Paul Romer and his Charter City

People always think that the unfamiliar is impossible. Many times, all that holds us back is a failure of imagination.” --- Paul Romer.


Half the world now lives in a city, for the first time in history — and the intellectuals are finally catching up with that fact. There’s New Yorker journalist David Owen, who points out that city living is environmentally friendly: the elevator is a far more efficient way to move people than the car. Ed Glaeser, a Harvard economist, uses a new book, The Triumph of the City, to argue that cities are the driving force of innovation and economic growth. And Black Swan author Nassim Taleb predicted recently that nation states would be supplanted by city states by 2036.


The true radical of the field, however, is Paul Romer. Both a highly influential academic economist and a successful entrepreneur, he turned down the job of chief economist of the World Bank to champion his alternative approach to ending global poverty: so-called ‘charter cities’.


Romer’s plan calls for the establishment of Hong Kong-like “charter cities,” special zones within developing countries with better rules and institutions. A well-run city lets millions of people come together and enjoy the benefit they can get from working together and trading with each other. The benefits per person increase with the total number of people; this is why big cities are more productive than small cities or villages. Of course, none of this is new. Adam Smith was referring to the power of exchange and the importance of increasing returns when he wrote that, “the division of labor is limited by the extent of the market.


There are many signs of the value created by all the exchange that takes place in a city. He saw it in productivity and wage data. He also saw it in the increase in the value of the land. Millions of people are willing to pay high rents just to live and work around millions of other people who are also paying high rents to get the benefits that comes from exchange and interaction with so many others.


In the developing world, most people don’t yet live in big well-run cities. Given the chance to move to one, hundreds of millions of people would go there to get a job, get an education for their children, and live in a place that is clean, safe, and healthy. Other people will make a profit by hiring them or supplying them with infrastructure and other services. If the rules let this happen, everyone can be better off. It doesn’t take any charity to build well-run cities.


Rules about public sanitation are a simple and familiar example. Without them, a city can’t be a healthy place to live; but these rules don’t just happen. The rules for a city are different from the ones for a village, but as a village slowly gets bigger, a city may be stuck with the rules of the village.


In a village, it might be alright to rule that anyone can urinate anyplace they want. In a modern city, it is better to have a rule saying that people have to urinate into toilets connected to the sewer system. The city government in Paris is having trouble enforcing this rule. They have special police units that give tickets to men who urinate against walls. So when we speak of rules, we must understand both rules on paper and an effective system of enforcement.


In many cities in poor countries, health is bad because governments don’t enforce basic rules about sanitation. The crime rate is appallingly high because the government doesn’t enforce rules that prohibit theft and violence. Traffic fatalities and congestion are both high because they don’t have good traffic rules or if they do, they don’t enforce them. The fact that people still flock to cities with such bad rules tells us something about how big the other benefits from living in a city must be. But given the choice, they would surely rather go to a city with good rules instead of one with bad rules.

"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.”


Others thought it was colonialism. For Romer, that "kind of emotion . . . can get in the way" (see what he did there? You have emotions; the elite economist has evidence). Sure, the poor people living and working in these new charter cities wouldn't necessarily have any democratic privileges such as the right to vote, but they could vote with their feet. And in the meantime, the Africans or the Asians would get the undoubted benefit of all this huge western expertise.
The Philippines has always been in amidst of fiscal crisis as what we always heard from the daily news and even on statistics. We were already bombarded with issues on poverty, crimes, graft and corruption, etc. Most of us are aware of what is happening around, much more of those who were comfortably sat on their “precious positions”, but hey, what are you waiting for? It’s about time that we must do our share for the betterment of our country and for the future of our children’s children. If we could just adopt Paul Romer’s radical idea, then it might be a big help to eradicate poverty by turning over a piece of land to a rich country and let them manage it for sometime until we can figure out signs of progress. It could also be a great relief to stop others from including us to the third world countries.