A Quick Case For Charter Cities

[kevinquinnyo]

This is interesting. I'd never heard of the concept of a "charter city."

Caplan, Bryan. A Quick Case for Charter Cities: Memo to the Gates Foundation

The Bill and Melinda Gates Foundation has an interesting accountability mechanism. After they make a major funding decision, they solicit pro and con memos on "roads not taken" - other ways they could have spent their money. Since the Gates Foundation recently decided not to back charter cities to help reduce global poverty, they asked me to write a memo to explain why they made a mistake. Here's the full text of my memo, reprinted with permission:

http://econlog.econlib.org/archives/2011/03/a_quick_case_fo.html

 

[WildCat]

I don't disagree that economic growth is the key to reducing poverty and raising living standards, but charter cities don't sound very practical to me.

 

[Puppycow]

The success of Hong Kong is a key inspiration. At the dawn of British rule, the land area that is now Hong Kong was sparsely inhabited. But it had one blessing denied to the rest of China: British rules - written and unwritten, sheltered by a 99-year treaty with the Chinese government.

Hong Kong is an example of colonialism and was essentially taken by force. It's hard to imagine a third world country agreeing to essentially cede sovereignty over some of its territory voluntarily.

 

[quixotecoyote]

Hong Kong is an example of colonialism and was essentially taken by force. It's hard to imagine a third world country agreeing to essentially cede sovereignty over some of its territory voluntarily.

There have been plenty examples where a mining or agricultural corporation essentially controls a town with the backing of the host government. Usually did not go particularly well for the locals. It would be interesting to see a benevolent version tried.

 

[NewtonTrino]

Impressive essay.

I think the biggest reason to try this is simply that there isn't too much of a downside.

Pulling it off is another thing but some well applied dollars to pay of dictators, kings or whatever might make this possible. Surely some of them also might see this is in their best interests?

Bottom line I've heard very few other credible ideas for fixing 3rd world poverty that are as practical and risk free as trying something like this.

 

[Earthborn]

Another upside of charter cities is that there is virtually no downside. A charter city begins on empty land.

I can think of a little downside: where is he going to find "empty land" ?
Some "3rd World" nations are selling large tracts of land to foreign businesses (though not to allow them to set up their own state) but usually those governments do so without consulting the people living on it. It will be difficult to find a piece of land that has no people living on it, and that also isn't an important nature reserve.

The whole concept shows a profound disdain for "3rd world" countries, by suggesting that they need "1st World" governance because there own governments are supposedly not good enough. Some 3rd world governments are however doing relatively well, and the governments that do not cannot be trusted enough in such deals; I don't think you can create a charter city in a warzone or in a place where people live that government wants to get rid of.

It wouldn't be the first time a profoundly problematic idea was presented with the words "there is virtually no downside".

 

[kevinquinnyo]

I can think of a little downside: where is he going to find "empty land" ?
Some "3rd World" nations are selling large tracts of land to foreign businesses (though not to allow them to set up their own state) but usually those governments do so without consulting the people living on it. It will be difficult to find a piece of land that has no people living on it, and that also isn't an important nature reserve.

The whole concept shows a profound disdain for "3rd world" countries, by suggesting that they need "1st World" governance because there own governments are supposedly not good enough. Some 3rd world governments are however doing relatively well, and the governments that do not cannot be trusted enough in such deals; I don't think you can create a charter city in a warzone or in a place where people live that government wants to get rid of.

It wouldn't be the first time a profoundly problematic idea was presented with the words "there is virtually no downside".

Only a city sized chunk of land is required. The dictator could collect rent. I don't see that it's entirely implausible. Sure there's a downside, it could not work out, but that's the point, traditional types of charity have failed to reduce poverty - you can't just throw money at the problem.

I don't know much about it, but I don't think there's an issue of unavailable land.

 

[geni]

Impressive essay.

I think the biggest reason to try this is simply that there isn't too much of a downside.

The main downside is that in practice the most rational course for such a city would be to become yet another tax haven and they are causing enough problems already.

The choice of hong kong as an example is also worrying. Hong kongs internal markert is not something anyone who has any faith in capitalism would like to see spread (it's external market on the other hand is extrealy capitalist.

Pulling it off is another thing but some well applied dollars to pay of dictators, kings or whatever might make this possible. Surely some of them also might see this is in their best interests?

Oh no pulling it off in the short term is pretty easy. Remember from the pov of most dysfunctional goverments someone leasing something from you for a fixed cost of say 100 million a year is a great deal. The special economic area in north korea is probably the most obvious example. The problem is of course is that while Hong Kong's independence was first backed by a super power and later by a mid level power with nuclear weapons no such backing would exist for a charter city. Charter city like states without that kind of backing tend not to last if they do something the goverment doesn't like.

However there is also the issue of geography. Hong Kong has a lot going for it. It's an island so it has acess to the sea. It's also nicely positioned as a safe place to trade With china from which was historicaly very important. Being a key link in the trade route between the British Empire and China is a massive economic opturnity.

By comparison what would a charter city in say the centeral african republic (ignore the low level war there for a moment) have going for it?

 

[kevinquinnyo]

The main downside is that in practice the most rational course for such a city would be to become yet another tax haven and they are causing enough problems already.

The choice of hong kong as an example is also worrying. Hong kongs internal markert is not something anyone who has any faith in capitalism would like to see spread (it's external market on the other hand is extrealy capitalist.



Oh no pulling it off in the short term is pretty easy. Remember from the pov of most dysfunctional goverments someone leasing something from you for a fixed cost of say 100 million a year is a great deal. The special economic area in north korea is probably the most obvious example. The problem is of course is that while Hong Kong's independence was first backed by a super power and later by a mid level power with nuclear weapons no such backing would exist for a charter city. Charter city like states without that kind of backing tend not to last if they do something the goverment doesn't like.

However there is also the issue of geography. Hong Kong has a lot going for it. It's an island so it has acess to the sea. It's also nicely positioned as a safe place to trade With china from which was historicaly very important. Being a key link in the trade route between the British Empire and China is a massive economic opturnity.

By comparison what would a charter city in say the centeral african republic (ignore the low level war there for a moment) have going for it?

From what I read here, coastal areas are ideal places to start this.

While it's true that certain areas are better than others, it's historically undeniable that the most important criteria for a high standard of living/stable economy is property rights, and enforceable contracts. If charter cities' contracts can be backed by other nations and investors, it seems more plausible.

 

[geni]

From what I read here, coastal areas are ideal places to start this.

Central african republic is landlocked. Yes I'm sure that there are people out there would would like to own a private bit of coastline to set up their model city. Those are after all high value sites. Thing is all the useful bits tend to be already taken.

While it's true that certain areas are better than others, it's historically undeniable that the most important criteria for a high standard of living/stable economy is property rights, and enforceable contracts.

You can enforce all all the property rights and and contracts you like in the middle of the Sahara hyper-arid region. You are still not going to get a higher standard of living that the old eastern block.

If charter cities' contracts can be backed by other nations and investors, it seems more plausible.

Most countries already have all the tax havens they need why should they back another one?

 

[Earthborn]

Only a city sized chunk of land is required.

Yes, a city sized chunk of land in a place where a city can thrive. Or in other words, the kind of place where there already tend to be cities.

The dictator could collect rent.

No one ever went broke betting on the honesty and generosity of dictators.

What happens when the dictator decides s/he deserve to collect more? What happens when the dictator decide that the prosperous city next door deserves to be ruled by him/her? What happens if the dictator is deposed and the newly elected government decides with great popular support that the dictator rented out the city illegitimately and it needs to be rejoined with the original country immediately?

traditional types of charity have failed to reduce poverty - you can't just throw money at the problem.

Traditional types of charity, combined with traditional types of trade and traditional types of government regulation have reduced poverty in many countries considerably. Let Hans Rosling's dataset change your mindset. This is particularly true of countries that would be most suitable for "charter cities", but what "charter cities" are intended to accomplish, they can do themselves.

From what I read here, coastal areas are ideal places to start this.

Coastal areas and areas close to major rivers are the ideal places to do pretty much everything we do, which is why those places tend not to be available any more.

While it's true that certain areas are better than others, it's historically undeniable that the most important criteria for a high standard of living/stable economy is property rights, and enforceable contracts.

The living standard in some parts of China is already rivalling that of the USA. China does not recognise any property rights and poorly enforces contracts. The reason some areas of China have such a high living standard is obvious when you realise which areas they are: the "ideal places" to start a "charter city", which are the places the Chinese government decided to build cities.