Brontides

I’m posting this, an article about an economist with some unusual ideas about poor world economic alleviation, relatively uncritically.

The central conceit of the article is the work of Paul Romer, a Senior Fellow at Stanford and successful software entrepreneur. Mr. Romer wants to build a series of what he calls “charter cities” – cities run by rich-world governments on land loaned to them by poor-world countries. The article invokes two models – Hong Kong under the British and Lübeck under Henry III of Saxony. If you think that the idea sounds wacky, then you’re not alone. It is a decidedly odd proposition, but for all that it inspires a certain sense of moral abhorrence, it’s an interesting thought experiment, and deserves to be examined for its merits.

His solution may be unconventional, but his diagnosis is complex and mostly rings true. Although an awful lot of poverty can be traced back to underlying causes – corruption, a lack of resources, an unskilled workforce, rich world privilege or weak distribution networks – one feature that is common to almost all poor societies is weak governance.

To drive home the importance of good rules to economic growth, Romer sometimes shows a photograph of Guinean teenagers doing their homework under streetlights. The line of hunched, concentrating figures presents a mystery, Romer says; from the photo it is clear that the teens are not dirt poor, and youths like these generally own cell phones. Yet they evidently have no electric light at home, or they would not be studying by the curbside. “So here is the puzzle,” Romer declares: Why do these kids have access to a cutting-edge technology like the cell phone, but not to a 100-year-old technology for generating electric light in the home? The answer, in a word, is rules. Because of misguided price controls in the teenagers’ country, the local electricity utility has no incentive to connect their houses to the power grid. Their society lacks the rules that make technological advance meaningful.

The Atlantic’s article is subject to the usual sloppy editorialism – the reason why many poor-world homes lack access to electricity cannot solely be reduced to rules, as it will also have roots in infrastructural weakness, high energy generation costs and old-fashioned sleaze. But Romer’s charter cities are more nuanced than that; not only are they intended to provide governance models that will have a pervasive effect throughout localities, they are also intended to act as mediums through which richer countries can funnel defensive stability, money and expertise into a populace.

So the idea has some merit, to the extent that it attacks some of the problems that it sets out to solve in a way that traditional aid does not. Frustratingly, the Atlantic’s article is a puff-piece, and makes very little attempt to examine the further problems that it potentially raises:

1. What country would willingly allow a project like this to take place on their land? Forget the problems implied by corruption – countries with poor governance tend to have poor governors, and western cities on the doorsteps of corrupt officials would cause unwanted scrutiny, provide a safe haven for anti-government sentiment and act as a drain on public purses intended for skimming. The colonial period demonstrated that local populations resent foreign dominance immensely. The anger and distrust that the example of Hong Kong engendered cannot be understated.
2. So if willing assent can be discounted, can it be assumed that charter cities will be imposed by force? Hong Kong was seized; Lübeck was rescued from anonymity and anarchy in the troubled times preceding the rise of the Hanseatic League. Neither example is entirely happy. Even in troubled times, Henry III’s presumption made him no friends, and his possessions were eventually taken from him. Fondness for Britain in her former colonies is in short supply. Furthermore, these were both isolated incidents. At a time when America has earned the ill will of much of the Middle East, it can be seen that no power in the modern world has the capacity to hold several such properties against the will of local populations.
3. The commitment for rich countries would be significant and long-term. This post assumes that the scheme would be undertaken as a philanthropic venture, and that the client cities would not be subject to rapacious profit-seeking – a long assumption at best, but the scheme is posited as philanthropic so that seems like the best basis upon which to judge it. Britain held Hong Kong for a hundred and fifty years and sunk huge amounts of its extensive resourced into it; by the time that Britain was a shrunken homunculus of a power. Would rich governments or populations be prepared to risk so much for such intangible rewards?
4. There is evidence that Hong Kong was exceptional, and reasons why it was exceptional have not been fully examined. Hong Kong was the only part of the British Empire to such achieve gains under the British. The rest of the Empire had mixed results. The benefits conferred upon India are debatable; developmentally it garnered advantages, but the economic gains were weak and confined to a ruling class, deepening and entrenching inequalities already in place thanks to the local caste system. Southern Africa was left with an even more extreme inequality in the form of apartheid. Egypt was left almost entirely undeveloped as its domination was purely strategic; Britain wanted control of Suez. British presence in Mesopotamia led to the formation of the state of Israel; good for Israel, but the local population received fringe benefits at best. The West Indies… so on, so on. Hong Kong was made rich for strategic reasons; it was Britain’s entrepôt and the economic capital of the region. The circumstances in which it existed were unusual.
5. Finally, there exists a problem with the fungibility of governance systems. A British system of patent, competition and bankruptcy laws, for example, may not be the most appropriate in all situations; some countries will respond, for reasons of existing legal traditions and social expectations, to a French of German system. However, this is a decision that will always be subject to political interference and historical influence.

So there are good reasons to discount the actual manifestation of the idea. But that shouldn’t be taken to undermine the perspective that it takes when considering the problems that traditional aid faces when addressing questions of global poverty. The idea exposes some real problems with the assumptions that we make when attempting to confront inequality and these problems deserve to be examined.

Full credit to Kevan for the link.