Werner K. Stiefel's Pursuit of a Practicum of Freedom

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by Spencer Heath MacCallum by Spencer Heath MacCallum

On June 8th, we lost to cancer a unique freedom fighter, scientist, inventor, and entrepreneur, Werner K. Stiefel, 85 years old, of Vero Beach, Florida, survived by his wife, Marie, and six children. He was such a private person that not many people knew him.

Werner believed as an act of faith, as do I, that human social organization in the future will be stateless. Such an assumption is warranted for the same reason as the scientist’s assumption that the universe is a cosmos and not a chaos. That is to say, it’s a productive assumption. The scientist can’t prove the universe is rational, but without that assumption, he would make no discoveries. He wouldn’t expend the effort. In the same way, it is productive to assume that human society which, after all, is very young, is a work in progress and that we will outgrow/are outgrowing the conflicted behavior of politics.

The interesting question is how we will outgrow that conflicted behavior, and therein lies the value of the productive assumption: it prompts the search for new understandings of the evolving social process. To engage in such discovery is inspiring, and inspiration lifts our spirit. It is the fountain of creativity. Perhaps more than anything else, that is what being human, in the best sense of the word, is all about.

Around 1970, I made the acquaintance of Werner, who was developing plans to build a free community. While the community would need to be effectively governed, it would differ from communities as we know them by being internally consistent. In no way would its management infringe upon property rights. There would be no taxation or other discretionary authority over anyone’s person or property.

Werner had been inspired and awakened philosophically by reading Atlas Shrugged. But unlike many Randians, he saw an inconsistency in her tolerance for the state. He realized that men act in their own interest as they perceive it, and that is no problem when they are dealing with their own person and property. But when they acquire discretionary authority over persons and property not their own, problems arise, since their perceived interest and that of the owners must at some point diverge. The private individual then must resist, even to the forfeit of his life if he cannot prevail, or else live for the sake of another. The last is irreconcilable with the oath taken by all in Galt's Gulch: “I swear by my life and my love of it that I will never live for the sake of another man, nor ask another man to live for mine.” (Atlas Shrugged 1956: 680).

Werner's family had experienced Nazi Germany in the 1930s. Unable to rescue any of the assets from the family soap manufacturing business in Germany, he and his father and brother set up a new business in the United States, based on what they carried in their heads. Today Stiefel Laboratories is the largest privately owned dermatological company in the world with over 2,500 employees and offices in more than 100 countries. Lubriderm was one of their best-known products. Werner remained president and CEO until his retirement in 2001.

Reading Atlas Shrugged, Werner woke up to a sobering question. When conditions had deteriorated in Germany in the 1930s, many people had fled to the United States. But even then, Werner saw symptoms of the same thing happening in the United States that he had witnessed in Germany. When the time came, he asked, where could people flee from the United States?

Taking a cue from Ayn Rand, Werner conceived of a “Galt’s Gulch” (aka “Mulligan's Valley,” aka “Atlantis”) somewhere on the oceans, a community on the high seas outside the political jurisdiction of any nation. Adopting the name “Atlantis” (not to be confused with Erik Klein's project by the same name in the years 1993–1994, also to promote a floating sea city, but not apolitical) he set about to make the dream a reality, using his private resources and not any of those of the company. His endeavor would prove to be a fit subject for a heroic novel after the manner of Rand.

A Herculean Effort

Around 1970, Werner purchased a motel near the company’s main plant in Saugerties, N.Y., and invited libertarians to come and live there while they worked in the surrounding area and, in their free time, helped to plan the Atlantis Project. He conceived of the project in three stages. Atlantis I was the Saugerties Motel. Atlantis II would be a ship at sea, and Atlantis III would be a floating community or perhaps a community on dredged-up land on some submerged seamount. The ship would play an indispensable role as supply vessel and living quarters in the construction phase of Atlantis III.

At Saugerties – Atlantis I – Werner undertook to transform those who had joined him into a seasoned team that could work under any and all conditions. He gave them the daunting task of building the ferro-cement ship that would be Atlantis II. The team passed this first test and sailed the ship south into the Caribbean, where a tropical storm destroyed it, fortunately with no loss of life.

Undaunted, Werner obtained another vessel and located a spot in the Caribbean outside any political jurisdiction where the depth was barely four feet at low tide. He had just completed the arduous task of constructing four sea walls and was about to begin dredging sand to create his first bit of artificial land on which to stand while extending Atlantis III, when a gun boat showed up and leveled its guns at his crew. Someone had found silver nuggets on the sea bottom nearby and had cut a deal with Haitian dictator “Papa Doc” Duvalier for protection from pirates. The gunboat captain, not knowing who these people were or what they were doing in the area, decided to run them off. Werner was forced to make a quick decision. Unwilling to risk people's lives, he abandoned the site.

For a permanent base of operations, Werner then took a long-term lease on a site in a freeport operated by the Haitian government. But when a copy of his newsletter, The Atlantis News, fell into an official’s hands and revealed his underlying philosophy, the government forthwith canceled his lease. From this experience, Werner learned the value of maintaining a low profile.

He next set about to create land on the Misteriosa Banks, a submerged seamount midway between Cuba and Honduras, the same location that self-styled Prince Lazarus Long would later publicize as the site for his ill-starred New Utopia. Werner bought and towed to the site an oil rig of the type that, once on location, could be inverted to stand on three legs. Before it could be put in place, however, a hurricane blew it out to sea and destroyed it.

Still undismayed, Werner purchased property on Grand Cayman and constructed an attractive complex for a new center of operations, one that could also serve as a retreat for the staff of Stiefel Laboratories. This garden setting still exists. It became, among other things, the office of the Atlantis Trading and Commodity Purchasing Service (ATCOPS), which Werner had already established as the forerunner of the Bank of Atlantis. ATCOPS made profits for many clients, including me, over the years and struck an attractive silver coin, the deca, so-called because it contained a decagram of silver.

From this base at Grand Cayman, Werner bought an island off the coast of Belize and built improvements on it, his ultimate goal being to negotiate, if not full sovereignty, then at least a grant of freeport status from the government of Belize. Eventually, he tired of dealing with the bureaucracy. With age advancing sharply on him, he put up the island for sale.

To Grow a Free Country

Beginning with Atlantis, Werner's goal had been to develop one or a series of freeports at sea that would function much like new countries. His approach had many practical features. Atlantis would start small and grow by increments. Rather than trying to attract a residential population, it would aim at businesses, starting with one of his own plants – Stiefel Laboratories. Businesses would bring their own personnel and their families, and these would require ancillary services, which services in turn would require personnel, and the residential population would grow naturally. This would enable the Atlantis community to develop without fanfare. Promotional advertising of casinos and other recreational amenities of tourism would not follow until much later. Until then, the fledgling community would keep its profile low, almost under the political radar screen. Werner's approach was also non-ideological, as well. He aimed at attracting effective, entrepreneurial people in business and the professions without regard for their political persuasion or lifestyle.

The most imaginative aspect of Atlantis was that the provision of governmental services would be a business in and of itself, creating value in the competitive market and subsisting on the market revenues those values induced. There would be no need to appeal to philanthropy or to practice taxation. Because the provision of public goods would be a business, specifically that of a multi-tenant income property writ large, taxation of the residents would be intolerable, anathema to the enterprise because destructive of the values on which it depended.

From Werner’s Herculean effort came an intellectual construct that survived Atlantis. His constitution for a free community was a radical departure from all political constitutions.

The need for such a construct arose because Werner was treating his “Galt’s Gulch” as far more than a literary device. He had set about to apply it in the real world. Unlike Ayn Rand, therefore, he could not ignore the question of how it would be administered. There seemed no easy answer. By 1972, he had reached a low point and almost despaired of the project, agonizing over the question of how Atlantis could be administered as a community and yet its inhabitants remain free. What form of government should he choose? Surveying all of history, he found no form of government that would not be prone to repeating the same tired round of tyranny the world had known for thousands of years.

At that point, he came upon the ideas of my grandfather, Spencer Heath, and saw their relevance. Heath had pointed out an advantage in keeping the title to the land component of a real-estate development intact and parceling the land into its various lots by land-leasing rather than subdividing. This creates a concentrated entrepreneurial interest in the success of the development, enabling it to be administered as a long-term investment property for income rather than selling it off piecemeal for a one-time capital gain. Those holding the ground title have an incentive to supply public services and amenities to the place, creating an environment the market will find attractive. To the extent they do so, they can recover not only their costs but earn a profit to themselves and their investors. Heath forecast that in time whole communities would be managed on this nonpolitical basis. He saw this becoming the future norm for human settlements, each competing in the market for its clientele. Community services, he thought, would thus become a major new growth industry.

Heath's ideas brought into focus a vast and virtually untapped body of empirical data from the field of commercial real estate, namely, the emergence of multi-tenant income properties such as shopping centers, hotels, office buildings, business parks, marinas, and combinations of these and other forms. What all of these have in common is that title to the land underlying a development is not fractionated by subdividing but is held intact. While buildings and other improvements on the land might be separately owned or not, the sites are leased. This preserves the concentrated entrepreneurial interest in the whole development that enabled it to be planned and built initially, and this concentration of interest permits it to be operated as a long-term investment for income. The result is very different from a subdivision, such as a condominium or other common-interest development, which is likely to be governed by a homeowners’ association. A subdivision is an aggregation of consumers looking to their own purposes and not in any sense a business enterprise serving customers in the competitive market.

Werner had just such a working community in his Saugerties Motel – Atlantis I. Here he administered all the community services contractually on an ordinary, businesslike basis. Pragmatic businessman that he was, he realized that here was his desired form of government – a proprietary, free-market government in which there was no violation of property rights. All relations were contractual, negotiated among the parties. The only thing lacking that we are accustomed to find in a community is a city hall exercising taxation and other discretionary authority over the inhabitants and their property. All Werner needed was to preserve this form of organization and move it out to sea.

Why had no one thought of this before? Why isn't it common wisdom? Doubtless the reason is that the dynamic, evolving market process is recent in human history, at least to the degree that we know it today, and our understanding of it is only beginning. Boston’s Tremont House, regarded in the industry as the first modern hotel, was built only 175 years ago. All subsequent forms of modern, multi-tenant income property have evolved since then. Only with the advent of modern technology and business practice, including all the various supportive institutions of banking and finance, insurance, communications, market prices, modern accounting methods, and so forth, could a community fully take the form of a competitive business enterprise.

Werner's Master-Lease Form

Werner saw that the master-lease form would be critical to the success of Atlantis. It would be Atlantis' social software, as it were, capable of generating an elaborate but internally consistent web of relationships, all spelled out in the wording of the leases, subleases, sub-subleases, etc. The sum of the agreements in effect at any given point in time would be the written constitution of Atlantis. They could be as specialized and distinct as circumstances might warrant, so long as they did not contradict any part of the master-lease form.

Without a body of legislated rules to fall back upon, the master-lease form would have to provide for every conceivable contingency. Werner gave me the task of drafting it. It was a moment of truth. But I couldn't dodge the assignment, since I had studied the question from the broad viewpoint of social anthropology and had published the first description of multi-tenant income properties as a distinct class of social phenomena (The Art of Community, Institute for Humane Studies, 1970). No mere theoretician, Werner assigned me a 2% equity in the venture.

Werner's master-lease form not only survived his Atlantis project, it took on a life of its own. With Werner's approval, it was published in several iterations, giving many people an opportunity to criticize it and offer improvements. But because Werner was leery of prematurely drawing the attention of the world’s governments to the idea of private settlement of the open seas, it carried no reference to Atlantis. It appeared as a purely heuristic exercise in the free-market provision of community services in a made-up setting called “Orbis,” one of a hypothetical cluster of settlements in outer space.

Of the many refinements of the master-lease form made by other people, the single most important was that made by Michael van Notten (1933–2002) in The Law of the Somalis (Red Sea Press, 2005). A Dutch lawyer who married into the Samaron Clan of Somalia and lived with them for the last twelve years of his life, Van Notten launched the Somali Freeport project to develop a large, multi-tenant income property provisionally called “Newland” on land leased from the Clan. He conceived of Newland as a purely private business venture with no flags, anthems, or any of the ritual panoplies and paraphernalia associated with political nations. If successful, it would become something like a small, latter-day Hong Kong, offering a business and professional environment free of all burdensome bureaucracy and taxation. Located in their own back yard, so to speak, it could become for the Samaron their stepping stone to full cultural, economic, and technological participation in the developed world. Traditionally a stateless people, the Samaron aspired to such participation if it would not entail their being dominated by a political government, their own or any other.

In adapting Werner's master-lease form to Newland, Van Notten made a significant addition. He sketched out and incorporated in it a detailed set of natural-law principles and supporting procedural rules. This would enable a system of law to be in place from the beginning of the development, from which point it could evolve of its own accord. It would be a system of law, moreover, to which all members of the community, including administrative and service personnel, would have freely consented in their lease agreement or terms of employment.

Natural-law scholar Roy Halliday wrote of this innovation that it

comes as close as anything I have seen to establishing the framework for a civil society consistent with liberty and natural rights. The idea of incorporating a description of natural rights into the master lease for a proprietary community is brilliant. It satisfies both the strong natural rights advocates . . . and the skeptics who believe rights are created by contracts. The lease contract provides a way to specify how rights are to be enforced.

In pursuing his vision of freeports at sea, Werner Stiefel put into motion in a practical way a plan for a wholly proprietary, nonpolitical public authority. Here was his answer to the question of how to have public administration and yet each and every person be fully empowered over his own person and property. He believed that humankind would outgrow government as we know it today. Perhaps what is most intriguing and heartening about his formula for an internally consistent, open social software is that it is not conjectural, but is extrapolated from a century and a half of empirical data gleaned from observation of the marketplace.

Frequently asked questions

The latest iteration of Werner Stiefel's master-lease form, his practicum of freedom, appears as Appendix C in Michael van Notten's The Law of the Somalis. His notion of entrepreneurial, non-political communities has raised many interesting questions. Here are some of those questions and how Werner might have answered them:

Q: What about the possibility of warfare developing between such communities? Might not the need to establish a defensive force lead to state formation?

A: Look at experience. You don’t find hotels taxing or drafting their guests, or shopping malls their merchants, to fight a hotel or shopping mall across the street. In Werner's lease agreement, moreover, an insurance requirement makes it costly for members to behave in ways that would endanger its political neutrality.

Q: What would prevent the land-owning interest becoming tyrannical and taxing its tenants?

A: Competition and the fact that it is in business to serve its clientele. Aside from the fact that an impoverished customer is a poor customer to have, “taxation” is precisely defined and forbidden in the lease agreement. For the proprietors to break the lease agreement in this or any other particular and then to disregard the law would be self-defeating, as the consequences would quickly cascade and undo the enterprise, leaving it open to being acquired by new interests who could manage it better and restore its profitability.

Q: The costs to a tenant of leaving a remotely situated settlement are likely to be high. Might not this high cost tempt the land-owning interest to unilaterally raise rents, thereby in effect imposing a tax?

A: The lease agreement provides for such an eventuality by underwriting a member’s cost of returning with his personal belongings to his place of origin or moving to another place of his choosing, and recompensing his losses associated with the move. However, for the proprietors to violate their agreement in the first place, especially with competition factored into the equation, would be tantamount to relinquishing their business. In practical terms the likelihood would be remote, for they would also face insurance cancellation or raised premiums, and their mismanagement would be an invitation to others to seek to acquire a controlling interest. Such considerations may be academic, however; for the intent in both Atlantis and Newland was to develop as much competition as possible as quickly as possible. A start had to be made with a single freeport where there are none now, but the object was for it to become a model that would be imitated.

Q: How could a system of law evolve and grow and yet be codified in the master-lease form?

A: The lease agreement provides for periodic review of the law and allows it to be amended by the unanimous recommendation of a panel consisting of the proprietors and five judges who have practiced continuously in the community for more than five years, and during each of those years earned the highest certification from a major consumer rating service.

Q: If the land-owning interest has the right to inspect tenants’ premises in the interest of health and safety, might not this right be abused?

A: The proprietors need not engage in inspections or policing. Because all members of the community would be insured against legal liability as a condition of their lease, inspections would be left to the insurers who, owing to the competitive nature of their business, could be depended upon as a rule to treat their customers with courtesy. Should a tenant be found to be endangering others, his insurance would be revoked by the insurer who understandably would not want to pay for liabilities. This would put the tenant in violation of his lease, and he would soon find himself on his way out of the community unless he succeeded in rehabilitating himself. An insurer who engaged in collusion, on the other hand, if he failed to reestablish himself, would find himself answerable to the law, boycotted by other insurers, left with a ruined reputation, and in all likelihood banished.

Q: Would zoning be imposed to prevent the community from growing in a disorderly manner?

A: A lease obligation of the land-owning interest is to assist existing and prospective leaseholders in making rational land-use decisions by seeing that they have access to all relevant information. This would include not only a wide variety of economic data, but inputs from neighbors who might, for example, be anticipating changes in their own uses, and from technical people such as architects, planners, and engineers. The assumption is that most inappropriate land-use decisions result from inadequate information, and that where information is available, nonconforming uses will be small enough in number and extent as to be tolerable. The result would not be an absence of community planning, but rather dispersed, or polycentric, planning. This does not mean that the proprietors could not themselves directly undertake or promote community improvements. They could do so, and in so doing, they would have a distinct advantage over taxing authorities. They would have quantitative feedback, a yardstick by which to measure and evaluate proposed changes, since land revenues are a direct measure of how attractive a community is for existing and prospective residents.

Q: Would libertarians be given preference over non-libertarians as prospective community members?

A: No. Neither Werner Stiefel nor Michael van Notten conceived of their projects as ideological. Their sole aim was to come up with something that could work. In both Atlantis and Newland, the ultimate protection for residents was that the community would be operated as a business, and hence more rationally than it might otherwise. If it were operated on any other basis – ideological, charitable, or whatever – there would not be this protection. The impersonal, rational pricing mechanism of the market process is the ultimate safeguard of justice in a civilized community. A further protection in the lease agreement was a provision that the land-owning interest should be adequately insured to compensate losses or inconvenience to tenants resulting from its own violation of any of the terms of the lease.

Q: If anyone at all is free to offer police and judicial services competitively in the market without licensing, what will prevent abuses?

A: Each person in Newland agrees in his lease agreement to observe the law, the terms of which are spelled out. This commits him when performing judicial, military, or police work, to follow established procedural rules to safeguard the rights of community members.

Q: What happens to someone who can’t pay his rent through no fault of his own?

A: To prevent his or his dependents’ becoming a burden on the community, as well as to protect creditors, each member agrees to insure himself or herself against loss of life, property, or earning capacity due to accidental injury or other calamity.

Q: Since insurance plays such a pervasive and important role in Newland, the firms relied upon must be real and reputable. Will the proprietors license these?

A: Licensing would be tantamount to restraint of trade and would be subject to abuse. Instead, the lease agreement provides that any required insurance be purchased from firms carrying the highest certification from a major consumer rating service. In this way, market competition will ensure that tenants rely upon reputable insurers.

Q: If someone is insured against every eventuality, might he become less careful in his behavior?

A: Perhaps so. On the other hand, his insurability, on which his very presence in the community depends, will suffer if he is careless or neglectful, and his premiums will rise accordingly.

Q: If people lease, they won’t participate in any increase in land value. Will this be a deterrent? Will some people be priced out of the market by rising land values?

A: Not necessarily. The value of their home or any other improvements they might own apart from the land will benefit from general increases in land values. This will also be less speculative than in a subdivision, since a firm with experience and resources will be dedicated to the enhancement of land values in the neighborhood. In addition to safety of their investment, they will be purchasing the positive amenities and quality of life that can only be offered by such a firm. Such genuine amenities are seldom found in a subdivision, where the residents are left to fend for themselves as best they might through a compulsory-membership association. For business tenants, such services and amenities will make their site more productive of revenue. Lastly, when rents are periodically revised to the market value of the site, members receive a discount as preferred tenants.

Q: How would legal enforcement work if someone ignored a court?

A: We could reasonably expect that, in a free-market setting, arbitration companies would come into existence and offer a complete line of dispute handling services, competitively priced. A malefactor who ignored or refused a call to arbitration would lose the judgment by default. His insurer would pay restitution to the injured parties and then likely revoke his policy, putting him in violation of his lease. Unless he found another qualified insurer, he would soon find himself on his way out of the community. If he were considered dangerous, the consortium of insurance companies presumably would have ways of dealing with him since they would have the most at stake in preserving the safety of life and property in the community. By the same token, the consortium could be expected to join in conducting a defense of the community in the unlikely event of an armed threat.

Q: Why bother to write such detailed agreements? Why not allow a community to evolve of its own accord, perhaps guided by an enlightened administrator like John James Cowperthwaite, the architect of Hong Kong’s freedom?

A: There are two reasons, quite aside from the fact that Hong Kong’s freedom was only partial and precarious, and that the presence of an exceptionally able financial minister at a time when he could be effective was a historical fluke not likely to be repeated. The first reason is that in the absence of statutory law to fall back upon, the agreement must provide for any contingency that might arise. The second is that, unlike political communities, the provision of public goods here is an entrepreneurial undertaking, a competitive offering in the market. Planning is essential to business success. Rarely does a business venture succeed without a well-considered business plan.

Q: Some readers of Werner's master-lease agreement have expressed concern over the potential for erratic bureaucratic behavior on the part of managers due to their insulation from any effective control by the owners in a legal corporation. Does this have implications for the structure of ownership of a community such as Atlantis or Newland or its corporate tenants?

A: The lease agreement requires that signatories be personally answerable for their actions, denying them any special status before the law by virtue of their membership in or employment by any organization. To comply with this may require that the owners of an Atlantis or a Newland organize not as a corporation but as a limited partnership, and it may call for special arrangements between corporate tenants and their officers. This is a major unanswered question.

Spencer MacCallum [send him mail] is a social anthropologist living in Mexico, where he played a key role in the economic development of the pottery village of Mata Ortiz. He wrote The Art of Community and edited and contributed to The Law of the Somalis: A Stable Foundation for Economic Development in the Horn of Africa (Red Sea Press, 2005).

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