Aid Watch Interviews Paul Romer about Charter Cities

Aid Watch recently interviewed economist Paul Romer (pictured here) on his Charter Cities concept -- worth a read. Romer's idea is reminiscent of Hanseatic League cities . Or, for a contemporary example, it's something like the free zones of Dubai/United Arab Emirates.

So imagine a country like Malawi cedes or leases some land -- and some sovereignty -- and allows for the creation of a charter city run according to the laws and regulations of Singapore, or Brazil, or South Africa. These latter countries would have the legal authority to enforce the law in the city. Romer sees the experiment as potentially democracy building, again, one is reminded of medieveal charter cities in which citizens gradually gained both economic and political rights vis-a-vis feudal lords.

A couple of questions come to mind: what would the appropriate role for local law be in such cities? In other words, maybe importing law is a good idea, but maybe building on local rules is good also. Romer suggests that cities could adopt any mix of legal rules and norms they like; different arrangements would compete against each other and some systems would win out, as least as far as investors are concerned. Introducing more vigorous legal competition has the potential to be a real boon for the poor.

Nations would, presumably, cede or lease territory because they expect to garner a variety of benefits by doing so (increased revenue for the treasury, increased access to desirable goods and services, less benignly, increased opportunities for corruption?) but would the charter rules be enforced if the surrounding sovereign comes to see the city as imposing costs instead of benefits and decides that outside enforcement is no longer desirable? Would that trigger a military response? International arbitration? etc. That's not clear, but more innovative thinking about how to increase investment and opportunity in the developing world clearly is a good thing.

- Karol