Is this the City that Launches a Thousand Charters?

Coming soon, a brand new city!

I’ve written enough about Charter Cities for most readers to know exactly what I think of the idea. Without restating my previous arguments, news that Honduras are considering (and indeed it appears that Congress has passed a motion in favour of) establishing a 1000 square kilometre “Charter City” within its own borders has set off a few thoughts in my mind.

  • There seem to be some pretty significant differences between what the Government of the Honduras is proposing and what the original conception of a Charter City was. Firstly, is there any external power providing enforcement and the rules? The whole basis for the Charter City idea was that developing countries themselves didn’t have the rules or the credible threat of enforcement – hence the need to borrow both from outside. Secondly, it doesn’t seem clear at all that workers from all over will be allowed to enter the Charter City, given the rhetoric that it is an alternative to Hondurans emigrating to the States.
  • If the rules, enforcement and people all come from Honduras, what makes this a Charter City, and not an special economic zone? A Charter City without foreign presence is just a city with a good set of rules, good enforcement and free entry/exit. Is calling this a Charter City rather than a special economic zone or semi-autonomous state/city simply a marketing exercise to attract attention and investors, by distinguishing it from all the other free zones worldwide (think Shenzhen, Dubai, Djibouti City and so on)?
  • If this is just a city with better laws and enforcement managed by the Honduran Government, I think the rest of the Honduras can easily argue: why don’t we get the better laws and enforcement? Why are they being restricted to this city? If finance is a problem, but they know what rules they need and how to enforce them, this is the perfect situation for ‘big aid’ to step in and fill the gap.
  • Lastly, for all I’ve criticised the idea as fuzzy thinking, it is true that rules and institutions are of crucial importance to development. Where Romer and I disagree is that Romer thinks these are transferable and easily applied in new contexts, and I do not. That said, some rules can be easily transferred if enforcement will is there. Whether this city in Honduras works will depend on how many alien laws, regulations and enforcement systems they import, and how many are homegrown.

My final word on it? I’m not sure it is a Charter City in the sense Romer had it when he first started working on the idea. But it does take ideas from the Charter City concept, and though we can argue about how new the ideas it is taking are, it’s still a great thing to see a country take a bold step in its attempt to create jobs and better conditions for development. I hope it works, and look forward to reading more about how it will be structured.

9 thoughts on “Is this the City that Launches a Thousand Charters?

  1. TGGP

    February 4, 2011 at 4:55am

    Romer has often used the analogy of Shenzen and other SEZ’, though for originality he usually does suggest more than one country being involved (sometimes three). However, he does explicitly say in his Concept page that one country can perform all three roles.

    “why don’t we get the better laws and enforcement?”
    Very good question. Existing arrangements have interests which restrict the ability to change rules (there are benefits to that, but also loss of some of the benefits from risk-taking). People are often hostile to having changes imposed on them but are willing to stick with a semi-functional status quo. Charter cities are supposed to be based on the idea of consent for these better rules, rather than engaging in the usual struggle to adopt better policies (“folk activism” is a term Patri Friedman likes to use). An example of a not-quite-charter Romer likes to use is Stockholm, where people were able to “try before you buy” changes in traffic rules. That was an instance where people changed their minds after experiencing the new policy and together voted in favor of it, whereas charter cities allow for individual opt-in, as Romer discusses here.

  2. Ranil Dissanayake

    February 4, 2011 at 5:06am

    If this is the case then, what makes it a ‘Charter City’? As I say above, it’s simply branding a special economic zone in a different way. New Coke.

    Good point about people being resistant to change. Definitely the case. But that’s why you have a state. There’s always a subset of people who are resistant to any rule change, because by definition a rule change also alters the set of who is and isn’t breaking the rule. States impose many rules on such people.

    But yes, I can see the logic of trying a completely different set of rules in one place with opt in before generalising it.

  3. TGGP

    February 4, 2011 at 5:13am

    I read this linked post of yours. I’m not an expert on Romer’s idea, but has he actually said there is one set of rules appropriate for every place? From what I read, he hasn’t placed as much emphasis on specific policy rules, but instead harps on “meta-rules”, or rules for changing rules. So a dozen different charter cities may all adopt different sets of rules appropriate for their circumstances, with the hope that they work better than the status quo.

    In your earlier post you note that most Hong Kongers didn’t have the option of “voting with their feet” for Britain in 1994. I think Romer was referring to the founding of Hong Kong as an instance where people (from China) voted with their feet to live in a previously uninhabited territory. I don’t know how accurate his history is there. I’ve got more commentary on your older post, but I’m not sure what your attitude is toward “thread necromancy”, so I’ll hold off for now.

  4. TGGP

    February 4, 2011 at 5:26am

    Ranil Dissanayake :
    If this is the case then, what makes it a ‘Charter City’? As I say above, it’s simply branding a special economic zone in a different way. New Coke.

    It is rebranding something that already exists, but I think his goal is for people to think in more generic terms. An SEZ is a specific kind of charter city in which one country is host, source, and guarantor. Romer wants to think in terms of many different combinations. A source country like Haiti doesn’t have a government capable of being a guarantor, for instance, so Haitians could benefit from something other than a traditional (sounds funny saying that) SEZ.

    Ranil Dissanayake :
    But that’s why you have a state. There’s always a subset of people who are resistant to any rule change, because by definition a rule change also alters the set of who is and isn’t breaking the rule. States impose many rules on such people.

    I know you don’t actually have such a point of view, but one should avoid treating that state as a kind of black box, a lever you pull that generates policy over the objections of dissenters. Initially uninhabited charter cities avoid having to deal with people who don’t want those rules imposed on them, and selects as inhabitants those who like the rules and presumably want to follow them.

  5. Ranil Dissanayake

    February 4, 2011 at 5:35am

    No. He’s never said there’s one set of rules that work everywhere. Instead, he’s said ‘we know what rules will work for development’, and I think he’s wrong. The idea of meta-rules is also dubious. There are plenty of democratic places that don’t develop; and plenty of authoritarians ones that do, and vice versa.

    the issue of Hong Kong – if Romer was indeed referring to the actual establishment of Hong Kong (and I’m not sure it was ever uninhabited – we have evidence that we were inhabited up to 30 thousand years ago, and the first european visitor came in the 16th Century), then his example is of a Charter City that took anything between 30,000 and 400 years to pay off. That’s not a very good example, is it?

    Don’t mind any other comments, I’m always happy to discuss, but you might not get answers for a while – I’m at work!

  6. Ranil Dissanayake

    February 4, 2011 at 5:40am

    Also, pedantry alert: Hong Kong reverted to china in 1997, not 1994. Further, if you’re referring to people migrating to Hong Kong from China after the colony was founded – that wasn’t possible: it was closed by law.

    If you’re referring to people trying to come to HK after 1997 from China (1997 was *not* the founding of HK, just of the Special Administrative Region) there are two problems: firstly, many people tried, but were rebuffed: the Government took immediate steps to keep the mainlanders out (indeed there’s a fair bit of prejudice against mainland Chinese in Hong Kong). Secondly, it doesn’t work as an example of people trying to get into a Charter City. It’s an example of people from a developing country trying to migrate to a very developed country. It’s like arguing that people wanting to migrate from Mexico to the US is proof that Charter Cities would attract people…

  7. TGGP

    February 6, 2011 at 3:27am

    Those are some good points.

    Wikipedia claims there were no migration barriers in Hong Kong until the 50s. The “Reached Base Policy” adopted in 1974 apparently granted rights of abode to anyone who managed to reach an urban area and relatives without being intercepted at the border (sort of like feudal era convention that “city air makes free” and sufficient residence negates serf status).

    I agree with you on the difficulty of shaping culture (haven’t read Lawrence Harrison’s “The Central Liberal Truth” on politics shaping culture). I’m less optimistic than Romer on that front. From my perspective, charter cities hold out the possibility of setting independent variables in a desirable way, and if we can’t set every variable it is still better than nothing.

    A quote from your old post:
    “If these people really are going to come from ‘slums’ and ‘subsistence agriculture’ he’s massively overestimating their mobility. The sunk costs of a migration are large, and emotional as well as material.”
    I agree that there are significant barriers to migration beyond the strictly material costs of moving. But those costs will mostly exist for the initial movement away from home and toward the charter city rather than coming back. The wag who defined “home” as “The place where if you go, they have to take you in” was onto something. In some ways it is traditional for migrants to spend some time abroad to earn money before returning home. About half of all Italian immigrants to America returned home. The more restrictive immigration laws of the 20th century have reduced this, because migrants aren’t confident they will be able to get back in if they go home. The European Union has more labor integration, and so as Kathryn Clancy discusses in parts of rural Poland many of the men are around around for just a couple months out of the year.

    Regarding the initial barriers to migration, we already know that large numbers of poor people do migrate, both internally from countryside to slum and internationally. They are even willing to risk death to do so. The idea in Honduras is that rather than go far from home they can go to this new city and more easily maintain connections to home. Again looking to U.S history, a small minority of people were immigrant “early adopters”, but when things worked out they sent word to their family that there were opportunities available, and then their relatives tended to settle nearby. So I think successful charter cities could do a lot for poverty, even if it isn’t close to eliminated.

  8. Ranil Dissanayake

    February 6, 2011 at 8:45am

    Good comments, thanks.

    I didn’t know that HK had open borders until 1974 – but even if this was the case, it weakens Romer’s arguments, as it shows that the desire to migrate really peaks well after HK is on its way to being a fully developed country. It would be interesting to see the year-by-year figures.

    Re mobility of the poorest: those are good points. I know that poor people do migrate, but my question is ‘how poor’ and ‘with what cost’. The problem for me is that for the poorest to migrate they can be putting themselves in debt for a generation, or running the risk of death as you say – but not for a ‘sure thing’ like moving to the US or HK, both developed countries, but to move to a developing city that may or may not become prosperous.

    There are plenty of examples of people who seasonally migrate or migrate once for a very long time (South African mines are another example). Again, my issue is that the costs of this are high – for a new city with unclear chances for success I’m dubious the poorest would run the risks, because if the city fails, then they have to try and get ‘home’ wihtout having accumulated new resources.

  9. Bob

    February 9, 2011 at 1:41am

    Why is the firs

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