Why Greece Needs Charter Cities

According to the article “Greece Plans ‘Special Economic Zones’ to Boost Growth“, the Greek government is willing to consider unconventional ways to escape its economic depression. The fundamental problem with Greece is that its culture is broken. Any such economic zone will be a product of the very culture that has caused a depression, thus it is likely doomed to failure. However, there is another alternative, Professor Paul Romer‘s charter city concept.

First, let me explain my statement that Greece is suffering from a broken culture. The most pernicious effect of the modern welfare state is to destroy the cultural values that are necessary, although not sufficient, for a thriving economy. The welfare state actively discourages self reliance, self confidence, achievement, savings, thrift, low time preference, and the economic links among family members. The welfare state actively encourages dependency, envy of the achievements of others, debt, reckless spending, high time preference, and the disintegration of families. Greek voters, government bureaucrats, and politicians are products of this broken culture, thus any proposals for a special economic zone will reflect the values of this culture. For example, from the article referenced above: “The zones, however, would not allow investors to pay workers especially low salaries, said Hatzidakis, who is the cabinet minister in charge of economic growth policy. ‘Current labor law will be fully respected,’ he said.” Never mind that Greek unemployment is 23.1%. This is the mentality of the average citizen of the modern welfare state.

For Greece to transcend its broken culture, it must look at outside ideas. Fortunately for the Greeks, Professor Paul Romer has spent years refining a solution that would be appropriate for Greece: charter cities. Here is a very brief description:
A charter city is a new type of special reform zone. It extends the concept of a special economic zone by increasing its size and expanding the scope of its reforms. It must be large enough to accommodate a city with millions of workers and residents. Its reforms must extend to all the rules needed to support exchange in a modern market economy and structure interactions in a well-run city.

The concept allows for cross-national government partnerships that facilitate the transfer of working systems of rules to greenfield locations. By adhering strictly to two key principles — that the new rules apply only to people who choose to live under them and that they apply equally to all residents — rules can be copied from elsewhere and still achieve a high degree of local legitimacy.

Essentially, the idea is to replicate Hong Kong when it was a British colony. A host country would allocate land for the charter city, other countries would act as sponsors to protect the institutions of the city and adjudicate disputes between the city and the host country. For the host country, it reaps some obvious benefits: increased economic activity that will spill over into the host country and free tax revenue obtained by skimming a little off of the top of the economic output of the charter city. There is no need for the host country to spend a dime on this project. All it has to do is allocate some vacant land and those who move to the charter city are responsible for building infrastructure.

What would a charter city look like? Who knows? That is the beauty of the idea. Each charter city will have its own rules and, if the idea spreads, they will be able to learn from one another. The initial charter city will probably obtain its ideas from Hong Kong, Singapore, San Marino, and China’s special economic zones. Those charter cities with “good” rules will thrive and expand, those with “bad” rules will be abandoned.

Greece should abandon its idea of setting up its own special economic zones. The Greek government should reach out to Professor Romer with the goal of being the first nation to host a charter city.

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