Where to locate a charter city

One of the most important considerations in building a charter city is location.

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One of the most important considerations in building a charter city is location. Building a charter city in the wrong location will inevitably lead to failure, while getting the location right can obscure substandard performance on other important questions facing a charter city. There are three key attributes of location, 1) legal autonomy, 2) potential population, 3) trade patterns.

Charter cities, by definition, have substantial degrees of legal autonomy. As such, the first and most important consideration for the location of a charter city is legal autonomy. This can be understood broadly as the relationship of the charter city to the host country. The host country must pass legislation which grants legal autonomy to the charter city, as well as being able to credibly commit, at least on certain margins, to respect the autonomy indefinitely into the future.

It’s possible to learn about the profile of potential host countries by examining projects similar to charter cities. Shenzhen, born out of a special economic zone, is arguably the city which most closely resembles a charter city. The special economic zone in Shenzhen had significantly more autonomy than most special economic zones and was sufficiently large to incorporate the future growth of the city. Another important project which is comparable to charter cities is the Dubai International Financial Center (DIFC) and its successors, Abu Dhabi Global Market and Qatar Financial Center. The DIFC imported common law to create a successful financial center, demonstrating the possibility of creating legal systems from scratch for charter cities.

China, Dubai, Abu Dhabi, and Qatar are all autocratic states suggesting likely host countries to be autocratic. On the other hand, Honduras, a flawed democracy, has passed legislation which allows the creation of a charter city. That being said, six years have since passed and no projects have been approved in Honduras, at least publicly.

In general, high income countries are less likely to support charter cities. The most potential in charter cities is in low income countries, as they have the most catch up potential. Low income countries also, in general, have higher variance in making policy than high income countries. As charter cities are not within the usual policy prescriptions, higher variance translates to increased likelihood of passing charter cities legislation.

The second important consideration in where to build a charter city is potential population. Where is the potential population going to be drawn from? New cities are constructed in rapidly urbanizing populations. In an urbanized country, a charter city would have to compete with existing cities for residents. In rapidly urbanizing countries, there’s an existing population of residents already moving to cities, making it easier for the charter city to rapidly grow.

High income countries tend to be rapidly urbanized. Latin America, surprisingly, is more urbanized than Europe. Much of Asia is urbanizing very rapidly, while Africa is urbanizing most rapidly.

The third important consideration in where to build a city is trade routes. Historically cities are built on trade routes, or in the case of most mountain cities, to extract resources. Charter cities are no different. The challenge is that many of the good locations have likely already been ‘taken’. However, it is easy to imagine someone making a similar critique about China in 1980 and we know how that turned out. More specifically, when forecasting there are two important changes in trade patterns which will allow the rise of new cities.

The first is global warming. Global warming will defrost a portion of the permafrost in Siberia, opening it up to farming and trade. Additionally, permafrost will make certain existing cities increasingly inhospitable, encouraging their residents to move. Further research needs to be done, or perhaps simply found, but cities with 50-year time horizons should begin thinking about the impact of global warming on trading patterns.

The second change in trading patterns will come from innovations in transportation technology. The hyperloop, supersonic planes, and even drones could lead to significant changes in trading patterns. Again, forecasting these changes is outside the scope of this post, but it should be considered when considering where to locate a charter city.