Paul Romer | ZURICH.MINDS | 13 Dec 2011
Paul Romer at the Long Now Foundation
Paul Romer at TED2011
The World’s First Charter City? (video)
Paul Romer at TEDGlobal
Q: Why are these students studying under streetlights?
A: They don’t have electricity at home, so they go to the airport to study for exams. See the news report describing their situation.
Q: Why do you use this picture in your presentation?
A: All too often, the picture associated with the challenge of development is one of a starving child. This kind of picture may be helpful in motivating giving, but it does not necessarily lead to careful thinking about the forces that hold so many people back. There are, to be sure, desperate cases of people who are truly helpless. But images of extreme deprivation often obscure the fact that many of the world’s poorest residents attempt to help themselves, only to be stymied by bad rules.
Q: What kinds of rules keep people from having light in their homes?
A: Here are some simple examples of rules that can keep people in the dark:
- Electricity is provided only by a government-owned firm.
- Government employees can’t be fired, regardless of how poorly they do their jobs.
- The low subsidized price of electricity for the lucky consumers who have access is determined by political considerations.
Under good governance, the people who want electricity in their homes can easily match up with the utilities that want to provide it to them.
Q: Wouldn’t most poor people rather live in rural areas instead of dangerous, unhealthy, crime-ridden slums?
A: The trend toward urbanization suggests not. People actually flock from rural areas to dangerous, unhealthy, crime-ridden slums. There are advantages in the city that attract them despite the awful things that they have to confront there. Imagine how much more attractive cities would be if they offered good public health, low levels of crime, small but modern housing units, schools for kids, and firms that would hire people in steady jobs.
Q: What do you mean when you refer to rules?
A: The rules that limit electrification cited above illustrate one type of rule.
Here’s an example of a different type. A common rule in cities in rich countries states that residents must live in structures with toilets connected to a sanitary sewer. A supporting rule makes it illegal to urinate or defecate anyplace other than in a toilet.
Many poor people live in cities where these basic rules about sanitation do not prevail. In these cities, it is common to see untreated sewage flowing through streets and into waterways.
The rule requiring toilets in structures is typically enforced through formal laws and regulations. The rule about public urination and defecation is enforced in different ways in different places. In some societies, people have internalized this rule. They would feel shame if they were caught urinating or defecating in public. In these societies, this internal mechanism is reinforced by ridicule and harassment by others.
But these internal and automatic mechanisms sometimes need support from the formal legal system. A recent news report on public urination in Paris suggests that it is still a significant problem there. The city government is responding with special police units that ticket men who urinate on walls.
Q: Isn’t having the right culture really the key to successful economic development?
A: Culture is typically a side effect, not a cause, of economic development. Good rules lead to faster development and cultural norms grow alongside of the rules to support them.
The discussion of public urination in Paris illustrates this point. In Paris, there is a persistent cultural norm that tolerates public urination. Government officials can nevertheless use formal rules and mechanisms like tickets and fines to overcome this norm and change behavior. Eventually, as public urination becomes less common, a new cultural norm will probably develop in Paris, one that discourages this behavior. Eventually, they may be able to get rid of the special police units and rely exclusively on the new social norm.
Culture is important, but so are laws and regulations. Over time, laws and regulations can change behavior, and behavior can change culture. As one of the charter cities blog posts shows, the contrast between North Korea and South Korea is a dramatic illustration of the degree to which different systems of formal rules, applied to people who started with a similar culture, led to dramatically different economic outcomes.
Q: Doesn’t it take aid to solve the problem of global poverty?
A: Aid is not a prerequisite and by itself can never be sufficient. To see why, consider the case of China.
In 1970, almost everyone in China was poor. Since then, average income in China has increased by about $7000 per person. This means that each year, the Chinese receive about $7 trillion more in income than they did in 1970. Aid did not play an important part in this growth success. What the Chinese did was change from the rules of central planning, which held people back, to market-based rules that let people be productive.
Aid flows could never generate improvements in income of this magnitude. There are only 1 billion people in the rich countries of the world. To give all Chinese extra income of $7000 per year, each person in a rich country would have had to donate $7000 per year.
Q: Are there historical precedents for a charter city?
A: Hong Kong is one obvious example in which two countries worked together to create a new city. In effect, China supplied the land and the people; Britain supplied the rules for a market-based economy together with basic rules such as sanitation, building codes, and civil codes that made the place where the market operated livable. Of course, this did not arise from a voluntary agreement between the Chinese and the British. But looking back, it turned out so well that a country wishing to follow China’s lead might well want to start by cooperating with a foreign country to build a Hong Kong.
The British established the legal and social system in Hong Kong long before most Chinese moved there, but they did not codify this system in a formal charter. A better example of a newly created region with a clear charter is Pennsylvania. William Penn was given Pennsylvania as a dominion. He wrote a charter that included a legal guarantee of freedom of religion. For many migrants, this made Pennsylvania more attractive than other more restrictive colonies in North America.
Q: Isn’t Hong Kong such a special example because of its location?
A: Once a city exists someplace, the location always seems special, even if it didn’t seem special before the city emerged.
Some cities have existed for thousands of years, including cities in China. Compared to these other places, the location of Hong Kong didn’t strike anyone as special. No city existed there until the British arrived and decided to develop it as a port.
To see how limiting it is to look back and focus on accidents of location, picture how the United States looked in 1900. One might have argued then that no major new cities could emerge and compete with the ones like New York, Chicago, and Philadelphia that had special locations. This kind of reasoning would have completely missed the emergence of Dallas, Houston, Miami, and Los Angeles.
As income grows and more people move into cities, there will be opportunities for hundreds of new cities throughout the world. These could be existing cities that grow larger. Or they could be new cities in new locations, just as Hong Kong was a new city in a new location at one time.