Wednesday, April 21, 2010

Charter cities: We might need big new ideas in development, but do we need this one?

Last night I heard Paul Romer give his charter cities spiel at Columbia Business School.  Romer starts from the premise that one major problem facing developing countries is their lack of good institutions that promote investment, and their lack of credibility in adopting these institutions.  His idea is that instead of trying to change the problems in developing countries' governments, we should circumvent them altogether, by creating developed country satellites that people from developing countries can move into.  A developed country or consortium of developed countries would make a deal with the government of a developing country to annex some underutilized land, let the developed country put in place institutions and serve as a security guarantor to potential investors, and then allow citizens of the developing country to freely choose to move to the charter zone, or not.  When I first heard of the idea, I thought it reeked of neo-colonialism, and Romer didn't do much to change my mind.  But, I'll let you see if he can change yours.  Here's the 20 minute version of his talk from TED:

In what follows, I'll try to critique Romer's argument.  It's to his credit that his big idea is pushing us to have some very important conversations about development. But I think it's very important that we have those conversations, and pressure test this idea with everything we have.  I don't want to silence Romer, or stop him and others from coming up with big ideas, but because I think their ideas carry real consequences, I do want to talk about what could go wrong.

According to Romer, there are two models these charter cities could be implemented under.  The first, which I think is something of a red herring, is that a relatively developed country that nonetheless has underutilized land designates some of this land as a special zone for citizens of a developing country to immigrate to, where they will live under the protection and free market rules of the host country, but without citizenship.  This is okay, Romer argues, because they have freely entered into this agreement, and can leave at any time.  Romer proposed Australia could make a deal with Abu Dhabi to invest in a piece of coastline, for occupation by Indonesian workers.  To me, it sounds like ghetto-ized immigration.  The rich country gets the benefits of allowing free immigration, while nonetheless being able to keep the working immigrants an oppressed minority, living in a special zone and without rights to self-determination. 

But that is not really Romer's big idea.  The real, and somewhat scarily feasible, idea is to get a developing country to agree to annex part of itself for governship by a rich country, which will then attract investors, industry, and development.  Romer has been in talks with Madagascar, which fell through after a coup.  The citizens of the developing country can then move into this territory, leaving their citizenship behind (Romer's sure they will be free at any time, but I'm not so sure their home country will want them), to reap the prosperity sure to follow.  There are two potential outcomes that could then occur.  Either Romer is wrong, and prosperity does not follow, in which case the experiment is a failure.  Or, he's right, and the charter city soon becomes wealthy, at least compared to its host country.  Then what?  All the problems of the poor country still exist--the poor institutions, the shaky political control, the mercurial leaders.  So isn't it feasible they might try to attack or takeover the charter city--to withdraw their consent to the charter?  Then, the rich country guarantor would have to serve its purpose, by providing protection for the charter cities, and the investments therein.  We would then have military conflict between a rich country defending its colony against the incensed poor country.  The poor country it was supposed to be helping.

At that point, the interests of the developed country and the developing country become in conflict.  What started as an experiment to help poor countries has turned into a conflict to protect rich country interests in poor countries.  But even without such an extreme outcome, there's no way to keep the interests of the developed country out of the equation.  And, once they enter, they're likely to be in conflict with the interests of the poor country they're supposed to be helping.  The rich country gets to keep the tax revenues from the industrialization taking place in its new charter, is free to arrange deals (with or without kickabacks) for companies to locate within the zone, is free to--and it's inconceivable that they wouldn't--use the charter to serve its own geopolitical goals.

But even if we could, even if rich countries could act as altruistic arbiters of progress, there's no reason to think we're any good at it.  The people who are lucky enough to inhabit rich countries suffer from a form of ex-post arrogance: we're rich, so we must have done something to get this way.  And we must know what it is.  Unfortunately, we don't.  What created prosperity in some countries and not others is a complex intertwining of historical, accidental, institutional, and leadership factors.  Is there any reaon to believe we can replicate these factors abroad?  And if we could, wouldn't we use this magic on our own cities first?  Why not create a charter to develop New Orleans, or even Philadelphia or Detroit?  If a deal with Abu Dhabi is such a good idea, why doesn't Canada make one?  In fact, Abu Dhabi has been trying its hand at investing its capital in wide-scale nation-planning projects in the form of its neighbors, Dubai and Bahrain.  Dubai was built as a no-holds-barred friend to industry, and even now it's hurting.  Development is hard, there are risks involved, and often the business case for starting something new is not very strong.  So in our own countries, we let things evolve naturally.  But funny how eager we are to take risks in other people's countries, with the lives of people who are less well off than us.  

The last comment I'll make is that on the same day Romer presented at TED, the talks also featured the inventor of a one-time use syringe (it physically cannot be reused, and thus can't spread disease) and the maker of the LifeSaver water bottle and jerry can, which internally filter water (even sewage) and turn it into safe drinking water.  Both of these inventions have a huge potential to make a difference in the quality of life for people living in developing countries.  But they do it without interfering with their self-determination and sovereignty.  They're never going to make the kind of splash Romer thinks charter cities can, and they certainly won't create overnight progress.  They're small ideas, but they will help.  I'm less certain the big ideas will.  I worry that the main thing that's big about "development big ideas" is the ego of those who want to help, and their spectacular capacity to fail.

Here are some other people talking about charter cities:
A criticism from someone who grew up in Hong Kong, which is Romer's principal model of success.
A Q&A with Romer at Bill Easterly's AidWatch blog (someone I'm surprised hasn't been more critical of this).
Valid concerns (and a comparison to Cabrini Green) from Chris Blattman, who is interested but unconvinced.

1 comment:

  1. Re: ex-post arrogance -- Romer would argue that this'll take some experimentation to work, and we can tell what works by people voting with their feet. Blattman's bottom-line critique was sure, but will the failures outweigh the benefits? Romer asserted at the macro seminar that it would be "just like startups" where the benefits of success far outweigh the failures. I'm sure by marketing himself as a "searcher" rather than as a "planner" he's appeasing Easterly. He's also presuming there won't be immigration registrations and warfare (so people can vote with their vote and minimize the costs) because past charters have been remarkably resilient (or something like that).

    As for "why don't we try this on our own cities" -- there's a reason why he wants to start these are chunks on unsettled land. His claim is we have good knowledge of some "rules" that work, and it's difficult to import them because of the existing "norms" in places. He uses the failure of congestion pricing to mass in NYC as an example in the seminar. But why you couldn't use unsettled land in the US if these rules are going to be so wonderful -- I don't know.

    I'm not necessarily endorsing any of this -- I'm just telling you my understanding of his position. I don't have time to take a stand and defend it.


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