Paul Romer, Charter Cities and Credible Commitment

Paul Romer, yes the new growth theory guy, quit his job at Stanford in an all-out effort to promote an idea to help developing countries grow out their adject poverty. The idea is called Charter City. The bottom line is that a developing country could sign an intenational treaty with another country so that a presumably better set of institutions could be imported to a designated special economic zone in the former.

The biggest issue of course is how to resolve the credible committment problem:
That is, how to prevent the government of the developing country to renege on its promise to allow a foriegn set of institutions to be implemented on its territory.

In this interview, Paul nicely addressess this issue. The piece is interesting throughout, but I like this bit especially:

"Economists seem to think that we should propose things that are acceptable and that political systems will pursue, but that we should avoid proposing or even discussing things that are controversial or politically incorrect.

I think we’d do our jobs better if we just said what’s true without trying to be amateur politicians. "