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Nation-States, Cities, and
Charter Cities
Gregory Rehmke
IES-Europe Seminar, July 14 - July 20, 2012
St. Ivan Rilski Hotel, Bansko, Bulgaria 
1Sunday, July 15, 12
Exchange
Cities
Arrival
Cities
Charter
Cities
www.EconomicThinking.org/chartercities
2Sunday, July 15, 12
http://oll.libertyfund.org/ One of Tracy's key
social and economic
ideas was that "society
is purely and solely a
continual series of
exchanges" and his
broader social theory is
based upon working out
the implications of this
notion of free exchange.
3Sunday, July 15, 12
Cities, Exchanges, andTrade
• Destutt de Tracy (1754-1836): "society is purely
and solely a continual series of exchanges."
• What are the implications the claim of society
being exchange, and exchange creating society?
• Limited exchanges in rural society, with
agriculture, where population density is low.
• High transportation costs limit scope of trade.
• Limited exchange opportunities:
• reduces spread and exchange of knowledge
• reduces division of labor
• limits specialization and productivity gains.
4Sunday, July 15, 12
Cultural Norms, Commercial Law,
Charter Cities,Trade
• The world of the Ancient Greeks: Competing
cities and their institutions across the
Mediterranean Sea and Black Sea.
• MedievalTrade: Venice, Genoa,The Hansa
• Medieval monasteries: Increasing trade between
and around monasteries across Europe.
• Charter Cities and The Hanseatic League.
• The rise of markets, natural rights, self-
government with the rise of Charter Cities.
5Sunday, July 15, 12
The Greeks: Traditions and Trade
• HERMES:The god of riches, trade,
good fortune, messenger of gods.
• The Greeks gods called for
travelers to be treated well.
• Travelers bring news, goods to
trade and knowledge. Trade
by sea required private property,
contracts, and encouraged entrepreneurship.
• Trade is a discovery process encouraging
technology, innovation, and the flow of ideas.
6Sunday, July 15, 12
7Sunday, July 15, 12
Cities,Trade, and Transportation
in the Ancient World
Water was key to trade, shipping along
rivers and seas was100 times cheaper
than overland “shipping.”
8Sunday, July 15, 12
Medieval Trade
Venice, Genoa,The Hansa
9Sunday, July 15, 12
The Hanseatic League
10Sunday, July 15, 12
Notes on The Hanseatic
League and Freedom of
Trade
Leonard P. Liggio
"Free-Market links forged at Nordic summit"
That was the head-line last week in the Financial Times.
England's prime minister hosted "an unprecedented "UK-
Nordic-Baltic" summit, bringing together the leaders of some of
Europe's most liberal, free-market ... and fiscally
tough nations." Finland's foreign minister, Alexander Stubb, said
the summit was "a smart move" by England's prime minister
bringing together "the most Anglo-Saxon countries in the EU"
which share a belief in free-market economics and skepticism of
Brussels' policies..
England, Iceland, Norway, Denmark, Sweden, Finland,
Estonia, Latvia and Lithuania were accused from Paris of
forming a "Northern League" against the power of Brussels and
EU spending. Norway and Iceland are not members of the EU;
Sweden and Denmark are outside the Euro.
Many of these countries appear near the top of the listings of
the Economic Freedom of the World indexes.
England, Nordic and Baltic countries, like Singapore and Hong
Kong, reflect the free trade traditions of
the Hanseatic League.
The Hansa tradition was examined in the MPS presidential
address which Leonard P. Liggio presented at the MPS regional
meeting in Hamburg, German Federal Republic in April, 2004.
The Hanseatic League was an unusual entity. It was
embedded in the Holy Roman Empire of the German
Nation (founded in 800 AD and ended in 1806 AD). But,
there were many kings, princes, dukes, barons, bishops,
abbots, and free cities under the cloak of the Holy Roman
Empire. In fact, free cities were a very important part of
the Holy Roman Empire. The free cities held charters of
self-government from the Emperor, after payment of a fee.
The German Hansa was begun as associations of north
German merchants, and in the mid-fourteenth century
developed into a unique entity, an association of cities. The
free cities were ruled by merchant senates. The Hansa
comprised almost 200 maritime and interior cities (along
rivers). It extended from Bruges and Ghent in Flanders and
London in the west to the Republic of Novgorod in
western Russia and Tallinn on the Gulf of Finland in the
east; from Bergen in the north to middle Germany in the
south. But Hansa activities extended to Venice where there
was the famous German fondacio (factory) where the
German merchants lived and warehoused their goods. The
Baltic (East Sea) and the North Sea were at the center of
the Hansa. In the context of the merely formal nature of
the Holy Roman Empire, the Hansa conducted its own
diplomacy to maintain its access to trade and its own naval
strength (armed merchant vessel) to protect its commerce
against the unrestrained governments. The Hanseatic
League had no finances, army or fleet of its own. There
were no Hanseatic officials, only the officials of the
member cities. There was a diet or Hansetag which rarely
met.
Philippe Dollinger declared:
But in spite of these structural weaknesses and the
conflicting interests inevitable in an association of towns
so different and so distant from one another, the Hansa
was able to hold its own for nearly five hundred years. The
secret of its long life is to be found not in coercion, which
played no appreciable role, but in the realization of
common interests which bound the members of the
community together. This sense of solidarity was founded
on the determination to control the commerce of northern
Europe. The historical function of the Hansa was in fact to
furnish western Europe with those products of eastern
Europe which it needed and in return to provide eastern
Europe with some basic necessities, above all cloth and
salt, from western Europe. As long as this economic
interdependence continued the Hansa survived.
(Philippe Dollinger, The German Hansa (trans. & ed. D. S. Ault
and S. H. Steinberg) Sanford, CA, Stanford University Press,
1970, pp. xvii-xviii, (Dollinger, La Hanse (XII-XVII
siecles) Aubier, Editions Montaigne (Paris 1964).)
Europe in the Middle Ages was a frontier expanding
society. Settlers and colonists cleared forests and marshes
internally and then expanded to the east. German
settlements went beyond the Holy Roman Empire: along
the Baltic coast, or into Poland and Hungary
(Siebenburgen in Transylvania, and the Banat of
Temisvar).German merchants became important
innovators in many eastern cities, such as Cracow and
Lvov, where they often encountered Oriental merchants
such as Armenians. (N B: There was an important
Armenian metropolitan of Lvov into the 20th century).
1
In 1266, Henry III granted
the Lübeck and Hamburg
Hansa a charter for
operations in England, and
the Cologne Hansa joined
them in 1282 to form the
most powerful Hanseatic
colony in London.
11Sunday, July 15, 12
http://tinyurl.com/49x5s8q
12Sunday, July 15, 12
To attract that missing
ingredient to his city,
Henry hit on an idea
that has enjoyed a sort
of comeback lately. He
devised a charter for
Lübeck, a set of “most
honorable civic rights,”
calculating that a city
with light regulation and
fair laws would attract
investment easily.
The stultifying feudal hierarchy was cast aside; an autonomous council
of local burgesses would govern Lübeck. Onerous taxes and trade
restrictions were ruled out; merchants who settled in Lübeck would be
exempt from duties and customs throughout Henry the Lion’s lands,
which stretched south as far as Bavaria.
13Sunday, July 15, 12
www.chartercities.org/
www.economicthinking.org/chartercities/
14Sunday, July 15, 12
www.GlobalEnvision.org
http://www.theatlantic.com/magazine/archive/2010/07/the-politically-incorrect-guide-to-ending-poverty/8134/
July/August 2010
The Politically Incorrect Guideto Ending Poverty
IN THE 1990S, PAUL ROMER REVOLUTIONIZEDECONOMICS. IN THE AUGHTS, HE BECAME RICH ASA SOFTWARE ENTREPRENEUR. NOW HE’S TRYINGTO HELP THE POOREST COUNTRIES GROW RICH—BY CONVINCING THEM TO ESTABLISH FOREIGN-RUN “CHARTER CITIES” WITHIN THEIR BORDERS.ROMER’S IDEA IS UNCONVENTIONAL, EVEN NEO-COLONIAL—THE BEST ANALOGY IS BRITAIN’SHISTORIC LEASE OF HONG KONG. AND AGAINSTALL ODDS, HE JUST MIGHT MAKE IT HAPPEN.
By Sebastian Mallaby
HALFWAY THROUGH THE 12TH CENTURY, and a longtime before economists began pondering how to turn poorplaces into rich ones, the Germanic prince Henry the Lionset out to create a merchant’s mecca on the lawless Balticcoast. It was an ambitious project, a bit like trying to builda new Chicago in modern Congo or Iraq. NorthernGermany was plagued by what today’s development gurusmight delicately call a “bad-governance equilibrium,” itstownships frequently sacked by Slavic marauders such asthe formidable pirate Niclot the Obotrite. But Henry wasnot a mouse. He seized control of a fledgling town calledLübeck, had Niclot beheaded on the battlefield, andarranged for Lübeck to become the seat of a diocese. Agrand rectangular market was laid out at the center of thetown; all that was missing was the merchants.
To attract that missing ingredient to his city, Henry hit onan idea that has enjoyed a sort of comeback lately. Hedevised a charter for Lübeck, a set of “most honorable civicrights,” calculating that a city with light regulation and fairlaws would attract investment easily. The stultifying feudalhierarchy was cast aside; an autonomous council of localburgesses would govern Lübeck. Onerous taxes and traderestrictions were ruled out; merchants who settled inLübeck would be exempt from duties and customsthroughout Henry the Lion’s lands, which stretched southas far as Bavaria. The residents of Lübeck were promisedfair treatment before the law and an independent mint thatwould shelter them from confiscatory inflation. With thisbill of rights in place, Henry dispatched messengers to
Russia, Denmark, Norway, and Sweden. Merchants wholiked the sound of his charter were invited to migrate toLübeck.
The plan worked. Immigrants soon began arriving in force,and Lübeck became the leading entrepôt for the buddingBaltic Sea trade route, which eventually extended as farwest as London and Bruges and as far east as Novgorod, inRussia. Hundreds of oaken cogs—ships powered by asingle square sail—entered Lübeck’s harbor every year,their hulls bursting with Flemish cloth, Russian fur, andGerman salt. In less than a century, Lübeck went from abackwater to the most populous and prosperous town innorthern Europe. “In medieval urban history there ishardly another example of a success so sudden and sobrilliant,” writes the historian Philippe Dollinger.
Perhaps the only thing more remarkable than Lübeck’swealth was the influence of its charter. As trade routeslengthened, new cities mushroomed all along the Balticshore, and rather than develop a legal code from scratch,the next wave of city fathers copied Lübeck’s charter,importing its political and economic liberties. The earlyimitators included the nearby cities of Rostock and Danzig,but the charter was eventually adopted as far afield as Rigaand Tallinn, the capitals of modern Latvia and Estonia.The medieval world had stumbled upon a formula forcreating order out of chaos and prosperity amidbackwardness. Lübeck ultimately became the seat of theHanseatic League, an economic alliance of 200 cities thatlasted nearly half a millennium.
FAST-FORWARD SEVERAL CENTURIES, and Henry theLion’s would-be heir is Paul Romer, a gentle economist atStanford University. Elegant, bespectacled, geekishlycurious in a boyish way, Romer is not the kind of personyou might picture armed with a two-handed flanged mace,cutting down Slavic marauders. But he is bent on cuttingdown an adversary almost as resistant: the conventionalapproach to development in poor countries. Rather thanbetting that aid dollars can beat poverty, Romer ispeddling a radical vision: that dysfunctional nations can
kick-start their own
development by creating
new cities with new rules—
Lübeck-style centers of
progress that Romer calls
“charter cities.” By building
urban oases of technocratic
sanity, struggling nations
could attract investment
and jobs; private capital
would flood in and foreign
aid would not be needed.
And since Henry the Lion is
not on hand to establish
1
Image credit: Mark Ostow
www.economicthinking.org/chartercities/
15Sunday, July 15, 12
Mănăstirea Cârţa
16Sunday, July 15, 12
The Medieval Machine
“These monasteries were the most
economically effective units that
had ever existed in Europe.”
“...similar water-power systems
at monasteries...even
thousands of miles away.”
17Sunday, July 15, 12
“Transnational” Corporations
of the Middle Ages...
• At its height, 37,000 Benedictine monasteries.
• “Every Benedictine monastery was an
agricultural college for the whole region in
which it was located.”  
• 742 Cistercian Monasteries transferring factory
and agricultural knowledge technology across
western Europe.  
• Ideas and goods exchanged in each region and
between monasteries, along rivers, seas and
ocean coastlines.
18Sunday, July 15, 12
http://www.chartercities.org/concept
• Charter cities are special reform zones.They let governments
quickly adopt innovative new systems of rules.
• A charter city’s formal rules, and the norms that they encourage,
can differ markedly from a country’s prevailing system of rules.
• The concept is very flexible, but three elements are common to
all charter cities:
• 1. An uninhabited piece of city-sized land, provided voluntarily by
a host government.
• 2. A charter that specifies the rules that will govern the new city.
• 3. The freedom for would-be charter city residents to move in or
out of the reform zone.
• Charter cities are based entirely on voluntary actions—no
person, employer, investor, or country can be coerced into
participating. Only countries that want to charter new cities will
free up the land to do so.The use of unoccupied land ensures that
19Sunday, July 15, 12
Early
European
Cities and
Rise of
Markets
and Self-
government
20Sunday, July 15, 12
• Sovereignty: What is it’s
source and what are its
limits?
• Are laws made by justly
elected government?
• Natural Law: States did
not create law. Law
first, then states. A state
is an institution of law...
• U.S. Constitution:
Enumerated federal
powers, derived from
consent of governed.
21Sunday, July 15, 12
• In the modern world, private inter-
national law protects commerce.
• Some believe the State is all powerful
and that law is what the the sovereign
state says it is.
• Grotius: Rulers traditionally obtained
their legitimacy through their
commitment to enforcing the law--
law being coeval with society itself...
• Justice is not always obvious, and judges
apply accepted rules to new situations.
Natural Law Limits on
Sovereign Power
!
22Sunday, July 15, 12
The First and Only Republic
in Russia: Novgorod
23Sunday, July 15, 12
Novgorod...
• Founded byVikings from
Sweden in 9th Century
• Escaped Mongol attacks and tribute, and maintained
self-rule as part of Hanseatic League.
• “Novgorod maintained a central veche...” (assembly)
• “All freeman of Novgorod...regardless of
social status, were entitled to participate in its
deliberations; decisions were made by acclamation.”
24Sunday, July 15, 12
The marketplace in Novgorod.
25Sunday, July 15, 12
Society, the State,
and Wealth Creation
• The marketplace at Novgorod...
• Other places... (houses, farms, shops)
• Churches, associations (guilds, clubs, etc.)
• In Moscow: the aristocracy (landowners).
• In Western Europe, the gradual development
of legal institutions securing rights and
responsibilities.
26Sunday, July 15, 12
• Antigone: The limits of a sovereign’s
power.
• Property rights limit sovereign
power: whether a King, Parliament, or
Democracy. (Scene in new Robin
Hood)
• Richard Pipes: Rule of law: property
rights limit sovereign power. But not
a concept understood in non-western
lands: Russia, China, etc.
• Common Law and Law Merchant:
Rules independent of sovereign
powers (p. 24)
27Sunday, July 15, 12
Property History
• Property Rights in Ancient Greece
and Rome.
• Roman property law lost in fall of
Roman Empire.
• Invading Germanic tribes enforced their own
“barbarian” codes.
• Feudalism (lordship and subjection) were
unique fusion of sovereignty and ownership,
and only in Western Europe (900-1250 AD).
28Sunday, July 15, 12
Rick Steves’ “Little Europe”
Monaco lures visitors
with its fancy casino and
glamorous views. Italy's
last independent hill town
of San Marino still looks
formidable, as does the
castle-guarded
principality of
Liechtenstein. And tiny
Andorra entertains
shoppers and hikers alike,
surrounded by the rugged
beauty of the Pyrenees.
29Sunday, July 15, 12
30Sunday, July 15, 12
31Sunday, July 15, 12
www.economicthinking.org/
chartercities/
32Sunday, July 15, 12
33Sunday, July 15, 12
Migration to New Cities
34Sunday, July 15, 12
Triumph of the City
or, Call of the Entrepreneur
for Ben, the Luggage Boy
Entrepreneurs in the exchange economies of cities create and
coordinate economic prosperity. Around the world 350 cities
with over a million residents have recently joined the world
economy. Opportunity draws the rural poor into these cities
where they can join the global workforce. Sound legal institu-
tions are key, as are honesty, savings, and self-improvement.
Through the 1800s hundreds of thousands of young people were
drawn from the countryside to New York City and to other
American cities. Then, railroads lowered transportation costs to
the ports of Europe in the late 1800s and early 1900s, and steam-
ships lowered theAtlantic crossing. Millions of Europeans mi-
grated from Europe to American cities, moving from where land
was relatively scarce to where labor was relatively scarce and
wages higher. Millions stayed in fast expanding cities, and mil-
lions more moved on to the develop farms and
populate the cities across the American west (as
brought to life in the corny but wonderful movie,
book, and TV series, How the West Was Won).
What was life like for the millions of migrants en-
tering New York City’s “golden door” in the 1800s?
Horatio Alger, Jr.’s many popular novels for young
people drew from the actual stories related to Alger
in interviews with New York City bootblacks, er-
rand boys, and luggage “smashers.” Alger’s “rags
to riches” novels were eagerly read by millions of
Americans over the following decades. Most of us
have heard of “Horatio Alger stories,” but not many
ever actually read one.
A few months ago I read my first: Ragged Dick or
Street Life in New York with the Bootblacks, a popular Horatio
Alger, Jr. novel still in print. This short novel is brings to life
plex exchanges among hundreds of
thousands of strangers each day.
City people don’t know more about
the world (they usually know far less
of life outside the city), but what they
do know is more finely divided into
skills distributed among dozens or
hundreds across enterprises, factories,
and industries. This deeper division
of labor and wider scope of trade al-
lows marvelously complicated opera-
tions, from the design and assembly
of watches, bicycles, and buildings, to
the management and operation of factories and textiles mills.
The progressive power of cities pushing specialization, produc-
tion, and exchange lifted living standards in western Europe for-
centuries. But such dynamic cities never fully developed in
Russia, Asia and India. Why? Institutional financial restraints
slowed large enterprises in the Islamic world too (see Timur Ku-
ran’s book The Long Divergence: How Islamic Law Held Back
the Middle East).
Since the fall of communism in Eastern and
Southern Europe, the former USSR, and China,
plus the shift from socialism in India and much of
Africa, millions worldwide have streamed to fast-
expanding cities. Lacking economic freedom and
rule of law institutions, wealth creation in cities
of the developing world has been slower than it
could have been. But in recent decades technol-
ogy advances reducing the price of food, trans-
portation, and clothing have partially compen-
sated.
Edward Glaeser in Triumph of the City comments
that there is “a lot to like” about the shanty towns
of the developing world. These seem terrible
places for poor and homeless families–and for the
homeless without families–but compared to what? Compared to
35Sunday, July 15, 12
www.economicthinking.org/TheNewEurope/
36Sunday, July 15, 12
www.economicthinking.org/TheNewEurope/
The rest of the story is
intangible capital. That
encompasses raw labor; human
capital, which includes the sum
of a population's knowledge
and skills; and the level of trust
in a society and the quality of
its formal and informal
institutions. Worldwide,
the study finds, “natural
capital accounts for 5
percent of total wealth,
produced capital for 18
percent, and intangible
capital 77 percent.”
37Sunday, July 15, 12
The Power of the Poor
http://www.izzit.org
38Sunday, July 15, 12
Legislation to shape
right behavior? Or law
to shape right behavior?
39Sunday, July 15, 12
Property History
• Most were peasants under feudal law, but
cities revived in tenth century.
• Thriving commercial centers by the eleventh,
where wealth was in goods, real estate, and
capital, rather than in agricultural land.
• Peasants were tenants--with rights and
responsibilities--but not property in land.
• City merchants gained rights to govern
themselves and administer justice.
• Merchants “frequently entered into private
contracts which neither royal nor feudal
courts would enforce” (Pipes, p. 108)
40Sunday, July 15, 12
Property History
• Cities gained freedom from local
princes and became “self-governing,
self-judging communes...” (p. 109)
• All male residents had right to participate in
communal assemblies (long Germanic custom).
• All urban residents (including runaway serfs) in
cities were considered free after a year and day.
• “Trade, along with manufacture and the capital to
which both gave rise, created in the midst of an
agrarian society based on duties and privileges,
oases of liberty based on rights.” (p.111)
41Sunday, July 15, 12
Property History
• Modern democracy originated in medieval
towns, where private property and free-
enterprise were protected by law the rule.
• Through the fourteenth and fifteenth centuries
with the rise of nation states (and gunpowder),
most cities began to lose their autonomy.
• “The sixteenth and seventeenth centuries were an
era of absolutism which had no tolerance for urban
self-rule.” (p. 111)
• “But the ideals the cities had fostered and the
institutions they had created became an intrinsic
part of the Western political tradition.” (p. 111)
42Sunday, July 15, 12
Institutions and Economic Development:
Arrival Cities and Charter Cities
Gregory Rehmke
www.EconomicThinking.org • grehmke@gmail.com
http://www.theatlantic.com/magazine/archive/2010/07/
the-politically-incorrect-guide-to-ending-poverty/8134/
July/August 2010
The Politically Incorrect Guide
to Ending Poverty
IN THE 1990S, PAUL ROMER REVOLUTIONIZED
ECONOMICS. IN THE AUGHTS, HE BECAME RICH AS
A SOFTWARE ENTREPRENEUR. NOW HE’S TRYING
TO HELP THE POOREST COUNTRIES GROW RICH—
BY CONVINCING THEM TO ESTABLISH FOREIGN-
RUN “CHARTER CITIES” WITHIN THEIR BORDERS.
ROMER’S IDEA IS UNCONVENTIONAL, EVEN NEO-
COLONIAL—THE BEST ANALOGY IS BRITAIN’S
HISTORIC LEASE OF HONG KONG. AND AGAINST
ALL ODDS, HE JUST MIGHT MAKE IT HAPPEN.
By Sebastian Mallaby
HALFWAY THROUGH THE 12TH CENTURY, and a long
time before economists began pondering how to turn poor
places into rich ones, the Germanic prince Henry the Lion
set out to create a merchant’s mecca on the lawless Baltic
coast. It was an ambitious project, a bit like trying to build
a new Chicago in modern Congo or Iraq. Northern
Germany was plagued by what today’s development gurus
might delicately call a “bad-governance equilibrium,” its
townships frequently sacked by Slavic marauders such as
the formidable pirate Niclot the Obotrite. But Henry was
not a mouse. He seized control of a fledgling town called
Lübeck, had Niclot beheaded on the battlefield, and
arranged for Lübeck to become the seat of a diocese. A
grand rectangular market was laid out at the center of the
town; all that was missing was the merchants.
To attract that missing ingredient to his city, Henry hit on
an idea that has enjoyed a sort of comeback lately. He
devised a charter for Lübeck, a set of “most honorable civic
rights,” calculating that a city with light regulation and fair
laws would attract investment easily. The stultifying feudal
hierarchy was cast aside; an autonomous council of local
burgesses would govern Lübeck. Onerous taxes and trade
restrictions were ruled out; merchants who settled in
Lübeck would be exempt from duties and customs
throughout Henry the Lion’s lands, which stretched south
as far as Bavaria. The residents of Lübeck were promised
fair treatment before the law and an independent mint that
would shelter them from confiscatory inflation. With this
bill of rights in place, Henry dispatched messengers to
Russia, Denmark, Norway, and Sweden. Merchants who
liked the sound of his charter were invited to migrate to
Lübeck.
The plan worked. Immigrants soon began arriving in force,
and Lübeck became the leading entrepôt for the budding
Baltic Sea trade route, which eventually extended as far
west as London and Bruges and as far east as Novgorod, in
Russia. Hundreds of oaken cogs—ships powered by a
single square sail—entered Lübeck’s harbor every year,
their hulls bursting with Flemish cloth, Russian fur, and
German salt. In less than a century, Lübeck went from a
backwater to the most populous and prosperous town in
northern Europe. “In medieval urban history there is
hardly another example of a success so sudden and so
brilliant,” writes the historian Philippe Dollinger.
Perhaps the only thing more remarkable than Lübeck’s
wealth was the influence of its charter. As trade routes
lengthened, new cities mushroomed all along the Baltic
shore, and rather than develop a legal code from scratch,
the next wave of city fathers copied Lübeck’s charter,
importing its political and economic liberties. The early
imitators included the nearby cities of Rostock and Danzig,
but the charter was eventually adopted as far afield as Riga
and Tallinn, the capitals of modern Latvia and Estonia.
The medieval world had stumbled upon a formula for
creating order out of chaos and prosperity amid
backwardness. Lübeck ultimately became the seat of the
Hanseatic League, an economic alliance of 200 cities that
lasted nearly half a millennium.
FAST-FORWARD SEVERAL CENTURIES, and Henry the
Lion’s would-be heir is Paul Romer, a gentle economist at
Stanford University. Elegant, bespectacled, geekishly
curious in a boyish way, Romer is not the kind of person
you might picture armed with a two-handed flanged mace,
cutting down Slavic marauders. But he is bent on cutting
down an adversary almost as resistant: the conventional
approach to development in poor countries. Rather than
betting that aid dollars can beat poverty, Romer is
peddling a radical vision: that dysfunctional nations can
kick-start their own
development by creating
new cities with new rules—
Lübeck-style centers of
progress that Romer calls
“charter cities.” By building
urban oases of technocratic
sanity, struggling nations
could attract investment
and jobs; private capital
would flood in and foreign
aid would not be needed.
And since Henry the Lion is
not on hand to establish
1
Image credit: Mark Ostow
43Sunday, July 15, 12
44Sunday, July 15, 12
45Sunday, July 15, 12
46Sunday, July 15, 12
WSJ: “Turkey Navigates
Regional Unrest” (Feb. 22, 20011, p A10)
• “Turkish businesses, too, are having to deal with
the costs of instability, after investing heavily in
the region. In the past two years,Turkish
construction companies launched $7.6 billion
worth of construction contracts in Libya.
• Turkish investment in Egypt: “$3 billion of
assets on the ground.”
• When turmoil started evacuating from Libya:
“Turkey’s estimated 25,000 citizens living there...”
47Sunday, July 15, 12
Economies Emerging
From USSR/Eastern Europe, and China,India,
Southeast Asia,Africa, and Latin America
freetochoose.tv
48Sunday, July 15, 12
From Russia with Love...
The State as Leviathan
The total power of
the Czars have
inspired kings and
dictators (and federal
goverments) ever since.
Nasser in Egypt and
Saddam in Iraq, and
their parties, inspired
by Mussolini and
national socialists...
49Sunday, July 15, 12
Adam Smith in Scotland:
Free Trade vs. Mercantilism
50Sunday, July 15, 12
“Long ago the four nations lived
together in harmony. Then
everything changed when the
Fire Nation attacked.”
51Sunday, July 15, 12
Mercantilism, Protectionism,
Free Trade, and The
Anti-Corn Law League
[Richard] Cobden’s
A Message from
the Forties
52Sunday, July 15, 12
53Sunday, July 15, 12
• The [] householders of Liverpool would declare in favour of
free trade if an election took place tomorrow morning.
(Great cheering.) But their borough had been handed
over, bound hand and foot, to the monopolists, by that
portion of the electors who were themselves the
greatest sufferers by this system—men who were the
first crushed by it, and who would be plunged into the
intensest suffering unless this system were abolished.
www.economist.com/
node/1857273
Sept. 2nd, 1843
Speech by John Bright of the Anti-Corn Law League
54Sunday, July 15, 12
• But [John Bright] had sat with them in their coages; he
saw them taking their breakfast and their tea; he showed
them how monopoly robbed them of their coffee and sugar,
and of bread and buer for their children; he showed them
how stonemasons, shoemakers, carpenters, and every kind of
artisan suffered if the trade of the country were
restricted; ... he showed them that the foul fiend of
monopoly stood upon, and had been called into existence by
the law of England,—that law which they by their conduct at
former elections had assisted to make,—and he proved to
them that that fiend deprived them of one-third or one-half
of the miserable piance of wages that they earned.
www.economist.com/
node/1857273
55Sunday, July 15, 12

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Nation-States, Arrival Cities, and Charter Cities

  • 1. Nation-States, Cities, and Charter Cities Gregory Rehmke IES-Europe Seminar, July 14 - July 20, 2012 St. Ivan Rilski Hotel, Bansko, Bulgaria  1Sunday, July 15, 12
  • 3. http://oll.libertyfund.org/ One of Tracy's key social and economic ideas was that "society is purely and solely a continual series of exchanges" and his broader social theory is based upon working out the implications of this notion of free exchange. 3Sunday, July 15, 12
  • 4. Cities, Exchanges, andTrade • Destutt de Tracy (1754-1836): "society is purely and solely a continual series of exchanges." • What are the implications the claim of society being exchange, and exchange creating society? • Limited exchanges in rural society, with agriculture, where population density is low. • High transportation costs limit scope of trade. • Limited exchange opportunities: • reduces spread and exchange of knowledge • reduces division of labor • limits specialization and productivity gains. 4Sunday, July 15, 12
  • 5. Cultural Norms, Commercial Law, Charter Cities,Trade • The world of the Ancient Greeks: Competing cities and their institutions across the Mediterranean Sea and Black Sea. • MedievalTrade: Venice, Genoa,The Hansa • Medieval monasteries: Increasing trade between and around monasteries across Europe. • Charter Cities and The Hanseatic League. • The rise of markets, natural rights, self- government with the rise of Charter Cities. 5Sunday, July 15, 12
  • 6. The Greeks: Traditions and Trade • HERMES:The god of riches, trade, good fortune, messenger of gods. • The Greeks gods called for travelers to be treated well. • Travelers bring news, goods to trade and knowledge. Trade by sea required private property, contracts, and encouraged entrepreneurship. • Trade is a discovery process encouraging technology, innovation, and the flow of ideas. 6Sunday, July 15, 12
  • 8. Cities,Trade, and Transportation in the Ancient World Water was key to trade, shipping along rivers and seas was100 times cheaper than overland “shipping.” 8Sunday, July 15, 12
  • 9. Medieval Trade Venice, Genoa,The Hansa 9Sunday, July 15, 12
  • 11. Notes on The Hanseatic League and Freedom of Trade Leonard P. Liggio "Free-Market links forged at Nordic summit" That was the head-line last week in the Financial Times. England's prime minister hosted "an unprecedented "UK- Nordic-Baltic" summit, bringing together the leaders of some of Europe's most liberal, free-market ... and fiscally tough nations." Finland's foreign minister, Alexander Stubb, said the summit was "a smart move" by England's prime minister bringing together "the most Anglo-Saxon countries in the EU" which share a belief in free-market economics and skepticism of Brussels' policies.. England, Iceland, Norway, Denmark, Sweden, Finland, Estonia, Latvia and Lithuania were accused from Paris of forming a "Northern League" against the power of Brussels and EU spending. Norway and Iceland are not members of the EU; Sweden and Denmark are outside the Euro. Many of these countries appear near the top of the listings of the Economic Freedom of the World indexes. England, Nordic and Baltic countries, like Singapore and Hong Kong, reflect the free trade traditions of the Hanseatic League. The Hansa tradition was examined in the MPS presidential address which Leonard P. Liggio presented at the MPS regional meeting in Hamburg, German Federal Republic in April, 2004. The Hanseatic League was an unusual entity. It was embedded in the Holy Roman Empire of the German Nation (founded in 800 AD and ended in 1806 AD). But, there were many kings, princes, dukes, barons, bishops, abbots, and free cities under the cloak of the Holy Roman Empire. In fact, free cities were a very important part of the Holy Roman Empire. The free cities held charters of self-government from the Emperor, after payment of a fee. The German Hansa was begun as associations of north German merchants, and in the mid-fourteenth century developed into a unique entity, an association of cities. The free cities were ruled by merchant senates. The Hansa comprised almost 200 maritime and interior cities (along rivers). It extended from Bruges and Ghent in Flanders and London in the west to the Republic of Novgorod in western Russia and Tallinn on the Gulf of Finland in the east; from Bergen in the north to middle Germany in the south. But Hansa activities extended to Venice where there was the famous German fondacio (factory) where the German merchants lived and warehoused their goods. The Baltic (East Sea) and the North Sea were at the center of the Hansa. In the context of the merely formal nature of the Holy Roman Empire, the Hansa conducted its own diplomacy to maintain its access to trade and its own naval strength (armed merchant vessel) to protect its commerce against the unrestrained governments. The Hanseatic League had no finances, army or fleet of its own. There were no Hanseatic officials, only the officials of the member cities. There was a diet or Hansetag which rarely met. Philippe Dollinger declared: But in spite of these structural weaknesses and the conflicting interests inevitable in an association of towns so different and so distant from one another, the Hansa was able to hold its own for nearly five hundred years. The secret of its long life is to be found not in coercion, which played no appreciable role, but in the realization of common interests which bound the members of the community together. This sense of solidarity was founded on the determination to control the commerce of northern Europe. The historical function of the Hansa was in fact to furnish western Europe with those products of eastern Europe which it needed and in return to provide eastern Europe with some basic necessities, above all cloth and salt, from western Europe. As long as this economic interdependence continued the Hansa survived. (Philippe Dollinger, The German Hansa (trans. & ed. D. S. Ault and S. H. Steinberg) Sanford, CA, Stanford University Press, 1970, pp. xvii-xviii, (Dollinger, La Hanse (XII-XVII siecles) Aubier, Editions Montaigne (Paris 1964).) Europe in the Middle Ages was a frontier expanding society. Settlers and colonists cleared forests and marshes internally and then expanded to the east. German settlements went beyond the Holy Roman Empire: along the Baltic coast, or into Poland and Hungary (Siebenburgen in Transylvania, and the Banat of Temisvar).German merchants became important innovators in many eastern cities, such as Cracow and Lvov, where they often encountered Oriental merchants such as Armenians. (N B: There was an important Armenian metropolitan of Lvov into the 20th century). 1 In 1266, Henry III granted the Lübeck and Hamburg Hansa a charter for operations in England, and the Cologne Hansa joined them in 1282 to form the most powerful Hanseatic colony in London. 11Sunday, July 15, 12
  • 13. To attract that missing ingredient to his city, Henry hit on an idea that has enjoyed a sort of comeback lately. He devised a charter for Lübeck, a set of “most honorable civic rights,” calculating that a city with light regulation and fair laws would attract investment easily. The stultifying feudal hierarchy was cast aside; an autonomous council of local burgesses would govern Lübeck. Onerous taxes and trade restrictions were ruled out; merchants who settled in Lübeck would be exempt from duties and customs throughout Henry the Lion’s lands, which stretched south as far as Bavaria. 13Sunday, July 15, 12
  • 15. www.GlobalEnvision.org http://www.theatlantic.com/magazine/archive/2010/07/the-politically-incorrect-guide-to-ending-poverty/8134/ July/August 2010 The Politically Incorrect Guideto Ending Poverty IN THE 1990S, PAUL ROMER REVOLUTIONIZEDECONOMICS. IN THE AUGHTS, HE BECAME RICH ASA SOFTWARE ENTREPRENEUR. NOW HE’S TRYINGTO HELP THE POOREST COUNTRIES GROW RICH—BY CONVINCING THEM TO ESTABLISH FOREIGN-RUN “CHARTER CITIES” WITHIN THEIR BORDERS.ROMER’S IDEA IS UNCONVENTIONAL, EVEN NEO-COLONIAL—THE BEST ANALOGY IS BRITAIN’SHISTORIC LEASE OF HONG KONG. AND AGAINSTALL ODDS, HE JUST MIGHT MAKE IT HAPPEN. By Sebastian Mallaby HALFWAY THROUGH THE 12TH CENTURY, and a longtime before economists began pondering how to turn poorplaces into rich ones, the Germanic prince Henry the Lionset out to create a merchant’s mecca on the lawless Balticcoast. It was an ambitious project, a bit like trying to builda new Chicago in modern Congo or Iraq. NorthernGermany was plagued by what today’s development gurusmight delicately call a “bad-governance equilibrium,” itstownships frequently sacked by Slavic marauders such asthe formidable pirate Niclot the Obotrite. But Henry wasnot a mouse. He seized control of a fledgling town calledLübeck, had Niclot beheaded on the battlefield, andarranged for Lübeck to become the seat of a diocese. Agrand rectangular market was laid out at the center of thetown; all that was missing was the merchants. To attract that missing ingredient to his city, Henry hit onan idea that has enjoyed a sort of comeback lately. Hedevised a charter for Lübeck, a set of “most honorable civicrights,” calculating that a city with light regulation and fairlaws would attract investment easily. The stultifying feudalhierarchy was cast aside; an autonomous council of localburgesses would govern Lübeck. Onerous taxes and traderestrictions were ruled out; merchants who settled inLübeck would be exempt from duties and customsthroughout Henry the Lion’s lands, which stretched southas far as Bavaria. The residents of Lübeck were promisedfair treatment before the law and an independent mint thatwould shelter them from confiscatory inflation. With thisbill of rights in place, Henry dispatched messengers to Russia, Denmark, Norway, and Sweden. Merchants wholiked the sound of his charter were invited to migrate toLübeck. The plan worked. Immigrants soon began arriving in force,and Lübeck became the leading entrepôt for the buddingBaltic Sea trade route, which eventually extended as farwest as London and Bruges and as far east as Novgorod, inRussia. Hundreds of oaken cogs—ships powered by asingle square sail—entered Lübeck’s harbor every year,their hulls bursting with Flemish cloth, Russian fur, andGerman salt. In less than a century, Lübeck went from abackwater to the most populous and prosperous town innorthern Europe. “In medieval urban history there ishardly another example of a success so sudden and sobrilliant,” writes the historian Philippe Dollinger. Perhaps the only thing more remarkable than Lübeck’swealth was the influence of its charter. As trade routeslengthened, new cities mushroomed all along the Balticshore, and rather than develop a legal code from scratch,the next wave of city fathers copied Lübeck’s charter,importing its political and economic liberties. The earlyimitators included the nearby cities of Rostock and Danzig,but the charter was eventually adopted as far afield as Rigaand Tallinn, the capitals of modern Latvia and Estonia.The medieval world had stumbled upon a formula forcreating order out of chaos and prosperity amidbackwardness. Lübeck ultimately became the seat of theHanseatic League, an economic alliance of 200 cities thatlasted nearly half a millennium. FAST-FORWARD SEVERAL CENTURIES, and Henry theLion’s would-be heir is Paul Romer, a gentle economist atStanford University. Elegant, bespectacled, geekishlycurious in a boyish way, Romer is not the kind of personyou might picture armed with a two-handed flanged mace,cutting down Slavic marauders. But he is bent on cuttingdown an adversary almost as resistant: the conventionalapproach to development in poor countries. Rather thanbetting that aid dollars can beat poverty, Romer ispeddling a radical vision: that dysfunctional nations can kick-start their own development by creating new cities with new rules— Lübeck-style centers of progress that Romer calls “charter cities.” By building urban oases of technocratic sanity, struggling nations could attract investment and jobs; private capital would flood in and foreign aid would not be needed. And since Henry the Lion is not on hand to establish 1 Image credit: Mark Ostow www.economicthinking.org/chartercities/ 15Sunday, July 15, 12
  • 17. The Medieval Machine “These monasteries were the most economically effective units that had ever existed in Europe.” “...similar water-power systems at monasteries...even thousands of miles away.” 17Sunday, July 15, 12
  • 18. “Transnational” Corporations of the Middle Ages... • At its height, 37,000 Benedictine monasteries. • “Every Benedictine monastery was an agricultural college for the whole region in which it was located.”   • 742 Cistercian Monasteries transferring factory and agricultural knowledge technology across western Europe.   • Ideas and goods exchanged in each region and between monasteries, along rivers, seas and ocean coastlines. 18Sunday, July 15, 12
  • 19. http://www.chartercities.org/concept • Charter cities are special reform zones.They let governments quickly adopt innovative new systems of rules. • A charter city’s formal rules, and the norms that they encourage, can differ markedly from a country’s prevailing system of rules. • The concept is very flexible, but three elements are common to all charter cities: • 1. An uninhabited piece of city-sized land, provided voluntarily by a host government. • 2. A charter that specifies the rules that will govern the new city. • 3. The freedom for would-be charter city residents to move in or out of the reform zone. • Charter cities are based entirely on voluntary actions—no person, employer, investor, or country can be coerced into participating. Only countries that want to charter new cities will free up the land to do so.The use of unoccupied land ensures that 19Sunday, July 15, 12
  • 20. Early European Cities and Rise of Markets and Self- government 20Sunday, July 15, 12
  • 21. • Sovereignty: What is it’s source and what are its limits? • Are laws made by justly elected government? • Natural Law: States did not create law. Law first, then states. A state is an institution of law... • U.S. Constitution: Enumerated federal powers, derived from consent of governed. 21Sunday, July 15, 12
  • 22. • In the modern world, private inter- national law protects commerce. • Some believe the State is all powerful and that law is what the the sovereign state says it is. • Grotius: Rulers traditionally obtained their legitimacy through their commitment to enforcing the law-- law being coeval with society itself... • Justice is not always obvious, and judges apply accepted rules to new situations. Natural Law Limits on Sovereign Power ! 22Sunday, July 15, 12
  • 23. The First and Only Republic in Russia: Novgorod 23Sunday, July 15, 12
  • 24. Novgorod... • Founded byVikings from Sweden in 9th Century • Escaped Mongol attacks and tribute, and maintained self-rule as part of Hanseatic League. • “Novgorod maintained a central veche...” (assembly) • “All freeman of Novgorod...regardless of social status, were entitled to participate in its deliberations; decisions were made by acclamation.” 24Sunday, July 15, 12
  • 25. The marketplace in Novgorod. 25Sunday, July 15, 12
  • 26. Society, the State, and Wealth Creation • The marketplace at Novgorod... • Other places... (houses, farms, shops) • Churches, associations (guilds, clubs, etc.) • In Moscow: the aristocracy (landowners). • In Western Europe, the gradual development of legal institutions securing rights and responsibilities. 26Sunday, July 15, 12
  • 27. • Antigone: The limits of a sovereign’s power. • Property rights limit sovereign power: whether a King, Parliament, or Democracy. (Scene in new Robin Hood) • Richard Pipes: Rule of law: property rights limit sovereign power. But not a concept understood in non-western lands: Russia, China, etc. • Common Law and Law Merchant: Rules independent of sovereign powers (p. 24) 27Sunday, July 15, 12
  • 28. Property History • Property Rights in Ancient Greece and Rome. • Roman property law lost in fall of Roman Empire. • Invading Germanic tribes enforced their own “barbarian” codes. • Feudalism (lordship and subjection) were unique fusion of sovereignty and ownership, and only in Western Europe (900-1250 AD). 28Sunday, July 15, 12
  • 29. Rick Steves’ “Little Europe” Monaco lures visitors with its fancy casino and glamorous views. Italy's last independent hill town of San Marino still looks formidable, as does the castle-guarded principality of Liechtenstein. And tiny Andorra entertains shoppers and hikers alike, surrounded by the rugged beauty of the Pyrenees. 29Sunday, July 15, 12
  • 34. Migration to New Cities 34Sunday, July 15, 12
  • 35. Triumph of the City or, Call of the Entrepreneur for Ben, the Luggage Boy Entrepreneurs in the exchange economies of cities create and coordinate economic prosperity. Around the world 350 cities with over a million residents have recently joined the world economy. Opportunity draws the rural poor into these cities where they can join the global workforce. Sound legal institu- tions are key, as are honesty, savings, and self-improvement. Through the 1800s hundreds of thousands of young people were drawn from the countryside to New York City and to other American cities. Then, railroads lowered transportation costs to the ports of Europe in the late 1800s and early 1900s, and steam- ships lowered theAtlantic crossing. Millions of Europeans mi- grated from Europe to American cities, moving from where land was relatively scarce to where labor was relatively scarce and wages higher. Millions stayed in fast expanding cities, and mil- lions more moved on to the develop farms and populate the cities across the American west (as brought to life in the corny but wonderful movie, book, and TV series, How the West Was Won). What was life like for the millions of migrants en- tering New York City’s “golden door” in the 1800s? Horatio Alger, Jr.’s many popular novels for young people drew from the actual stories related to Alger in interviews with New York City bootblacks, er- rand boys, and luggage “smashers.” Alger’s “rags to riches” novels were eagerly read by millions of Americans over the following decades. Most of us have heard of “Horatio Alger stories,” but not many ever actually read one. A few months ago I read my first: Ragged Dick or Street Life in New York with the Bootblacks, a popular Horatio Alger, Jr. novel still in print. This short novel is brings to life plex exchanges among hundreds of thousands of strangers each day. City people don’t know more about the world (they usually know far less of life outside the city), but what they do know is more finely divided into skills distributed among dozens or hundreds across enterprises, factories, and industries. This deeper division of labor and wider scope of trade al- lows marvelously complicated opera- tions, from the design and assembly of watches, bicycles, and buildings, to the management and operation of factories and textiles mills. The progressive power of cities pushing specialization, produc- tion, and exchange lifted living standards in western Europe for- centuries. But such dynamic cities never fully developed in Russia, Asia and India. Why? Institutional financial restraints slowed large enterprises in the Islamic world too (see Timur Ku- ran’s book The Long Divergence: How Islamic Law Held Back the Middle East). Since the fall of communism in Eastern and Southern Europe, the former USSR, and China, plus the shift from socialism in India and much of Africa, millions worldwide have streamed to fast- expanding cities. Lacking economic freedom and rule of law institutions, wealth creation in cities of the developing world has been slower than it could have been. But in recent decades technol- ogy advances reducing the price of food, trans- portation, and clothing have partially compen- sated. Edward Glaeser in Triumph of the City comments that there is “a lot to like” about the shanty towns of the developing world. These seem terrible places for poor and homeless families–and for the homeless without families–but compared to what? Compared to 35Sunday, July 15, 12
  • 37. www.economicthinking.org/TheNewEurope/ The rest of the story is intangible capital. That encompasses raw labor; human capital, which includes the sum of a population's knowledge and skills; and the level of trust in a society and the quality of its formal and informal institutions. Worldwide, the study finds, “natural capital accounts for 5 percent of total wealth, produced capital for 18 percent, and intangible capital 77 percent.” 37Sunday, July 15, 12
  • 38. The Power of the Poor http://www.izzit.org 38Sunday, July 15, 12
  • 39. Legislation to shape right behavior? Or law to shape right behavior? 39Sunday, July 15, 12
  • 40. Property History • Most were peasants under feudal law, but cities revived in tenth century. • Thriving commercial centers by the eleventh, where wealth was in goods, real estate, and capital, rather than in agricultural land. • Peasants were tenants--with rights and responsibilities--but not property in land. • City merchants gained rights to govern themselves and administer justice. • Merchants “frequently entered into private contracts which neither royal nor feudal courts would enforce” (Pipes, p. 108) 40Sunday, July 15, 12
  • 41. Property History • Cities gained freedom from local princes and became “self-governing, self-judging communes...” (p. 109) • All male residents had right to participate in communal assemblies (long Germanic custom). • All urban residents (including runaway serfs) in cities were considered free after a year and day. • “Trade, along with manufacture and the capital to which both gave rise, created in the midst of an agrarian society based on duties and privileges, oases of liberty based on rights.” (p.111) 41Sunday, July 15, 12
  • 42. Property History • Modern democracy originated in medieval towns, where private property and free- enterprise were protected by law the rule. • Through the fourteenth and fifteenth centuries with the rise of nation states (and gunpowder), most cities began to lose their autonomy. • “The sixteenth and seventeenth centuries were an era of absolutism which had no tolerance for urban self-rule.” (p. 111) • “But the ideals the cities had fostered and the institutions they had created became an intrinsic part of the Western political tradition.” (p. 111) 42Sunday, July 15, 12
  • 43. Institutions and Economic Development: Arrival Cities and Charter Cities Gregory Rehmke www.EconomicThinking.org • grehmke@gmail.com http://www.theatlantic.com/magazine/archive/2010/07/ the-politically-incorrect-guide-to-ending-poverty/8134/ July/August 2010 The Politically Incorrect Guide to Ending Poverty IN THE 1990S, PAUL ROMER REVOLUTIONIZED ECONOMICS. IN THE AUGHTS, HE BECAME RICH AS A SOFTWARE ENTREPRENEUR. NOW HE’S TRYING TO HELP THE POOREST COUNTRIES GROW RICH— BY CONVINCING THEM TO ESTABLISH FOREIGN- RUN “CHARTER CITIES” WITHIN THEIR BORDERS. ROMER’S IDEA IS UNCONVENTIONAL, EVEN NEO- COLONIAL—THE BEST ANALOGY IS BRITAIN’S HISTORIC LEASE OF HONG KONG. AND AGAINST ALL ODDS, HE JUST MIGHT MAKE IT HAPPEN. By Sebastian Mallaby HALFWAY THROUGH THE 12TH CENTURY, and a long time before economists began pondering how to turn poor places into rich ones, the Germanic prince Henry the Lion set out to create a merchant’s mecca on the lawless Baltic coast. It was an ambitious project, a bit like trying to build a new Chicago in modern Congo or Iraq. Northern Germany was plagued by what today’s development gurus might delicately call a “bad-governance equilibrium,” its townships frequently sacked by Slavic marauders such as the formidable pirate Niclot the Obotrite. But Henry was not a mouse. He seized control of a fledgling town called Lübeck, had Niclot beheaded on the battlefield, and arranged for Lübeck to become the seat of a diocese. A grand rectangular market was laid out at the center of the town; all that was missing was the merchants. To attract that missing ingredient to his city, Henry hit on an idea that has enjoyed a sort of comeback lately. He devised a charter for Lübeck, a set of “most honorable civic rights,” calculating that a city with light regulation and fair laws would attract investment easily. The stultifying feudal hierarchy was cast aside; an autonomous council of local burgesses would govern Lübeck. Onerous taxes and trade restrictions were ruled out; merchants who settled in Lübeck would be exempt from duties and customs throughout Henry the Lion’s lands, which stretched south as far as Bavaria. The residents of Lübeck were promised fair treatment before the law and an independent mint that would shelter them from confiscatory inflation. With this bill of rights in place, Henry dispatched messengers to Russia, Denmark, Norway, and Sweden. Merchants who liked the sound of his charter were invited to migrate to Lübeck. The plan worked. Immigrants soon began arriving in force, and Lübeck became the leading entrepôt for the budding Baltic Sea trade route, which eventually extended as far west as London and Bruges and as far east as Novgorod, in Russia. Hundreds of oaken cogs—ships powered by a single square sail—entered Lübeck’s harbor every year, their hulls bursting with Flemish cloth, Russian fur, and German salt. In less than a century, Lübeck went from a backwater to the most populous and prosperous town in northern Europe. “In medieval urban history there is hardly another example of a success so sudden and so brilliant,” writes the historian Philippe Dollinger. Perhaps the only thing more remarkable than Lübeck’s wealth was the influence of its charter. As trade routes lengthened, new cities mushroomed all along the Baltic shore, and rather than develop a legal code from scratch, the next wave of city fathers copied Lübeck’s charter, importing its political and economic liberties. The early imitators included the nearby cities of Rostock and Danzig, but the charter was eventually adopted as far afield as Riga and Tallinn, the capitals of modern Latvia and Estonia. The medieval world had stumbled upon a formula for creating order out of chaos and prosperity amid backwardness. Lübeck ultimately became the seat of the Hanseatic League, an economic alliance of 200 cities that lasted nearly half a millennium. FAST-FORWARD SEVERAL CENTURIES, and Henry the Lion’s would-be heir is Paul Romer, a gentle economist at Stanford University. Elegant, bespectacled, geekishly curious in a boyish way, Romer is not the kind of person you might picture armed with a two-handed flanged mace, cutting down Slavic marauders. But he is bent on cutting down an adversary almost as resistant: the conventional approach to development in poor countries. Rather than betting that aid dollars can beat poverty, Romer is peddling a radical vision: that dysfunctional nations can kick-start their own development by creating new cities with new rules— Lübeck-style centers of progress that Romer calls “charter cities.” By building urban oases of technocratic sanity, struggling nations could attract investment and jobs; private capital would flood in and foreign aid would not be needed. And since Henry the Lion is not on hand to establish 1 Image credit: Mark Ostow 43Sunday, July 15, 12
  • 47. WSJ: “Turkey Navigates Regional Unrest” (Feb. 22, 20011, p A10) • “Turkish businesses, too, are having to deal with the costs of instability, after investing heavily in the region. In the past two years,Turkish construction companies launched $7.6 billion worth of construction contracts in Libya. • Turkish investment in Egypt: “$3 billion of assets on the ground.” • When turmoil started evacuating from Libya: “Turkey’s estimated 25,000 citizens living there...” 47Sunday, July 15, 12
  • 48. Economies Emerging From USSR/Eastern Europe, and China,India, Southeast Asia,Africa, and Latin America freetochoose.tv 48Sunday, July 15, 12
  • 49. From Russia with Love... The State as Leviathan The total power of the Czars have inspired kings and dictators (and federal goverments) ever since. Nasser in Egypt and Saddam in Iraq, and their parties, inspired by Mussolini and national socialists... 49Sunday, July 15, 12
  • 50. Adam Smith in Scotland: Free Trade vs. Mercantilism 50Sunday, July 15, 12
  • 51. “Long ago the four nations lived together in harmony. Then everything changed when the Fire Nation attacked.” 51Sunday, July 15, 12
  • 52. Mercantilism, Protectionism, Free Trade, and The Anti-Corn Law League [Richard] Cobden’s A Message from the Forties 52Sunday, July 15, 12
  • 54. • The [] householders of Liverpool would declare in favour of free trade if an election took place tomorrow morning. (Great cheering.) But their borough had been handed over, bound hand and foot, to the monopolists, by that portion of the electors who were themselves the greatest sufferers by this system—men who were the first crushed by it, and who would be plunged into the intensest suffering unless this system were abolished. www.economist.com/ node/1857273 Sept. 2nd, 1843 Speech by John Bright of the Anti-Corn Law League 54Sunday, July 15, 12
  • 55. • But [John Bright] had sat with them in their coages; he saw them taking their breakfast and their tea; he showed them how monopoly robbed them of their coffee and sugar, and of bread and buer for their children; he showed them how stonemasons, shoemakers, carpenters, and every kind of artisan suffered if the trade of the country were restricted; ... he showed them that the foul fiend of monopoly stood upon, and had been called into existence by the law of England,—that law which they by their conduct at former elections had assisted to make,—and he proved to them that that fiend deprived them of one-third or one-half of the miserable piance of wages that they earned. www.economist.com/ node/1857273 55Sunday, July 15, 12