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Big Thinkers and Charter Cities ft. Jeffrey Sachs and the Economics of Heat, Disease, and Distance

Join our research team on an exploration of the key ideas from notable thinkers in political philosophy, economics, political science, urban planning, and other traditions as they relate to charter cities in our Big Thinkers blog series.

Jeffrey Sachs made his name in the 1980s working with the World Bank and International Monetary Fund (IMF) to implement very orthodox, market-oriented reforms in Bolivia, Poland, and Russia during their respective transitions from hyper-inflation and communism. Sachs has worked as a distinguished and remarkably productive professor at Harvard and Colombia, and has been at the forefront of putting development policy into practice. Sachs is President of the UN Sustainable Development Solutions Network, Co-Chair of the Council of Engineers for the Energy Transition, and from 2001-18, served as Special Advisor to UN Secretaries-General Kofi Annan (2001-7), Ban Ki-moon (2008-16), and António Guterres (2017-18). His most notable and accessible works include, The End of Poverty (2005), Common Wealth: Economics for a Crowded Planet (2008), and The Price of Civilization (2011). They all made the New York Times bestseller list.

Jeffrey Sachs is the world’s leading economist on the economics of place, specifically the economic implications of heat (tropical weather), disease, landlocked location, and distance from global markets. Sachs also inspired a massive effort, supported by the United Nations and the Department for International Development (DFID) in the UK, among many others, to turn his ideas into practice, resulting in the Millenium Villages Project (MVP). Sachs is not just a thinker, his city-relevant ideas come wrapped in oodles of empirical evidence.

At first glance, Jeffrey Sachs seems to have little in common with advocates of charter cities. While Sachs emphasises geography, charter city advocates focus on institutions; Sachs believes in aid, charter city advocates focus on investment. This blog argues that the charter city movement does have a lot to learn from Sachs, Sachs is more hot and sachs-y than a damp irrelevance.

Sachs has produced an impressive body of academic work to help make the ‘case for place’. When controlling for initial income in 1980, and indicators of governance, economic growth in Sub-Saharan Africa was slower than in other developing countries. The reason Sachs argues, is geography.

Countries with half or more of their land in tropical regions are almost all poor. Of the top thirty countries ranked by average income in 1995, only two were tropical: (small) Hong Kong and Singapore. Tropical climates have more erratic and extreme weather, so these agriculture-dominated economies are vulnerable to both droughts and flooding. Furthermore, where there is heat there are mosquitos. The most discussed economic-health issue related to geography has been the prevalence of malaria. The tropical climate, mosquito species resident in Africa (the exclusively human-biting Plasmodium falciparum), and humidity of Africa give the continent the world’s highest malaria burden. In the early 2000s, there were an estimated 200-500 million malarial cases per year, and around 1 million deaths per year, 90% of which occurred in Sub-Saharan Africa. Most of the economic costs of malaria though, ran through morbidity, rather than mortality. In the early 2000s, evidence from Malawi indicated that expenditure on treatment was over 25% of household income among very low-income households.  For Rwanda, it was estimated that nearly 20% of the Ministry of Health budget went to treating malaria. In Kenya primary school, students were considered to have on average four episodes of malaria per year and to miss more than 10% of the Kenyan school year. Together these costs, on health care, lost schooling, and lower labour productivity, reduced economic growth. Sachs found that countries with a substantial amount of malaria grew 1.3% less p.a. between 1965 and 1990 and that a 10% reduction in malaria was associated with 0.3% higher growth per year. Average incomes of countries with intensive malaria was $1,525 and in those without, $8,268. A similar pattern was evident for other tropical diseases including, dengue, yellow fever, and schistosomiasis, which are all endemic in tropical ecological zones and nearly absent elsewhere.

Additionally, a large fraction of the African population live in landlocked areas: the inland highland regions historically offered better soils and rainfall, and in previous centuries safety from the slave trades. Nearly all landlocked countries are poor, except for some in Western and Central Europe, which are well-connected to the Mediterranean and the North Atlantic by land and river-based traffic. The Sahara has long cut Sub-Saharan Africa off from large-scale overland trade. Half of the world’s trade takes place among countries located within 3,000km radius of each other. In 1990 the average distance of Sub-Saharan African countries from their trading partners was over 7,800km. Africa is also fragmented into over 50 countries each with an average four neighbours, many of which must be crossed to reach the coast. It costs more, for example, to transport a vehicle from Abidjan in West Africa to Addis Ababa in East Africa, than to ship it from Abidjan to Japan.  

Statistical evidence from Sachs shows that four variables, ‘prevalence of malaria’, ‘transport costs’, ‘proportion of population near the coastline’, and the ‘endowment of hydrocarbons per capita’ (not discussed here but the location of coal and oil is a geographical accident) explain more than two-thirds of the cross-country variation in average incomes per person.

A charter city is a ‘new city, with new rules’ that is defined in terms of its geography of place, or its ‘special jurisdiction’. As cities are the physical embodiment of the economics of place, should Jeffrey Sachs be the first economist an urbanist organisation like Charter Cities turns to?

While charter cities are defined in terms of geography, the concept revolves around the importance of institutions in promoting economic development. A charter city has autonomy enshrined in and legally protected by a charter. Advocates of charter cities argue that a charter allows a new city to devise a new legal system structured around simple, low-cost business registration, tax administration, labor law, and dispute resolution. The main argument holds that good rules, in particular well-protected property rights, will give prospective city investors the incentives to undertake long-term investment. Who would build a factory if they feared it would be grabbed by a well-connected politician or profit taxes would be raised once it started producing profitably?

So, the original pin-up of charter city enthusiasts is not Jeffrey Sachs but rather Douglass North. North argued that property rights are the “underlying determinant of the long-run performance of economies” and consequently, “the heart of development policy must be the creation of policies that will create and enforce efficient property rights,”. Big, influential, and recent policy papers written by the world’s most influential urban development thinkers (the World Bank, UN-Habitat) have embraced North and spurned Sachs. ‘Africa’s Cities: Opening Doors to the World’ published in 2017 by the World Bank, and written by three leading city scholars – Somik Lall, Vernon Henderson, and Anthony Venables – argues that the priory for urban policy makers is to, “formalize land markets, clarify property rights, and institute effective urban planning.” The report, with obvious North-ian homage argues that urban property rights will generate an incentive for long term investment (in housing, business and infrastructure); provide property owners with the collateral to borrow and invest from banks; will help register properties to better allow buyers and sellers to come together and for property to be purchased by those who can use it more efficiently (e.g. purchasing small shacks to build a ten-story residential block); and provide the government a means to identify those eligible for property taxation.

The radical departure of Sachs from the good-institutions (and so charter cities) agenda shines through when we consider the policy implications of geography. In the 1980s, donors emphasised using loans to leverage developing countries into making policy reforms (conditionalities), usually associated with reducing the role of the state, marketisation, and free trade. In the 1990s this agenda broadened into the good governance agenda, reflecting the orthodox view of the importance of institutions. Donors stressed efforts to improve legal and judicial systems, the functioning of democracy, the capacity of the civil service, the protection of property rights, and transparency across government (the debate that inspired charter cities). Jeffrey Sachs instead emphasises the crucial role of a big-push, donor-supported, set of interventions directed at geographical constraints. “targeted investments backed by donor aid lie at the heart of breaking the poverty trap”. These should include, Sachs argued, efforts to increase rural productivity through the dissemination of modern technology (such as fertiliser and irrigation); medical interventions, especially related to reducing the transmission and treatment of tuberculosis and malaria, improving nutrition; and investment in road, port, and rail infrastructure to connect interior populations to the coast.

This big-push can be partly funded by domestic African budgets, helpfully guided by external experts, but would require a companion big-donor-push in foreign aid. In 2012 donor need until 2015 was estimated at $40 billion per annum for Sub-Saharan Africa and $80 billion per annum for the entire developing world. This would have then represented an increase from 0.44 to 0.54% of donor country assistance per annum. There was precedent; earlier donor-funded big pushes against diseases of geography had been successful. By 1974 donor led efforts had prevented an estimated 600,000 cases of onchocerciasis (African River Blindness), which made 25 million hectares safe for cultivation, and protected 40 million people from transmission.

The idea of foreign aid is an anathema to charter city enthusiasts whose institutions-fundamentalism sees good institutions as creating profitable opportunities for investment. Who needs aid and goodwill when we can mobilize the self-interest of workers, firms, investors, and property developers to pursue profitable or well-paid opportunities and collectively boost economic growth?

Charter city advocates should not dismiss Sachs so quickly. Sachs is also a passionate advocate and practitioner of undertaking small-scale interventions and then scaling up what works. The Charter city movement have long been inspired by the experience of Special Economic Zones (SEZs) in China. Areas around Hong Kong, including Shenzhen, were liberalized as special economic zones, allowing foreign direct investment, labor markets, and land markets. The success of Shenzhen led Beijing to allow SEZs to be replicated and then to inspire national-level reforms. If donors were willing to fund a new city build, structured around efforts to tackle geographical constraints, then they should go ahead; let a hundred urban flowers bloom and scale up success.

For advocates of geography, the equivalent micro-intervention was the African Millenium Villages Project (MVP) which were a practical effort to put the ideas of Jeffrey Sachs into practice. The project was initiated in 2005 and aimed to achieve development goals in five years in 14 rural villages across ten sites in Africa. The project aimed to apply a big-push at the local level in investment that targeted geographical constraints to economic growth. These included a familiar list, obviously culled from the empirical work of Sachs: integrated interventions in poverty, agriculture, nutrition, education, health, and infrastructure. Millennium Village Project (MVP) sites were selected from rural areas of high undernutrition, representing varied agroecological zones, and with local political buy-in and community ownership. The project was externally financed to the sum of $60 per person per year. The rationale for the programme was that targeted public-sector investments could raise rural productivity, boost private sector savings and investment and lead to an escape from the poverty trap through self-sustaining economic growth. By 2018 the project was estimated to have cost donors more than $300 million.

By 2007, villages in Kenya, Ethiopia, and Malawi had reduced malaria prevalence and boosted agricultural output, that together improved health, nutrition, and incomes for farming families. A later summary of the evidence in 2018 found that the MVP had made significant gains in 30 from the 40 targets. The project had significant and favourable impacts on agriculture, nutrition, education, child health, maternal health, HIV and malaria, and water and sanitation. There was little impact from the project on consumption-based measures of poverty. One plausible explanation for this finding was that farm families had been investing higher incomes in building durable assets such as latrines, piped water, better roofing and flooring materials rather than increasing household consumption.

The millennium villages did well but these results raised two big questions. Firstly, what was happening in the areas around the millennium villages? Health, education, transport, nutrition and other social and economic indicators were all improving in Africa in the 2000s and 2010s. Kenya for example achieved marked gains in improved drinking water sources, improved sanitation facilities, measles vaccination, births delivered by skilled personnel, HIV testing, ITN (insecticide treated net) usage, mobile phone ownership, and child mortality rates. Trends outside the intervention villages are the counterfactual and suggest what would have taken place without the MVP project. The results were striking. In Kenya, Nigeria, and Ghana the impact of the MVP was only half of that first estimated, in some cases there was no improvement, or even a relative decline. Given that the treated villages were chosen because they had political support for social interventions and community ownership, they were villages that were likely to do well anyway.

The empirical evidence showed that donor-funded interventions can work to improve the quality of life of the poorest people in the world. Sachs made a bigger argument. The second question gets to the heart of geography as the big alternative to institutions. Did the big-push generate a self-sustaining momentum of economic growth that allowed countries (here villages) to break through geographically-created poverty traps?

Here, there is more limited evidence, but what exists is much more pessimistic.

The UK Department for International Development (DFID) invested $11 million into a MVP in Northern Ghana that ran from 2012 to 2016. The project targeted a cluster of communities with more than 26,000 residents, where between 80 and 90% of the population lived below the national poverty line. DFID published an evaluation in 2018 using a rigorous methodology that accounted for those earlier concerns. DFID collected date from a sizeable project and matched control groups before and after project implementation. Data was collected from repeated interviews with the same households and individuals (panel data). DFID concluded of their intervention in northern Ghana that,

there are signs that any gains made under the project are already being undermined (a few months after project closure). There was no sign of the economic growth necessary to generate the disposable income (market demand) and tax revenue (public service provision) that could sustain the provision of these interventions once the project came to an end.

If tackling geography didn’t generate self-sustained economic growth, does this mean that the charter city institutional foundation is a safer bet?

Charter cities believe in the ‘developer-manager’ model, which holds that the developer who builds a city should also be responsible for managing the city after construction. The developer is granted ownership or a long-term lease over the land on which the city is built. Because the city developer leases or owns the land, they are incentivized to create an effective administration, good institutions and to provide public goods in order to increase economic activity and raise the value of that land. This provision is usually interpreted in terms of the hard infrastructure commonly discussed by urban planners – roads, housing, parks, and public utilities such as water supply and electricity. Sachs gives charter cities a richer vein of evidence to think about what infrastructure helps a city become more productive and raise land values. Sachs would advocate combating malaria, through for example insecticide treated bed-nets or irrigation to protect the agricultural hinterland from climatic weather variabilities. Advocates for charter cities should think more carefully about what constitutes crucial urban ‘infrastructure’.

There is a strong version of institutions; that good institutions encourage the prospects for economic growth anywhere by stimulating long-term investment, asset re-allocation, and by providing collateral for loans. Sachs tells us more about where to invest scarce resources in thinking about where to build a new city. When choosing a site for a new city, areas that are malaria-free, and located close to ports or trade routes, and fertile agricultural regions are more likely to thrive. We should heed this advice. One study using data for 800-1800CE finds that European cities were established, emerged, and survived where geography was better, measured in terms of being near areas of high agricultural potential, navigable waterways, or major transport arteries. Geography played a crucial role in laying the foundation for the European city system of today.

Charter cities should be justifiably jealous and seek to emulate the success of Sachs in launching and then (with problems) evaluating success of the millennium villages. Between 2000 and 2020 159 new city projects have been announced, compared to 126 in the entire period from 1945 to 1999. Only six of these are in the global north, compared to 50 in East Asia and the Pacific, 49 in the Middle East and North Africa, and 43 in Sub-Saharan Africa. While the pace of new city construction has been striking there has been no equivalent effort to rigorously test the growth of these cities and relate them to competing institutional and geographical features.

Sachs is no iconoclast, he seeks to elevate the importance of geography in our thinking about economic development, without dismissing the orthodox view of institutions. The title of a 2003 academic paper says it all, ‘Institutions Matter, but not for Everything: The Role of Geography and Resource Endowments in Development Shouldn’t be Underestimated’. This would be a good mantra for practitioners of charter cities to follow. Sachs has become a rebel against the institutions-oriented development orthodoxy, and a rebel that can help launch a charter cities revolution.

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