Charter Cities as a Development Strategy

A controversial theory of neo-colonialism as a means of poverty alleviation

Originally posted on June 15, 2010

A while back, I discussed why China had been so successful at poverty alleviation during the 1980’s and 1990’s. I surmised that it had something to do with China’s embrace of “state capitalism.” In a recent article in the Atlantic Monthly, one economist suggests that, actually, it is Britain is ultimately responsible for bringing more than 100 million Chinese out of poverty over a ten-year period. By exporting the laissez-faire, business-friendly city model of Hong Kong to urban centers throughout China, the British created the seed that has grown into the China that exists as an economic and political powerhouse today. The author explains the rationale behind Romer’s theory of establishing “charter cities” leased and operated by foreign governments:

When Romer explains charter cities, he likes to invoke Hong Kong. For much of the 20th century, Hong Kong’s economy left mainland China’s in the dust, proving that enlightened rules can make a world of difference. By an accident of history, Hong Kong essentially had its own charter—a set of laws and institutions imposed by its British colonial overseers—and the charter served as a magnet for go-getters. At a time when much of East Asia was ruled by nationalist or Communist strongmen, Hong Kong’s colonial authorities put in place low taxes, minimal regulation, and legal protections for property rights and contracts; between 1913 and 1980, the city’s inflation-adjusted output per person jumped more than eightfold, making the average Hong Kong resident 10 times as rich as the average mainland Chinese, and about four-fifths as rich as the average Briton. Then, beginning around 1980, Hong Kong’s example inspired the mainland’s rulers to create copycat enclaves. Starting in Shenzhen City, adjacent to Hong Kong, and then curling west and north around the Pacific shore, China created a series of special economic zones that followed Hong Kong’s model. Pretty soon, one of history’s greatest export booms was under way, and between 1987 and 1998, an estimated 100 million Chinese rose above the $1-a-day income that defines abject poverty. The success of the special economic zones eventually drove China’s rulers to embrace the export-driven, pro-business model for the whole country. “In a sense, Britain inadvertently, through its actions in Hong Kong, did more to reduce world poverty than all the aid programs that we’ve undertaken in the last century,” Romer observes drily.

This is the theory. And by applying this theory in a modern economic development context, Romer thinks we can revolutionize the way we think about aid and assistance. What he is suggesting is basically neo-colonialism – leasing land to foreign government to create cities. These cities will be effectively immune from the crippling corruption and bureaucracy that plagues some third world government and scares away potential investors. If a first world country were running the show, companies outside of the oil and natural resources industry would be more comfortable investing and setting up shop. Most developing nations have an abundance of labor and a lack of employers. Setting up government that is friendly to business, in terms of its incentives and tax structure, could be the catalyst some of the nations need to build sustainable export industries. Here is the vision:

But Romer is also urging us to reexamine assumptions about citizenship and democracy, and this is where he gets more radical. In the kind of charter city he imagines, the governor would be appointed by Canada or some other rich nation, but the people who work there would come from poor countries—the whole point, after all, is to bring the governance of the developed world to workers in undeveloped places. It follows that the workers in Romer’s charter city wouldn’t be citizens in the full sense. They would be offered whatever protections the founding charter might lay down, and they would have to take them or leave them. Rather than getting a vote at the ballot box, Romer is saying, the residents of a charter city would have to vote with their feet. Their leaders would be accountable—but only to the rich voters in the country that appointed them.

So the idea is completely smash the entrenched government controls that hold back major development in third world countries. Instead of trying to get the bureaucrats to adopt and enforce economic policies that are in the best interest of the people (and usually inversely correlated to their own well-being), bypass the bureaucrats altogether. The new cities will be bastions of growth and prosperity, attracting copycats and exporting their increased productivity to the rest of the country.

In this journal I talk a lot about working within the current system, since it is generally easier to leverage the existing infrastructure than it is to change the paradigm altogether. But Romer is suggesting the opposite, in a way. He is not saying developed nations should overthrow the government and take the reigns. Rather, he is saying we should enter into a mutually beneficial business agreement with the government to operate legally within the country. Whether or not this qualifies as textbook neo-colonialism depends on a number of variables, not least of which is the motivation. But in a continent that owes many of its current economic and political woes to a lasting legacy of European colonialism (the original George W. Bush, as I remind my forgetful European acquaintances), I would guess that most politicians will be quick to remind their constituents of what happened the last time they white man came in. For that reason, I am not sure an arrangement like this could ever really work. After all, according to Romer, the biggest challenge is not finding cooperating governments in developing countries, but rather signing on a new imperialist from the first world. Nobody wants to be the next Belgium in the Democratic Republic of Congo.