Charter Cities – An Idea

Paul Romer has an idea people are calling crazy.  He was a Stanford Economics Professor, but now he’s quit to pursue full time the idea of charter cities.  Eh?

Paul Romer

Charter cities are based on the idea of charter schools.  These are schools in America outside the education system.  They are generally in poor black areas and have a ‘charter’ – a set of radically different rules.  For example they might do ten hour school days, six day weeks, compulsory uniforms.  They are like free private schools, and they have been extremely popular (59 percent have waiting lists for entry) and often successful (one meta-analysis found most studies of charter schools showed improved student outcomes).

So, Dr Romer reckons, we obviously should have charter cities.  These would be brand new cities set up in poor countries, under the administration of rich first world countries.  The cities would start fresh, and have a set of rules that people choose to opt-in to.  If a bunch of Senegalese were happy to move to a previously vacant bit of the coast just south of Dakar, they could live in an area that operated with strong enforced rules about school attendance, building regulations, corruption, traffic laws, and zero tariffs.

The idea picks up a few loose threads and weaves them together in an unexpected way.

Thread One is the consensus about the failure of aid.  The country that is modernising the most rapidly is China.  It has been a recipient of almost no aid.  The countries that have got the most aid are, mainly, languishing.

Thread Two is the great volumes of urbansiation and internal migration in poor countries.  Poor people are willing to move to give themselves a better chance.

Thread Three is the concept of Free Trade Zones.  These are a region within an existing country where new rules have allowed rapid development.  Romer’s pet case is Hong Kong.  A bit of China administered by Britain that thrived, and via the Shenzhen Free Trade Zone, allowed development to spread throughout China.

What a ridiculous, imperialist, neo-colonialist idea! Right!?  Who does this fascist think he is, imposing his neo-liberal rules on everyone else?

Well for one, he’s passionate enough about trying to relieve poverty that he’s willing to risk being called a neo-colonialist.  It’d take a pretty closed mind to dismiss this idea out of hand.

It’d take a pretty dumb person however, to assume the idea is in any way burdened by the inevitability of success.  Like any big idea, it carries with it the prospect of grand, messy, total failure.  Any charter city project would have to be a long-term project.  In any of those years, things could go irrevocably bad.

Romer is obsessed with the idea of ‘rules’ or ‘institutions’.  It is ‘Rules’ like functioning laws, courts and school systems that allow some societies to have safety and material plenty, while in other nations people suffer from rape and murder and starve.  In some nations the state is strong and imposes the wrong rules, like North Korea.  In others, the state is weak, and the wrong rules persist, such as in Liberia.  The idea behind charter cities is a realisation that changing ‘rules’ doesn’t happen as easily as economists have always assumed.

The obsession with rules might be a problematic one.   Romer is convinced that charter cities are different from colonialism because they are opt-in and opt-out.  But just because the locals hope they like the new rules doesn’t mean the rules will be a good fit.  Institutions are a dynamic thing that exists through time.  They are essentially interactions between people.  If the rules don’t match the prevailing culture, there’s a problem.  Papua New Guinea’s experience with a political system inherited from the West is a good example.   Australia’s failures in the living standards and human rights of indigenous inhabitants is another.

One especially insistently blinking warning light is this: if these charter cities stop being peaceful places, then America’s experience in Baghdad becomes relevant.  There is no strong precedent of a foreign culture succesfully ruling an unhappy foreign land.  See Belfast.  Even if the population turned unhappy after twenty years of success, the charter cities experiment would be judged a failure.

And all this is without even thinking about costs.  I wonder how much infrastructure would have to be built to get people to move to an empty city.  Sanitation, water and electricity systems are much cheaper to build all at once than to keep expanding them bit by bit.  The only way to efficiently build a charter city would be to make very expensive initial investments.

The last point is to look at a few successful trade dependent city states.



Khiva, Uzbekistan (on the Silk Route)

Assume a charter city could work. The more successful the charter city, the more it is likely to be in danger from the host country. Hence the city walls cocooning these trading states. As the brain drain from the surrounding area intensified, and the in-crowd got richer, it would be hard for the out-crowd to believe this was not happening at their expense…

I like this idea, but on the other hand, i am terrified by the range of horrible possible outcomes. What do you think? Could this idea ever fly?

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Thomas the Think Engine is the blog of a trained economist. It comes to you from Melbourne Australia.

One thought on “Charter Cities – An Idea”

  1. The viability of this idea would seem to vary enormously from place to place. Romer’s comments about Dallas aside, the presence of natural resources (minerals, water, energy, natural harbors . . .) would effect the economic viability considerably. And locations with few rules to compete with the new rules- or with governments too weak to enforce the rules they’ve already got- would be more cooperative than places like North Korea where the problem is overabundance of both.


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