Tuesday, 27 March 2012

Game-changing recipe: A quick and easy city?

Paul Romer, the father of endogenous growth theory, thinks that he can whip up a city in a foreign country in a matter of years, with all the established institutions and rule of law that took most countries hundreds of years to develop. An ambitious recipe, no?

  • A charter – good rules, a legal system with;
  • Choice’s for people
  • Choice’s for leaders
  • Uninhabited land, 1,000 km2 at least
  • Managers/leaders
  • Designers and builders
  • Financing
  • Citizens

This recipe is based on the perhaps unsurprising statistic that right now 700 million people around the globe say they’d like to live somewhere else. Why don’t they have this option? Paul Romer is hoping to teach government, business and academics how to concoct cities for them to live in.

The basis for this recipe is ‘choice’ but being a rather too abstract notion for a recipe it can be boiled down to a charter, which allows for the operation of quasi-independent city-states. This charter effectively opens up two types of choice; a choice for people and a choice for leaders. The choice for people comes, of course, from the option to live and work in the city, voting with their feet on the institutions and rules put in place by an independent legislative body. The choice for leaders is less obvious. Effectively it is the choice to set up a governing system free from the special interest groups and elites which so often dominate the politics of a developing country. By appointing outside experts to oversee the rules and rights of the charter city, it can distance itself from the predatory practices of the home government, attracting new citizens and foreign investment.

To this document you must add some of those traditional factors of production economists are so fond of. Let’s start with natural resources in the form of land; Mr. Romer estimates that nothing less than 1,000 km2 will do. To this, we add labour, specifically the mangers and designer who will design and run the city. These parties will consist of both residents and leaders of the country as well as foreign experts and governments. This latter group is there to ensure that independent and effective institutions are constructed and maintained in the new city, acting as referee if necessary. Then for good measure we need to add some physical capital in the form of international financing. If the previous ingredients come together successfully, the addition of international financing should not be too tricky as investors will be tempted there by light-touch regulation and an effective rule of law. Finally, add a liberal sprinkling of citizens, keen to live and work under the foreign institutions they were previously willing to migrate so far for. They will finish off the dish nicely. 

As shocking as this recipe might seem, it’s is actually not all that crazy as in some sense charter cities have existed before. You only have to look at Hong Kong; a Chinese city but effectively run with rules adopted from the British. Indeed Romer credits Hong Kong’s success to the British; “The British did more to reduce world poverty in Hong Kong than all its aid programmes put together”.  Deng Xiaoping, for one, recognised this and created four special economic zones in China. Following their success 14 coastal cities were given this privilege. In this way he did not force a market economy on the Chinese people but effectively gave people the choice to move to these “charter cities”.

Indeed when Romer says “our new goal should be that when every family thinks about where they want to live and work they should be able to chose between at least a dozen different cities who are all competing to attract new residents” he makes no mention of its historical precedence. In medieval Europe something like this actually existed. Power was so fragmented across the continent, that there was little centralization and instead free cities and principalities competed against each other for citizens.  

Despite this seeming precedence however, political chefs need to tread carefully. While it is indeed true that at one time Europe was dominated by something like charter cities, these cities were a natural evolution; the result of European geography and culture failing to leave one group strong enough to dominate the rest. For Europe this development took hundreds of years and did not last nearly as long, as the power of centralizing monarchies grew. What Paul Romer is describing, is an attempt to short cut the evolution responsible for complex and independent societies in the hope that academics and foreign governments can override natural socio-economic development.

While I think that the above is the greatest caveat, Romer is far more likely to face criticism from those who will deem his charter cities a new form of colonialism. Romer acknowledges this and is eager to demonstrate that by giving citizens and leaders choices about their city, he is overcoming the condescension and coercion which came to epitomize colonialism. Unlike colonialism, citizens choose to submit to a different way of living. Indeed in the very place you’d expect people to be suspicious, Africa, many of the leaders are keen on this new idea, seeing it as a way round the institutional sclerosis that too often occurs.  They see it as a place to encourage investments, when many investors are wary of investing in Africa precisely because of the weakness of institutions, like property rights.

However it is Latin America which will be the first continent to see a charter city, rendering this recipe is no longer merely theoretical. Romer and the government of Honduras are working together to rustle up a skyline, in 1,000 km of uninhabited land in Trujillo, Honduras. The Honduran government agreed to it partly because they are fed up of watching 75,000 of their citizens, often the best and the brightest, leave Honduras annually to seek a better life in the US. They Hondurans have already started adding to their uninhabited land by mixing in the city building expertise of Singapore and South Korea, both of whom are interested in the charter city idea.

In fact, despite my aforementioned criticism I am impressed by Mr. Romer’s vision and ambition. After all, with his recipe for a city, is he not trying to do what all development economist dream of; overcoming the trials and tribulations of an underdeveloped state to bring wealth and prosperity to its people? Even if he fails, he has highlighted the role of institutions and government in economic development, which should be applauded. Please feel free to comment if anyone disagrees! 

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