Saturday, June 12, 2010

Charter Cities, Development and Disruption

So I said yesterday that I thought that this Atlantic article about Paul Romer’s idea for charter cities was interesting, but had what I viewed as a serious flaw.

A quick summary: Romer’s idea to develop the poorer regions of the world is called charter cities. The reasoning is this: what sets back poor regions is bad governance; but for all of that bad governance, there are some interests vested in the status quo, interests that are difficult to displace though it’s manifestly obvious that the broader welfare isn’t served by such an arrangement. What you need is different rules: so Romer believes you ought to create a special zone—administered by some foreign responsible power to give the entire project credibility—that becomes a city with all-new rules, brand new buildings, etc. A city from scratch, essentially. Such a thing is appealing when you consider the amount of urbanization that will likely occur over this century: billions will move from the countryside to the city. Would you like them living in shantytowns loosely governed and preyed upon by various economic parasites, or in a new city? (is the idea of advocates).

The idea, apparently, has found some appeal with various leaders of poor countries. In fact, the article recounts, Romer came close to implementing his idea in Madagascar. But the President of Madagascar was deposed in a coup after demagogues villainized him and his ideas. Romer’s reaction is this:
Ever since the setback in Madagascar, Romer has been coy, for obvious reasons, about which governments are interested in his plan. But he remains optimistic. “I revived growth theory. I made technology work in higher ed. I am two for two, and I think the impossible can be done,” he told me cheerfully. He added that the Daewoo deal might not have been the main impetus for the coup in Madagascar; the real reasons for Ravalomanana’s downfall lay in idiosyncratic local rivalries, even if the opposition exploited sensitivities over land to incite antigovernment protests. I suggested that the fact that land concessions could trigger such emotions was still not a good sign. Romer stopped, considered, and chose his words carefully.

“Anything that involves land can be manipulated by people who want to rise up against a leader,” he began. “You have to find a place where there’s a strong enough leader with enough legitimacy to do this knowing that he’s going to get attacked. It narrows the options quite a bit. But we shouldn’t give up without trying a few more places.” In short, a disappointment with one client is no excuse for failing to pitch other ones. Any entrepreneur knows that.

The problem, Romer seems to think, is finding a leader with sufficient credibility. But the problem of governance in general is finding a credible, capable leader. The hope of charter cities is to import them. But if you need a credible, capable leader in order to import credible, capable leaders, does that solve the problem at all? Or is it merely chasing its own tail?

It’s worth noting that the examples of successful charter cities—medieval Lubeck and British-ruled Hong Kong—were both essentially gained by conquest. The reason the local elites could be subverted in the first place was because they were already sufficiently weak. Conquest of the entire poor world is unthinkable.

And this, note, are the obstacles for even getting the project started. We’ve never really done this project deliberately; all of the previous examples are essentially accidental. So who knows what problems will crop up when we try to be deliberate about it?

Perhaps, of all the tries and all the attempts, one or two will start and of those perhaps one will work. And that can lead to big gains to social welfare, even if it’s half as effective as Romer’s favored examples. But the appeal of the idea is that it’s supposed to be disruptive—that it is the Google or Facebook of developing-nation governance—and so such a low rate of hits makes the project less of a mass development event inasmuch as an occasional boost. Which is not what we want at all.

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