Both Oars In Rules

Feb 18, 2011

This past Sunday was a true Sunday — we had nothing to do but Mass. So, I took my two youngest children to a nearby hotel for a swim. We have frequented this establishment for over a decade and our loyalty has paid off: The owners give us a free swim with breakfast. We greatly appreciate the gratuity and the opportunity to grab a quick break without having to drive a long distance.

This particular visit included the added benefit of an instant friend for my daughter. Serendipitously, a short-term missionary doctor had brought her 13 year old daughter to the pool for a break as well. With a little encouragement, the two girls were soon deciding what game to play. No need for background checks or résumé comparisons — just some quick ground rules and they were off in their own world. 

I was amazed at how quickly these two queens-of-their-own-realm could establish a set of mutually acceptable rules to play by. The skill and speed at which they were able to develop workable parameters for their brand new relationship was incredible. In a matter of minutes, they were cooperating and enjoying themselves.

The girls’ success at playing demonstrates how rules can “unlock” the potential of human interaction. Since we are social beings and society is based on rules, wherever and whenever there is a clear, fair set of rules, human interaction is likely to be happier and more productive. Their laughter was not only personally endearing — it proves the intrinsic value of rules.

Former Stanford economist and successful entrepreneur Paul Romer believes heartily in this powerful ability of good rules to unlock human potential. That is why he is championing his Charter City concept to underdeveloped countries struggling to kick-start economic development within their borders. Even though the idea failed for political reasons in Madagascar, he is hopeful Honduras will give it a go. 

Romer’s Charter City idea is based on the economic success of Hong Kong, which, although forced by treaty to accept British occupation, nonetheless prospered due to the rule system the British provided. Simply put, Romer is suggesting that a country with a less developed set of rules voluntarily lease one or more of its cities to a country with a more mature rule system. He wants to turn Hong Kong, the accident, into a model without the negatives of occupation.

In the depoliticized version, the leasing nation would be invited to establish its rule system as the law in the leased city for a specified period of time. Romer believes that the simultaneous introduction of clear, enforceable contract and property law along with increased security and better fiscal management will unlock the local potential of these cities and encourage beneficial foreign investment. 

The idea is controversial because it involves leasing a city to a foreign government. Cynics are apt to describe the idea as a masked form of neo-colonialism. However, the lease is for a limited time and provides a clear benefit to the lessor. If the idea works, in fifty years, the lessor gets back a functioning, economically advanced city. In the meantime, the lessor nation, spurred on by the success of the charter city and strengthened by the revenue produced by the lease, can work on improving the rules in other areas of its country.  

I agree with Mr. Romer. My support is not solely based on my observations of child’s play. Working in an underdeveloped country which clearly struggles from the lack of clear, enforced rules, my gut tells me that the wholesale introduction of a working set of rules in a specified area would produce sustainable economic growth. Moreover, having seen a lot of other development ideas tried to no avail, I am confident nothing else would work as quickly or as assuredly as his Charter City idea.

Still other critics might suggest that charter cities are no different than “free trade zones” — but they would be wrong. It takes more than a few trade advantages to create real economic growth — it takes a fully functioning society. And, a good society, like child’s play, requires a complete set of mutually agreeable rules. Charter cities bring rules, not just trade.  

I wish the Hondurans and Mr. Romer luck. If he succeeds, I hope he continues with the H’s and turns his interest to helping Haiti. His idea would undoubtedly work here.