Charter Cities: Paul Romer interviewed by Rolph Dobelli on Zurich Minds

Last night we watched the remarkable interview of Paul Romer on Zurich Minds. The interview was conducted by founder/chairman of Zurich Minds, Rolf Dobelli. Rolf was thoroughly prepared and is one of the best interviewers we’ve observed. Rolf asks very short questions in an appropriate explanatory sequence, then he doesn’t interrupt while he allows the interviewee to answer completely.

Just splendid. Paul Romer also did a more recent December 2011 Zurich Minds formal presentation on Charter Cities – in the style of a TED Talk. And FYI, Paul has at least three TED Talks on record, including the most recent Paul Romer: The world’s first charter city? which offers some particulars on Honduras.

On the mis-diagnosis of the Eurozone’s crisis

Klaus Kastner continues to offer sound advice (and yes, Special Economic Zones are a vital part of the solution)

(…) The necessary medicine has been outlined here many times before, and I repeat the most important steps:

1. Reduce dependence on foreign funds by reducing the current account deficit. 2. Substitue imports of consumption goods with new domestic production.
3. Promote exports by allowing Special Economic Zones where exports can be produced competitively.
4. And, finally: attract foreign investment, attract foreign investment and, again, attract foreign investment so that the need for loans from abroad can be reduced.

Greece, if she acts cleverly, could transform herself into the role of a trendsetter who explains to the surplus countries that the best way to help the Greek economy is to help it to develop on its own (instead of killing it with exports to Greece). The price which the surplus countries would have to pay for that is less exports to the Periphery. That would appear to be a very reasonable price to pay when comparing it to the alternative of losing 3-digit BN EUR loan amounts.

Read the whole thing »

From subsistence farming to prosperity?

Paul Romer

For several years I’ve been writing about the development challenge — what policies are the most effective to help Paul Collier’s “Bottom Billion (TED Talk)” escape from poverty to our world of prosperity? There are a number of central ideas which I think of in a rough, non-linear relationship: (Industrial agriculture, urbanization, cities) => (Ideas, innovation, economic growth) => (Women control their own fertility, women’s education, population growth stabilizes). Zero-carbon energy that is cheaper-than-coal has to be the foundation of that pyramid.

The purpose of this post is to pull together some recommendations for print, audio and video resources on these topics.

A good place to begin is Steward Brand’s Rethinking Green (video, SALT lecture). For an overview of agricultural reform try Pamela Ronald, Raoul Adamchak’s “Organically Grown and Genetically Engineered: The Food of the Future” [video of their SALT talk], [the book at Amazon]. On agriculture and urbanization, try Why big dams and big ag are good for the poor (text interview with Harvard’s John Briscoe) .

On cities: ideas come from places where people congregate – in particular cities. Innovation comes from banging ideas against each other. And the central engine of economic growth is innovation – both in the form of new technologies and new institutions (or rules). This is one of the insights that have made Paul Romer one of today’s most influential economists. Romer’s “endogenous growth theory” or “new growth theory” is sure to win him a much-deserved Nobel Prize. From Dr. Romer’s Stanford biography:

(…) The contrast between the economics of objects and the economics of ideas is the thread that runs through my work. In graduate school, I wondered why growth rates had been increasing over time. Fresh from cosmology, I was not motivated by policy concerns. It just seemed like an important puzzle. Existing theory suggested that scarcity combined with population growth should be making things worse, but they kept getting better at ever faster rates. New ideas, in the form of new technologies, had to be the answer. Everyone “knew” that. But why do new technologies keep arriving at faster rates? One key insight is that because ideas are nonrival or sharable, interacting with more people turns out to make us all better off. In this sense, ideas are the exact opposite of scarce objects. (See my recent paper with Chad Jones for more.)

For an introduction to Romer’s growth theory I recommend Paul’s chapter “Economic Growth” inThe Concise Encyclopedia of Economics, and the Econtalk interview “Romer on Growth” (if you prefer to read, see the full transcript).

Paul Romer’s current project is Charter Cities, a pragmatic scheme to overcome the development bottleneck of bad rules (for examples of bad rule systems think of Haiti, Zimbabwe, North Korea). I am convinced that the Charter Cities concept will work, and continue to find every Romer presentation fascinating. There are two TED Talks so far: Paul Romer’s radical idea: Charter cities (2009) and Paul Romer: The world’s first charter city? (2011 regarding Honduras).

“When ideas have sex” is a key theme of Matt Ridley’s 2010 book The Rational Optimist. I do not agree with all of Ridley’s themes. But his riff on ideas is good – sample his TED Talk When ideas have sex. I also recommend the longer Ridley lecture/discussion titled Deep Optimism at Stewart Brand’s Seminars About Long Term Thinking (SALT).

For a 2011 look at cities as idea- and hence prosperity-generators, Harvard’s Ed Glaeser is getting a lot of favorable comment on his 2011 book Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier. Glaeser is the subject of an excellent Freakonomics Radio podcast [MP3], and the London School of Economics lecture of the same title. See also the LSE review of Triumph of the City.

More on cities, ideas and growth: why do cities seem to be able to keep growing while most corporations die? Geoffrey West and colleagues at the Santa Fe Institute have been searching for a common theory which might answer that question. Geoffrey recently gave a thoughtful lecture at the Long Now Foundation (SALT).

Lastly, on the same theme, Steven Johnson’s 2010 book Where Good Ideas Come From: The Natural History of Innovation is summarized in his TED Talk: Where good ideas come from, and in his recent RSA Animate lecture of the same title.

Enjoy!

 

Small Nuclear Reactors are Needed for Charter Cities of the Future

Alan at Neutron Economy has a nice slant on Paul Romer’s Charter Cities concept. Yes, a charter city could certainly benefit from compact, fast-to-deploy mass manufactured modular reactors. Investors in the new city’s electric infrastructure would find very appealing the concept of growing the capacity by adding modules as demand develops. And the high energy density of nuclear fuel means the new city does not require expensive development of natural gas pipelines or heavy shipping of enormous volumes of coal.

(…) But the idea is not without its problems. We all understand that cities are higher density and can be more eco-friendly because of that, but what about the invisible supply chain for a city? Where are you going to get all the materials, food, electricity, and all other inputs that must come from the land to supply the city? And when we consider the nations that prospered because they had good rules, life got better and people inevitably used far more electricity. Much more. Where will all that additional electricity come from? And how can we possibly get it without destroying more beautiful land like we had to set aside for the city itself? How do we keep a new city from destroying an environment 5 times its size?

Just imagine a dozen charter cities blooming around the world in the next 2 decades. Imagine the millions, maybe billions, of people they could lift out of poverty. Maybe we can even imagine powering these cities by a clean energy source that destroys no more land.

Nuclear Power + Rising Economies = The Way to Go

(…)

Read the whole thing »

Greece: cutting the corruption tax

Paul Romer at VoxEU:

For many, corruption and political cronyism are seen as an inevitable part of Greek politics. This column argues that the same could have been said in the 1970s about Hong Kong, now a beacon of low corruption. Hong Kong managed this turnaround by appointing a non-elected governor accountable to the UK government. Greece could achieve the same by calling on the EU and start counting the benefits.

A Quick Case for Charter Cities: Memo to the Gates Foundation, by Bryan Caplan

Holding workers’ traits fixed, moving a Haitian from Haiti to the United States increases his wage about ten times – a gain of 900%. The lesson: Third World workers are less productive than First World workers largely because they live in the dysfunctional countries. — Bryan Caplan’s summary of the Place Premium [PDF].

The Gates Foundation asked Bryan to write a memo on Charter Cities.

It would be wonderful if the implementation of the first charter cities could be accelerated with cash. But it’s not clear to me how a big investment in the Charter Cities project would be effective. Brandon Fuller at Charter Cities wrote a nice post interpreting the Caplan memo — including this clarification — they were not looking for money:

Though we’ve had good discussions with people at the Gates Foundation about urbanization in general and the charter cities proposal in particular, we have not asked for their financial support.

Here’s an excerpt from Bryan’s post on Econlog:

The Bill and Melinda Gates Foundation has an interesting accountability mechanism. After they make a major funding decision, they solicit pro and con memos on “roads not taken” – other ways they could have spent their money. Since the Gates Foundation recently decided not to back charter cities to help reduce global poverty, they asked me to write a memo to explain why they made a mistake. Here’s the full text of my memo, reprinted with permission:


To: The Bill and Melinda Gates Foundation

From: Prof. Bryan Caplan

Re: The Case for Charter Cities

Anyone serious about reducing world poverty must come to grips with a single key fact: Redistribution from rich to poor has not and cannot solve more than a tiny fraction of the problem. Even if you could perfectly equalize income in Third World nations with zero effect on production, the citizens of Third World countries would remain mired in poverty. Take Bangladesh. With a GDP of $256B and a population of 164M, equalization would at best give each citizen an income of $1561 per year – about $4 a day. Countries do not overcome poverty by sharing production more equally. They overcome poverty by increasing production – what economists call “economic growth.”

At first glance, increasing production seems extremely slow and difficult, requiring decades of investment in education, infrastructure, political reform, and who knows what else. But there turns out to be one foolproof way for people from the Third World to drastically increase their production overnight: move to the First World. “The Place Premium,” an important paper by the Center for Global Development’s Michael Clemens, Claudio Montenegro, and Lant Pritchett[1], offers the most precise estimates of the benefits of migration. They find that the effect of country of residence on income dwarfs the combined effects of poor education, poor health, poor work habits, and all the other defects commonly ascribed to Third World labor. Holding workers’ traits fixed, moving a Haitian from Haiti to the United States increases his wage about ten times – a gain of 900%. The lesson: Third World workers are less productive than First World workers largely because they live in the dysfunctional countries.

The first-best solution to global poverty, therefore, is for the First World to allow much higher levels of immigration. Unfortunately, despite its low absolute level (annual U.S. immigration is well under 1% of its population), immigration is already extremely unpopular. For the foreseeable future, significantly more open borders – not to mention truly open borders – seem politically impossible. The challenge, then, is to figure out a close substitute for free migration from the Third World to the First. This is the challenge that Paul Romer’s increasingly influential “charter cities” proposal tries to meet.

(snip)

Another upside of charter cities is that there is virtually no downside. A charter city begins on empty land. It can only grow by voluntary migration of workers and investors. If no one chooses to relocate, they’re no worse off than they would have been if the charter city had never existed. If efforts to start charter cities fail, at least they won’t harm the very people they’re intended to help.

(…)

Read the whole thing »

A New City in Honduras

More on Paul Romer’s progress on a Charter City in Honduras:

The government in Honduras is convinced that a charter city could be the safe playing field, with new rules, where Hondurans of all backgrounds can come together and put their skills to work with all the financial resources, expertise, and technology available in the rest of the world.

To implement this vision, the Honduran National Congress has already passed an amendment to the constitution that gives the government the power to create special development regions (which based on the name in Spanish, are abbreviated as REDs). The amendment passed with 126 votes in favor from a total of 128 members of Congress (one abstention and one vote against.) The nearly unanimous vote sends a strong signal about the breadth of support for this new initiative. The National Party, the party of the government and the President (who is elected separately), has about 70 seats in Congress. Members of all parties supported the amendment, including members from rival factions within the opposition Liberal Party.

(…)

A new city in Honduras could create important opportunities. Each year, roughly 75,000 people leave Honduras in search of jobs in the United States. Many go without their families. Around 10,000 of them are kidnapped along the way and held for ransom. Many who reach the United States live in fear of deportation.

The total number of people who incur these risks and deprivations to seek out opportunity is very large. Before the most recent slump, estimates suggest that about 1 million migrants from Latin America reached the United States each year and that at least two-thirds of them do not have legal status.

The passage of the amendment is a decisive first step toward creating in Honduras the kinds of opportunities that migrants seek up north, but in a place where families can stay together, be safe, and enjoy the full protection of the law. The specifics have yet to be determined, but discussions have centered on a site large enough to accommodate a city that could eventually grow to 10 million people. As large as this sounds, it is small compared to the annual flow of migrants from the region into the United States.

This bold step did not go unnoticed—several major international investors have already expressed interest in the project. President Lobo will soon travel abroad to build more public and private support. We hope that the rest of the world will respond in kind, working with the Honduran people to establish a new city—a city that could become an important hub for the Western hemisphere and a driver of growth and development in the region.

[From A New City in Honduras]

Skyhooks versus Cranes

On his Charter Cities blog, Paul Romer captures the why of the Nobel for Elinor Ostrom:

Most economists think that they are building cranes that suspend important theoretical structures from a base that is firmly grounded in first principles. In fact, they almost always invoke a skyhook, some unexplained result without which the entire structure collapses. Elinor Ostrom won the Nobel Prize in Economics because she works from the ground up, building a crane that can support the full range of economic behavior.

Read the whole thing »

BTW, it looks like Paul is having some success in Honduras with adoption of his Charter Cities proposal. No investors yet…

Mr. Romer is undaunted. He’s shopping for a government to serve as guarantor.

Political reform: sortition and policy juries

In one of his comments DV82XL recommended two proposed enhancements to the structure of representative government. Like Charter Cities, both of these proposals have powerful appeal:

I’ve always thought that sortition, from a pool of pre-qualified candidates would be the best way to select representatives. I would also see the use of policy juries, where the pros and cons of a particular piece of legislation would be examined by adversarial debate among the interested parties, with the jury (again randomly selected) deciding if the bill was passed or killed.

However it is unlikely that any real overhaul of government will occur in my lifetime. Good enough is always the enemy of better.

The Czech Citizen Commissions are a relative of the policy jury concept (see the draft 2002 Citizens Constitution of Czech Republic, where regular and ad hoc citizens commissions were proposed). One of the endearing features of that Czech draft constitution was the method for setting compensation of politicians by citizen commission:

Chief Principles: The Citizion Commissions´ function is only advisory. Decisions are made in representative bodies and referenda. The only exception are Administrative Citizen Commissions organized once a year, to make irrevocable decisions concerning salaries and other prerogatives of politicians and high civil servants on all levels. Both politicians and civil servants are the citizens´ employees. Their salaries are paid by the citizens through taxes. In all other situations, it is the employers who decide salaries, even if mostly after negotiations with unions. It is inadmissible that politicians, as the only employees in existence, are allowed to use taxes for deciding the level of their own salaries and prerogatives. This right must be reserved for the citizens as taxpayers, through the intermediary of regularly organized Citizen Commissions.

A democracy that switched to selection by sortition would be called a demachy . Sortition has been proposed for selection of representatives from the general voting-qualified population (resources). I.e., a draft for MPs or congresspersons. I’ve always liked the abstract idea but have not thought about it in many years. Possibly more to follow… Back to the DV82XL comments on sortition

from a pool of pre-qualified candidates

What is the qualification procedure? And what is the selection pool and selection context? E.g., for the legislature, I have stumped for a return to part-time and very term-limited service, which means that the representatives must have a function in society other than spending other people’s money. An obvious consequence of a part-time legislature is that for society’s productive people, service is more feasible if one knows that the piece of your life sacrificed is small, for discussion let’s say two six-month terms over two years. Of those terms perhaps only half of the time requires physical presence, as in a fully-transparent process most of the real work is best done virtually.

Though short, the economic consequences of service are still severe, so I would expect a need for the equivalent of maternity benefits to compensate for some of the loss (women are rarely able to recover their economic loss over their lifetime).

The qualification procedure is probably less sensitive given a pool of self-selected part-time candidates. Even so, the consequences of government are so profound for resource allocation and economic development that I strongly favor basic competence criteria for critical thinking, economics, risk/reward analysis, and life-cycle-analysis (understanding, not necessarily the skills to do LCA).

STV: Single Transferable Vote was brought up in the comments. Here are resources at Accurate Democracy, and a well-done page at Wikipedia.

Kedrosky: Conversation with Paul Romer

Paul Kedrosky interviews Paul Romer for his Kaufman Foundation Infectious Talk podcast (33 minutes). There is also a transcript. The topic is how Charter Cities can exploit the “startup dynamic”:

In this episode, Paul talks with Paul Romer, Senior Fellow at the Stanford Center for International Development and the Stanford Institute for Economic Policy Research. They discussed Romer’s path as an academic turned entrepreneur, who returned to Stanford to explore how the startup dynamic could potentially be applied at the level of developing countries.