0:33 Intro. [Recording date: February 24, 2015.] Russ: Paul, welcome back to EconTalk. Guest: Yeah. It's good to catch up again. It's been a while since we talked. Russ: Almost 5 years since you were last a guest. So, I wanted to catch up and see where your thinking was on two issues that you're deeply involved in: charter cities and if we get to it, growth theory. You recently made a distinction, in thinking about urban development and urban growth, between reform zones and concession zones. Explain. Guest: Yeah. So, the background is you can think of a charter city as a kind of a zone, but a big one, big enough to encompass an entire city. One of the questions that you confront when you propose new zones is: What fraction of existing zones have succeeded, in any sense? Most zones fail. And so we have to ask, Why is that? It could be that starting a zone is kind of like starting a startup firm: even if you do it right there's a high probability that it won't succeed. But you keep doing it because the ones that do succeed are worth enough. But I think there's another problem with zones around the world, which is that they fail in ways that you could have predicted when you started them, because they took this form that I'm calling a 'concession zone.' So, what's the difference? A concession zone is a zone where you do something differently as a kind of a concession, a gift to some favored party. So, you give a tax holiday or some other kind of favored treatment to people who get those favors through mechanisms that are pretty easy to forecast[?]. The test of whether something is a reform, or reform zone, is: Do you want it to extend to the rest of the country, and, do you want it to last forever? So, for example, a tax holiday, which is just for firms in a zone and just for a finite amount of time is clearly a concession. There's no sense that this is something you'd want to extend to every firm in the country and extend forever, because typically they have no plan for how they would recover the tax revenue that they'd give up that way. So the thing to ask in small or big zones all over the world, is: Are governments using these to try out reforms that they want to spread throughout the rest of the country and have last forever, or are they just using them to give some concessions? And if they are to give some concessions, the probability that it won't do anything good for the country, the ex ante probability, is very low. Russ: Now, the way I originally understood the idea of a charter city is you have a system--you have a country, excuse me--where the governance of the country is failing in some dimension and it's very difficult under that scenario, under that situation, for the government to credibly commit to reforming itself. And what a charter city would do is import essentially the institutions of a different country which they are more likely and more credibly able to promise about property rights, the rule of law, say, crime. And in this way you could encourage foreign investment, or any kind of investment, in that city, that you wouldn't be able to attract if you were stuck under the governance of the host country. That idea is only one kind of charter city or one kind of reform, correct? Because you're really talking about something more like a laboratory where trial and error could be used to assess effectiveness. Guest: Yeah. I think the general concept here is that you use the decision to opt in to a new geographic area as an opportunity to implement reforms of any sort, any type of reform, that might be controversial if you tried to implement it on a group of people who were already in a particular location. Think of it as a way to avoid--is to try something new without any coercion. Try something new where the people who live under this new regime choose voluntarily to be part of that. And the thing that you try to do differently or try to do new can take many different forms; and different countries at different stages of development might try many different kinds of reforms or just innovations in their systems of rules. So, the one you were describing where the reform you want to undertake is one where you import government services from outside, I think that's in practice a very important possible type of reform for poor countries. But the more general concept would allow many different types of reforms. You can even consider a new reform zone/city in the United States where you might do something like say, well, every vehicle in this city has to have autonomous control, instead of driver control. Or you might say, we're going to ban any use of gasoline and diesel and just rely on natural gas and build the infrastructure for that. So, there's things you can try in the new setting that would be very difficult from a technical point of view and a political point of view to try in an existing setting; and we might learn a lot that generalizes from running an experiment like that. Russ: Well, what's exhilarating about it is it allows the choice of a city to be similar to my choice of, say, music player. Right? Nobody sticks me with a music player. I go out and choose the one I want. I choose the phone I want. I choose the kind of house I want to live in, and I choose the books I want to read. I can choose the government I want but the costs of that choice are very different, right? Guest: Yeah. Russ: Because I can move. Guest: Yeah. When I teach about cities these days I tell students to think of cities as intermediate entities between the nation and a business. So, I don't think a city is identical to a business. And I think there are some city functions that we couldn't privatize to a corporate governance accountability kind of model. Policing is the test case on this. I think very few people would actually voluntarily choose to go someplace where there's a police force and a judicial system that could lock you up that's run by a corporate entity. And I think that doesn't change whether it's a nonprofit or a for-profit corporate entity. So, what we're doing is using some of the same mechanisms for cities, like choice by consumers or users--we're using choice, but it's on an entity which is still likely to have some form of government that's subject to some form of political accountability. And what this reform-zone idea does is more fully exploit the possibilities of this thing that lies between the nation and the business.

8:11 Russ: I'm surprised to hear a police example. The standard argument--I'm not sure it's correct, but there's a standard argument that police is a public good. You wouldn't want to have competing police forces, etc. But I think there are a lot of people who would rather have a corporate security force--to protect my house--than the government's. Doesn't do a particularly good job, particularly in poor neighborhoods. And I think there are a lot of people who would love to get away from having the government being able to lock them up. So I'm not sure that's really the quintessential example. Guest: Yeah; I think this is one which is worth kind of looking carefully at the experience on these things. It's been a kind of an interest of mine, so I've paid attention to university police forces, because they are an instance of a kind of corporate controlled [?] non-profit corporation entity that runs a police force. One of the things you see is a systematic tendency for those police forces to discriminate in their application of the law along lines that are beneficial to the entity. So, for example, they protect athletes in universities that have important sports programs. Russ: Yes, they do. Good point. Guest: They could protect athletes from charges of sexual violence. And so I think we have to take very seriously the challenge of making sure that an organization that's strong enough to play a discretionary role in the enforcement of the law, we have to take very seriously the challenge of making sure that they are accountable in some way-- Russ: in some way-- Guest: that forces them to apply the law to have equal treatment under the law. And if you can't even trust a university to apply equal treatment under the law, you know, how many of us would want to live under the police force that's run by, say, Uber or Google or Facebook or GM? I don't know--take your choice. Russ: But Google has a motto that they won't do any evil. So we don't have to worry about Google. But more seriously, you make an interesting point. The point about a university is great. But the only problem is, is that there are many countries in the world I think where the citizens would prefer that university police force, with its flaws, to the flaws of their existing government system. But let's move on. Guest: One final issue there, one final point about this: This is an illustration of a general strategy I recommend, which is, getting very specific. Not just talking about these things at a very abstract level. But in any proposal that somebody brings me about a new city, new forms of accountability in governance and so forth, one of the first questions I ask is: Who hires and fires the police chief? And it's that level of specifics that I think you have to grapple with to have a reasonable prospect of pushing something forward as a serious alternative. Russ: I totally agree.

11:18 Russ: So, let's talk about some actual charter cities. You mentioned Shenzhen. Talk about Shenzhen and what it did and what its relevance is, if any. Guest: Yeah. Well, Shenzhen is a kind of interesting counterpoint to Hong Kong. And when I was first promoting this idea I relied on Hong Kong. In retrospect I wish I had promoted Shenzhen more. The difference was that Shenzhen was under the control of the Chinese government, the central government, and was used to implement a particular set of reforms--basically opening to the outside world. And Mao [Mao Tsetung], in recounting his--not Mao, Deng Xiaoping--when Deng Xiaoping recounted his thought in setting up Shenzhen and the other initial special economic zones, he's very clear about the importance of avoiding conflict and coercion. And this is in the wake of the cultural revolution and the trauma that people experienced from that. So, he was looking at Shenzhen as an experiment where they could try something different and do it without coercing anybody to live under that experiment. It was phenomenally successful as a city. It grew incredibly rapidly in terms of population and income per capita. It also is interesting because it attracted people from all over China, and so it has a little bit of that immigrant feel and the dynamism of a place that attracts a bunch of immigrants, that we associate with the United States. It's this one little enclave in Southern China where they speak Mandarin because that was the common dialect among all the people who moved there. So it illustrates some interesting general principles: One, the advantages of the kinds of policies they tried out, like opening up to direct foreign investment and flows of knowledge from the rest of the world. Two, it illustrates the general principle that something that could be controversial in the whole country could be tried in a place where people have a choice about whether to go there; and then when it succeeds it's easier to have that spread throughout the country. And three, it suggests something deeper about the benefits of migration and choice that I think--we can think about as larger implications that just how do we implement reforms. I think one of the interesting possibilities for both China and India is they could end up with a much more competitive market for local jurisdictions than most other places in the world. And in a way I think one of the advantages the United States has been able to exploit is that same kind of very competitive market for local jurisdictions that's led to better governance, better performance of city and state governments than we would otherwise have, because it was more competitive. So, big countries, if they leverage this power of thinking about competition between jurisdictions, not just between firms, big countries can exploit that. And other entities--take the EU [European Union], which is trying to exploit some of this--right now what we see at least is we are not getting as much competition between jurisdictions in the EU as, you know, we can get in the United States for example. Russ: Just a couple of facts: Was Shenzhen started from scratch? Was it an existing city of a small size? Guest: It was essentially started from scratch. It was a very small fishing village. So, it was virtually--and like Hong Kong, in fact. Just a small fishing village, which was taken over, given a new set of rules, and then grew very rapidly because of migration. Russ: What time period are we talking about and how big did it get? Roughly? Guest: So, now it's a city even of about 10 million. Most of that growth is between 1990 and the present. But I think it started about 10 years before that. So, like 1980. It was a few years before that. But roughly 1980-1990, you have a period of kind of thrashing about as they're trying to figure out how to do things. Like, they didn't have a--they didn't know what a labor market was. They didn't know how you legally, administratively, haven't thought about this idea that people can choose where they work. So, it took them a while to just put in place the basic procedures and basic law about what can firms do, what can workers do. And so there was this period of experimentation and thrashing a bit about getting the structure right. And then it really starts to take off after 1990. And the growth rates here are, like, in the 'teens or the 20s, cumulatively. So for two decades, you know, 15-25% growth per year. So it's really a phenomenal story. Russ: I want to go back to your U.S. example. There is competition among jurisdictions. I used to live in St. Louis; there are dozens of local areas. Which led to inefficiency--which might be worth it, by the way, in return for more competition. So, for example, if you wanted to start--if a chain of stores wanted to locate in the St. Louis area, they had to deal with all these different jurisdictions. They couldn't just go to the main county or city area. So, that's a cost; but again it may be worth it. What strikes me, though, is that even though there is competition, because we live in a democracy, and because local governments are somewhat responsive to their populations, to the extent that those populations are not very diverse politically, those cities are run in very similar ways. As are the suburbs. And then things sometimes go wrong--because the cities in America, so many are struggling right now. Some are doing fine, some are not. But it seems to me the more competitive the city is internally, the better it does. If there's not much competition in the city--if one party, for example, has dominance, there's just not that much creativity going on there or competitive improvement. So, do you agree with that? Guest: Well, I think what I would say here is that the analogy with firms and industries is very rich. So, one thing that we might conjecture is I think historically we saw more instances of annexation and combination of different jurisdictions. It's a little bit like the market for corporate control. Like takeovers, mergers, or occasionally divestitures. That market has been shut down for cities. And I think we should try and make it legally and politically easier to combine jurisdictions or to--you know, conceivably in some cases, split things off. There has been some discussion--I don't think it's gone very far--about whether or not, for example, parts of Detroit, the city of Detroit, could be basically divested into different entities with different governance structures that could try something different. I think we should make it legally and politically easy to do something like that. On the other side, I think in some places, like St. Louis, people might conclude that you've got too many jurisdictions; they're too small; they can't operate on an efficient scale. And then there'd be an advantage to do some mergers or some annexations. Then, on the degree of differentiation: Part of what we call the place I work, the Marron Institute of Urban Management, is that management is an important part of making any organization work. So, you know, the different kinds of discount stores may look like they're all doing the same kind of things. You've got Walmart, you've got Kmart, you've got CostCo. But some of those discount retail operations are better managed than others. And some of them succeed and others don't. So, even if superficially cities look similar, they may implement very different strategies for actually managing something like the police force. Those management strategies may lead to very different crime rates, and cities will either shrink or thrive based on success along those kinds of dimensions.

20:19 Russ: Let me talk about a different challenge I think that a developed country has in implementing this. So, you gave the example of driverless cars. Which I'm really excited about. I'm not quite sure why. I don't know--the creative side of me. But there's something. Guest: I have something to say about that, but we can come back to it later if you want. Russ: Okay. But say it now if you want. Go ahead. Guest: Okay. I work with a really interesting group of people at NYU (New York University), including people who come from an urban planning, or planning kind of background; but some of whom, I call them, I tease them and call them 'reformed planners' or 'reforming planners.' So, they are more market-like. But one of the best insights I got from my colleague, elambertaux[?], who, he comes out of the planning/architecture/design school founded by Le Corbusier [Charles Le Courbusier]: unless--the way to think about the expense of accord, the social cost of accord, is to think about the real estate it uses. Because when you drive a car down the street you are using some very scarce and valuable real estate at a particular time and day. Especially at rush hour. And the thing about a car driven by a human is it takes a lot more real estate than a car that's autonomously controlled, because humans have to allow a lot more distance between vehicles, because we have slower reaction times. So, one way to get excited about autonomous vehicles--I mean, I think a lot of people like the engineers who thought about this, thought about this as a way this saves time for somebody who would be driving and now doesn't have to drive. But the other way that may be more important in terms of the social value to think about these, is think about them as transport modes that use a lot less of the scarce, valuable real estate that we have in our streets. Russ: Nah, I agree with that. And we did an episode with Mike Munger this past summer where we talked about how the roads could be, wouldn't have to be as wide. You might not need a garage. You might not need to own any car. There's so many transformational aspects to a driverless car. By the way, I would call your friends, maybe--you called them reform, reformed planners, reforming planners? I would call them maybe 'recovering planners.' Guest: Oh, yeah. Yes. Yeah, yeah, yeah, right, exactly. That's what I say, too. Russ: Sorry. I don't mean to hurt their feelings. But, what I was going to say is this. So, if you say to me, 'Hey, we're starting this new town. It's fabulous. It's going to have driverless--this is the town that me and 17 other people would want to live in. It's got driverless cars, natural gas fuel, no minimum wage laws--whole range of, say, attractive things. So, it's clean air; it's fabulous. But they you say: 'But where is it?' 'Well, it's in the middle of Nebraska.' 'But I don't want to live in the middle of Nebraska.' So in a way, all the good spots have been taken in the United States. That's why there are cities there already. So, one of the challenges I think of thinking about Shenzhen and India and China, where their population is growing so fast: It's going to be very appealing sometimes to leave a city for a new place. It's a little more challenging in a country like the United States--imagine where this magical city of Oz would be. Guest: Yeah. Well, I think we have to use a little bit of imagination. This is mostly being facetious, but one thing I tell people, having visited Long Beach, California just once, is that we should think about Long Beach as a tear down. You know, it's a really ugly city, but in a beautiful location. Russ: Uuuh, uhhh, yeah-- Guest: We ought to just tell them to tear down the whole city. And then if you build like a Manhattan in Long Beach--if you could get like Manhattan densities and street activity and excitement, with California weather, man, that would be a successful real estate project. Russ: Well, I'm laughing--because before I got married my wife lived in Long Beach and I've been there more than a few times. It's a little harsh-- Guest: So you know. Russ: It's a little harsh, Paul. But it's not a beautiful place. But the question is--you said it facetiously, but the serious question is: That's really hard to make that happen. Right? Guest: Yeah. Russ: And [?]. Maybe it shouldn't be. Guest: Well, this is part of this challenge of coercion. When you had very large numbers of people-- Russ: Yep-- Guest: who have basically--each one has a veto right through a property right, it's almost impossible to get a decision. This comes up a lot in the developing world when you try and like redevelop a neighborhood. One way that sometimes succeeds is to get people to switch from a property right, where they've got a veto right, to basically a share in a corporate entity. So that then something more like a supermajority rule is needed to make a decision that influences, you know, every piece of land in the area. But even making that transition--like, giving everybody in Long Beach a share of the corporate entity that's going to redevelop it, like, you know, like Orange County or something--making that transition right now would still be a problem because still some people would refuse to do it and they could be holdouts and slow the whole thing down. Russ: That's okay. They can live in their own little ugly corner. No, it's harder to do, obviously.-- Guest: But the problem is they can capture a lot of the benefits of being in the middle of, you know, what could be a, you know, much more dense, exciting city. So I think practically the thing we should do is think about what are the locations that would be attractive to people. I think one thing we have to keep in mind is an attractive climate is a luxury good. So if you are trying to build a competitive city in the United States, and you anticipate average income in the United States is going to be growing, there's going to be more demand for an attractive environment, close to the locations, the kind of Mediterranean climate on the coast. Those are one possibility. And there's a lot of coastline in California that's not developed right now. You have to find a way to get California voters to, you know, be excited about the idea. But if they don't want to do it, there's Oregon, too. And Washington. But there's other climates people like, as well. Like the interface between the sort of the alpine climate and the mountains, the plains. You can go up and down the Rocky Mountains on the eastern side, where Colorado is, or on the western side, where Utah is. There's a bunch of places you could build a new city. And cities take so little land that, you know, there wouldn't be any problem finding another place like Salt Lake or Denver or Boulder. Russ: So, just in case there are any Long Beach listeners still listening: I have to apologize. I feel bad we were talking along[?]. It is actually an okay place. It's just not as beautiful as some other parts of California. But maybe that's a good thing, because it means people who are not as wealthy can afford to live there. And the Manhattan of Long Beach would be very expensive. I just want to say, in defense of Long Beach as it is: There are some good things about it.Guest: Sure. I apologize to anybody from Long Beach that I have offended. But, it is useful for us to think about--things could be different from the way they are right now. And the thought experiment I like is to say: What if we could have Manhattan density in a location on the California Coast? So, Manhattan densities in Long Beach? Based on property values, people seem to be willing to pay a lot to be in a dense place like Manhattan. We've got a system in the United States that produces lots of--you know, Houston-style cities, in these sunny, southwestern climates. But the thought experiment is: Would people be attracted to a Manhattan-like environment in one of those sunny climates? If you decided the answer was yes, you'd still have to figure out how would you get there. But I find it a fun thought experiment.

28:17 Russ: Yeah, well, that was my serious version of Long Beach. Which is: Why don't we move--we're talking about radical reform, which is fun to think about, an interesting thought experiment. But not so practical, perhaps, in the situation, at least this one we're talking about. Why aren't we moving in that direction in a marginal way? Why aren't we taking steps toward increased density in Houston or Phoenix or LA [Los Angeles]? And is that because of existing regulation or is that because that's what people want? Guest: Yeah. I think there's interaction here between the land values and the transit that really important. If the only way to support Manhattan densities is with the subway system, then you've got to figure out how to finance the subway system. And, you know, part of what we've learned is that the value of the subway system will show up to a large extent in the value of the land. So that you can't just think about sending out, giving out a contract for somebody to build the subway system and try to finance it based on the fare revenue. What you've got to do is somehow internalize the increases in the value of the land induced by the kind of access that the subway can provide. And, you know, the problem with subways is they are very lumpy and big. Even if you are a developer and you are doing a large neighborhood, you can't invest in a subway that would give this neighborhood access to the entire city. So, we might need some kind of ability to kind of innovate and try new things at the level of, say, all of Long Beach rather than parts of it, that could be redeveloped. But part of what's exciting about the autonomous vehicles is they might give us a path towards a different kind of transport structure that could support much higher densities without necessarily having to tunnel. Russ: Yeah. But LA has a subway. It's not very good--meaning it's not very well used. It seems to me causation goes the opposite direction. When a city gets dense enough, a subway can make sense. The way I would think about it--I mean, I really love Manhattan. I don't want to live there but I love visiting there. I use the subway. But if it didn't have the subway it would still be great, because there's so much going on so near everything. That doesn't happen in LA. Why not? I don't think it's because they don't have a subway. Guest: I think these things are closely linked. Because if you think about--you live in a neighborhood in LA, for example, and somebody proposes some new structures that are going to bring a lot more people into that neighborhood, but you don't do anything about congestion. People who live nearby will say, 'Look, the direct effect on me is going to be that there is going to be a lot more congestion because we allow a lot more free access to the streets, anybody who lives nearby. So I'm going to oppose a zoning change or a change in the floor area ratios that would let dense buildings be built here.' So, I think it's problems advantaging[?] congestion and transport that partly induce the political opposition which prevents the densification. So this kind of loop that we want to get going, more density, more transport options, is tough to get going when you start it at a point where people already feel like, gee, the streets are already so crowded, I don't want any new people around. Russ: And they're onto something. I used to say when I lived in LA, a lot of people lived there and they all brought their cars. And the way you are thinking about it is absolutely right; it's a fascinating point about transit and the potential that driverless cars have to change that. Guest: By the way, you made a point with me--I don't think it was in a discussion. It was probably in an email, but it wasn't in the last podcast. The usual economist suggestion, which is, 'Oh, let's put a congestion charge on this,' this is a lose/lose proposition for the people who are deterred from driving by the congestion charge. So we've got to be a little more thoughtful about what are the politically feasible mechanisms for solving some of these congestion problems that we've gotten ourselves into. Russ: Yeah. Economists tend to jump at the congestion tax as an "efficient" improvement. Which it is. But if the gains are mostly flowing to somebody other than the drivers who are deterred, or if there's no way to give them back those gains without undoing the effect of the discouragement, the deterring, it's not going to work very well. It is a fascinating political and economic interface there, this problem. Guest: We've seen some creative solutions to this. When New York City put forward this proposal to do a bunch of development on the West Side, so, like Hudson Yards, part of it involved an extension of the Number 7 subway line. So they were simultaneously trying to say, we're going to change the rules so you can build a lot more apartments there, but we're also going to provide some better subway access to that place. The other case that I thought was interesting was Stockholm, where they said they were going to take the revenue from the congestion tax and then use that to subsidize public transit, like buses. A really clever thing they did in Stockholm was they said, let's live with this, for I think it was 7 months. So they put the taxes on, the congestion charges; they subsidized the buses. And then after 7 months they took the taxes away and they took the buses away. And then they said, 'All right. Let's vote on whether or not to bring that stuff back.' And then it actually passed the vote. Russ: Do you remember how big the margin was? It's fascinating. Guest: It was close. It was in the 50-55% range. Russ: That's a shame. Guest: So, even there it was close. But I think they did it that way because they knew if they had taken the vote prior to that, it wouldn't have even crossed the 50% mark. So what happened was, 10, 15% of the electorate through the experience discovered this was a beneficial arrangement. And that was enough to make it pass this 50% threshold in a referendum.

34:43 Russ: So, when we first talked about this, you were very enthusiastically trying to get--we've been talking about the United States, but much of your effort has been trying to get a poorer country with bad governance, disappointing rule of law, perhaps corruption, an opportunity to create something that would be administered by, typically, a foreign country. How's that been going? What's your experience? Because you've been at it for a while. I'm sure it's frustrating. Is there anything good going on? Guest: Part of this is, I alluded to before by saying that even with the right ex ante conditions, the odds of success here are not high. But the probability of success is not the metric we should use is not the metric we should use to judge if it's worth undertaking. Here it's exactly analogous with the idea of startup firms: even if 90% of startup firms fail, it still might be a good idea to tolerate or even encourage firms to start up. Because the failures cost very little and the ones that succeed can generate enormous benefits. So, you have to go into this anticipating that there will be a pretty high failure rate. You also have to go in understanding that it's a somewhat unusual set of circumstances that can make this viable. Think about, like, Somalia right now. Or, parts of Iraq and Syria where it's not clear there's any government at all. This isn't a project that could be undertaken easily in one of those places. So, you have to have a government that has at least some level of capability; and some level of legitimacy, so that if it tries something like this it will be durable. That, in the citizens' eyes, it will be viewed as something that was done with legitimacy and it will be respected over time. So you need some level of that. But the governments that have the most of that don't actually need to implement a reform zone, because they are pretty well run. So you are looking for this middle ground. And Honduras was an interesting case, because the moment where I engaged there was one where they had a President who had just won a fair and open election, a strong majority of the vote. And this was just after--remember there had been a coup that kicked Zelaya out of the country and the party that had kicked him out, which was his own party, was in power. The people who came into power under President Lobo was the other party. So, he had a strong democratic mandate and actually a strong majority in the Congress as well, in his party. So you had a case of a country which had suffered from bad governance and weak institutions, but yet where you might have had a window where there were some strong, democratically supported authority that could have tried something new. So, I thought it was an interesting window to try and pursue. But that project basically went off the rails and I had to separate myself from work there. Right now I'm in the mode of some low-level conversations with different places where there's some exploration of this idea. But this isn't something you can force. An opportunity might present itself, and if it does, great; but in the meantime, there's an awful lot of other people who are going to move to basically expanding versions of existing cities. There's a lot of things we can do right now that can make that process of expansion turn out much better. And so there are lots of ways to stay busy even as you keep waiting and watching for an opportunity to try something really ambitious like a new Shenzhen. Russ: You need a visionary. And by definition, visionaries are rare. But it just takes one to try it. And as you said, it might not work. But it would be great if it did. Guest: But you need a visionary with some legitimacy as well. Because-- Russ: Yeah. You are a visionary. It's not enough. Guest: Right. Some power, and some legitimate power. Russ: Yeah. A couple of things.

39:13 Russ: Recently I interviewed Alex Tabarrok about--I hope I'm pronouncing it correctly--Gurgaon, India, which is a sort of private city. Have you kept up with what's going on there and whether that has any lessons for the rest of us? Guest: Yeah, a little bit. The experience there is one where it was really just a private development or a kind of, really a coalition of developers who worked in a particular area. And they haven't managed some of the sort of city-scale problems that ideally they should have addressed from the beginning. The one that we put a lot of emphasis on right now when we're talking to cities that are going to expand is a distinction, before development takes place, of what's the public space as opposed to the private space. Because that public space is what you are going to use for the sidewalks and the road space, the mobility that facilitates all the interactions that make cities valuable. And that public space has got to inter-operate across private developments. And you've got to get developers who pay attention to not just, am I giving access to the particular parking garage for this building, but: am I giving access to traffic who need to flow through my development to get to the center of Delhi or to get out to some far suburbs. So, there's a coordination problem about setting aside the land that you are going to use for the roads and also for the sidewalks. And the private initiative there, in Gurgaon, completely failed on getting this right. And this is consistent with what we've seen with lots of other cities around the world, which have allowed relatively free private development but haven't had the state which has protected the public space; and then they're left with inadequate mobility. Russ: Islands. Guest: And unfortunately this is almost impossible to fix after the fact. So, Bangkok for example is a city that expanded rapidly. Housing was relatively affordable because it was so easy to add more land and develop it. But they didn't do like what New York City did, which was protect the avenues and the streets. And so Bangkok is now just completely choked with traffic. And if they ever want to do something like put a storm sewer in, you also don't have these public spaces that you could use for your utility corridors. Russ: Yeah. You can get islands that are really nice inside the island but if you need something outside the island it's not so good. It's a challenge. What else are you doing in the urban development besides hoping and waiting for that visionary? This kind of advice, obviously. What else? Guest: Yeah. If you think about, back of the envelope roughly 5 million more residents in 100 years than we have right now, most of that is going to come from expansion of existing cities in the developing world. But this is the chance where we might be able to build a few new ones. If there's that many people who want a chance at urban life, this is the time to do some startup cities. But if most of it's going to come from expansion, we have what we call the Urban Expansion Initiative, which is basically advising local governments in various parts of the developing world how to carry out--literally, what New York City did in 1811 when they had this plan that laid down the rectangular grid of streets and avenues on Manhattan at a time when the area that was surveyed for these streets and avenues was all just undeveloped farmland, when they made this decision about where the public space was going to be. Russ: Crazy. Just really remarkable. But it's an interesting thing--I hadn't thought about it--sorry, we keep going back, maybe I'm not--it's a lie. I'm excited to keep coming back to driverless cars. Given that there are a number of people, a number of corporations working on this--Uber, Apple, Google--I feel like Elon Musk is involved in some way and he's the guy who is going to start that new city somewhere on the California coast using some new kind of transportation to reduce congestion, so I hope you've talked to him. But the idea that they would make an offer to an Indian city that has to start from scratch because the Indian government, that's really trying to avoid the problems they've already inherited that have been created with bad infrastructure and congestion, is maybe how it will actually happen. Guest: Yeah. Yeah. Well, even--some of these smaller cities. In New York City when they planned for an expansion on Manhattan, they planned for a 7-fold expansion of the built area of this city. It was really an amazingly ambitious plan. So, you take a small city somewhere in the developing world and if they are imagining a 7-fold or 10-fold expansion of their built area, you know you are getting close to something that's almost an entirely new city. So, with planning for substantial expansion you start to open up the possibilities that you might get in the limit if you started something entirely new. But part of our message to these mayors and city officials is that, even if the only thing you do is define the public space and then protect the public space, you'll create options that will make your city much more valuable in the future. And you can also unleash this kind of reinforcing cycle, which is that your city becomes the place that everybody wants to come to and do things because everybody's going to come here and do it. So, even something that seems unambitious, like just define something like the arterial grid of roads and utility corridors in a bunch of land which is currently just farmland--just by doing that, you could unleash a faster and much more successful process of development than we see in most places in the developing world. And if you can do it in a way that enhances the adoption of, say, compressed natural gas vehicles instead of diesel and gasoline, you could actually have a rapidly growing city that has the cleanest air in the developing world.

45:53 Russ: So, we had--I interviewed Nina Munk and Jeffrey Sachs last year about the Millennium Villages Project. And that's an attempt to improve the lives of people living near subsistence in very poor parts of the world. And somewhere in there--and I've said this before; I'll say it again--I raised the possibility that maybe the best solution for the lives of those people is luggage. Get them to a place where they can flourish. Now, if people want to live in a subsistence farming world--I'm sure there are some people who want to live in that world--that's fine. But if they don't, what they've naturally done without you or anybody's outside help is they've moved. They've moved to cities and they've gotten more prosperous. What you are suggesting is we could make the cities themselves more prosperous by the right kind of innovation, right kind of rules. Where do you come down on--this is kind of choice. Do you feel this is a choice that we ought to be focusing on getting people out of subsistence settings? Or do you think we should be trying to figure out ways to help them? My view is we're not very good at helping anybody. So I'm kind of skeptical about the whole thing. But I'd love your perspective. Guest: I think giving people more choice on where they live is an incredibly powerful practical strategy for improving the quality of life. But the problem is not, frankly it's not luggage. People are quite mobile. They get themselves--these poor kids from Honduras get all the way to the Texas border somehow. They face incredible costs and threats. But they manage to do it. So, people can move. The problem is there's no place that's ready to give them, basically a legal spot where they can have a place to live. A legal piece of land where they could build a house. So, our whole mission in encouraging expansion, plans for expansion in a bunch of cities around the world, maybe starting some new ones--our whole mission is to try to create the supply side that could respond to the demand that people have to move to a new city. And as I suggested before by invoking competition between cities, it's not just like a technocratic issue of you've got a certain number of people and you're going to just move them by fiat into cities from the rural area. What you want to do is take people in the rural areas and ideally have every family in the rural area know that there are several cities that would be happy to attract them as permanent residents and that kind of choice I think is much more likely to raise the quality of life of poor people than this kind of moral suasion through the Millennium Development Goals. I'd rather replace the lot of them, every single one of them, with a single goal, which is that every family should be able to choose between a number of different cities that are willing and eager to attract them as permanent residents. But, you know, to get to that goal, we've got to worry about the supply side: How do we get those locations established that really would compete to get them as residents? Russ: And historically, urbanization usually is--historically, again, it's not always true in every place today--but historically, you move to the city; you don't have a very good life. But your kids probably have a better one. Certainly that was the American experience. When people emigrated from their home countries to the United States or when they came from the South to the North. Urban life can be very harsh, bitter, cruel, tough. But it's alive. And they grow. And they're not stagnant. And I think--when you think about someone in a very poor, subsistence farming situation you say, 'Well, I have good news: There's a place where people are better off than you are. And they even speak your language. And you might have a cousin there.' But the question remains: 'Well, what am I going to do there? Where am I going to live? What's my job going to be? And what are my children's--more importantly, what are my children's opportunities?' Guest: Yeah. Well, we do know for sure that there's a huge excess demand for urban life. People will take huge risks, take on huge costs, to get to cities. They'll live in very difficult circumstances, often illegal, informal circumstances, crime-ridden circumstances, to get the benefits that cities offer. We know that there's a big demand there. And the challenge is how to meet the, have a supply response that could meet that demand. And this kind of moral suasion mandate kind of mode of thinking could actually be very counterproductive here. So, imagine, for example, that the moral suasion strategy succeeds and we say to every [?] around the world that you have to make sure that whenever somebody moves to your city, they have a minimum of, you know, 250, whatever, 250 square feet per person to live in. And they have to have their own toilet facilities and indoor plumbing in the apartment. And you layer on all these mandates. Then, you know, the calculation [?]'s going to do is, well, each additional 10,000 residents I get, I have a huge mandate of expenditure I have to meet somehow. And you know, the initial revenue I get from this is going to be way less than that. So, all I'm going to do is try and keep people from coming to my city. Russ: What's in it for me? Guest: So we've got to think about--one way I talk about this is it should be okay under the building codes to build apartment buildings where people share the bathrooms. You know? Maybe you don't have to have a bathroom in every single apartment. And of course, you know, everybody from a rich country is just kind of like unbelievably offended by this suggestion. And then I remind them, if they are sending their kids off to college, this is exactly the kind of housing they are going to send their kids to. And it doesn't seem morally offensive that I should, they should propose it for their kids. So, we've got to be willing to make some tradeoffs on amenities and the cost of making these kinds of possibilities available. To make it attractive to mayors to get into this business of saying, 'We'd be happy to attract 100,000 or a million new residents from rural areas to come get their first chance at opportunity in our city.' Russ: Yeah, so it's not luggage. It's luggage and brochures. Guest: Come here. Russ: You need a [?] they have a--and motels with all the different options. Guest: But part of the thing that's exciting about replicating the 1811 plan in New York City is that kind of planning costs almost nothing. So, they had a single surveyor who surveyed, you know, all the avenues and all the streets over about 3 years. And a 3-person commission who backed up his decisions. But sort of making the plan for the public space costs very little. And New York said basically we're going to just accommodate--you know, millions of people who came in as migrants, to get jobs, and garment assembly, which it seems like cities all over the world get their first job. They made that plan in New York City with very little expenditure from the city government city. And that forces you to ask some interesting questions. Well, so like, what were the sanitation facilities as these blocks started getting developed in New York City, according to this grid plan? You know, well, from the early decades, a lot of this was still with, you know, with latrines, and you know, with wells. And they eventually brought sewers in and they eventually got water from the Croton Aqueduct after 1840. But in the early stages of urban expansion, you might be laying out places where people could build very modest accommodations and in the initial stages that we may be dealing with latrines and maybe just trucked-in water. But if it's affordable enough and it's legal and it gives people a chance, they'll pursue that strategy. And the mayor will be in favor of it and his constituents will be in favor of it. Russ: Yeah. I interviewed James Tooley about for-profit private schools and how Westerners are aghast at the conditions and the people who attend those schools love 'em. That's what they're used to, because their houses don't have all the amenities. So their schools don't either. But by Western standards, or big city standards, even in poor countries it's--they're not very attractive. But people prefer them to public schools. So it's a good thing.

54:51 Russ: Well, I see we're not going to get to growth theory today. We're going to push that off to another time. So I want to continue--we'll finish--we've got about 5 minutes left. We'll talk some more about urbanization. Guest: Although--can I just interject one thing? I was hoping to be sure and point out. A number of people wondered: How did I make--what was the connection between growth theory and cities? And it's a relatively simple connection. When I was first thinking about growth I was thinking about technological change and innovation, where it's a theory that applies to the technological leading edge. So, it's a theory about why did the United States surpass Great Britain as the world technology leader? But then if you look around the world, most of the growth that we see is not growth at the technological frontier, but it's catch-up growth. Countries and people who are far behind the technology frontier. And the big question is not, how do those countries innovate something brand new: How do they access to all the stuff that's already known some place on earth? And what I concluded was the speedup, catch-up growth--more innovation, more R&D (Research and Development), more college and Ph.D. training--all that's completely irrelevant. What you need are gateways that open up a country to an inflow of stuff from the rest of the world and that, you know, effective cities are the key gateways. So I started thinking about urbanization because it seemed to me to be the most important place where a government could intervene--do something that could then lead to the kind of really spectacular catch-up growth that we've seen in China. And a few other places before that, like South Korea. Russ: Yeah. That's really--that's very interesting.