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:

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

To
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…

Initially,
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.

With
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.

Comments

Why in the world would Canada want to get entangled in such an insanely overreaching adventure? A couple of decades ago, the Turks and Caicos Islands were trying to promote the idea of themselves joining Canada, but the idea never went beyond the pipe dream stage.

Paul Romer is a smart guy, but you have to wonder, what's the color of the sky on his planet?

Romer's ideas spark an interesting discussion, but I'm left in the blue about why these charter cities have any comparative advantage over existing locations (besides the appeal of exclusivity or novelty). Typically, cities form based on access to water, air, or land transportation nodes. Sometimes, we see them arise because of trade zones, proximity to borders, or nicer terrain. If a city has not yet formed on its own in a particular area, why should we expect some sort of planner (or academics as he suggests) to have greater foresight than all other businesses? In developing nations, information asymmetries abound so I can buy the argument that charter cities overcome the inability of local businesses to make large investments, but I find it hard to believe that these urban areas will ultimately be quite successful. After being bothered by the problem of finding an all-knowing planner to select the locations, I was left wondering about which benevolent dictator will lay down all of the rules that Romer uses as a catch phrase? Besides voting dilemmas between the country (or countries) that might control the charter city, we should be hesitant to expect any central planner to do a decent job at designing the rules. And if it's multiple groups doing the designing, we don't skirt the issue...we simply run into more difficulties with hidden special interests.

Overall, the video presents a creative idea that could possibly lead to new development strategies, but the gaps need to be filled in before investors will be interested. Why not simply push to reduce corruption and trade restrictions instead of trying to convince foreign nations to give away parts of their land because they haven't handled it properly?

Aren't America's metastasiszing 'edge cities' and ex-urbs just charter cities?

What is Naperville but pint-sized re-boot of Chicago with elite buy-in and without the legacy costs of systemic corruption and the large endowment of low-human capital people and a system that perpetuates itself by exploiting their resentments?

For a close-at-home example of a chartered city, I'd suggest Freeport, Bahamas, population 50,000.

Their home page: http://gbpa.com/home/

The charter document from 1955(1.7Mb PDF): http://www.gbpa.com/download/hawksbill_agreement.pdf

It has a colorful history, founded by Wallace Groves who was a Wall Street financier with more than a whiff of scandal about him.

In a nutshell, it was conceived as a commercial/libertarian utopia. It has not lived up entirely to that promise, but it certainly is a change from the rocky scrubland that existed 50 years ago.

"Charter Cities" are just another name for entrepots based on political borders. They are opportunities for concentrated political and commercial arbitrage. Hong Kong, for example.

A much better solution would be opening borders more fully to commerce, rather than restricting commerce to an entrepot chokepoint. Once there are vested interests in rent seeking from such a chokepoint, it will be very difficult to change to an open system that delivers broad benefits to both sides of the border. NAFTA and the European Union, for all their faults, are a much better solution than Charter Cities.

Romer will have to explain why colonialism, which was all about transplanting institutions to foreign soil, didn't work out better than it did, particularly after the British let go and let their colonies try to be self-sustaining.

Josh, not really. He defends the CC idea against being colonialism, since it's voluntary, fair enough. But he doesn't explain why this system of transplanting new ideas into a people that don't have a tradition of working in that framework, and lack the social systems that grow up alongside the rules, will succeed, when it failed under colonialism. Self-selection may help some, but, especially with generous welfare systems, it may also hurt.

I'm also flabbergasted by this.

Isn't this a fancy way of backing into the concept of city states?

And that is hardly a new concept, the ancient Greeks believed that political units larger than city states couldn't be democratic, which is an idea worth revisiting.

A Canadian-controlled entity where all the infrastructure is financed by private investment? ha ha ha.

That's some powerful stuff people have been smoking.

To libertarians, freedodm is like the weather. They want to talk about it but not do anything about. Here is more pointless talk about it. Just talking about freedom from imperialists isn't going to make it happen. To free yourself from them, you must first understand the source of their power. It could be nothing but one thing, the desire of the masses of people for plunder and redistribution.

So they will never allow any communities beyond the reach of their plunderers until you show them that plunder doesn't pay, that it makes them all poorer.

That's the real challenge, that ALL libertarians routinely shrink from.

Congratulations. You're wonderful.

"The real question is why libertarians would think charter cities are a better solution than more open borders."

Who does? This is the first or second time I've heard the phrase "charter city." And if they do it's probably because they get tired of trying to convince other people. Yes, building a city on the sea would be damn near impossible, which makes it a bit easier than changing the minds of progressives.

why do charter cities need to come about by an agreement between two countries. could two states or two cities do the same thing? it wouldn't even need to be a charter city, which would require land; it could be a charter legal system or portion of one. imagine if new york gave up 1/10th of its school system to be managed by boston or managed by ny but under boston's rules.

Romer keeps pointing at Hong Kong, but there's this super-secret fact about Honk Kong that isn't widely known that might be relevant to why it did well: Honk Kong is full of Chinese people.

I read this and think about UCLA, except replace the word Canada with California and private investment with David Geffen. And there aren't many nicer places to live than Westwood.

Aretae - yay, someone who gets it!

DG Lesvic - someone who only half gets it. Yes, I completely agree that "To free yourself from them, you must first understand the source of their power." But we differ on what that source is. I believe that it is lack of competition and (relatedly) mobility.

Either way, your comment "To libertarians, freedom is like the weather. They want to talk about it but not do anything about. Here is more pointless talk about it." completely misses the point. Both charter cities and seasteading are all about going and actually building new, better societies. Your criticism applies to the vast majority of libertarian "activism", unfortunately, but here it misses the mark.

1) The actual usable land area of Guantanamo Bay Naval Base is around 10 square miles, here is a map:

http://upload.wikimedia.org/wikipedia/commons/3/3a/Guantanamo.jpg

Perhaps you could drain some swamps and get about 5 more, or landfill.

2) The 103-year-old agreement limits use of the Cuban territory to "coaling and naval purposes only," and prohibits "commercial, industrial or other enterprise within said areas."

3) The Cubans still have a large minefield in place around the base, along with the 8-mile barrier of Opuntia cactus (the "Cactus Wall"). The US has removed its minefield.

One could point out the obvious problems -- few Canadians speak Spanish; Hugo Chávez would use the oil weapon to make Cuba toe the socialist line; etc -- but there is something far more fundamental.

The elements that made it possible to establish Hong Kong simply don't exist anymore in the modern Western world. In the heyday of Victorian colonialism, families were much larger: the eldest son would inherit titles and property, so ambitious younger sons would often go abroad to seek their fortune. Furthermore, there was a much greater sense of duty and mission, nationalistic pride in king and empire, the notion of a "white man's burden", a religious or charitable obligation to Christianize and civilize the benighted heathens. Finally, brisk competition among European colonial powers produced the 19th-century equivalent of a "space race", where rivalry among nations spurred far greater efforts and deployment of resources than would otherwise have been the case.

Today, none of those factors apply anymore... in Western countries, that is. However, Islamic nations do have the teeming frustrated youth demographic seeking an outlet for its ambitions, and the religious sense of mission, and a great willingness to export their rules to other societies, and a burning desire for prestige, power and respect, to outdo a West that is sliding into decadence. And contrary to an earlier commenter, there is plenty of willingness to experiment with and evolve legal systems... it's just that things like Sharia law don't exactly correspond to what Romer would consider progress.

It's not clear that Islamic societies would actually pursue such a course. But, realistically and practically, they are the only ones that could -- not the West, and not China, whose demographic window of opportunity is rapidly aging. And who knows? If the global economy lurches into a second deeper wave of crisis, support for Islamic finance principles could come from the unlikeliest sources.

I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.

Sara

http://smallbusinessgrant.info

It seems to me that roughly the same idea as the charter-cities was how the US's federalism used to be.

This is, perhaps, only tangentially related, but I think it's relevant to the discussion. In a recent Slate article on Indian reservations and casino's, the following sentence jumped out at me:

"It is quite possible that reservations could become new Switzerlands: centers for banking and international commerce, subject to entirely different and more lenient laws than the United States. Though no one has tried this yet." An American Indian's Journey in the Land of Indian Casinos, http://www.slate.com/id/2222879/entry/2224859/

So, two questions on this:

- Why hasn't anyone tried turning Indian reservations into little Switzerlands? Or Cayman Islands? Are there legal or regulatory issues in place that would prevent this from working?

- Could these reservations somehow work as charter cities? Is there some reason that Singapore, for example, couldn't work out a deal with the Mohegan Tribe of Connecticut?

You need three elements:

1) A suitable First World country to provide a legal system. Good luck with that.

2) A suitable backward country that is willing to let an island that it owns to become part of such an experiment.

3) Capable people to move to such a place.

I could take this more seriously if the proponents could propose likely combinations to make this work.

Forget Gitmo, would Canada do this for Detroit? I'm only half kidding.

I am curious how this could work for urban redevelopment or rural development. For example, what about for Indian reservations, as an alternative to casino-based development? "Cities within the reservation" perhaps. Would moving people/industry into existing reservations improve the material/emotional well-being of Native American/First Nation populations? Would it cost too much in terms of lost culture?

thank you! I like this news, I also have information to share, here is my message.xcvb

Comments for this post are closed