The Principality of Liechtenstein became known as “the capital of capital in flight.”
This article appears in the June 2023 issue of The American Prospect magazine. Subscribe here.
Crack-Up Capitalism: Market Radicals and the Dream of a World Without Democracy
By Quinn Slobodian
Metropolitan
The micro-monarchy of Liechtenstein, jammed between Switzerland and Austria, might seem an unlikely archetype for 21st-century political organization. At roughly the size of Brooklyn, the territory that is now Liechtenstein was purchased by a member of the Viennese court in the 1700s, before becoming part of the Hapsburg Empire.
But, as Wellesley historian Quinn Slobodian shows in his highly anticipated new book, Crack-Up Capitalism, Liechtenstein, which technically became a sovereign state in 1806, would not remain a relic of feudal Europe. Over the next two centuries, the territory learned to innovate its way out of crisis. It became “something that did not yet properly have a name: a tax haven.”
Liechtenstein became known as “the capital of capital in flight,” playing host to the corporate offices of IG Farben and Standard Oil and encouraging the super-rich to purchase citizenship. And it did not stop at being a tax shelter. It plowed revenue into intensive factory output, relying on a migrant workforce to become, by the 1980s, one of the most industrialized countries in the world.
Liechtenstein’s innovations in political economy continued in 2009, when Prince Hans-Adam II suggested that citizens be considered “the shareholders of the state.” The modern nation, the prince announced, had been “reduced to a service company, which has to offer its customers a more or less decent service for a certain price.”
It is one of many arresting images of privatization and wealth-hoarding in Slobodian’s newest work, which is loosely organized around the theme of “zones” devised by capital and lacking democratic oversight. These include special economic zones (SEZs), export processing zones, tax havens, and other territories used to shield assets from taxation or scrutiny.
“Inside the containers of nations are unusual legal spaces, anomalous territories, and peculiar jurisdictions,” Slobodian writes. He offers a dozen case studies of what he calls “crack-up capitalism,” suggesting that zones are not just bizarre features of 21st-century accumulation, but a new prototype for international political economy.
Slobodian convincingly demonstrates that libertarians rival neoliberals, the subject of his previous book, in their open hostility to democracy. But while Crack-Up Capitalism takes a colorful trip through the reveries of right-wing economists, tech billionaires, and racist secessionists, it never quite shows that their despotic fantasies shade into a new variant of capitalism.
IN 1978, MILTON FRIEDMAN VISITED HONG KONG to film an episode of his PBS series, Free to Choose. He was smitten. The island was run like a joint stock corporation, as one writer put it, with no labor unions or popular elections to interfere with the growth of its manufacturing and financial centers.
It was the beginning of a long romance between the American economist and the former British colony. In Slobodian’s retelling, Friedman found himself wondering, “What if the era when the nation-state dominated political aspirations, from the end of the First World War to the 1970s, was no more than a blip?”
While there are enduring frictions between the state and business, there is also collusion at grand scale.
Slobodian thinks Friedman might have been onto something. Zones like Hong Kong thrived from that decade onward, he writes, due to a kind of natural selection. “As is the case in nature, what looks at first like an aberration is often actually a mutation adapted to the changed environment—a genetic freak ends up becoming dominant down the line. So it was with Hong Kong.”
That mutant would come to compete with nation-states. “The end of empire and the end of communism birthed a bevy of new sovereign nation-states even as another political form was also coming into being. From the 1990s, and increasingly so through the present day, the nation-state has been joined by the new entity of the zone.”
And the zone threatens its precursor, Slobodian believes, since “capitalism works by punching holes in the territory of the nation-state, creating zones of exception with different laws and often no democratic oversight.” It’s an impressive story, made more enticing by the suggestion that it has been happening offstage.
But capitalism and nation-states grew up together. While there are enduring frictions between the state and business, there is also collusion at grand scale. If capitalism is corrosive to democracy, that hardly implies that it is incompatible with the nation-state.
In fact, observing the resurgence of far-right nationalism over recent decades, one is rather more struck by the persistence and consolidation of the old-fashioned nation-state, bolstered by new ententes with big business.
Take right-wing rulers such as Donald Trump, Narendra Modi, or Viktor Orban. Slobodian points out that all three have relied on special economic zones. But in each case, zones don’t seem to seriously threaten the centralized power of the state. Indeed, the single source Slobodian cites on Hungary, a paper on Orban’s “ordonationalism,” argues that the Hungarian prime minister has used zones as a tool “to exact national-level economic and political control.”
Under Orban, the author finds, the state “seeks to reassert its autonomy from the international institutions which had become the policing agents of global neoliberalism and enforces its own role as key arbiter in domestic marketization, class reproduction, and capital accumulation.”
And, of course, democratic institutions in Slobodian’s quintessential zone of Hong Kong are now being gradually throttled by Beijing, hardly lending support to the argument that zones slay nation-states.
Even when he characterizes zones as a leading threat to popular rule, Slobodian may overstate his case. To make the zone the emblematic example of how capitalism rots democracy is to go for the capillary rather than the jugular, to dress up a subordinate trend as the defining feature of our time.
The city-state of Singapore
TO MAKE HIS CASE, SLOBODIAN SUMMONS a Boschian swarm of libertarians and anarcho-capitalists scheming to dissolve the territorial boundaries of the modern state. Among his theorists are James Dale Davidson and William Rees-Mogg, a businessman and journalist, respectively, who in 1991 envisioned the “subversive invention” of the microchip and its potential to “destroy the nation-state.”
“Every time a nation-state cracks up, it will facilitate further devolution,” they wrote. “We expect to see a multiplication of sovereign entities, as scores of enclaves and jurisdictions more akin to city-states emerge from the rubble of nations.” Davidson and Rees-Mogg, we learn, have a fan following in Silicon Valley, including the venture capitalists Peter Thiel and Marc Andreessen.
Subtitled “Market Radicals and the Dream of a World Without Democracy,” Crack-Up Capitalism is thick with dreamlike metaphors. In his highly figurative style, Slobodian writes that “the modern world is pockmarked, perforated, tattered and jagged, ripped up and pinpricked.”
At the University of Chicago, where as an undergraduate I attended a talk by Slobodian on an early version of this work, anthropology students had a joke: “That’s very spaces and places of you.” It means an academic affectation of awe at the overwhelming complexity of the modern world, its spaces and places, its endless forms most beautiful.
In this spirit, Crack-Up Capitalism takes a free-associational romp through antidemocratic enclaves ranging from export-processing zones to walled gardens for the ultra-rich. It skips from the city-state of Singapore to South African Bantustans, to the garish World Islands and other crass developments of Dubai (see Mike Davis); to Silicon Valley tycoons’ “seasteading” concept for floating cities; to the distasteful phenomenon of the gated community (also see Mike Davis); to recent attempts to colonize the digital “metaverse.”
Slobodian even spares a few paragraphs for the “sacrifice zone,” a word that describes geographic areas devastated by climate change, and laments how the rich have built barricades to insulate themselves from sea-level rise. (“This was the zone as lifeboat,” he muses.) The book calls to mind in style as well as substance the work of Anna Lowenhaupt Tsing, author of The Mushroom at the End of the World, who shares Slobodian’s fascination with frontiers.
Slobodian’s metaphors are evocative. In the 1990s, he writes, “Czechoslovakia underwent mitosis.” Chinese market reforms avoided shock doctrine in favor of “capitalist hydraulics,” “opening up sluices and locks to foreign investors and market-determined prices rather than dynamiting the levee and letting it all flood in.”
But is the zone truly a new iteration of capitalism, or a minor offshoot? It is hard to judge the scale of the phenomenon from Slobodian’s account. His main statistic showing the global growth of special economic zones—there were some 5,400 as of 2019—is drawn from an UNCTAD report that predates the pandemic.
An online map of zones provides a useful overview, but does not show trends over time. The book left me wondering whether, in the past few years, the momentum behind tax-free zones has picked up or flagged. (Their absolute growth could continue, even as the fad loses steam.)
A cursory Google search showed that data is scarce on the growth of zones since 2019, but one PwC study reveals that the period of steepest growth in SEZs lasted from 1997 to 2002, the high-water mark of post–Cold War globalization.
In 2019, after Treasury Secretary Steven Mnuchin had released new guidance on SEZs in the United States, a private equity investor said of zones that they are “like sex in high school”: Everybody’s talking about it, no one’s doing it.
If SEZs originally surged during the period of high globalization, perhaps they could see a counterintuitive resurgence during the present geopolitical fragmentation or plateauing of globalization. But if that’s the case, there is little effort to quantify the trend.
METAPHORS MATTER. IN HIS PREVIOUS BOOK, Globalists, Slobodian’s key insight was to reframe the conventional way of describing neoliberalism. While neoliberals are often said to have “unleashed” market forces, Slobodian pointed out that neoliberals were actually working to insulate capital from democracy. His favored analogy was “encasement.” The signal metaphors of Crack-Up Capitalism are “perforation” and “shattering.”
But, to be satisfying, intellectual histories of the present should also show how ideas gained purchase. Slobodian rarely dwells for long on how anarcho-capitalist dreams of tearing up the state were actually enacted. The reader is more often left contemplating libertarians’ ominous fantasies than understanding the specific institutions through which they succeeded or failed.
Globalists, by contrast, did analyze the emergence of institutions such as the World Trade Organization. But it, too, emphasized ideas at the expense of power. Slobodian finds the origins of the WTO in what he dubs the “Geneva School” of neoliberal economists, largely ignoring that its design was substantially the work of U.S. corporations.
Maybe the market radicals of Crack-Up Capitalism are more aware of their limitations. In a chapter on libertarian attempts to commandeer digital reality, Slobodian quotes the entrepreneur Balaji Srinivasan, who acknowledges hard constraints on the power of Silicon Valley. Governments are resolute opponents, he admits. “They have aircraft carriers, we don’t.”
