Waylaid Dialectic

December 31, 2011

Charter Cities and Cheeky Heuristics

Filed under: Development Theory — terence @ 1:08 pm

It’s naughty, I know, but I have a rule of thumb that runs something like this:

The more a solution to the problems of under-development appears simple and elegant on paper, and the more it appeals to the intuitions of orthodox economists, the more likely it is to fail.

Like all rules of thumb it’s sometimes wrong (CCTs for example) but, on the other hand, the 1980s and 1990s and the broad failure of the decades’ free-market reforms, suggests that generally it fits fairly well with the data.

It’s basically this rule of thumb that made me deeply sceptical of Cash on Delivery Aid, at least in the form that it’s been promoted (incentivise countries in the same way that you can incetivise people? – please). It’s also why I haven’t paid much attention to Paul Romer’s idea of charter cities.

But now it looks like a charter city may actually happen, and Duncan Green’s offered a wager that it won’t work.

I’m with Duncan on this. I think failure is very likely. For the following reasons:

1. Because formal rules, which is the only thing the philosopher kings technocrats in charge of the city would actually control, aren’t the only rules (or perhaps even the most important rules) responsible for making cities work. Informal institutions are critical. And I’m not confident that healthy norms and informal rules will simply arrive in an instamatic migrant city, the way the Charter Cities’ boosters seem to think they will. And if they don’t I suspect the task of governing the city will become difficult, and difficultly bureaucratic pretty quick.

2. Issues of political economy. I would imagine that in the lead up to the creation of the city, there will be a major push by interested businesses to get sweet deals for themselves, with regards to the city, from the Honduran government. And I imagine that the government, being eager for the project to be seen to work, will grant such deals. Which will make the city a less than optimal place for its workers.

3. Of course, if the city is a worker’s hell-hole workers simply won’t move there. So even if they don’t have any political voice in the rules of the city, they still have exit (or never entering in the first place) as a tool to ensure their rights. However, information about the city won’t be perfect and exit is never as easy in practice as it is on paper, particularly for poor migrants. All of which makes me think that worker welfare will be under catered to in the city.

4. No city is an island. Presumably there will be relatively easy migration in and out of the city (otherwise the problems in point 3 would be much worse), which I suspect will lead to rather messy spillover effects. On both sides of the city line. Squatter camps on the outside and crime on the inside, for example.

I could be wrong. And as is usually the case when I’m pessimistic about someone else’s development solutions I hope I’m wrong. But I really doubt charter cities will work.

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