Charter Cities

Paul Romer's TED talk on charter cities is up and Romer is now writing more about the idea at his Charter Cities Blog.  In the TED talk and on the blog Romer gives a "fanciful" example of how a charter city might work:

that the United States and Cuba agree to disengage by closing the
military base and transferring local administrative control to Canada…

help the city flourish, the Canadians encourage immigration. It is a
place with Canadian judges and Mounties that happily accepts millions
of immigrants. Some of the new residents could be Cuban émigrés who
return from North America. Others might be Haitians who come work in
garment factories that firms no longer feel safe bringing into Haiti…

the government of Cuba lets some of its citizens participate by
migrating to the new city. Over time, it encourages citizens to move
instead to a new city that it creates in a special economic zone
located right outside the charter city, just as the Mainland Chinese
let its citizens move into Shenzhen next to Hong Kong.

clear rules spelled out in the charter and enforced by the Canadian
judicial system, all the infrastructure for the new city is financed by
private investment. The Canadians pay for the government services they
provide (the legal, judicial, and regulatory systems, education, basic
health care) out of the gains in the value of the land in the
administrative zone. This, of course, creates the right incentives to
invest in education and health. Growth in human capital makes income
grow very rapidly, which makes the land in the zone even more valuable. 

It's interesting to compare charter cities to Patri Friedman's concept of seasteading (Alex, Tyler). 
Both charter cities and seasteading are motivated by the desire to
break out of conventional political arrangements and create a system
with much greater scope for innovation in rules.

Romer wants
charter cities built on uninhabited land (of which there is plenty),
seasteading is cities built on the sea (even more plentiful).  Aside
from the obvious advantage of building on land, charter cities allow
current elites to buy-in and gain from the charter city (ala Shenzhen and in other ways)
and thus probably have a better chance of getting "on the ground." 
Charter cities also address a key question about seasteading – will
governments regulate or takeover a successful seastead?  A charter city
is an agreement between governments – Cuba agrees to let Canada
import Canadian rules onto a small portion of Cuban property.  Cuba
could renege on the deal but it's going to be much harder for Cuba to
renege on Canada than for the U.S. government to regulate or otherwise
control seasteading.

By the way, the fact that Romer wants charter cities built on uninhabitated land with plenty of immigration from the charter nation goes some way to reducing the problem of nationalism that concerns Tyler and also the problem of transplanting legal institutions that concerns Arnold Kling.

We don't have many examples of charter cities in action but Hong Kong is a promising example.  Despite nationalism, the agreement with Britain was accepted for over 100 years and it worked.  Contra Tyler, we shouldn't think of what happened in 1997 as China
taking over Hong Kong but rather as the final element of Hong Kong taking
over China.

Seasteading does have one big advantage over charter
cities.  Seasteading is more radical but it is more open, less
tied to elites, and more flexible so, if it works, it is a better design for what Romer
calls innovation in rules formation.


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