Why I’m Bullish on Charter Cities

Politicians ask why people are poor. Economists ask why people are rich. Rich is a more interesting question than poor, because poor is the default, which makes poverty over-determined: a theory of poverty is interesting in the same way that the theory of gravity is interesting, but I’m less focused on being Isaac Newton than being the Wright Brothers.

There are a few ways countries have gotten rich, but they’re not all reliable.

One solid option is to have lots of valuable natural resources. Qatar, for example, has the third largest natural gas reserves in the world, and a GDP per capita of $63,500. On the other hand, Venezuela has the world’s largest oil reserves, and they’re starving.

Another option is for the state to take whatever means it can to tamp down consumption in favor of savings, and hope to turn those savings into wealth-producing assets. This was more or less the blueprint of 19th century Prussia (where the social contract was more or less that cartels could engage in price-fixing as long as they kept boosting production and thus employment) and postwar Japan and Korea, as well as China — all countries where the banking system, to one degree or another, was a system that transferred wealth from savings to manufacturers in order to build an industrial base.

That’s a challenging option; it tends to require an active, efficient, government whose legitimacy is unquestioned.