Paul Romer's Charter Cities

In The Politically Incorrect Guide to Ending Poverty July's Atlantic profiles economist Paul Romer and his current project, “Charter Cities”. NYTime's Freakonomics column asks Can “Charter Cities” Change the World?.

Erik Desmazières, Ville Imaginaire II (1998)

In a nutshell, the idea is to build new cities with new rules in developing countries. The cities would be administered by first-world powers. One might be tempted to respond that people generally didn't like colonialism the first time around. But, people may come to the new cities or stay away as they please and are thus free to vote with their feet. Taking Hong Kong as an example, "dysfunctional nations can kick-start their own development by creating new cities with new rules" that "slough off debilitating customs and vested interests".

Romer explains his idea by way of an analogy:

Large corporations operate according to an internal set of rules that we sometimes call a corporate culture. A natural question to ask is what mechanisms lead to improvement in the rule-sets that prevail in all the corporations in an industry. If you think of an industry like computing, it is immediately evident that much of the change comes from the entry of new organizations. They have new rule-sets that attract resources away from the existing ones.

I like the emphasis on the dynamics of the situation. "Moving from bad rules to better ones may be much harder than most economists have allowed." The path from one political-economic system seems often to be bloody, so it's probably worth studying non-violent but effective means of change.

Here's another piece of thinking I like:

Cities are components - modules - that are relatively self-contained. They have some interfaces that they use to connect with the rest of the world - container ships, fiber optic cables, airport.

The idea that the rules and norms of a culture are a technology and are critical to growth seems related to an idea that I'm fond of. Due to the fungibility of power and money, separating politics and economics is an impossibility. My favorite illustration of this is the castles on the Rhine River. These homes of the original robber barons overlook the river, extracting tolls from passing merchants and travelers and threatening to rain cannonballs on those that decline to pay.

Romer's work in the private sector also seeks to break down toll gates of another sort. Romer's company Aplia was an attempt at refactoring the textbook in light of the web, not entirely different from Scott McNealy's new project, Curriki.

Not everyone likes this idea: Paul Romer is a brilliant economist – but his idea for charter cities is bad. The idea reminds me a little of various attempts to recreate new silicon valleys in other places around the world, like Malaysia's Cyberjaya. None of the attempts is entirely successful. Silicon valley and Hong Kong both grew organically out of their unique situations. A million subtle factors would need to be captured to reproduce either one.

Also, I don't know who the super-technocrats are that are going to run these new cities. Ever since western capitalism did a face-plant on the pavement, I'm not sure who's going to be lining up to let a western country run one of their cities. Considering the state of our (US) politics, you'd have to be desperate or nuts to trust us to be the administrator country. Still, it's probably too easy to dismiss Romer as dreaming of utopian Disneylands. I certainly understand the appeal of a clean slate, when it seems things are so intractably screwed up. Maybe we can find some hyper-intelligent martians to run a city in our country?

• On the Econ Talk podcast: Romer on Chart Cites, April 2010 and Romer on Growth, August, 2007
• Economic Integration and Endogenous Growth, Luis A. Rivera-Batiz, Paul M. Romer, 1990.
• You might think of a squatter settlement as a bottom-up approach to a charter city. They certainly operate by a new set of rules. Shadow Cities is Robert Neuwirth's book on shanty-towns.
• Maybe Dubai's fate is informative? See Good-bye to Dubai in the New York Review of Books.
• Chilecon valley - Chile's effort to become South America's innovation hub