First published on The Dialog.

A few days ago the World Bank announced that its new Chief Economist, taking over from Kaushik Basu, would be New York University based Paul Romer. Given Romer’s controversial ideas for developing countries, such as “charter cities,” the topic of this essay, and the fact that once again an American has been appointed after two developing countries economists (Justin Lin and Basu), his appointment has elicited surprisingly few critical comments.

Romer is a “star” whose name is synonymous with the theory of Endogenous Growth, a theory that tries to explain the role of knowledge and ideas in causing economic growth.

Traditionally (until the 1950s) economists emphasized the role of capital accumulation (increase in stock of machines and physical structures) in causing growth. In the 1950s researchers like Robert Solow produced models showing that accumulation of machines and physical infrastructure could only go so far in explaining why economic growth happens. There was always a large unexplained portion, the so-called “Solow residual.” This was usually attributed to technological progress that increased the productivity of labour. Romer’s contribution, in the late 1980s was to make a growth model that “endogenized” technological change rather than leaving it exogenous or outside model as it had been so far.

After making a name for himself in growth theory, in the early 2000s Romer left academia to develop an online teaching tool called Aplia. A few years later (2009-10) he was back in the news as far as developing countries are concerned, with his idea of charter cities,  sold as a bold new concept in urbanization and development. Now that he has been appointed at the World Bank many are expecting charter cities to come back on the development agenda. Mint and The Economist have already suggested this, approvingly. But charter cities are a disastrous idea. And here is why.

First, what are charter cities? In a nutshell these are enormous special economic zones containing an entire city. Instead of an SEZ dedicated to a few industries or sectors, an empty piece of land in a developing country is developed as a city from scratch, under a “charter” or a set of rules decided in advance. However, since SEZs have gotten a bad name for giving large concessions to corporations, Romer is careful to say that “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.”

Romer’s vision, hundreds of charter cities across the developing world, housing and employing millions, in functioning, well-run environments, is bold and alluring indeed. As we are all only too aware Third World cities suffer from severe lack of infrastructure relative to demand and crisis of public goods such as transport, health, and education as well as a general governance deficit. They are usually mismanaged and prone to severe corruption. Since poor countries cannot govern their cities and cannot create conditions where new migrants want to live in them, these migrants, if they can afford it, migrate to richer countries for work and for building a new life, giving rise the to immigration challenge in the rich countries. Finally, new projects invariably run afoul of resistance from those who stand to be affect negatively. All these problems are side-stepped in a startup charter city. In Romer’s words:

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…With a Startup City, you can propose something entirely new and let people choose whether they want to live under its rules…People who want to try the reform can go there, and people who don’t, they don’t have to.

Romer’s favorite examples are Hong Kong and Singapore followed by Shenzhen, the Chinese city that Deng Xiaoping established to mimic Hong Kong.

To an extent, this idea comes out of Romer’s work on endogenous growth theory. Romer has written, that more and more “emphasis is shifting to the notion that it is ideas, not objects, that poor countries lack.” So here, finally, is Romer’s insight. If Third World citizens are voting with their feet when they can, and choosing to live in First World cities rather than their own, why not get First World governments to come to poor countries and run their cities for them? In Romer’s view, poor countries lack the ideas necessary to run a city well. So to take his example, the Cuban government can go to the Canadian government and ask it to start and run a new city in Cuba. If Third World governments were willing, such charter cities could come up all across the developing world. None of the existing laws in a poor country would apply to these spaces. They would be run according to the rules of the charter agreed on in advance by the governments in question.

Not surprisingly, when he first floated this idea Romer was severely criticized and accused of neo-colonialism. In addition, there is also the danger of “misinterpretation” by corrupt governments resulting in corporate takeover. Romer’s proposal has already been misused in Honduras where the concept was taken in the direction of a “company town” where the “investing company write(s) the laws that govern the territory, establish the local government, hire a private police force, and even has the right to set the educational system and collect taxes.”

The response to the allegation of colonialism redux was that this was purely an “emotional” reaction and that sound rational thinking would show the virtue in such an approach to urbanization in the Third World. The problems with ceding sovereignty over a city to a foreign government are, I think, obvious to anyone with a sense of history. But apart from such “emotive” arguments, there are other even more fundamental reasons as to why this is a bad idea.

By its nature the charter city is an exclusive, enclave space. True, Romer repeatedly emphasizes the voluntary nature of the concept. People choose to move into a charter city knowing fully well that they will have little say in how it is run. They are not being coerced into living in a city, they are choosing to live in it. Even accepting this argument at face value, the charter will contain rules of migration into the city. Effectively this brings the problem, of immigration facing Europe and America right now within our own borders. Within Indian border the government of Canada or the United States will decide who gets to live inside the city. Perhaps one reason that charter cities are attractive to some is that they will reduce immigration pressure on developed countries. But at the cost of reproducing those problems within developing countries, since a charter city takes care of none of the structural problems plaguing the global economy (such as lack of adequate jobs where people already live).

But the real bankruptcy of the idea is that it suffers from the same “failure of the imagination” that Romer says plagues urban policy. It can only imagine one institutional solution to the problem of urban living, viz. that developed over the past two hundred years in Europe and America. In place of the badly managed copies that we currently have, it promises a well-run copy. Evidence is gathering by the day that the Euro-American city is ecologically unsustainable. It relies on large resources and sinks, freely externalizing its costs to more disadvantaged parts of the world. China has been moving rapidly along this unsustainable path, but India does not have to mimic Europe, America and China.

Our ecological footprint is still low. Of course this is mainly due high levels of poverty and accompanying low consumption. But as more and more cities in Europe and elsewhere move to bicycles, local economies, and low production-low consumption “artisanal” lifestyles, space is opening for imaging alternative urban futures. Instead of moving through the phase of mass automobiles only to arrive at bicycles (as Northern European cities have done), we can chart our own path, bypassing the automobiles stage entirely, if only we have the imagination and the will. We also have a repository of ideas and wisdom that takes sustainability seriously. We have had thinkers such as Gandhi who recognized the problems of indiscriminate urbanization and offered alternatives. It is up to us to take these ideas into the 21^st century and offer the world a genuine alternative to the crisis created by Europe and America.

Make no mistake, the urbanisation challenge in India, as in other developing countries, is large and unprecedented in scale in social, economic, political and ecological terms. Over the next few decades more than half the world will be urban. More people will live in cities than at any point in human history. If we want our cities to be socially inclusive, economically equal, political democratic, and ecologically sustainable we have a very large task on our collective hands. We will need all the ideas we can get to meet this challenge. But solutions such as charter cities that only mask “business as usual” under new names do not rise up to the challenge.