The Ash Twins Blog

http://freakonomics.blogs.nytimes.com/2009/09/29/can-charter-cities-change-the-world-a-qa-with-paul-romer/

Excerpt:

Suppose you wanted to do for Cuba what Deng Xiaoping did for China: engineer the transition from communism to rapid market-led growth. To do this, you might want to create a special zone where some of your citizens could opt-in to the market system without forcing others to make this change. You might be able to do this with a charter city that you control out of the president’s office.

Now suppose you also want to make a binding commitment to rule-of-law protections for the foreign investors and potential residents from foreign countries you’d like to attract to this city. Investors from the rest of the world could finance the infrastructure for a new city in exchange for fee income from users. Entrepreneurs and managers from the rest of the world might come and run the businesses that would hire millions of people. Many of these highly educated and experienced people might be émigrés who left when the island turned to communism. These investors and these potential residents will come only if you can promise them the protections afforded by the rule of law.

By yourself, with the Cuban institutions that you control, there is simply no way for you to make a credible binding commitment to the rule of law. You could simply change your mind later. More importantly, your successor, whomever that may be, might want to back out of any promises you make.

The only way for you and your contemporaries to make a binding, long-term commitment is to sign a treaty with a country like Canada and to use it as a third-party guarantor. In effect, what a treaty lets you do is leverage the existing credibility of Canadian institutions and bring in the rule of law.