Undercover Economist

April 2, 2011 12:23 am

Is it time to outsource cities?

Building ‘charter cities’ might be a radical solution to the problem of poverty but it could also become a business in its own right

Cities are back in vogue – intellectually, at least. (In the real world, cities were never out of fashion. The world’s population has been moving to them at a more or less steady clip for thousands of years.)

First there was the late Jane Jacobs, who argued that while nations were political units, the proper way to think about economies was to start with the economies of cities. Glasgow, Liverpool, Manchester and London are entirely distinct economies – Jacobs even suggested that they should be using separate currencies.

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More recently, the journalist David Owen explained in The New Yorker that city living – with compact apartments and public transport – was far greener than the typical rural or suburban lifestyle. This point should have been obvious, but wasn’t.

Now the Harvard economist Edward Glaeser announces The Triumph of the City in a new book, while the journalist Greg Lindsay and business school professor John Kasarda offer a book about the Aerotropolis – a new breed of cities “umbilically connected” to their airports. Nassim Nicholas Taleb predicted that nation states would be supplanted by city states by 2036.

But on this question, no one is more radical than Paul Romer. Romer’s first career was as the most influential growth theorist of his generation; he was then a successful entrepreneur. Now he beats the drum for “charter cities” as a radical solution to the problem of poverty.

Like all cities, charter cities are built on land, populated by people and run according to certain rules. What is unique is that the land, the people and the rules might come from entirely different sources – in one of Romer’s more controversial illustrations, Canada buys the Guantánamo Bay lease from the Americans and establishes a kind of new Hong Kong populated by Caribbean workers.

Romer now seems to be downplaying the Guantánamo angle, but still emphasises the idea of a guarantor country – France and Norway helping run a city state in Mauritania, for example. It sounds crazy, but he has his reasons. When I met Romer in London last year, he was concerned about the credibility of the city’s institutions. Because a city is costly to build, much of its infrastructure will last for decades. Romer argues that investors will not bite without a steady (Canadian? Norwegian?) hand on the tiller.

Perhaps he is right, but there is another angle to charter cities, which offer the opportunity to experiment with new rules that do not apply elsewhere. Cities such as Singapore and Hong Kong have prospered because the rules there have been conducive to doing business. Perhaps countries do not really need to outsource new cities; perhaps a special economic zone will be credible enough.

Take New Songdo, a conurbation close to Seoul. For Greg Lindsay, New Songdo is an aerotropolis, notable for its proximity to Incheon airport. I think its quasi-charter status is more important: South Korean politicians privately admit that New Songdo is attractive because businesses can be offered light-touch regulations without seeding a political storm.

Romer is not immune to the charms of air travel – he mentioned to me that 40 per cent of trade, by value, is now by air – but his charter city vision emphasises an angle largely overlooked by the global elite: that “the market in the city business right now is poor people”. Romer regards Dubai, because it is merely a millionaire’s playground, “as a failure, even before the bust”.

There, to me, is the real radicalism and the real insight: that building cities could become a business in its own right. And as with any dynamic industry, some of these city-businesses will flourish magnificently. Others will fail.

Tim Harford’s latest book is ‘Dear Undercover Economist’ (Little, Brown)

This article is subject to a correction and has been amended

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