Paul Romer, progenitor of endogenous growth theory, caustic contrarian castigating fellow economists for succumbing to ‘mathiness’ and leading modern macroeconomics astray, commenced his role as Chief Economist of the World Bank last month.
Romer has a ‘big idea’ on development that he has been advocating for some time now from his academic perch at New York University. Welcome to the world of ‘charter cities’ that, if properly scaled up, could become an incubator of growth and innovation and transform the lives of millions in poor countries. What is needed is an uninhabited piece of land in poor countries (apparently the African continent has lots of it) – or at least sparsely inhabited land. On this template of terra nullis, one can build self-governing cities with ideas, rules and resources imported from the best of the West. Millions of people will vote with their feet and become residents of these model cities and climb out of the deep hole of poverty. Governments in poor countries will learn from these model cities and thus try to extricate themselves from bad ideas, bad rules and poor governance that hold back development. Think of Hong Kong and Shenzhen. Let hundreds of such replicas sprout across the developing world.
Romer’s unconventional thinking has annoyed critics who rebuke him for peddling ‘neo-colonial’ ideas. Yet, his overall framework that one must have a paradigm for dealing with the challenge of urbanization in the developing world – either by focusing on existing cities or building new ones – has merit. He probably oversold his vision by suggesting the notion of charter cities in the developing world run by well-meaning and enlightened foreigners. More importantly, for someone who cares so much about empirical evidence, it is necessary to go beyond the examples of Hong Kong and Shenzhen. In any case, China did not outsource the running of Shenzhen to Canada.
Are governments in poor countries convinced by Romer’s dreams? The evidence is not promising. In 2008, the government of Madagascar was prepared to set up two charter cities along Romerian lines. Alas, the political patron of the charter cities lost office in a coup.
Honduras appeared more promising. Romer himself was deeply involved, but stepped out of the project after he recognised, perhaps belatedly, that he was consorting with unsavoury characters. The Honduras charter cities project continues despite being ruled unconstitutional by an overwhelming majority of Supreme Court judges in 2012. The current government stage-managed to reverse the 2012 ruling but the charter cities project in Honduras has been marred by the indelible stain of illegitimacy. Hence, neither Madagascar nor Honduras can be regarded as inspiring examples. By the way, charter cities can malfunction even in rich countries.
The media cheerleaders of charter cities are undeterred. The Economist, for example, is hopeful that Romer’s ‘…new platform at the World Bank will presumably give the (charter cities) idea a boost’. One hopes that Paul Romer will dedicate his undoubted brilliance and intellectual energy to many other mundane issues that are part of the development agenda rather than his pet project of charter cities. His interview with the Wall Street Journal suggests that he has moved on. He would now like to focus on higher education in developing countries, improving the resilience of financial systems and enhancing financial inclusion.