Europe is facing its biggest crisis since the fall of the Berlin Wall, if not World War Two. The Syrian civil war has created a flood of refugees. Hundreds of thousands are entering Europe, many are dying en route, and millions more desperately want to follow. The flood has severely strained European institutions and provoked fears that admitting so many refugees could cause a backlash that threatens European integration.

With that in mind, innovative solutions are required. Accepting more refugees is appealing on humanitarian grounds but objectionable to traditionalists in many countries throughout Europe, and to workers who have seen no wage growth and few new employment opportunities since the financial crisis of 2008. One pioneering solution, which several groups and individuals are advocating, is to create a semi-autonomous city in the Mediterranean for refugees. Importantly, the refugees would be allowed to work and own property and businesses, producing value and thus ensuring the city did not become a giant refugee camp. At the same time, refugees would be prevented from entering the rest of Europe, making the city politically acceptable.

Refugee Crisis

The civil war in Syria is has created 7 million internally displaced persons and 4 million refugees. The Office for the United Nations High Commissioner for Refugees (UNHCR) reports that, “worldwide displacement from wars, conflict, and persecution is at the highest levels we have recorded, and accelerating fast.”

One solution to the refugee crisis is increased immigration. For example, the US with a population of 320 million has 11 million illegal immigrants. France, Germany, and Britain, with a population of 210 million could in principle absorb 4 million more refugees and leave the refugee percentage of the population less than illegal immigrants in America.

Unfortunately, the political climate will not allow such high levels of immigration; even the current levels of refugees are threating Europe’s political fabric. The much esteemed Schengen Agreement, which led to the abolition of border checks within member countries, has allowed people to move freely throughout Western Europe. One of the most important accomplishments of modern Europe, the Schengen Agreement is being undermined as some countries are closing their borders to staunch the flow of refugees. Most prominently, Germany has closed its border with Austria, citing refugees as the cause. The Czech Republic increased border controls with Austria as well and Hungary built a fence on its border with Serbia and Croatia to prevent refugees from entering illegally.

More worryingly, the refugee crisis has contributed to the rise of far right parties. What were previously fringe parties are now polling second in several countries. Admittedly, the refugee crisis is only partially responsible. The economic crisis of 2008 and Europe’s slow recovery have also contributed to the growth of the far right.

Last year the Sweden Democrats, a far right party campaigning primarily against immigration took third place with 13% of the vote. Currently it polls at 25%. The National Front, the far right party in France, took 25% of the vote in local elections and is expected to get enough votes for a runoff in the 2017 presidential election. Jobik, the Hungarian far right party exemplifies the trend and is the third largest party in the National Assembly.

Europe is unable to solve the refugee crisis, and is instead threatened by it. Because of this it is important to consider alternative approaches to help the refugees and to reduce the perceived burdens on the countries where they seek entry.

Refugee City

Dadaab, a refugee camp in Kenya, illustrates the need for refugee cities. Created in 1991 for Somali refugees, it has 400,000 residents, most of whom live in tents with UN support. Kenya prevents them from working and has refused to let them integrate. The residents are trapped in a legal purgatory, unable to return home because of violence and unable to find a new place to live.

Refugees from the Syrian war have fared slightly better than Somali refugees. The majority, two million, reside in Turkey. Only 30% of those live in refugee camps around the border and Turkey has been granting work permits to some of the refugees. Lebanon has so far absorbed 1.2 million refugees, half of which the UNHCR reports have sub-standard shelters. However, as the Syrian civil war has no end in sight, the number of refugees will only increase. The creation of semi-permanent refugee camps in Europe is not a solution.

An alternative, a city for refugees, would be constructed for the purpose of attracting new residents. The defining feature of such a city, as opposed to refugee camps, might be the motto “Give me your tired, your poor, your huddled masses yearning to breathe free.” More importantly, like New York City of the late 1800s, such a city would create an institutional framework that encourages the creation of jobs and value. To that extent, it would be a more lasting solution, and would attract refugees from protracted crises with no end in sight.

A refugee city would have two defining features. First, it would have relaxed immigration laws. If the refugee city was in Greece, the city would need relaxed immigration laws to ensure refugees could enter. Second, a refugee city would need a degree of economic liberalization.

Given the current European backlash, it would be necessary for the city to have specialized immigration laws. The laws would have two aspects. First, they would allow refugees into the city. Second, they would ensure refugees stay in their city. Refugees must have an accelerated legal entry process to the city. At the same time, they must be restricted from permanently moving into the host country to assuage fears of a flood of refugees. The refugees would retain the passports to their country of origin, and the ability to apply for asylum in other countries

As important, if not more, would be a degree of economic liberalization. To be successful and help alleviate the refugee crisis, the city would need to be attractive enough to encourage refugees to move there. To do so, there would need to be jobs available at reasonable wages. Because the city would be new, the best way to achieve this is economic liberalization. Shenzhen, for example went from a fishing village of 30,000 people in 1979 to hold 18 million people today. Their growth is largely attributable to the creation of a special economic zone (SEZ) in 1979.

One of the primary advocates of refugee cities, though he does not use the term, is Naguib Sawiris, a wealthy Egyptian businessman. Moved by the drowning of three-year-old Aylan Kurdi who was trying to enter Greece, he decided to act. He is currently in talks to buy a Greek island where he plans to employ refugees.

Some data on Greece illustrate the importance of economic liberalization. Greece is a high income country with average per capita income of $25,000 per year, while Syria has average per capita income of $5,000. If we assume the refugee city will have similar income levels as Syria, Greek law will need to be adjusted for the lower level of income. Greece, for example, has a minimum wage of $10,000 per year. If that minimum wage is enforced for the refugee city, it will attract few refugees, as it would price them out of a legal labor market. The same logic applies to other Greek regulations.

Getting a business license in Greece takes 13 days and 2.2% of per capita income. However, given that Greece has income levels five times higher than Syria, it would take Syrian refugees 11% of their income to start a business, an income they probably have not collected since the start of the civil war. Even worse, construction permits in Greece take 124 days, a delay that is prohibitively long if a new city is to be built. Getting electricity takes 70% of per capita income and registering property takes 20 days.

Regulatory procedures would need to be greatly streamlined to create a successful refugee city. Attracting refugees requires a better standard of living. When building a new city this means productive jobs above all else. Those productive jobs will not exist if immigrants are unable to start businesses or build homes.

Governance Structure

Assuming the Greek government eases immigration requirements to an island and allows for economic liberalization, the next question revolves around the governance of the island. How the island is governed also relates to funding. There are three possible governance structures. First, a Charter City, a different government, Canada for example, could offer to govern the refugee city. Second, a private non-profit, for example, the Greek government could create a new non-profit with the UN for the specific purpose of governing the island. Third, a private company could buy an island and negotiate with Greece for economic and immigration liberalization.

Charter Cities are the brainchild of Paul Romer. Originally envisioned to spur economic development in low income countries, they are easily adapted to help the refugee crisis. The defining feature of Charter Cities is that governance would be taken over by a high income country.

There are several advantages of Charter Cities. First, the idea is established and accepted. Any refugee city would be big change, but Charter Cities, because of the pedigree of the idea, would be a less big change than other governance models. Second, it is easy to entrust governance to a high income country as they have an established track record. There is relatively little risk of the governance body acting in an abusive manner.

That being said, there would also be several drawbacks. The first is timeliness. Governments are not known for quick action and for the refugee crisis speed is essential. Second, Canada would also have to change some of the laws. A Canadian minimum wage would not work in a refugee city, and the Canadian health care system might be difficult to implement. Third, it is not clear where the initial funding would come from. Europe might donate some money along with Canada, but the process by which the initial funding is given could be long and drawn out.

The most important determinant regarding a Charter City for refugees would be how the governance body would be set up. For example, if Canada appoints a commission with substantial decision making authority, a big budget, and committed and passionate people, a Charter City would be the best option. However, if the process is mired down in a bureaucratic mess it will not help anyone.

The second option is for a private for profit company to govern the refugee city. In this case a company would buy the island and Greece would turn it into a special economic zone to ensure sufficient economic liberalization. The company would lease land to refugees, hoping to profit by increasing the value of the land over the long run.

The advantage of a profit seeking developer would be the speed of action. Naguib Sawiris appears to have something like this in mind and he is currently doing more than any other person or organization. Raising money is also easier, as developers can expect a return on the initial investment, the increasing value of the island they buy. The developer would also be able to think outside the box, contracting business registration to Estonia for example, as they have an easy to use online method. Private companies tend to be more innovate than governments and this could be very beneficial for a refugee city.

That being said, there are substantial risks to a private developer. The most important one is the potential for abuse. Unable to return to their homes and on an island, refugees are a vulnerable population. An unscrupulous developer could take advantage of that. Second, governance is hard. Few developers have much experience with setting up a land registry, business permits, or a police force. Traditional governments have more experience in such matters. Third, private governance is viewed with suspicion making the creation of a special economic zone more difficult.

The middle ground is the creation of a non-profit with the specific goal of governance of the refugee city. A developer could partner with UNHCR and the Greek government to create the non-profit. The developer would still own the land, but lack governance authority over it, trusting the non-profit would pursue policies that would help refugees and therefore raise the value of the land.

The non-profit would be able to act quickly, helping refugees in the near term. It would also be viewed as less likely to take advantage of the refugees, increasing the likelihood that a special economic zone is created. Further, it would be easier to raise investment funds, as developers could be promised a future share of tax revenues. Lastly, with the non-profits links to governments, it would be able draw upon their expertise in governance.

People and Organizations

Before I conclude I will discuss the people and organizations who are either working toward the creation of refugee cities or who have insights that can be applied to refugee cities. The list of people and organizations include Naguib Sawiris, Charter Cities, Refugee Cities, Refugee Nation, Enterprise Cities, and Seasteading.

Naguib Sawiris is the most important person currently involved in an attempt to create refugee cities. He has said he is willing to spend $200 million to buy a Greek or Italian island to house refugees. He says he can take care of the logistics and employ 100,000 refugees, building them shelter, hospitals, schools, and a marina.

He currently faces two challenges. The first is for Greece or Italy to offer to waive immigration requirements for the island. He is trying to leverage media pressure to make the Greek or Italian government ease immigration. His second challenge is that he does not seem to realize the importance of institutions.

He will not be able to employ 100,000 people profitably, if he could do so, he would already employ them. Instead, he is considering an act of charity. If we make generous assumptions, that each Syrian job costs $5000 and produces $4000 annually, losing $1000, the cost of employing 100,000 people is $100 million per year. Added onto that cost is building a marina, schools, hospitals, and shelter. Naguib’s estimated net worth is $3 billion, so is wealthy enough to do so. However, economic liberalization could reduce his costs substantially. Take the minimum wage, for example, if each job costs $10,000 instead of $5000, Sawiris will lose an extra $500 million annually.

As mentioned previously, Paul Romer’s Charter Cities offers the clearest vision of the importance of governance. Romer has yet to directly mention Charter Cities as a potential solution to the refugee crisis. However, the logic that popularized Charter Cities as a way to attract residents and achieve economic growth also apply to refugee cities. His stature could bring much needed media attention to refugee cities.

Enterprise Cities, a project out of Babsom College, seeks to “create pro-competitive, and liberal trading systems based on property rights and the rule of law, or be applied at the zone level.” They are creating models to estimate the benefits of economic liberalization which could show the potential gains or economic liberalization for refugee cities.

The Seasteading Institute was founded to create alternative forms of governance on the open seas. They have experience both with negotiating limited autonomy from a host country as well as building platforms which could be used to house refugees on a mountainous island.

The last two important groups are Refugee Cities (from whom I have borrowed a term) and Refugee Nation. Both are advancing very similar ideas to what I have discussed here and are seeking to draw attention to refugee cities as a potential solution to protracted refugee crises.