Charter cities in the works

The world is on the move, more so now than ever before. The United Nations (UN) estimates that some 3 billion people will move to cities in the coming decades. People are understood to be moving to places where they think they will be better off living. But as it turns out, the path to happiness has not always been rosy. Very often, migrants just end up in slums.

Yet, a better option may lie on the horizon, that is, by building a few hundred more Hong Kongs or “Charter Cities.” That’s what Paul Romer, an economist renowned for his work on “new growth theory”, dubs his ambitious city development project, one that could hopefully turn people’s pursuit of a better life into a cause that has the potential to reduce poverty and underdevelopment in the developing world.

Romer suggests that a developing country should set aside a plot of land large enough to accommodate a city of millions, give the new entity flexibility to govern itself as China has done in Hong Kong, including allowing it to pass its own constitutional-like charter like the Basic Law of Hong Kong. The new city would be administered by a third-party “guarantor” country to ensure that the new rules are respected by all parties, reminiscent of what Britain did in Hong Kong before the 1997 handover.

The aim, according to Romer, is to provide the poor an alternative place to live. Instead of flocking to the metropolis for a better quality of life, poor people would be able to choose to reside in a charter city where they could get jobs and enjoy a decent standard of living.

Now, four years after the “Charter Cities” concept was first introduced, it seems that Romer, who resigned his tenure at Standford University to wholeheartedly pursue this idea of starting new cities, is finally able to live his dreams. Honduras, a poor country in Central America, has become the first country to do just what Romer envisions — build cities from scratch.

Last year, Honduras finished work to create a legal framework for the establishment of a city-scale reform zone. And it also has put in place a “transparency commission” to supervise the new entity. The fact that no developed country has come up front to play the role of a “guarantor” somehow disappoints Romer, though the economist believes that foreign partners will eventually come on board as investor interest grows.

A Honduran Hong Kong is not a sure bet, Romer admits. But in retrospect, people in the 1950s couldn’t have had more clues that Hong Kong would one day become such a huge success. Romer reminded that the one thing that governments striving to run themselves better should learn from Hong Kong’s experience: “It’s possible to do something that’s very different.”

“It’s hard for people to believe that just a little fishing port could grow into a huge successful city like Hong Kong,” he said.

Keynesians extol the city’s achievement as an “economic miracle.” In a short span of five decades, Hong Kong has grown from a city with a GDP per capita that was lower than that of its poorest African counterparts into one that is richer than the vast majority of countries across the globe, helped by a combination of factors such as the rule of law, its laissez-faire economic policies and a government that has made doing business and earning a living relatively easy.

“Hong Kong is the model that we can replicate,” said Romer. Yet, governments who want to do that have to learn to steer between “strong leadership” and “a system of accountability”, a balance the economist reckons is hard to achieve.

Such mechanisms of accountability could come from outside the entity, and that’s where a “guarantor’ country fits in. And the system could as well come from within, as is exemplified by what the Chinese central government does in Hong Kong after the 1997 handover. Romer acknowledged that mechanisms of accountability are important because they make sure everyone plays by the rules.

Another good example of internal accountability is Shenzhen, a boom town in southern China that has become an icon of the country’s economic rise. Romer has regard for the Shenzhen model, the model of a special economic zone, which was part of the inspiration for his grand “Charter Cities” concept.

The southern Chinese city, just north of Hong Kong, has enjoyed unprecedented growth from a small fishing village to a city of almost 10 million people since it was singled out in 1979 by paramount leader Deng Xiaoping to be one of the country’s first Special Economic Zones. This used to be one of the areas where a novel government structure and economic policies were experimented to boost the economy. With a GDP per capita of over $10,000, Shenzhen is today far wealthier than the average Chinese city.

“Shenzhen is the example that shows us that cities like that can grow up very quickly.”

And the Shenzhen model of China could be how countries like Brazil and India can speed up their urbanization drives, added Romer.

Second-world countries which are moving up the income ladder, but which are struggling to provide additional urban space for millions and even billions of people, may be better off walking the same path as China and building a few more Shenzhens.

Romer says Brazil and India, like China, have been urbanizing fast in the past couple of years and their governments are under pressure to satisfy the surging demand for urban infrastructure and amenities as well as jobs. In India, more than 270 million people are expected to move to its cities in the years to 2030, nearly the size of the US population.

“What we are about to go through is this incredible acceleration of the pace of urbanization in the developing world,” Romer remarked.

And China, which has had the fastest-growing economy in the world over the past three decades, “could really end up being a model in presenting a vision of what’s possible for the whole developing world,” he said.

Whether these vastly populated countries will take heed of Romer’s advice is something to be seen in the future.

Professor Paul Romer
Professor of Economics New York University Stern School of Business

Professor Paul Romer joined New York University Stern School of Business in 2010 as the Henry Kaufman Visiting Professor and is now a Professor of Economics. He is also a non-resident fellow at the Centre of Global Development (CGD). Recently, he founded Charter Cities, a research non-profit organization focused on the interplay of rules, cities and development.

Professor Romer formerly taught at Stanford Graduate School of Business, where he developed Aplia, educational software that increases student effort and engagement. Before moving to Stanford he taught at the University of California at Berkeley, the University of Chicago and the University of Rochestor. He is a fellow of the American Academy of Arts and Sciences and received the Reckenwald Prize in Economics in 2002 for outstanding achievement and contributions to the field of economics and to the improvement of society as a whole.