Guantanamo: the new Canadian Hong Kong

That is Paul Romer’s advice to Obama and Castro: turn the Bay over to the Canadian government for a fixed term, allow free entry of international migrants, and collect tax revenues in return for building a metropolis. A Charter City.

Australia gets a chance too. Paul’s proposal: turn an unpopulated coastal strip into a free economic zone open to the world, a manufacturing haven with public housing for millions. It will be generations before the bottom billion get rich at home. So why not let them move to prosperity?

That’s the staggering proposal Paul offers at Growth Week. No podcast or video, sadly, although a short version is available in a TED talk:

See also the blog and full concept.

I’d caught glimpses of Paul’s proposal in the past, but hadn’t paid close attention. My first reaction: another economist gone off the deep end.

I think he’s accustomed to that.

After sitting down to listen and talk about the idea, I feel differently. I’m not sure he’s right, but what a wonderful thing to think big.

Paul doesn’t mention the words apartheid or colonialism. You can tell he’s heard them back. He stresses Charter Cities are unique in an important way: entry is voluntary, and all the rules are clear in advance.

My first question: what makes the Australia strip different than an American Indian reservation? Paul’s answer: the rules. Indian reservations set up with private property rights are actually doing quite well, and points me to work by someone named Terry Anderson on the subject.

My second question: how is this different than Chicago’s notorious housing authority, and the failure that was Cabrini-Green? The wrong rules, he responds, and leaders with the wrong incentives.

From another audience member (I think it was Adrian Wood): think about the Utopian experiments of the late 19th century. Their fundamental problem: the early adopters were complete kooks, spoiling the venture. Paul’s response: the kooks will be outnumbered by the construction workers. And unlike Dubai (which proves a city can be built anywhere) we’ll let the workers bring their families, have equal rights, and stay. He points out Pennsylvania as an example–William Penn established religious freedom, attracting not kooks but great women and men.

I remain intrigued, but unconvinced. It is very, very hard to get the rules and incentives right. Singapore stumbled upon a successful model, Chicago did not. Ex-ante, I think it may have been hard to predict which would succeed.

A trial-and-error process would, without doubt, produce dozens of successful charter cities around the world. But the error and trial could have a very heavy human cost. A half century after its birth, Cabrini-Green and the Robert Taylor homes have been razed.

It is a risky thing to model oneself after accidents of history. But I am glad Paul Romer has the imagination to try.

Interestingly, he wasn’t aware how close he is to reality. A union between Canada and the Turks and Caicos islands has been in the works for years. Maybe Paul will see a Charter City sooner than he thinks.

14 thoughts on “Guantanamo: the new Canadian Hong Kong

  1. I think the biggest problems these Charter Cities would encounter would be social tensions and identity politics. These issues can have real impacts on the economy, particularly when trading and credit associations may well either use pre-existing identities as a way of generating ‘guarantees’ or create new ones according to how the successful and those with access to credit evolve.

    Besides, one of the reasons Hong Kong works is it’s geographical position and historical ties with the rest of Asia. Because it was a natural port, it served as an import-export hub for China and much else of the East and South East Asian region well before it became a banking centre (which arguably was largely possible because of its historic ties with the rest of the region).

    Having lived in HK for 17 years, it still surprises me how little its socio-economy is understood outside of it. It’s not as liberal and free market as commonly assumed (though taxes are very low), and its ‘success’ masks some remaining urban poverty.

  2. Appreciate your post and its insights. Yet I think your comments may overlook proven, locally-driven paths by which Charter City-like free zone initiatives can emerge and thrive.

    As Alvin Rabushka of the Hoover Institution has noted, once political rentseekers have suffocated their economies, the one remaining favor left for them to “pork barrel” is an exemption from their predations. This locally-driven approach to turning failed systems inside-out has led to creation of hundreds of new freeports and free zones (including China and India’s SEZs, as well as scores of private free zones such as ZonAmerica in Uruguay and dozens of others in the western hemisphere). These locally-originated free zones have become the fastest growing parts of the world economy.

    Rather than make partnerships with foreign governments the cornerstone of their free zone strategies, sponsoring countries have developed innovations to build trust (through eGovernment pilots and rent- rather than tax-dependent public sector funding systems) in the newly-liberalized business climates. Openworld is extending “challenge offers” of microvouchers and work-study projects to further understanding of such innovations, and awaken understanding of the free zone benefits at grassroots levels in impoverished regions.

    In our future support to entrepreneurial schools in poor areas, we are interested in encouraging student research (summarized in YouTube videos) on areas of interest to the Charter Cities, Free Cities, and related proposals — and especially in how high-trust implementation systems can be developed locally rather than through dependence on foreign states. We’ll welcome thoughts by your and your blog readers on priority issues that high school and university-level students might explore.

    Further information on free zones and the Openworld “Seeds of Change” strategy can be found at –

    http://www.openworld.com
    http://www.entrepreneurialschools.com
    http://www.openworldinstitute.org

    We look forward to communications on possible next steps.

    Mark Frazier
    @openworld (Twitter)

  3. What did you make of Aghion’s paper? It seems to me that Northern developed mitigation technology often won’t be appropriate to Southern conditions, hence tech transfer will be limited.

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  5. I would think brainstorming the rules is the key step. If you have them good a progressive Mayor like Chicago’s or a progressive existing underutilized town like the bald Midwest mayor’s who appeared on the Daily Show about Green Jobs, he would welcome the USA unemployed/homeless migrants.
    Where this specifically fails is Canada doesn’t want Naval responsibilities in Carribean. There is an island we want to own to avoid currency transaction costs for vacationers, but we don’t want to pay to defend it given Arctic sovereignty issues with world’s largest navies.

    In general, you need to invest lots before the unskilled uneducated labourers can pay taxes. They will start out as farmer labourers without this investment. Might be a project for an oil sultan assuming some skill immigrants but they’d want some of your to-be-reinvested profits. As social experiments to determine some optimal policies cities might pay for themselve. I’ve speculated on an arctic island for emergency climate refugees but need to get the costs of living down. Quite frankly, distressed refugees used to farming cassava won’t form useful development policy using democracy unless some skilled workers are also a part of the equation. Apart from the funding issue I like the minset. Maybe language and trade Universities and then send them to be nurses wherever?

  6. I like Mr. Paul Romer’s presentation and I feel because I have known and lived “Nelson” situation. Since he took Haiti as an example of bad governance, I would agree with his comment one hundred percent. It seems to me that his proposal for developing a free economic zone under the aegis of a particular economic power where nationals of that given country would be able to go to work and make an income aimed at cutting migration from country A to B. That would solve a lot of problems and bring a solution to illegal immigration. In the case of Guantanamo Bay, thousand of Cubans would find jobs, as it was the case of Hong Kong, thus cutting the flow of illegal washing ashore in Florida. I think that the same thing can be said for Haiti. If we beg the US or Canada, France, or Brazil to create a Charter City-like free zone initiatives (free economic enclave) in Haiti, that would in cut migration out of the country but increase it form the inside where peasant would abandon land to go for low paying job in the cities.
    I am surprise that France and Spain did not build up on that idea to Charter City-like free zone initiatives in Senegal or Morocco to cut migration from former colonies.

  7. Just like an American to propose using another country’s sovereign territory to conduct a grand experiment. Guatanamo is sovereign Cuban land leased to the U.S. under a century old treaty. For more than half a century, the Cuban government has been asking for it back. What should the U.S. do with Guantanamo? Clean up all toxic substances and garbage dumps, and leave. The Cubans will do whatever they want with it. I’d like to propose that San Diego, or San Antonio or Miami, be converted into Charter cities. No need to ask the people of these places what they think of the plan.

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  14. You’ve missed two pieces of key criteria – uninhabited land and the condition of opting-in!!! Your analogy to SD, San Antonio, and Miami completely disregards these factors. We can consider Guantanamo essentially ‘uninhabited’ in terms of it not currently serving as an area for local economic activity and/or opportunity…and it would clearly be much more useful to Cubans if it were.

    I agree with your broader skepticism of the imbalanced relationship that Romer has framed between the host and administrative countries. However, I believe there’s reasonable potential to assume a more collaborative dynamic.

    Above all, your take is burdened in bias (seemingly anti-American). The very function of this ‘grand experiment’ that you deliver with such a malicious connotation, is to advance the quality of life for (in this case) Cubans. Romer, this diabolical American you speak of!!! :-O, has contributed SIGNIFICANT work to advancing economic development and growth theory. This is yet another creative and well-intentioned prospect…though the practicality of which can be debated, it’s outrageous for you to try spin this as some sly machination of Paul Romer.