A key development challenge is finding the optimal mix of “top-down” and “bottom-up” institutions necessary for a given society to achieve sustained prosperity. Development experts know that some “top-down” institutions are indispensable to long-term prosperity but, at the same time, understand that “bottom-up” localized institutions are equally crucial. On the one hand, there are the basic “top-down” institutions that provide for the rule of law and uphold the kind of political stability that allows individuals to trade, invest, and eventually prosper. By far, these institutions are components of democratic regimes. However, China and the East-Asian “tigers” demonstrate that democratic institutions need not be perfect in order to sustain economic growth. On the other hand, development experts understand that different countries, regions, and cities may adopt “bottom-up” rules and institutions that are pro-development only if applied in their specific contexts. What works in Finland is not necessarily going to work in Bolivia, what works in Salt Lake City might not work in Lagos, and so on.
In this context, renowned economist Paul Romer hits at the core of the debate with some bold plans. His “Charter Cities” project attempts to fight global poverty by populating uninhabited lands with people that would be ruled by a “charter granted and enforced by an existing government or collection of governments.” One example would be the creation of a Canada-ruled Hong Kong in Cuba. In other words, Romer believes that a wide-ranging “top-down” approach is all it takes to make a group of poor people become rich. Romer confidently argues that, “all it takes is better rules. We already know what many of these rules are. We already know how to enforce them.” Even assuming that a country will unreservedly let another country manage part of its territory, Romer’s idea raises many interesting questions. Just for that, we shall wish him well.
Published Date: October 19, 2009