In this episode, I had a conversation with Kurtis Lockhart who is the executive director of Charter City Institute - a non-profit that thinks and executes governance models for cities to power developing economies into growth and productivity.

Our conversation started with an update on the concept of Charter Cities and how they differ from traditional models like Special Economic Zones (SEZs), particularly in the context of economic development. Kurtis describes Charter Cities as new cities with distinct governance models designed to drive sustained economic growth and alleviate poverty, primarily in lower-middle-income countries. This approach is seen as an alternative to the model first prescribed by the economist and Nobel Laureate Paul Romer, which involved a high-income country importing its governance to a low-income nation. Kurtis emphasizes a public-private partnership (PPP) model, where a host country collaborates with an urban developer, ensuring local involvement and sustainable development.

The conversation addresses concerns about Charter Cities being enclaves for the wealthy, clarifying that the Charter City Institute (CCI) focuses on broad-based economic growth and poverty alleviation. Kurtis highlights the importance of political buy-in and stability, acknowledging the challenges of expropriation and policy consistency across different political regimes. He suggests mitigation strategies like revenue-sharing agreements, equity stakes for host countries in city developers, and political risk insurance.

Discussing the geographical constraints, Kurtis acknowledges that location and economic geography play a crucial role in the success of Charter Cities. However, he argues that geographical advantages can evolve with changing technologies and transportation networks, as seen in historical examples like the Erie Canal.

Addressing concerns about existing urban challenges and inequalities, Kurtis talked about CCI's involvement in upgrading existing cities and supporting secondary cities, especially in Sub-Saharan Africa, where most urban growth is anticipated. He shares plans to collaborate with Kenya's State Department for Housing and Urban Development to empower select secondary cities through the Special Development Zone initiative, leveraging their success as models for other cities.

Transcript

Tobi;

Welcome to Ideas Untrapped. It's fantastic to talk to you, Kurtis. I've been wanting to do this for a long time.

Kurtis;

Yeah. Thanks, Tobi. I know we've been trying to do this for a while. It's good to finally be on with you. 

Tobi;

So let's start from the absolute basics. I'm trying not to get carried away because Charter Cities are something that sort of excites me as well. I should also say it annoys me, possibly in equal measure. So I'll try not to get carried away, but if you can just give me an elevator pitch, so to speak, but you can go as long as you want. What are charter cities and how are they relevant to issues surrounding economic development, particularly in the 21st century?

Kurtis;

Yeah, so thanks again. And I'll start at the highest level I can, and then you can ask more specific questions as we go on. So at the very basic level, the definition of charter cities is new cities with new rules to improve governance. And so why do we think that that's really important? Zooming out, the best way to lift people out of poverty at scale is through sustained economic growth over one, two, three, four- decades. That's what happened in East Asia, in Japan, in Taiwan and South Korea. It's what happened in China, and I think it's what's happening in India now. You then have to ask yourself, how do we increase economic growth rates over sustained periods of time? Economists are pretty agreed that the single greatest determinant of long-run economic growth rates is governance, right? It's institutions. And the problem with governance and institutions and getting good governance is many countries, especially across the global south, lower-middle income countries are, you could say, stuck in poor governance traps.

So the question becomes, okay, how do we reform and change this governance institutional structure to improve governance? It's really hard to do that, it turns out, at the national level. And so we see charter cities as a mechanism - a localised mechanism - in a concentrated geographic area where there are no incumbent or entrenched special interests in that localized area. You can get a lot deeper governance reforms at this local level and that gets people rich within that jurisdiction, within that concentrated space, number one, as well as number two, it's able to serve as a demonstration effect to the broader host country that then hopefully sees that demonstration effect and scales up those governance improving policies across the whole country. And this is what you saw in China when Deng Xiaoping instituted the opening up and reform in 1979-1980, with four Special Economic Zones in the south, Shenzhen being the most famous. But we can get into that if you want to later. Anyways, that's the high-level pitch.

Tobi;

Yeah. So for a lot of folks like me, and I'm sure some other people in the international development community when they hear charter cities, you immediately go back to Paul Romer, the Nobel Laureate economist Ted Talk in 2009. That's the popular conception of charter cities. But like you and your colleagues have reiterated over and over again that your model and the vision that you are pushing differs from that. Can you spell out the differences from Romer's charter city model?

Kurtis;

Yeah, I'm glad you asked this. So basically to go back first, so Paul Romer in 2009 gave his now pretty famous Ted Talk on charter cities, and he basically proposed that a high-income, well-governed country like a Canada come into a low-income, poorly governed country. His example was Honduras. Honduras would then cede [a] city-scale chunk of land to Canada. Canada would then, "import its good institutions" into that city-scale chunk of land and therefore that better governance within that concentrated piece of land would crowd in investment, it would spur business formation, job creation and sustained economic growth. That's the very high-level Romer model. And we can call that the Guarantor Model, [with] Canada as the foreign guarantor. CCI's model is different. We advocate for a public-private partnership between a host country and an urban developer, a city developer. So we don't think, number one, Romer's Foreign Guarantor model is either feasible or number two, very desirable.

Why isn't it feasible? I think you saw in the feedback in the response to Romer's Ted Talk. It smacked a lot of people - this foreign guarantor model smacked a lot of people as a form of neocolonialism. I don't think that's a very fair characterization, but still, it got taken by a lot of people in the international development world as a form of that. I don't think it's fair because charter cities as Romer proposed them were completely voluntarily entered into. It was a free choice among both parties to enter into these things, whereas colonialism was a form of coercion usually done at the barrel of a gun or through some sort of violence. So I don't think that's necessarily a fair critique, but it nonetheless was a critique and speaks to the feasibility of this model. I don't think it's desirable, number two, because I think a lot of the process of institution building needs to involve the host country in the institution building. And I think when you have a foreign guarantor like a Canada just stepping in and bringing in their institutions without involving or partnering with the host country, that kind of cuts off the learning and the muscle building that needs to happen in order for the host country to develop itself more broadly. So, we propose this public-private partnership because we think it's a lot more feasible, number one, especially if you're partnering as a host country with a domestic urban developer that knows the context and what‘s not. And then, number two, we think it's sustainable because developers they have an incentive to maximize land values over time. That's how they make their profits. How do developers maximize land values? They attract as many firms and residents to their cities as humanly possible. How do you do that? You create a fantastic city with urban amenities, good public goods and service provision, with a great business environment, so firms are attracted to locate there. So we think it aligns incentives in that way and also has a mechanism to be financially self-sustaining over time through the profit motive. So that's why we think our kind of PPP approach is both kind of more attractable and more desirable over time.

Tobi;

Okay, so another key distinction I like you to make before we go on is usually when we talk about charter cities, special economic zones come up a lot. Is there a particular distinction between a charter city and a special economic zone or multiple variations of SEZs like export processing zones, free trade zones and the likes?

Kurtis;

Yeah, so this is a great question. So really CCI's version of charter cities, this PPP model is what we can call the next generation of Special Economic Zones. So a lot of Special Economic Zones are restricted to what sectors can operate and get incentives in that zone. So there are textile zones or there are, you know, manufacturing zones or high-tech zones, etc. And then oftentimes these Special Economic Zones are small in scale, so they can be limited to smaller industrial parks where you don't really get the agglomeration be