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.