Charter Cities: A New Cause Area in Effective Altruism?

On the connection between charter cities and effective altruism.

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Effective altruism advances the idea that empirical analysis should be used to influence policy and direct resources towards cause areas that do the most possible good for others. Among effective altruists, the three central areas of interest are global poverty, animal welfare, and improving the long-term future. Organizations that focus on fighting malaria, deworming, and direct cash transfers are among those considered the most effective under the global poverty umbrella.

In February, GiveWell announced that increasing economic growth is a cause area that it may begin to explore in greater depth, and cited charter cities as a topic of interest within that area. Later this summer, we will be releasing a paper arguing that charter cities are not only an effective way to improve economic growth, but are also a far more cost-effective anti-poverty tool than GiveWell’s top rated charities.

The power of long-run economic growth to alleviate extreme poverty is unparalleled. Millions rose out of subsistence with the onset of the Industrial Revolution in 18th century Europe, in what are now the world’s most highly developed countries. Other countries like China, India, and South Korea have enjoyed growth miracles of their own that began in the second half of the 20th century, the result of institutional reforms conducive to economic growth. While the interventions championed by the effective altruist community today are rightly well-regarded as effective anti-poverty tools, their impact pales in comparison to long-run economic growth.

Charter cities are a practical vehicle to stimulate growth in low-income countries. A charter city establishes a special jurisdiction with a blank slate in commercial law to allow for the adoption of best practices in areas such as a business registration, labor law, tax administration, commercial dispute resolution, and others that may be difficult for a country to reform on a nationwide level. Charter cities are built on greenfield sites to avoid the challenges of implementing such a wide array of reforms in an existing polity. Charter cities are also privately financed, protecting the host country from financial risk and ensuring that the right incentives are in place for developers and other stakeholders to guarantee the city is successful over the long term. A successful charter city doesn’t just benefit those living in it, as the central aim is to induce the host country to adopt similar reforms on a much larger scale. Charter cities offer countries a demonstration of the effects of deep institutional reforms in their own back yard.

In addition to an examination of the empirical literature on economic growth and institutions and a presentation of several case studies, we have developed a cost effectiveness model based on GiveWell’s model to quantify the impact of charter cities in a way that allows for direct comparison to organizations analyzed by GiveWell. Under a set of pessimistic assumptions about the effect of a charter city, we estimate that charter cities are approximately as effective as GiveWell’s top charities. Under more optimistic assumptions, charter cities are several orders of magnitude more effective than these charities.

Effective altruists tend to focus on anti-poverty interventions that are quantifiable and that can be analyzed in a randomized control trial. An RCT obviously is not possible for charter cities, but we argue that the extensive literature on economic growth and institutions, as well as abundant case studies, provide ample evidence for the potential of charter cities. Effective altruists should begin to look more closely at charter cities as a viable global poverty reduction cause area.

Stay tuned for the full paper later this summer!