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You Too Can Grow A Free Market

July 20, 2009

…and improve the lives of millions in the process. David Warsh at Economic Principles has a good article up on free economic zones.  (Michael Strong wrote for us previously about them here.) Warsh connects Paul Romer’s work on developing many Hong Kongs with the lessons of Brcko, a city in northern Bosnia and Herzegovinia that had been decimated by war. Like the weed, it turns out economic growth can occur in some unlikely places. He writes: 

By the time the Dayton Peace Accord brought an uneasy truce to the region, in 1995, Brčko was a smoldering ruin. A couple of years later, however, an improvised mall along a highway fifteen miles south of town was booming, a cross between a Home Depot, a flea-market and a truck-stop, open to all comers, Serbs, Muslims and Croats, gradually infusing life back into the city that lay just over the rolling hills. Once established, it continued to grow. 

This free economic zone came to be known as the “Arizona Market.” How did economic freedom bloom in this unlikely place? 

The Arizona Market sprung up in a matter of days after American forces set up a checkpoint on the north-south highway. As American commanders on the ground gradually overcame their fear of “mission-creep” – the disasters in Mogadishu and Haiti were still fresh in their Pentagon masters’ minds — they responded to the urgent requests directed to them by the various local ethnic communities:  repair a highway, rebuild a bridge, fix the water system and, above all, enforce the law. Stop car-jackings, claim-jumpings and shakedowns in the market; protect people in their daily lives, especially from the rival governments. When the Bosnian government dispatched thirty policemen to take control, the Americans met them with some tanks and sent them back to Sarajevo.

In short, American forces established the rule of law and warded off plunder. According to Bruce Scott’s 2004 case study for Harvard Business School, in Brcko “NATO’s imposition of law and order, plus protection from local political protection rackets, led to spontaneous growth of a market with over $100 million in annual sales.” Read the whole thing. You can even view a tour of the Arizona Market here.
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19 Comments
  1. happyjuggler0 permalink
    July 21, 2009 1:04 am

    ,a href=”http://www.marginalrevolution.com/marginalrevolution/2009/07/paul-romer-update.html”> Marginal Revolution has a post on Romer via David Warsh.

    Tyler Cowen is skeptical, and the rest of the comments section is dubious to say the least. I suggest denizens of LATNB leave some comments over there.

    • happyjuggler0 permalink
      July 21, 2009 1:05 am

      Ok, I think I got the html right this time, here is the Marginal Revolution link.

      Surely you guys can come up with a “preview post” option?

  2. Mike Gibson permalink*
    July 21, 2009 7:33 pm

    Hey, thanks for the head’s up. I saw Tyler’s post yesterday, but I haven’t browsed the comments. I’ll take a look.

  3. October 29, 2009 4:46 pm

    Wow, Arizona Market has come a long way from when I saw it back in 1998. Mostly temporary wooden stalls there erected on top of muddy ground. You could get anything from refrigerators to bootlegged CDs. And I don’t recall seeing a significant US Army presence.

    • Mike Gibson permalink*
      October 30, 2009 8:14 pm

      Daveed, tell us more about it. Why were you there? Was it safe? I’d love hear more about it!

      • November 6, 2009 5:49 pm

        I was working for an organization called Freedom House out of their Budapest office, on a project to help families of missing persons. It was on one of my work-related trips to Bosnia that we drove from Sarajevo to Osijek, which took us along Route Arizona.

        At the time it felt fairly safe. Safer than in Republika Srpska, specifically Banja Luka. I don’t know about now, but then the town was run by a gangster clique that operated by plunder and intimidation.

        If I recall, Arizona Market initially sprung up as a secondary market for building materials, usually salvaged from (new) rubble and reused in new construction or fix-ups. Then it grew with the introduction of “fell of the truck” kinds of items like appliances, along with whatever knockoffs were circulating throughout the regional economy at the time. I also recall lots of stalls selling military/camping knives and crossbows.

        It was a weird place, very on-the-edge locus of economic activity. I was told that you could buy nearly anything there, including — if you had the contacts and cash — serious weaponry that Bosnian and RS soldiers and who knows who else were unloading. They accepted all sorts of currency, but preferred deutsche marks, as with every other place in ex-Yugoslavia.

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