Paul Romer has made many a lasting contribution to economics and will surely win a Nobel prize at some point, but for now he lacks white hair. The problem is that Nobel prize winners tend to be older (though I don’t know why). So, we have the rather odd situation where someone knows they have probably done the best work of their life, which is very well respected and will receive the highest praise possible, but they have a lot of time left to work on other things. I kind of admire Paul Romer’s decision to spend this time on his new big idea: charter cities. He could have played it safe, but he’s chosen to work on something that people are not impressed with, and he’s tried to convince them.
I heard him speak at the CSAE conference a few years ago and you can easily track down one talk or another where he will try his best to persuade you. (You can try the official website or Paul’s TED talk.) Basically, the original charter city idea is that a poor country invites a rich country to provide ‘governance’ in a section of their land. They start a new city. Technocrats determine laws and the first inhabitants of this city determine the new norms by which the city will operate. For other’s thoughts see Oxfam’s Duncan Green, A Freakonomics Q&A with Paul Romer and Paul Collier’s similar idea (pdf). The interesting development in recent weeks is the news that Honduras is doing something similar to Paul Romer’s initial idea, with his involvement.
Someone tweeted (I’ve forgotten who -sorry) that it would be interesting to think through the difference between charter cities and the millennium village project (Jeff Sach’s baby). I won’t do that today; I just want to note one thing. At their heart the CC and MVP ideas have a simple attractiveness to them. One of the nicest ways of explaining the difference between different countries is to imagine the earning potential of an individual in different countries. Migrants from low income to high income countries receive a massive wage boost, at all skill levels, controlling for price levels. This may be because of market size, disposable income, government/market failure or a host of other reasons. The relevant one here is Culture. This plays its part in determining expectations, trust and trustworthiness. The interesting thing about CC and MVP is that they reset these expectations. Generally, poorer countries have lower trustworthiness, and therefore lower trust, when dealing with strangers. This is self-reinforcing. As Nancy Birdsall has said ‘we don’t know in the development community how to ‘produce’ good governance’. So the CC tries to reset it. Or you could say, to impose good governance and reset culture.
With both the CC and MVP ideas the talk is more of poverty traps and complementary interventions. But I find this ‘reset cultural expectations’ idea interesting, and it seems overlooked.
