Paul Romer, “A Theory of History, with an Application”

Posted on Wednesday, May 20th, 02009 by Stewart Brand
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Paul Romer

New Cities with New Rules

This talk was the first in a series of public discussions of an idea that Romer has been working on for two years.

His economic theory of history explains phenomena such as the constant improvement of the human standard of living by looking primarily at just two forms of innovative ideas: technology and rules.

Technologies rearrange materials with ingenious recipes and formulas. More people create more technologies, which in turn generates more people. In recent decades technology has enabled the “demographic transition” which lowers birthrates and raises income per person even higher as population levels off…

Read the rest of Stewart Brand’s Summary

  • Rowland

    I live in the Hudson Valley, 80 miles North of NYC. This is a place where this “rethinking” of scale is happing, although it dosnt seem like a contious decision, more of a natural progression. In some ways, what is happening here reminds me of two very different and unrelated periods in history; one being the early formation of the Greek city-states, the other being the Enclosures in early-modern England.

    The “local food” movement is sympotmatic of a growing sense of regionalism here. There is somewhat of a dissasociation with the broader (and blander) “American” identity, which is now being replaced with a dual identity; what I call “Hudson Valley European.” On the one hand their is a definate sense of place, while every individual has somewhat differing definitions of “Hudson Valley,” when asked by an outsider where they are from, many people say “the Hudson Valley” (because saying “the village of Highland,” or whatever, dosnt really answer the question for anybody not from the Valley). One factor in this regionalism I believe stems from the type of Agriculture parcticed in the Hudson Valley, mainly Orchard and Vineyard crops (see “Planters of Trees; Arboriculture, Viticulture, and the Rise of the Greek City-State, a small panthlet by Victor Davis Hanson). On the other hand, there is a growing awareness, or rediscovery, of people’s historical culture, which here is usually European (our Valley was settled by the Dutch, French, and English, and later populated by Italian and Irish). This can be seen as part of the larger influence of “Identity politics” in todays world. There has been, on some level, a rejection of the melting pot.

    There is also a certain acceptaince that New York City is the center of our small part of the world, and that the Hudson Valley is but one of several “regions” of New York’s “hinterland,” others being Long Island, Western Connecticut, Northern New Jersy (Ill only mention the fact the NYC itself is but one region in the larger context of the East coast Metropolis, the Washington DC – Boston corridor).

    This brings me to my second point, the Enclosures in England. As NYC residents also come to accept this smaller scale of the world, they tend to want a larger part of it. Although the socio-economic causes are different, the results are the same,* the subdivision and sale, out of the community, of the majority of the landbase. The geographical extent of the region is, at this time, limited by the time the average person is willing to spend driving, or commuting, to and from NYC, as well as the physical locations of the road and rail infrastructure. So for all intents and purposes this is roughly 80 miles (Poughkeepsie, NY is roughly 80 miles from NYC, it is the last stop on the MetroNorth line out of Grand Central Station, about an hour and a half journey). Any community within this 80 – 100 mile ring outside of NYC (on a thruway or railline) has, since WWII, literally been invaded by NYC, transforming many of them into sprawling bedroom communities (*this is where the results are not the same, where as in England, personal property was converted into cattleranches, here we are only likely to get more cheaply built, impermanant housing developents). The statistics are there for all to see, booming population, miles of road built, farmland lost, ect … The Great American Enclosure is upon our 400 year old villages and fields.

    fewwww.

  • Interesting post Stewart, thanks.

    Good comment too Rowland, i’m also in the (Boston slice of the) East Coast Megalopolis.

  • I went to this talk and found it fascinating, but one aspect of it bugged me: It felt like Romer combined two ideas into one: He started off talking about using cities like startups to test new ideas, new rules… But by the end of the talk he was mostly talking about startup cities in Third World countries run by first world countries…. It didn’t seem like these cities would be exploring truly new rules. I’m also skeptical that a country would let other people run its cities rather than just trying to run some cities itself, but under different rules.

    That said, I do like the idea of founding new cities, and of cities forming the hubs for innovation in both technology and rules. It seems like we’ve mostly gotten over the demonization of cities that dominated most of the 20th century and have started to embrace them. :)

  • tp1024

    Could you please fix the link on the seminars page? And while you are at it, I can’t wait for the mp3. I’ve been waiting for it for months. Long now or not, I’d appreciate having it rather sooner than later. :)

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  • After this talk Seth Roberts tipped me off to a new book called Fordlandia, by Greg Grandin. Fordlandia was the rubber-plantation/new city created by Henry Ford in Brazil. The goal was create a mini-state of effective governance whose influence would spread. Perhaps worth reading in light of Romer’s proposal.

    I spent much of this lecture wondering whether there is a word that can do the important conceptual work of the word “colonialism,” without producing the defensive and unthinking reaction that this word often produces.

  • Peter Hall, former head of the Fabian Society in the UK, advanced a similar “Freeport Solution” in the late 1970s as an idea to breathe life into Britain’s then ailing economy. His proposal inspired the enterprise zone initiatives advanced by conservative governments in the UK and USA during the 1980s.

    Since then, Openworld (www.openworld.com) has worked on a range of similar initiatives in areas of poverty and high unemployment. Success-sharing free zones can apply a portion of the land value gains resulting from transparency-enhancing business climate reforms with social ventures, including microvouchers for eLearning and eHealthcare. Far from being colonialism era-enclaves, the zones can be privately developed under competitive global tenders, with developers obliged under “build-operate-transfer” style concession agreements to convey assets to workers, residents, and learning/health care institutions of the sponsoring countries.

    As public sector bureaucracies reach their fiscal limits, the new generation of free economic zones can pioneer sustainable institutional innovations that can replicate and scale far beyond their initial boundaries. Contractual, transnational systems for ensuring world-class dispute resolution and other crucial services can bring rapid growth to now-troubled areas, and set the stage for an updated version of the Hanseatic League to compete with failed and failing state institutions.

    The new cities that Paul Romer envisages can emerge as magnets for knowledge workers and other mobile creatives who will be increasingly shortchanged by sclerotic, bankrupt, and increasingly kleptocratic governments.

    Best,

    Mark Frazier
    Openworld, Inc.
    “Awakening assets for good”
    @openworld (twitter)

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  • Tom

    It would be a nice way to bring along the developing world.. managing its cities better. I’m trying to imagine how it would work here in Bali where I live. The provincial government is already in a constant low-level conflict with Jakarta, and in any case there would have to be a huge economic ‘incentive’ for the powers-that-be here to give up any control at all. In fact, if I understand Romer, any suggestion to this effect seems laughable, frankly. I’m *exceedingly* skeptical that outsiders reasoning that they could ‘do better’, true or not, would fall on deaf ears.

    As Tyler Cowen points out, HK was hardly birthed in some altruistic transfer of power from the locals to the Brits…

    The status quo is protected by people who benefit very nicely from it. From what I’ve seen this is the case throughout the developing world.

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  • Bruno Grieco

    It’s interesting to see how one put together several facts and comes out with a completely absurd idea that seems very “natural”. The problem behind this talk is not really about the good examples (which, in reality, is only one, Hong Kong) but the lack of information about the bad examples, several indeed.

    Freeports and “charter” cities aren’t really new ideas, there are several examples of cities that had political (rules) separated from the economical part. Occupied Paris in the 40’s for example. People argued that “the trains ran on time”. The Panama and the Suez Canal were both chartered regions during some time. Are Egypt and Panama examples of development ?

    Manaus (on the Amazon Region) became a free port in the 70’s, a road, the “Transamazonic” was built to connect it to the rest of Brazil. 40 years later, Manaus is a wreck and the road was mainly reclaimed by the forest. Fordlandia, as someone pointed earlier is a perfect set to shoot a road movie about forgotten places. Also in the 70’s, the Jari project created a boat-factory that would navigate the Amazon river and manufacture paper. It was a floating charter city, now full of rust.

    In China, Macau was also a charter city. The same as Goa in India. Both not listed by Romer as examples. Perhaps the portuguese rules weren’t good enough.

    The word “colonialism” produces “the defensive and unthinking reaction” for a good reason. It doesn’t work anymore, otherwise GWBush would have accomplished his mission. Iraq is a mess, Afghanistan is falling back to the Talibans.

    Rules are an outcome of local culture, 5000 years ago it was OK to apply the death penalty to someone who gathered logs on sabbath. 500 years ago it was OK to apply the death penalty to someone who stole an egg. Nowadays it’s still OK to apply the death penalty to someone who hunts a tiger.

    Culture doesn’t change as fast as we want to. And, sometimes, we are more interested in changing a culture than understanding it to start with. Watch the “1000 years in Bali” lecture for an idea of what I’m talking about.

    I don’t beleive in miracolous formulas for world changing development. Cell phones became a major player for development in bangladesh and places in Africa. In Brazil they became a great tool for extorsion and criminal activities that may be performed inside prisons.

    IMHO, Romer’s presentation lacks a thorough examination of the downside of his ideas.

  • steve kelsey

    I am attracted to any principle that can bring rapid change to underdeveloped regions of the world and the Charter City principle offers on possible route. However, I find the examples given troubling in that, as far as I have been able to discover, the economic development zones (including Hong Kong ) offered substantial tax and investment incentives both formally and ‘informally’. It is possible to argue that these incentives are an example of setting effective rules, however, an alternative perspective is that the benefits derived for the population are a side effect of investors and companies search for improved profitability. If this is the cause of the benefit I am unsure if this provides a new solution and would doubt it would survive demands for normalisation as has occurred with tax havens

  • Voxi Heinrich Amavilah

    The Silverlining in the Aftermath of the Quake in Haiti

    Unlike statistical men, Nature runs pretty brutal regressions on life; it just did a big one on Haiti, and especially on the city of Port Au Prince. Before Haiti there were the great Tsunami in Indonesia and Hurricane Katrina in the US, to mention only two of the many random rolls of the dice Nature often throws on life.
    For the individuals immediately involved, the three disasters I just listed probably had similar effects. What distinguishes them is the ability to deal with the aftermath. Of the three cases Haiti is least prepared to cope with the devastation of its earthquake. The reasons for her inability are well-know, even though the deep causes of such inability may all not be well-understand. The country has been in one economic trouble after another nearly since independence. Economists have generally concluded that the proximate sources of trouble for Haiti are gaps in primary resources (objects), adverse initial conditions, a feeble technology base, and underdeveloped secondary or higher-order resources, including use of productive ideas.
    I am using Paul Romer’s notion of object-idea gaps as constraints on good performance to suggest two related points. First is that the current situation is horrible. Second is the fact that plugging the existing gaps well this time around may actually put the country on a better footing and a higher long-run growth trajectory than before. But, just one second; before I am read (interpreted) as saying disasters are good for growth, I must say emphatically that the loss of life, property, and the grief that ensued in Haiti is humanly unimaginable. However, I still want to ask if it is possible that there may be a silverlining in the chaos. My inclination is that there is a silverlining; that the unfortunate earthquake has produced conditions for both Haitians and the world to fix the country’s major performance problems forever.
    Superficially Haiti’s problems stem from the poverty of productive objects, but that cannot be the whole story. Whereas resource scarcity is an old and persistent problem, it is also the case that small and resource-poor countries like Finland and Japan have dealt better with scarcity than large resource-rich countries like the Democratic Republic of Congo. Economists call this phenomenon a resource curse.
    There is a close correlation between the availability of objects on the one hand and other productive factors and forces on the other hand. A poor country cannot afford good schools. Without good schools the development of nearly all its natural resources is frustrated. Thus, while one can assume equal distribution of initial (raw) talent across nations, human populations themselves are also a type of natural resource. Getting to a rich vein of coal requires investment in coal mining processes and technologies. Similarly increasing talent requires mining (investing in) population for quality. Much of the observed differences in economic performance across countries can be attributed to differential productivity of investment in natural resources, including population.
    Resource-poor countries like Finland recognized and made use of scarcity early on. They did this by building effective institutions. The problem for Haiti has centered around its lack of effective institutions. While it has caused much sadness presently, the quake also destroyed many of the dysfunctional institutions that have hampered growth for so long. This, though an outcome of a sad circumstance, augers well for Haiti’s future. In other words, in its wake of devastation and death, the quake has provided an unusually good opportunity for all stakeholders to give Haiti a fresh start. With the international goodwill and aid pouring into the country, Port Au Prince presents an excellent experimental station for Paul Romer’s notion of a charter city (see, e.g., http://www.longnow.org/seminars/02009/may/18/theory-history-application/). Any recovery policy that returns to the Washington Consensus would fail Haiti. The long-term solution is a brand new city of Port Au Prince, run according to new rules that allow for new ideas.

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