CCI’s recommendation for charter cities is that it would be best to develop the initial infrastructure buildout of a charter city with private capital rather than with public resources, the idea being that a private developer will be more responsive to market forces and take a long-term view of their investment. So this is one type of cost, let’s call them infrastructure costs.
The second set of costs are the resources dedicated to creating and implementing the governance innovation. This is drafting and negotiating legislation or a concession agreement, determining institutional arrangements, identifying governing officials, and so on. Let’s call these governance costs.
I think you can discount the infrastructure costs because this is private capital that would go into a variety of other projects, presumably a large chunk of it in real estate, in the absence of the charter city project. And since we’re talking about lower income countries, those alternative investments are probably not creating much social value, or are going somewhere else entirely. If the charter city is successful, the costs are recouped by the developer through the increase in land value brought on by economic activity. If the charter city does not take off, the capital is lost, which is bad, but seems like this consideration should be relatively unimportant from an EA point of view. And even if the charter city doesn’t take off, a power plant built for the charter city, for example, could obviously continue to function for the surrounding region. Note that if there was government financing involved in this first area, then I think the calculation changes because the state is then being forced to make tradeoffs with more obvious implications for social cost.
So if you’re willing to accept that we can discount those infrastructure costs for the reasons outlined above, you’re left with the governance costs. The value proposition then becomes: for the governance costs outlined above, a successful charter city creates a sustained high-growth environment that reduces poverty and leads to broader reform. I think that for a few million dollars (with some variance in either direction from case to case) you can get most of the elements mentioned above in place. From the point of view of an EA looking to direct resources, these are the only set of costs they’re going to interact with.
Charter cities are certainly high-risk and high-uncertainty, but the return from even just one successful charter city is quite large. And after there’s a direct proof of concept rather than various linkages to similar examples from the recent past (Shenzhen, etc), the risk and uncertainty decline. I appreciate that this calculated bet won’t be attractive to a lot of EAs, but I think it’s worth exploring. Recreating just a fraction of the successes of China, the Asian Tigers, Botswana, Vietnam, etc in countries still seeing low or highly variable growth is a better counterfactual than the path these countries are on now and EAs should be trying to do something about it, charter cities or otherwise. I think this fits into a larger discussion about calcification within EA, but that’s a topic for another thread.
Thanks, that makes sense. I suppose I still suspect that there are more lower-hanging fruit in trying out governance innovations via existing cities, but my intuitions here are pretty uninformed and I’d be happy if EAs look further into it.
CCI’s recommendation for charter cities is that it would be best to develop the initial infrastructure buildout of a charter city with private capital rather than with public resources, the idea being that a private developer will be more responsive to market forces and take a long-term view of their investment. So this is one type of cost, let’s call them infrastructure costs.
The second set of costs are the resources dedicated to creating and implementing the governance innovation. This is drafting and negotiating legislation or a concession agreement, determining institutional arrangements, identifying governing officials, and so on. Let’s call these governance costs.
I think you can discount the infrastructure costs because this is private capital that would go into a variety of other projects, presumably a large chunk of it in real estate, in the absence of the charter city project. And since we’re talking about lower income countries, those alternative investments are probably not creating much social value, or are going somewhere else entirely. If the charter city is successful, the costs are recouped by the developer through the increase in land value brought on by economic activity. If the charter city does not take off, the capital is lost, which is bad, but seems like this consideration should be relatively unimportant from an EA point of view. And even if the charter city doesn’t take off, a power plant built for the charter city, for example, could obviously continue to function for the surrounding region. Note that if there was government financing involved in this first area, then I think the calculation changes because the state is then being forced to make tradeoffs with more obvious implications for social cost.
So if you’re willing to accept that we can discount those infrastructure costs for the reasons outlined above, you’re left with the governance costs. The value proposition then becomes: for the governance costs outlined above, a successful charter city creates a sustained high-growth environment that reduces poverty and leads to broader reform. I think that for a few million dollars (with some variance in either direction from case to case) you can get most of the elements mentioned above in place. From the point of view of an EA looking to direct resources, these are the only set of costs they’re going to interact with.
Charter cities are certainly high-risk and high-uncertainty, but the return from even just one successful charter city is quite large. And after there’s a direct proof of concept rather than various linkages to similar examples from the recent past (Shenzhen, etc), the risk and uncertainty decline. I appreciate that this calculated bet won’t be attractive to a lot of EAs, but I think it’s worth exploring. Recreating just a fraction of the successes of China, the Asian Tigers, Botswana, Vietnam, etc in countries still seeing low or highly variable growth is a better counterfactual than the path these countries are on now and EAs should be trying to do something about it, charter cities or otherwise. I think this fits into a larger discussion about calcification within EA, but that’s a topic for another thread.
Thanks, that makes sense. I suppose I still suspect that there are more lower-hanging fruit in trying out governance innovations via existing cities, but my intuitions here are pretty uninformed and I’d be happy if EAs look further into it.