Outsourcing City Governance

To improve the city governance Ukraine could allow or even stimulate the development of ‘private cities’.  In an ideal world, competition between such private cities, just like you have now competition between the cottage villages, should then ‘force’ the private entities that govern these cities to behave in the interest of the citizens of these cities. And the same competition should ultimately drive the state and the state-run cities to improve their own governance too.

At the beginning of December 2014, Ukraine’s parliament approved several ‘foreigners’ as ministers, in the hope these foreigners would be able to bring their international experience and approach to modernize their ministries. With the October 2015 local elections approaching fast, one can only wonder whether Ukraine shouldn’t experiment with the same idea at the local level and have city councils appoint foreigners as part of the city’s governance team.

And maybe even go further than that.

Ukraine could for example, allow or even stimulate the development of ‘private cities’, cities where not the state but private entities provide many services that are typically provided ‘publicly’. Some people have indeed argued that one should allow developers to develop whole cities, which could provide better services and infrastructure than the regions to which they belong, and than entirely ‘publicly-run’ cities. In the US, examples are the cities of Reston (more than 60000 inhabitants) and Irvine (more than 200000 residents), in India there is Jamshedpur (more than a million inhabitants) founded and to a large extent run by the Tata Steel company.

Of course, one could rightly argue that the experience of some Ukrainian single-company-towns has shown the downside if having company-run towns, as company towns risk collapse when the mother company gets into economic difficulties. At the same time, newly built cottage villages and newly created housing complexes typically already have certain rules of behavior, private guards and ‘public’ services like play grounds that are privately provided for. If these scale-up over time, they can easily turn into real ‘private cities’.

In an ideal world, competition between such private cities, just like you have now competition between the cottage villages, should then ‘force’ the private entities that govern these cities to behave in the interest of the citizens of these cities. And the same competition should ultimately drive the state and the state-run cities to improve their own governance too.

As an alternatively to private cities, Ukraine could think of allowing or even stimulating ‘charter cities’.  in the US, some states, like California allow cities to choose to be either subject to a general state wide city law or to develop their own ‘charter’ given them more freedom in governing their cities. In Ukraine, collectives of apartment owners can already choose to hire private companies to manage their building instead of the communal companies. So ‘charter cities’ can be seen just a scaled up version of this.

Some people further have argued that especially countries where institutions are not well developed, like Ukraine, should create new ‘charter cities’, newly created places where the rules are different from and better than the rules in the host country. Unlike Free Economic Zones (with which Ukraine has already experimented in the past), these charter cities have much wider freedoms, and the rules and the enforcement of the rules in these cities, could be outsourced to countries with good institutions. For example, Paul Romer, a professor of the Stern Business School at New York, who was the initial driving force behind the idea of creating such charter city in Honduras, argued that Canada could provide institutional credibility to such zone. Instead of providing developing assistance in term of money, the Canada government, he argued could delegate representatives to the commission that initially would govern such charter city. Similarly, the Royal Canadian Mounted Police could train local police and hold those police accountable to modern standards of service and conduct, the Canadian Border Service Agency could help out with customs and border control, and the Canadian Revenue Agency could get involved with the tax administration. Obviously this idea is quite ‘extreme’ and implementation is far from straightforward. The plan for the charter city in Honduras, for example, never realized, nor did the Canadian government express support for Romer’s suggestions. Hong Kong, however, is often cited as an example of a real ‘charter city’.

While outsourcing city governance, decentralizing city governance and the private provision of public services might seem extreme to some (or even to many),  the malfunctioning institutions within Ukraine and the million or so Internally Displaced Persons looking for a better place to live,  suggest that even seemingly extreme ideas should be worth considering.