Charter Cities and the Search for Guinea Pigs

For the last several years, Paul Romer has worked out a careful plan to launch a charter city in the developing world.  He seeks to test the hypothesis that economic development and “inclusive growth” can take place in a poor nation if it commits to changing its “rules of the game” regarding taxation and regulation.   To test this important hypothesis requires a partner who is willing to commit to devoting a geographical area within its boundaries to be the home for the new city.   The NY Times reports bad news in the case of  Honduras.

I am a Visiting Scholar at NYU’s Urbanization Project. Here is a quote:

“There are two ways to accommodate the additional 3 – 5 billion people who will end up in cities this century: expand existing cities or build new cities. UP will therefore start with two primary initiatives. One, led by Paul Romer, will focus on new cities and particularly the potential for new cities to advance reform in the developing world and to improve choices for urban migrants. Another initiative, led by Shlomo Angel, will focus on the expansion of existing cities in the developing world.”

When an academic has a new idea, how often does he/she find a “guinea pig” who is willing to try it out?  I moved to California in part because of my excitement about being involved in the implementation of the state’s anti-carbon AB32 initiative.   This is a green guinea pig effort.

In the case of charter cities,  I’ve joined Romer’s NYU team to work on the possibility that these charter cities will be “green cities” because of the new rules and incentives that would introduced in such cities.  For example, starting from a clean slate such cities might be able to introduce congestion pricing and pollution pricing to minimize urban pollution externalities that damage quality of life in cities around the world.

Author: Matthew E. Kahn

Professor of Economics at UCLA.

20 thoughts on “Charter Cities and the Search for Guinea Pigs”

  1. Doesn’t a lot of this depend on your definition of “new city”? Also, how do you feel about the reasons that led to Romer’s withdrawal (along with many others) from the Honduras initiative? The issues there suggest that, rather than responding to enlightened-self-interest market pressures for more open governance and sensible planning, the big capital that’s available is doubling down on the old opaque, authoritarian models. Which would not bode terribly well for faith in market solutions going forward.

  2. Boy, well intended though it might be, this just has all the hallmarks of disaster, kind of a Biosphere 2 on steroids. There’s just something about folks who insist on the need for starting with a clean slate that bodes ill … I once researched a little into the strange Technocracy movement, which seems like the spiritual parent of this, and it reminded me of somebody’s great line about communism: ” right theory, wrong species.”

    1. More limited versions of the “city with special rules” set-up have worked very well in the past. China’s “Special Economic Zones” were a huge success, particularly the one around what is now Shenzhen (they turned a fishing village into one of China’s biggest manufacturing, financial, and shipping centers). That was one of Romer’s inspirations.

      At least on paper, it shouldn’t be too much of an extension to make an SEZ with some extra rules designed to favor “green growth”. The biggest problem would be actually enforcing the rules in a poor, probably corrupt country. Effectively starting a new city might help with that, since the institutions are more malleable in general even if you don’t have a specific “charter” plan for them.

        1. That doesn’t change the fact that it’s an economic dynamo of a city. New York City had a huge crime rate in the late 19th century, too, but would you argue that it never should have grown big in the first place because of that?

    2. I prefer Will Rogers’, “Communism is like Prohibition: it’s a good idea, but it won’t work.”

      Or Frank Zappa’s, “Communism doesn’t work because people like to own stuff.”

      The “right idea, wrong species” meme appears to go back to Edward O Wilson: “Karl Marx was right, socialism works, it is just that he had the wrong species”, which appeared in a New York Times profile of Wilson.

      1. Or A. Whitney Brown, for which I have to rely on memory, but when something like “Marx and Lenin believed that if you take away the financial incentives for oppression, people will get along. They didn’t seem to realize that people will oppress other people just for the hell of it.”

    3. Ditto, double dog ditto. “Autonomous development zone” = shenanigans = same old, same old. They should call it Hubris City.

      Having said that, their stated intentions are a tiny bit endearing. I always knew libbietarians were utopians and Fruitvale-rs. Honestly, it’s kind sweet. Except that it won’t work.

      1. California has 121 charter cities and none of them anywhere near to being libertarian utopias.

        1. Technically that’s true, but the idea behind this iteration of “charter city” is that they are going to create a new city on the hill, without corruption, regulation, or any labor unions. They think they are re-making humankind. What I don’t understand is, where do they think they will find New People?

          1. The charter cities wouldn’t, necessarily, even try to be libertarian in nature. Or that libertarians would even want to live in them. It’s just that libertarians don’t disapprove of them. Charter cities could be something like homeowners’ associations writ large.

    4. The other thing is, how do you measure success? If you just look at growth rates, you can argue that Pinochet was a great man. And there are people even in the US who will sometimes say it with a straight face.

  3. This is a great idea if you want to construct Dubai 2.0. What the world certainly needs is more havens for the fabulously wealthy supported by an army of 3rd world slave labor.

  4. These already exist on the border. They are called maquiladoras. And no, I don’t see why they are an improvement.

  5. I somehow doubt that the people who already live in these areas are entirely on board. Whatever Mr. Romer’s personal motives may be, this strikes me as just another rebranding effort for imperialism in Latin America.

  6. Charter cities would not likely be pleasant compared to Western cities, but they would be large steps above grinding poverty under the severely corrupt local governance available elsewhere in the proposed host countries. Criticism that Romer wants to design a utopia or a plutocrat’s playground isn’t well informed; most laws would be based on successful cities instead of dreamed up by technocrats.

  7. Funny how Jane Jacobs just gets written out of the canon of political economy, no matter how correct her observations and theories turn out to be in practice. Organic systems anyone?


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