Can 'charter cities' help abolish global poverty?

Economists envision future urban centers that spur economic investment and growth. So why is it so difficult to build them?
Written by Jason Dearen, Contributing Writer

The new city’s densely packed streets snake through the Honduran jungle, packed together like a favela. But the small homes were built not by people forced there by poverty, but by those who chose to be there. The air is largely free of pollution because the burning of gasoline, wood and coal is illegal within city limits.

This modern concept of a city was meant to lure thriving companies to Honduras -- a country wracked by violence and desperation. Once realized, it would help lift people out of poverty by attracting businesses that previously would have balked at operating there and improve the overall standard of living by boosting the regional economy.  The nameless place would not be governed by the Honduran political establishment, but would have its own rules modeled on those of a “first-world country." Its police would be trained by a foreign force like Royal Canadian Mounted Police, and an independent watchdog would help make sure no one was being exploited.

Until October, this new place -- a so-called charter or start-up city -- proposed by New York University economist Paul Romer was close to breaking ground. Honduran president Porfirio Lobo Sosa had been inspired by Romer’s TED talk on the subject, and helped pass a law that paved the way for a charter city. These autonomous reform zones -- like Hong Kong without the Colonialism -- could help drive economic growth by creating cities with different rules governing life and business.

Towns created by companies are nothing new -- China has its modern pop-up cities and the United States was dotted by company towns in the 19th and 20th centuries. But Romer and others in this movement want to take the company town concept and expand on and improve it, creating new places that free the worker-residents from outdated and ineffective rules of their nations and gives manufacturing and other industries the freedom to set up shop unencumbered by the same outmoded rules.

“The 21st century will see more urbanization than in all of human history to date,” Romer wrote recently. “Nearly all of it will occur in the developing world, where urbanization has the potential to reduce poverty and enhance development.”

Still, Romer’s first foray into building a real charter city in Honduras was quickly derailed by the politics and corruption it sought to overcome, he said. The key reason: strong independent oversight of the project was never created -- a golden rule of charter cities -- and the effort collapsed. Romer pulled out in September, and the investment group that tried to wrest control of the project from him bailed out in November.

That group, called MGK and led by U.S. “social entrepreneur” Michael Strong, had been working on a similar “free zone” concept with one major difference: it did not advocate the use of a third-party country’s laws. Strong’s group pulled out after the Honduran Supreme Court overturned the law that allowed for the new cities.

After Honduras, Romer’s idea seemed like another another TED-talk inspired concept that could not survive outside the think tank.

“An attempt like this needs to be protected by some kind of powerful participation by a trusted outside entity. In Honduras, we were a group of private individuals that would ensure its Congress and people that things were proceeding for the benefit of the nation and the region.

“But that mechanism was not strong enough to deter attempts at capturing (control of the project). I don’t want to participate in this again unless there is a stronger governing presence and a national government with some accountability.”

Despite feeling misled about the intentions of President Sosa and the country’s judiciary, Romer, the Colorado-born governor’s son, is using the lessons learned to strengthen the charter cities concept and move it to an area rife with potential for change: the countries changed by the Arab Spring.

Arab Spring

Tunisia -- the birthplace of the Arab Spring -- and Morocco are two North African nations with a history of looking outside their own borders for new ideas.

The countries affected by the startling changes that swept like a tidal wave over the Arab world have several things in common: large populations of unemployed youth as well as nascent political reforms and leaders scrambling for new economic ideas.

“In both countries, they are concerned about youth unemployment -- and people in their 20s are creating all sorts of pressures and political instability,” said Dr. Michael Willis, a specialist on the politics of Northern Africa at St. Anthony’s College at Oxford.

“So ministers are willing to look at all sorts of ideas -- Morocco and Tunisia are unusually open to ideas coming from other countries.”

Romer realized the opportunities and openness to ideas in parts of the region. He has met with ministers in key regional areas in Tunisia and Morocco and with low-level central government officials in both countries.

"Because of the Arab Spring, there is urgency in governments who have realized 'We have to create opportunities for young people.' Creating opportunities means letting cities get big. They are not going to create reform zones in a rural village that will inspire a kid who loves technology and wants to make apps. They've got to create more changes.”

Which approach is best?

Building a charter city takes more than land and a willing government partner: it requires buy-in from other established governments on whose rule of law the new city’s rules can be drawn from and enforced. It also needs other willing partners who may help train a police force, and invest in the community by moving business there.

This is a key difference in Romer's approach to building new cities than Strong's, and Strong said the third party adds too much unnecessary complication.

Romer's problem with Strong's approach was that a city built solely by private business will just become a modern company town -- a corporate city, not a charter city.

Strong disagreed, saying companies can work out deals with the host countries for themselves.

“Multinational corporations routinely use ... clauses in their international contracts, so that they are not subject to the vagaries of local courts,” he said in an e-mail.

"The entire Honduran episode has given rise to ... various perceptions that a private entity is 'running' a city. This perception provokes sharp responses, as it did in Honduras."

It seems Romer's more utopian approach has its backers. Sweden’s government is talking to Romer about providing a legal framework for his next charter city, and Canada is expressing interest in helping with police training. Both countries are good at these respective jobs and would give new residents confidence in the systems being built.

“Anybody who is thinking about moving to a new city could feel confident that the policing comes from a place that's good at that," Romer said. "And all abuses could be appealed to judicial body outside the local government. There are lots of governments in the world that could export their services if they're good at doing something specific. Then a young city doesn’t have to reinvent the wheel.”

Lazika -- a Georgian pop-up city

Romer hasn’t cornered the market of ideas on new, 21st-century cities.

The Republic of Georgia has already broken ground on a future mini-metropolis called Lazika. The city on the Black Sea coast will be built atop a wetland area that was previously thought to be too swampy to build upon.

A government video (https://www.youtube.com/watch?v=lM1ltEbA9K8) calls Lazika a “special economic” region and features a swelling, inspirational soundtrack and a flyover of a model showing the golf courses and new neighborhoods, a “commodity processing zone” and a large amusement and wildlife park.

The government of President Mikheil Saakashvili wanted this new city to “transform Georgia into a nation with the most liberal economic environment” and the most “eco-environment friendly nation” by 2020.

Still, as of late last year, only one municipal building has been erected in Lazika, and Saakashvili’s party was defeated in parliamentary elections so the project has been put on hold while the transition to a new government takes place.

Lazika, created to give Georgia a new port and trading hub in the Caucuses region, does not have a charter-city like potential to change the lives of millions of people, Romer said.

“You want the new city to achieve reform in a system of government that hasn’t been able to achieve reform through some other means,” Romer said. “The new place needs to help avoid the problems of the old place.”

The future

If anything was learned from Honduras, it was that creating entirely new cities to help reduce poverty may be too ambitious. And while Romer has not completely given up on the idea, he has learned and adapted the lessons to his new projects.

He believes the concept can work in a slightly reduced form: instead of starting from scratch, what if existing cities in poor areas were expanded using similar semi-autonomous, economic zones to spur business investment and growth?

In January, Romer returned from a trip to India where he met with government officials to discuss establishing special economic reform zones in its quickly growing cities.

As for violence and poverty-wracked Honduras, the people will still have to wait. Talking to Romer about the failure of charter cities in that country, one gets the sense he feels guilty he wasn’t able to deliver the help the project had promised.

“It's a very sad situation but I, and the people I'm working with, don’t see any way for us to be helpful in Honduras except to look for other places to create a location that, if a Honduran wanted to migrate to it, then it could help the people suffering there."

Photo: Flickr/Sam Greenhalgh

This post was originally published on Smartplanet.com

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