Can Charter Cities End Poverty?

By Dave

It's an idea being pushed by Stanford economist Paul Romer (son of former Colorado Governor Roy Romer). The idea is simple: the cornerstone of economic growth and development is rules. The rule of law, copyright law, property law, etc. Poor countries generally have awful rules and as a result have poor incentives structures necessary for economic growth.

To correct this, Romer proposes that developing countries grant a charter to allow foreign nations to build a city in their country. The foreign nation would import their laws and would administer the governance of the city. In theory, their name and recognition would give potential investors the incentive to invest which would provide jobs and wealth to anyone who chose to move to the city. Ordinary citizens of weak or broken states would have the opportunity to step on the economic ladder.

So if you're starting to think this is sounding a little neo-colonial.... well, yeah. Here's from the article:

But Romer is not just arguing for enclaves; he is arguing for enclaves that are run by foreign governments. To Romer, the fact that Hong Kong was a colonial experiment, imposed upon a humiliated China by means of a treaty signed aboard a British warship, is not just an embarrassing detail. On the contrary, British rule was central to the city’s success in persuading capitalists of all stripes to flock to it. Romer sometimes illustrates this point by citing another Communist country: modern-day Cuba. Cuba’s rulers have tried to induce foreign corporations to set up shop in special export zones, and have been greeted with understandable caution. But if Raúl Castro convinced a foreign government—ideally a rich democracy such as Canada—to assume sovereignty over a start-up city in Cuba, the prospect of a mini Canada in the sun might attract a flood of investment.

So, it's actually exactly neo-colonialism but it's of the willing sort. But does that mean it's a bad idea?

I don't know. From the article, it sounds like some countries might be interested. My biggest concern would be feasibility and security. Wouldn't a successful charter city be a target for terrorism? What about cultural clashes and ethnic tensions? What does this mean for the sovereignty of the host country?

Morally, I think if the host country wants a charter city and their citizens have the freedom to enter and leave the control of the city at their whim, then the neo-colonial aspects are not as abhorrent. Further, if it really is alleviating poverty and suffering, then that's a good thing.

I'm really interested in what others think on this. Comments and discussion are welcome!

Update: Here's Romer giving a talk at TED. It's worth listening to his argument for why charter cities are not colonialism.