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.

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.

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.

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)

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.