Charter Cities are a remedy to end local poverty around the world

Montserrat Magallán

June 9, 2021

Every year, thousands of people living in poverty are forced to move to countries with better development opportunities. A Charter City can be an effective vehicle to reactivate the local economy, especially in the territories disabled by the lack of adequate labor infrastructure, as they allow officials to adopt the best global practices in commercial regulation.

Landmark events like pandemics and global economic crises, force us to change the way we think about the workforce. The lockdowns have had disastrous effects on economies around the world, and with flat incomes and inequality stagnant at historically high levels. However, the application of new social and economic policies can bring different results and, according to the World Investment Report 2019, one of the most efficient mechanisms to promote progress is Charter Cities.

How can these cities reduce the high rates of poverty in third-world countries? Its creation has a particular objective: to guarantee a large-scale urban development that allows efficient use of local resources to be a vehicle for economic sustainability. This improves the quality of life of its inhabitants.

The first economist to propose the application of Charter Cities was Stanford University expert and Nobel Prize Winner Paul Romer. He demonstrated that the Charter Cities initiative was designed to help disadvantaged populations share the benefits of rapid urbanisation with better regulatory practices.

These cities are defined by having their own laws and jurisdictions, independent of the state in which they reside. They can be administered by citizens or through third-party administrations. If the new city establishes attractive rules, it will grow and prosper naturally. This will allow the entry of immigrants, entrepreneurs, and investors who will develop commercial access points and industries that will directly influence its productivity.

The most famous case in Asia is that of Hong Kong and Singapore, where alternative forms of taxation were used, with the intention of not discouraging economic development through the implementation of a complementary special economic zone (SEZ) and one charter city. Both mechanisms led these cities to be an example of free local governance.

In Latin America, Honduras amended its constitution and passed a law in 2013 to create economic development and employment zones (ZEDE), which can set their own budgets and taxes. In Madagascar, they had the initiative to implement this type of city in order to attract more foreign investment in the region. However, the project could not be carried out due to the great challenges for the acquisition of land and the actual political movement. 

To ensure the achievement of a charter city, it is necessary to have the support of investors who design an economic infrastructure, the policy experts who can create the legal framework, as well as the government’s willingness to grant permits for the implementation of an innovative jurisdiction. More importantly, it is necessary to count on the democratic participation of society to create new mechanisms for collective survival.

By building charter cities or special zones, countries can balance the wave of urbanism, generate new options for reform-minded leaders, and new options for families looking for new places to live and work.

The world tends to urbanize and, according to Gallup polls, 700 million people would be willing to permanently move to a country that offers them security and economic opportunities. Gallup finds that residents of sub-Saharan African countries are more likely to express the desire to move abroad permanently due to the lack of basic services, compared to residents of Asian countries who are less likely to move out of obligation.

The purpose of an autonomous city is simple but powerful. It allows city officials to adopt best practices in business regulation, especially in poorer countries. Instead of expanding the slums of large urban centers in the Third World, immigrants could be welcomed in charter cities that offer housing at low cost, labour, a safe environment, and more efficient standards.

Author

  • Montserrat Magallán is head of entrepreneurship at the Mexican Institute of Financial Executives. She is also a local coordinator with Students for Liberty.

Written by Montserrat Magallán

Montserrat Magallán is head of entrepreneurship at the Mexican Institute of Financial Executives. She is also a local coordinator with Students for Liberty.

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