In the last few months two countries have amended their constitutions to allow the development of a special kind of city promoted in a TED talk.

Giorgi Vashadze, Georgia’s deputy justice minister, was browsing on the internet when he came upon the concept of a ‘charter city’.

“This idea came to us — why can’t we do that in Georgia?” he said. “We looked out and we saw there is free space on the Black Sea coast.”

The Charter City idea comes from the ideas of Economist Paul Romer who unveiled the idea at a TED talk in 2009.

The foundational idea is simple – growth occurs in cities, especially trading cities, so lets create trading cities. Rather than looking at the broader spatial economics of cities, and the increasing returns that occur in cities though, Romer has only looked at the institutional/legal arrangements. His thesis is that despite technology something must be preventing some emerging nations from growing and that is bad institutions. Given much of China’s growth has been through developing a coastal special economic zone with its own rules to ape the growth of Hong Kong and Singapore a charter city would set up cities with their own legal systems friendly to capital accumulation, property rights, international investment and in migration.

Romer quotes Hong Kong, Singapore, and Abu Dhabi/UAE as examples. Of course all three are former British Colonies and therefore inherited very capital friendly legal institutions as well as something of a traditional of an independent judiciary able to enforce contract law even if there was political pressure for rentier extraction. Also Hong Kong and Singapore lacking natural resources were forced to trade to avoid starvation. Spatial arbitrage has been the key to their survival, not just any old investment in technology but those that make sense in their geographical location. Romer has given perhaps too much attention to legal preconditions for growth and too little to others. For example all three examples have major public housing programs because they recognised that encouraging in migration without removing rentier extraction through housing costs and poor conditions would leave a poor and unhappy local workforce, whilst low cost housing created local consumer demand.

In Georgia and amendment to the constitution was initiated on May 8th to create the New City Lazika.

“This city is not … fantasy; this project is based on the fact that the shortest trade route from northern China and Central Asia towards Europe runs through Georgian ports

Though of course no port ever got rich solely on victualling, there has to be something to import or export at comparative advantage. In classical economics ‘comparative advantage’ didnt just happen, there was always a local natural resource or agricultural product to which there was a climatical advantage, as labour could be produced anywhere – and cheap labour requires cheap housing and cheap food- so comparative advantage requires local conditions for cheap rents and cheap food to be created as well. It is not simply taking a grid square on a map and saying ‘here charter city rules apply’ and expecting magic to happen, the infrastructure must be created, the conditions for cheap housing and for that workforce to get to work (otherwise transport costs in a large city becomes another means of extracting from consumer income). One mistake Singapore, Hong Kong ands Abu Dhabi have all made is that they have had to retrofit at huge cost after years of bad planning.

The only other country planning to build a Charter City is Honduras. Madagascar was but the president promoting it fell to a coup. In Honduras according to a May 8th HYT story in 2009 the newly elected president was keen for transformational economic ideas and young aide Octavio Rubén Sánchez Barrientos saw the TED video.

in late 2010, Sánchez met with Romer, and the two hurriedly persuaded President Lobo to make Honduras the site of an economic experiment. The country quickly passed a constitutional amendment that allowed for the creation of a separately ruled Special Development Region.

Romers idea is that either a foreign nation acts as custodian of the laws governing a charter city, and in Honduras both Britain and Sweden passed fearing I imagine the label of neocolonialism

so Honduras has named a board of overseers until there are enough people to form a democracy. Romer, who is expected to be chairman, is hoping to build a city that can accommodate 10 million people, which is 2 million more than the current population of Honduras. His charter city will have extremely open immigration policies to attract foreign workers from all over.

This is looking more and more like the City of Rapture from the videogame Bioshock by the minute.

The great risk of Charter Cities will be that they will become a test bed for solely economic theories, if certain conditions apply that economic growth will magically happen. The lessons for the original models is that instead there has to be very active planning and management to overcome the problems that rapidly growing cities accumulate; above all limiting the potential for rentier extraction from rising land prices.

Another lesson from Singpaore, Hong Kong and Abu Dhabi was that rural hinterlands, being islands or the desert, they could restrict immigration (to a greater of lessor extent) to those required for labour. The great problem with most cities in emerging nations, especially africa is that because cities are the only hope for many they attract many more immigrants that labour needs demand in locations where there is limited potential for trade, often 1000’s of miles in land with poor communication links. This creates large slums. An often thriving small business sector but no potential to grow rich from comparative advantage.

These three cities were lucky in their original institutional foundations, but so was Belize, Malta, St Helena, the Orkney Islands, Jamaca etc etc. Only a few areas have grown, nurtured and developed, those institutions, and created high growth globally trading cities. The real question is to find out what extra apart from initial institutional conditions sparked this growth, and that requires getting into spatial economics, not just institutional economics.