I’m interested in teaching a charter cities course next year so I wrote up this draft syllabus. If you are interested in having me teach the course listed below, please reach out
Course Objectives: We are living through an era of global change. America is retreating from her traditional role as enforcer of the rules based liberal order. Europe is struggling with migration and demographic changes. China is exporting their model of development, with many strings attached, via One Belt One Road. African population growth creates opportunities and risks. New policies and governance models are needed to help humanity deal with such challenges. Charter cities are one such model.
Charter cities are cities with substantial legal autonomy from their host country. Charter cities might have different courts, different administration, different labor law, different business registration, or all of the above. Singapore, Hong Kong, Shenzhen, and Dubai, all charter cities by a loose definition, are some of the most successful cities of the post-war era. Replicating their successes in low income countries can help lift tens of millions of people out of poverty.
This course is meant as an introduction to the ideas of charter cities. We review the importance of governance, the theory of jurisdictional competition, the philosophy of numerous small political units, and charter cities fictional representation before delving into real world examples. The course ends with the practice of charter cities, understanding what charter cities projects are occurring around the world, and what the future might hold.
Format: The class format is seminars and discussions. For the first hour of each class, I will give a lecture. For the rest of the class, I will facilitate a discussion on the readings.
- Reading quizzes (30%): Each class will start with a 10-minute quiz on the previous weeks reading
- Participation (20%): Approximately 2/3 of class time is dedicated to discussion. Students will be evaluated for their participation in those discussions.
- Final project (50%): Students will have the option of which type of final project to undertake. Students can work in groups for the final project. However, the expectation for group projects is higher than for individual projects.
- Traditional research paper: For individual students a 15 to 30-page research paper. For groups I expect a longer paper which goes into greater depth.
- Charter cities business plan: A 10-page business plan and accompanying deck. I will judge the business plan as an investor. Key elements include, host country (including personal relationships), business climate, urbanization rate, and practicality. If the proposal is sufficiently good and the students are committed, I can help raise funds.
- White paper: A policy white paper on charter cities which can be published by an organization like Brookings or AEI. A good white paper will have a concrete charter cities proposal for a specific host country.
- Other: I am open to pitches for a final project which does not fall in the aforementioned category.
Schedule and Readings
Week 1: Introduction
- Charter Cities TED Talk by Paul Romer
- Technologies, Rules, and Progress: The Case for Charter Cities by Paul Romer
- Three Types of Charter Cities by Tyler Cowen (Youtube Video)
- Your Next Government? By Tom Bell
- Local Governments are Changing the World by Mark Lutter
- The Landscape of Innovative Governance by Mark Lutter
Week 2: Governance
- Why Nations Fail by Acemoglu and Robinson
- Institutions by Douglass North
- Regulation of Entry by Andre Schleifer
Week 3: Theory
- Exit, Voice, and Loyalty by Albert Hirschman
- Pure Theory of Local Expenditures by Charles Tiebout
- Art of Community by Spencer MacCallum
- Toward a Theory of Property by Harold Demsetz
Week 4: Philosophy
- Liberal Archipelago by Chandran Kukathas
- Anarchy, State, and Utopia Ch 10 by Robert Nozick
- Archipelago and Atomic Communitarianism by Scott Alexander
Week 5: Fiction
- Snow Crash by Neal Stephenson
- Moon is a Harsh Mistress by Robert Heinlein
- Artemis by Andy Weir
Week 6: History
- The Sovereign State and Its Competitors by Hendrik Spruyt
- Medieval Cities by Henry Pirenne
- History of Future Cities by Daniel Brook
Week 7: China
- How China Became Capitalist by Ronald Coase and Nina Wang
- The Economic Impact of Special Economic Zones: Evidence from Chinese Municipalities by Jin Wang
- Special Economic Zones and the Economic Transition in China by Wei Gei
Week 8: Hong Kong/Singapore/Dubai
- From Third World to First: The Singapore Story by Lee Kuan Yew
- City of Gold by Jim Krane
- A Modern History of Hong Kong by Steven Tsang
Week 9: Special Economic Zones
- Special Economic Zones: Performance, Lessons Learned, and Implications for Zone Development by FIAS
- Special Economic Zones: An Operational Review of Their Impacts by World Bank Group
- The Political Economy of Special Economic Zones by Lotta Moberg
Week 10: One Belt One Road
- One Belt One Road by Bruno Macaes
- China’s Asian Dream: Empire Building along the New Silk Road by Tom Miller
Week 11: Urbanization and new cities
- New Cities: Opportunities, Visions and Challenges by CityQuest
- New Cities and Concepts of Value: Planning, Building, and Responding to New Urban Realities by CityQuest
- Urbanization by Hannah Ritchie and Max Roser
- Sun, Sea and Robots: Saudi Arabia’s Sci-Fi City in the Desert By Glen Carey, Vivian Nereim and Christopher Cannon
- Innovative Governance Podcast – Mwiya Musokotwane
- Charter Cities: Possible locations and embryonic growth issues by Alain Bertaud (Youtube)
Week 12: Practice
- Seasteading by Joe Quirk with Patri Friedman
- Tech Envisions the Ultimate Startup, a City by Emily Badger
- The Politically Incorrect Guide to Ending Poverty by Sebastian Mallaby
- Honduras Experiment with Charter Cities by Economist
- ZEDE White Paper by Mark Lutter and Jorge Colindres
- Creating the Charter Cities Ecosystem by Mark Lutter (Youtube)
- Refugee Cities: Expanding Options for Displaced People through Special Economic Zones by Refugee Cities
- Welcome to Liberland, the World’s Newest Country (Maybe) by Gideon Lewis-Kraus
Inspired by Patrick Collison’s questions, where he nicely links to us, I thought I’d write up some of my own. These questions are focused around charter cities and innovative governance.
Which system of governance is optimal for economic development? How location dependent or universal are governance systems?
The general consensus in the West is that open governance, as approximated by the World Bank Doing Business Index, is sufficient for economic development. China is challenging that model with industrial policy inspired by Friedrich List. The Asian Tigers also followed the List model for development more closely than the Smithian model. Additional questions of disease burden, geography, state history, play into development questions. How does scale affect the optimal model? What is the governance/policy advice for a 100,000-person city, 1M person city, and 10M person city? How does it change with location?
What are the constraints on forms of territorial governance?
Why is the nation state the dominant form of governance today? Why did nation states outcompete city states like Venice and Genoa, urban leagues like the Hanseatic league, and empires? The best evidence I’ve seen points to the ability nation states to create internal free trade zones. A world of low tariffs suggests the case for the nation state might be decreasing.
What is the best way to increase the longevity of successful forms of territorial governance?
Individual sources vary, but the general consensus is that Renaissance Florence only lasted between 200 to 300 years. The US is approaching its 250th anniversary and we’re seeing significant signs of institutional decay. Is this a function of natural stagnation as interest groups eat rents? Is it possible to design institutions which are less susceptible to stagnation? If so, what would they look like?
To what extent is territorial governance going to be unbundled in the 21st century?
A number of companies are emerging to provide services which were previously the domain of government. Prominent examples include arbitration companies, blockchain, even in the battlefield with Blackwater (or whatever it’s called now). Territorial governance isn’t going anywhere as physical safety remains paramount. However, with the rise of for-profit enterprises providing services typically offered by the state, we’re witnessing a real-time shift in the conception of the state. I expect this to continue. The question is how far this shift occurs.
What is the relationship between geopolitics and local governance ?
Somaliland, a nominally independent country, has had free and fair elections for a generation, and remains unrecognized which shows the difficulty of starting new countries. Charter cities aren’t sovereign, but do call bring to mind some of the concerns. Tyler Cowen, in his charter cities talk, emphasized the importance of ‘hegemon backed charter cities’, e.g. Hong Kong. On the other hand, China’s One Belt One Road project is changing local governance. We are living through a time of decay of existing institutions. This decay increases the variance in governance, and understanding the factors which influence it, including geopolitics and local concerns, is crucial to understanding how the world will change.
How will humanity spatially reorganize itself in the 21st century?
Humanity is urbanizing rapidly–to the tune of 70 million people annually–primarily in Africa and Asia. Existing cities will continue to grow rapidly, and new urban centers will also emerge. Shenzhen, for example, was a fishing village of 30,000 residents in 1980. Today, it’s home to more than 12 million residents. In addition to rapid urbanization, transportation advances, VR, and climate change will shift entire populations. Climate change might make the immediate region near the equator, less habitable. On the other hand Siberia and Canada will open up for farming and resource extraction. VR will change how people spatially locate, most likely leading to more remote work. Transportation technology, like supersonic flight and hyperloop, might increase the concentration of humanity in mega cities.
Is it possible to infuse a charter city with good cultural norms?
Culture is extremely important in a company. The same applies to cities. In a company culture tends to flow downstream, starting with the CEO. It is further reinforced by who the company hires and fires. Most cities don’t have the luxury of ‘firing’ residents. As such, the pathways to influence culture are limited. Different cities have different cultures. Most of these are the byproduct of historical events. Nevertheless, given the importance of culture, city developers should play an active role in shaping city culture to the extent possible.
What is the interaction of culture with a charter city?
In Shenzhen style charter cities, where the most residents come from rural backgrounds and possess low human capital with little experience in the modern economy, how will they interact with the modern governance of a charter city? How can governance be designed to minimize local backlash. Put another way, how can locals be made to feel like they have a stake in their community?
What improvements, both on the margin and wholesale, can be made to governance that is currently best practices?
Developed countries tend to work reasonably well. What marginal improvements can be made, for example making the FDA less risk averse? What wholesale improvements can be made, overturning freehold with the Harberger tax? Is there a set of governance reforms which have simply not been considered because it wasn’t possible to conceive of an implementation strategy? Are any of these reforms sufficient to justify the infrastructure costs of creating a new city?
What is the steelman against charter cities?
Or in other words, what is the best case against charter cities. The best case that charter charter cities won’t succeed is that countries with poor governance are unable to credibly commit to outsourcing governance to a third party. As such, charter cities won’t get off the ground, because even if countries pass legislation, they won’t be able to attract investors to build the city.
The best case against charter cities if they succeed is that government as a service will lead to marginalized people getting left behind. We can imagine a percentage of people is unproductive, either because of losing the genetic lottery or deep-seeded cultural reasons. These people should be taken care of, and currently it is mostly governments that do so. If government starts operating more like a service provider, these people might fall through the cracks. For example, one Dubai is great, dozens isn’t, as there is no social infrastructure to care for unproductive people.Read More
Andy Weir, the best-selling author of The Martian, recently published Artemis, a novel set in a small moon colony, the namesake of the book. Weir is very explicit about modeling Artemis on frontier towns. With a population of around 2000 residents, Weir dives into the social structures that keep Artemis together, hence the relation to innovative governance.
Artemis exists because Fidelis Ngugi, Kenyan’s Minister of finance, took advantage of Kenya’s proximity to the equator and created a special jurisdiction to entice space companies to locate there. The special jurisdiction, by cutting away red tape and taxes, combined with the good location, was sufficient for the investment necessary to create the world’s first moon colony.
The social structure of Artemis is similarly interesting. The residents come from a variety of countries, Saudi Arabia, Vietnam, and Brazil are among those named. A kind of chain migration, where someone brings their cousin, the cousin brings their friend, etc, is explicitly mentioned.
Guilds dominate Artemis. There’s a welding guild, a spacesuit guild, etc. The guilds operate in the weird line between ensuring quality and existing as cartels to raise prices, though they don’t operate via force. Though the protagonist is clearly anti guild.
Laws, in the Hayekian sense, as opposed to legislation, doesn’t really exist. For example, there is no drinking age or age of consent. This is explained as necessary given the different cultures. The enforcement mechanism for both drinking and consent is the angry parents of the youth coming to enact frontier justice on the ‘aggressor’.
Power in Artemis is split between Ngugi, who is the administrator, and Rudy DeBois, the head of security. The relationship between Ngugi and DeBois isn’t clear, they have distinct roles and neither answers to the other. There is no jail, norm violations are punished by frontier justice, fines, or deportation. Serious crimes, such as murder, result in the perpetrator being deported to the country of victim.
One of the major challenges Artemis faces is generating economic activity. It is primarily a tourist destination, but for long term survival and growth, it needs to become more than that, to attract an anchor tenant, a similar challenge facing charter cities.
Few novels take seriously social organization, so it’s a pleasure to read one that does. Weir actually estimates the cost of a visit to Artemis in the appendix. In addition to the perspective on social order, Artemis is also a well written thriller. I recommend it.Read More
Paul Romer, along with William Nordhaus, just won the Nobel Prize in economics for his work on endogenous growth theory. As usual, Tyler Cowen has the best summary of Romer’s ideas. I would like to use this as an opportunity to give a comprehensive overview of Romer’s public works on charter cities and to discuss what we’ve learned since Romer’s charter cities TED Talk.
Romer’s involvement in charter cities began with his now famous TED talk. His initial charter cities proposal has a guarantor country, maybe two combined, act to import good institutions to a host country. For example, Canada (or Canada and Denmark) could act as a guarantor to a charter city in Honduras.
His first involvement on the ground was in Madagascar, which was chronicled in this Atlantic article. Romer got the president of Madagascar excited about charter cities. However, the president was soon deposed after his guards fired upon protestors, who were protesting against selling land to a foreign company, Daewoo. The protests do not appear to have been directly linked to Romer’s charter city proposal. I haven’t seen any other original sources regarding Romer’s time in Madagascar, though I haven’t looked extensively.
Romer’s next involvement was in Honduras. He helped craft charter city legislation, as he details in this follow up TED talk. He left the Honduras project a year later, accusing the government of a lack of transparency in this post. As a side note, Honduran charter city projects are still ongoing and I am hearing most positive rumors than any time within the last four years.
Other times Romer has commented on charter cities include this paper, where he appears to move away from the necessity of a guarantor country. Here he, writing with Brandon Fuller, place charter cities in the context of urbanization and Chinese special economic zones. Here is an interview he did on charter cities. Here he proposes charter cities as a mechanism to help with the refugee crisis. Unfortunately, he didn’t, or was unable, to use his time as Chief Economist of the World Bank to promote charter cities.
There have been two major geopolitical developments with charter cities implications since Romer gave his original TED talk. The first is China’s One Belt One Road. The second is the refugee crisis.
One Belt One Road is China’s attempt to export their industrialization model, combining urbanization with special economic zones. With Chinese money and influence, this is changing norms regarding territorial autonomy. China, for example, via debt, has got Sri Lanka to give control of a key port to a Chinese state owned enterprise. Such changing norms removes one of the key barriers to implanting charter cities. It becomes easier to frame them in the wider geopolitical context as merely the next evolution in existing projects.
The refugee crisis is the other important geo-political event with charter city implications. Romer comments on it here. A few organizations have formed with similar goals, including refugee cities and refugee nation. Several prominent individuals, including Kilian Kleinschmidt, former ‘mayor’ of the Za’atari refugee camp, and Joachim Rucker, former President of the UN Human Rights Council have been working on special development zones, a concept similar to charter cities.
There are three lessons to learn from Romer’s pioneering work on charter cities, politics, real estate, and staging.
Romer was very successful at one aspect of politics, bringing excitement about charter cities to change the Overton window. His TED talk led to legislation getting passed in Honduras, and he was close to getting legislation passed in Madagascar. However, subsequent events demonstrated that high level political engagement is not sufficient for the legislative change necessary for charter cities. In addition to engaging the president, it is necessary to engage key ministries, the opposition party, etc.
Charter cities are real estate ventures. As such, it is important to bring in real estate companies from an early stage. The infrastructure is the primary cost of a charter city, and must be financially viable to attract investment.
Lastly, staging is important. Raising $5 billion for an untested concept is unlikely. Instead, the money should be raised in stages. The first stage might be an industrial park, then adding residential. Or maybe the first stage includes industry, commerce, and residential, then can be scaled. Either way, charter cities must figure out a minimum viable product that can serve as proof of concept for attracting billions of dollars in investment.
For further strategic thoughts, see here.Read More
This is a guest post by Mischa Spiegelmock.
What kinds of professionals spend their days reading, writing, and editing rules? Two kinds: lawyers and computer programmers. Despite this fundamental similarity, however, they seem to live in different worlds. That’s probably because lawyers mistakenly think that programmers don’t have much to teach them (and, as a consequence, because programmers try to stay very, very far away from lawyers). In fact, though, lawyers could learn a lot from coders.
Computer code and legal code are similar in more than a few respects. Both declare operations to be performed under specific sets of conditions, attempt to create definitions that correspond to human activity, incorporate and revise previously-written code, and (hopefully) account for exceptional circumstances. While there are a great many differences as well, there may yet be an opportunity for cross-pollinating knowledge and experience from one field to the other.
Legal systems resemble pre-1970’s software in terms of portability and reusability. Much like how programs and operating systems were bespoke designed unique for each architecture, governance and codes of laws are currently crafted for each environment or government and unable to build upon each other, despite performing very similar functions.
Modern software developers are aware of the recent explosion of new ideas, experimentation, forms of organization and impressive decentralized projects that came with the introduction of suitable layers of abstraction and portability in the form of C and UNIX and later combined with the open source movement and the internet. By freeing programmers from having to rewrite operating systems that did more or less the same thing but with different interfaces, they could focus on actually writing programs, and even port those programs to different computer architectures without having to rewrite the entire application. Instead of writing code in an assembly language that was incompatible with all other platforms, the introduction of a higher-level language allowed programs to be transferred from one environment to another.
While some members of the software profession may take this wonderful state of affairs for granted in the digital realm, in the offline world they live under systems of laws and governance that are still waiting for a common framework, a standardized legal operating system, a basic foundation that hobbyists and experts from different countries and disciplines can openly collaborate on. Many of us may have vague desires and ideas of how to share the lessons learned from portable computer systems with the legal profession, though such ideas are likely worth their weight in gold Dunning-Krugerrands. Now however, a few in the legal profession have attempted to apply these concepts to law.
But first, an explanation of the problem: many people are unsatisfied with aspects of the governments and legal systems they live under, and most people have little agency to come up with their own improvements. There is a high exit cost to changing countries, citizenship, and governments. Improvements and refinements from one jurisdiction cannot always be easily taken and applied to another because of incompatible legal systems, different definitions, unintelligible languages, and jurisprudence. The overhead of experimentation can be great; each new government writes its constitution from scratch, comes up with court systems, has its own legislatures and judges, and so on. This limits the scope for the sort of healthy robust competition and innovation that has been seen in the world of software since the introduction of portable programs and operating systems, open-source development, reusable libraries, and collaboration on a global scale.
Perhaps you would like to create a new set of codes for yourself and like-minded individuals to live by. Maybe you believe laws or punishments are unfair or unjust, or you certain immoral or unsavory behavior should be curtailed. Taxes should go to fund socially useful schemes or taxes are too damn high. Freedom of movement is a basic human right or we need to keep the bad guys out. Whatever your vision, there are practical and theoretical ways of implementing it today, be it via homeowner associations, Special Economic Zones, setting up your own seasteading colony in international waters, founding a religion, or incorporating a new town. There exists a vast number of overlapping codes and laws that govern all people already, but they often lack a shared foundation of well-understood, time-tested common principles. Enter Ulex.
What is Ulex?
In a nutshell, Ulex provides a set of sane legal defaults including a simple system for resolving disputes closely modeled on the system commonly used to arbitrate international trading disputes. There are recommended basic modules for civil procedure, torts, contracts, and property that incorporate best practices as codified by organizations including the American Law Institute/International Institute for the Unification of Law’s (ALI/UNIDROIT’s) Principles of Transnational Civil Procedure, and selected volumes from The ALI’s Restatements of the Law.
Ulex 1.0 can be viewed as a template for creating a legal distribution. It references the contents of the legal packages from quality upstream maintainers, along with some system utilities in the form of meta-rules, optional modules for criminal law, procedural rules and substantive rules. This distribution should not be considered final, complete, or the best legal system for any new self-governing group of people, but rather a starting point for experimentation. Since not everyone who wishes to create a new society is well versed in legal history and modern best practices, having a jumping-off point with quality material curated by a law professor should be useful. Not everyone wanting to build applications may know how to design a working operating system, and they shouldn’t have to.
Creating legal systems by means of references other documents is a common and systematic practice, much in the way that software is rarely written from scratch but instead makes use of libraries of already packaged code. So too can legal distributions be created with a few well-thought references to systems that already work well and some legal wording glue to create a coherent system. Implementation is accomplished via contract law in the context of the host state, a necessary bootstrapping mechanism for now. Ulex version 1.1 includes an optional host sovereign integration module (section 5) if better compatibility is desired.
All that is needed for implementation is for parties to formally agree:
Only Ulex 1.1 shall govern any claim or question arising under or related to this agreement, including the proper forum for resolving disputes, all rules applied therein, and the form and effect of any judgment.
Ulex is not the final answer in self-organizing legal systems but a potential first organizing principle and base layer of abstraction upon which more varied and ambitious legal projects can be based. If a common template and minimum functioning system can be designed, the process and results can be embraced and extended around the world as people increasingly experiment with new forms and options for self-governance. With competing designs and implementations may come, eventually, more inspired and community-driven legal systems all developed in the finest tradition of open source development.
For future reading, the description of Ulex 1.1 is recommended.Read More
Some commentary on innovative governance news
Titus Gebel, a German entrepreneur just had his book, Free Private Cities, published in English. He was kind enough to thank me in the acknowledgements! He presents a radical libertarian, Rothbardian inspired case for free private cities. I am less radical than he is, and fear that such a strict property rights regime is unworkable in practice. However, he lays out the best case for it, and is worth grappling with. Further, he is interested in implementing his vision, and given his successful history as an entrepreneur, I wouldn’t bet against him.
Tyler Cowen discusses Chinese urbanization and economic development. I remain continually surprised by how underdiscussed these ideas are. At the World Bank Urbanization and Poverty Reduction Research Conference last Friday, the opening panel spent about 5 minutes discussing China. Tyler is a welcome corrective.
“Disney World is what it looks like if you give a corporation full control over an area of land as big as San Francisco.” Not only does Disney have full control, it also has a medium degree of autonomy from Florida. That being said, Disney’s attempts at creating communities, not amusement parks, haven’t been as successful, though they weren’t unsuccessful either.
The Economist has been the most prominent institution supporting Georgism over the last 5 years. Here’s one of their longer pieces.
McKinsey Global Institute is catching the new cities bug, but their article is a bit dated. Masdar is generally perceived as a failure, having spent about $20 billion to develop and area of 5 square blocks. Songdo is still relatively underpopulated.
There’s a lot of reporting on African cities. Here is the Financial Times on the fastest growing cities, which are African. Here is CityLab on urbanization without development, which is unfortunately common in Africa. Here and here are two articles about how Addis Ababa is beginning to resemble a Chinese city. Here is a new city project in Senegal, which my Senegalese friends tell me is mostly overhyped.
One of the challenges in building a charter city is protecting it from future state expropriation. International laws can help limit the risk, as Dubai Ports World successfully sued Djibouti over a port seizure.Read More
Devon Zuegel is a writer and software engineer living in San Francisco. She writes about cities, tech, and is part of the YIMBY movement. Our conversation goes from walkable cities, to the need for weirdness, to what cities are overrated and underrated.Read More
Alexander William Salter, Assistant Professor of Economics in the Rawls College of Business, and the Comparative Economics Research Fellow with the Free Market Institute, at Texas Tech University, writes on political entrepreneurship.
I contribute to the literature on political entrepreneurship by analyzing the role of the political entrepreneur in Frederick the Great’s Anti-Machiavel. Frederick the Great (Frederick II of Prussia) is best known for turning Prussia into an international power during the mid- to late-18th century. His perspective on governance contains many valuable insights into the nature of political entrepreneurship, the institutions within which it occurs, and its effects on material prosperity. I detail key points from Anti-Machiavel that can advance scholarship on political entrepreneurship, and conclude by discussing how Frederick’s insights into political entrepreneurship can be put to work.Read More