The secret to turning a poor nation into a rich one can't be found in a World Bank report. It wasn't hatched in the corridors of the International Monetary Fund, either. It came from the British Empire.
That is one way, at least, of interpreting Stanford economist Paul Romer's new plan for turning economically backward countries like Cuba into engines of growth like China. Experts have long known that the traditional tools of development don't work: free trade, foreign investment, and charity have failed as many countries as they've helped. The rot in a dysfunctional country is at its core—in the laws, institutions, and informal rules that govern daily life.
How to fix a problem so fundamental? Let a rich country take over part of a poor one. The hope, says Romer, is that the superior norms of the developed country will take root abroad. He calls his plan Charter Cities and illustrates it with a thought experiment. Imagine if the U.S. closes its prison at Guantánamo Bay and hands the land over to Canada, which agrees to develop it. "A new city blossoms," writes Romer.
It does for Cuba what Hong Kong, administered by the British, did for China; it connects Cuba to the global economy. To help the city flourish, the Canadians encourage immigration. It is a place with Canadian judges and Mounties that happily accepts millions of immigrants. Some of the new residents could be Cuban émigrés who return from North America. Others might be Haitians who come work in garment factories that firms no longer feel safe bringing into Haiti. The new city gives the Haitians their only chance to choose to live under a system of law that offers safety and opportunity.
Private contractors rush in to build airports and infrastructure, lured by the prospect of rising property values. Multinational firms open factories, attracted by the proximity to low-cost labor and the certainty of the Canadian legal system. Eventually, Cuban authorities decide to replicate the experiment across the island, opening new, Guantánamo-like "special economic zones," much as mainland China did starting in 1979, taking the Hong Kong model to Shenzhen and beyond. When played out on a global scale, "the gains from doing this are just enormous," says Romer.
Such a fanciful idea might be easily dismissed if it weren't coming from such an economic heavyweight. Romer transformed the field of growth theory in the 1980s, and his name is peppered throughout macroeconomic textbooks; he's been mentioned as a potential Nobel Prize recipient. "There's a thin line between revolutionary and crazy," says NYU economist and development expert William Easterly. "Paul Romer has been adept at walking that line throughout his career, staying just out of the crazy part. He's still tiptoeing along that line with this new idea."
Still, there's a pie-in-the-sky grandiosity to the scheme that elides some major stumbling blocks. One problem, admits Romer, is the parallel between charter cities and colonialism. Great Britain, for instance, would surely have qualms about taking over a few hundred acres of coastline in Ghana, where the legacy of slavery is still deeply felt. Romer says the similarities are surface level only—there's no coercion involved in a charter city since it would be founded on empty or near-empty land, and anyone who lives there would do so by choice. Charter cities would only be considered in countries that welcome them. But the colonial parallel would certainly still rankle some. One way to mitigate the PR problem would be to let a group of rich countries administer the charter area; that way, no single nation could be accused of exploiting the host.
But the image problem hints at a more basic choke point: politics. "What's clever about Paul's idea is he's saying, here's a totally brand-new government we can invent from scratch and make it compete with existing governments," says Easterly. "Anyone who doesn't like their existing government can move. That's an appealing notion. We're so sick of governments that mistreat us that it's kind of sticking them in the eye to say, here, we're going to come up with a new one." But though political competition is a seductive idea, it's also a threat to existing powers, some of whom would surely try to block it. And globally orchestrated projects have a very low success rate—just look at the molasseslike progression toward a climate-change agreement. "International politics is a swamp," says Easterly. "Things that involve international politics do not inspire a great deal of optimism in me."
Nonetheless, Romer is attacking the idea with the zeal of a, er, missionary. He's left his teaching position at Stanford and founded a nonprofit to pursue Charter Cities full time. He says he's already in talks with potential host countries, although he won't divulge which ones. Romer is confident that, despite the challenges, we'll see the first charter cities within a few years. For the world's poor and oppressed, that will be none too soon.
View a video of Romer talking about his plan at this year's TED Conference.
