Charter cities as a top-down policy to address EU economic and population decline

Europe Is Dead Cities Are Alive (and kicking) • The Charter City • A Melting Pot Human Scale Fences Make Good Neighbors Emptied Spain

Europe is Dead

“Europe is a corpse … Just as an [Iberian] Ham, which is dead, but you still have to sink your teeth into it”.

Jorge Ilegal

The European Union (EU) is declining across several key dimensions. There are growing internal political divisions among its members, as shown by the emergence of the Visegrád group, not to mention Brexit. It´s loosing relevance at the international stage not only to the USA but to China or Russia. It is incapable to effectively protecting its own borders, or articulate a response to events developing in its own backyard (Balkans, Ukraine, …).

But, crucially, the position of the EU as an economic powerhouse is eroding as well as its share of the world population. The age structure of the EU population is progressively shrinking at the base of the demographic pyramid, posing mayor challenges for the future of pensioners and the economy.

Entrepreneurship, which “affects the economy … through innovation, competition and restructuring“, is not thriving in a highly regulated and progressively isolated environment populated by wealthy but old citizens lacking incentives and averse to risk taking.

How is the EU leadership addressing the ageing problem?. They are certainly not doing it fostering an increase of the fertility rates. You can´t do that only by trying to persuade people to have more kids. You need to nurture an environment where having kids is not a burden. One in which the institution formerly known as a “family” can flourish.

Instead of doing that our leaders have put all stakes on immigration. And immigration must play a central role for many reasons such as timing to begin with. Despite recent technological advances you still need 18 years and 9 months to grow an adult. But immigration has come in the form of asylum seekers, refugees and illegal immigration which means our immigration policies are driven by foreign random events and financial speculation, not by a leadership with a compelling vision for the future of our societies.

No wonder that, for all the good and growth that immigration brings with it, there is an increasing concern and political divide around its side effects: marginalization, cultural clashes, insecurity, etc. Linear thinking has been king and now we are facing second order ramifications. Europe is dead because our leaders are zombies.

Cities are alive (and kicking)

Acknowledging that immigration is central to address the ageing challenge, but that the current immigration (non) policies create hefty problems which are starting to spring a strong opposition from part of the population, political parties and elected governments, I bring to your attention an old fashioned and proven answer to our problem: build new cities!.

The city is the cradle of civilization. It has been a powerful tool for human development. It´s where innovation and opportunity happen. Cities are called to play an even more central role in the future of humanity as the power of nation states wane. The increasing complexity of our modern world makes the case for a globe of villages, not for a global village.

Complex problems must be addressed at their characteristic scale. We have failed so far to address problems such as fertility which must be solved at the family scale. What´s the characteristic scale for immigration? The EU is trying to manage it at the nation scale. Some argue that it should be managed at a supranational scale. But don´t immigrants work, live and play in our cities?. It is the cities who are to play the main role in immigration policies.

As in any big organization or ecosystem, turning a city around to adapt (to immigration) is risky and difficult and should only be done using a bottom-up approach. Our cities have an identity, a character, a culture and a history of their own so its transformation should be led by its own citizens. The role of government is to enable and empower the evolution of the city, not to force or constrain it. Cities need autonomy of resources and governance within a wider legal framework that protects individual freedoms and minorities. This requires carefully giving back power to the cities.

Building new cities, instead, is a top-down policy that can be led by central governments. It can have a fast and huge impact in terms of population and economic growth with limited costs and manageable risks, if designed properly.

There is nothing new in building new cities. It has been done all through history everywhere. I am writing this piece in a town built more than 2000 years ago by the Romans to keep an eye on subversive barbarians and to protect the flow of ore from the most important gold mine of the Roman Empire. The last time I looked through the window I saw no barbarians nor Romans and, unfortunately, not an ounce of gold. But the city is still here. Cities are lindy.

In the middle ages the Christian kingdoms met the need to repopulate the new conquered lands as they expanded south the Iberian peninsula. So they built new cities and gave them fueros (charters, privileges) that incentivized settlers to move from northern Spain but also form other Christian kingdoms.

Why can´t we apply this old fashioned lindy solution to the problem of depopulation?. Why can’t we build new cities in old Europe to bring new settlers and foster innovation, entrepreneurship and economic growth?.

The Charter City

A Charter City is a city with its own governance system and laws so it can adopt the best commercial practices. Some common features of charter cities are:

  • They are built in uninhabited or underdeveloped land
  • They have the status of an independent administrative entity, such as a public-private partnership
  • They have extensive power to improve the business environment in areas such as businesses and property registration, education, transportation, labor law, building codes etc.
  • They can stablish a taxing authority and a revenue sharing agreement with the host country

The economist Paul Romer presented the idea of the Charter City in a TED talk in 2009, arguing that the economic success in China (Shenzhen) and other places such as Singapore or Dubai had been fueled by the creation of Special Jurisdictions zones that resembled the status of Hong Kong. These special zones enabled the host countries to introduce new rules (market rules) for national and foreign people, firms and capital who opted to move into those areas.

The idea received some criticism on the ground of neocolonialism because Romer promoted the idea of building Charter Cities in underdeveloped countries with the involvement of developed nations. The Bill and Melinda Gates Foundation decided not to back charter cities in spite of the compelling case they requested to Bryan Caplan.

Paul Romer himself addressed those issues in his TED talk but, nevertheless, I believe we can agree that they don´t apply to the idea of building charter cities in Europe. As a matter on fact building charter cities in Europe could address the same goal to reduce world poverty with fewer negative emotions both in the “First World” (unpopularity of immigration) and the “Third World” (neocolonialism, condescension). I suggest applying reverse innovation to the concept of the charter city.

There are big differences in the rationale for a charter city for the developed world from that in the developing world. If institutions are a weakness and population and motivation for economic progress a strength of developing nations, the opposite is true in the developed world. If a charter city creates a “bubble” of progress in a developing nation, what we are aiming for in Europe instead is to gain some leverage from the charter city, so it can boost population and economic growth in its surroundings.

Who should we look for:

We should be looking for settlers from the creative, innovative, and entrepreneurial class from all over the world.

Settlers from the EU should be limited to ~ 20% of the total population to serve as public officials. This is important because we don’t want the city to become any short of haven for EU citizens or as the saying goes: “undress a saint to dress another”.

Why will they come:

I believe we can all agree that there is no shortage of people willing to move to the EU because of its institutions and living standards. But the city must be attractive as well in terms of providing a first-class business friendly environment that encourages innovation and risk taking. This obviously includes ultralow taxes for a very long period of time (~ 100 years).

How will we select them?

A great thing about people with an entrepreneurial spirit is that they self-select. They take risks. They buy a home and start a business. So the filter should be to ask them to bring an investment to the city. We must keep requirements for admissions very simple and easy to manage.

At the same time the city should work tightly with national and international financial institutions such as banks, funds and VCs. Those institutions have the know-how and expertise to assess entrepreneurs and provide them with the funding for their investments.

Where should we build the city?

The city should be built in uninhabited or underdeveloped land in order to keep acquisition costs low and to provide a blank state of rights and legislation.

An existing village could also be the seed for the city provided it is a very tiny village and the population agrees to move out or stay adhering to the new rules.

A melting pot

It has been claimed that entrepreneurship culture in California stems from cooperation born of necessity. The idea of the far west pioneer has been somewhat distorted to the point where we think of them as individualistic cowboys when, in fact, living in the hard conditions of the frontier required working tightly with others. In order to reach California in the mid 1800s you had to join a trail for 6 months with hundreds of perfect unknows form different cultures and religions as you went through a desert full of life-threatening challenges.

A more recent instance of the same story is the creation of the modern state of Israel, as stated in the book “Start-up Nation”. Israel is the country with more start-ups per capita in the whole world. As in the case of California, a massive amount of immigrants from all over the world came to Israel to start a new. The geopolitical context provided the necessity: Israel must either thrive or die.

We want our charter city to replicate the success stories of Silicon Valley and Israel, although in a smaller scale and a much less dramatic fashion. We want the charter city to become a melting pot of people from different cultures and backgrounds with a shared goal of individual growth and development. But we also want them to share the goal of community (city) growth. To be successful, individually, the city must succeed as well.

Human Scale

The goal is to build small (~20.000 citizens) rather than big cities. Not a new Brasilia but many Füssens. This will enable to build sustainable cities, better cost and risk management and a more robust globe-of-villages network in the end.

These new cities are an opportunity to revive human scaled cities and put  15 minutes cities to test. Places where people can live almost their entire life within walking distance. Such cities are not only good for humans, but also for the environment, economic sustainability and resilience. The city should be built in a location with direct access to water, food and renewable energy.

Furthermore, the developing costs should be low to make housing affordable. Local materials should be used in its construction so it can be maintained and rebuilt for ever by the people living in the area while providing local jobs which feed back into the local economy.

This emphasis in the human scale is not only an ode to the “good old times”.  As illustrated in the books “The Rainforest” and “Startup Communities” there are some key attributes in entrepreneurial ecosystems which human scaled cities nurture. One characteristic of entrepreneurial ecosystems is its high density and opportunity to establish random connections among its members. That is why the city must be dense and provide plenty of public spaces for connection and engagement among its citizens.

 Connectivity is another key feature. We don´t want to build an isolated city, which would be unattainable given its relatively small size, we but a city that is integrated with the rest of the region. We want the city entrepreneurs to be connected to other ecosystems and to have access to services and infrastructure provided by neighboring cities.  

Fences make good neighbors

The city must be bounded. A clear, sharp separation between the city and the countryside is a sign of good urbanism but, in addition, the charter city needs to have a border so the flow of people and goods can be monitored. This way the city chapter can be effectively enforced. The stakeholders can make sure that citizens enjoying tax breaks do live in the city.

The city should be built at a place where it can access existing (ideally underused) infrastructure. This way development costs and risks can be kept down for the benefit of the city while it also helps surrounding cities and the host country in terms of increasing asset utilization: roads, railroads, universities, hospitals. This is a win-win situation for places with declining population which struggle to maintain the standard of its public services and assets.

Fiscal competition between the city and the host country or the EU must be avoided. That´s why EU citizens should be banned from living in the city except as public officials. The host country and the EU will benefit from new economic activity by new population. This will not be a reconfiguration of the economy which may lead to decreasing tax revenues.

The chapter city is a smart (convex) bet for the host country. The costs are low, probably limited to the intellectual and political costs of designing, implementing and integrating the city chapter in the country´s legal framework and constitution. Material costs could be financed by the private sector and the settlers. Foreign investment will be attracted to the host country and the EU, through the city.

The risks are bounded. The worst-case scenario would be to find ourselves with yet another small city with a small population unable to sustain itself. But there is huge upside in the replication of charter cities around the country.

The charter city is also a tool to tinker with public policies. It is a sandbox to experiment with new ways of organizing and fostering economic growth, education, sustainability, health, immigration, which can´t be easily done withing the stablished legal framework.

As a last note the charter city, just as any public institution must be created with an expiration date. So eventually (~ 100 years) the city should become a regular city.

Emptied Spain

Emptied Spain is the name given to the phenomenon of people moving from certain regions to bigger cities and coastal areas. This is a process that happens in other countries as well but the Spanish case has some peculiarities due to the political dynamics of the country. That dynamic fuels the vicious cycle of depopulation, ageing and declining economic activity for regions which lack political agency. This can be illustrated by one of the last parliamentary sessions of the Spanish Congress.

I live in León, the capital of a province that has lost around 10% of its population in the last 10 years, particularly young people. The INE (National Statistics Institute) estimates a further decline of one third (33%) of the population in the next 15 years!!!

Due to population ageing there is no organic way to revert this trend. No bottom-up measures can address this demographic and economic disaster. This problem is definitively our problem for only the people who live here actually care for the future or this area.

We are certainly not in the agenda of national politicians who only care for those regions with representation in the Spanish parliament with whom they can trade power for privileges and generous budgets.

We are neither in the agenda of the regional politicians. We are part of the autonomy of Castile and Leon, one of the largest regions of the EU which manages 9 provinces. This regional government has been both unable and unwilling to foster territorially balanced economic growth. They have chosen the mediocre and easy move instead: centralization and betting on the winners. An they have taken it to the extreme of using EU funds for disadvantaged areas to fund projects in better-off areas, fueling larger territorial inequality.

As you can see we are kind of doomed, to use a polite expression. We are really in need of top-down policies to stop this bleed out. But we lack support in this zero-sum political environment. A charter city policy could set the ground for a different positive sum game since the resources and governance will partially slip away from the hands of our lousy politicians. Furthermore the Emptied Spain is better geographically and demographically suited to host these cities.

A sole charter city of a population of 20.000 people along with the leverage that it can create in its surrounding area will probably revert the decline of a province such as León in a single blow.

Furthermore, our problem will finally cause some headaches to our lousy politicians. The way things are leading these emptied areas will soon be financially unsustainable. Some form of political top-down action will have to be taken to mitigate the pain.

I believe that charter cities can not only mitigate the pain but turn into a gain for the country and the EU as a whole.

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