In the Venal Colony
posted by Frank Pasquale
Paul Romer is an accomplished man; as he puts it, “I revived growth theory. I made technology work in higher ed. I am two for two, and I think the impossible can be done.” His new idea is to promote economic growth in poor countries by establishing zones within them that are administered by business-friendly foreign governments:
Romer is peddling a radical vision: that dysfunctional nations can kick-start their own development by creating new cities with new rules—. . . centers of progress that Romer calls “charter cities.” By building urban oases of technocratic sanity, struggling nations could attract investment and jobs; private capital would flood in and foreign aid would not be needed. . . . [To run the cities,] Romer looks to the chief source of legitimate coercion that exists today—the governments that preside over the world’s more successful countries. To launch new charter cities, he says, poor countries should lease chunks of territory to enlightened foreign powers, which would take charge as though presiding over some imperial protectorate. Romer’s prescription is not merely neo-medieval, in other words. It is also neo-colonial. . . .
When Romer explains charter cities, he likes to invoke Hong Kong. For much of the 20th century, Hong Kong’s economy left mainland China’s in the dust, proving that enlightened rules can make a world of difference. By an accident of history, Hong Kong essentially had its own charter—a set of laws and institutions imposed by its British colonial overseers—and the charter served as a magnet for go-getters. At a time when much of East Asia was ruled by nationalist or Communist strongmen, Hong Kong’s colonial authorities put in place low taxes, minimal regulation, and legal protections for property rights and contracts; between 1913 and 1980, the city’s inflation-adjusted output per person jumped more than eightfold, making the average Hong Kong resident 10 times as rich as the average mainland Chinese, and about four-fifths as rich as the average Briton.
The idea of a “charter city” brings to mind some of Diane Ravitch’s critiques of charter schools:
The media like to focus on a star charter school, as though one extraordinary school is typical. The teachers are young and enthusiastic; the children are in uniforms and well behaved, and they all plan to go to college. But such stories often overlook important factors about charters: one, the good charters select students by lottery, and thus attract motivated students and families; two, charters tend to enroll a smaller proportion of students who are limited–English proficient, students with disabilities and homeless students, which gives them an edge over neighborhood public schools; and three, charters can remove students who are “not a good fit” and send them back to the neighborhood school. These factors give charters an edge, which makes it surprising that their performance is not any better than it is.
It would likely be very difficult to prove that a “charter city” succeeded on the basis of its “better laws,” rather than its attractiveness to the most ambitious workers. The questions of legitimacy raised by Romer’s proposal are difficult, too. US landlords may attempt to contract into their own “private Idahos” in Greenwich Village, but will international law smile on charter city arrangements? What happens when there is a regime change in the country that originally controlled the city space, and the new regime wants it back?
In any event, for further discussion of the idea, check out Russ Roberts’s interview with Romer, which is very substantive.
July 21, 2010 at 5:03 pm
Posted in: Corruption, International & Comparative Law, Politics
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Responses (3)
A.J. Sutter - July 21, 2010 at 10:38 pm
As for two-for-two: I’m sorry, aside from inspiring dot-com hype, his 1990 growth theory is nonsense. As the paper itself admits (and an examination of its production function shows), growth itself is an assumption, not a result, of the model. His Stanford colleague Charles Jones, whose praise for the paper appears in the Atlantic interview to which you link, may have been referring only to its originality: two papers from Jones in 1995 showed that Romer’s conclusions about the influence of R&D expense on total factor productivity were empirically false. And BTW, Romer’s talk in interviews and articles about the vast number of possible combinations from the periodic table bears an eerie resemblance to Ayn Rand’s dictum that the only form of human creativity is to rearrange combinations of the natural elements.
As for the charter cities issue, the blindness to the political renders makes many stories of growth seem more miraculous than they are. HK grew not only because of its charter, but because it was a British colony and a bulwark against Communism. It’s no accident that Germany, Japan, Taiwan, S. Korea and HK grew so much: they were in the front lines of the Cold War, and got huge amounts of aid from the US. Singapore was similarly situated: there were Communist insurgencies in Malaysia and Indonesia in the ’50s and ’60s. (Lee Kwan Yew also revealed in his autobiography that because of shared status as a tiny country surrounded by Muslim nations, Israel gave substantial military support to Singapore.) But the stories about Madagascar and Fiji in the interview prove this political point only too well. The world is lucky that PR was too vain to accept a position at the World Bank; maybe there is an invisible hand, after all.
BDG - July 22, 2010 at 4:47 pm
In the rare instance, Frank, I think we may differ. The fact that charters (both municipal and educational) attract the most motivated is not a confounding factor that limits our ability to assess success: it is the key to success. Putting motivated and sucessful people together is one of the things that cities do to create economic value, and peers are keys to good learning.
Of course, this leaves the question of what happens to the folks who experience the talent drain. The ideal is redistribution of some the rents created by talent concentration. So whether one supports charters may depend on one’s optimism about this happening, or if instead one thinks (for instance) that the wealth generated will be leveraged politically to prevent redistribution.
Frank Pasquale - July 23, 2010 at 11:33 am
@BDG: Yes, that does make a lot of sense. People can play a much better game if they’re playing with others who share their level of skill, interest, and motivation. I just hope that these charter areas don’t end up being enclaves with little to no responsibility for helping the people they’ve left behind. That seems to be a common narrative in many places in Latin America…that Lima feels too little connection to the rest of Peru, for example, and Miraflores within Lima has done too little to help the rest of Lima.
@AJ: Yes, the macro-story about why certain regions grew does not seem susceptible to analysis that requires “clean identification” of independent variables. It’s a much more complex, messy (and interesting) story (or set of stories).
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