Charter cities


Paul Romer has an interesting idea: Charter cities. Romer envisions a city where the rules about property and safety and contract and so on are rules that allow individuals to flourish in an urban setting. Basically, the suggestion is that rich countries build and run new cities in poor countries.

It is noble in intentions, but I am not so sure that this plan will work. Like all top-down government initiatives there is a very real risk of the misallocation of resources. Although ‘Western’ governments perform less badly than other countries, they are not the reason that the ‘West’ contains countries that are relatively successful. Instead, it is the laws, culture and mores that have built up organically over hundreds of years, the increased wealth generated by brief periods of freedom, and the growth and strength of institutions that were formed prior to the ballooning state, even if they came to usurped by the governments

The example of Hong Kong is used by Paul Romer to show how a foreign power can export rules that bring about economic development, but the key facet of Hong Kong’s development was the lack of government rules and interventions. The reason it faired better than China was not because the government was not Chinese, but because there was much less government. It was as close to a true laissez-faire case study that we have.

The idea that one can implant new rules into a foreign country and expect all to be fine is frankly utopian. Perhaps given how dire the living standards in many of these countries are, little harm would be done. Yet as with most developmental ideas sold as silver bullets, they are more likely to be costly blanks. With most ‘Western’ governments facing massive public deficits, they should instead focus on how to better run the countries they are currently in charge of.