“The secret to turning a poor nation into a rich one can’t be found in a World Bank report. It wasn’t hatched in the corridors of the International Monetary Fund, either. It came from the British Empire. That is one way, at least, of interpreting Stanford economist Paul Romer’s new plan for turning economically backward countries like Cuba into engines of growth like China. 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. One problem, admits Romer, is the parallel between charter cities and colonialism. Great Britain, for instance, would surely have qualms about taking over a few hundred acres of coastline in Ghana, where the legacy of slavery is still deeply felt. Romer says the similarities are surface level only—there’s no coercion involved in a charter city since it would be founded on empty or near-empty land, and anyone who lives there would do so by choice. Charter cities would only be considered in countries that welcome them. But the colonial parallel would certainly still rankle some. One way to mitigate the PR problem would be to let a group of rich countries administer the charter area; that way, no single nation could be accused of exploiting the host.”
“Halfway through the 12th Century, and a long time before economists began pondering how to turn poor places into rich ones, the Germanic prince Henry the Lion set out to create a merchant’s mecca on the lawless Baltic coast. He seized control of a fledgling town called Lübeck, had Niclot beheaded on the battlefield, and arranged for Lübeck to become the seat of a diocese. A grand rectangular market was laid out at the center of the town; all that was missing was the merchants. To attract that missing ingredient to his city, Henry hit on an idea that has enjoyed a sort of comeback lately. He devised a charter for Lübeck, a set of “most honorable civic rights,” calculating that a city with light regulation and fair laws would attract investment easily. The stultifying feudal hierarchy was cast aside; an autonomous council of local burgesses would govern Lübeck. Onerous taxes and trade restrictions were ruled out; merchants who settled in Lübeck would be exempt from duties and customs throughout Henry the Lion’s lands, which stretched south as far as Bavaria. The residents of Lübeck were promised fair treatment before the law and an independent mint that would shelter them from confiscatory inflation. With this bill of rights in place, Henry dispatched messengers to Russia, Denmark, Norway, and Sweden. Merchants who liked the sound of his charter were invited to migrate to Lübeck. The plan worked. Immigrants soon began arriving in force, and Lübeck became the leading entrepôt for the budding Baltic Sea trade route, which eventually extended as far west as London and Bruges and as far east as Novgorod, in Russia. Perhaps the only thing more remarkable than Lübeck’s wealth was the influence of its charter. As trade routes lengthened, new cities mushroomed all along the Baltic shore, and rather than develop a legal code from scratch, the next wave of city fathers copied Lübeck’s charter, importing its political and economic liberties. The early imitators included the nearby cities of Rostock and Danzig, but the charter was eventually adopted as far afield as Riga and Tallinn, the capitals of modern Latvia and Estonia. The medieval world had stumbled upon a formula for creating order out of chaos and prosperity amid backwardness. Lübeck ultimately became the seat of the Hanseatic League, an economic alliance of 200 cities that lasted nearly half a millennium.”
Laboratories for Innovation
Q. Let’s move to logistics. Who might grant the charter for one of these cities and see that it will be enforced?
A. Different charters could specify different arrangements. This means that we could try many new types of innovative structures. If a national government has sufficient credibility, it could start a charter city within its own territory and administer it from the national capital. This is, in effect, what some countries have done when they have created special economic zones with rules that are different from the ones that prevail in the rest of the country. You could imagine that a country like India might try something like this to speed up urbanization by cutting through many local rules that get in the way of urban development. In poorer countries that don’t have the same kind of credibility with international investors, a more interesting but controversial possibility is that two or more countries might sign a treaty specifying the charter for a new city and allocate between them responsibilities for administering different parts of the treaty. Let me give you a specific example. Right now, the United States and Cuba have a treaty that gives the United States administrative control in perpetuity over a piece of sovereign Cuban territory, Guantanamo Bay. I’ve suggested that Canada and Cuba sign a new treaty in which Canada would take over administration of this area, bring Canadian rule of law there, and let a city grow up that could bring to Cuba some of the advantages that Hong Kong brought to China.
Q. It all sounds great as a theoretical exercise, but honestly, don’t your colleagues tell you that something like this will never happen?
A. They do say this, which is actually kind of ironic when you line it up with the other things they say. They recognize that the construct of a charter city is something that could make everyone better off. They admit that there is no technological or economic constraint that keeps us from building many of these. Then they say that for political reasons, it will never happen. They tell me that you can’t change politics; you can’t overcome nationalism; there is no way for countries to work together to extend the reach of good rules. Then these same economists suggest that we should just stick to business as usual. We should offer conventional economic advice and assume that political systems will naturally follow our advice when we point to something that could make everyone better off. But of course, they have already revealed that they don’t believe this. What’s going on here is a kind of self-censoring. Economists seem to think that we should propose things that are acceptable and that political systems will pursue, but that we should avoid proposing or even discussing things that are controversial or politically incorrect. I think we’d do our jobs better if we just said what’s true without trying to be amateur politicians.
students do homework under the parking lot lights at G’bessi Airport in Guinea