Charter Cities: Q&A with Paul Romer

May 03, 2010

Paul Romer, the renowned growth economist, believes that the world can create dozens, perhaps hundreds, of new high-density "charter cities" to encourage faster growth that is greener too. Each charter city could be a place where millions of poor families could become residents, live, and work under better rules and lift themselves out of poverty. Inspired in part by Hong Kong and China's special economic zones, such cities would give millions of desperately poor people their first formal-sector jobs, in many cases starting out in labor-intensive manufacturing (e.g. assembling garments or electronic devices) and services (e.g. call centers, outsourced business processing, or software quality assurance.) Romer, a CGD non-resident fellow, has an essay on the topic and recently presented his idea at the Center. He explained it further in a Global Prosperity Wonkcast interview with CGD vice president Lawrence MacDonald. In this Q&A he explains the outlines of the idea.

Q: Why are Charter Cities necessary?

A: CGD fellows Lant Pritchett and Michael Clemens find that a typical worker in Haiti earns one seventh what he or she would earn by coming to the United States. Workers from many other countries face wages at home that are depressed by a comparable factor. These effects are too large to ignore. They show us that when people can move away from ineffective rules to better ones, they can dramatically improve their lives and, by their own actions, do much to reduce global poverty. The challenge is to find ways to encourage this kind of beneficial global migration.

Gallup reports that 700 million people would move permanently to another country if they had the chance. They don't because voters in destination countries often oppose large-scale immigration. Understanding and addressing this opposition is an important challenge, but people needn't remain stuck with ineffective rules in the interim. Charter cities can quickly create places with better rules where millions of people can move. The rules in a charter city will keep their families safe, protect their personal property, give their children a chance to go to an effective school, and let the parents find employment at a wage that reflects the true value of their work.

Q: Why start in a new location?

A: Historically, the ability to vote with one's feet has been a powerful force for progress. Chartering new cities on uninhabited land preserves this critical dynamic of choice for all residents. The new rules in a charter city are not imposed on any unwilling constituents; only people who actively choose to live and work under the rules specified in the charter will move there. The process of self-selection ensures that the social norms of the residents map more smoothly to the formal rules in the city's charter and that the rules have the legitimacy that comes from universal consent

Q: But aren't the good locations already taken? Where would these cities be built?

A: Picture how the United States looked in 1800. One might have argued then that no major new cities could emerge and compete with the ones like New York, Chicago, and Philadelphia that already occupied the best locations. This kind of reasoning would have completely missed the emergence of cities like Atlanta, Dallas, Seattle, Miami, and Los Angeles. Throughout the world, there are many possible locations, many of them temperate and coastal, where large cities could be built. Three billion of the world's residents currently reside in urban areas. The cities that house them take up only three percent of the arable land on earth. If we wanted to build cities for another billion people, we'd go from three percent of the arable land to four percent.

Moreover, we know that billions of people are going to move to cities in coming decades. So it's not a question of whether, just where. It's hard to believe that the right answer to "where?" is to have all those people go to the few cities that already exist in the developing world.

Q: Who would make the rules for these new cities?

A: The concept of a charter city is very flexible. The common elements are unoccupied land and a charter.

The nations that establish the city have to negotiate the precise terms of the charter. The general rules and principles will be spelled out there. Other more detailed rules will be developed over time under the administration called for by the charter. This is like the division between a law passed by the legislature and detailed regulations that are developed by various agencies.

Q: How many nations might be involved in setting up a Charter City?

A: Before answering how many, let me describe the three kinds of support that existing nations have to provide. Land comes from a host nation. People come from a source nation. The assurance that the charter will be respected comes from a guarantor nation.

Q: Does this mean that there will always be three countries involved?

A: No. Much of the flexibility in this idea comes from the fact that a single nation can play more than one of these roles and that several nations can simultaneously play the same role.

For example, one country, such as India, could assume all three roles. As host, the Indian central government could offer substantial incentives that would induce different states to compete to create such a zone. As guarantor, the central government could offer protection for all parties when a private entity invests in infrastructure. It would make sure that both the local administration and the investor stick to the terms of any long term agreements that they enter into, agreements that can last for decades. This prevents expropriation by local government and ex post monopolistic behavior by the investor. As source, the central government could guarantee the right of entry and exit for all Indians. In this case, the charter city would be like most existing special economic zones, only larger and with room for residents as well as firms. This kind of zone could be a "startup" where a nation tries out a new set of rules, letting firms and workers "opt-in" to these rules. This is how China first tried out rules that let foreign firms invest and hire Chinese workers in an area like Shenzhen, which quickly grew to a city of more than 10 million.

Q: Would the source country and the host country always be the same?

A: No, here's another example. Brazil could be the guarantor and the host, but Haiti could be the source.

Brazil has already made a major commitment to providing security for Haitians in Haiti. They are the main supplier of troops and police officers in the force that entered Haiti under a UN mandate in 2004. To have a credible exit option, Brazil might consider chartering a new city on empty land in its territory that could accept Haitians as residents of the new zone, while maintaining standard immigration procedures for the rest of Brazil.

This could give Brazilian forces in Haiti a way to leave even if there is little progress toward stable governance. Brazilian leaders might say to the Haitian elites "we'll spend several years trying to help you return your government to the point where it can provide essential state services like public safety. But if by then it still can't serve this function, and things go back to where they were before we came, back to a situation where crimes like kidnapping were common and the police couldn't enter zones controlled by gangs, we will leave. But if we leave we will also give Haitians the option to move to a special zone in Brazil where we will provide the basics of good governance."

Of course, other countries could be sources too. If the Brazilians set up this kind of city, they might let people from many other countries in the region enter as well. Some of their own citizens might move there too.

Q: The treaty that gave the British control of Hong Kong was not voluntary, but in a sense China was the host and source and Britain was the guarantor. What about a modern version of Hong Kong?

A: Yes, provided the host country entered into a truly voluntary agreement with the guarantor. In negotiating the treaty with China, Britain used the threat of force. Hong Kong turned out well, despite this difficult start, but in any new agreement it would be foolish to try any arrangement unless it is truly voluntary. This, by the way, is why I've argued that there is no way to establish a charter city now for which Haiti is the host. There simply is no way that a government that is subject to a military occupation can be said to have entered into a voluntary agreement.

Q: What do you say when people claim that no developing country would ever invite another nation as a partner?

Charter City
Photo: flickr user _marmota / cc

A: I'd point out that we already have cases where this is being done. For example, to enforce its laws, the Solomon Islands has already invited in police officers from many other countries, lead by officers from Australia. Some of the citizens in the Solomon Islands like the reduction in crime and corruption that this arrangement makes possible. Others do not like having foreigners enforcing the laws.

Another nation in the region that finds itself in the position of the Solomon Islands and wants to work together with foreign officials could decide that it will create a special geographical zone on uninhabited land and invite in the Australian police officers to enforce the laws only in this new zone. Then its citizens could decide whether or not to go live in the zone with the Australian police or stay in the areas with the local police. This way, no one would be forced to accept policing by foreign officers.

Q: Why would people what to move there if they have to surrender their rights to shape the rules?

A: The charter cities approach does not put any constraints on the local political structure, nor does it preclude changes in structure over time. It will force the governments involved to think carefully about the right way to design the local political system and to be sensitive to what immigrants actually want.

For some would-be residents, safety and security will initially take precedence over political voice. Consider, for example, a group of Shiites and Sunnis who leave Iraq to live and work in a newly chartered city. Suppose they were offered the chance to move to two locations. In one, the Australians would run the police. In the other, they would have local elections to decide who is in charge of the local police. Understanding that local elections may have the destabilizing effect of dividing residents and militias on ethnic lines, many would choose to go to a place where a third party that they trust is the predetermined police authority. The second choice is like Iraq now, from which millions of the best educated Shiites and Sunnis have fled.

Over time, the Sunni and Shiite immigrants should participate in local democracy in the same way as Australians. But for a time, they may prefer to cede local control of governance to avoid violence.

Q: So would the leaders in a new charter city be subject to democratic control and accountability?

A: They certainly could be. If I were choosing to move to a charter city, democratic accountability and control of the security forces is one of the essential preconditions that I would look for. But I would not necessarily expect to be able to vote. I might go with a status like that of green card holders in the United States.

Americans often live in Canada for a time as residents who cannot vote (just as Canadians routinely go to the United States with the same restriction). They're happy to pursue schooling and job opportunities in a place where voters could hold officials accountable, even though they don't get a vote.

Now imagine living in a city where all residents were green card holders and where voters are not residents. This would mean that the officials who ran the police, the courts, could be accountable to voters in an existing democracy like Australia, even as the society in this new city begins to gel. In this way, millions of us could move there and get instant benefits from democratic accountability. We could all be safe and still have time for a new democracy we set up to gel.

This arrangement (residents who were not voters and voters who were not residents) was the political model in post-WWII Hong Kong before the British handover to the Chinese government. It was a very interesting hybrid, and very different from authoritarian rule that is usually held out as the only alternative as a society develops the preconditions needed to make democracy work well.

Q: To some people, this is going to sound like a new version of colonialism or imperialism. Is it?

A: Let me pose a related question: Suppose a family from Haiti is granted the right to live in Vancouver as permanent residents but not as Canadian citizens. Is it colonialism or imperialism to offer this option to them? Or for them to accept? Because the family would be free to make the choice about whether to live in Canada, the answer is plainly no.

In the same way, charter cities are based entirely on voluntary actions. Only a country that wants to establish a charter city will do so. Only people who want to live and work under the rules specified in the city's charter will move there. Free choice is essential for the legitimacy of the rules in a charter city. It is also what makes a charter city very different from colonial occupation.

Q: Are there other historical precedents for the idea of a charter city?

A: Pennsylvania offers an interesting example of the power of the start-up dynamism that a charter city can harness. King Charles II could not keep the political process in Britain from overturning his attempts at introducing religious tolerance at home, but he still managed to introduce religious freedom to the Western world. He did so by giving Pennsylvania to William Penn, a well-known Quaker, as his dominion. William Penn wrote a charter for his new colony that guaranteed freedom of religion to all who came to live there. People who wanted this freedom opted in. Philadelphia soon became the second largest English-speaking city in the world.

The success of Penn's new formal rules, and the new norms that they encouraged, put pressure on lawmakers in neighboring colonies to move toward the kind of separation of church and state which was eventually adopted as part of the Bill of Rights in the U.S. Constitution.

If the political dynamic in a society can't establish rules that let people be safe or find a job, then perhaps they should have the chance to opt-in to a place with better rules, as the Quakers could when they left Europe for Pennsylvania.

Q: From an environmental point of view, what makes Charter Cities better than the status quo?

A: Many environmental thinkers like Stewart Brand and David Owen have described the ecological advantages of migration away from forms of subsistence agriculture that can be very harmful to the environment and toward cities that dramatically reduce the human footprint. Rural economic activities have severe ecological consequences in countries like Indonesia. As residents of rural Indonesia use fires to clear land, log the rainforest, or clear peatland, they turn it into the third largest emitter of greenhouse gases, behind only the United States and China. If more Indonesians lived like New Yorkers, they would experience economic gains from urbanization and the rest of the world would benefit from fewer emissions.

Moreover, economists like Ed Glaeser and Matt Kahn have shown that dense cities like New York are much greener than less dense ones. If they are also dense, charter cities could be much greener than the average existing city.

Three billion people now live in cities. Three to five billion more will move into cities in the century. If these cities are more dense, they will be greener. If they are well governed, they will be safer, healthier, and offer more opportunity. The choice is not whether we urbanize, but how.