(Bloomberg Markets) -- The standard story of globalization taught in business schools and assumed in boardrooms hails the success of free trade: It erased borders and freed capital, ushering in three decades of unprecedented prosperity that lifted billions of people out of poverty. Thomas Friedman’s 2005 bestseller, The World Is Flat, described a technology-enabled leveling of the economic playing field where all countries could compete.

Ever since, researchers from a variety of fields have challenged that optimistic narrative. Joseph Stiglitz, the Nobel laureate and former World Bank chief economist, documented how globalization exacerbates inequality. Ha-Joon Chang, a development economist and adviser to the World Bank, found that so-called free trade actually required a lot of state intervention. University of California at Berkeley political theorist Wendy Brown examined how globalization-related anxiety led to the construction of physical barriers—most recently, the extension of the wall between the US and Mexico—that stymie trade and immigration.

Now, Quinn Slobodian, a Wellesley College history professor, offers the latest critical take. His new book, Crack‑Up Capitalism: Market Radicals and the Dream of a World Without Democracy ($29.99; Macmillan), disputes the idea that globalization is eroding borders. Instead, Slobodian finds new kinds of borders cropping up within nations, delineating the places that actually benefit from free trade: special economic zones, where companies operate with little regulation or government interference. “Why I was focused on these things is to intervene in a narrative that historians tend to tell,” Slobodian says, by phone. “History books haven’t caught up with the last 40 years of changes in global capitalism.”

These economic zones can be as large as China’s Shenzhen, a city of about 13 million, or as small as one floor of a building that offers lower taxes and different laws than the place just across the river or the street. Experts have estimated that the world has from 2,500 to 10,000 zones. In Dubai the Jebel Ali Free Zone, or Jafza, hosts more than 9,500 companies across almost 22 square miles (57 square kilometers), including in office towers and industrial units beside the United Arab Emirates’ largest deep-sea port. The planned community called Gujarat International Finance Tec-City, or GIFT City—under construction in Gujarat, India’s answer to Silicon Valley—has about 260 acres dedicated to a special economic zone. There’s even an enterprise zone not too far from the White House, in Prince George’s County, Maryland, that offers tax credits in return for job creation and investment.

The zones tend to attract, and concentrate, trade, manufacturing activity and international flows of capital. A quarter of Dubai’s foreign direct investment flows through Jafza. About 30% of the world’s toothbrushes are made in a single zone in China, and half of all disposable nitrile gloves are produced across 15 zones in Southeast Asia. The zones are proliferating at a rapid clip: One-third of them have popped up in the past decade, and roughly $1.5 trillion is spent each year to build more globally.

Jamie Peck, a political economist at the University of British Columbia in Canada, finds Slobodian’s conclusion convincing. “Yes, globalization is a real thing, but it’s a name for the transnational integration of economies, which produces very uneven outcomes,” he says. “It makes new geographies—it doesn’t obliterate them.”

There are also hybrid models such as Singapore. To be sure, the independent city-state has a seat at the United Nations, a supreme court and all the institutions that constitute a modern nation. Since the 1970s its government—led by the same prime minister, the late Lee Kuan Yew, for three decades—prioritized slashing taxes and cutting regulation for international companies, becoming an electronics and tech hub. It’s often described as a country run like a corporation and with heavy government involvement, whether in cutting taxes for companies or jailing dissidents. Singapore, by marrying “economic openness with political control,” put “the genie of capitalist globalization not back in the bottle but into a sturdy harness,” Slobodian writes.

Regardless of their inner operations, economic zones serve one purpose: to make trade easier and increase profit for companies using them. The existence of these zones could be seen as proof of globalization’s failure to bring shared prosperity. Ever since President Bill Clinton signed the North American Free Trade Agreement into law in 1993 and the internet gained wide usage, these small islands of capital have been the biggest winners from the loosening of restriction on global commerce. But the many businesses and investors outside the zones haven’t benefited nearly as much. Nor have some migrants and low-income workers toiling in the zones’ fenced-off factories.

Economic zones are not all alike. Many are benign: a city in China, a warehouse near a border, a port or a single floor of a building where goods are made, assembled, stored and passed on. But some are anything but, because they’re places used to flout laws. For example, a zone in the so-called Golden Triangle region of Southeast Asia has become a haven for human and drug trafficking.

Beyond reinforcing inequalities through the use of low-paid and sometimes even unpaid labor, these places signify a priority: maximizing profit by avoiding government oversight.

Their boosters basically agree with Slobodian’s analysis. “You cannot reform countries as a whole very effectively, for the better or for corrupt reasons,” says Thibault Serlet, the director of research at Adrianople Group, which advises on economic zones. “You’re going to run up against entrenched interests. So the logic is that by reforming a small business park or a city, you’ll be able to bypass those entrenched interests.”

Serlet has built his career on zones. He invested in them at venture capital funds and founded the Startup Societies Foundation, which researches and promotes them. Even he notes their shortcomings, highlighting corruption, land theft from local farmers to acquire the space and poor government management. His solution: Take out the government entirely.

Zones let investors and transnational corporations avoid the messy work of haggling with ­lawmakers. There’s no doubt economic zones are efficient: In the first few months of the Covid-19 pandemic, a handful of them in Asia produced many of the N95 masks, protective gloves and other desperately needed supplies. Businesses operating in the zones remained open, and employees continued coming to work because the rules there differed from those in the rest of their home countries.

But this kind of success underscores the failure of the earlier vision of a borderless world of unleashed free enterprise. If globalization really did remove barriers to trade and migration across nations, why do we need economic zones?

Dmitrieva is an economics reporter in Washington.

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