Charter Cities: A Tool to Address the Failures of Government?

By Anonymous

When public resources are limited, governments can use public-private partnerships (PPP) to solve their largest problems, while minimizing the use of public assets. However, what if the government and its policies are the problem? In places like the Dharavi slum of Mumbai, the government has failed for decades to enforce property rights and laws, provide basic sanitation or foster prosperous economic conditions. Solutions that do not address the failures of such governments are tantamount to treating the symptoms of a chronic medical condition instead of curing the disease; they are wasteful and only prolong the underlying issue. An optimal solution needs to address root problems with such a government; posing the question, can a PPP provide safety, security, sanitation and pro-growth economic conditions? In other words, can a PPP be leveraged to provide even the most basic public goods traditionally provided by the government?

Professor Paul Romer of NYU’s Stern School of business believes that PPPs can accomplish such goals in through the charter city concept. A charter city would create a special economic zone (SEZ) that would be administered by a semi-independent government, unrestricted by economic policies of the sovereign nation and funded by external investors. Residents could choose to live or work in the SEZ or to remain in their current conditions. Under such a system, the SEZ’s government could develop its own laws and electoral practices, provide its own services and create conditions amenable to economic growth. The sovereign state would receive tax revenue from the charter city for use of the land. In order to succeed, the SEZ would have to earn the trust of the residents by providing services superior to those of the sovereign nation. If successful, the practice could be scaled or better yet emulated by the sovereign government. Such a solution would address the root causes that lead to slums in Dharavi and provide the investment and incentives to both the residents and government to redevelop these areas.

Of course, Romer’s concept can be criticized due to the additional implementation challenges it faces. First, convincing a government to fire itself and outsource its sovereignty is a hurdle beyond the traditional challenges of development projects. In fact, political gridlock ultimately blocked Romer’s attempt to execute this model in Honduras. Furthermore, the concept can be interpreted as a privatized regression to colonialism, a model that would be met with deep suspicion in a country like India, which recently gained independence from its colonizers. However, with adequate protection of rights and enough transparency to demonstrate the fairness of system to all stakeholders, such challenges could be overcome.

However, as demonstrated by previous redevelopment efforts in Dharavi, PPP solutions are not effective if they do not address the problem underlying the need for development. In extreme cases like Dharavi, where the government is the problem, if implemented correctly, charter cities can provide the requisite change to provide sanitation, safety and opportunity to those whom have not received it from their governments.