Happy New Year! We hope everyone had an enjoyable holiday.

In case you missed it, MLI Senior Fellow Paul Romer discussed his charter cities concept in the National Post on December 27. The article follows his MLI paper on the subject released in April 2012, Success and the City: How charter cities could transform the developing world. Read the full National Post article below.


Year in Ideas: Professor touts special economic zones known as "charter cities"

By Brian Hutchinson, National Post, December 27, 2012

Paul Romer imagines a kind of private micro-state, a "charter city" built on unused land, donated from a country that wants to stimulate economic growth. It needn't be a place mired in poverty and corruption and unable to find its way out, such as Honduras, where the charter city idea has recently found support — and competition. A professor of economics at New York University, Prof. Romer thinks the concept could be adopted in advanced countries, too, such as Canada.

He imagines a tax-free, special reform zone that would attract millions of opportunity-seekers from the developing world. Most would be employed in factories, at least initially. Everyone would receive basic services and enjoy universal rights and freedoms. All infrastructure — including schools and hospitals — would be owned and operated by private investors and developers.

The charter city concept has critics, of course; some think Prof. Romer is promoting a sort of modern slavery outpost, a neocolonial, razor-wired port of convenience. He's not suggesting anything like that. What he imagines is a semi-autonomous place ruled by law, where normative values take root and growth takes off. Think Hong Kong, Prof. Romer says, or Shenzhen, the special economic zone established two decades ago in China, but without the same restrictions imposed by an all-powerful yet distant authority.

Prof. Romer says he decided to turn his "thought experiment" into a practical strategy about five years ago. "I started going public about this idea," he said in an interview from New York, "hoping that I would be approached by government officials. And that is indeed what happened."

Two years ago, Honduras called. A new government led by President Porfirio Lobo Sosa had identified for development a large parcel of mostly uninhabited land on the country's Caribbean coast. Working with Prof. Romer, the land was classified as a Region Especial de Desarrollo (RED), and efforts began to create a legal framework under which a charter city could advance.

Prof. Romer was soon made chairman of a "transparency commission," a quasi-judicial body meant to provide independent oversight and protect the integrity of the set-up process and RED functions. President Sosa signed a decree recognizing the commission, but that was later challenged in Honduras' Supreme Court and was never formalized.

Missing from the equation were investors. Prof. Romer and the Hondurans have envisioned a special city of 10 million; building from scratch the requisite infrastructure — including a seaport — would cost many billions. The plan is to create mass employment by building textile factories. But additional capital is needed to do that.

Prof. Romer was in Ottawa earlier this year, promoting the Honduran RED and suggesting that Canadians get involved. "I've always felt that Canada could be very helpful in kind of a guarantor role, or what I've described more recently as an exporter of government services," he told the National Post last week.

Since that trip, the Honduran initiative has been compromised, he says, thanks to interference from competing interests within the Central American republic itself and in the United States. An obscure company called MKG Group, led by American entrepreneur Michael Strong, signed a formal investment pact with the Honduran government in September. MKG pledged to immediately spend US$14-million on the first phase of a new charter city, again on the country's Caribbean coast.

Pushed to the sidelines, Prof. Romer and his fellow transparency commission members resigned en masse. He claims the MKG group is "not really very serious. They are kind of a nuisance and a distraction. [But] there is something deeper that was going on in the Honduras government … the usual corporate, autocratic interests that are interested in exploiting it. There were lots of players that are trying to take advantage."

The New York Times described the situation best, in a story published in October. "An internal contradiction in the theory is playing out: To set new city with clear new rules, you must first deal with governments that are trapped in the old ones."

The Hondurans have said that Prof. Romer is still welcome to provide RED oversight, but he doesn't seem interested. He says he's now "talking to other governments around the world, looking for places to push this idea forward."

There remains a role for Canada and charter cities, he thinks. "Canada might be able to establish good governance on land in another host country," Prof. Romer says. "The more interesting question is whether we could do this inside Canada itself."

That, he knows, would be a huge challenge. "It would be a very difficult sell, politically. A new charter city would have different laws [than the rest of the country]. People coming in would have residency rights but not citizenship. And many Canadians might be uncomfortable with 10 million immigrants suddenly moving" to a special economic zone, he says.

But without question, many newcomers would prove to be exceptionally skilled, motivated to contribute, prepared to adapt. "There might be a relatively easy transition where the most desirable ones become full Canadians citizens," says Prof. Romer. "If we think creatively about this, there could be some opportunities."


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