Charter cities are cities with special jurisdictions which give them a blank slate, or close to it, in commercial law. The new jurisdiction allows them to adopt the best practices in business registration procedure, labor law, tax administration, commercial dispute resolution, and more. By adopting governance systems which encourage trade, investment, and entrepreneurship charter cities create the conditions for decades of economic growth. Here is a longer explanation of charter cities.
Governance is the key determinant of long-run economic outcomes. Charter cities create institutions which employ the best practices in commercial law. Good governance attracts investment, creates jobs, and improves productivity. Hong Kong, Singapore, Shenzhen, and Dubai demonstrate that by reforming commercial law, it’s possible for cities to achieve prosperity in as few as 2-3 generations. Charter cities are a model for replicating their success in low and middle-income countries.
Good governance consists of two important qualities. First, a governing organization which can provide public goods. In the case of a charter city, this means roads, electricity, schools, water, etc. The second quality is an environment which does not place harmful restrictions on commerce. It should be quick and easy to register a business, get a building permit, invest, hire, resolve disputes, etc. There are many indices which focus on good governance. We accept the World Bank’s Doing Business Index as a good approximation for good governance.
A special economic zone typically focuses on a single industry and has limited governance reforms.
Charter cities are 1) cities which host a variety of industries and 2) implement deep economic reforms.
Where special economic zones focus on how to improve governance on the margin, whether via tax incentives or a one stop shop (a single office where you can get all necessary permits), charter cities instead create a legal system from scratch, implementing wholesale reforms that touch every facet of commercial law.
The deep reforms and multiple sources of economic activity generate sustained economic growth without continuous involvement from the host country.
The best modern example of a charter city is the Dubai International Financial Center. In 2004 its government hired a British judge to create a common law system to attract international investment.
Today, Dubai is regarded as a top 20 global financial center and an example of how to successfully import/create a legal system from scratch in the modern era.
Other examples of proto charter cities include Shenzhen, Hong Kong, and Singapore.
The Charter Cities Institute builds the ecosystem for charter cities. We bring together new city developers, investors, government officials, policy experts, and entrepreneurs to build a shared understanding of charter cities and foster relationships between the stakeholders to facilitate the construction of new charter cities.
We have three programs: content, events, and collaboration.
Content: We produce research, a blog, and podcast to develop a broad, publicly-available set of knowledge about charter cities.
Events: We host summits, meetups, and conference to bring together the aforementioned stakeholders.
Collaboration: We work with new city developments and their host countries to implement the governance reforms necessary to become a charter city.
Our five-year plan is :
1) create common knowledge of charter cities in the international development, mega real estate, and investment community,
2) develop a body of research of the best practices for entrepreneurs building charter cities,
3) help incubate dozens of charter cities being built around the world.
In practice this means that -
1) everyone doing international development, new cities, and investing in low and middle income countries is aware of and has an opinion about charter cities,
2) our research is continually referenced for on the ground decisions for charter cities entrepreneurs, and
3) there are dozens of early stage charter cities being built around the world which the Institute helped incubate.
Our ten-year goal is to have helped incubate enough charter cities to lift tens of millions of people out of poverty.
There are fewer political barriers to the governance reforms in greenfield sites, or new city developments. Dozens of new cities are being built as we around the world, so there’s no shortage of opportunity.
Our goal is to showcase the benefits of greenfield charter cities, and then to use that success as leverage to enter conversations with existing cities. Once they see their newer neighbors benefiting from rapid and sustained growth, it’s unlikely the reforms will stay confined to the initial limited jurisdiction.
Charter cities appeal to multiple stakeholders. The international development community understands the importance of good governance. New city developers want to make their developments more competitive. The governments of host countries typically understand the challenges they’re facing. Reaching consensus is a challenge, while charter cities have broad appeal, each set of stakeholders have their own concerns and priorities.
We reach consensus by listening carefully to those concerns and priorities, understanding them, and explaining how charter cities can address them. More generally, we spark conversations among the various stakeholders, expecting them to learn from each other about the potential benefits of collaboration.
There are several groups working on refugee cities, including Refugee Cities and Innovation and Planning Agency. We occasionally collaborate with them, but our focus is distinct; we work with private actors as they tend to move quicker than large, bureaucratic institutions. That said, our strategic goal is to get several public wins this year and next that will allow us to begin refugee city conversations with much more weight.
Most countries are aware of the challenges posed by the rapid growth of urban centers without corresponding industrialization. Charter cities are a solution to some of these problems. Further, charter cities do not require government subsidies. All they require is for the host country to create a legal framework within which a special jurisdiction for charter cities can be created.
For the first generation of charter cities we place a heavy emphasis on using existing best practices. Charter cities should initially copy what works well in other countries. As charter cities become established and accepted, we expect to see more experimentation. The Harberger tax, where residents value their own property and pay tax on that value and at any point in time, anyone else can buy the property from them at that price, forcing a sale, is risky, but could lead to large increases in allocative efficiency.
Important metrics include the following:
Population: How many residents has the city attracted?
Income: How has the income of the residents changed over time? A successful charter city should see residents with steadily increasing incomes.
Investment: Is the charter city attracting investment? If so, how much compared to the baseline scenario?
Land values: Are land values increasing?
Reforms: Is the charter city inspiring further reforms in the host country or nearby countries?
In his initial TED talk Romer argued that high income countries could administer charter cities in low-income countries. We believe this is neither desirable nor politically feasible. Instead, we work with host countries and local new city developers to create special jurisdictions which have a blank slate in commercial law but remain under criminal law, the constitution, and international treaties of the host country.
We have no formal relationship with Paul Romer but would love involve him in the future.
Lavasa, India recently declared bankruptcy. King Abdullah Economic City in Saudi Arabia has since been eclipsed by Neom. Masdar, Abu Dhabi is less impressive than the $20b price tag might indicate. The general lessons are to build in a phased approach and respond to market incentives. Master planning a city is difficult and as such 20-year master plans should be taken as guidelines rather than requirements.
Sidewalk Labs; priority is technology rather than governance. The key lesson is to pick a greenfield site to allow for more innovation–existing cities have entrenched political interests which make trying new things necessarily more difficult. As a result, Sidewalk Labs has stumbled working with Toronto’s government.
The China ghost city narrative is largely overrated. Journalist Wade Shepard wrote, “Ghost Cities of China: The Story of Cities Without People” and noted that many ghost cities have since been filled. To avoid creating ghost cities we partner with private developers who have strong incentives to avoid overbuilding.
We define a charter city as a city with a special jurisdiction that allows it to import the global best practices in commercial law. We don’t have well-defined constraints, but a good starting point is, a minimum land size of 1000 acres, minimum population of 50,000, and an economic sector that isn’t overly dependent on a single industry.
The Charter Cities Institute will never become involved with a project that takes land from its rightful owners. Generally, charter cities are decades long projects. As such, we encourage developers to take long term perspectives. While eminent domain might save money in the short run, it delegitimizes the charter city and sets up a host of problems later on.
By providing an environment for markets to function, charter cities offer the opportunity to lift residents out of poverty.
Take, for example, the two following restrictions which often hit lower income folks the hardest:
Business registration: In sub-Saharan Africa it takes on average 46% of per capita income just to legally register a business
Housing permits: A new city developer we’re working with spends $5,000 in bribes for a single housing permit
It isn’t hard to see how barriers to business registration and housing are regressive. By eliminating constraints to commerce and trade charter cities offer lower income segments of the population an equal playing field to engage with and benefit from the global economy.
We view the host country as one of the partners in the charter city. Charter cities can only be successful if they are an embodiment of the best things about their host country, a source of pride. There are additional ways to minimize the risk of expropriation, including 1) creating jobs and making residents happy, 2) drafting the language of the legislation that allows compensation if expropriated, and 3) IPOing the city on the local stock exchange to ensure broad social support for the continued success of the city.