Paul Romer, an economist and expert on economic growth, is the man behind the concept of Charter Cities. In this interview, we asked him about his objectives, the odds of achieving international consensus, and economic policy-making and voting rights in the proposed Charter Cities.
Q: Describe briefly your Charter Cities idea.
A: The concept of a charter city is very flexible. The key elements that all the different versions share are an unoccupied piece of land and a charter. The land could be in a rich or a poor country. The charter could take many forms. The human, material, and financial resources needed to build a new city will follow, attracted by the chance to work together under the good rules that the charter specifies.
Action by one or more existing governments is required to create a charter city. One government provides land, and one or more governments grant the charter and stand ready to enforce it.
Q. What are your objectives for Charter Cities?
A. Economists as diverse as Gary Becker, Joseph Stiglitz, and Amartya Sen agree that poverty reduction is one of the most important practical benefits that can come from careful economic analysis. I agree.
To understand how to alleviate poverty, we must understand growth and progress. Progress comes from new and better ideas. Ideas come in two flavors, technologies and rules. To foster growth and development, the world’s poorest residents need an opportunity to copy existing technologies and existing rules that are known to work well.
In my talks, I use a picture of students studying under streetlights to illustrate how bad rules keep people from having basics like light at home. By replacing bad rules with known good rules, families who want well-lit homes can connect with the utility companies who want to provide it to them.
This type of mutually beneficial exchange, not charity, is the key to ending global poverty. Good rules give people access to existing technologies through this kind of exchange. People know what many of the good rules are but find it exceedingly difficult to make changes, especially from within systems of bad rules. Charter cities accelerate the adoption of known good rules, offering a truly global win-win solution.
By giving people access to better rules and the gains from exchange, charter cities reduce global poverty. They give people the chance to escape from precarious and harmful subsistence agriculture or dangerous urban slums. They let people move to a place with rules that provide security, economic opportunity, and improved quality of life.
Q. International action is not forthcoming on things like climate change and preventing genocide; do you think it would be difficult to get international agreement on Charter Cities?
A. While international cooperation between many nations is important for some problems, charter cities can be started with the cooperation of just a few nations. Consider a hypothetical two-nation agreement between Australia and Indonesia. Or consider the actual negotiations between China and the United Kingdom in the 1980s, which specified the charter under which Hong Kong would operate for 50 years after the handover of control back to the Chinese.
The proliferation and extension of bilateral and regional trade agreements in the midst of the stalled Doha Development Round demonstrates a point that is hopeful for charter cities even if it’s frustrating for global trade: It’s much easier to negotiate agreements with few rather than many nations.
Q. There is no consensus on economic policies among the many NGOs, academics and aid agencies (World Bank, UN) that comment on aid policy (e.g. free market proponents vs. those who worry about corporate exploitation of cheap labor). Are you worried that this could complicate policy-making in Charter Cities?
A. Deng Xiaoping said, “It doesn’t matter whether the cat is black or white so long as it catches mice.” There may be several different sets of rules that lead to successful development. It matters less which set of rules a city-state adopts so long as they work.
Consider the difference between the development strategies of South Korea and Singapore. To get access to foreign technology, Singapore relied on foreign direct investment while South Korea developed domestic firms that could copy or license production techniques used abroad. Both strategies worked, but a random mix of the rules governing each could have missed important opportunities for growth and development.
People can and will argue about the relative merits of these two strategies, but whichever one a charter city adopts, the associated rules have to be coherent.
Ultimately, we can expect to see many charter cities that adopt different sets of rules. Competition between them will be good for the poor and for the world’s understanding of what works.
Q. Why would Charter City residents not be allowed to vote on who is in charge and what policies they make?
A. They could. The charter cities idea does not put any constraints on the local political structure, nor does it preclude changes in structure over time. It does force us to think carefully about the right way to design the local political system.
Societies always put limits and impose structure on democracy. In the United States, people can’t vote to take property away from others or restrict speech. People with green cards and people under the age of 18 can’t vote at all. We can’t vote on what the Fed Fund rate should be this week. So it’s not enough to say that we believe in voting. You have to be more specific about the details.
Thinking about charter cities gets us to consider new options. Green card holders are an interesting example. I lived for a year in Canada as a resident who couldn’t vote. It worked for me. I was very glad I lived in a place where voters could hold officials accountable, but it didn’t matter to me if I could vote.
Now what if I lived in a city with lots of people in the same position that I was in. How would it differ? If the officials who ran the police, the courts, etc were accountable to voters in Canada, I could still live someplace with the benefits of democratic governance and accountability.
The political model in post-WWII Hong Kong under the British was one in which residents could not vote but administrators were accountable to voters who weren’t residents. It was a very interesting hybrid, and very different from authoritarian rule.
This model could work well in some situations. Imagine Shiite and Sunni immigrants living in a charter city administered by Canadians. The immigrants might prefer to have Canadian voters hold accountable the people who run the police rather than having political contests between the Sunni and Shiites to see who gets to be in charge. If the contests are local, this can be very destabilizing and can lead to ethnic cleaning of neighborhoods.
Over time, the Sunni and Shiite immigrants should participate in local democracy in the same way as Canadians. But they might want to wait until local norms of nonviolence and tolerance are well established before putting the police under the control of a person who wins a local election.
Q. What do you think is the argument for Charter Cities that trumps these possible complications?
A. Consider once again the photo of students who lack electricity in their homes and end up studying under streetlights. This represents a huge missed opportunity. These students deserve a chance to reach their full potential. The technology exists and the rules that can make it accessible are well known.
Now scale this example to many different areas — freedom from crime, access to safe water, a chance for children to get an education, a chance to get a job — and hundreds of millions of people. I don’t see any objection that could possibly justify failure to pursue such an enormous opportunity.
It’s also low risk. Charter cities increase access to existing rules and technologies by giving people new options and letting them choose. Charter cities also give leaders new options for improving governance, options they do not have in the existing web of bad rules to which they are confined. Choice protects them both from the worst possible outcomes.
Choice and the potential to copy existing ideas are a powerful combination. All that’s holding us back from making full use of these mechanisms is a failure of imagination.
8 Comments
His comment that implied the fundamental reason for poverty was lack of “progress” and growth jarred with my (and I think many other people’s, though perhaps not a lot of economists’, but I really don’t know a representative sample of either) conception of poverty as a function of inequality. Two questions: is there definitive evidence that poverty is always (or I would settle for usually) lessened by growth (in and of itself, without relative redistribution)? And is there evidence that charter cities promote equality?
The example of the Sunni/Shia city administered by Canadians (and Hong Kong) made me worry that charter cities in many ways might increase or exaggerate existing power/economic inequalities, thus perhaps exacerbating the problem. Thoughts?
As I was reading this very interesting interview I kept thinking of Dubai. In some senses it is a proto-charter city. Although political power remains with the indigenous population much of its growth has resulted from borrowing not just foreign ideas but foreigners themselves to implement and maintain those ideas. Obviously with its oil wealth the UAE is something of a special case.
And I am much more skeptical of the chances that charter cities could develop in poorer developing countries because of fears (rightly perceived or not) over loss of national sovereignty.
Still, its an interesting idea.
To Patrick:
If you maintain your assertion that “poverty as a function of inequality”, then the answer to your first question is: NO. Poverty would remain (perhaps not even lessen) despite economic growth at any rate you can imagine. Because it’s not what you can get what matters, but what others can obtain.
The solution is definitely not coming from this charter cities concept, but from asset redistribution from the better-off to the worse off. Then, we would live with no poverty, since everybody is equally rich (or poor, take your guest).
From Poverty to Prosperity Watch
Bill Easterly interviews Paul Romer. Romer says, To understand how to alleviate poverty, we must understand growth and progress. Progress comes from new and better ideas. Ideas come in two flavors, technologies and rules. To foster growth and developme…
“I don’t see any objection that could possibly justify failure to pursue such an enormous opportunity” you write, having studied under streetlights, my objection is: who will pay for the access to electricity and water at home in your charter city? It seems that there is nothing said about the financing of these basic goods. Will they come from heaven like in the 1st year microeconomics course? That seems puzzling to me. Do the technology and the rules give the income to people?
I’m really not convinced by the idea, as drawn as I am to the radical solutions to desperate problems Romer suggests. I just put up a long consideration of the idea here:
http://aidthoughts.org/?p=515
“Imagine an alternative process in which people can migrate from a society with bad rules to another society with better rules. In this case, the rules in both places stay the same but people move between them”. – I confess to needing to read a lot more on this – but from initial readings of it, and given the issues countries face regarding regulating/governing their own cities – the idea seems a bit unformed….e.g this places the onus on the country with ‘good rules’ to maintain the status quo and the one with bad to continue to be so (not unlike a country dependent on aid/ngos to have little impetus to improve civil society and their own rule of law and governing). Further, assuming there is interaction between people of the incoming nation to the ones already living there (e.g. using the example of Indonesians to Australia) if in this sort of scenario, the Indonesians are still under the rules of law (if they are not citizens of the country they move to) of Indonesia, which has certain cultural/social mores at odds with, say, a country like Australia (female emancipation to the same degree, clothing restrictions, how infractions to the law are punished) then which rules would be imposed? Should, say an Indonesian woman (from a Muslim country like Indonesia) decide to engage in homosexual activity, which is an offense in Indonesia, but not in Australia, would she be punished under the stricter Indonesia morality laws, ad if so, this would force Australia to turn a blind eye to human right’s violations in their country – the belief in which make up Their social/cultural morality and, at some level, the fabric of their governing system. Surely movement between countries is more then just economic growth, and without taking on board the socio-cultral histories which contribute to Why some cities/areas fail to begin with it is only a band-aid solution at best. It is clear that issues like governing have been raised already – but the idea that a “new charter city offers a speedier path to better rules” seems a bit naive. One could argue, that If it was that simple it would have been done already…and where it has faltered (issues with crime, poverty, governance, education, security, resources) outsourcing them to another country seems to pass the buck, and to allow the status quo in the country of origin to continue..
Its a great idea though but from another angle. I would like to see cities in the developing world take on the autonomy of a charter city while still retaining some cultural
characteristics.
I look at for example my home country of Nigeria and Lagos is one of the world’s largest cities but the urban services are ridiculously poor and lacking. It can take you 3 hours to get from one end of the city to the other or 1 hour to get around the CBD because there is non-existent public mass transit. Not to talk about the blaring generators because the electricity supplied cannot even light up a single lightbulb for 24 hours if spread equally across all households.
Lagos needs to become a charter city where the rules framework, the plans are all professionally designed and managed. Then it would do more for the Nigerian people than remaining captive to the notoriously corrupt and inept Nigerian government which has hijacked national oil and drank from it as the country crumbles and its cities turn into living urban hellholes.
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