Mwiya Musokotwane is building a new city in Zambia, and raising capital to expand the model throughout Africa. He is the co-founder and CEO of Thebe Investment Management, which is building Nkwashi, a new city project. Our discussion ranges from new city projects, to African development, to state capacity.Read More
One of the most important considerations in building a charter city is location. Building a charter city in the wrong location will inevitably lead to failure, while getting the location right can obscure substandard performance on other important questions facing a charter city. There are three key attributes of location, 1) legal autonomy, 2) potential population, 3) trade patterns.
Charter cities, by definition, have substantial degrees of legal autonomy. As such, the first and most important consideration for the location of a charter city is legal autonomy. This can be understood broadly as the relationship of the charter city to the host country. The host country must pass legislation which grants legal autonomy to the charter city, as well as being able to credibly commit, at least on certain margins, to respect the autonomy indefinitely into the future.
It’s possible to learn about the profile of potential host countries by examining projects similar to charter cities. Shenzhen, born out of a special economic zone, is arguably the city which most closely resembles a charter city. The special economic zone in Shenzhen had significantly more autonomy than most special economic zones and was sufficiently large to incorporate the future growth of the city. Another important project which is comparable to charter cities is the Dubai International Financial Center (DIFC) and its successors, Abu Dhabi Global Market and Qatar Financial Center. The DIFC imported common law to create a successful financial center, demonstrating the possibility of creating legal systems from scratch for charter cities.
China, Dubai, Abu Dhabi, and Qatar are all autocratic states suggesting likely host countries to be autocratic. On the other hand, Honduras, a flawed democracy, has passed legislation which allows the creation of a charter city. That being said, six years have since passed and no projects have been approved in Honduras, at least publicly.
In general, high income countries are less likely to support charter cities. The most potential in charter cities is in low income countries, as they have the most catch up potential. Low income countries also, in general, have higher variance in making policy than high income countries. As charter cities are not within the usual policy prescriptions, higher variance translates to increased likelihood of passing charter cities legislation.
The second important consideration in where to build a charter city is potential population. Where is the potential population going to be drawn from? New cities are constructed in rapidly urbanizing populations. In an urbanized country, a charter city would have to compete with existing cities for residents. In rapidly urbanizing countries, there’s an existing population of residents already moving to cities, making it easier for the charter city to rapidly grow.
High income countries tend to be rapidly urbanized. Latin America, surprisingly, is more urbanized than Europe. Much of Asia is urbanizing very rapidly, while Africa is urbanizing most rapidly.
The third important consideration in where to build a city is trade routes. Historically cities are built on trade routes, or in the case of most mountain cities, to extract resources. Charter cities are no different. The challenge is that many of the good locations have likely already been ‘taken’. However, it is easy to imagine someone making a similar critique about China in 1980 and we know how that turned out. More specifically, when forecasting there are two important changes in trade patterns which will allow the rise of new cities.
The first is global warming. Global warming will defrost a portion of the permafrost in Siberia, opening it up to farming and trade. Additionally, permafrost will make certain existing cities increasingly inhospitable, encouraging their residents to move. Further research needs to be done, or perhaps simply found, but cities with 50-year time horizons should begin thinking about the impact of global warming on trading patterns.
The second change in trading patterns will come from innovations in transportation technology. The hyperloop, supersonic planes, and even drones could lead to significant changes in trading patterns. Again, forecasting these changes is outside the scope of this post, but it should be considered when considering where to locate a charter city.Read More
Paul Collier is a professor of economics and public policy in the Blavatnik School of Government at the University of Oxford. He is also a director of the International Growth Centre, the director of the Centre for the Study of African Economies, and a fellow of St Antony’s College, Oxford.
He is a prolific author, his most recent book being on the refugee crisis. He has also written extensively on the world’s poorest, immigration, and the environment. He recently wrote a report with Tim Besley, under David Cameron about how low income countries could escape the fragility trap, drawing on the state capacity literature.
Our discussion ranges from development to state-building, to the benefits, and sometimes perils of democracy.Read More
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