21 November 2022

Quinn Slobodian’s ‘Crack-Up Capitalism’ is good history, but poor politics


Quinn Slobodian has written a book of two parts.

Crack-Up Capitalism is mostly a history of the libertarian idea of ‘the zone’ – an area excluded from the ordinary rules of a country or, in some cases, that becomes its own country altogether. Although there are some questionable passages, this is an excellent and readable account of libertarian ideas about economic zones, ranging from the lunatic fantasies of Murray Rothbard to the hopeful visions recently devised by Paul Romer. Nor does Slobodian confine his book to conventional USA and European examples: this is a truly global history and all the better for it. 

The other part of the book is less successful. When Slobodian writes as a historian his book informs and entertains; as a political commentator, he flops. Too often he uses passing remarks and suggestive phrases that are below the standards he sets for himself elsewhere. The opinion of newspaper columnists and critics is favoured over demonstrations of his ideas. Assertions that ought to be quantified are not. The phrase I used most in my marginal notes was, ‘Give the numbers!’.

He is right that libertarians have too often been compelled by crank ideas like the reintroduction of the gold standard, or offensive ones like Rothbard’s racial views. Slobodian is careful enough to contextualise these views, but not above throwaway or dismissive comments of the capitalists he dislikes. At one point he talks about the ‘many other instances where privatisation of public utilities led to higher prices and less choices’ which he then compares to the ‘open market’.

This is the sort of unsubstantiated, and obviously contradictory, remark that frequently lets him down. Describing the NHS as the ‘crown jewel’ of the welfare state feels especially ill-judged at the moment. Or when he says that ‘even the vaunted artificial intelligence programmes work only because somebody somewhere has looked at an interminable stream of images and manually coded them,’ (p. 222) I could only wonder – has he seen what’s happening in AI?

Many other easy assertions slip through that ought to be more tightly controlled. ‘Great volumes of money’ are described as being ‘transacted at the stroke of a key’ in Singapore. If only finance were so simple, just think of the money we would save! The City of London has been ‘doubling down on the one thing it has been able to do well: take fees to move money around for the benefit of a tiny stratum of the wealthy’.  A historian of this calibre ought to be able to avoid that sort of thing. Is comparative advantage not real? Does the efficient allocation of capital really have no benefit to anyone beyond the 1%? Do economists believe that such fortunes are made so mindlessly? Are we to accept that the City of London is one of the world’s oldest, most successful cities, and has kept its dominant position in Europe, second only to New York, because there is only ‘one thing it has been able do well’?

The weakest point of his argument, though, is that the idea of ‘the zone’ presents a risk to democracy. Slobodian says again and again that democracy and capitalism are diverging. In the Singapore chapter, he delineates a connection between economic freedom and overly assertive government. Perhaps there is some argument to be had about that, and indeed Singapore is not a modern liberal democracy.

Similar zones where the normal rules do not apply are traced from 1980s England to modern China and Dubai. The rise of China’s global economic influence is somewhat troubling as they expand pseudo-colonial zones around the world. But the threat is one of realpolitik. Most of the places where these ideas have taken hold were not free and democratic places beforehand. And while Singapore might not be a bastion of political freedom, it is also emphatically no longer a poor country.

Political vs economic freedom

Slobodian makes great play of the way libertarians care more about economic than political freedom, quoting a few people to the effect that economic freedom matters more, is foundational to political freedom, and that political freedom is often antithetical to economic freedom. What he can’t do is show that this idea is actually gaining any traction. And he overlooks the fact that millions of people are living lives with much more economic freedom – not to mention better food and nicer housing – than before. If Canary Wharf is such a rupture in the democratic fabric, why is it paying so much in taxes to fund that crown jewel NHS? Democracy is a Faustian pact, but Slobodian allows his narrow thesis to distract him from that.

Also, those libertarians surely have a point about economic freedom preceding political freedom. As the architect of modern Singapore, Lee Kuan Yew, said, ‘Growth has to come first’. And not just, as we are remembering in Britain, because you need to grow an economy before redistribution is possible. The impetus for democracy here was greatly helped by industrialisation and the rising political power of a class of workers who finally had economic power separate from that of landlords. What use is political freedom to people who have no economy to participate in?

The line between political and economic freedom isn’t so clear and simple: Slobodian would be able to make a more sophisticated argument on this point if he was less concerned with the way others occasionally drew that line too clearly. He quotes Margaret Thatcher, for example, telling a friend that the UK should become a non-interventionist Singapore – but she said it in 1992 and acknowledged it would never happen for political reasons, important context that is left out. When she was in office, Hayek wrote to Thatcher and asked her to take her policies further: she replied she could not because she governed a democracy. Isn’t that Slobodian’s whole argument? The threat these ideas pose, you see, simply isn’t very great to those countries where democracy already exists. And what exactly the odds are of democracy emerging elsewhere without significant GDP growth isn’t discussed. 

Tax havens

Slobodian is also worried about the threat tax havens pose to the West, telling us they hold $8.7tn of the world’s wealth. (p.3) Since the global economy is probably worth something in the order of $463tn that doesn’t seem like such a large risk. 

Nor is there any discussion of the fact that were that wealth unable to be held in tax havens, it might not exist in the same quantity. Taxes change people’s behaviour, as Slobodian implicitly acknowledges by caring about tax havens so much. Ireland isn’t mentioned, of course, a country that slashed corporate tax rates and became so rich as a result corporation tax revenue actually increased. Tax havens might be bad but can we feel so sure that a country on the edge of Europe with Singapore-style tax rates is such a threat, when Ireland is already right there and still in the EU? Some commentary on this issue would have been welcome.

Slobodian tells us these zones are new, but in other places acknowledges that the City of London has always been a zone of sorts and that the Ottomans used them in the 16th century and the British Empire in the 19th. The longevity argument against his ideas is powerful and the space he gave to quoting left-wing editorials would have been better used discussing that point.

These ideas are interesting precisely because they are not finding much of a foothold in the West right now. Where are the charter cities? Whither Balaji’s new digital country? All the griping at Murray Rothbard (a man less likely to influence modern politics it is hard to imagine) could have been trimmed to talk more about Paul Romer, one of the most interesting economists alive.

Slobodian rightly points to the poor treatment of migrants in many parts of the world without noting Romer’s comments on the fact that charter cities could solve that problem. As Romer says, we currently have, ’50 million people who say they want to leave the countries where they currently live, and the existing countries that say, ‘We don’t want to take that many people’’.  Slobodian takes lightly the idea of ‘voting with your feet’ in the context of the market, but isn’t that what immigration is? Couldn’t a charter city be an overall benefit to many people in the world? Why not take Romer – a Nobel laureate – more seriously than some of the cranks who hijacked his ideas?

Our author, then, is guilty of over-generalising. Zoning is bad; democracy is good; the fact that these ideas routinely fail (something he points out again and again) is not properly taken into account. When he discusses the fact that London real estate has become an investment vehicle for global elites he criticises libertarian policies. What about the massive supply restrictions that have been in place for generations, artificially supporting higher real estate prices? Not a word.

The reason is obvious: sometimes democracy is the problem. But in this account, you won’t hear that idea. Balaji is presented for his least successful ideas: his role in alerting the world to Covid, a period when democracy performed acceptably but not brilliantly, goes unmentioned. When Brexit is presented as a covert operation to smuggle in a Singapore-style economic model, Slobodian quotes the founder of UKIP as someone who favours the pseudo-medieval microstate approach of somewhere like Lichtenstein. That’s not Nigel Farage, by the way, but a man called Alan Sked, who virtually no one in the UK has even heard of. All the while the role of democracy in Brexit goes unmentioned, as does that very difficult word ‘referendum’.  

Slobodian is right that libertarians frequently ignore the beneficial role of the state, a point that bears repeating and which he has demonstrated well as a historian. Unfortunately, his political arguments contain the same errors in reverse. Does he know about state capacity libertarianism? Would it not have merited a mention? When libertarian ideas become mainstream and pragmatic might they not in fact be beneficial to democracy?

I highly recommend this book, especially to libertarians who will be able to overlook the flawed politics and learn from the history. In particular they might learn not to repeat Slobodian’s big mistake – wasting time arguing with his least dangerous opponents.

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Henry Oliver is a writer.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.