One of the great pleasures historians have is going back through the dead-end schemes of long-ago generations, the ideas, hailed as brilliant at the time, that are perfect fodder for can-you-believe-this curiosities today. You know, strange dietary regimes, inventions that run up against the laws of physics, wacko monetary systems. Smart people dreamed this stuff up, but now all we can do is shake our heads and smile. Surely future historians will find similar boneheadedness today.
Surely, and they can start with this utterly bizarre but characteristic puff piece about Paul Romer and his Charter City fantasy in the latest issue of The Atlantic. If this account is correct, it is all quite simple: Economic development depends on having the right rules in place for the economy. The right rules are privatization, free markets, and the protection of property rights. Investors have to believe these rules will be permanent before they are willing to invest. Therefore the formula for successful development is for governments in poor countries to turn over a portion of their territory to be run according to free market rules under the control of a willing rich country. A return to colonialism? Absolutely, but now it would be voluntary on both ends. Take control of some of our cities, the poor country governments would say, and force us to follow the true path to riches. Romer has set up a little enterprise to market this idea, and he says he has some nibbles.
The article in the Atlantic is pure hagiography, so it’s up to the rest of us to ask a few hard questions. Like: why are you so sure that there is only one correct set of rules, and it’s the one with a University of Chicago economics department logo? Safeguards for property rights in China? What planet are you on? And why would you suppose that the western powers that brutalized and robbed their colonies in olden days would be so virtuous today? In other words, do questions of venality and capture not apply to our governments, only theirs?
One could go on. An example crops up repeatedly in the article: kids in Guinea (they don’t say which one, not that the author seems to care) have cell phones but no electricity at home. The reason given is price subsidies, which reduce incentives to extend electricity to more homes. But how do we know this? Did the US, with a history that includes the Rural Electrification Administration and the Tennessee Valley Authority, and with many municipal utilities today, create its system through market incentives? Do countries with rapidly growing electrical grids, like China, all follow this formula today?
Here is something else: if foreigners are running your city, this means you have no political control over them—no democratic rights. Loss of democracy is a bad thing, right? Not for Romer. He points out that people who migrate in search of economic opportunity are voluntarily foregoing democratic rights in favor of income. He want to make his charter cities magnets of migration too. If migrants put more value on livelihood than the right to vote, that’s their choice, and it is their “preference” for democracy rather than yours that should count.
Actually, why go through all the bother and expense of migration? Why not just pay people to give their vote to someone else? There’s a history to that, too, in rich countries like the US. If democracy is essentially a private consumption good, valued according to willingness to pay, why not let the market rule?
Behind it all, and apparently beyond the awareness of either Romer or his chronicler, is the ghost of Friedrich Hayek. The charter cities idea is warmed-over constitution of liberty à la Hayek. According to this view, a liberal, free market economy is the very embodiment of liberty, but it is under threat from the short-sighted passions of planners, populists and other usurpers. Thus societies need to be placed under a constitutional constraint that protects economic liberalism against the threat of majority rule. Hayek, of course, did not see the need for foreigners to impose this constraint. It could be enforced equally well by elements within one’s own country. He preferred a more legitimate constitutional process, but if the country happened to be Chile, the element could be Pinochet.
UPDATE: I woke up this morning thinking about the Northern Marianas. Why settle for charter cities when you can charter whole islands?