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Rec Room: David Xia: Paul Romer on Charter Cities

March 12, 2010


David Xia.jpg“These African students are doing their homework under streetlights in the airport in the capitol city because they don’t have electricity at home,” said Stanford University economist Paul Romer at a TED talk in July 2009 as he displayed a photograph to the audience.

“I’ll bet Nelson,” he pointed to a particular student, “has a cellphone. So here is the puzzle. Why is it that Nelson has access to a cutting-edge technology, like the cellphone, but doesn’t have access to a 100-year-old technology for generating electric light in the home?”

Romer’s answer: “bad rules.” His solution: a rule to change rules. Romer argued that charter cities where a charter specifies its own governing policies rather than the state, can create a win-win situation for leaders and people by giving everyone more choices.

One starts with a charter, then attracts investors to build infrastructure, draws in firms, and then residents who’ll settle down and find a job in the new city. According to Romer, by building cities on uninhabited land, greater choices will be built into the process. Individuals can choose to opt in and pioneer a new, uncertain way of life.

His talk might sound fantastical and nuts at first, but Romer explained how his idea is based on historical events such as the division of North and South Korea, Cuba, Haiti, and, most noticeably, Hong Kong.

According to Romer, the British, by forcefully taking the port from the Qing dynasty and implementing rules adopted from market economies of their own country, created a successful natural experiment that the People’s Republic of China later emulated.

“In a sense, Britain, inadvertently, through its actions in Hong Kong, did more to reduce world poverty than all the aid programs that we’ve undertaken in the last century.”


Bio: David Xia is an intern at Guernica. Read his last recommendation of the film The Maltese Falcon here.

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