Charter Cities

Charter cities offer a truly global win-win solution. These cities address global poverty by giving people the chance to escape from precarious and harmful subsistence agriculture or dangerous urban slums. Charter cities let people move to a place with rules that provide security, economic opportunity, and improved quality of life. Charter cities also give leaders more options for improving governance and investors more opportunities to finance socially beneficial infrastructure projects.

All it takes to grow a charter city is an unoccupied piece of land and a charter. The human, material, and financial resources needed to build a new city will follow, attracted by the chance to work together under the good rules that the charter specifies.

Action by one or more existing governments can provide the essentials. One government provides land and one or more governments grant the charter and stand ready to enforce it.

What might a charter city look like? The concept of a charter city is flexible. Consider three specific examples:

Case 1: Canada develops a Hong Kong in Cuba
Case 2: Indonesians flock to a manufacturing hub in Australia
Case 3: States in India compete for the chance to build a charter city

The key in each case lies in timing. The charter comes first, then residents, investors, and employers each decide whether to come live under the rules that it specifies. Historically, the ability to vote with one’s feet has been a powerful force for progress. Charter cities offer a chance to amplify it, dramatically improving the rate at which people get access to better rules.

For residents and employers, a key protection is the ability to exit as well as to enter the new cities. For investors in long-lived infrastructure projects, exiting is not an option. Some of the most important and most challenging rules are those that enforce long-term contracts that prevent both expropriation of investors and exploitation by investors.

How can we maximize the number of people living and working under better rules? The default process involves change from within. A given group of people participate in a political process that can, in principle, generate change. Since a change in the rules applies to everyone, change from within always involves a mixture of consultation and threatened coercion. As a result, attempts at change from within regularly end in deadlock and persistence of the status quo.

Imagine an alternative process in which people can migrate from a society with bad rules to another society with better rules. In this case, the rules in both places stay the same but people move between them. The process of movement between can be more effective than the process of change from within. Just as important, the presence of movement between creates pressures that speed up change from within.

Today’s world offers little chance for large-scale migration. The hundreds of millions of people who want to move to places with better rules aren’t allowed in. Charter cities will become the places where they can go.

Cities are the right scale for implementing entirely new rules. A coherent set of rules can let millions of people work together and create enormous value on a small tract of land. Because cities are also relatively self-contained, the internal rules in one can differ from the rules in all of its trading partners.

Urbanization is the key to the predictable transformation from an economy where most people earn a precarious living in subsistence agriculture (doing great harm to the environment in the process) to one in which most people work in manufacturing and services. The transformation is inevitable; current estimates suggest that an additional 3 billion people will move to cities this century.

The quality of their lives will depend on whether these are well-run cities with good rules, or dysfunctional cities with bad rules. Many people continue to move into urban slums with no running water, high crime rates, few steady jobs, and sewage in the streets. The embedded, interlocking systems of bad rules that lead to this type of dysfunction will be exceedingly difficult for existing cities to change from within.

A new charter city offers a speedier path to better rules. People who live there, even people who start out earning very little, can live in housing that is safe and sanitary, send their children to school, find work, and live free from fear of crime.

All it takes is better rules. We already know what many of these rules are. We already know how to enforce them. Charter cities can create places where the hundreds of millions of people on the bottom rung of economic life could go live and work under these kinds of rules.

Case 1: Canada helps a Hong Kong blossom in Cuba

For decades, the Unites States and Cuba have been parties to a treaty that gives the United States administrative control over a portion of Cuban territory straddling Guantanamo Bay. In a new treaty signed by the United States, Cuba, and Canada, the United States could give up its treaty rights, and Canada could take over local administration for a defined period of time.

An administrator appointed by the Canadian prime minister would be responsible for setting up and enforcing the rules that apply in this special territory. The legal protection and institutional stability that the Canadians provide would attract foreign investors and foreign citizens to the city. As the city grows, the Cuban government would gradually allow freer movement of people and goods between the land it governs and the charter city. At the same time, supporting cities and suburbs would grow up on the Cuban side of the city’s boundaries. The charter city itself would eventually return to Cuban control.

In this case, a treaty creating a special administrative arrangement already exists and Hong Kong provides a model for how a city might be governed. An interesting variant would be one in which several countries (e.g. Canada, Spain, Norway, Mexico, and Brazil) stand in place of Canada alone.

Case 2: Australia and Indonesia create a new regional manufacturing hub

In a treaty that Australia could sign with Indonesia, Australia would set aside an uninhabited city-sized piece of its own territory. An official appointed by the Australian prime minister would apply Australian law and administer Australian institutions, with some modifications agreed to in consultation with the government of Indonesia.

People from Indonesia, many of them lower-skilled workers, could come live as temporary or permanent residents in this zone, but would remain citizens of Indonesia. A portion of their labor income could be taxed and return to the government in Indonesia. Levels of free public services and welfare support would be comparable to those in Indonesia. As citizens of Indonesia, the Indonesian inhabitants of the city would have no claim on residency or citizenship in Australia proper. They would be subject to the same immigration controls whether entering Australia from this zone or from Indonesia.

Highly skilled workers from all over the world would be welcomed as well, but would be subject to the same immigration controls they would face from their home countries. Australian citizens and firms would be able to pass freely between Australia proper and the new charter city.

As part of the treaty, the Indonesian government could agree to award the chance to move to the new city preferentially to residents from a small number of rural areas where people practice environmentally harmful forms of subsistence agriculture and forestry. The government could designate part of the land to be freed up in this way as a nature preserve, setting aside a much smaller portion of the now uninhabited land for a charter city of its own.

Case 3: India opens a competition for charter cities

The central government in India would pass legislation specifying the charter that would apply in any city developed in a new type of centrally administered special zone. It would let different states compete to create such a zone. To be eligible, states would assemble city-sized tracts of uninhabited land and pass legislation removing all local control of the special zone. The state government would then collect a portion of the fiscal surplus generated by the new city.