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Analysis
China, Cuba and the urban poor

China, Cuba and the urban poor

Extending theory into World Bank practice

by Marsha Vande Berg in San Francisco

Thu 1 Sep 2016

Paul Romer, the new World Bank chief economist, emphasises as critical to successful charter cities the creation of new rules for better societies. Urbanisation, rising inequality and persistent poverty, even in otherwise prospering countries, invite collective thinking and good ideas attuned to the size of the problems. Romer, the director of New York University’s Marron Institute of Urban Management and founder of Aplia, an educational technology company, is in an optimal position to supply appropriate answers.

He cites China as a dramatic demonstration of both the potential and the challenges of experimenting with such new sets of rules. Under the Qing Dynasty (1644-1911), China was the world’s leader in technology, but the country turned inward rather than embrace economic dynamism which new technologies helped foster. Under Deng Xiaoping, the leader in the 1970s when China opened up its economy, the country began its rise to become the world’s second-largest economy.

China’s move to a market economy occurred incrementally. First, the country’s leadership created special zones. These effectively allowed a localised economy to prosper in much the same way that the British allowed a successful market economy to take hold in Hong Kong. The Chinese then created the opportunity to work under market rules, realise economic incentives and deploy technologies, albeit in a controlled setting. Four economic zones were created, including Shenzhen adjacent to Hong Kong; 14 cities were designated as special areas for economic experimentation, paving the way for a countrywide consensus on moving to a more market-orientated economy.

In a 2009 TedGlobal talk, Romer used a hypothetical example to illustrate his charter cities construct, saying that Raul Castro, Cuba’s leader, could do for Cuba what Deng did for China. Romer pointed out how Guantanamo Bay, the military prison in south-eastern Cuba over which the US has responsibility in perpetuity, is a public relations headache for Washington. He suggested that Canada could be enticed to take this piece of land – twice the size of Manhattan – off America’s hands and turn it into the ‘Hong Kong of Cuba’, connecting the modern world to the island nation.

Romer’s ideas reflect academic research into how new thinking can turn around outdated norms that slow technological implementation. But he has had little success in advancing beyond mere theory. Interest in a charter city in Madagascar floundered following a change of president in 2009. A charter city project in Honduras began a year later, but it floundered too (on issues related to accountability), causing Romer to disassociate himself from it.

Nevertheless, Romer’s thoughts represent a response to a megatrend facing the World Bank and other institutions – shifts in the need for jobs and in the economy as people leave behind farm jobs for manufacturing and services-related employment in urban settings. A parallel development is the refugee crisis, now estimated to encompass more than 20m people.

All these issues are of deep significance to the World Bank and its mission to alleviate poverty – nowadays an affliction that affects fewer countries as a whole but which is still a blight on many millions of individuals, increasing numbers of whom live in middle-income countries.

In a website blog published before he accepted his appointment, Romer praised the US government’s Morrill Act, the 1862 law which set up land-grant universities in the US, broadening citizens’ access to higher education and encouraging greater academic freedom.

Romer now has the opportunity to build on the type of enlightened thinking behind the Morrill Act. As he put it in a recent statement, in his new job he has the chance of ‘going beyond knowledge that is only potentially useful to knowledge that is actually useful – and doing so on a scale that touches millions or billions of lives’.

Clearly it takes more than one person to modify engrained structures. But many will be watching to see whether Romer’s arrival at the World Bank can change the trajectory of an institution widely believed to have lost its way.

Marsha Vande Berg is a Distinguished Career Fellow at Stanford University and Member of the OMFIF Advisory Board. This is the second article on Paul Romer’s espousal of charter cities and potential influence on World Bank policies; the first appeared yesterday.

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