If You Build It, They Will Change Their Undemocratic, Illiberal Ways

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Economist Paul Romer has a new idea and a blog to go with it, Charter Cities Blog,

Barrett Sheridan in Newsweek:

Experts have long known that the traditional tools of development don’t work: free trade, foreign investment, and charity have failed as many countries as they’ve helped. The rot in a dysfunctional country is at its core—in the laws, institutions, and informal rules that govern daily life.

How to fix a problem so fundamental? Let a rich country take over part of a poor one. The hope, says Romer, is that the superior norms of the developed country will take root abroad. He calls his plan Charter Cities and illustrates it with a thought experiment. Imagine if the U.S. closes its prison at Guantánamo Bay and hands the land over to Canada, which agrees to develop it. “A new city blossoms,” writes Romer.

It does for Cuba what Hong Kong, administered by the British, did for China; it connects Cuba to the global economy. 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. The new city gives the Haitians their only chance to choose to live under a system of law that offers safety and opportunity.
Private contractors rush in to build airports and infrastructure, lured by the prospect of rising property values. Multinational firms open factories, attracted by the proximity to low-cost labor and the certainty of the Canadian legal system. Eventually, Cuban authorities decide to replicate the experiment across the island, opening new, Guantánamo-like “special economic zones,” much as mainland China did starting in 1979, taking the Hong Kong model to Shenzhen and beyond. When played out on a global scale, “the gains from doing this are just enormous,” says Romer.

Paul Romer at TED:

Arnold Kling:

Paul Romer, in presenting his idea for charter cities, makes it sound as though we can take rules “manufactured” in, say, Canada, and export them anywhere in the world. Leoni would say that instead most law is embedded in social customs In fact, my daughter who just spent the summer in Tanzania, says that the custom of seeing law as something that ought to be obeyed is not nearly as natural there as it is here.

Tyler Cowen:

I’m all for this idea (how would the Swiss do in Nigeria?), but I fear that Hong Kong is a cautionary tale in the other direction.  Due mostly to the pressures of nationalism, the world’s most successful development experiment was ended without a second thought.  And its initiation was backed by brute colonial force.  Which country is most likely to allow another country to manage part of its territory in a new experiment?

Alex Tabarrok:

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.

[...] 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.

Will Wilkinson:

Hong Kong and it’s effect on China is Romer’s big example. Alex Tabarrok says that Hong Kong’s reintegration into China really marked China’s integration into Hong Kong. I think this is too hopeful. China remains authoritarian, illiberal, undemocratic and not at all enamored of the distinctively English spirit of laissez faire behind the Hong Kong experiment. I think it’s interesting that these facts are clearly assets to the Charter Cities project. What the example of Hong Kong communicates is that authoritarian, illiberal, undemocratic regimes need not feel threatened by semi-independent city states with working “liberal” market institutions. It says to rulers that their countries can get rich without granting their subjects real freedom.

What should we make of this message? Should we encourage it? Is Romer trying to encourage it? Does Romer believe it? Or does he believe that high growth rates sooner or later lead to broader liberalization. Maybe it’s OK to let this cat out of the bag as long as the pace of liberalization is slow enough that current illiberal rulers are never really threatened by the liberalizing externalities of charter cities. But is there any way to credibly make this assurance?

Transition Culture:

No talk of resource constraints, resource depletion, the possibility that free trade hasn’t been an unbridled success everywhere, no mention of food growing, no mention of lots of reasons why building new cities in the desert is really not a very good idea and that there are very obvious reasons why it hasn’t been done before.

The Distributed Republic

UPDATE: Arnold Kling

Will Wilkinson

UPDATE #2: E.D. Kain at The League

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