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Named by Foreign Policy as one of the Top 100 Global Thinkers, Prof Paul Romer is
the founder of Charter Cities, a non-profit research organisation focused on the inter-
play of rules, urbanisation and development. In his lecture and the stimulating
discussion that followed, he shared his insights on how innovations in governance,
structures and the adoption of new rules could create successful cities.


Its a Journey

Prof Romer began by
describing urbanisation as
a project humans started
12,000 years ago. Density
is helpful because of the
increasing returns to scale.
He calculated that if one
were to take 1000 cities,
each with 10,000 people in
them and then aggregated
them into a single city of 10
million people, because
passenger loading scale
more than linearly with
population, what one gets
is 15 times as many flights
per person in a city of 1
million. With inherent advantages of size, there are also some interesting strategic
dynamics, like first mover advantages. In terms of flight connectivity again, for
instance, when one city within a given region reaches a certain size first, it is unlikely
that another city in the vicinity would be able to compete with it.

Larger cities provide greater connectivity and use resources more efficiently. Very
dense cities should be celebrated because they generate less carbon per person. It is
just pure win for the environment to move people out of the modes of existence that
they live in many parts of the world and into a well-run city, said Prof Romer.

In 2010, half the worlds population lived in urban areas. Because of falling fertility
rates, Prof Romer posited that the worlds population would stabilise at about 10 billion
people in this century and the urbanisation rate would be 70 to 80 per cent. Therefore,
by the end of the century, there would be 7 or 8 billion people in urban areas.
CLC Lecture Series

The Century of the City

URA Function Hall, Singapore
29 November 2011



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Prof Romer noted that with urbanisation happening much more rapidly, doing it
efficiently might be more challenging. He also pointed out that with the urbanisation
project nearing its completion, the system of cities that we built would exist forever.

Rules matter

The rise of new technologies and the spread of ideas are tremendous benefits
generated by urban scale, density and connectivity. But we also need rules that
structure our interaction. One of the deepest puzzles in social science is why inefficient
rules persist. For example, for a century there has been a proven technology for
generating electric light. Yet that technology has not been put to use throughout
households in some cities because rules such as pricing, subsidies and transfers
prevent it from being shared with everybody. Prof Romer highlighted that we need to
understand not just how to invent better rules but how to make sure that better rules
that already exist are propagated throughout the world.

Rules can be either laws or
norms. Whether laws are
adhered to tends to depend
on norms, which are
determined by social
interaction. Prof Romer
made the empirical
observation that it is easier to
change norms in a start-up
organisation. You can reset
the norms about whats the
right and whats the wrong
thing to do in a social group
by collecting a new group of
people who share some
norms and then they reinforce norms amongst each other, attract other people,
assimilate them into the norms, and eventually their norms may even take over the
parent group.

He cited the example of Pennsylvania. King Charles II wanted to introduce religious
tolerance into England but was thwarted by Parliament. He then gave William Penn, a
Quaker dissident, the land that is today Pennsylvania, and authorised him to write a
charter for it. Penn drew up a charter guaranteeing freedom of religion and recruited
like-minded people from all over Europe. This core of people believed in the
separation of Church and State, and as more people were attracted to the place, they
got socialised into that belief. Eventually, it became the prevailing belief in the Western
world. Shenzhen in China is another example. It was originally designated as the only
place in communist China where it was acceptable for a Chinese worker to work for a
capitalist. This is now the norm in China.

In order to be effective, rules and those who enforce them have to be legitimate in the
eyes of the people subjected to them, noted Prof Romer. There also needs to be equal
treatment under the law. One way to achieve legitimacy is through democratic voice;
another way, which is often overlooked, is external accountability. The latter entails
adopting an existing system of accountability that is proven to be effective.



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According to Prof Romer, the development of new charter cities could also have huge
benefits for the global economy. The overwhelming challenge the world is facing right
now is insufficiency of opportunities for productive investment, he said.
(R)emarkably, this idea of building entirely new cities could also... be the solution to
the mid-term macroeconomic problem that we face... The return on investment in
urban infrastructure [for the 3 to 4 billion people who want to live in cities] is obvious.

Geography matters

Where could such a city be built? Opportunistically, Ive ended up focusing on a
location in Honduras, disclosed Prof Romer. It has a unique position in the world in
terms of air travel. Theres a connectivity role for an air-hub in Central America and its
right on the Great Circle route that connects some of the most important air cargo
airports in the world. He noted that Honduras also has Caribbean and Pacific coasts
that are suitable for sea ports.

Who would move to a city like this? Until 2008, Prof Romer noted, there were a million
people a year from Latin America who risked their lives to gain entry into the United
States. Think of those million people, potentially going to some place nearby that
could be safer for them. It wont be hard to find 10 million people to fill a city.

The most critical need is to establish the constitutional and legal framework under
which all activity in this zone would operate. In Prof Romers view, this was missing in
Suzhou Industrial Park, which instead relied on goodwill between particular leaders. In
Honduras, provisions similar to those in China for Hongkong are being drawn up. The
special zone will have an executive branch, a legislative branch and courts. Eventually
there will be local elections but in the beginning there will be a transparency
commission that will appoint the governor and the advisors on the legislature. The
judiciary will have judges who will be appointed by the transparency commission and
the governor; these judges need not be Honduran. Mauritius has agreed to let its
Supreme Court be a Court of Appeal for the judiciary, which allows de facto for
appeals to the Privy Council in London. Therefore, the British legal system that took
more than five centuries to establish immediately becomes part of what protects
investors in this new zone.

Prof Romers lecture
was followed by a
stimulating question and
answer session
moderated by Mr Donald
Low, Vice President of
the Economic Society of
Singapore.

During the session, Prof
Romer touched on the
resemblance between
cities and businesses:
One of the claims I
would make is that cities
are a lot closer to
businesses than they are to nations. So we bring our political economy presumptions
about nation states to cities when we really should use our reasoning about
businesses. We should be thinking about hundreds of start-up cities. Some may not be


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viable but the ones that succeed will create so much value compared to the costs for
the ones that dont make it.

Mr Low pointed out that there is great disagreement on what constitutes good rules.
For instance, Singapore developed on a very different trajectory from Hong Kong,
which is typically characterized as laissez faire. To this, Prof Romer responded that
there will be competition between different cities and they will experiment to find out
what works and what does not.

On how the special zone in Honduras relates to Singapore, Prof Romer highlighted the
immense opportunities to profit from Singapores expertise in airport planning and
operations, urban planning and water systems, to name a few.

I think what was missing both in Batam and in Suzhou were the political
superstructure of trusted neutral observers on the transparency commission and a
legal system that you could trust as well, he noted. With a structure like this, there
could be a much more straightforward kind of business proposition for a nation which
wants to be in the business of building cities. And again think about three billion
people. If this is a city of ten million, imagine 300 cities like this and what kind of
returns could be earned by somebody good at building cities.

Prof Romer concluded by sharing his vision of a state that is narrow and strong. Mr
Low agreed, mentioning that this resonates with the Singapore governments
approach, which is an activist one but focused on limited tasks.































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About the Speaker

Professor Paul Romer is a professor at the Stern School of Business, New York
University. Romers work includes an unusual mix of theoretical and applied pursuits.
He received the Recktenwald Prize in 2002 for his seminal theoretical work on ideas
as the drivers of economic growth. While teaching at Stanfords Graduate School of
Business, Romer took an entrepreneurial detour to start Aplia, an education
technology company dedicated to increasing student effort and engagement.

More recently, Romer founded Charter Cities, a non-profit research organization
focused on the interplay of rules, urbanization, and development. Charter cities are
special reform zones that let governments quickly adopt innovative new systems of
rules, rules that can be markedly different from those in the rest of the country.

In the new synthesis that Romer proposes, economic growth is driven by the co-
evolution of two classes of ideas: technologies and rules. New growth theory showed
how different rules could speed up the discovery and implementation of new
technologies. His new focus is on the meta-rules that govern the rate of progress in
the realm of more basic rules. His proposal calling for the creation of entirely new cities
leverages a meta-rule that is familiar from industry- allowing for startup organizations-
and puts it to use in new, larger political and social context.

In 2010, Harvard Business Review selected charter cities as one of its ten
Breakthrough Ideas, and Foreign Policy selected Romer as one of its Top 100 Global
Thinkers. Charter Cities now provides pro bono advice to the government of
Honduras, which has adopted a strategy for reform and growth that is based on new
cities and special reform zones.

In the Fall of 2011, Romer will join the NYU Stern faculty on a full-time basis and work
with the University to launch a new applied research center, the Urban Systems
Project.



2011 Centre for Liveable Cities

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