Charter Cities

An NPR interview with Stanford economist Paul Romer today caught my ear. He was talking about his “charter cities” project. The idea is to have rich well-governed countries create new cities on empty land either domestic or foreign by establishing the governing rules and institutions, then inviting people from poor, ill-governed countries to move there. Investment will flow in and enterprise will flourish, giving the migrants an opportunity for a better life.

Here is one of Romer’s hypothetical examples:

In a treaty that Australia could sign with Indonesia, Australia would set aside an uninhabited city-sized piece of its own territory. An official appointed by the Australian prime minister would apply Australian law and administer Australian institutions, with some modifications agreed to in consultation with the government of Indonesia.

People from Indonesia, many of them lower-skilled workers, could come live as temporary or permanent residents in this zone, but would remain citizens of Indonesia. A portion of their labor income could be taxed and return to the government in Indonesia. Levels of free public services and welfare support would be comparable to those in Indonesia. As citizens of Indonesia, the Indonesian inhabitants of the city would have no claim on residency or citizenship in Australia proper. They would be subject to the same immigration controls whether entering Australia from this zone or from Indonesia.

Highly skilled workers from all over the world would be welcomed as well, but would be subject to the same immigration controls they would face from their home countries. Australian citizens and firms would be able to pass freely between Australia proper and the new charter city.

The point he stresses is that poverty results from bad rules within a country—not from, say, international trade regimes, military force, the machinations of domestic elites, etc. etc. Naturally, the rules Romer suggests the well-governed countries would establish for their charter cities are all about “free” markets. For instance, he claims the reason many Haitians do not have electricity is because the law there gives public-sector utilities a monopoly; a charter city for Haitians (in Brazil, he suggests) would allow private corporations to provide electricity and thus solve the problem.

Not sure this is such a new idea. The Australia/Indonesia example above sounds suspiciously like a good old “free-trade zone,” for example, the FTZ we reported on back in 2002 in Haiti, where Dominican Republic textile companies could benefit from cheap Haitian labor without even having to let any Haitians into the DR.

Read more about Romer’s plan here.