“Groups of people always find it difficult to change the rules, even when other rules would clearly be better. Charter cities—dozens of them, perhaps even hundreds—could be the skunkworks that bring systemic change to entire nations. Ultimately, they could give the billions of people who will soon move to cities the chance to experiment with, and opt into, rules that let them achieve their full potential.” —Paul Romer (Harvard Business Review)
The Harvard Business Review selected charter cities for its list of ten ideas that can make the world a better place.
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We would like to believe that democracy will lead to steady improvement in the rules that a society follows. In principle, it seems self-evident that if a rule is bad, citizens or their representatives vote for a better one. In practice, it is not always this simple.
Sometimes it takes a two-stage decision process to get rid of a bad rule. People must first vote to change a higher-level rule that structures voting on other rules. Then, following the new voting rules, they can vote to change the bad rule.
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The laws that govern the ownership, sale, and collateralization of property are a classic example of rules that are important to economic and human development. The story of property reform in Peru illustrates the harm that can come from bad rules, the benefits that come from improving the rules, and the difficulties reformers face when they try to change the rules.
Like many developing countries in the 1990s, Peru undertook structural adjustment programs (taming hyperinflation, privatizing inefficient government enterprises, opening up to foreign trade and investment) as part of lending agreements with the IMF and World Bank. Unlike most developing countries, Peru also made a meaningful institutional overhaul of its property rights system. This deep institutional reform helps to explain Peru’s development strength in relation to its peers.
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A working economy requires good formal and informal rules as well as an effective system of enforcement. The effective enforcement of laws and regulations feeds off of good informal rules, particularly the norm of lawful compliance even when the threat of punishment is not imminent. The absence of effective enforcement can erode this norm of compliance, leading to lawlessness. In this situation, the leaders of the lawless nation may be able to quickly turn things around if they are willing to partner with other governments.
In a recent working paper for the Center for Global Development, Stanford PhD candidate Aila Matanock analyzes several cases of shared governance in Melanesia. In particular, her analysis of the Solomon Islands illustrates the challenges and opportunities for shared governance.
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