Charter Cities – The Solution to Poverty?

In a most popular TED talk, Paul Romer, pioneer of new growth theory, advocates charter cities as a solution to overcome poverty and foster development and growth:
This talk is remarkable, and basically, I cannot disagree with Paul Romer. Briefly, he argues that rules matter for development. Now, if we could create cities that follow a charter of good rules, then development and catch-up growth follows. And in fact, there is ample evidence that we can create charter cities — one example would be Guantanamo Bay. Well, see his talk.
In principle I cannot object at all. For me, what Romer says makes great sense. However, his talk comes with several major problems, to my point of view.
(1) Which rules are the best (or at least good) rules? This is not obvious at all. Even considering our profession, there is stark controversy about what constitutes (the) good rules. For example, not everyone has the same views Krugman forcefully puts forth.
(2) A set of good rules in one country (or one society) might not work at all in other societies. For example, think of rules governing universities. If you argue that the U.S. has the best rules governing universities — why are these rules not copy-pasted to all universities in the world? And why are there other universities, outside of the U.S., following different rules, that are also brilliant? What I want to say is that a set of rules that work for one country need not necessarily work for all other (different) countries.
(3) We need a dictator that implements the good rules. But democratic countries work differently. I think U.S. universities are governed by good rules. But to get such rules implemented in Austria, say, is a more than difficult  (and likely unsuccessful) endeavor. How can we implement these rules?
(4) Let’s assume we have a dictator, not a democracy. The dictator will implement rules — but why would she be interested to implement the good rules? Why would she not implement the rules that serve her purposes best?
Well, I am not sure what to take home from this TED talk. Probably I should take home: “rules matter.” But as economists, we know this is an obvious statement.
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2 thoughts on “Charter Cities – The Solution to Poverty?

  1. Great questions there.
    I think the take-away point of Romer’s talk is that we should find a way of increasing people’s choices under which kind of rules, which kind of governments, they want to live. Let people vote with their feet to find good rules. Charter cities are one possibility. I haven’t heard enough about it to say whether it could work – Romer’s talk is not super clear about specifics.

    Another solution is seasteading – a project to develop a viable technology of floating homes that enable the creation of new cities in the middle of the ocean. Like charter cities, this could work – or not. http://www.seasteading.org

    I think the best way to increase the competition among governments is to split up existing ones: hand over competencies (such as the power to tax and the power to regulate the economy) from the national level to the regional level and let them experiment with different sets of rules. If people don’t like Styria’s rules, let them move to Carinthia. Note that some of the regional authorities might turn out not to be democratic – if the benevolent dictator of Carinthia turns out to provide better rules than the Democratic Republic of Styria, so be it. To be sure, there ought to be some safeguards against tyrannical regional authorities – I don’t want our regional governments to become robber barons. So all governments should respect some fundamental rights, including the right to free movement across state boundaries and free settlement.

    • I could not agree more (glad we are not in disagreement, this time).

      Think about Ba2-Carinthia — who would want to move there, these days? Be it however it is. Though voting by feet is just one aspect (that I greatly welcome).

      The other aspect is the question of questions you ask. Let me add it to my list above.
      (5) But Who Will Guard the Guardians? (Leo Hurwicz, 1998).

      Neither of these questions were considered by Romer.

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