Reddit AMA (3/5/19)

Inspired by these questions and others we’ve received, we’ll also be posting an FAQ on the website in the coming days.

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Thanks to all who participated in our Charter Cities AMA  on the r/neoliberal subreddit. Inspired by these questions and others we’ve received, we’ll also be posting an FAQ on the website in the coming days.

Q: I know when people talk about charter cities Hong Kong is commonly used as the prime example.

How do you help cities avoid political strife? Would it simply be maintained through incentives i.e. if a charter city doesn’t have good political systems in place no one will move there? Or do you model city’s structure off of some model?

Im also curious as to what the outcome will be for charter cities which, for whatever reason, people do not chose to move to. Will they sit empty like Chinas ghost cities? I personally feel a large part of the problem in China is that they create these cities based on their own assumptions as to where people want to go instead of simply letting the choices be made, or letting the economic sector develop in these areas before throwing up 20 skyscraper apartments.**

A: 1) Political Strife: We work closely with host countries and real estate developers to create charter cities—our work hinges on ensuring sure that we don’t develop an antagonistic relationship with them. The best way we’ve found to this is to ensure their concerns and needs are heard and understood. Within the city itself, strife is best avoided by adopting a governance structure that leads to shared prosperity for the city’s residents. Of course, strife is always a possibility but we anticipate that charter cities will have less strife than comparable cities.

2) Ghost Cities: The China ghost city narrative is largely overrated. Journalist Wade Shepard who wrote the book, “Ghost Cities of China: The Story of Cities Without People” noted many are filled. We avoid this problem by partnering with private developers who have strong incentive mechanisms to avoid overbuilding.

**Q: Hi, Tamara and Mark. Thanks for doing an AMA.

A few questions:

What is the best example of a charter city or similar policies?

Do you think it would be better to ‘adopt’ a current city or get in on ground zero of a new city?

How much influence do you think your think tank has on government: local, state, national, or international?

Thanks.**

A: 1) Best example: The best example of a charter city is the Dubai International Financial Center. They realized that Islamic law wasn’t generally conducive to international finance. As such, in 2004 they hired a British judge to create a common law system to attract international investment. Today they’re 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.

2) There are far fewer political barriers to the governance reforms in greenfield sites, which are new city developments. There are dozens of new cities being built 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 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.

3) Influence: We are focused internationally. Low- and middle-income countries are rapidly urbanizing and thus much more open to charter cities than high-income countries. Currently our influence is moderate. However, we are hiring a Director of External Affairs to work with/influence multilateral organizations such as the World Bank, UN, etc. We expect to garner widespread support for charter cities on the next 3-4 years.

Q: How do you reach agreement between so many stakeholders?

What have you learned in the past year? What has been surprisingly effective? Ineffective?

A: 1) Stakeholders: Charter cities transcend many political divisions. Almost everyone believes in the importance of good governance. More generally, it is important to listen to stakeholders, understand their needs, and frame charter cities in a manner which responds to those needs. For example, everyone doing policy in Africa understands the challenge of urbanization, charter cities help address that. Additionally, with our next hires we hope to nab individuals with the explicit skills to engage stakeholders that we yet qualified to engage (e.g. sovereign wealth funds and other investment funds).

2) Our progress has been more rapid than expected. Our goal this year is to ‘incubate’ 5 charter cities. We define incubation as helping to put together teams on the ground that need minimal involvement from us. So far we have incubated two, with three more in the pipeline.

3) Our events have been quite effective, but we’re still working through how to develop useful, understandable content for anyone to view. Harder than it looks, but we’ll continue to improve.

Thanks for your questions!

Q: What relationship do you guys have with Paul Romer?

A: We invite him to speak at our events and he ignores us (for now). But wouldn’t you if you’d just won a Nobel? Paul, if you’re reading this, call us. – Tamara

**Q: Any good ways the charter city policy space is thinking about how to learn from Rawabi’s successes and failures to expand opportunities for growth/good governance in Palestine?

-concerned Israel dove/solution hawk**

A: Great question. Unfortunately we’re not sufficiently familiar with Rawabi to offer strong opinions.

Q: How does a charter city avoid being a playground for the already privileged, and instead meaningfully include and provide opportunities for a more diverse socioeconomic population?

A: I hope you’ll forgive me for deferring for the moment, but this is a really excellent question and I’ve been thinking about writing something about this in longer form for the website. This is the push I needed. Thanks! – Tamara

**Q: Thanks for doing this!

What do you think of efforts like Saudi Arabia’s Neom and Egypt’s new capital? They’re supposed to be administratively autonomous (at least somewhat), but of course that alone does not make them charter cities.**

A: I’m (Mark) quite intrigued by Neom. Over the last 20 years most countries in the greater Middle East have wanted their own Dubai. Neom appears to be the first project which appears to take seriously the lessons from Dubai’s rapid improvement in governance.

That being said, it’s a monumental task. I’m generally bearish on the Middle East as I expect oil prices to be lower in 30 years than today, and the region has yet to diversify.

Q: How do elections/changes in public opinion in the government trustee influence the operation of the charter city?

A: Good question! We are working with a different model than the one Paul Romer proposed. We would not have a trustee country; that model is understandably criticized for resembling colonialism. Instead, the charter city would be a special jurisdiction in the host country, but would remain under the host country constitution, international treaties, and criminal law.

Q: Thoughts on Romer’s idea for a charter city in GitMo?

A: It’s certainly an idea! Not practical though.

Q: Do you foresee any complications related to “unwinding” a charter city, and returning it to normal sovereignty and/or democracy? And if so, what solutions do you propose to deal with them? And at what point would we expect that to happen?

A: To be honest, we haven’t put much thought into unwinding charter cities. I suspect something similar to Hong Kong with a 99-year lease after which it will be incorporated into the host country as a normal jurisdiction will become the norm [-Mark]

Q: If you could pick one location in the United States to build a charter city, where would it be? If you could pick one city in the United States to convert into a special economic zone, which one would you pick?

A: Charter city: San Francisco easily.

As for a special economic zone, we’d rather see cities mutually disarm (that is, give up the destructive impulse to offer incentives to attract particular firms and industries) and create business environments that are conducive to all entrepreneurs, large and small.

That being said, we should totally turn Detroit into Drone Valley.

Q: What kind of work is currently being done around the idea of refugee cities?

A: Thanks for asking! There are several groups working on refugee cities including Refugee Cities and Innovation and Planning Agency. We sometimes collaborate with these groups. Our focus is working with the private actors as they tend to move quicker than large, bureaucratic institution. 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.

Q: Can you give an example of a charter city or a pseudo-charter city that failed or is failing in adopting the charter city model? Why is that example failing? What lessons can be learned from their mistakes?

Silly question: Are beans are requirement for chili?

A: Lavasa, India recently declared bankruptcy. King Abdullah Economic City in Saudi Arabia has since been eclipsed by Neom. Masdar, Abu Dhabi is much 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 anything is always difficult. But if developers chose that route, they should use rough guidelines that are continuously updated as more info is gained.

I [Tamara] am anti-bean, Mark is regrettably pro :p

Q: Let’s assume one of the biggest charter city ideas gets going and there’s a fully-functional charter city operating 5-10 years from now.

How can we know whether the idea is a success or not? What metrics should we be looking at? What failure modes are most likely for an operational charter city?

A: The metrics: population (are people moving there?), income gains, investment, land values, rates of entrepreneurship. When we hit that point, we’d want outside auditors to do independent evaluations of each charter city. Potential failure modes include poor location, poor governance, and no anchor tenant.

Q: You have recently released a fascinating working paper on Honduran ZEDEs, but I haven’t noticed much discussion of ZEDEs in the news for years. Could you elaborate on the current state of those efforts in Honduras? Are you working to establish one? Is anyone else doing so?

A: The rumor is that a charter city will be announced this year, but nothing is public yet.

Q: Hey Mark and Tamara, glad to have you both here. Two questions:

1) Some people in Singapore’s government have raised the possibility of exporting Singaporean governance in some way. Would this be a more attractive option for a prospective charter city than private sponsorship or the involvement of a larger guarantor nation-state?

2) I recently started reading Alain Bertaud’s “Order Without Design”, and have enjoyed it so far. What are some other books that would pair well with it?

A: Hi!

1) It’s certainly an option to be pursued. We are currently focused on the SEZ 2.0 model where a private developer works closely with the governing authority. We think it will allow us the quickest wins to expand the conversation in other spaces.

2) Here’s our reading list. https://chartercitiesinstitute.org/reading-list/

Q: Thoughts on the developments in Honduras? More generally, I’m worried about creating neo-colonial conglomerates like the United Fruit Company. Why would a charter city in practice be different, given that the chartering government is likely weak in the first place and there are returns to scale for the company and and incentive to expand?

A: The United Fruit Company had banana plantations, an outdated business model. People in a modern economy are much more productive in the service sector. A charter city in Honduras has an incentive to increase the productivity of residents and businesses to increase land values—this is important because the benefits wouldn’t just be limited to a select few entrepreneurs. In addition, the governance of a charter city should be structured in a way to minimize the risk of human rights abuses. Lastly, we hope charter cities can demonstrate the power of good governance and lead to Honduras/other host countries adopting such practices. https://chartercitiesinstitute.org/make-honduras-great/

Q: Romer has been talking about charter cities in India for a while now. Do you see any pitfalls for charter cities in Indian context?

A: We haven’t done much work in India. Our contacts there say the political situation is too difficult to make it conceivable to pass charter cities legislation. As such, we’re going to stay away until we build up our capacity.

**Q: Do you believe charter cities could act as centers democracy in otherwise authoritarian countries?

Also, what would you say could be minimal requirements for a charter city?**

A: Unlikely, we’re focusing on economic freedom as it is more politically viable. Unfortunately a democratic charter city in an authoritarian country would be unlikely to ever get off the ground. We define a charter city as a new city with a special jurisdiction that allow it to import the global best practices in commercial law. It must be a city, so a minimum population of ~50k, minimum size, etc.

Q: Do you regard the colonial cities in China the various European powers seized, particularly Kiautschou, as charter cities?

A: We’re not sufficiently familiar with them to have an opinion. At the very least they’re ‘charter cityesque’.

**Q: How do you balance a potentially ultra rich and populous externally managed city with a small rural country? I’m not well read on the topic but it seems quite possible, if improbable, for the charter city to annex the entire country in all but name.

E: as I mentioned I know about this topic only very generally, so this may be a dumb question if the agreement between the 3rd party and the home state is good.**

A: We don’t expect the income difference to be ultra-rich vs. poor. In the African countries we work with, the goal is not to become Singapore, but instead to become a middle-income country with GDP per capita between 10k and 20k and/or the best place to do business in its region. More broadly, there will be spillover benefits from the charter city which help the host country, as was the case with Shenzhen’s reforms, some of which trickled up to China broadly.

Q: How hopeful are you regarding Alphabet’s Sidewalk Labs in Toronto, and what lessons will its success or failure have for charter cities?

A: Sidewalk Labs is focusing on technology, not governance. Think the important 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 hit numerous stumbling blocks working with Toronto’s government.’

Q: So you guys create plans for creating new cities? How do you choose where to create a new city? And how does creating a new city “lift millions out of poverty”?

A: 1) We don’t want to create new cities (nor do we have the knowledge to build cities in distant places ourselves), we want to empower others to do so.

2) We work with entrepreneurs and new city developers who are typically building satellite cities.

3) Good governance is the primary determinant of economic development in the long run. China lifted ~800 million people out of poverty with their strategy of urbanization combined with special economic zones. We know this model work, and so you can think of charter cities as the second generation of special economic zones.

Q: Do you have any concerns about charter city real estate projects being used as money laundering avenues?

A: No moreso than any other business.

Q: How did you first get interested in the idea of charter cities and experimenting with different styles of government?

A: [Mark] I heard a talk where Michael Van Notten, a Dutch Lawyer interested in building a charter city in Somalia, was mentioned. Fun fact, now Dubai Ports World, one of the largest port operators in the world, is building a port in Somaliland.

**Q: Thank you for the AMA.

Have either of you read Tom Bell’s book (Your Next Government) or work on special economic zones and jurisdictions. Are there particular points of overlap or divergence in how you are thinking about these issues?**

A: Yep, it’s a great book, and there is a lot of overlap between how we think about the future of governance. We shouldn’t over state the differences, but we have a strong focus on actually implementing many ideas of the book.

**Q: Dear Mark and Tamara,

Thank you so much for taking the time to hold this AMA. My question is three-fold, and arises from the perspective of a young adult who is relatively new to the charter cities and innovative governance movement.

What are the best books or sources to read/consume in order catch up to the fundamental/leading thought in the space?What are the best ways keep up-to-date with the current discussion/developments in the space?Now having done one and two, what are the best ways to enter the conversation or get involved in charter city and innovative governance space?**

A: https://chartercitiesinstitute.org/reading-list/

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Q: How experimental do you get with charter cities? I could see this as a decent way of testing new political and economic ideas, like the colonies were in for America, but I could also see the benefit of using tried-and-true methods too.

A: For the first generation of charter cities we have a heavy emphasis on using existing best practices. As charter cities become established and accepted, we expect to see more experimentation. The Harberger tax is something I’d really enjoy seeing tested.