Charter cities

An idea which has been getting quite a bit of attention on development blogs recently is Paul Romer's innovative concept of the charter city. The idea is simple, but radical: rather than pouring money into trying to fix existing systems, have the leaders of countries with ‘bad rules’ cede political authority over uninhabited parts of state territory to better rulers (i.e. industrialized countries, the private sector) in order to create pre-planned cities with the 'right rules' (i.e. rules which are already known to work well). Then allow people to migrate there. To quote Romer himself

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.

And then on the Charter Cities Blog:

How can we maximize the number of people living and working under better rules? The default process involves change from within. A given group of people participate in a political process that can, in principle, generate change. Since a change in the rules applies to everyone, change from within always involves a mixture of consultation and threatened coercion. As a result, attempts at change from within regularly end in deadlock and persistence of the status quo.

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. The process of movement between can be more effective than the process of change from within. Just as important, the presence of movement between creates pressures that speed up change from within.

Here is Romer discussing the idea in a TED Talk



I think that the charter cities idea is innovative, and deserves recognition in that respect; too often in development is innovation undervalued, and the same misguided approaches are used time and time again without asking the appropriate questions. But I am very, very skeptical of the idea. To me, the concept seems quite flawed for several reasons:

1) Perhaps most fundamentally, the concept is flawed because it assumes that we know what the 'right rules' are, assumes that people will agree on what they are, and assumes that people will implement rules simply because they are effective. Unfortunately, this is not the case. The rightness of rules is, for one thing, subjective and value based; clearly, there are big disagreements on the best way to achieve even ‘basic rights’, like healthcare and education, not to mention disagreement on social issues which may be more culturally or religiously sensitive. And who is deciding and implementing the right rules in charter cities? What are their values? Are those people really going to be objective to the extent that they care more about creating rules for the benefit of everyone than for their own benefit? Romer seems to argue that because of potential economic gains, charter cities are a win-win situation (i.e. for the citizens, developing countries, and outside administrative authority) – I’m not sure this would be the case when you consider the potential for abuse. Charter cities assume that altruism and impact can be the primary motivations which drive foreign governments to administer and enforce a charter that benefits another country and its citizens – unfortunately, as with current practice in aid and development, this is not a given. It's problematic enough when self-interested donors use ineffective aid practices because they suit domestic constituencies, or when they implicitly influence recipients' policies through aid to meet foreign policy goals- allowing such influence on the charter cities scale could be disastrous.

2) The idea also implicitly assumes that people will be able to pick up and move to these new cities; Romer frequently mentions the concept of "voting with ones feet" (i.e. expressing dissatisfaction by emigrating) as a driver for growth of such cities. If a place has the wrong rules, people won’t like living there, so they’ll move to a place with better rules. It seems obvious to me that this is hardly a given, but maybe I am missing something. The assumption seems even more flawed in that Romer frequently cites slum dwellers and subsistence farmers -two groups not exactly known for their mobility- as potential inhabitants and beneficiaries of the concept. If, in an attempt to increase mobility, access were opened up and deliberately facilitated for these groups, say, by government, it is not very hard to envision such policies taking a discriminatory slant. In the worst case this could lead to ethnic cleansing; it is naive to ignore the fact that most governments have at one time or another attempted to remove or eradicate ‘undesirable populations’ (ethnic minorities, political dissidents, etc) either through physical force or attrition, indeed, millions of poor people are poor because they are discriminated against by their governments. If this reality is fully appreciated (governments discriminate against certain people because they want to remove them from society --> those discriminatory policies make people poor --> poor people are the prime candidates for charter cities) charter cities begin to seem like they have more potential to become ghettos or gulags than concentrated zones for development.

3) The idea ignores the fact that there are certain unpredictable intangibles which make cities thrive or fail, like culture or history. This is maybe the most popular critique of the charter cities concept. It’s nice to think that the right rules already exist and explain the success of certain cities, and that we can just plop them down in any “uninhabited piece of land’ to create an ideal charter city, but this is just not the way that urban development works. Any sociologist, anthropologist, or city dweller can tell you that cities are comprised of complex and informal social networks which aren’t fully captured in rules. Sure, there are certain rules which can support the creation of certain elements of these networks, but there is always uncertainty from subtle factors. Just as Iraq did not become a functioning democracy simply by giving the country a constitution and elections, a city cannot function simply on the basis of its formal rules, however right they may be. Or to put it another way, why is EuroDisney not as successful as Disney World?

4) Lastly, ignoring all of the flaws and obstacles facing the creation of international charter cities, it is questionable whether the concept is actually a tool for development. One of the main understandings behind the concept is that charter cities will become focal points for national growth; Romer often uses the example of Hong Kong (located in Chinese territory but with a different set of rules administered by the British) as a sort of proto-charter city. Hong Kong is supposedly illustrative of how an economically successful city attracts people from all over the country (and all over the world), and generates skilled labor and wealth which eventually trickles out into the rest of the country. If charter cities do end up avoiding the aforementioned trap of becoming ghettos for the poor, and do manage to attract rich and skilled labor, I think that the opposite might happen: a charter city runs the risk of draining the rest of the developing country of its existing talent and capital. A sort of internal brain drain. It is natural that skilled professionals (e.g. doctors, scientists, teachers, engineers) and investors would gravitate towards these new areas, but it is less of a given that this flow and its products will trickle back out (the economic data on this is still patchy and disputed). Even if skills and wealth do trickle out, this could take decades. In the short term, this could mean binding the poor into deeper cycles of poverty, possibly increasing inequality and further impoverishing the poor country.

All that being said, Paul Romer is probably a genius, and he has dedicated the past several years to developing this idea. I've spent the last hour on this blog post. And Romer is right when he argues that economic, legal and political systems should be seen as technology, and right to point out that it can be much more efficient for countries to adopt the best existing technology rather than try to modify flawed current ones from within. Still, the thing is, technology transfer is not a new concept, and it is not without its problems; there are important caveats to technology transfer which are often ignored, creating new problems for developing countries. For one thing, there is the matter of appropriateness - a product designed to work in one context is not guaranteed to work in a different one. Another problem concerns the 'completeness' of the transfer - are developing countries adopting an entire technology package or just certain components? Do the industrialized countries transferring the technology have a deep enough understanding of its complexities to transfer the 'complete package'? Is such an understanding ever truly possible? These problems exist with material technology transfer; I don't see why they wouldn't plague much more complex economic or political systems transfer as well, possibly catastrophically so when you consider what's involved.

Ultimately, while the charter cities concept is big and sexy and innovative, I just don't see it working. And the problem with big and sexy and innovative ideas which don't work is that they overshadow those small, maybe less sexy but no less innovative ideas for development which might work. Innovation does not have to be 'big'; small is beautiful.