Christmas Day brought the tragic news of the loss of a ship along the coast of Cuba carrying 124 migrants from Haiti seeking a better life. Thirty-seven people perished, 87 were rescued by Cuba’s coast guard. What has happened to the promised reconstruction of Haiti, two years following the earthquake of January 12, 2010? Why are Haitians taking desperate measures to flee their homeland or expressing their impatience or loss of hope in other forms?
Part of the answer can be found in the economic course being charted by Haiti’s leaders as they follow the advice, nay, insistence, of the U.S., Canada and Europe that foreign investment in sweatshop factories will take the country forward. It’s the “model” for Haiti’s future, President Michel Martelly recently pronounced.
In a word, it’s the same old, same old, for Haiti. Factory investment is the failed panacea that the United States has been pushing on Haiti for decades and that international finance gurus such as Paul Collier trumpet. They have nothing to show for it.
In the past two months, Haiti has been awash in economic conferences that bring foreign investors to the county and sell them on the merits of Haiti’s cheap labour. Former U.S President Bill Clinton is a prime mover in all of this. He sells himself unabashedly in this role, as his opening remarks to the Nov. 29-30 Invest In Haiti Forum (link to video below) illustrate.
The forum was sponsored by the Government of Haiti, the Inter American Development Bank (IADB) and the Clinton Foundation. It drew more than 1,000 investors and government officials from 29 countries. Here is a glowing report on the meeting published on the IADB website. You can watch here the 22-minute speech delivered by Clinton at the opening of the Forum.
He delivers a strong endorsement of the government of President Martelly, saying it is the “first Haitian government” he has known that is seriously concerned about the economy of the country.
President Martelly told journalists at the Forum that he is embarked on a strategy to create “half a million” jobs in the next three years. He did not explain how and where these jobs would be created.
T
hree investments were announced at the Forum — two hotels to be constructed in Port au Prince, including one by Marriott International in partnership with Digicel, and an electric cable factory to be built by the South Korean LG Group.
The Forum opened one day after a ceremony marking the beginning of construction of the Caracol Industrial Park, located on prime farmland in the north of Haiti (read a report here). It is claimed that this project by South Korean investors will eventually result in 20,000 factory jobs.
An article in the December 7 Haiti Liberté weekly newspaper provided some background to the Invest In Haiti Forum, the second such forum to take place. At the first Invest In Haiti Forum in 2009, President Clinton spoke of several billion dollars of investment that would be coming to Haiti. None of that ever materialized.
Haiti Liberté reports that during the period 2004-2006, following the coup d’etat against the elected government of president Jean Bertrand Aristide, more than 10,000 workers in public enterprises lost their jobs due to privatizations or restructurings. Among the enterprises where jobs were lost were the state telephone company (TELECO), the port authority (APN), the waste disposal company in Port au Prince (SMCRS), the water supply authority (CAMEP), the old-age insurance service (ONA) and the vehicle insurance authority (OAVCT).
The newly formed SOTA union reports that the number of assembly factories in Haiti has declined from 100 in 1986 to 23 today. Two key reasons for the decline are the absence of reliable electricity and political instability (both caused by incessant and destructive foreign political and military intervention).
SOTA reports that several thousand workers have been laid off from factories in Haiti over the past several months. Three of its members were recently fired for union organizing activity in the factory zone in Port au Prince and another three union members were fired in the north of the country. (Latest reports indicate that an international campaign of pressure forced the companies to rehire those workers.)
A comprehensive study by Haiti Grassroots Watch on the past, present and future of labour-intensive factory investment in Haiti has just been published. The study challenges the claim that such investment can serve as a driving force for Haiti to advance economically.
Among other findings, the study reveals that the daily minimum wage of factory workers today in Haiti, adjusted for inflation, is one half what it was in 1982. An average factory worker earns US$5.90 per day. He or she spends about half of that on their daily lunch and on transportation to and from work.
The study raises serious questions about the environmental and social impact of locating the Caracol Industrial Park in the countryside and on prime agricultural land.
The website of the Canada Haiti Action Network is a comprehensive source of news and information on Haiti. Roger Annis is one of its editors.
CHARTER CITIES
A charter city is a city-scale special reform zone that can take many forms. The common elements are:
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, investors, and employers to move in or out.
Each charter city requires one or more nations to play three logically distinct roles:
i. The host country provides uninhabited land.
ii. The source country or countries provide residents.
iii. The guarantor country or countries ensure that the city’s charter is respected.
The FAQs that follow address general issues as well as the specifics arising from three hypothetical charter cities. Please note that these hypothetical cases are strictly for the purposes of illustration and do not reflect actual projects or conversations:
a. India is Host, Source, and Guarantor
b. Mauritania is Host; New Zealand and Norway are Guarantors; multiple Source countries
c. Brazil is Host and Guarantor; Haiti is the primary Source
General FAQs
Q: How much land is required for a new city?
A: Bigger cities are much more likely to succeed and support a high standard of living. The value of the land will increase more than proportionally with the total land available for development. A good target size is 1000 square kilometers, roughly the size of Singapore and Hong Kong.
Q: What density and population would be viable?
A: A density of 100 people per hectare or 10,000 per square kilometer is half the density of central Paris. At this density, 1000 sq km gives a maximum population of 10 million people. Most forms of public transit are efficient at this density. As central Paris shows, densities of more than 100 people per hectare can be achieved in an attractive setting without high rise buildings.
Q: Who would finance the infrastructure for a new city?
A: City infrastructure could be financed by private investors who collect fees for the services they provide. For example, the municipal water system could be built and operated by a firm like Suez or Aquas de Barcelona that earns a return by charging users fees. An airport could be financed in a similar way and built by a private firm like Aeroports de Paris or the Changi Airport Group. They, and other firms like them, might leap at the chance to build an airport that could grow to be an important regional hub. With the predictable rules specified in the city’s charter, each type of firm could count on a stream of fee income, agreed to by regulators, that would last for many decades.
Q: Who would get ownership of the land?
A: The development authority that governs the new city could retain ownership of all land and use the gains in the value of the land to finance public expenditures. The development authority would lease land to private developers. Those developers or people who buy from them would own the structures but not the underlying land. This arrangement gives the development authority both the incentive to spend wisely and the the resources to do so. For example, a truly effective educational system will raise wages for workers in the city and encourage more firms to come hire them. Higher incomes and more demand for space from employers will in turn lead to higher lease payments for land.
As a side effect, this arrangement also ensures that there will be no boom and bust cycles from speculative bubbles in land prices and that no private fortunes are amassed from the ownership of land in the special zone.
Q: How would the local government finance its operations?
A: If the government starts with ownership of the land in the city, it can finance its operations from the rents on the land. This is effectively the same as a 100% tax on the value of the land. In practice, land rents can be captured by issuing long term leases to private developers who would build and own structures. Hong Kong and Singapore have used this arrangement extensively.
Q: Who would be eligible to enter the new city?
A: Anyone. Charter cities are not gated communities for the rich. The goal is to establish rules that maximize employment opportunities for workers, regardless of the level of experience or education. The rules must also make sure that basic services like housing and transit are affordable even for someone who starts in an entry level job.
Q: What skill level would typical workers have? What kind of jobs would they find?
A: In the beginning, many of the target workers would be people with little formal education who get their first paid job after moving to the city. They would work in jobs similar to those in factories that produce garments and toys.
Q: Could a less-skilled worker afford privately provided municipal water?
A: Yes. The people who work in garment assembly factories all over the world pay for their water now. The hundreds of millions who live in slums that lack utilities often pay far more for clean water than the rates charged by firms like Suez or Aquas de Barcelona.
Q: Why would a city want to attract people with low levels of skill?
A: If you think about starting cities as a business, the billions of low skill workers who will move from rural areas to cities this century represent the biggest market. In the language popularized by C.K. Prahalad, they are the underserved bottom of the pyramid. Most of them currently have no chance to move to a city where they can be safe from violence, get a formal sector job, access basic utilities, and send their children to school. Cities that cater to this group could create enormous social value by catering to this market and do it without relying on philanthropic giving.
Q: What kind of apartments could these workers afford?
A: Small apartments. We know from existing data that living space varies linearly with income. As income grows, people will rent larger, nicer apartments. A city that starts by catering to people getting entry level jobs would start by building small, minimalist apartments and add larger ones with more amenities as incomes rise.
Q: Would the government in the city subsidize the housing for the workers?
A: The government can’t give residents in a city a higher standard of living by charging higher rent for the land and then giving renters their money back as a housing subsidy. People who work can afford to pay rent.
Q: If charter city residents live in small apartments with few amenities, would life there be any better than life in a slum?
A: In a charter city, all residents would have access to utilities like safe municipal water at costs below those that they would pay in a slum. They would not be subject to arbitrary relocation by predatory officials or gang leaders. They would live in a place with no tolerance for violence and crime, a place where people have to follow formal rules, rules that prevent harmful activities like dumping garbage in the street or building unsafe structures.
Q: Would housing in a charter city be constructed according to building codes?
A: Possibly. The people who rent apartments can’t verify after the fact that the building where they will live was constructed to be safe. Building codes are one way to solve the informational asymmetry. Efficient building codes can ensure safety without restricting the supply of small, low cost apartments.
Q: What kind of health care system could people living in a charter city afford?
A: A system that is better than those that many would leave behind in rural villages and better than those offered to comparable workers in other parts of the world. Health care is a labor intensive activity. Labor would be inexpensive in a charter city. Well-organized systems that rely on health care workers with modest levels of training (like those in many villages in the developing world) can offer substantial improvements in health. In a densely populated city, a few well trained medical specialists can also be readily available to serve those who need special care.
In many developing countries, firms who run factories provide their own health clinics to their workers because there is no alternative. Firms do this because they want their workers to be healthy. A city-wide system would be much more efficient. The government would have an incentive to see that efficient care is available because it makes the city more attractive to workers and employers. Firms would be willing to pay higher wages in a city where they can avoid the cost of offering their own on-site health care. As with most other non-core activities, firms would rather “outsource” this task if someone else can do it more efficiently.
Q: Would the charter city government have an incentive to invest in education?
A: For a city government funded by land rents, the best way to raise more revenue is to pursue policies that lead to higher real wages. Higher wages will increase per capita consumption of housing and increase the rental value of city land. Because education directly increases labor productivity, it pays a high return in the form of increased real wages. The availability of a good educational system also makes the city more attractive to migrants. It will therefore help the city leaders meet their mandate if they provide effective education.
Q: Would a charter city have a master plan devised by the government?
A: Some aspects of planning inevitably fall to the government. For example, the government needs to decide whether vehicles drive on the right or the left and enforce that rule. Other planning activities are better left to private actors. For example, the government clearly shouldn’t tell firms what to produce.
Setting up a new city does not mean that the spatial location of economic activity needs to be centrally planned either. The city’s charter is a foundational legal document, not an exhaustive plan. The world can support a range of urban development strategies. Some cities might follow a more planning intensive strategy similar to that of Haussmann’s rebuilding of Paris in the 19th century. Others might opt to do away with zoning restrictions or to rely more on the decentralized process of individual decisions celebrated by Jane Jacobs.
Q: What would a new city mean for migration within a host country?
A: A key test of the success of the zone is whether it can attract the people who currently leave to pursue social and economic opportunities outside of the country. To find work, too many migrants from low-income countries leave their families behind and travel long distances under perilous conditions to go to countries where they face the threat of deportation. A charter city can bring social and economic opportunities closer to home, allowing would-be migrants to find work in a safer environment—one where they have legal residency, equal protection under the law, and the freedom to bring their entire family.
Good idea to develop the islands of “La Tortue” and “La Gonave”.