About July 2018
Philosophers since Plato have known that some choice about urban planning can only be made once — at a city’s founding. Getting the founding right therefore matters a great deal for a city’s success. Locking in favorable decisions about individual liberty and voluntary cooperation may require steps that begin before any city has been built at all.
Nor is this just utopian speculation. Special economic zones have played a key role in China’s economic liberalization, and they are arguably one reason why China has prospered so much in recent decades. Can this model be replicated elsewhere? Our lead essayist this month, Dr. Mark Lutter, says yes, and he calls on governments worldwide to embrace regional and local experiments in liberalization. Not everyone is so optimistic, however. The inherently inegalitarian nature of these projects may be of potential concern to almost anyone, and a special economic or legal regime may even represent a worsening of local conditions in absolute terms. To discuss these questions, we have recruited Dr. Lant Pritchett of Harvard’s Kennedy School of Government; Prof. Sarah Moser of McGill University; and Prof. Tom W. Bell of Chapman University. Each will write a response to Lutter, and all will participate in a conversation through the end of the month. Comments are open as well, and we welcome readers’ feedback.
Mark Lutter points to the success of China’s Shenzhen Special Economic Zone, and of many others like it, as a model for the extension of economic liberalization elsewhere in the world. While economic reforms could not happen nationwide, their demonstration at the local level built support for new ways of thinking and doing business.
Prof. Sarah Moser is skeptical of libertarian interest in special economic zones, startup cities, and seasteads. She notes that many of these projects as undertaken in the real world are being run by untrustworthy and illiberal regimes. It is therefore doubtful that they offer prospects for better governance in the long term. And it is unseemly for the self-described advocates of liberty to go begging favors from such regimes. The success of China’s Special Economic Zones is unlikely to transfer elsewhere, owing to demographic and geographic features unique to China and to certain of its regions.
Tom W. Bell says that in special economic zones, the secret to success is competition in governance. There’s no magic to being a special economic zone; zones may be governed either better or worse than other areas. But when the zones have to compete for residents and businesses, they will have to answer some tough questions about what sorts of legal and public service options the public really wants. And there is an incentive to improve.
Lant Pritchett doubts that charter cities can do much to help the developing world. If a developing state already has good institutions, the model is useless; if it has bad institutions, then it will plunder or otherwise undermine the experiment. Total factor productivity has been a difficult problem for economists, and much about it remains mysterious. But China appears to be the only place in the last forty years where special economic zones have worked, and this suggests that they are not as promising as their proponents think.
Conversation through the end of the month.