prospective leaseholders in making rational land-use decisions by seeing that they have access to all relevant information, including not only economic data, but inputs from neighbors who may, for example, be anticipating changes in their own uses, and from architects and planners. The assumption is that most inappropriate land-use decisions result from inadequate information, and that where information is available, nonconforming uses will be small enough in number and extent that they will be able to be tolerated. The result will not be an absence of community planning, but rather dispersed, or polycentric, planning. This does not mean that the proprietors could not directly undertake or promote community improvements. Moreover, in doing so, they would have a distinct advantage over political governments. They would have a quantitative feedback, a yardstick by which to measure and evaluate proposed improvements. Overall land revenues would be a direct measure of the attractiveness of the community to its existing and prospective clientele.

Q: To safeguard freedom in the community, would libertarians be given preference over non-libertarians in recruiting members?

A: No, they would not be given preference. The Somali project is non-ideological; it is simply an attempt to come up with something that will work. The ultimate protection for the residents of Newland is that the community is to be operated as a business, and hence more rationally than it might otherwise be. If it were operated on any other basis — ideological, charitable, or whatever — there would not be this protection. The impersonal, rational pricing mechanism of the market process is the ultimate safeguard of justice in a civilized community. In Newland, a further protection against tyranny is a lease provision that the proprietors have sufficient insurance coverage or available reserves to compensate losses or inconvenience resulting from their violating any of the terms of the lease agreement.

Q: If anyone can provide police and judicial services competitively in the market without licensing, what will prevent their abusing their authority?

A: Each person agrees in his lease agreement to observe the law, the terms of which are spelled out in his lease. This commits him when performing judicial, military, or police work, to follow established procedural rules to safeguard the rights of community members.

Q: What happens to someone who can't pay his rent through no fault of his own?

A: To prevent his or his dependents' becoming a burden on the community, as well as to protect creditors, each member is required to be insured against loss of life, property, or earning capacity due to accidental injury or other calamity.

Q: Since insurance plays such a pervasive and important role in Newland, the firms relied upon must be real and reputable. Will the proprietors license these?

A: Licensing would be tantamount to restraint of trade and would be subject to abuse. Instead, the lease agreement provides that any insurance it might require shall be purchased from firms carrying the highest certification from a major consumer rating service. In this way, market competition will ensure that tenants rely only upon reputable insurers.

Q: If someone is insured against all eventualities, won't he become less careful in his behavior?

A: Perhaps so. On the other hand, his insurability, on which his very presence in the community depends, will suffer if he is careless or neglectful, and his premiums will rise accordingly.

Q: If people lease, they won't participate in the increase in land value. Will this be a deterrent? Will some people be priced out of the market by rising land values?

A: Not necessarily. Their home or any other improvements they might make on the land will reflect general increases in land values, and this will be far less speculative than in a subdivision. But instead of an interest in the land, they will be buying, besides the assurance of the value of their improvements, the positive amenities and quality of life that can only be offered by a firm with experience and resources behind it, dedicated to the enhancement of the neighborhood. This is not available in any subdivision, where the residents are left on their own to fend for themselves as best they can through a volunteer association. For business tenants, the services and amenities will make their site more productive of revenue. Finally, in the Newland agreement, when rents are periodically revised to the then-current value of the site, members will receive a discount as preferred tenants.

Q: How would legal enforcement work? What if someone ignored a court?

A: We can reasonably expect that, in response to demand in a free-market setting, arbitration companies will come into existence and offer a complete line of dispute handling services, competitively priced. A malefactor who ignored or refused a call to arbitration would lose the judgment by default. His insurer would pay restitution to the injured parties and then doubtless revoke his policy, putting him in violation of his lease. Unless he could find another qualified insurer, which might be difficult, he would soon find himself on his way out of Newland. If he were considered dangerous, the consortium of insurance companies presumably would have ways of dealing with him since they would have the most at stake in preserving the safety of life and property in Newland. By the same token, the consortium could be expected to join in conducting a defense of Newland in the unlikely event of military threat.

Q: Why bother to write such detailed agreements? Why not simply allow a free community to evolve of its own accord, guided by an enlightened administrator like John James Cowperthwaite, the architect of Hong Kong's freedom?

A: There are two reasons, quite aside from the fact that Hong Kong's freedom was only partial and precarious, and that the presence of an exceptionally able financial minister under conditions in which he could be effective was a historical fluke not likely to be repeated. The first reason is that in the absence of statutory law to fall back upon, the agreement must provide for all contingencies that might arise. The second is that, unlike political communities, the provision of public goods here is an entrepreneurial undertaking, a competitive offering in the market. Planning is essential to business success. Rarely does a business venture succeed without a well-considered business plan.

Q: Some readers of the "Orbis" agreement have expressed concern over the ever-present potential for erratic bureaucratic behavior on the part of corporate managers due to their insulation from any effective control by the owners in a legal corporation. Does this have implications for the structure of ownership of Newland? What about corporate tenants?

A: The lease agreement requires that its signatories be personally answerable for their actions, denying them any special status before the law by virtue of their membership in or employment by any organization. To comply with this may require that the owners of Newland organize not as a corporation but as a limited partnership, and it may call for special arrangements between corporate tenants and their officers. This is a major, unanswered question.

© Copyright 2010, Liberty Foundation

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