Paul Romer Mainstreams the “Let a Thousand Nations Bloom” Perspective Among the Economic Development Establishment

In a recent paper at the Center for Global Development (CGD), Paul Romer comes very close to mainstream the perspective here at “Let a Thousand Nations Bloom” among the global development establishment. CGD is very mainstream,

The Center for Global Development is an independent, nonprofit policy research organization that is dedicated to reducing global poverty and inequality and to making globalization work for the poor. Through a combination of research and strategic outreach, the Center actively engages policymakers and the public to influence the policies of the United States, other rich countries, and such institutions as the World Bank, the IMF, and the World Trade Organization to improve the economic and social development prospects in poor countries. CGD was recently ranked among the world’s top think tanks (number 15 out of several thousand such research organizations) in an independent survey-based ranking published in Foreign Policy magazine.

and by some standards even left-liberal (they are very concerned with global warming and inequality of wealth, and Foreign Policy, which ranked them so highly, ran a pro-Marxist article last year).

Although marketed as a paper on “Charter Cities,” Romer’s paper goes to the heart of the issue by explicitly advocating “exit” as an important alternative to “voice,” explicitly supporting freedom of choice while calling into question the coercive majoritarian processes of democratic nation-states. Romer’s rhetorical strategy is to use the benign language of “rules” and “meta-rules.” For instance, he calls into question traditional majoritarian democratic processes in a section on meta-rules:

Meta-rules: Rules for changing the rules Meta-rules are rules about rules. They determine how we go about changing our rules. The kind of meta-rules that we most often think about are standard political systems that fall on a continuum between something like democracy and something like authoritarian decision-making. Democratic meta-rules require some form of voting, perhaps by referendum or a representative body, to change the rules. Under more authoritarian meta-rules, a rule change may require the approval only of an executive.

This framework allows him to shift explicitly to an advocacy of “exit” as an important alternative to “voice,”

In evaluating meta-rules, we need to be open-minded and look at a broad range of alternatives. One that is little used now, but that could be revived, involves designing entirely new systems and letting people who want to try the new system opt into it. Historically, the ability to move between countries in search of better opportunities—to vote with one’s feet—was a powerful force for progress. While modern globalization offers greater mobility of capital, goods, services, and ideas, restrictions on the mobility of people keep many people from leaving bad systems of rules for better ones. Moving forward, the effort to create new places with good rules and let people opt in could offer an important supplement to familiar democratic or authoritarian mechanisms for changing the rules.

This leads to a brilliantly benign analysis of “The Innovator’s Dilemma” and, implicitly, the importance of Creative Destruction, in rule change:

New Systems With Opt In Rule change is a pervasive problem that shows up on many scales. Corporations sometimes have as much difficulty changing the rules as nations. IBM had a corporate culture, a rule set, that was well suited to selling mainframe computers to large businesses but was not the right rule set for selling personal computers or hand-held devices. Brand new organizations, such as Apple, emerged with rule sets that moved computing to the consumer level. As the new rule sets proved successful, customers, workers, and technologies gravitated toward them. It was not just Moore’s Law that gave us pocket computers with internet access. New entrants—with new systems of rules that people could opt into—pushed this dramatic change as well. Faced with this competition from new entrants, IBM eventually changed as well.

“New entrants – with new systems of rules that people could opt into” when applied to those rule changes that govern people’s lives amounts to advocacy for letting a thousand nations bloom. Romer doesn’t quite go this far himself; he clearly remains within his vision of “Charter Cities” in which existing nation-states allow new rule sets within their boundaries:

Suppose that leaders in a developing country pick an essentially uninhabited piece of land of this size, create a new set of rules, and allow willing participants to opt in. Changing the rules for a nation as a whole using existing political mechanisms forces leaders to persuade and sometimes coerce everyone to change what they!re doing. The potential for opt-in avoids the need for coercion or for consensus, and can therefore speed up experimentation with new rules. The use of new systems of rules with opt-in could give both developed and developing countries the opportunity to do things that they wouldn’t be able to do under the current political processes for changing the rules.

That said, he appears to be moving towards the approach of the Dubai International Financial Centre (DIFC) approach, which I have long advocated, rather than the government-to-government treaty approach with which he first introduced his Charter City concept. The DIFC approach is based on a model in which a Free Zone or Free City has significant autonomous legal authority (i.e. “new rules”) with permission from the existing sovereign nation, whereas originally Romer proposed a more neo-colonial structure in which another nation-state would have authority within the boundaries of an existing sovereign nation. Here he proposes both structures, using Schenzhen and Hong Kong as examples:

How might a new city with new rules be administered? One option would be to follow the Chinese example of Shenzhen. The new city could be an autonomous area with new rules that are administered by a city manager with strong executive powers. The city manager might have wide discretion in the pursuit of a mandate to oversee a safe and prosperous city, but he or she would ultimately be accountable to elected leaders. Another option would be to follow the example of Hong Kong and create a partnership with one or more foreign countries.

Of course in Dubai, the DIFC governor is ultimately accountable to the ruling family of Dubai rather than to “elected leaders.” I remain hopeful, with Romer, that it is possible to create islands of relative autonomy even within democratic nations. Still, his comparison of such a governance model with that of central banking is hardly auspicious:

Modern central banks use the mechanism of a strong but accountable executive with a great deal of success. We give central bankers clear mandates on issues like price stability and growth. We also give them wide discretion in pursuit of those mandates. Elected representatives don’t have a say on the rules of monetary policy, but they do get to specify the mandate and hold central bankers accountable for living up to it. In monetary policy, this system for managing monetary rules has been very effective.

My approach is rather to look for an incentive-based approach to ensure increasing legal autonomy for a Free City. That aside, Romer’s paper ends with a marvelously open-ended statement of the importance of Hayekian discovery in rule change, one that completely opens the door to Letting a Thousand Nations Bloom:

Just as there are many more technologies to discover, there are many more prosperity inducing rules to discover and many existing rules worth copying. The key challenge is to find meta-rules that encourage productive changes in systems of rules—the types of changes that will allow relatively poor countries to catch up with or surpass the rest of the world.

All in all, although Romer’s arguments are designed to support his Charter Cities, they are of sufficient generality to completely support the agenda of Letting a Thousand Nations Bloom. The fact that these arguments have been published by a mainstream left-liberal development organization is stunning. Bravo, Romer! Perhaps we will soon see widespread recognition that our work here at Thousand Nations represents that of the Most Progressive Movement on the Planet, and that Nozick was the ultimate Rawlsian.

Only much, much later it will be recognized that the anti-capitalist thought that has dominated academia for the past hundred years was, as Hayek noted decades ago, a tragic intellectual error.