A new colonialism?

Economist Paul Romer has a crazy idea that some say boarders on colonialism. He wants developed nations to create charter cities within under-developed countries. Similar to what Hong Kong was to China when Britain controlled it. The charter cities would operate under the rules of the free market, then business would flourish and spread throughout the country.

A couple of articles explain this idea. First, as a part of their G-20 preview series, Toronto Star writer Sarah Barmak interviews Romer.

Why has the aid model stayed in place if it’s ineffective?

I think what’s at the heart of the difference in how I see the world from many people is that many people think about aiding a nation. They see the nation as the entity that foreign aid is supposed to be directed to. I start from the perspective of the family. I say, I’m not so worried about what happens to nation X, Y or Z. I want to give this family more choices.

All we have to provide is a place with good rules, and the provision of good rules is not an expensive thing. In a sense, it’s like all we have to do is provide the referee, and then people can come play the game of modern life. And it’s not expensive at all to provide referees.

How is Hong Kong a model charter city?

In a way, (Hong Kong) is certainly a model for how to change the rules. You take a particular location, you say that different rules will apply there; in the case of many of the special economic zones in China, rules, for example, that let foreign firms come in and employ Chinese workers. Then you say to the Chinese, you have the opportunity to go and live in one of these special zones, but if you don’t want to, you’re not forced to. Then the mainland Chinese government created other places like that, and the demonstrated successes in those places ultimately made it possible for the government to move toward a more market-based economy throughout the entire country.
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Is it unfair to say that you’re trying to resurrect colonialism?

Imagine that (someone) moves to Vancouver or Toronto as a landed immigrant. Is that colonialism? I don’t think so. I think the respect for individual choice is what’s different about this, and the respect for the choices of the nations involved. Canada won’t do a deal with Cuba unless the leadership in Cuba wants it to happen.

(There is) one element of truth (that comparison) is trying to get at. Instead of saying to people in Haiti or people in another country where people have not developed a system of rules that’s as good as the system in Canada, ‘We’re just going to stand aside and wait for the centuries it might take for you to develop your own rules,’ we’re going to say, ‘Here’s a process where more of your people can get access to rules that are already up and running in other parts of the world.’

The real issue is, do you want to give poor people a choice? There’s something deeply condescending about this Western attitude that we shouldn’t give poor people the right to make choices about where they live, because somehow they’ll make bad choices.

To further describe the charter city idea and some background on Romer, Atlantic magazine writer Sebastian Mallaby gives us this description.

Fast-forward several centuries, and Henry the Lion’s would-be heir is Paul Romer, a gentle economist at Stanford University. Elegant, bespectacled, geekishly curious in a boyish way, Romer is not the kind of person you might picture armed with a two-handed flanged mace, cutting down Slavic marauders. But he is bent on cutting down an adversary almost as resistant: the conventional approach to development in poor countries. Rather than betting that aid dollars can beat poverty, Romer is peddling a radical vision: that dysfunctional nations can kick-start their own development by creating new cities with new rules—Lübeck-style centers of progress that Romer calls “charter cities.” By building urban oases of technocratic sanity, struggling nations could attract investment and jobs; private capital would flood in and foreign aid would not be needed. And since Henry the Lion is not on hand to establish these new cities, Romer looks to the chief source of legitimate coercion that exists today—the governments that preside over the world’s more successful countries. To launch new charter cities, he says, poor countries should lease chunks of territory to enlightened foreign powers, which would take charge as though presiding over some imperial protectorate. Romer’s prescription is not merely neo-medieval, in other words. It is also neo-colonial.
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Inevitably, Romer’s big idea attracts some skeptical responses. “Paul is very creative,” says William Easterly, a development economist at New York University, “and sometimes creativity can cross the line into craziness.” The way Easterly sees it, charter cities (like charter schools in American cities) may provide an alternative to incumbent government systems, promising experimentation, competition, and perhaps a new way forward. But Easterly also worries that Romer has fallen prey to an old siren song—the idea that you can slough off debilitating customs and vested interests by constructing a technocratic petri dish uncontaminated by politics. Other critics are blunter. “Romer makes it sound as though setting up a charter city is like setting up a fairground,” Elliott Sclar, a professor of urban planning at Columbia University, told me. “We take a clear piece of land, we turn on the bright lights, and we create this separate environment that will stand apart from everything that’s around it. I wish it were that simple.”

However simple-seeming his ideas, Romer is no lightweight. Starting in the late 1980s, he produced a series of papers that changed the way his profession thinks about economic growth; his most celebrated contribution, published in 1990, “was one of the best papers in economics in 25 or 30 years,” in the estimation of Charles I. Jones, a colleague of Romer’s at Stanford. Before the Romer revolution, theorists had explained an economy’s growing output by looking at the obvious inputs—the number of hours worked, the skills of the workforce, the quantity of machinery and other physical capital.

But Romer stressed a fourth driver of growth, which he termed simply “ideas,” a category that encompassed everything from the formula for a new drug to the most efficient sequence for stitching 19 pieces of material into a sneaker. In statistical tests, the traditional inputs appeared to account for only half the differences in countries’ output per person, suggesting that ideas might account for the remaining half—and that leaving them out of a growth theory was like leaving the prince out of Hamlet. And whereas the old models had predicted that growth would slow as population expansion put stress on resources, and as new investment in skills and capital yielded diminishing returns, Romer’s New Growth Theory opened the window onto a sunnier worldview: a larger number of affluent people means more ideas, so prosperity and population expansion might cause growth to speed up.