The New York Times ran an article about Lazika, the planned city near Zugdidi, on the Black Sea coast. It’s not the only attempt to build a new city from the scratch in the South Caucasus, as Azerbaijan has similar plans. While these plans sound like pipe dreams of overambitious and overconfident politicans and planners a few positive things can be said about Lazika. Maybe, after all it is not such a crazy idea. In particular, this quote in the New York Times caught my attention (and I have to admit, it speaks for Mr Vashadze to be open to new ideas, even if they are not well-thought out in the end):
“Mr. Vashadze said he was browsing on the Internet when he came across the idea of a charter city, with distinct regulatory and judicial systems that could attract foreign investors to build factories.”
Popularized by Paul Romer, charter cities are special reform zones that try to overcome the pervasive problem of weak institutions in developing countries. The developing country provides the land for the charter city but not the institutions. Instead, the institutions will be guaranteed by a third country. Typically this is a developed country with strong and credible institutions as for example Norway or Canada.
Is this what Georgia needs? It is unclear. Arguably Georgia is not suffering from too much bureaucracy or too much regulation. On the other side the rule of law and property rights are not yet highly developed in Georgia. A credible guarantor third country for Lazika might help overcome foreign and domestic investor and worker’s doubts about the rule of law and property rights in Georgia. But likewise, one can have doubts that a charter city that ultimately is on Georgian land will be truly immune to these doubts.
This is not all we can say about Lazika and Azerbaijan’s new town. Both countries have an unusually large share of their population living in rural areas. At the same time there is strong relationship between economic growth and urbanization, and a negative relationship between poverty and urbanization. While the causality runs in both directions a policy of promoting urbanization has a good chance to contribute to economic growth and poverty reduction. But whether this is best achieved by investing into existing or by building new cities is an open question, with no simple answers.
Comments
As someone living in Tbilisi and enjoying its being a "livable" city, I would vote for Lazika. Let it be! Tbilisi is already too large. I hope that returns on investment in Lazika will be perceived to be high enough for investors to flock in.
I dont agree, you can not ask foreign investors, hey, invest into renovation of our cities. As a contrast, by presenting realistic, promising, flexible project starting from the scratch, you might interest them. I strongly believe that if this project is done, it will be mainly financed by outside sources.
I agree with Eric -- in principle, if Lazika is well thought-out, everyone would benefit. The countryside remains overpopulated, with limited opportunities for people to move out of poverty. And Tbilisi has its own challenges with existing housing stock.
Thanks for these pieces, enjoyable to read!
Romer's idea of charter cities or similar ideas of transplanting institutions of governance from a foreign culture to indigenous culture are interesting. These ideas ignore a problem of institutional stickiness and behavior of indigenous population. Will local people accept the charter government? Experience of transitional countries show that transplanted instituions often fail in another culture.
Batumi was a "charter" city of sorts in the late 19th century. There were no questions back then as to the purpose of building it and investors' willingness to invest.
Of all transition nations Georgia appears to be particularly eager to experiment with Western institutions. Although not necessarily the latest "models". More like classical 18-19th century capitalism and enlightened monarchy.
Quote from Wikipedia: "...the [enlightened] monarchs ruled with the intent of improving the lives of their subjects in order to strengthen or reinforce their authority. Implicit in this philosophy was that the sovereign knew the interests of his subjects better than they themselves; his responsibility to them thus precluded their political participation."
These days the enlightened monarch would just use behavioral economics and nudge his subjects.
with respect i need to know why does Georgia need to promote urbanization while it has great potentials in rural areas which can employ a huge quantity of work power in both public and privet sectors.
As I am a fan of Chartered cities, i believe this idea works if it is financed properly and manged by a mixture of local and international experts.Even Honduras has believed that having a chartered city helps their economy.First of all you can take a look at Dubai (15 years ago) as a very good example.Dubai is almost built by foreigners financial investment and money. and i think it's success has nothing to do with cultural differences. establishing a multicultural city is hard but we can say it is possible.As another point of view I think Georgia doesn't have enough fundamental substructures which make this country possible to handle such a task while itself has a lot of bigger issues to handle.
@ Iman: there is strong agreement that rural Georgia is overpopulated, and that the small holdings do not offer an escape out of poverty. Urbanization thus is an opportunity. (This is a point that Paul Collier has made, compellingly, about African cities, too.)
Hans, your mentioning of Africa and Paul Collier reminded me of a trip I made to Senegal a few years ago. I was very much impressed by Dakar's atmosphere, its live music, bazaars, cafes and restaurants, bustling streets, restaurants, seaside, etc. I was equally impressed by the Senegalese traditional way of life, preserved in many of the villages. Certainly poor, but proud. What struck me in Senegal, however, is how miserable is life at the edges of Dakar, where the Westerns-style city encroaches on the traditional way of life, pulling people from the countryside and yet keeping them at a distance, at the edges of civilization. This is the domain of shantytowns, homeless beggars and gangs, drag addicts and prostitutes.
Urbanization is a double edge sward. It produces economic growth via industrialization, but also a lot of misery. And it can potentially backfire if approached in a ruthless manner (cf. Soviet collectivization/industrialization and British enclosures. I hope for Georgia that its policymakers are learning from their own mistakes, if not from history.
Actually poverty in the rural areas of Senegal is much worse. Granted, the slums of large third world cities are shoking. But almost always the countryside is much worse. At least according to convential indicators - nutrition, access to healthcare, income etc. Much harder to say of course for nonconvential indicators such as happiness.
I agree that people in the countryside are poorer. They barely have any monetary income. Yet, it is their dignity that impressed me so much. Conversely, people in the slums of Dakar may have higher incomes and, perhaps, even better nutrition, but they most surely need a lot of medical assistance, which may or may not be more accessible for them. They live miserable lives and die more frequently of drug addictions, AIDS, street violence and the like.
I am not against urbanization. I am against ruthless urbanization, urbanization that creates a large class of urban poor, not integrated into the urban society, and lacking in necessary professional skills. This type of urbanization, when pursued, has very long term consequences, since it affects many future generations of children raised in slums.
Hans, your mentioning of Africa and Paul Collier reminded me of a trip I made to Senegal a few years ago. I was very much impressed by Dakar's atmosphere, its live music, bazaars, cafes and restaurants, bustling streets, restaurants, seaside, etc. I was equally impressed by the Senegalese traditional way of life, preserved in many of the villages. Certainly poor, but proud. What struck me in Senegal, however, is how miserable is life at the edges of Dakar, where the Westerns-style city encroaches on the traditional way of life, pulling people from the countryside and yet keeping them at a distance, at the edges of civilization. Dakar's "beltway" is the domain of real bandits, shantytowns, homeless beggars and gangs, drag addicts and prostitutes.
Urbanization is a double edge sward. It produces economic growth via industrialization, but also a lot of misery. And it can potentially backfire if approached in a ruthless manner (cf. Soviet collectivization/industrialization and British . I hope for Georgia that its policymakers are learning from their own mistakes, if not from history.
Interesting op-ed by Paul Romer: http://www.theglobeandmail.com/news/opinions/opinion/urban-prosperity-in-the-red/article2412947/
"Urbanisation creates a lot of misery" (Eric). Does it?
True, many poor people live at the edges of cities, very much like migrants live in poverty at the edges of Western societies. This may be the result of a composition effect as much as a causal one: who is migrating to cities or to rich countries? Are these migrants the average Joe or are these people poorer than the average Dakar or Western citizen to start with?
This distinction is not semantic. For policymakers, it is even a crucial one before designing priorities and spending useful ressources.
PS. The Soviet example looks more like a government failure on an epic scale rather than the undesirable side effect of the current urbanisation process.
well, Collier makes the point that urbanization at this point is not working -- that some of the building codes are based on 1947 English building codes, that standards are abysmal, that sand in Mozambique is imported from abroad although the country has 3000 km of beaches.
Apparently unit costs in general are very high.
So his suggestion is that doing 'good' urbanization and better construction could contribute to economic growth, create employment and kick off a virtuous cycle.
I am still a bit sceptical about where the future Lazikans will come from? Yes, some people from the countryside might move there - but hardly any of them have the assets to buy or rent property there, especially if the city is developed by private investors who want a solid return on their investments. Georgia's population is predicted to decrease from an official 4.5 to 3.5 million by 2050, though I am not sure to what extent efforts by the church to increase population growth will prove these predictions wrong.
What will be the USP of Lazika that will attract the investors and businesses needed to make this project work? That is still not clear to me.
I think:
1)Idea - having a new city is very good and it could bring several benefits.
2)Population - the decision is not based on current demand, it is to create the demand (despite the fact that official forecast on population growth is not precise still its too much for only Georgians)
3)Scale - very ambitious and unrealistic, they will end up with lower one
4)Source of funding - government, private sector, investors/FDI (facilitated/promoted by the government)
5)Risk - it has a great potential to become a dead city. e.g. the FEZ & FIZ in Kutaisi and Poti are still unsuccessful. Also we might see lots of "stupid decisions" aimed to promote the city.
If the government is going to spend a huge amount of money in this project it is not good but at least there will be no money left to spend on "more stupid" things. And of course I have no objections if "rational" investor wants to invests in Lazika, he/she is more than welcome to do so.
Regarding government involvement in building this city, I don't believe that in the nearest future something with similar scale will be constructed without government involvement, and if the choice is something or nothing I don't see any problems in spending my income tax. In addition I believe that "creating demand" rather than waiting for the demand works much better in such cases (history, economics). The fear I have is that this is a spontaneous decision without a solid background, research and analysis.
Can it "kill" Georgia financially - no (due to fiscal restrictions)
Will it be finished according to the plan - of course no
Do we need it now - of course no
Do we need it in the future (next 50 years) - probably no
Can it bring benefits - yes
Hope it will be properly analyzed before major constructions take place.