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.