Paul Romer and the Suez and Panama Canals

This paper contributes to the growing literature around charter cities and new city developments and makes a case for the salience of the charter city model from two surprising case studies – the Suez and Panama Canals.

The main finding of this paper is that we can learn a lot from historical big infrastructure—canals— and that these lessons are relevant to contemporary charter cities. The most controversial aspect of Romer’s 2009 TED Talk was his idea of a ‘sovereign guarantor’ for charter cities. The historical example of the canals confirms the real political danger of this sovereign guarantee model. In more recent discussion, the PPP model is preferred to the sovereign guarantor model. The canals offer three historical warnings for contemporary charter cities. First, what starts as a PPP may implicitly acquire a fraught sovereign guarantee. Second, big infrastructure projects are inherently financially fragile. The combination of these two factors is likely to induce close (foreign) government involvement beyond the mandates of the PPP model. Finally, this paper questions the argument that greenfield cities are either possible and that building such a city, while making the writing of new rules easier, will create issues of land displacement, distributional impacts in the domestic economy, and political consequences for ruling elites. 

This paper contributes to the growing literature around charter cities and new city developments and makes a case for the salience of the charter city model from two surprising case studies – the Suez and Panama Canals. A characteristic feature of the charter city model or new city construction is to start off with a plan of the city’s physical design and a written framework for the city’s legal governance. The infrastructure required is a secondary matter, based on the projected population and economic growth of the city. This paper takes a starting point that reverses this order or precedence. This paper looks at the history of how companies empowered by charter to build and operate big infrastructure projects inevitably end up running new or expanded cities under those new charter rules. 

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