A Radical Plan for Helping Poor Countries: Charter Cities

I am not going to read thousands upon thousands of words containing constant use of the n-word, extreme arrogance and purple prose.

I admit that I find this critique rather convoluted, but as far as I can tell, the primary criticism of Romer's proposal is that setting up such a "charter city" requires that an empoverished country cede some level of control to a powerful Western country. The author of this critique seems to think that this amounts to "Colonialism", and would be another example of powerful Western nations taking advantage of weaker third world countries.

There are several reasons why I think this allegation is wrong. First, as far as I can tell Romer wants to build his new charter cities where there are no cities now, not re-make (or assume control of) existing cities. This is land that, if populated at all, is sparsely populated and not developed. It is not particularly valuable now, so little of value would be given up by the host country.

Second, Romer is very explicit that no force is involved: "Charter cities would not rely on coercion, he insists, and no one would be forced to live in them." I suppose it would be a problem if such cities were used to export surplus population from powerful Western countries, except the birthrate is below replacement in most developed countries. I doubt that this would be an issue.

That brings me to why I think this is a good idea, or at least worth trying. One of the biggest differences between prosperous countries and poor countries (apart from their GDP) is what is often referred to as "intangible wealth." This encompasses many things, but it basically boils down to the value provided by stable, functional institutions and the rule of law. Two articles on this can be found at http://www.reason.com/news/show/120764.html and http://online.wsj.com/article/SB119103046614343129.html, both discussing a 2007 study by the World Bank. The problem is that if you can't trust institutions, you can't grow an economy, and a lot of effort is channeled into unproductive tasks. If you can't trust the police, crime expands and legitimate business is hurt. If you can't trust a corrupt government not to seize/nationalize a profitable business what's the point in being an entrepreneur?

The central idea of the charter city plan is to establish a City where there is a reasonable amount of law-and-order, and to create institutions that can be trusted there. In other words, the goal is to inject a little bit of "Intangible" capital into the system. If this could be done, it might be possible to grow this seed of stability/organization which would allow the growth of such institutions in the third world nation, transforming it.

This plan is very likely very over-optimistic and there would doubtless be huge problems. However, if it worked, it would be a truly amazing hack: actually bringing a country or region of a country out of poverty.