To repeat an old theme: rich countries are rich largely because they have good institutions. So what do you do if your country has bad institutions? Most success stories — Japan, Korea, Chile, India, China — can point to decades or more of slow institutional improvement. Paul Romer thinks we might be able to accelerate this process and adopt someone else’s institutions all at once. Or, as this piece puts it:
What if a corrupt or ineffective government could simply be disconnected from the country and replaced with a better version, like loading a new operating system into an old computer?
It’s an appealing idea, but can it work? A number of countries have tried special economic zones, which operate under somewhat different rules than the surrounding area, but Paul’s plan outsources the entire legal system to a country with a better one. Think Hong Kong under the British.
His first experiment was to take place in Honduras, a country known for its poverty and corruption. The World Bank’s Doing Business Annual Report ranks its business climate 128th out of 183 countries, so it’s clear there is room for improvement. The initial steps were bumpy enough that Romer pulled out. See here and here. Time will tell whether the people of Honduras see significant progress — or become yet another example of the costs of bad governance.
Update (Oct 13): I just ran across this old link from MR about “private cities.” As developing countries urbanize, there’s a huge need for the services need to work effectively — something Paul’s been saying for year. The question is how to deliver it. We’re starting to see lots of examples of alternatives to local government.