The sixth guest for the Innovative Governance Podcast is Patrik Schumacher. Patrik is the Principal at Zaha Hadid Architects. Originally a socialist, the financial crisis made him rethink his views, turning him into a libertarian. He has stirred up controversy in architectural circles for his pro-market views, and recently began advocating for free private cities.Read More
Wade Shepard, a journalist who writes on new cities has an article in Forbes which describes some of the challenges in categorizing new city projects.
When emerging markets step onto the global stage they are often clad in new cities. From China to India to the Middle East to North and Subsaharan Africa, markets are rebranding themselves as modern, international and investment-worthy by building shiny new metropolises in droves. Indonesia has 28 new cities in the works, Morocco is building nine, while even little Kuwait is at work constructing 12 new cities of their own. As I write this, Oman is building Duqm—a new urban colossus two and half times the size of Singapore—out in the middle of the desert, Palestine is throwing up the towers of Rawabi, and developers in South Korea’s Songdo are proverbially looking down from the windows of their skyscrapers upon the new city of 120,000 people they built successfully from scratch on reclaimed land.
The challenge in categorizing new cities is that there doesn’t exist a standard for defining cities. For example, sometimes a single city can have multiple administrative areas, like the Washington DC metropolitan area, or an administrative area can encompass multiple cities, like Chongqing.
Wade Shepard identifies five important qualities for new cities; 1) master planning, 2) multi-use, including residential, 3) economic drivers, 4) physically distinct from other urban areas, and 5) distinct identities. I would, however, caution, that new cities do not, and in fact most aren’t master planned.Read More
Our fifth guest for the Innovative Governance Podcast is Glen Weyl. He has a new book written with Eric Posner, Radical Markets: Uprooting Capitalism and Democracy for a Just Society where he argues that we should rethink our current property rights regime in favor of property rights that are based on auctions and would lead to greater allocative efficiency.
- Radical Markets
- William Vickrey
- Mechanism design
- Armen Alchian
- Henry George
- Progress and Poverty
- Coase Theorem
- Matt Kahn on Weyl and charter cities
- Armen Alchian
- Vitalik’s blog post
Last week I attended the World Free Zone Organization’s annual conference in Dubai. One of my goals with the Center for Innovative Governance Research is, first to map, then bring together the groups which are a natural constituency for charter cities and other types of free zones. As such, what follows is a mapping of what I believe the important aspects of the World Free Zone Organization are.
- The World Free Zone Organization (WFZO) is four years old. It is not the only international special economic zone organization, another is WEPZA, but the WFZO appears to be the most active.
- Their funding is nearly entirely from Dubai related entities, see the sponsorship list here.
- They function as an industry group.
- African, Latin American, and European free zones were well represented. Asian zones were underrepresented.
- Conversations were different for different continents. High tech manufacturing in Europe, labor intensive exports in Africa.
- Most free zones present focus on exports.
- Very limited discussion on the regulatory arbitrage of free zones. What discussion there was focused on taxes.
- The speakers focused on international trade. The economists invited did not specialize in free zones.
- There were relatively few consultants there looking for clients.
- No discussion of free zones as a tool for economic development.
- No discussion of charter cities, or free zones with urban areas.
- There remains no good mapping of free zones worldwide.
The key takeaways from the conference are that discussions of free zones are still relatively underdeveloped. Free zones themselves don’t have an international internally consistent narrative, though they are developing one. There is the opportunity for influencing the WFZO, and free zones more generally, toward mixed use, more urban, deeper reforms, e.g. charter cities lite, which can set the stage for economic development.Read More
Alexander Salter is an 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. In this podcast we have a wide ranging discussion about private governance, liberalism, the origin of the state, and the future of governance.Read More
The development community is shifting their focus to fragile states. The World Bank doubled their fund for fragile states. Concurrently, a commission led by David Cameron published a report, “Escaping the Fragility Trap”.
The idea of fragile states is closely linked to the literature on state capacity, which has become a hot topic in economic history over the last decade. State capacity is the ability of a state to achieve its goals. On a fundamental level, this means achieving a monopoly of violence. Other important aspects of state capacity include ability to raise taxes from a wide base and provide public goods.
Here’s an example of personal context about the importance of state capacity, which helps illustrate it’s importance. Several years ago, I took a bus from Honduras to El Salvador. The bus only left early in the morning. Leaving later in the day would require crossing rural areas in the dark which would increase the risk of robbery. In other words, there were literal highway bandits which restricted the time of day buses were available.
Another way to think about the importance of state capacity is through this graph. Ghana and South Korea had comparable per capita incomes in 1960. In fact, Ghana was slightly higher. However, because of the miracle of compound growth, South Korea has since been able to grow into a developed country.
Through the lens of state capacity, however, this illustration breaks down. Even though Ghana and South Korea were equally materially poor in 1960, South Korea had a reasonably effective state. South Korea already had the necessary conditions for their success
Charter cities can be an effective mechanism to improve state capacity. A Firestone plantation in Liberia during the Ebola crisis illustrates this point. With 80,000 people on 185 square miles, they effectively protected their workers. Rather than working to reform existing systems, it can be easier to create new systems which can grow as they perform their necessary functions better than the legacy system.Read More
Patri Friedman is the Founder of the Seasteading Institute and one of the early movers in the innovative governance space. Our talk delves into the economics of seasteading, to the history of the movement, to how the world has changed and become more open to innovative governance projects.Read More
Democratic Compliance: A Charter City’s Obligations Under International Law: The Case of the Honduran ZEDE Regime
The concept of Charter Cities was first introduced in the Republic of Honduras as a means for rapidly accelerating economic growth and poverty reduction by creating a special jurisdiction. However, the concept faced multiple legal challenges on constitutional grounds. In 2014, the ZEDE regime was reviewed by a newly elected Supreme Court, which ruled favorably on the project. However, one the strongest challenges raised against the regime, that of characterizing it as undemocratic by nature, has not been properly addressed. This paper examines the challenge raised on the democratic legitimacy of ZEDEs, and takes into account the non-delegation clause of the Honduran Constitution. It concludes that neither the Technical Secretary nor CAMP may legislate or levy taxes, and in order for ZEDEs to exercise such powers its governance structure must provide for democratic or participatory mechanisms through which its inhabitants may exert legislative power through representation.Read More
Hambantota is a port in Southern Sri Lanka of which control was ceded to China in a 99 year lease. The port was built as part of China’s One Belt One Road policy and was financed with $1.5 billion in loans from state run Chinese firms. China Merchants Port Holdings Company is paying $1.1 billion for a 70% stake in the port.
The deal illuminates some of the complex issues facing zones. First, the issue of zones and autonomy. A reversal of fortune from Hong Kong, it is reminiscent of Romer’s charter cities TED talk, the port, which includes a special economic zone, is effectively being controlled by a different country. This is a strong commitment to a distinct governing body. However, the incentives facing the governing body are unclear. China Merchants Port Holdings Company is controlled by the Chinese state. As such, while it is certainly incentivized to improve the port, there are additional geopolitical implications.
Second, the challenge of attracting businesses to zones. Next City reports that Hambantota is under capacity, with the promised jobs not materializing. Perhaps this will follow China’s ghost cities which seem to have attracted populations. Or perhaps the planners simply overestimated the demand for a port.
Third, the political challenges of creating zones. Hambantota was chosen largely because Sri Lanka’s president hails from the town. When deals are made to curry political favor, they aren’t always based on the soundest business logic.
Lastly, the geopolitical issues. India, traditionally closer to Sri Lanka than China, is considering buying the world’s emptiest airport which serves Hambantota. India is worried about China’s influence in the area and views buying the airport as a way to counter that influence.Read More
The New York Times has a very interesting article on ISIS and how they created a bureaucracy to administer their territory and collect taxes. They recovered 15,000 pages of internal documents revealing how, in addition to brutal beheadings, ISIS paved potholes and ran a DMV.
ISIS built a state of administrative efficiency that collected taxes and picked up the garbage. It ran a marriage office that oversaw medical examinations to ensure that couples could have children. It issued birth certificates — printed on Islamic State stationery — to babies born under the caliphate’s black flag. It even ran its own D.M.V.
ISIS retained the civil service of the lands they captured.
They also suggest that the militants learned from mistakes the United States made in 2003 after it invaded Iraq, including the decision to purge members of Saddam Hussein’s ruling party from their positions and bar them from future employment. That decree succeeded in erasing the Baathist state, but also gutted the country’s civil institutions, creating the power vacuum that groups like ISIS rushed to fill.
Their effective bureaucracy allowed them to tax transactions, and the documents revealed
More surprisingly, the documents provide further evidence that the tax revenue the Islamic State earned far outstripped income from oil sales. It was daily commerce and agriculture — not petroleum — that powered the economy of the caliphate.
Interestingly, in certain circumstances ISIS acted as a profit maximizing agent by reducing bureaucratic hurdles to economic activity.
To increase revenue, the militants ordered the agriculture department to speed up the process for renting land, streamlining a weekslong application into something that could be accomplished in an afternoon.
Surprisingly, ISIS was more effective administrators than the Iraqi government.
Residents also said that their taps were less likely to run dry, the sewers less likely to overflow and potholes fixed more quickly under the militants, even though there were now near-daily airstrikes.
The article illustrates the challenges of building state capacity, roughly defined as the ability of a state to effectively administer its territory. State capacity has become a hot topic in development literature. In order to have a common market and rule of law, first a state must create an effective monopoly on violence.Read More