To stand on the 102nd floor of the Empire State Building in 1950 was to stand atop the world. From the world’s tallest building you could gaze down upon Wall Street, the world’s financial center. Or you could look uptown toward the Metropolitan Museum of Art, one of the world’s largest art museums. The ships leaving port belonged to the world’s largest merchant fleet, and the goods they carried were made in the world’s industrial heartland.
Today the outlook is different. The world’s tallest building, the Burj Khalifa, is in Dubai. The largest merchant fleets belong to Panama, Liberia, and the Marshall Islands. The world’s manufacturing heartland is in China, Manhattan contends for banking business with the Cayman Islands, and the Met’s collection is rivaled in size by the contents of the Geneva Freeport, a secretive storage facility that will neither confirm nor deny holding any particular artwork.
This is what globalization does: it scrambles spaces. Global supply meets global demand, and soon enough you’re eating KFC in Kyrgyzstan. Even so: It’s tiny Panama that has the most merchant ships? The Cayman Islands—three small islands south of Cuba—has one of the world’s largest financial systems? Such circumstances don’t appear to be the outcome of a worldwide hunt for the best labor and resources at the lowest cost.
They’re not. Rather, they’re the result of a global search for the most obliging jurisdictions. Hence the Cayman Islands. The small colony hasn’t historically been known for its banks, the first of which opened in a dentist’s office on George Town’s sole paved road in 1953. But Cayman laws exempt foreigners from taxes while fiercely guarding their financial information, making the Caymans a place where money goes to disappear.
Such spots have long been the “dirty secrets of modernity,” as the historian Corey Tazzara writes. Swiss bank accounts have concealed fortunes for more than a century. Yet in past decades special zones—compact, designated areas where the normal rules don’t apply—have grown from a marginal to a defining feature of the economy. Capitalism in the age of globalization hasn’t homogenized the world into a flat, monochromatic space, as many once expected. Rather, it has created a patchwork of jurisdictions. The world now contains more than 5,400 economic enclaves: estates, islands, parks, havens, free ports, bonded warehouses, export processing zones, special economic zones, free-trade zones, free points, and the like. One geographer counted eighty-two names for them.
As these carve-outs have proliferated, states have struggled to control their own economies. Manufacturing has tumbled from the Global North into the Global South, often lured by the perks of such zones. Wealth, too, slips across borders: perhaps a tenth of global wealth resides in tax havens, many of which are islands or microstates. This is “zonal capitalism,” as the anthropologist Hannah Appel calls it, or “archipelago capitalism,” as the historian Vanessa Ogle does.
For years, scholars like the economist Ronen Palan, the anthropologist Aihwa Ong, and the architect Keller Easterling have insisted on the importance of these enclaves and fought against the popular tendency to dismiss them as curiosities.1 It’s been hard to get the public’s sustained attention because there are so many types, under so many names, performing so many functions. Crack-Up Capitalism: Market Radicals and the Dream of a World Without Democracy, by the historian Quinn Slobodian, draws the scholarship on various types of zones together into a lively, coherent narrative. In doing so, it offers the most powerful case yet that capitalism has acquired a new geography.
Slobodian is himself the product of small places. The child of Baha’i missionaries, he grew up on a tiny island off of Vancouver Island, in the enclave country of Lesotho, and on Vanuatu in the South Pacific. And he takes such places seriously. The perforation of large states by thousands of small zones, he believes, is an event of world-historic significance.
For market radicals, it’s been a liberation. Although traditionally they’ve dreamed of a borderless world, now they’re seeking an intricately bordered one. “If we want to increase freedom,” the billionaire venture capitalist Peter Thiel has advised, “we want to increase the number of countries.” The more jurisdictions there are, the thought goes, the easier it is to go sovereignty shopping.
For Slobodian, however, this isn’t liberation but “secession.” Corporations and the rich, by channeling their activities into small, exceptional spaces, have escaped the reach of states. The result is a “radical form of capitalism” that evades public accountability—or even scrutiny. An economy of zones, islands, and enclaves also means, Slobodian contends, a “world without democracy.”
Is capitalism ever compatible with democracy? John Maynard Keynes, arguably the twentieth century’s most important economist, believed so. Keynes hoped to marry the productivity of the market to the politics of liberal democracy. The key, he felt, wasn’t for capitalism to be unleashed or abolished but for it to be “wisely managed,” so that the unruly market could be led to serve a broad public.
Led, that is, if politicians could keep hold of the tether. Keynes worried that if capital slipped its leash, it might wreck the welfare state. The wealthy, “constantly taking fright because they think that the degree of leftism in one country looks for the time being likely to be greater than somewhere else,” would send their fortunes scurrying around the map. Mobile wealth wouldn’t just deprive interventionist states of tax revenue; it would destabilize the world economy. To tie global finance down, Keynes sought to regulate it and set stable exchange rates. Such controls, he hoped, would prevent currency trading and long-distance speculation.
For free market evangelists like the economist Milton Friedman, Keynesian controls were reckless political interference. Yet midcentury political leaders took Keynes’s side. At the 1945 Bretton Woods Conference, they fixed exchange rates—anchored by the promise that the US dollar could be cashed in for gold at $35 an ounce—and set the stage for extensive capital controls. Keynes marveled that “what used to be a heresy” had become “orthodox.”
From today’s perspective the world economic order that Keynes helped create was remarkably constrained. Up through the 1960s, international finance was “rather like a mini-golf course,” observed the economists Fred Hirsch and Peter Oppenheimer. Money could move, but it had to contend with “a variety of shifting obstacles.”
Money encountered those obstacles particularly when it crossed borders. This led British bankers to pose a question: What if it never did? In 1957 a sterling crisis impelled the British government to adopt aggressive monetary controls to protect the pound. Seeking a way around these, British bankers started quietly accepting dollar deposits from nonresidents. Because neither the depositors nor the money was British, the accounts could be regarded as existing “offshore.” And if they hadn’t conceptually touched British soil, they weren’t subject to British exchange controls, reserve requirements, or other regulations—or, indeed, to any country’s laws. With this maneuver, bankers carried their clients from the Putt-Putt course to the financial fairway.
The Eurodollar market turned the City of London, the UK’s financial center, into an island of freedom in an ocean of regulation—a “Vatican of capitalism,” Slobodian calls it. The City, which had been declining as British power waned, sprang back to life. Bankers accustomed to languorous lunches in mahogany parlors were soon sitting in skyscrapers, devouring sandwiches between long-distance phone calls. In 1959 British and other banks held enough dollars offshore to claim the entirety of US gold reserves. By 1975 they had enough offshore currency—mainly though not exclusively dollars—to match world reserves.
Eurodollars formed “the greatest mobile pool of capital in the world,” according to Citibank’s then CEO, Walter Wriston, and if all the dollar holders demanded gold, they’d wreck the US economy. In 1968 President Lyndon Johnson tried to stanch the outflow of dollars by imploring US citizens to stop vacationing in Europe. A congressman proposed using nuclear weapons to unearth more gold. In 1971 President Richard Nixon warned frantically of “international money speculators” waging “an all-out war on the American dollar.”
Those speculators won, and in 1973 Nixon broke the bedrock promise that dollars could be traded for gold. This was the central pillar of the agreement at Bretton Woods to manage monetary policy through international cooperation; after it fell, the whole Keynesian system collapsed. Rich countries abandoned their capital controls in the 1970s and 1980s, inaugurating what Wriston called “a galloping new system of international finance.” The end of the gold-convertible dollar is usually taken as the first shot of the free market or neoliberal revolution. It is also, one might add, when the offshore world started colonizing the onshore one.
Just as money moved offshore, so did manufacturing. Slobodian identifies Shannon Airport in Ireland as an important precursor to today’s industrial zones. Shannon was where many transatlantic flights refueled, meaning that many passengers traveled through the airport without walking out its doors. But if passengers don’t leave the airport, do they truly enter the country? Or are they offshore?
The entrepreneur Brendan O’Regan, seizing on this logic, established the world’s first duty-free shop at Shannon in 1947, selling untaxed bottles of whiskey. When new jet technology in 1958 obviated the need for transatlantic flights to stop, O’Regan proposed enlarging the duty-free area by fencing off a square mile adjacent to the airport and turning it into the “Shannon Free Zone.” Interpreting that land as an extension of the airport, as not quite Ireland, meant exempting it from the country’s substantial economic regulations and transforming it into a haven for manufacturers. From this patch of business-friendly terrain, O’Regan hoped to “pull the airplanes out of the sky.”
It was an apt metaphor. In the second half of the twentieth century, poor countries struggled to break the colonial economic patterns that consigned them to exporting raw materials and importing finished goods. Prosperity would require wresting lucrative industries away from rich countries—pulling their planes from the sky. What we don’t always appreciate is the extent to which this happened in specially designated enclaves. (Slobodian just calls them all “zones,” no matter their official classifications.) That is especially true in China, which by 2002 accounted for more than two thirds of the 43 million jobs in zones. Chinese premier Deng Xiaoping introduced special economic zones in 1979 as part of his attempt to open the market after Mao Zedong’s death. Taiwan and South Korea had already profitably engaged in Shannon-style experiments. Another model was the British colony of Hong Kong, which, despite its small size, led the world in toy and clothing exports. China started with four zones in the coastal province of Guangdong, most notably Shenzhen, across from Hong Kong. Future Chinese leader Jiang Zemin went to Shannon for three weeks to learn the ropes.
Shenzhen was for years surrounded by barbed wire and border guards. Yet inside it was a capitalist oasis where foreign investors enjoyed property rights, tax exemptions, and far greater discretion over employment than elsewhere in China. This made for a strange spectacle. Rather than reversing China’s economic policies, reformers had made spatial exceptions to them, running capitalism and communism simultaneously, like two operating systems on a single computer. (Aihwa Ong calls this the “checkerboard” approach to governing.) The sudden availability of capitalist institutions, combined with a deep reservoir of low-wage Chinese workers, proved explosive. Shenzhen in 1978 was a fishing village without a traffic light; by 2010 it was larger than New York City. Foxconn, a Taiwanese firm that set up shop there, became the world’s largest electronics manufacturer; it now makes iPhones in Shenzhen.
Similar zones proliferated across China. “Huge amounts of land were sucked from rural usage and collective ownership,” Slobodian writes, “constituting one of the biggest transfers of public into private wealth in the modern age.” At the same time, “global zone fever” spread through Asia, Latin America, and Africa. Governments now use spatially concentrated investments, incentives, and exemptions to promote livestock processing in Kenya and electric vehicle production in Costa Rica. In 2019 the United Nations Conference on Trade and Development counted 5,400 zones in 147 economies, with more than five hundred more “in the pipeline.” Last year, a global alliance of special economic zones claimed to represent seven thousand zones employing more than 100 million people.
Do zones work? The 2019 UNCTAD report cautioned that many underperform, generating only short growth spurts. Critics, meanwhile, note the dangers of suspending the rules for corporate benefit. In 2007, when farmers in West Bengal refused to surrender their land to a zone run by the Salim Group, one of Indonesia’s largest conglomerates, police massacred fourteen of them. Fourteen is also the number of Foxconn workers in Shenzhen who committed suicide in 2010, a grim referendum on the firm’s labor practices. (Foxconn thereafter made its workers sign no-suicide pledges and installed nets to catch them if they jumped off its buildings.) More recently, it’s become clear that funneling large numbers of wage-seeking migrants into compact, loosely regulated areas might not, from an epidemiological perspective, be ideal.
Yet whatever credit these zones deserve for it, the migration of industry from historically rich countries to poor ones has been staggering. In 1979 the United States reached a peak of 19.5 million manufacturing jobs; it has since lost a third of them. Meanwhile, in the twenty-five years after China established its first special economic zones, East Asia gained 42 million manufacturing jobs. In 1980 China exported 4 percent of what the United States did. Today it’s the world’s largest exporter, and much of its manufacturing still takes place in zones.
Another success story is Dubai, now home to the world’s largest shopping mall and busiest international airport in addition to the Burj Khalifa. As with China, economic zones are at the heart of its rapid transformation. (Dubai’s growth was once oil-driven, but oil now accounts for only one percent of its GDP.) Yet whereas China makes zone-sized exceptions to its laws, in Dubai legal diversity is “the organizing principle for the whole emirate,” Slobodian writes. The emirate is less a nation than a cacophony of small realms—Media City, Academic City, International Humanitarian City, Dubai Design District, Dubai Silicon Oasis—each with its own laws and regulations crafted for its own global constituency. “This,” writes Slobodian, surveying the jumble, “is what the logic of capital looks like.”
Or maybe the logic of capital looks like Ugland House, a George Town office in the Cayman Islands that is the registered address for more than 18,000 business entities. Tax havens are of course different from Shenzhen-style zones, but Slobodian points out that they both function as loopholes through which a great deal of wealth flows. Places like the Caymans make money not from taxing businesses but from registration, licensing, and processing fees, which are profitable enough to be a sensible strategy for small countries lacking trade or natural resources. Tellingly, of the countries on the European Union’s tax haven blacklist (which attempts to pressure jurisdictions into complying with international norms), more than four fifths are islands or archipelagoes.
And nearly half are, like the Caymans, colonies. This may seem surprising, as the age of empire and the age of the zone haven’t much overlapped: when zones emerged, colonies were mostly disappearing. Yet there is a strong affinity between the two. Empire generates “attenuated, multiplied, and layered” sovereignties, writes Vanessa Ogle, and the rules of the core apply only partly or ambiguously to the periphery.2 Like zones, colonies are spaces of exception. This has made them attractive to those seeking to stash wealth. Ogle describes how wealthy Europeans hastily snatched their assets from decolonizing countries after World War II and shoved them into the few colonies that remained, helping to turn them into full-time tax havens.
As a result an enormous amount of money pulses through a network of improbable locations like Bermuda, Nauru, Jersey, Liechtenstein, Malta, Aruba, and the British Virgin Islands. The money eventually makes its way back to centers like New York and London, but by passing through tax havens en route, it shrugs off its cumbersome national origins.
How much money? It’s hard to say, given that one of the services tax havens supply is secrecy. Gabriel Zucman, in The Hidden Wealth of Nations, calculates that 8 percent of households’ financial wealth resides in tax havens, a figure the economist Thomas Piketty believes “should be viewed as a lower bound.”
One reason Zucman’s figure is low is that not all wealth is financial. On the HBO show Succession, the billionaire Logan Roy is said to own “a shit ton of investment Impressionisms” and “like three Gauguins no one’s seen for tax reasons.” Such art is stored in “free ports,” which were originally stopovers where goods could be held before reaching their destinations and being taxed. By keeping art permanently in free ports, as they have done since the 1990s, shippers can hold it perpetually offshore. Asked the value of the art in the Geneva Freeport—the home of Roy’s fictional Gauguins—a London underwriter replied, “I doubt you’ve got a piece of paper wide enough to write down all the zeros.” Zucman estimates that if you include nonfinancial assets like art, the percentage of global wealth lodged in tax havens rises to 10 or 11. The investigative economist James A. Henry believes it to be two to three times that size. (Zucman doubts this.) Either way, we’re speaking of trillions of dollars.
The US government has estimated that it loses $150 billion a year in revenue to tax havens. Google, whose search technologies were invented by graduate students funded by a federal grant, dodged US taxes on those technologies for more than a decade by transferring them to an Irish subsidiary that was legally a resident of Bermuda. Even when they’re not used, the mere existence of such loopholes forces states to treat corporations gently, lest they flee offshore. The price is even higher in the Global South. Whereas some 4 percent of US financial wealth lives offshore, according to Zucman, in Latin America that figure is 22 percent and in Africa it’s 30 percent. The journalist Nicholas Shaxson calculated that in 2006 poor countries lost ten dollars in illicit outflows for every dollar they gained in aid. Much of the Global South suffers from poverty, crime, and corruption—and the ease of hiding money makes all of those problems worse.
In 2016 someone anonymously sent reporters 2.6 terabytes of records from a Panamanian law firm. The Panama Papers, as the leak was called, provided evidence of about 214,000 offshore companies. Soon hundreds of journalists interpreting the papers realized how many politicians had close relatives with offshore accounts, including Chinese president Xi Jinping’s brother-in-law, British prime minister David Cameron’s father, and UN secretary-general Kofi Annan’s son. The Russian cellist Sergei Roldugin, godfather to Vladimir Putin’s eldest daughter, was for some mysterious, non-cello-related reason managing $2 billion.
Offshore finance made headlines again last year when Sam Bankman-Fried’s cryptocurrency exchange FTX, headquartered in the Bahamas, collapsed. Shaxson has noted how tax havens, with their secrecy and defiance of regulation, invite precisely the risky financial maneuvers that crash economies. Enron, Bernie Madoff, Lehman Brothers, and AIG were “thoroughly entrenched offshore,” he observes in his book Treasure Islands. FTX, it turned out, relied on strategies that would have been illegal in the United States.
Most industrial zones are in Asia, Latin America, and Africa; most tax havens are islands in the Caribbean and Pacific. Yet, Slobodian notes, “zones have some of their most ardent supporters in the West.” A major achievement of his book is to present an intellectual history of those champions.
Histories of capitalist thought often make much of Milton Friedman, a founding neoliberal who insisted, from the 1950s onward, that economic and political freedoms were linked. By the 1970s, Slobodian observes, Friedman had become fascinated by business-friendly Hong Kong, which he saw as “an almost laboratory experiment in what happens when government is limited to its proper function.” Friedman seemed unbothered that Hong Kong was a colony with few political freedoms. Its promarket institutions, Friedman’s colleague Alvin Rabushka believed, were “made possible by the absence of an electorate.”
Hong Kong was also important to Paul Romer, winner of the Nobel Prize in economics. He saw in it a model for charter cities, whose different rules, Romer hoped, could pull the Global South out of poverty. He has been involved with attempts to launch these “start-up political jurisdictions” in Madagascar and Honduras (he’s pitched turning Guantánamo Bay into a charter city, too), though with no success yet.
This is a new leaf: starting a city rather than developing a country. Slobodian notes that recent market champions share Silicon Valley’s experimental ethos. Their politics are less insistent (“we must”) and more exploratory (“what if we…?”). “Crossing the river by feeling the stones” is how Deng Xiaoping described China’s economic reforms. This has made it easy to minimize zones as exceptional and tentative. Yet what starts offshore tends to wash up onshore: large countries loosen their laws to compete against tax shelters, or workers migrate to zones hostile to unions, inadvertently undermining labor movements.
Zones, it turns out, can transform countries’ politics even without changing their policies. Rather than seek to overthrow governments they dislike, capitalists can “underthrow” them, as the venture capitalist Michael Gibson puts it. Instead of attacking the welfare state, the theory goes, they can play a zone defense, outrun its regulations, and sap its revenues. Slobodian notes how eager the wealthiest today are to “opt out, secede, and defect from the collective.” They live in compounds, fly on private jets, sail superyachts, hoard art in free ports, buy islands, found online worlds, build bunkers, establish alternative currencies, or launch themselves into space.
This “plutocratic secession,” as historian Nils Gilman calls it, stems partly from the familiar elite preference for exclusivity, but it’s also ideological. Slobodian points out the leading role of Patri Friedman, Milton’s grandson, in the “seasteading” movement to send forth “aquapreneurs” to colonize the high seas. This is zonal logic taken to its extreme: rather than carve out friendly jurisdictions inside existing states, you build new ones outside of them. Peter Thiel provided the cash to launch Friedman’s Seasteading Institute. “The nature of government,” the billionaire promised, “is about to change at a very fundamental level.”
What’s missing from these escape-pod fantasies is the public. “I no longer believe that freedom and democracy are compatible,” Thiel has declared. “The great task for libertarians is to find an escape from politics in all its forms.” The rise of this animus, Slobodian writes, suggests that we’re on track to witness not the “union of capitalism and democracy but their increasing divergence.”
Indeed, the age of the zone has also been a new Gilded Age. In hindsight, the Keynesian era, from the 1940s to the 1970s, was a time when states had remarkable success in sharing the fruits of the economy. Since then, governments have retreated from their social functions, workers’ power has declined, and inequality has risen sharply. In rich countries, the wealthiest are paying significantly less in taxes and taking home significantly larger shares of national income than they were in 1980. Zones aren’t the sole cause, but surely they have played a large part by routing economic activity to places where it isn’t taxed or regulated.
Was this worth it? Pressed to choose between a bustling market—even an unfair one—and a robust democracy, some would surely prefer the market. This is essentially the bargain that China’s leaders offer to its people: economic gains in exchange for political constraints. Using zones, China has weaned itself off communism, captured manufacturing jobs from richer countries, and grown at a startling speed.
Yet many of us wouldn’t cast aside democracy so easily. Government by loophole makes for a cynical society where shared values are transparent fictions and collective action is daunting. It’s hard to know, in a zone-riddled world, how problems requiring coordination and shared sacrifice could be solved. Unfortunately, with climate change and a global pandemic, we are not short on such problems.
Capitalism no longer dreams of a unified world. Instead, market radicals have shattered the globe into thousands of zones, enclaves, and special jurisdictions. And they’ve left the rest of us to live among the shards.
Ronen Palan, The Offshore World: Sovereign Markets, Virtual Places, and Nomad Millionaires (Cornell University Press, 2003); Aihwa Ong, Neoliberalism as Exception: Mutations in Citizenship and Sovereignty (Duke University Press, 2006); Keller Easterling, Extrastatecraft: The Power of Infrastructure Space (Verso, 2014). ↩
For more, see Vanessa Ogle, “Archipelago Capitalism: Tax Havens, Offshore Money, and the State, 1950s–1970s,” American Historical Review, Vol. 122, No. 5 (December 2017), and “‘Funk Money’: The End of Empires, the Expansion of Tax Havens, and Decolonization as an Economic and Financial Event,” Past and Present, Vol. 249, No. 1 (November 2020). ↩