The three kinds of charter cities

First, there is the minimal charter city.  During a cruise ship vacation, everyone lives under cruise ship law.  This works fine, and is easy to start up, but it also has limited applicability.  No one has to make a big cultural shift, as long as they don’t get too drunk while playing shuffleboard out on the deck.

Second, there is hegemon-backed charter city.  The British empire ran Hong Kong, and the mainland United States (partially) has run Puerto Rico and earlier managed the Panama Canal Zone.  By definition, a hegemon is required to enforce the law in the external jurisdiction, and of course such hegemons may be scarce, unwilling, or their rule may be oppressive or counterproductive.  Portuguese rule over Goa was not a major success, nor was British rule over India more generally.  European extraterritoriality in China proper was an imperialist disaster.  One problem is that exporting legal systems without exporting their cultural preconditions can lead to failure.

Third, some charter cities are based on the idea of a complementary exported culture.  Singapore did in fact absorb many parts of British culture and law, and some parts of Western mores; it now feels like the most Western part of Asia.  The partial export of Western law and culture has been extremely successful, and the role of culture here means there is strong indigenous support, within Singapore, for Singapore being the Singapore we all know and love.  These are the charter cities that work best, but they are also the hardest to pull off.

You can think of the original charter city idea as postulating law as a non-rival public good.  Why not just spread the best laws to more jurisdictions?  But does spreading the law without the underlying culture suffice?  You can think of the three kinds of charter cities, as mentioned above, as varying responses to this problem.

And spreading culture does not seem to be a public good at all, rather it involves a lot of hard work and it often fails or backfires.

This blog post is drawn from a talk I gave in San Francisco at an inaugural conference for Mark Lutter’s new Center for Innovative Governance.


Equally you could say Singapore is the most Asian part of the West.

So those Crazy Rich Asians are actually Crazy Rich Caucasians? Does this make Putin a Mongoloid?

Portugal did nothing to improve the perennial basket case that is Brazil.

Actually, Brazil is one of the most stable and prosperous countries in Latin America (compare and contrast it with Argentina, Venezuela, Cuba or Honduras).

Brazil is also the murder capital of Latin America. And that's saying something.

Does Singapore still cane people for graffiti or chewing gum? Drugs like hemp get you the death penalty? That's decidedly not Western.


& wine, spirits are expensive

TC's wet dream.

People don't do graffiti. So nobody gets caned.
Hemp doesn't get you the death penalty.
You can bring in and chew gum for your own personal use. Anyway nobody would get caned or even fined for it, just confiscated at the airport. By far executions are for convicted cold blooded premeditated murder. Believe it or not Singapore talks circumstances into account.

Shit happens

Why can't the US turn Puerto Rico into something like the British did with Singapore? I think the Steve Sailor / Bell Curve answer is that they are all a bunch of low IQ brown people and Singapore is full of master race Han Chinese. There must be a more satisfying answer than this racialist view. Puerto Rico has a good deal of Western laws and culture as well, certainly more than Singapore (Spanish is a Western language after all and descendants of mostly Southern Europeans are White). So why aren't they living La Vida Loca?

Go to San Juan & see for yourself:

- lack of strong [non corrupt] social & legal institutions [pace Acemoglu & Robinson]
- island economics: almost everything is imported, even food, driving up the cost of living for everyone
- mass outward migration of the middle class, exactly the people who could be contributing more to the tax base as well as the talent pool
- poor educational system, an example of Point 1 above

Then there are other legal/regulatory constraints, e.g., the Jones Act, which has made shipping to & from Puerto Rico exorbitant.

UPSHOT: San Juan is the least attractive capital city in the Caribbean 'region'

'San Juan is the least attractive capital city in the Caribbean 'region''

Well, you left out this in connection with 'mass outward migration of the middle class' - 'More than half a century ago, U.S. lawmakers sought to help Puerto Rico emerge from a colonial past, transforming its largely agrarian economy into a manufacturing powerhouse. The effort, known as Operation Bootstrap, began with a series of tax breaks designed to attract manufacturers who would provide steady factory jobs.

For a time the plan seemed to work, as standards of living in Puerto Rico rose. Between 1950 and 1980, per capita gross national product grew nearly tenfold in Puerto Rico, and disposable income and educational attainment rose sharply, according to the Center for a New Economy, a think tank based in San Juan, Puerto Rico.

One of those tax breaks, enacted in 1976, allowed U.S. manufacturing companies to avoid corporate income taxes on profits made in U.S. territories, including Puerto Rico. Manufacturers, led by the pharmaceutical industry, flocked to the island.

But by the early 1990s, the provision faced growing opposition from critics who attacked the tax break as a form of corporate welfare. Much like the current debate over corporations parking profits offshore to avoid taxes, tax reformers saw the provision, known as Section 936, as too costly for the Treasury.

The tax break also had some unintended consequences, notably the unfair tax burden that fell to domestic Puerto Rican companies.

In 1996, President Bill Clinton signed the law that would phase out Section 936 over 10 years.

Plant closures and job losses followed. '

Then the Republicans decided to put the cherry on top - 'The bill the House passed in mid-November proposes a 20 percent excise tax on offshore transactions to protect American jobs. But Puerto Rico officials say the measure could have the opposite effect.

Drug-industry jobs won’t be moving “to Alabama or any other state. They are going to go to Ireland. They are going to go to Malaysia,” said Jenniffer Gonzalez-Colon, Puerto Rico’s nonvoting member of Congress and a Republican. “Congress and the administration ran on the platform of supporting American manufacturing. That’s exactly what the manufacturing sector in Puerto Rico is -- it’s American jobs.”

Amgen is Puerto Rico’s second-largest taxpayer, according to Laboy’s office, providing revenue to repay the $74 billion the territory owes. Up to a third of the money collected by Puerto Rico’s treasury comes from pharmaceutical-company coffers, though other multinationals also have manufacturing bases there.'

Which is odd, because generally, the Republicans are in favor of corporations paying as little as possible in American taxes, though of course, there are still some who think that Puerto Rico is not part of the United States.

I'm very unfamiliar with PR, so speaking from a position of ignorance, but what exactly is it about the place that's so unsuccessful? In a world context or a Latin American context, income is pretty high, crime is not too bad.

It's easy to scoff at "racialism" but c'mon, familiarity with the everyday experience would suggest we're not going to see a EurAfricInd (Puerto Ricans seem to average about 50:30:20 Iberian:African:Taino) state succeed at the world technological and competitiveness frontier the way we see Singapore. PR seems like a success story, given its demographics. The interesting story is about how it performs relative to those demographics, not denying that those matter.

So the whites of Puerto Rico are Iberian stock which means they are not Aryan, correct? Aryans are more pure blooded and hence a more racially superior form of European. For the future of Europe, should we remove the existing Southern European people there and create a lebensraum for the racially superior groups like Han Chinese, Ashkenazi Jews, and Northern Europeans. Racialism sounds fun. I like where this is going. I'm also a GMU Blogger who does not suffer from social desirability bias.

Jesus Christ.

So. "Demographics suggest Puerto Rico, the highest HDI economy in Latin America and one with the same GDP per capita as Spain and Italy, is doing fine for a population roughly half Iberian and half African and Taino, and is a success story" = "Some mental rant about Aryans and the ethnic cleansing of Europe". In your mind.

'everyone lives under cruise ship law'

Nope - the laws of the flag the ship is registered still apply, and there is also admiralty law. A crew member of a cruise ship cannot murder a passenger, claiming that 'cruise ship law' is applicable.

Further, going outside the recognized norms (admiralty law) can lead to charges if someone under cruise ship law decides robbing passengers is a profitable venture.

'Admiralty law, also called maritime law, is a combination of U.S. and international law that covers all contracts, torts, injuries or offenses that take place on navigable waters. Admiralty law traditionally focused on oceanic issues, but it has expanded to cover any public body of water, including lakes and rivers. These laws largely cover interactions between two or more ships, the ship captain's obligations to the crew and passengers, and the rights of crew members, as well as other legal issues.'

Cowen didn't say that other laws don't apply, though. Seems you're creating a straw man, my friend.

Or taking the entire opening at face value ('... there is the minimal charter city. During a cruise ship vacation, everyone lives under cruise ship law. This works fine, and is easy to start up, but it also has limited applicability'), Prof. Cowen possibly is confusing the various (generally ignorant or misguided) sea steading ideas with a well regulated area of law. Cruise ships as a metaphor for a charter city is ludicrous, unless you would also talk about how an amusement park is a charter city where you are subject to 'amusement park' law while wandering around after paying for admittance. Though it is true that no one has to make a big cultural shift, as long as they don’t get sick while riding the rollercoaster.

1. Cruise ship "laws"? He spouts rubbish, as you implied. 2. Puerto Rico is a city??? 3. Italy and especially Sicily - seem to be a fly in his ointment.

British suzerainty over India was quite a success, despite what you seem to think.

well Hong Kong was surely a success? Perhaps it's lost its lead over Singapore since it was handed back to China in the 1990s, but who doesn't think Hong Kong is a Good Thing? All the trading cities of the British Empire are full of life - Singapore, Hong Kong, Sydney, Cape Town, London ... .

British Rule in India did have 3 successful "charter cities": Calcutta, Bombay and Madras.

The problem was the failure to raise agricultural productivity: In many ways this was next to impossible until the green revolution, especially given the poor finances of the Raj (government revenue was 5-10% of GDP in the early 1900's!).

The British in India and China had something in common with Brazil and other gang and drug infested basket cases of today. While imposing generally good laws within the British Empire, eg abolishing Suttee in India and slavery in many places, the British Empire nurtured and then fought barbarous wars to defend British and US opium monopolies, causing massive suffering in China. It was an empire that imposed its drug mafia on outsiders, but apart from that monstrous lapse of morality was a Good Thing.

Actually, Brazil is not drug or gang-infested. Most Brazilians are law-abiding.

Yes, culture is important. That’s why I think the key differentiator is green-field vs brown-field. If you start from scratch, only people already predisposed with the proposed law system will come.

Another indispensable characteristic for the success of the model in changing the world is that there be enough for them to create a real competition in improving continuously the governance product. Otherwise, they will be successful, but not enough to present a existential threat to the Nation states and force them to change or to die (my guess is to die, but let the market decide, of course)

One obvious issue is relative size, i.e. both Hong Kong and Singapore were physically small and geographically constrained access, and I believe had fairly low populations when the Brits initially stepped in. Not cruise ship small and constrained, but not continental Brazil or India.

Size and concentration (of cultural memes) matters.

One might argue for instance that PR would have been better off had the US stepped in and aggressively imposed US culture. No income tax and a tropical climate should be a pretty big advantage.

Cowen doesn't mention the U.S. colony the Philippines. While the Philippines was a U.S. colony, from 1901 to 1935, its economic growth rate was only 1.4% (that's the calculated rate), but after the Philippines was granted commonwealth status in 1935 (its independence was granted in 1946), the growth rate greatly increased (ranging from 4% to 9.9%). Does this mean being a U.S colony was not good for the economy, or does it mean that it set the economy on a path of rapid growth once it was granted independence? Rapid growth after WWII was partly attributable to rebuilding the war-torn country, partly attributable to a reciprocal agreement with the U.S. that would allow U.S. firms to extract Philippines' natural resources in return for which the U.S. would provide aid for rebuilding the war-torn country, and partly attributable to the reorganization of the government similar to the structure of the U.S. government. Despite the brutal war (the Philippine American War) that resulted in the country becoming a U.S. colony, people in the Philippines have a very favorable view of Americans, and the relationship between the U.S. and the Philippines is often described as "special". The current president of the Philippines, however, has chosen a closer relationship with China over the "special" relationship with the U.S.

'Why not just spread the best laws to more jurisdictions? But does spreading the law without the underlying culture suffice?'

Napoleonic law - success of failure when spread throughout continental Europe?

Interesting questions whether law without culture can be exported. The Brits successfully exported their legal system to lots of countries along with their culture. They successfully exported their legal system with some of their culture to Sing and HK. They exported their legal system and less of their culture to India somewhat successfully. The US tried to export parts of its legal system minus culture to a lot of the former Soviet Union very unsuccessfully. All of the new world imported its legal systems from Britain, France (the civil law) or Germany. Sounds like a topic that needs a lot more research.

"One problem is that exporting legal systems without exporting their cultural preconditions can lead to failure."

The question is how was this previously not understood - much less publicly stated - by any American political figure except for Pat Buchanan and Donald Trump?

Two other kinds of charter cities would be the internal special zone like Shenzhen and the mixed-provenance Romer-Ville in Honduras.

Good points, thanks for sharing.

I don't see why you would make up a new term for a "hegemon-backed charter city" instead of just calling it a colony. That's what all your opponents are going to do -- might as well use the commonly-accepted word.

Tyler Cowen confirmed Alt-Right.

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