Paul Romer's Charter Cities

The secret to turning a poor nation into a rich one can't be found in a World Bank report. Rather, it comes from the British Empire.

That's one way, at least, of interpreting U.S. economist Paul Romer's new plan for transforming economically backward countries such as Cuba into engines of growth. Experts have long known that traditional tools of development--free trade, foreign investment, charity--have failed as many countries as they've helped. The rot in a reform-resistant nation lies in the laws, institutions, and informal rules that govern daily life. How to fix a problem so fundamental? Let a rich country take over part of a poor one. Romer calls his plan Charter Cities, and illustrates it with a thought experiment. Imagine if the U.S. closes Guantánamo and hands the land over to Canada, which agrees to develop it. "A new city blossoms," writes Romer. "It does for Cuba what Hong Kong, administered by the British, did for China; it connects Cuba to the global economy." Private contractors rush in, lured by the prospect of rising property values; immigrants from Cuba proper (and beyond) arrive by the millions, attracted to better wages and a fair justice system. Eventually, Cuban authorities decide to replicate the experiment across the island, much as mainland China did starting in 1979, taking the Hong Kong model to Shenzhen and beyond.

Such a fanciful idea might be easily dismissed if it weren't coming from an economic heavyweight like Romer, who transformed the field of growth theory in the 1980s. Romer is already in talks with potential host countries about Charter Cities, although he won't say which ones. The trick will be persuading rich countries to take part, since the plan creates a potential PR nightmare, appearing as it does like 21st-century colonialism. (The key difference between a charter city and a colony, says Romer, is that there's no coercion involved in the former.) But Romer is confident that soon the sun will never set on a charter-city empire.