In the Venal Colony

Paul Romer is an accomplished man; as he puts it, “I revived growth theory. I made technology work in higher ed. I am two for two, and I think the impossible can be done.” His new idea is to promote economic growth in poor countries by establishing zones within them that are administered by business-friendly foreign governments:

Romer is peddling a radical vision: that dysfunctional nations can kick-start their own development by creating new cities with new rules—. . . centers of progress that Romer calls “charter cities.” By building urban oases of technocratic sanity, struggling nations could attract investment and jobs; private capital would flood in and foreign aid would not be needed. . . . [To run the cities,] Romer looks to the chief source of legitimate coercion that exists today—the governments that preside over the world’s more successful countries. To launch new charter cities, he says, poor countries should lease chunks of territory to enlightened foreign powers, which would take charge as though presiding over some imperial protectorate. Romer’s prescription is not merely neo-medieval, in other words. It is also neo-colonial. . . .

When Romer explains charter cities, he likes to invoke Hong Kong. For much of the 20th century, Hong Kong’s economy left mainland China’s in the dust, proving that enlightened rules can make a world of difference. By an accident of history, Hong Kong essentially had its own charter—a set of laws and institutions imposed by its British colonial overseers—and the charter served as a magnet for go-getters. At a time when much of East Asia was ruled by nationalist or Communist strongmen, Hong Kong’s colonial authorities put in place low taxes, minimal regulation, and legal protections for property rights and contracts; between 1913 and 1980, the city’s inflation-adjusted output per person jumped more than eightfold, making the average Hong Kong resident 10 times as rich as the average mainland Chinese, and about four-fifths as rich as the average Briton.

The idea of a “charter city” brings to mind some of Diane Ravitch’s critiques of charter schools:

The media like to focus on a star charter school, as though one extraordinary school is typical. The teachers are young and enthusiastic; the children are in uniforms and well behaved, and they all plan to go to college. But such stories often overlook important factors about charters: one, the good charters select students by lottery, and thus attract motivated students and families; two, charters tend to enroll a smaller proportion of students who are limited–English proficient, students with disabilities and homeless students, which gives them an edge over neighborhood public schools; and three, charters can remove students who are “not a good fit” and send them back to the neighborhood school. These factors give charters an edge, which makes it surprising that their performance is not any better than it is.

It would likely be very difficult to prove that a “charter city” succeeded on the basis of its “better laws,” rather than its attractiveness to the most ambitious workers. The questions of legitimacy raised by Romer’s proposal are difficult, too. US landlords may attempt to contract into their own “private Idahos” in Greenwich Village, but will international law smile on charter city arrangements? What happens when there is a regime change in the country that originally controlled the city space, and the new regime wants it back?

In any event, for further discussion of the idea, check out Russ Roberts’s interview with Romer, which is very substantive.

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