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Romer on Urbanization, Charter Cities, and Growth Theory

+ Brandon Fuller

Paul Romer recently sat down with journalist Cloud Yip in Hong Kong to discuss charter cities, the state of growth theory, and the importance of urbanization.

Q: What are the essential elements of a Charter City?

Romer: In one sense, the essence of the idea is the notion of a Startup City. You have a chance to start a city anew.

Then the question is: “What can you accomplish with that? What are the things that will be required to make it successful?” I think what is unusual about a Startup City, as opposed to an existing city, is that you can propose something new without having to go through a long process of consultation and agreement amongst the people that might be affected by a change, one that would inevitably mean that a change that some people do not want is imposed on them. With a Startup City, you can propose something entirely new and let people choose whether they want to live under its rules, as embodied in its charter, the document that specifies its founding principles. People who want to try the reform can go there, and people who don’t, they don’t have to. With a startup, you can have reform without coercion.

This is part of the insight that Deng Xiaoping had in pursuing Shenzhen. As he explained later, he wanted a way to open the Chinese economy that avoided long argument and contention about what types of change to pursue and how to pursue them.

The idea is also closely related to the idea of a special zone, but it is a specific type of special zone.

First, a Charter City has to be big. Viable cities will have millions of residents, so a zone has to be big to accommodate them. Second, it should be a Reform Zone, not a Concession Zone. Most zones are created to offer concessions to firms, not to implement reforms. The goal of a Charter City is reform, not giving out concessions, so in this sense, the motivation for a Charter City is totally different from the motivation behind most special zones.

Here are my two tests for whether a policy is a reform or a concession: Would you be happy if this policy lasts forever? Would you be happy if this policy spread to the entire country? If the answer to both questions is yes, it is a reform. If not, it is almost surely a concession, a gift to some special interest. A reform zone is a zone that implements one or more fundamental reforms.

So to summarize, a Charter City is a city-scale reform zone where a startup city could emerge.

Read the full interview here.

Tile image courtesy of International Transportation Forum.

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