When Western politicians fret about the Chinese aspirations to global economic dominance, they are looking, in part, at an adaptation of the Hong Kong model once removed—a network that allows for the channeling of investment and labor through a honeycomb of zones, with public accountability limited by outlawing direct elections above the local level. The imperfect way that Hong Kong fit into the usual boxes of sovereignty spoke to a change in the nature of sovereignty itself in an era of hypermobile capital and easily transferable sites of production.

  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. The lack of a seat among the sovereign states in the General Assembly of the United Nations did not mean it did not have its impact on world history. In the end, there was a fitting symmetry between the image of Milton Friedman over the skyline of Hong Kong in Free to Choose and the famous billboard in Shenzhen showing Deng Xiaoping over its own skyline. Neither man over five feet tall, they loomed large as champions of the shared belief that a competitive edge could be gained in global markets by suspending the pressures of a voting public within a sequestered territory, allowing private market actors to act with the aid of a cooperative state and set of laws. In 1990, Friedman said that the right model for Eastern Europe after state socialism was not the United States, Great Britain, or Sweden. It was Hong Kong.106 Capitalism did not need democracy to work, and the path to success led through the zone.107

  4.

  At the stroke of midnight on June 30, 1997, “God Save the Queen” played as the Union Jack and colonial flag were lowered slowly at the Hong Kong Convention and Exhibition Centre, to be replaced by the red flag and five yellow stars of the People’s Republic just above the bauhinia flag of the Hong Kong Special Administrative Region. With this ended what Friedman called a “fifty-year experiment” in economic policy in which postwar Hong Kong’s economic growth outpaced Israel, the United States, and the United Kingdom.108 When describing the experiment, Friedman talked about the low tax rate, the protection of private property, the trustworthy courts, the light-touch regulation, the low barriers to trade—the pithy outline of the Portable Hong Kong. What he did not mention was its real, unrepeatable history: how Hong Kong’s rise was seeded by the influx of Chinese refugee capital and labor, accelerated by its status as an entrepôt for essential goods for an isolated mainland, and later supercharged by coordinating investment for the SEZs. Nor did he mention the importance of language and kinship ties across the border that facilitated Hong Kong’s role as the switchboard and front shop for the mainland factory, a cockpit for the Chinese boom.109

  To give just one example of the diaspora in action, the Hong Konger who opened the first zone in the Pearl River Delta had been born in Bao’an himself and fought with the communists in the revolution. When he applied to open the zone, his request was forwarded on by his former military superior, who had become the Chinese minister of communications.110 Hong Kong was no island adrift in the South China Sea. Even through the years of division, it remained knitted into the mainland’s side.111 Rather than attend to any of this complex history, Friedman opted instead, as he spoke to students at the University of Hong Kong, to remind them of the dangers of democracy. “Unfortunately, political democracy has elements which tend to destroy economic freedom,” he told them.112

  Happy to reduce the territory to caricature, the neoliberals shipped out versions of a Portable Hong Kong in their carry-on bags.

  One was its 15 percent flat tax, which Rabushka promoted from the floors of Congress in the 1980s to postcommunist east-central Europe in the 1990s, often to great success. The flat tax was adopted in twenty-one countries of the former Soviet bloc over the course of only a few years; Rabushka’s book The Flat Tax, inspired by Hong Kong, was described as the bible of tax reform.113

  Another was the constitutional clause enforcing a balanced budget, which prevented Keynesian expansionary spending and put hard limits on state investment. Known in Germany as a debt brake, balanced budget amendments spread across Europe in the first decade of the twenty-first century.114

  Yet another was the celebration of the possibility of economic freedom without political freedom, or what scholars call liberal authoritarianism. Rabushka, Friedman, and others believed the virtues of this model had been overshadowed by the overemphasis on democracy in the definition of the Free World in the Cold War. As Friedman put it, democracy was not an end in itself: “the believer in freedom has never counted noses.”115

  Taking the annual Freedom in the World rankings by the liberal NGO Freedom House as their template, Rabushka and Friedman convened a series of workshops in the late 1980s to devise what they called an Economic Freedom of the World index that self-consciously broke with what one of its drafters called “this fetish for democracy” and ranked the world’s territories instead by their tax burden, openness of borders to trade, ease of doing business, along with other indicators.116 Hong Kong took top spot, as it would for over two decades. The definition of freedom they used in their calculations meant that democracy was a moot point, monetary stability was paramount, and any expansion of social services meant a fall in the rankings. They declared the “‘right’ to food, clothing, medical services, housing or a minimal income level” as “‘forced labor’ requirements” and called redistribution “(slave) labor.”117 Taxation was theft, pure and simple. According to the authors, it did not matter “whether the theft takes place via the ballot box, or more directly as in the style of an armed robbery.”118 Hong Kong was followed closely by Singapore and other lesser-known low-tax territories like Mauritius at number five and Costa Rica at number nine.119 More unlikely champions could be found elsewhere. The historical overview suggested that, in 1980, the dictatorship of Guatemala was among the top five freest economies in the world.120 The economic freedom index was the map to a parallel universe to that of Freedom House measures of political liberty. This was a world of territories ranked by their level of porousness to the flow of what one participant in the workshops called “quicksilver capital.”121

  By color-coding nations, celebrating victors on glossy paper stock, and giving high-ranking countries a reason to celebrate at banquets and balls, the indexes helped perpetuate the idea that economics must be protected from the excesses of politics—to the point that an authoritarian government that protects free markets is preferable to a democratic one that redesigns them. Not content with mere economics, the think tank behind the index joined up with the Cato Institute to publish the first global index of “human freedom” in 2016. They included all the earlier indicators and supplemented them with numerical measurements of civil liberty, right to association, and free expression alongside dozens of others. The number of terrorist fatalities and the percentage of women who have undergone female genital mutilation made the list. Multiparty elections and universal suffrage did not. The authors noted specifically that they excluded political freedom and democracy from the index. Hong Kong topped the list again.122 This was a redefinition of the Free World, where free elections were eclipsed by free markets, as understood as the inviolability of private property and ownership. We could call it a New Free World, where the idea of government was replaced by management, and the ideal of the elected leader by the CEO.

  Reducing Hong Kong to the absence of democracy would take ever more repression from year to year, though. In 1990, 150,000 people had gathered in solidarity with the crushed protest at Tiananmen Square. The annual marches grew into the next decade, as more pushed on the phrase in the Basic Law, which though focused on business stability also included the ambiguous clause that government should be “constituted by elections … worked out in the light of the actual situation in Hong Kong and applied in a gradual and orderly way.”123 For years, pro-democrats tried to squeeze their demands through this narrow opening, disappointed time and again as a mishmash of direct and indirect elections by representatives of professional groups favored the existing powers in the business community. The dismal fact was that average Hong Kong residents did not have a vote in selecting their leader but, through their CEOs, top corporations did.124 An early climax of the demands for self-determination came with the so-called Umbrella Movement in 2014. One person who channeled Friedman’s logic then was Hong Kong’s chief executive Leung Chun-ying, a former real estate developer. Asked why suffrage could not be expanded, he laid out the logic of restricted franchise in a matter-of-fact response. It was a “numbers game,” he said. Expanding the vote would increase the power of the poor and lead to “the kind of politics” that favor the expansion of the welfare state instead of business-friendly policies.125 For him, the trade-off between economic and political freedom was clear as day.

  5.

  Looking at the last century through Hong Kong disrupts three narratives we tell about the recent past. One is about the rising tide of democratization as a supposedly universal and natural phenomenon. If Samuel Huntington was diagnosing a terminal crisis for democracy in the 1970s, by the 1990s he was hailing democracy’s revival.126 Places like China in the process of “reform and opening” or postcommunist Russia were assumed to be in the midst of a movement to full democracy. Transition was the term of the moment. It even spawned an academic subfield: transitology. Yet by the following decade, the transition seemed to have stalled. It started to look like some places, including Hong Kong, despite the fervor of local demands, might simply stay in the “gray zone” forever.127 China’s success made it look like state capitalism without democracy might be a winning formula.

  Another story is about the movement from a world of empires to a world of nation-states. This narrative relies on a vision of empires as blobs distended over the world’s surface, being diced into the tidy containers of individual states as self-determination replaced alien rule. But empires were not blobs. They were complex, internally segmented organisms. They ruled diverse populations and territories differently.128 At times, they annexed land and administered it directly, as in Hong Kong. At other times they established only a toehold, as in the treaty ports along the Chinese coast. Self-governing populations lived inside imperial bodies, sovereignties nested inside sovereignties. Empire, as the historian Lauren Benton puts it, was “lumpy,” not smooth.129 The age of the nation was too. New nations formed as empire ended but then they fractured further, divided into a dizzying array of zones, city-states, districts, havens, enclaves, gateways, and logistics corridors. The historian Vanessa Ogle has shown how this legal unevenness reproduced some of the earlier traits of empire.130 Modern globalization has “jagged edges,” and the familiar outline of national borders tells only part of the story.131

  Some critics of Deng accused him of re-creating the nineteenth-century treaty ports by opening up coastal cities to foreign investment and trade.132 In some ways, they were right. The CCP preferred the term zone because it was blank, symbolically delinking it from the toxic legacy of the treaty port it resembled.133 At the same time, the character used, qu (区), could also mean “area,” “district,” and “region,” allowing for the interpretation that these were not outside the national territory but administrative redivisions within it.134 Rather than the monolith it is sometimes assumed to be by Western observers, China in the age of reform worked through “fragmented authoritarianism.”135 The global multiplication of zones has helped create a world of “one country, many systems.” Looked at this way, the hybrid of Hong Kong was odd only in the sense that the future was odd, a testament to the fact that the passage from the age of empire to the age of the nation was not one-way.

  A third story we tell is that capitalism, for all its faults, produces things that are useful to humans. But is this always true? Some of the features that did not appear on the Economic Freedom of the World index were improvements in productivity, nature of investment, level of unemployment, social security, welfare of the population, or economic equality—in short, all the things that make it possible for inhabitants of a territory to experience economic freedom in their daily lives. If they had measured these things, Hong Kong would have looked quite different.

  Wealth is extraordinarily concentrated. The net worth of Hong Kong’s top ten billionaires accounts for 35 percent of its GDP, as compared to 3 percent for the United States.136 From its founding, Hong Kong was less a freewheeling market open to all entrants than an economy controlled by a handful of merchant houses—and later family conglomerates and tycoons—with a cozy relationship to the government.137 Studies show “the ten largest families in Hong Kong controlled about a third of the corporate sector.”138 Less celebrated than the economic freedom index was the fact that Hong Kong topped the Economist’s “crony capitalism index.”139 This was a capitalist paradise with little competition. The lack of inheritance tax means the wealth is dynastic and leaves little interest in challenging the status quo. Thomas Piketty and Li Yang found that the top 15 percent wealthiest in Hong Kong were the least likely to support moves to more democracy.140

  In the end, the essence of the Hong Kong model was not an abstract idea of economic freedom. Rather it was the legal demarcation of a small territory with little or no democracy and close collusion between a tight club of business elites and the government to capitalize on the captive market through maximal economic openness and the rising value of scarce land.

  It was precisely these features that would be brought home to the heart of the empire—turning London into Hong Kong’s distant twin.

  2

  City in Shards

  The London Docklands

  Cities have long been legal islands in the ocean of the surrounding territory. In the Middle Ages, entering the city walls made you subject to a different code. For a time, serfs could flee their lords for a new life there, giving rise to a German saying: “City air makes you free.” Medieval and early modern Europe was pockmarked by tens of thousands of different legal zones. The Holy Roman Empire of the eighteenth and nineteenth centuries alone had upward of a thousand independent entities.1 The historian Fernand Braudel called early modern European cities “autonomous worlds” ringed by both real and “juridical ramparts.”2

  Though the march of the nation-state was well advanced by the twentieth century, one medieval enclave that survives to the present sits at the heart of modern London. The “Square Mile” of the financial district on the north bank of the Thames—known as the City—is not altogether part of its host country. When the Normans invaded, the City kept its property, its militia, and its own Lord Mayor. Its governing body, called simply the Corporation of London until recently, predates Parliament.3 To this day, as the journalist Nicholas Shaxson reminds us, when the king or queen enters the City, he or she has to touch the mayor’s sword.4 The City is a primal zone, carved out from its surrounding political space and governed by different rules. Most notable is the fact that, in its elections, as in Hong Kong’s, businesses have ballots too. Their thirty-two thousand votes outnumber those of the nine thousand humans.5 One academic compares it to the early modern city-states of Genoa and Venice.6 Another calls it “London’s own Vatican”—a Vatican of capitalism.7

  For centuries, the City has stood for a vision of the British economy rooted in finance and the power of money. Tensions between City and Crown existed over those centuries, but the two were locked in an embrace. The City needed the Crown for protection and the Crown needed the City to raise funds for war and empire. The City took on a new importance in the postwar decades as a place to hold dollars “offshore,” meaning beyond the reach of US regulators. Individuals, foreign-owned banks, and later major oil-exporting states like Saudi Arabia, Libya, and the United Arab Emirates used the City of London as a place to deposit money and organize large loans. As Britain’s overseas empire dissolved, a “Second British Empire” arose in its place as a collection of tax havens, including British dependent territories like the Cayman Islands and Bermuda and former colonies like Singapore, Ireland, and Dubai.8 And the City was at the center of it all.

  In 1938, Lewis Mumford compared capitalism to a cuckoo bird that laid its eggs in the walled city and crowded out the city’s own native offspring.9 After Margaret Thatcher deregulated financial services with the so-called Big Bang in 1986, the City burst out of its confines and spawned a double of itself downstream, in a grove of glass skyscrapers known as Canary Wharf. Dubbed Hong-Kong-on-Thames, Canary Wharf was more than just a new financial district: it was a prototype for a new form of zone, designed to capture the state for developers, cut loose from ground-level needs of the city’s ordinary inhabitants.10

  Like the Sacré-Coeur cathedral built on Paris’s highest point after the destruction of the 1871 Paris Commune, Canary Wharf was also a monument to a defeated version of the city. Urban socialist projects of Red London were abandoned, eclipsed, and demolished to build investment vehicles for the ultrawealthy. The result was a city in shards.

  1.

  One place to begin the story of London’s metamorphosis is with the 1980 gangland thriller The Long Good Friday. In the film’s opening scene, local crime boss and would-be developer Harold Shand (played by Bob Hoskins) hovers over an architectural model on his yacht in a white pinstripe suit, cigarette and whiskey in hand. The location is the Docklands neighborhood a few miles east of the city center. Once the busiest in the world, the docks were in steep decline by the late 1970s, the workforce down to a couple of thousand.11 The container ship had spelled the beginning of the end. Moving a standard-sized steel box from ship to railcar and trailer required a fraction of the labor needed to hoist goods by nets and pulleys.