Charter Cities

Economists have been getting a bad press recently. Anatole Kaletsky recently argued in Prospect magazine that the discipline needed an intellectual revolution if it was to become meaningful and even the Queen is reported to have asked on a visit to the LSE how they failed to predict the recession.

Perhaps this is unfair; arguably economics has always been best at describing the world as it could be, rather than as it is or as it will be. If anyone doubts that visionary spirit is alive and well in modern economics, I urge you to watch this talk by Stanford economist Paul Romer at this year’s TED Global.

I can’t begin to capture the detail, but essentially, Romer’s argument is about the importance of rules for economic development. Rules stimulate or stifle innovation, rules incentivise or discourage profit and rules disseminate or concentrate gains.

Economic development can be hampered by too many, too repressive rules or by too few, too weak rules. This is what happens currently in many parts of the world. But changing rules is a difficult business. Among the many challenges is getting the scale right: a village is too small to have any effect, Romer argues, but a country is too big and unwieldy to change rules in a way that let’s people opt in or out (which he thinks vital). Romer’s rather dazzling solution is to propose the creation of Charter Cities. New settlements managed by international coalitions which would operate under different charters of rules to the countries in which they are located and which would act as beacons of development and spread wealth back into those countries, rather in the way that the Hong Kong economic model acted as a catalyst for economic reform in other parts of China.

Whatever its practical difficulties I think this is a pretty huge idea and a rather inspiring one.

It also made me think about two consequences for local government.

Firstly, central to Romer’s analysis is the importance of setting rules at a local level. As we try to move out of recession it’s vital that local government is able to set the frameworks for encouraging growth. This might involve local tax raising or exemption powers, more effective commissioning, extending local charters so that they were more readily enforceable on third parties (e.g. utilities), or greater powers to shape supply side markets. As we move towards a probable change in government now is the time for local government to be thinking about and demanding the powers they need.

Secondly, I wondered whether Romer’s vision had to be limited to national governments supporting Charter Cities? He uses the example of Canada, Brazil and Cuba taking over Guantanamo on a charter basis, but what if it was Toronto, Sao Paulo and Havana? Imagine the potential of a joint city venture between say Manchester, New York and Bangalore?

In the Centre for Local Democracy we’re doing some early stage thinking about the potential of enhanced twinning schemes and about how to reconcile the demands of localism and cosmopolitanism. Romer’s ideas suggest we may need to think about all of this even more ambitiously. Pretty exciting stuff for a dismal science!