The Freestead
Permissionless Alternate Legal Jurisdictions
Note that this is a cross-post from Meridia.
Towns and cities are usually “municipalities”: legal governmental entities that allow a group of people in an area to decide on legal policy in an area. These municipalities can only be created by following whatever process is set forth in law, in the US this is state law, often state constitutional law.
By contrast, a Freestead is way to use contract law (rather than state municipal processes) to create a government-like structure that allows people in a new town or neighborhood to opt out of much of the standard legal system, and opt into an alternate legal system.
This article focuses on doing this in the United States, where a Freestead can allow its citizens to opt out of approximately 70% of the standard legal system. However, many of the structures would work in many international jurisdictions as well. Meridia plans to be created as a Freestead.
This is based on a talk I gave at the Future Cities Summit in Austin, TX during SXSW. Note that this concept of a Freestead is an entirely original idea I came up with, so you won’t find any other information about this anywhere else at the moment. Also I’m not a trained lawyer, so take this with a grain of salt.
Disputes & Disagreements
We all want to live in great places where people can be free, connect, and thrive. But as they say “The right to swing my fist ends where your nose begins.” In other words, freedom cannot exist without boundaries.
No matter how harmonious and emotionally balanced a group of people are, there will always be misunderstandings, disagreements, arguments, and fights. People’s individual interests can never be fully aligned on all fronts — if they were, they would cease to be individuals.
Disagreements can be often be solved through social pressures, by having strong group norms around what behavior is and is not acceptable. Good behavior can be praised, celebrated, or rewarded with trust / increased inclusion / tokens of appreciation. Group members can dissuade bad behavior by calling attention to it, discussing the problem privately, calling it out publicly, shunning them, or ostracizing them.
But social pressures are often loose and unevenly or chaotically applied. The application of social pressure itself can cause disagreements. And we no longer live in a world where strong religious norms are maintained in common among large groups of people. Norms often aren’t clear enough, social actors aren’t always confident in asserting their boundaries, and people with status are often far more immune to social pressures.
Social pressures can be akin to might makes right. Status is often what makes right in a social environment.
And scale matters a lot too. In tribes where the community isn’t much larger than Dunbar’s number (~150), groups can sustain fairly well without any formal structures. Everyone knows each other, reputation spreads fairly easily, and there is strong incentive to remain friendly with the tribe.
But as the group gets large enough where most people are strangers, social pressures start to break down. Its harder to determine who is trustworthy, and if someone’s reputation is tarnished in one group, they can simply find another group to get involved with that may never find out about their reputation until its too late. So people don’t try as hard to adhere to norms.
We can and should try to resolve problems by social means, including by things like mediation. But these things are fundamentally voluntary and non-binding. A bad actor who doesn’t care about your social pressure or the opinion of their peers or mediators can wreak havoc on a community that didn’t plan for it.
Governance
This is where governance comes in. Governance sets clearer boundaries, has a stronger process for resolving disputes, and can even be substantially less distorted by the social status of the people involved in the disagreement. Even an unpredictable dictator creates a more predictable way to resolve disputes than social pressures: whatever he says goes, so you better keep him happy. Better are rules-based systems where you can know in advance what the consequences of your actions will be. With a good governance system, disputes are even reduced because bad actors know they will see justice.
There are three aspects of a government:
- The policy that is actually implemented and influences the incentives in your society.
- The adjudication of how policies are applied.
- The decision making process that determines what becomes policy and how objections adjudicated.
It should be clear from that description that everything flows downstream from the decision making process. The structure for decision making in a governance system is therefore the most important component and will determine the quality of policies. Even when social alignment creates good policy at the start, bad decision making structures will lead to bad policy in the long run.
But policy and its adjudication is of course also very important. It determines the incentives in your society, changes how people act, work, build, and live. It literally often decides life and death.
The policies in our society are broken. And they’re broken because the decision making process broke first.
Our broken system
At the national and state levels, unprecedented spending and waste results in ever higher taxes, increasing inflation, and ballooning debt. But tax money spent poorly by the government is only one of the problems with taxes. Another huge problem is that tax policy distorts incentives.
Sales taxes depress trade. Property taxes disincentive construction. Capital gains taxes incentivize company mergers, leading to fewer choices for who to do business with. Corporate tax encourages companies to take on more debt than they otherwise would (because interest is tax deductible). Income taxes disincentivize working itself. The complex labyrinth of tax write offs, credits, and loopholes reward people not for serving the market better, but for learning to navigate the maze.
Federal welfare systems have cliffs that punish people for earning more money. The myriad of occupational licensing and regulations of healthcare, banking, housing finance, and agriculture suppress competition and make innovation extraordinarily difficult.
And our judicial system is an enormous mess. Court cases can drag on for months or even years. Costs balloon as lawyers need to pour through decades or even centuries of court precedent and adhere to a mountain of archaic process. And after all that, court outcomes are still unpredictable and unfair more often than seems acceptable.
At the local level, land-use restrictions are the primary distortion caused by city governments, zoning laws and building codes being the bulk of those land-use regulations. But they can be substantial. Some economists have estimated that land use regulations related to housing alone reduce GDP growth by 25%. This is likely one of the largest market distortions caused by government in our country.
The vast majority of these regulations became widespread between 1920 and 1940 as rapid urbanization created visible issues, as the automobile captured the imagination of the nation, and when the Great Depression was used as a political opportunity to massively expand government intervention.
Before that, cities were treated as creatures of the state without the need for much power, and the federal government was still mostly constrained by the interstate-commerce clause and other strong constitutional limitations. The decision-making process of our governments allowed those who wanted more government authority to fairly quickly eliminate the barriers to bigger government and start us on the path to the bureaucracy behemoth we’re forced to live with today.
Can we fix it?
Let’s say you wanted to start a new town in the United States. How would you do it? How would you structure the town? How would your town make decisions? How would it carry those decisions out?
You could create a formal municipality, a town or city government as defined by a state’s constitution, but you generally need 150–500 people in your town before you can do that (Utah having the lowest requirement of 75 people). Not only that, but most US states do not allow new towns to have a town charter without populations generally in the range of 1000–5000 (Iowa might have the lowest minimum at 300 people).
And most states require legislative approval or some other discretionary approval (eg by county committees or judges) to create a town. Internationally, its quite rare to have purely rule-based systems for municipality creation. A handful of US states seem to be the only places where people can reliably create town governments without that much discretionary permission from a governing body. As far as I can tell, this seems to include Iowa, Texas, Idaho, Ohio, South Dakota, and Nebraska
The United States has a reputation as the freest country in the world, but is that true? Some say our only hope for experimenting with alternative governance systems is to build outside the US. Startup states, charter cities, and seasteaders aim to solve all the above problems by creating new jurisdictions with broad policy reform across all or most fronts.
However, they require permission from existing governments, which takes an enormous amount of effort and political savvy to draft the contracts, charters, and treaties required, and to get legislatures to pass them. And even with these treaties and charters, autonomy can still be limited. For example, Prospera’s agreement with Honduras subordinates it to the Honduras constitution and criminal cases are still handled by the government of Honduras rather than internally in Prospera.
Is there a way we could reform some of these important areas without special governmental permission?
I believe the answer is yes. And to do it, I have invented a structure I call a Freestead.
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A Freestead can allow us to opt out of several of the largest chunks of government regulation: most land-use restrictions, including zoning laws, most building codes, and the local and state court systems for the vast majority of cases, including all civil cases and many misdemeanor cases.
How to structure a Freestead
A Freestead would basically be an organization of some kind that operates like a fancy HOA. However this would not be your average HOA. The Freestead organization would have a sophisticated and somewhat complete legal system within it. There are lots of possibilities here, but it could have its own constitution, it could have its own legal code or simply adopt a more efficient adjudication process using standard local legal code. It could even be structured as a federation, like Meridia plans to be.
There are four pillars of a Freestead:
Unincorporated land
Land that isn’t within the boundaries of an existing city is in what is known as “unincorporated land”. This is land where the smallest local governing body is the county. This means, by definition, unincorporated land isn’t bound by any city law, because you’re not in a city. In a handful of US states, counties have very little or no power to enforce building codes or enact zoning laws. In Texas specifically, counties are not allowed to enact zoning laws, building code enforceability is very limited, and most Texas counties have enacted no building code and therefore no code can be enforced. About 95% of Texas land area is unincorporated, so there’s a lot of options in our state.
Texas, Nebraska, South Dakota, and Iowa all have limited or no zoning powers, limited ability to enact building codes, and limited or no ability to enact regulatory frameworks. Additionally, Kansas, Missouri, Montana, Wyoming, and Idaho have a lot of unincorporated area that doesn’t currently have much in the way of building codes or zoning restrictions. Internationally, this kind of situation seems to be pretty rare, with Canada and Australia being perhaps the only places that have much in the way of similar permittivity in unincorporated land.
So, being in unincoporated territory in the right place can go a long way toward ensuring that you won’t have much outside zoning laws and building codes imposed on your land. This frees you to choose your own zoning laws and building code.
Tax overlay
The 2nd pillar of a Freestead is the concept of a tax overlay. Its possible to structure land so that the people that live on that land either don’t pay the normal taxes or are reimbursed for the normal taxes they pay, allowing the Freestead to create an alternate tax system that exists within, but lays over, the regular tax system — insulating Freestead citizens from it. I call this alternate tax system a Tax Overlay.
How can this be done?
One example is using long-term leases with rent. If you have an organizational entity that owns the land, that entity will pay property taxes for that land, as usual. Contracting land out with something like 99-year leases can insulate the residents from the normal property tax regime so more efficient forms of payment can be used instead. This might be a more business-like payment for government services, where Freestead citizens pay for the services they use. Or it might be a Georgist ground rent where people pay a rent for the land they use, but don’t pay a rent for the buildings on their land (like is the case with property tax).
Another tax overlay option is tax reimbursal, where some portion of a Freestead citizen’s income or sales taxes, for example, are reimbursed by the organizational entity that manages the land. This can allow a Freestead to have its own tax regime while the state and federal governments still get the tax payments they expect.
But wouldn’t it be costly for the organizational entity to insulates people from their taxes? Well, not necessarily. Any tax insulation that increases costs to that entity would increase the value of being a citizen in that Freestead. This would increase the demand to live in the Freestead, thereby increasing the value of the land, which in turn would increase any ground rent paid to the Freestead organizational entity and increase demand for any services sold by the Freestead. This should more than make up for the burden the Freestead organization takes on, effectively making tax reimbursal not only cost neutral, but actually pay dividends to the Freestead organization.
Private roads
The 3rd pillar of Freestead are private roads — roads owned and maintained either by the Freestead organization or by other private individuals or organizations. State and city roads are subject to a myriad of traffic regulation and rules, as well as police enforcement.
In some US states, many traffic laws don’t apply to private roads, even when they are open to the public. In these situations, private roads are still subject to enforcement of things like DUIs, reckless driving, driver licensure, and serious accidents, but only about 10% of traffic cases are for these kinds of things. In such states, the vast majority of traffic cases are the kind that state and county police cannot enforce on private roads, these are things like obeying traffic signs and signals, parking rules, speed limits, vehicle vs pedestrian rights of way, etc. Having fully private roads, like in a gated community, can often offer even further limitations to what laws can be enforced.
However, this may be the least applicable Freestead pillar. Internationally, I can’t find any evidence any country other than the US where private roads allow opting out of significant legal enforcement, even in gated community scenarios. In the US, it looks like this strategy is effective in the following states: Texas, Missouri, Wyoming, Mississippi, Alabama, Arkansas, Oklahoma, South Carolina, and New Mexico.
Binding arbitration
The 4th and most important pillar of the Freestead model is binding arbitration. Binding-arbitration is the key to unlocking a world of legal experimentation.
Binding-arbitration is a contractual agreement where the involved parties agree to waive their right to use government court and instead opt into using a private arbitration process of some kind. If parties who sign this contract get into a dispute, they no longer have the right to bring a lawsuit to a city, county, or state court and instead may only use the private arbiter indicated by the contract they signed.
Binding arbitration allows people to agree in advance to opt out of the expensive, slow, and error prone traditional court system and instead use alternative processes for dispute resolution that can be substantially more efficient. Not only can the process be different, but the legal code itself can be different. The contract can specify any alternative rules that arbiters must use to adjudicate disputes. This is what allows you to create your own building codes, zoning laws, tax regimes, traffic laws, and other laws used for dispute resolution in your Freestead.
However, note that binding-arbitration does not have the power to allow people to opt out of criminal legal proceedings, those remain the purview of governments.
Binding-arbitration isn’t a loophole or a trick. It is a widespread business practice repeatedly upheld in court. There are tens of thousands of binding-arbitration cases each year in the US alone. As far as I can tell, the majority of the world’s countries, including all first world countries, respect binding-arbitration contracts for civil legal cases except under very specific contexts (for example in consumer contexts).
Implementing a Freestead
A Freestead would be set up as an organization of some kind: a company or non-profit that manages an area of land and its governance structures. The Freestead’s articles of organization would contain a constitution that lays out the processes for arbitration rule/law creation, and any tax overlays. The Freestead would then buy some land in favorable unincorporated territory, set up its private ways and roads.
You don’t need all 4 pillars, but the more you have, the more freedom you have to experiment with novel governance. However Texas, Missouri, and Wyoming seem likely to be the best places in the world to create a Freestead, since unincorporated land and private roads seem to allow more flexibility in those places than anywhere else. But the Freestead structure should still be useful anywhere in the world that binding-arbitration is respected.
To enter the Freestead, a person would need to sign a contract in which they agree to abide by the rights and responsibilities set forth in the Freestead’s constitution in its articles of organization.
As part of the contract, signers waive their right to use county, state, or federal dispute resolution mechanisms or law enforcement to resolve an issue that happened within the freestead whenever it is legal to waive it. They instead opt into the arbitration procedure set out in the Freestead’s constitution.
A potentially important addition to a Freestead system would be an enforcement system — a police-analogue. Having an effective enforcement system would decrease friction with the county government your Freestead resides in, and make government police less necessary in your Freestead. If you also then have a rule that Freestead enforcers can only enforce Freestead rules and not county, state, or federal laws, you can also reduce the practical footprint of those county/state/federal laws, even if the technical legality of police enforcement would be unchanged.
Benefits of a Freestead
A Freestead allows you to create a bespoke legal system without a municipality. This gives you the opportunity to correct the majority of economic distortions caused by our governments: land-use, tax distortions, and adjudication problems. A Freestead is a structure that can buy nearly as much autonomy as a Charter City without the heavy lifting.
Roughly 20% of all court cases are civil cases that could be contractually opted into a binding-arbitration regime and approximately 50% of court cases are traffic violations or city ordinance violations that don’t apply to private roads, if you’re in the right state. So this means a Freestead can potentially supersede about 70% of all court cases.
With land-use regulations and taxes being the largest categories of economic distortions, a Freestead in unincorporated territory with a tax overlay system can correct a majority of economic distortions faced by people in the US today.
And the binding arbitration agreement can greatly reduces the risks and costs of potential disputes by using arbitration systems that are more efficient and more trustworthy than government courts. Setting up your Freestead so that arbitration systems must compete for customers should be an important consideration that can ensure arbiters are of substantially higher quality than government courts.
Best of all, this can all be done without any special permission from or agreement with any government.
Build your Freestead
Meridia plans to build a Freestead similar to what this article describes. When they’re ready, the Meridia Freestead documents will be released open source so you can use them to create your own Freestead.
Despite the ways the US has failed to protect freedoms, there’s still a strong case for the US remaining the best place in the world to advance the cause of freedom. The US seems to be the best place for form a Freestead, since several of the key Pillars above are much stronger here. Because of this, I believe the US will eventually be at the forefront of governance experimentation, especially in states like Texas, Missouri, and Wyoming that have particularly high freedom in unincorporated land and private roads.
I hope this model can be a useful way for people to do a lot more governance experimentation at the local level. So get building!
