Paul Romer on Urban Growth

Episode Summary

Executive Summary: Paul Romer argues that cities are the crucial platform for catch-up growth and institutional reform. He distinguishes genuine reform zones from concession zones, uses Shenzhen as the model of voluntary, policy-driven experimentation, and emphasizes that urban success depends on specific institutional design, public space, and mobility. He also advocates showing reforms in practice rather than merely theorizing about them.

Main Topics: Reform zones vs. concession zones (Priority: 5/5): Romer distinguishes reforms intended to be universal and permanent from temporary favors or tax breaks given to select groups. He argues that only reforms people would want for the whole country and forever deserve the label "reform." Charter cities as laboratories for institutional change (Priority: 5/5): He frames charter cities as voluntary geographic experiments that can test controversial policies without coercion, including imported governance, legal systems, or entirely new rules for technology and urban life. Shenzhen as the best real-world example (Priority: 5/5): Romer highlights Shenzhen as a successful, centrally authorized experiment that combined openness, migration, and institutional flexibility. He treats it as stronger evidence than Hong Kong for the charter-city idea. Urban density, transportation, and public space (Priority: 5/5): The conversation focuses on how density depends on streets, sidewalks, transit, and congestion management. Romer argues that cities must protect public space early, since transportation and land values are tightly linked. The political limits of redevelopment and congestion pricing (Priority: 4/5): Romer and Roberts discuss why congestion taxes and densification are politically hard, why holdouts matter, and why some solutions require coordinated planning across whole areas rather than piecemeal zoning changes. Growth theory and catch-up growth (Priority: 4/5): Romer explains that his thinking shifted from frontier innovation to catch-up growth, where the key issue is not inventing new technologies but opening gateways that let places access existing global knowledge and institutions. The role of experts and policy entrepreneurs (Priority: 4/5): Romer argues academics can contribute by imagining overlooked possibilities and reframing rejected ideas, then demonstrating success through real-world examples rather than just papers or abstract arguments.

Key Arguments: Most zones fail because many are concession zones—temporary favors or tax breaks—not durable reforms that would be applied to the whole country. A charter city should be a voluntary experiment: people opt in, and the city can try controversial institutions without coercion. Shenzhen demonstrates that a government can create a special zone to test reforms, attract migrants, and generate rapid growth when the rules are credible and open. Cities should be understood as intermediate entities between nations and firms; some functions, like policing, require accountability and cannot be safely privatized without risk of discrimination. Urban success depends on protecting public space before development occurs; roads, sidewalks, and utility corridors must be planned early because they are extremely hard to retrofit later. Autonomous vehicles could dramatically reduce the land cost of transportation and make higher-density living more feasible without massive subway construction. Growth in poor countries is mostly catch-up growth, so the key is creating gateways that import existing know-how, not just increasing R&D at the frontier. Mandates that raise the cost of absorbing new residents can backfire by discouraging cities from welcoming migrants, so supply-side urban expansion matters more than moral suasion. Experts can help by identifying possibilities people have not considered and by reframing ideas that have been prematurely excluded on moralistic grounds.

Data Points: Time since prior EconTalk appearance: Almost 5 years - Russ Roberts notes Romer last appeared nearly five years earlier. Shenzhen population: About 10 million - Romer describes Shenzhen as a city that grew from a small fishing village into a major metropolis. Shenzhen growth period: Roughly 1990 to present; initial thrashing in the 1980s - He says the city took time to establish labor-market and legal procedures before accelerating. Shenzhen annual growth rate: 15% to 25% per year cumulatively for two decades - Romer cites the city’s extraordinary growth after the initial setup period. Urban residents added in 100 years: Roughly 5 billion more - He uses this estimate to argue that urban expansion is one of the most important policy challenges. Stockholm congestion-tax trial length: 7 months - Romer says Stockholm temporarily imposed congestion charges and bus subsidies before a vote. Stockholm referendum margin: About 50% to 55% - He recalls the final vote was close but succeeded after citizens experienced the policy. New York City expansion plan: Seven-fold expansion of built area - Romer cites the 1811 Manhattan grid plan as a model for early urban expansion planning. Historical planning commission size: 3-person commission - He notes New York’s street-grid plan was backed by a small commission and a single surveyor. Survey period for Manhattan grid: About 3 years - Romer points to the low-cost creation of the Manhattan street and avenue plan.

Pivotal Quotes: "Do you want it to extend to the rest of the country and do you want it to last? Forever." — Paul Romer: His test for whether a zone represents real reform rather than a concession. "The whole mission is to try and create the supply side that could respond to the demand that people have to move to a new city." — Paul Romer: He explains why urban expansion plans matter for migration and opportunity. "What you need are gateways that open up a country to an inflow of stuff from the rest of the world." — Paul Romer: He reframes growth as access and absorption, not just frontier innovation.

Implications: Romer’s view implies that future growth policy should prioritize urban governance, mobility, and voluntary experimentation. For cities, success may come from better land-use planning and transport design, not just subsidies or mandates.