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Analysis
Charter cities boost for developing world

Charter cities boost for developing world

How World Bank’s Romer can make a difference

by Marsha Vande Berg in San Francisco

Tue 30 Aug 2016

Paul Romer, a respected economics professor known for his unorthodox ideas about urbanisation and growth-generating ‘charter cities’, takes over in September as the World Bank’s chief economist, the first American in this role in more than 15 years. His appointment represents a departure from the Bank’s recent practice of selecting chief economists from developing countries.

Romer is a professor at the New York University Stern School of Business and an entrepreneur. He follows Kaushik Basu, previously a Cornell University economist and adviser to the Indian government, and Justin Yifu Lin, a prominent Chinese economist who has championed China as a role model for developing countries.

Nobel Laureate Joseph Stiglitz, a vocal critic of the Washington consensus and western industrialised nations’ influence on international aid agencies, is the most recent US economist in the post, serving between 1997 and 2000.

Like Stiglitz, Larry Summers, the Bank’s chief economist between 1991 and 1993, Stanley Fischer (1988-90) and Anne Krueger (1982-86), Romer embodies academic rigour and creative thinking. The task now, as the economics figurehead in a bank widely criticised for alleged bureaucracy and poor coordination, will be to put his developmental ideas into practice in a way that can make a positive difference.

Romer is a trademark advocate of the charter cities concept embodying better rules for creating, running and living in modern societies. In the developing world context, this involves establishing autonomous cities with better rules and institutions, and brighter development prospects, than their country of location.

The real challenge, he has said, is securing the space to change the rules and give people more choices. He sees a charter city ‘as a city-sized piece of uninhabited territory with a charter or constitution specifying the rules that will apply there… A well-run city lets millions of people come together and enjoy the benefit they can get from working together and trading with each other’.

The charter cities concept is not new: Hong Kong is one of the best-known models. Romer promotes his construct as an opportunity to build institutional structures in virtually autonomous metropolises favourable to expanding employment, raising families and building infrastructure – with governance and performance that are attractive to ordinary citizens and leaders, as well as investors. Key features are specific provision for free entry and exit, and equal protection under the law.

The World Bank could be well placed to promote such concepts. Circumstances have changed greatly since 1944, when the Bank – along with the International Monetary Fund – was created to assist post-second world war reconstruction. In the 1950s it repositioned itself as an international aid organisation, with its present mission of eradicating world poverty.

The Bank was heavily criticised for promoting western-dominated, top-down and, by some measures, draconian reform packages in response to economic crises in the 1980s. It has now come under further scrutiny in a world witnessing China’s growing influence and support for institutional alternatives to the post-Bretton Woods order.

Jim Yong Kim, World Bank president, has declared the Bank’s enthusiasm for Romer’s ‘deep commitment to tackling poverty and inequality, and finding innovative solutions that we can take to scale’.

Kim’s emphasis suggests a departure from the Bank’s former single-minded espousal of the Washington consensus and standard reform packages for macroeconomic stabilisation, built around opening the developing world to trade, investment and market forces.

Kim, whose own experience is as a physician, anthropologist and college president, acknowledged the changing nature of the challenges facing international aid institutions, including the population shift from rural to urban areas. He has hailed Romer’s potential to influence how the Bank adjusts its operational models and ultimately changes its international profile and viability.

Assuming the Bank embraces his ideas and can translate them into workable policies, Romer’s construct offers one possible solution to the problems of many fast-expanding megacities in developing economies, including the fate of millions of migrants facing poverty in new urban environments.

Marsha Vande Berg is a Distinguished Career Fellow at Stanford University and Member of the OMFIF Advisory Board. A second article on Paul Romer’s espousal of charter cities and his potential influence on World Bank policies appears tomorrow.

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