Are Charter Cities the way to Third World Prosperity?

Could new communities sponsored by the West help end poverty or would they just become another manifestation of neocolonial profiteering?

All over Africa this evening, students will sit outside their homes and read textbooks under street lights. They do this because they have no electricity at home. In the West we know it costs very little to light a home: 1p an hour for a 100W bulb. Most poor people in Africa are not starving. They could afford some light. Africans do not lack electricity because they are poor — indeed power is so important for employment and education that it is more accurate to say they are poor because they don’t have electricity. What is going on?

By Paul Romer

The problem is that the rules that govern many developing countries don’t work. In Britain good laws, and the institutions that uphold them, have developed over hundreds of years. These ensure that power companies charge reasonable prices and provide reliable service. They also ensure that, in exchange, we pay. In Africa that doesn’t happen. It is to get round this problem that last week at Davos, at the World Economic Forum, and tomorrow night at a speech to the Policy Exchange think tank in London, I am proposing a strategy to get round the broken rules that hold people back: charter cities.

Instead of trying to change the rules in poor nations, I think we should ask how poor people can move somewhere with better rules. My idea is to build dozens, perhaps hundreds, of cities, each run by a new partnership between a rich country and a poor country. The poor country would give up some land for the city, while a developed country like Britain or Canada could contribute a credible judicial system that anchors the rule of law. Citizens from the poorer country (and perhaps elsewhere around the world) would then be free to live and work in the city that emerges. There are large swathes of uninhabited land on the coast of sub-Saharan Africa. Most is too dry for agriculture, but with desalinated and recycled water a city can pop up in the driest location.

To some this sounds like colonialism, but the developed partner country need not rule directly: residents of the city can administer the rules, so long as the well established judiciary retains the final say, just as the Privy Council still does for some members of the Commonwealth.

To others, this sounds like a feasible way to scale up the benefits from migration. Like migration, this approach would give poor people a chance to choose the rules they want to live and work under. All residents in new charter cities would be there by choice. A recent global Gallup survey found that 700m people want to move permanently to another country that offers safety and economic opportunity, so the odds are the charter cities would be popular.

How would they be paid for? With clear legal protections, private investors will build the buildings and infrastructure, including the power plants and grid. Access to the sea is the only real necessity — as long as a charter city can ship goods back and forth on container ships, it can thrive even if its neighbours turn hostile or unstable. And any administrative costs can be recouped from a special tax on the huge rise in land values that happens as a large well-run city develops.

For the West, the creation of charter cities could make its aid budgets much more efficient. The British experience in Hong Kong — arguably the world’s first “charter city” — shows that enforcing rules costs partners very little but can have a huge effect. Hong Kong helped to make reform in the rest of China possible, meaning the British intervention might be said to have done more to reduce world poverty than all the world’s official aid programmes of the 20th century combined — and at a fraction of the cost.

The idea can solve more pressing concerns, too. Take Haiti. The world’s fortunate citizens provide aid when such disasters strike. But what of the long term? Here aid doesn’t help as much. But if nations in the region around Haiti created just two charter cities, they could, in time, rehouse the island’s entire population. Senegal has raised the possibility that Haitians could live on a patch of its land. With the right governance structure, other countries might step forward as well. This is the best option for giving Haitians a real choice.

Roughly 3 billion people from the world’s working poor will move from villages to cities over the next few decades. The choice is not whether the world will urbanise — it’s doing so, fast — but where and under which rules. Cities are so valuable that people will choose slums over rural poverty if that is their only choice. But charter cities would give them another option. For this new global urban population, these new cities can provide safety, affordable housing, education and jobs. Even electricity at home. Building such cities and freeing people from the bad rules which bind them is the opportunity of the century.

Paul Romer is an economist at Stanford University and an expert in the field of economic growth. A longer version of this article appears in the February edition of Prospect magazine