The Promise and Challenges of Charter Cities
In this episode, I had a conversation with Kurtis Lockhart who is the executive director of Charter City Institute - a non-profit that thinks and executes governance models for cities to power developing economies into growth and productivity.
Our conversation started with an update on the concept of Charter Cities and how they differ from traditional models like Special Economic Zones (SEZs), particularly in the context of economic development. Kurtis describes Charter Cities as new cities with distinct governance models designed to drive sustained economic growth and alleviate poverty, primarily in lower-middle-income countries. This approach is seen as an alternative to the model first prescribed by the economist and Nobel Laureate Paul Romer, which involved a high-income country importing its governance to a low-income nation. Kurtis emphasizes a public-private partnership (PPP) model, where a host country collaborates with an urban developer, ensuring local involvement and sustainable development.
The conversation addresses concerns about Charter Cities being enclaves for the wealthy, clarifying that the Charter City Institute (CCI) focuses on broad-based economic growth and poverty alleviation. Kurtis highlights the importance of political buy-in and stability, acknowledging the challenges of expropriation and policy consistency across different political regimes. He suggests mitigation strategies like revenue-sharing agreements, equity stakes for host countries in city developers, and political risk insurance.
Discussing the geographical constraints, Kurtis acknowledges that location and economic geography play a crucial role in the success of Charter Cities. However, he argues that geographical advantages can evolve with changing technologies and transportation networks, as seen in historical examples like the Erie Canal.
Addressing concerns about existing urban challenges and inequalities, Kurtis talked about CCI's involvement in upgrading existing cities and supporting secondary cities, especially in Sub-Saharan Africa, where most urban growth is anticipated. He shares plans to collaborate with Kenya's State Department for Housing and Urban Development to empower select secondary cities through the Special Development Zone initiative, leveraging their success as models for other cities.
Transcript
Tobi;
Welcome to Ideas Untrapped. It's fantastic to talk to you, Kurtis. I've been wanting to do this for a long time.
Kurtis;
Yeah. Thanks, Tobi. I know we've been trying to do this for a while. It's good to finally be on with you.\xa0
Tobi;
So let's start from the absolute basics. I'm trying not to get carried away because Charter\xa0Cities are something that sort of excites me as well. I should also say it annoys me, possibly in\xa0equal measure. So I'll try not to get carried away, but if you can just give me an elevator pitch, so to speak, but you can go as long as you want. What\xa0are charter cities and how are they relevant to issues surrounding economic development, particularly in the 21st century?
Kurtis;
Yeah, so thanks again. And I'll start at the highest level I can, and then you can ask more specific questions as we go on. So at the very basic level, the definition of charter cities is new cities with new rules to improve governance. And so why do we think that that's really important? Zooming out,\xa0the best way to lift people out of poverty at scale is through sustained economic growth over one, two, three, four-\xa0decades. That's what happened in East Asia, in\xa0Japan, in\xa0Taiwan and South Korea. It's what happened in China, and I think it's what's happening in India now. You then have to ask yourself, how do we increase economic growth rates over sustained periods of time? Economists are pretty agreed that the single greatest determinant of long-run economic growth rates is governance, right? It's institutions. And the problem with governance and institutions and getting good governance is many countries, especially across the global south, lower-middle income countries are, you could say, stuck in poor governance traps.
So the question becomes, okay, how do we reform and change this governance institutional structure to improve governance? It's really hard to do that, it turns out, at the national level. And so we see charter cities as a mechanism\xa0-\xa0a localised mechanism\xa0-\xa0in a concentrated geographic area where there are no incumbent or entrenched special interests\xa0in that localized area. You can get a lot deeper governance reforms at\xa0this local level\xa0and that gets people rich within that jurisdiction, within that concentrated space, number one, as well as number two, it's able to serve as a demonstration effect to the broader host country that then hopefully sees that demonstration effect and scales up those governance improving policies across the whole country. And this is what you saw in China when Deng Xiaoping instituted the opening up and reform in 1979-1980, with four Special Economic Zones in the south, Shenzhen being the most famous. But we can get into that if you want to later. Anyways, that's the high-level pitch.
Tobi;
Yeah. So for a lot of folks like me, and I'm sure some other people in the international development community when they hear charter cities, you immediately go back to Paul Romer, the Nobel Laureate\xa0economist Ted Talk in 2009. That's the popular conception of charter cities. But like you and your colleagues have reiterated over and over again that your model and the vision that you are pushing differs from that. Can you spell out the differences from Romer's charter city model?
Kurtis;
Yeah, I'm glad you asked this. So basically to go back first, so\xa0Paul Romer\xa0in 2009 gave his now pretty famous Ted Talk on charter cities, and he basically proposed that a high-income, well-governed country like a Canada\xa0come into a low-income, poorly governed country. His example was\xa0Honduras. Honduras would then cede\xa0[a] city-scale chunk of land to Canada. Canada would then, "import its good institutions" into that city-scale chunk of land and therefore that better governance within that concentrated piece of land would crowd in investment, it would spur business formation, job creation and sustained economic growth. That's the very high-level Romer model. And we can call that the Guarantor Model, [with] Canada as the foreign guarantor.\xa0CCI's model is different. We advocate for a public-private partnership between a host country and an urban developer, a city developer. So we don't think, number one, Romer's Foreign Guarantor model is either feasible or number two, very desirable.
Why isn't it feasible? I think you saw in the feedback in the response to Romer's Ted\xa0Talk. It smacked a lot of people\xa0- this foreign guarantor\xa0model smacked a lot of people as a form of neocolonialism. I don't think that's a very fair characterization, but still, it got taken by a lot of people in the international development world as a form of that. I don't think it's fair because charter cities\xa0as Romer proposed them\xa0were completely voluntarily entered into. It was a free choice among\xa0both parties to enter into these things, whereas colonialism was a form of coercion usually done at the barrel of a gun or through some sort of violence. So I don't think that's necessarily a fair critique, but it nonetheless was a critique and speaks to the feasibility of this model. I don't think it's desirable, number two, because I think a lot of the process of institution building needs to involve the host country in the institution building. And I think when you have a foreign guarantor like a Canada just stepping in and bringing in their institutions without involving or partnering with the host country, that kind of cuts off the learning and the muscle building that needs to happen in order for the host country to develop itself more broadly. So,\xa0we propose this public-private partnership because we think it's a lot more feasible, number one, especially if you're partnering as a host country with a domestic urban developer that knows the context and what\u2018s not. And then, number two, we think it's sustainable because developers they have an incentive to maximize land values over time. That's how they make their profits. How do developers maximize land values? They attract as many firms and residents to their cities as humanly possible. How do you do that? You create a fantastic city with urban amenities, good public goods and service provision, with a great business environment, so firms are attracted to locate there. So we think it aligns incentives in that way and also has a mechanism to be financially self-sustaining over time through the profit motive. So that's why we think our kind of PPP approach is both kind of more attractable and more desirable over time.
Tobi;
Okay, so another key distinction I like you to make before we go on is usually when we talk about charter cities, special economic zones come up a lot. Is there a particular distinction between a charter city and a special economic zone or multiple variations of SEZs like export processing zones, free trade zones and the likes?
Kurtis;
Yeah, so this is a great question. So really CCI's version of charter cities, this PPP model is what we can call the next generation of Special Economic Zones. So a lot of Special Economic Zones are restricted to what sectors can operate and get incentives in that zone. So there are textile zones or there are, you know, manufacturing zones or high-tech zones, etc. And then oftentimes these Special Economic Zones are small in scale, so they can be limited to smaller industrial parks where you don't really get the agglomeration benefits that come with bigger size urban agglomerations in cities. So the big differentiator\xa0between a charter city and Special Economic Zones is around those two things. So charter cities would be mixed-use developments. So it's not just industrial uses that are able to operate in the city, but also commercial uses and really importantly residential uses. Right? Because then you have people not just moving and commuting to a charter city for nine to five and then they all pile out of the charter city and leave it vacant overnight until the next workday\xa0like most special economic zones. Instead, these city cities are places where people not just work, but play and live as well. So you're generating those agglomeration effects that economists hold so dear.\xa0
[The] second is size. Right. I mentioned zones are often restricted and become like small industrial parks or export processing zones around ports. Charter cities are city-scale developments, right? And so the big one we use here is Shenzhen was technically called a Special Economic Zone, but it's really a proto-charter city because it was 326\xa0square km (the zone). And this is what we're talking about when we're talking about city scale\xa0and you're able to get a lot more co-location\xa0of firms and people spillovers from that and then the positive effects of agglomeration can spin out from there. And then the third really important differentiation\xa0is decentralized or devolved powers to the charter city.\xa0A lot of the time when a zone has and is empowered to operate via a Special Economic Zone piece of legislation at the national level and when they figure out at the zone level that,\xa0okay, we got some of the provisions in this legislation wrong, we need to amend this legislation. In order to amend it, they got to go to higher tiers of government like the state level or the national level and negotiate and barter with the parliament for months or sometimes years to get these changes passed. And you and I know that that really stifles business dynamism that slows down an ability of a zone to adapt. And so we think by a charter city having devolved powers over things like business registration, land administration, land registration, immigration, taxation, things like these, and their ability to really adapt on the fly as the environment in that city changes,\xa0that'll allow the city to be a lot more dynamic to a rapidly growing city.
Tobi;
I know recently there was a Wired profile about a project you're working on in Nigeria. And one thing that also comes up a lot is, given the sort of informal or affiliation with the sort of libertarian seasteading\xa0community, how would you respond to people who say that charter cities are just a way for the rich people or people who don't like government to create an enclave for themselves and not live within the rules of a particular country? So,\xa0like,\xa0this is a libertarian non-state project\xa0so to speak. How would you respond to that?
Kurtis;
Yeah, I'm really glad you asked this because in that Wired article, we spoke with the journalists, we had a good conversation and kind of explained how CCI works with these projects, including Itana and\xa0E\xa0[Iyinoluwa Aboyeji]. The main push-back\xa0that I and CCI give when we're asked this question around, \u201cWell, aren't charter cities just this libertarian kind of project for having political exit?\u201d, is, no.\xa0These are co-development strategies [that] you enter into with the host country. As I said, CCI envisions charter cities as a public-private partnership between these urban developers and a host country. And again, I use the term charter cities in our version as the next generation of Special Economic Zones.
Special Economic Zones are a very common form of industrial policy used throughout the entire world. The vast majority of the world's countries have Special Economic Zones within them. There are some 5,500 zones across the world. Not to mention,\xa0you have complete UN agencies like the United Nations Industrial Development Organization (UNIDO)\xa0dedicated to pushing forward industrial parks and Special Economic zones. Right? And the UN is, like, the main upholder of sovereignty and sovereign nation-states across the globe. I don't think the UN would be involved in anything [that has to do with] subverting these nation states projects as that Wired piece suggested. So that's my main response\xa0-\xa0is like given most of the world's countries are engaged in these special economic zones that allow for unique rules within their own jurisdictions and given organizations like the UN are involved in promoting these\xa0special economic zones and\xa0industrial parks, the notion that these are a tool to undermine territorial sovereignty or get these \u201cstateless vacuums\u201d [which]\xa0is the term I think the article used is, I think, a total[ly]\xa0misleading exaggeration.
Tobi;
But again, I'm trying to look at the nuances here,\xa0because taking a broad view and a sort of micro view, at the same time, you've had circumstances or situations where even within the legitimacy of a sovereign state and a national government, a certain\xa0class of people who can't find ways to create different\xa0space for themselves where they don't have to experience dysfunctions, they don't have to interact with much of what is wrong or bad about the state\xa0itself. So how do charter cities, at least your model and your vision, sidestep some of this critique around, you know,\xa0inequality, class differences and things that regularly come up, especially low-income countries?
Kurtis;
So I would, number one, grant that some of these new city projects proposed around the world, they're like real estate development projects that are kind of catering to higher income segments. So I'm not going to deny that there are projects that some developers are making that are kind of totally marketed towards being enclaves for the rich. Those exist. Those are not something that CCI cares about, right? Those are real estate projects. We're interested in these city developments. Our vision is to empower these new cities with better governance, to lift tens of millions of people out of poverty. So if we're not having an impact on poverty alleviation and we're solely engaged with projects that only focus on the rich, we're not achieving our mission or our vision. I'll just put that out there.
Now, on your inequality point, I view inequality as like\u2026\xa0the Kuznets\xa0curve is talked about a lot in economics. I don't like to talk about the Kuznetsk\xa0curve because you lose people in the abstract. I think Albert Hirschman, who is an economist that wrote about Voice and Exit, he talked about this analogy of the highway where he said inequality is a bit like being caught in a traffic jam on the highway. Once you're in the traffic jam and you see the other lane beside, you start to go, even though you're still stopped, the fact that the other lane is moving means that the roadblock up ahead, whatever it is, has been removed, and you'll likely be moving ahead soon as well. It's only when there's a huge delay such that you see that other lane going and you guys still have to wait another four or five, six minutes that you start to get really frustrated and angry. So too\xa0with inequality and economic growth.
If growth picks up but is only concentrated in, say, upper and upper middle-income segments and is not fully broad-based, some people [to] most people would prefer that to the situation of complete stagnation, right? At least some parts of the population are moving. That's good. It's only when that growth doesn't become more broad-based over time that frustrations will arise. So our hope is that charter cities will kick-start\xa0growth no matter how, and then eventually, the growth can become more broad-based over time. And you even have some projects and zones and parks and new city developments that are able to be extremely broad-based from the very outset. So I'd use examples like the garment industry operated through industrial parks in Bangladesh. This garment industry employs, like, 80% women, right? And these women, it's often their first jobs in the formal sector, their first time getting formal wage labour, their first active time in the labour market. And they have upward mobility to go from sewers to middle managers to upper management. And so, sure, some of these are enclaves for the rich. But equally, on the flip side of the coin, some of these projects can be mechanisms for alleviating inequality.
And I want to give one other example above and beyond the Bangladesh garment industry example in lifting up women. I\u2019m a\xa0Canadian\xa0and in\xa0Vancouver, I got to talk about this project called Senakw\xa0in Vancouver, where this First Nations indigenous group called the Squamish\xa0Nation in Vancouver,\xa0they were kicked off their land in downtown Vancouver in, I think, 1910. And fast forward about a century in 2002, I think,\xa0the First Nations sued, and the court ruled that they were to receive some of their downtown Vancouver land back. And so the First Nations got this land, this scarce urban land that was undeveloped, and they were like, what are we going to do with this? So they decided overwhelmingly, I think 90% of the First Nations group voted in favour of entering into a public-private partnership with a Canadian developer called West Bank. It's a 50-50 partnership. So the First Nations group would get half of the proceeds and West Bank would get the other half. And the bottom line or\xa0the upshot of this is that if this project is successful, it would generate, over the lifetime of the project, $8 billion in the coffers of the Squamish\xa0Nation. And that would be the biggest economic empowerment program in Canadian history. So if you structure these things right from the get-go, far from being mechanisms for exacerbating inequality, they can serve just the opposite.
Tobi;
I want\xa0to return a bit to the legitimacy\xa0question, especially within the sovereign authority and political capabilities of the national governments. I see a bit of a self-selection problem in special economic zones/charter city projects, in that they are successful within the context of a national government that takes development policy seriously. Because when we talk about Shenzhen and China, we know that that project came about out of a shift in national policy when Deng\xa0Xiaoping,\xa0along with key members of the CCP, chose to open up China and modernize. If you compare with, say, a country like Nigeria,\xa0Nigeria's first Special Economic Zone was in 1992. So they are not really particularly a new idea, but they haven't had equal success everywhere. So how does your model sort of control for this? We'll get to the PPP problems much later, but how do you solve the self-selection problem?
Kurtis;
Yeah. So, I mean, there are a few above and beyond the self-selection problem. There are a few other points implicit in your question. Number one is, like,\xa0the success of zones and industrial policy and these new city developments in China and East Asia versus the largely kind of lack of success we've seen with things like Special Economic Zones in Africa. Let's take China as the example because it has by far the most special economic zones of any country on the planet. So China's approach to zones, I think,\xa0largely derives from its history as a country with a high degree of state capacity and a long history of statehood. It's the most ancient state in existence on the globe, I think.\xa0It's been in existence for a long time. And so a lot of special economic zones across China were driven by the public sector, and they were extremely successful. Not all of them were as successful as Shenzhen. Right. The first four were established in 1980. They demonstrated the success of this policy such that they were scaled up again in 1984 with a few more zones, [in] 1988 with a few more zones and more such that by 2010, some 90% of China municipalities had some form of Special Economic zone within them. And these were again largely driven by the public sector.
If we then go to sub-Saharan Africa. Sub-Saharan Africa does not have the same history of statehood or the same level of state capacity as Africa\xa0China, right? African states emerged\xa060, 70 years ago in the independence era in\xa0the 50s and 60s\xa0mainly. And so we just don't have the same level or ability of the state to be driving forward these massive industrial policy projects as China did. So that's number one. I think the zones will be a lot more and charter cities will be a lot more successful in Sub-Saharan\xa0Africa if they are driven largely by the private sector or as we say at CCI, through a public-private partnership. That's number one.
Number two is the location question. In China, special economic zones were paired very closely with urbanization. Shenzhen\xa0where\xa0326\xa0sq km of that\xa0city were declared a zone, likewise in the other initial four zones, those two things went hand in hand. Whereas in Africa, a lot of zones that are declared, for whatever reason, are declared in the middle of nowhere. So they're not piggybacking off of existing labour markets in already existing cities. They're not piggybacking off of preexisting infrastructure. So,\xa0it's oftentimes really costly to build infrastructure completely from scratch in these complete greenfield sites. And so I would say those are the two key differences between why we saw [the] success of these zones in East Asia and China, and we've seen largely a pretty lack of success across Africa with zones. And then that's the first part of my answer. The second part, just to get back to the self-selection problem that you mentioned, I mean, I think you've had Stefan Dercon on your podcast, Tobi, and this gets back to his point that because we envision these not as a form of political exit, because CCI does not mess with sovereignty. These projects are by definition part of the broader host country. And so you do need a degree of political buy-in. So\xa0to Stefan Dercon's point, you need the political elites, a group of the political elites on board and backing these projects. And ideally, you have long time horizons as well. This is why, for example, we're operating in and have partnerships in the countries that we're working in. So, [in] Zambia,\xa0President Hichelema was just elected relatively recently,\xa0I think if he gets a second term, he'll have nine more years in office. We're about to sign\xa0a\xa0partnership and engagement in Kenya, right? And Ruto was elected last August, so if he gets a second term, he'll have ten more years. In Tanzania, President Hassan took over from the former president who died of COVID and so she has two more years in his term and then another ten years if she gets a second term. So that's twelve years. And so we're in places, number one, where we have some political elites on board and bought into this, and number two, we have long time horizons available to\xa0us.\xa0
Tobi;
So\xa0that sort of gets into my point, right? Because, yes, you may have buy-in for now, but there's also the question of consistency. I'm sure before Hichilema in Zambia, the previous guy was not excited.\xa0Or I would say would not be excitable about a project like this. And what if someone that succeeds Hichilema says, \u201cOh, well, charter cities will\xa0only take you\xa0so far,\xa0I have other priorities. Let's concentrate on the mineral sector, this and that,\u201d\xa0and then regulatory and bureaucratic barriers\xa0to this kind of project\u2026[inaudible]
I'll give you a specific example. The Lekki\xa0Seaport in Lagos is usually celebrated as a win for this kind of big project, public-private partnerships. But, and\xa0I'll put up a link to that in the show notes,\xa0there was an interview by the CEO of one of the key participants in the project, the Tolaram\xa0Group, along with the Chinese investors, that basically,\xa0I'm paraphrasing\u2026\xa0that basically said that his experience working with the government on this project left him deeply scarred and he does not envision ever doing this kind of project again.\xa0So that's my point. Like, how do you get around the consistent issues, the succession issues, the things that\xa0come\xa0up\xa0in a context where development, economic growth in itself are also burdened by this same problem? So I guess that's my point.
Kurtis;\xa0
Yeah, so this is a great point. So basically your kind of question is, okay, given these charter cities, as CCI proposes them, what do you do about the expropriation problem? Right? This problem of how do you prevent the host country government,\xa0across regimes,\xa0over time,\xa0from killing the goose that laid the golden egg? Or how do you get political regimes, different political regimes across time, credibly committing to what former regimes before them committed to? Right. That's the biggest kind of question. And because [in] our proposed model, charter cities are part of the host country, they are not sovereign entities. There are multiple things that you can do to mitigate the risk of expropriation to better align the incentives such that it nudges the host country to want the project to succeed rather than want the project to be expropriated and fail. But at the end of the day, if the government is determined to expropriate and undermine this project, there's not much you can do. But I would argue that's the same thing for any type of project. If the sovereign government of a place is determined to have malaria bed net\xa0interventions fail\xa0or the ZEDE projects in Honduras were pretty much Romer's model of charter cities, and yet still the regime that succeeded the original regime was able to repeal the ZEDE\xa0law. Right? So it's not just our model that suffers from this goose that laid the golden egg problem. I think it's other models of charter cities as well as all kinds of development interventions.
Okay, given there's this problem, how do you mitigate the risk of expropriation? And CCI, we thought about this and there\xa0are\xa0several ways. So number one, we think that there should be a revenue-sharing agreement embedded in the public-private partnership such that the host country gets a percentage or proportion of all the land rents, all the taxes, all the user fees raised in a given year should be to the host country\xa0so they have a stake and they receive a sort of stream of revenue every year from it. The other similar point around these kinds of financial inducements is we think that the host country should have an equity stake in the developer, in the city developer. That way, if the city developer is a success by creating a thriving city, the host country will have a significant financial windfall from that success as well. Other things that can be done:\xa0I know there's something called the New York Convention of 1958 that recognizes and then enforces arbitral\xa0awards. So for example, if the developer is expropriated in year eight or nine by the host country, it's then able to go and sue in arbitration for compensation for those seized assets and then have those assets enforced overseas.
So this convention is basically a form of enforcement of international arbitration. Now, the question there is like, okay, well, if your host country, say you're operating in Zambia, the future Zambian regime after Hichilema expropriates, and you then get an arbitral\xa0award in Dubai,\xa0in DIFC or something, how do you get the Zambian government to actually kind of pay? One thing that you can do,\xa0it's called political risk insurance\xa0- so MIGA\xa0[Multilateral Investment Guarantee Agency]. It\u2019s\xa0under the World Bank Group. They have political risk insurance. That Political Risk Insurance product says if an entity like this developer receives an arbitral\xa0award in international arbitration and the host country refuses to pay, we, the political risk insurer, will pay the amount of that arbitral\xa0award quickly, right? So that the developer quickly recoups its cost. So that's one.\xa0Another thing that could be done is the developer could float its company on the stock exchange\xa0and that way you get influential entities from the business sector, for example, investing in the developer. So entities like powerful domestic business constituencies like pension funds, if they are invested in the success of the developer and they have significant influence and clout with the existing political regime, oftentimes supporting various parties\xa0and whatnot,\xa0you don't as an incumbent politician want to piss off these pension funds that are helping you and your regime stay in place. And if the pension fund has\xa0invested in this development, then you don't want to jeopardize that development. There are a few other things you can do, but I've gone on long enough on these various ways. The main point here is you can do a lot of things to mitigate the risks, to adjust both benefits to the government of hosting and having a thriving charter city,\xa0and increase the costs of expropriating that charter city in such a way to skew the development such that the government buys into it over the long term. But you can't,\xa0because they're not sovereign entities, totally get around this risk entirely.
Tobi;
When\xa0we look at Shenzhen again, for example, its location is sort of unique. And I think that contributed a great deal\xa0to its success. The proximity to Hong Kong, and particularly the fact that it's a place that had a lot of potential to do better had it not been deliberately held back, if I can use that phrase, by the security concerns of the Mao government and, you know,\xa0so many other\xa0things.\xa0Because, as a matter of fact, when the original plan was proposed for Shenzhen, the Bao\u2019an County government already had a plan on building out the city,\xa0of populating the city, the industrial zone and so many other things. But these are natural advantages that are not replicated everywhere, especially in Africa. You see so many places that are landlocked. If you take a place like Nigeria, most of the investments would likely come to Lagos being the economic nerve of the country\xa0and the only city that has the functional port. So are\xa0Charter Cities\xa0also implicitly limited by the location advantages or disadvantages of the host country,\xa0by economic geography, basically?\xa0
Kurtis;
I\xa0mean, I'll give a pretty short answer here, I think, undeniably, yes. If you picture a spectrum or a distribution of unsuccessful to hugely Shenzhen levels of success on the other side of the spectrum, geography kind of limits that distribution. Based on things like proximity to international trade routes, for example, I'm pretty bullish on East Africa for this reason. It's on the Indian Ocean, I think India, South Asia, Southeast Asia, these are rising regions in the next few decades. And so proximity to that bodes well for charter cities established on the coast\xa0in East Africa. Things like,\xa0locationally, are you piggybacking off of preexisting cities? Are you kind of on the outskirts of a Dar\xa0es Salaam or a Mombasa or a Lagos or a Port Harcourt? The reason being, and I alluded to this earlier, it costs a lot to build infrastructure, especially in the middle of nowhere in Africa. If you can instead locate on the edges, on the extension of a fast-growing preexisting city, you get to piggyback off of their roads, their other modes of public transit that they've already built, so you lower your unit infrastructure costs.
And number two, you get to piggyback off of their labour market. Right. And in places like Nairobi and Lagos, they're known for having,\xa0among African\xa0cities, like, very highly skilled constituencies of people. So to the extent that you create this new, thriving, dynamic charter city that is a space where talented people are attracted and entrepreneurs see a lot of opportunity, it's a lot easier for [a] highly talented, highly skilled individual from Lagos to go move to a city that's on the outskirts of Lagos than in the middle of nowhere in Nigeria somewhere. So my short answer to your question, Tobi, is absolutely\xa0these projects are constrained by geography. It's not the sole determining factor. There are places\u2026you know,\xa0I would consider Abuja\xa0a pretty successful new city, and it's not on a port or seemingly has many other key geographic advantages other than being a strategic spot between Nigeria's north and Nigeria's south, but it is a significant factor in its ultimate success.
Tobi;
I disagree on Abuja but I would save that for another day. So I guess my final question to you would be\u2026\xa0so I know that embedded in\u2026uh\u2026
Kurtis;
Can I? Sorry, Tobi,\xa0Can I add to that? I'll just add a little something to my last answer too.
Tobi;
Yeah, sure.
Kurtis;
I want to say, like, geography, contrary to a lot of people's opinion on it, I don't think it's this static factor. Geographical advantage can change given changing technology and changing transportation networks across time. And we've seen this in history. For example, when in the 1800s, the Erie Canal connected New York City to Lake Erie, that new canal, that new mode of transportation created and resulted in the rapid, rapid growth of a bunch of Midwestern and Western cities. So Buffalo was at the other end. It was created as a direct result of the Erie Canal, but also Detroit, Chicago, St. Louis. You could even say New Orleans, right? Because it was at the end of the Mississippi that created this huge water arc from New Orleans to New York City. And so I'll just say, you know, analogous to the Erie Canal, a comparable big infrastructure building project that could result in a bunch of new cities becoming much more viable as a result of changing the geographical advantage of these urban agglomerations is the Belt and Road Initiative, right? You have a bunch of large infrastructure projects and ports and highways and all these things being built\xa0and that means that at the nodes of this new infrastructure, it's a lot more viable for some new cities to sprout up. And we're actually seeing this across Central Asia, the Middle East, and to a lesser extent Africa.
Tobi;
I think you sort of got into my next question with that answer which is,\xa0what's the intersection or should I say affiliation of CCI as an institution and the model of charter cities generally that you're pushing with this\xa0new\xa0network-state type of digital city enthusiasm that is sort of everywhere, that's sort of driven by technology, driven by virtuality\xa0and the likes. Is there an intersection with your vision of new cities?
Kurtis;
So there are a couple [of] things. So, first, the big differentiation\xa0is at CCI, our focus is\xa0on\xa0poverty alleviation. So we're focused on low-\xa0and lower-middle-income countries. And oftentimes these countries are far away from the technological frontier. So we're focused more on catch-up growth, right, which is very substantively different than growth at the technological frontier. And so I would say the network state people, a lot of them come from cryptocurrency and tech in San Francisco. And so they're focused on pushing the technological frontier and the frontier of innovative governance, and we're focused on catch-up growth. So that's number one. Distinction number one.
And I guess commentary number two is kind of my thoughts on the viability of network states. I tend to think that, you know,\xa0this has been tried in the past, basically using\xa0not online communities, but like the kind of analogous concept to an online community before the Internet was shared values over a large number of human beings, right? Not necessarily territorially\xa0connected human beings. And there have been a few moments in history when leaders have tried to channel those shared values and relocate large numbers of people in the physical world that share those values, which is basically the network state concept, right? That was tried, for example, in the US. I think a bunch of libertarians, I believe this was in the early 2000s, tried to find a small state in the US\xa0to say, \u201cHey, if all of us libertarians that share these particular ideological\xa0inclinations all move to the same state\u201d, I think they ended up choosing New Hampshire. They said, \u201cOkay, let's all make an oath to move like ten years from now. And if we do so, we'll then be the majority in New Hampshire because it's a pretty small state, therefore we'll be elected to powers of government and we can kind of control policy and swing it in our sort of direction.\u201d\xa0It turns out [that] in year ten when that move was supposed to take place, a lot of the people who had made that commitment, they had had families, they now have a spouse, they have kids that go to particular schools. Their spouse has a job that he or she really likes. That individual also has a job that it's going to be hard to relocate from. And so it turns out that community,\xa0like place,\xa0is actually pretty rooted and it's hard to just uproot yourself and your family from kind of a community that's been established and go to this other kind of community that has no sort of binding glue that you currently have. So that's number one.
And number two, the kind of historical example that happened, but almost didn't happen, is Israel. Right? Judaism is this millennia-old religious tradition. You could say that it's a millennia-old tribe that has its traditions, its values that are thousands of years old. And it had this other historical event that happened at the time of the formation of the Jewish state\xa0[Israel]\xa0being this Holocaust, a genocide that tried to wipe out this tribe and that also resulted in this really unifying force calling for a place where the Jewish people can practice their religion in peace and tolerance. And even with those factors, even with this thousand-year history and this kind of world-changing genocide, the Israeli state was very close to not being successfully established. Right? It was kind of Truman's recognition of Israel that actually kind of resulted in the thing happening. Without that, I don't think it would have been a success. It was sort of 51-49 as to whether this thing would take off. And so my point with Israel is like, even with these enormous advantages and crazy\xa0factors in your favour\xa0of pulling off a network state-y\xa0situation, it almost didn't happen. And so that gives me pause about the tractability\xa0of this model.
Tobi;\xa0
My final question and I'm happy you mentioned poverty alleviation and fast broad-based growth as the things that motivates the model of charter\xa0cities that you are pushing.\xa0So this question would be one of my critiques of charter cities\xa0and I want an answer from you, which is,\xa0at the heart of this model is political decentralization particularly because like you said, there is a lot of stasis and constraint at the national level. And also,\xa0talking about governance innovation, do you think that the charter city space, if I can call it that,\xa0is leaving\xa0a couple of low-hanging fruits unplucked in the sense that where are the plans of fixing\xa0existing at a very local, decentralized level, of fixing some of the, should I say, existing problems in actually existing cities rather than building new cities? Where is the plan, for example, for upgrading slums in existing cities? Where is the plan for transforming Makoko, for example, in Lagos? So do you think that\xa0those are low-hanging fruits that you're leaving unplucked? If yes, is there a reason? Is it because there is no obvious potential gain for private capital? And of course, if "no", is that something you are working towards in the future?
Kurtis;\xa0
[The] short answer is yes, we are involved in this area. So I'll just give the example of one of the reasons I'm here in Nairobi right now is to push forward our MoU with Kenya's State Department for Housing and Urban Development. So this department, well, they just finished its\xa0[program]\xa0called the Kenya Urban Support Program, the 300 million dollar program under the World Bank that's ending I think on June 30. And then a new KUSP\xa0program, KUSP\xa0Two, another 300 million dollar program supporting local urban institutional capacity building at the local level is happening in the next fiscal year, July\xa01, here in Kenya. And so we're talking with the Department for Housing and Urban Development on this list of 71 secondary cities that they've selected with the World Bank to channel this 300 million dollar KUSP 2\xa0program over the next three, four, five years. And my prior on these big development programs is that rather than spreading this 300 hundred million dollars across\xa0a swathe\xa0of stuff,\xa0you should prioritize. And so I said, okay, you do that with the World Bank. Why don't we CCI, we identify three to four bright spots on that list of 71 cities, secondary cities - existing cities,\xa0that are already doing well with their current resources and we empower those three to four cities by designating them as a Special Development Zone or Special Economic Zone or Special Economic City, basically a charter city. And that way not only, you know,\xa0presumably if they're already doing well with their existing resources by empowering them further, they just double down on that success, number one.
But number two, if they are then successful, they serve as a much, much greater and more powerful demonstration effect to the list of the other 67, 68 cities on that list of the KUSP 2\xa0program. Right? If I'm a mayor in Kenya, my neighbouring mayor, if they are one of these three to four bright spots, and I see them and they're doing amazing stuff,\xa0that's way more influential to me and shows me that it's very possible to do this as my neighbour is doing it than some world banker coming in for a couple of weeks and giving a workshop. Right? So that's one way in which CCI is working with existing cities.
And I think one of the low-hanging fruits, to use your term, is these secondary cities, especially in sub-Saharan Africa.\xa0I think, like,\xa0a large swathe\xa0of the urban growth and the growth in urban population is going to happen in small,\xa0secondary cities and towns of kind of 100,000 people and under. And I think most of the oxygen in the room, whether that's time, attention, funding, gets sucked up by these mega-cities\xa0of Lagos\xa0and Kinshasa and Nairobi and Jo-burg. But a lot of these secondary cities have number one, less capacity than these mega-cities\xa0and are going to see growth rates that oftentimes surpass the rates of growth of these mega-cities\xa0at four, five, 6% per year. And so focusing there could be hugely impactful. Plus, I mean, I'll just say, Shenzhen, at the time it was designated a Special Economic Zone in 1980, had a population of between a 100 and 300,000 people. So by all intents and purposes, it was a secondary city at the time of its initial takeoff\xa0and so you could consider what I just outlined an analogous situation.
Tobi;\xa0
Okay, I hope to see that workout. Thank you very much, Kurtis. It's been fantastic talking to you. It's been an amazing hour. Thank you very much.
Kurtis;
Likewise, Tobi. Thanks so much for having me. And I'm glad we finally got to schedule this. Thanks so much.
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