Sebastian Mallaby on Paul Romer

The focus of this feature article, from The Atlantic, is charter cities.  Here is one good excerpt:

Ever since the setback in Madagascar, Romer has been coy, for obvious reasons, about which governments are interested in his plan. But he remains optimistic. “I revived growth theory. I made technology work in higher ed. I am two for two, and I think the impossible can be done,” he told me cheerfully. He added that the Daewoo deal might not have been the main impetus for the coup in Madagascar; the real reasons for Ravalomanana’s downfall lay in idiosyncratic local rivalries, even if the opposition exploited sensitivities over land to incite antigovernment protests. I suggested that the fact that land concessions could trigger such emotions was still not a good sign. Romer stopped, considered, and chose his words carefully.

“Anything that involves land can be manipulated by people who want to rise up against a leader,” he began. “You have to find a place where there’s a strong enough leader with enough legitimacy to do this knowing that he’s going to get attacked. It narrows the options quite a bit. But we shouldn’t give up without trying a few more places.” In short, a disappointment with one client is no excuse for failing to pitch other ones. Any entrepreneur knows that.

Comments

Smith writes of "our admiration for the man who, under the heaviest and most unexpected misfortunes, continues to behave with fortitude and firmness ... "

Romer should ponder the fate of William Walker, a brilliant American prodigy who tried to, uh, modernize various Central American countries in the 1850s.

Professor Romer-

You maintain that charter cities are different from colonialism because charter cities will be founded on vacant land, and everyone who lives in the city will have moved there by choice. In the first generation this will be true. But in succeeding generations much of the population will live in the city because they were born there. Do the natural born residents then get voting rights, independence, or any sort of voice? Or does the city remain under rule of the foreign administrator?

Speaking of charter cities, we have a great example of a rich, prosperous metropolis founded as recently as 1909 by enlightened Westerners in a Third World backwater: Tel Aviv.

Tel Aviv has been a huge success economically. For some reason, however, Tel Aviv hasn't proven popular with the indigenous population. Fortunately, Tel Aviv is defended by a highly competent air force armed with 100 or more nuclear weapons.

Professor Romer, how many nuclear weapons are you budgeting for in your plans for your charter cities? I would think 15 or 20 nukes should be sufficient to defend them from being sacked and looted by irate locals. What do you think?

apologies - I meant
"third world leader who meets"

I think the comments here are missing a more basic point. I agree that establishing a charter city - in any poor country where it would be particularly useful - would require the use of violence to displace domestic rivals that would not meet modern moral standards. But say we could get past that problem; there is almost no way to keep the governing powers from 1) raiding the tills of what would likely be the richest city in the country, 2) meddling with the internal dynamics of the charter city so as to get special privileges for their supporters, 3) not stifling the city so as to prevent the rise of an alternative power center, and additionally the income gap between the city and surrounding countryside would probably be fodder for political entrepreneurs looking to incite sectional strife.

I think economists would do well to read North, Wallis and Weingast's (2009) book "Violence and Social Orders" to get a better handle on how politics, and particularly violence, is absolutely central to the development conundrum.

Michael,

First, I did not mean to say or imply that Romer is advocating violence. He certainly is not, and I fully believe his proposal is based on a sincere concern for the improvement of living standards for all people. I just think his idea isn't very well thought-through.

I disagree with your comments on several fronts. For example, I don't think it's fair to say that NWW don't present a plan for the transition to an impersonal economy. Their 3 doorstep conditions (rule of law for elites, perpetually lived organizations, and consolidation of the military) are a sort of blueprint that can be applied to any developing country. Unfortunately, that sort of sequence will take time, a much longer time than the silver bullets economists have devised, but I think their sequence is much more realistic.

The problem is that making the transition from personal rule to impersonal governance creates losers out of the people with the most guns. The poor societies characterized by personal rule (and nearly all of them are) are ruled by people who use their coercive advantage to extract privileges for themselves. And importantly, there is more than one such predator, there are usually several, engaged in constant balance-of-power calculations in an ever-present possibility of civil war. Consequently, rulers have little interest in the public good except as it might be useful to swell the loot they can steal, and even that is not as important to them as maintaining the status quo balance of power. Expand the pie if you can, but only symmetrically amongst the ruling coalition or risk the massive losses associated with war.

And so you can't start with markets as the first step in the development sequence. Introducing a market produces creative destruction, meaning the old producers are displaced, which affects the balance of power, and the losing faction will start fighting (literally) to preserve their position. So markets undermine social order to the point of state failure, or, more likely, are adopted in some highly personalistic way in order to avoid this catastrophe.

(I should say this is all NWW, not me).

I think current events in Jamaica are a very useful illustration of the way power in poor countries is based on coalitions of coercive actors rather than on any notion of impersonal governance like constitutionalism.

All in all, NWW have more than a gimmick here - it's a far more accurate description of what the world is really like than is provided by many of the economists studying development. I think Romer's idea is characterized by that fatal flaw most development ideas that come out of economics departments: it assumes away the problem of violence.

While well-intentioned, I am fairly certain that any country that actually adopted a Charter City would suffer a civil war or massive repression within 10 years or so.

For an early criticism of Romerian policies, we should look at Kenya in the 1960s, where decades of British rules had created large British and Indian business classes. In 1965, a young Harvard-educated economist named Barack Obama Sr. complained in the July 1965 East African Journal:

“One need not to be Kenyan to note that when one goes to a good restaurant he mostly finds Asians and Europeans, nor has he to be a Kenyan to see that the majority of cars running in Kenya are run by Asians and Europeans. ... It is mainly in this country one finds almost everything owned by non-indigenous populace. The government must do something about this and soon.†

http://kwani.org/main/problems-facing-our-socialism-barak-h-obama/

Here’s a nice passage from capitalism's bible on the history of violence, market, and social order:

"If the coercive apparatus is strong enough, it will suppress private violence in any form. The effectiveness of this suppression rises with the development of the coercive apparatus into a permanent structure... Subsequently, it engenders, more generally, a form of permanent public peace, with the compulsory submission of all disputes to the arbitration of the judge, who transforms blood vengeance into rationally ordered punishment, and feuds [into] rationally ordered legal procedures."

"Thus the political community... [is] transformed into an institution for the protection of rights. In so doing it obtains... decisive support from all those groups which have a direct or indirect economic interest in the expansion of the market community"

"[The] groups most interested in pacification are those guided by market interests"

"And as the expansion of the market disrupted the monopolistic organizations and led their members to the awareness of their interests in the market, it cut out from under them the basis of that com¬munity of interests on which the legitimacy of their violence had developed. The spread of pacification and the expansion of the market thus constitute a development which... finds its culmination in the modern concept of the state as the ultimate source of every kind of legitimacy of the use of physical force; and that rationalization of the rules of its application which has come to culminate in the concept of the legitimate legal order."

From: Max Weber, Economy & Society, 1922:908-9

If a charter city could acquire attributes of a political community then maybe it *could* work.

People are not fungible. So the number of people we are prepared to kill is not known a priori.

You say that like it's a bad thing, Steve. Although technically Romer is helpful in rounding up political leaders rather than laborers, who are expected to round up themselves.

Eric Crampton on sweatshops:
http://offsettingbehaviour.blogspot.com/2009/05/sweatshops.html

I think the use of force is a necessary tool for all civil societies. the question is what is the force used for. In America force is used to PROTECT people against the infringement of their FREEDOM. This is a Good use of force. And I highly recommend it for any government.

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