this is the finest experience in economic presentation and gathering in the world inet has been exploring perhaps a uh extension of the toronto economic festival to places like india or hangzhou and china so i must say we concur with this notion of the quality of the experience but i say that with a cautious note because the quality of the experience involves things like the people the mountains and the wine so uh i also would say there is something very interesting about the culture here economics is referred to as the dismal science but inet senior fellow adair turner came here a couple of years ago and after giving the speech he looked at me and smiled and he said my god the words economics and festival never appear together and it works here in toronto so i think this is a uh how do i say a joyous experience i come back every year and i want to encourage you to feel very good about what it is that you experience as a matter of personal testimony i must say i knew that this was an extraordinary experience today at lunch because the willpower it took for me not to have a glass of red grain wine so that i could remain clear as your moderator was very very difficult and that pain tells me this is an extraordinary place to be the the institute for new economic thinking looks for people to share their research support and share them to say an audience like this festival who are thinking different thinking innovatively thinking creatively and often that is what you might say aligned with a notion of courage our speaker today dr paul romer from new york university when i when i thought to ask him and discuss it with tito he reminded me of someone who originally brought me here to trento dr axel leyenhoofit was a very independent scholar an imagination that created research like no one else in the profession was creating from a very early point in his career he was here running a summer school which he still continues to uh be on the committee to lead but axel leonhuff had inspired me to come here and then join him up in holtz around with my family for a little bit of time thereafter and axel was one of these people at university of california in los angeles who wasn't in the chicago school wasn't in the keynesian school wasn't in a fight with everybody but everybody thought he was brilliant and creative and that reminded me of paul romer paul roller was educated at university of chicago which you can read on his blog which i encourage you all to do about the problems of mathiness in economics about the tribal customs in macroeconomics about the behavior of the freshwater school of which his own thesis advisor robert lucas was the leader and he's exploring these things in public which is a courage and an integrity that inet seeks out and seeks to share particularly with the young scholars around the world so they can carve out a meaningful career for themselves from the examples of these mentors paul's blog includes many things i read an essay this morning related to the famous physicist feynman called feynman integrity about how one approaches scientific investigation paul is known for innovations in endogenous growth theory and he is currently totally immersed and totally involved in the question of cities and economic geography that are at the center of this conference so i would like to uh how would i say express to you that inet feels very grateful and very fortunate that paul could join us today by a video and uh present his discussion tito boyeria will join me in a few minutes and then uh lead the questioning and but paul will speak uh before that i haven't let's see is there he is hi paul we'll let let you take it from here good okay can you hear me yes okay um well it's uh it's a little intimidating to have to follow that generous uh introduction um particularly to think about the challenge of keeping the spirit of the economics and festival uh joining joined together the the topic i want to address is one that's grim but i hope i can bring a little sense of optimism to a kind of a grim a grim background the way i would characterize the topic is how the world responds to failed states it's manifesting right now in a refugee crisis but i think the underlying problem is that of failed states and the reality we face is that billions of people live in failed or failing states and those of us who are fortunate enough to live in a successful state have to decide what is our uh kind of moral uh obligation in the face of the the suffering of people living in those field states now i want to use an analogy with a battlefield where when there are many wounded we continue to respond with something like the idealism of a of a chaplain but we also rely on the the pragmatism of a medic the idealism includes a commitment to some notion of treating everybody the same inclusion equal treatment but yet the essence of what a medic has to do on the battlefield is engage in a kind of triage exercise where limited medical resources are focused on the few where they'll offer the most the most benefit i think the discussion about failed states needs more of this uh pragmatism of the of the medic and uh that has to complement the idealism it's not inherently inconsistent with that idealism but it's it's operating on a different time scale the the idealism still tells us where we want to end up uh as a goal but the pragmatism is essential for uh being realistic about how how we get there i think the the two key elements of the idealism are first that uh we want to support the ideal of self-determination in the different nations of the world and we'd also like to support the ideal of the open society as articulated for example by carl popper where people are free to move between different uh nations that operate under uh democratic uh self uh self-determination we can support that as an ideal but we have to recognize that we're very far away from that right now and that makes it difficult to know how to get to our ultimate our ultimate goal um most people on earth the majority of people on earth live in places that do not have states that function as well as the the states of western europe and uh north america and other european outposts the the us response if i can characterize it has been roughly to try and intervene militarily to create the conditions for uh effective local self-determination so think about an invasion in haiti where we uh run an election invasions in iraq and afghanistan where we also organized elections you can think about a european response which is closer to an implementation of the open society approach where europe has tried to accommodate asylum seekers who are escaping from conditions of of violence and lack of lack of opportunity the the u.s response has uh has failed uh in a really spectacular way uh after the invasions of iraq and um afghanistan even even the haiti invasion i think we would look back and say that it didn't really lead to any uh effective change but um iraq and afghanistan were clearly failures and the united states is now essentially retreating into uh a disengaged position which is uh i think really hard to to justify in any kind of uh moralistic ground uh the europeans started out in the face of the wave of refugees coming out of syria trying to accommodate um uh larger numbers of immigrants and and quickly found that uh the the larger flow was inconsistent with its existing democratic institutions uh voters in europe did not want to accept more more refugees and democracy is of course one of the ideals that we we want to support so i think europe has been pushed into a situation where it can't afford uh total disengagement but it is basically trying to let in a very small number of asylum seekers and set up barriers that impede the flow of the very large number of people who'd like to get to some place uh where they can enjoy opportunity and security and as a consequence of those barriers what we're seeing is you know thousands of people dying uh making these dangerous boat crossings uh across the mediterranean so let me try and articulate uh the more an example of a more pragmatic approach inspired by the you know the the idea of the medic and um let me acknowledge that this this approach or any similar pragmatic approach will involve compromises any of these compromises could be challenged so the real goal here is not so much to say that the solution i'm going to articulate is the solution but to say this is the space within which we have to start to explore these are the possibilities we have to consider and we have to be willing to recognize that temporary uh temporary compromises uh and accommodations with just the the reality of our resources those have to be uh constraints that we recognize and try and try and work around now to to motivate this let me give you a a suggestion uh for how the united states could have responded differently uh it it invaded it's been about 1.6 trillion u.s trying to occupy about a million square kilometers of land in iraq and afghanistan and occupy them for roughly 10 10 years now the united states could instead have scaled back the amount of land it tried to occupy by a factor of 10 and could then have stayed for 10 times as long so imagine uh it had occupied 100 000 square kilometers for a 100 years that that arguably would have been feasible with the same resources and would have given a different environment where something like democratic self-determination could have uh could have emerged so it's an example of the you know the the kinds of trade-offs we we have to face and under that kind of scenario we might say well getting to democracy is still where we want to go but we might have to allow a longer period of time to get to where we want now let me uh describe this from the perspective of the of the european response um the european response is fundamentally that europe can't afford to take in um hundreds of thousands of additional uh refugees certainly not millions or tens of millions of refugees but this is the scale of the potential flows here so the the the question for europe is either insist that all these people have to stay where they are even though we have no prospect for improving the quality of life where they live or we find someplace else they can go we could support the idea that people should be free to leave without saying they should all be able to enter europe but to do that we have to have some feasible proposal for where people who want to flee uh violence could could go and uh the example i think from history that could guide us is is hong kong hong kong was a case where a european power britain provided security guarantees for a city so a smaller piece of area not uh not an entire country and allowed enough time for a society to evolve in the direction of uh democratic self-control the that evolution was interrupted by the handover back to mainland china but if it had not been interrupted you could imagine it would have evolved the way say uh british uh control of mauritius evolved into a stable uh a stable democracy there so what would what would the characteristics of a of a new hong kong be um and i'll i'll be specific uh you'd need about a thousand square kilometers and let's imagine for the moment that that some european power entered into a lease with uh some part of the libyan government on a thousand square miles uh on the coast uh on the libyan coast a thousand square kilometers excuse me on the on the the libyan coast the political arrangement there is that this uh like hong kong this uh jurisdiction would not be a part of any european state people who came and lived there would not become european citizens they would not have a claim on asylum in europe but uh the power that organized this could offer what they called the right of abode in hong kong when millions of chinese were fleeing the civil war in china they could they had an offer to live permanently in in hong kong and have the right to seek employment bring their families there and enjoy the benefits of security and and opportunity this uh is offering part of what we think uh the refugees would like it does not offer them the chance to participate as uh uh voters in a determination of the the political arrangements that they live under but uh this is the kind of arrangement which could allow um that uh democratic system to uh emerge uh over time uh i think it's also interesting to think about the possibility of um that process leading to local democracy proceeding more quickly or more slowly um because we don't know for sure what uh what it takes to how long it takes to build an effective democracy you could imagine starting one of these new hong kongs with a commitment that within five years there will be local uh control and and let me be specific about what that means that means there will be an election that determines who is in charge of the the police force that maintains uh uh safety there in the in the zone imagine another zone that uh where the commitment is is that the external uh european power will have an appointed official who provides uh accountability for the security forces and will do so for 50 years instead of five years so it's still an arrangement where democratic accountability limits what the head of the police force can do but it's the voters in europe who hold accountable their leaders who appoint the person who is in charge of the police force in this zone now the interesting question is um if you imagine say groups uh that have been in conflict with each other sunnis and shiites for example would they actually prefer to go to a zone where the transition is going to happen within five years or they prefer to go to a zone where the transition could take 50 years i think it would be interesting to run that experiment give people that choice i have a feeling that many might prefer the zone where it's going to take 50 years because holding an election too soon is a very destabilizing thing um if uh if there's a small majority of say the the sunnis the shiites uh will worry that uh it'll be a sunni militia and that it'll be used to oppress the the shiites so they'll either try to stop the inflow of more sunnis encourage the inflow of more shiites perhaps engage in violence to prevent the transition to the democratic uh arrangement um so that the early transition to an election could actually be very destabilizing whereas the one which takes place over a much longer period of time uh could uh give everybody an assurance that once it takes place they won't have to worry about the emergence of a kind of a warlord that will oppress uh oppress one one group so um if we're willing to uh think like a medic and think what's feasible right now i think we could provide zones that could accommodate uh each one of these new hong kongs could accommodate something like 10 million people they can actually be self-financing because if people can move into a place and work as they did in hong kong they pay taxes and can cover the costs of local government so uh you could take tens of millions of people in in each of these um they could rely on some security guarantees in in the beginning but it really at very little fiscal uh fiscal cost i think um in terms of uh security uh if you go back to the scaling back i said to the united states one tenth the area would be a hundred thousand um a hundred thousand square kilometers that would be enough for a hundred uh hong kong-like zones so uh it'd be well within the realm of feasibility to provide security for a few of these and in terms of locations along the libyan coast you could uh there's room for 50 square parcels the size of hong kong if you look more broadly uh at say the coast of the western sahara there'd be room for another 15 and so what we should think of is those these locations the unoccupied uh locations on these coasts as opportunities for uh gains from trade there's a deal that could be done where some european power enters voluntarily into an agreement with the affected parties in uh libya or the western sahara in the western sahara morocco would have to be a participant in the in the discussions but it's perfectly feasible to imagine you know a handful five maybe ten different uh locations that could grow to the size of uh of a modern a modern city of of 10 million people this would be a response at the kind of scale that the world needs right now and and i think it's one which is likely more likely to get us to the goal that we uh the ideal we believe in than the path that we're currently on so let me uh pause with that overview and open it up to questions and and discussion okay paul uh when you talk about setting up at the onset of new hong kong do you see a consortium of advanced nations acting as what you might call the uh seed capital behind it or yeah are you recommending the united states or europe or whatever um my guess right now is that europe will take the lead um i think to be honest i think the united states is paralyzed um so imagine it's a european power and i think um it's quite possible that this could be an existing european state it it could also be an eu initiative but um i think the the resources the resource demands here are are not large so it's well within the powers of i think germany sweden britain uh and any of these countries italy um any of them could uh i think uh take this uh take this initiative on paul this is i miss the very beginning of your talk so i hope not to say something that you already said before okay well there is a fundamental difference between refugee migration and economic migration and this is related to the fact that it is a push migration people are leaving from an area of conflict and they come in very large waves while economic migration is more gradual typically at the same time even the refugees have some economic motivations so they leave a country and they aim at uh going to an area of say prosperity but certainly or better living conditions indeed the refugees when they come to europe they don't want to go anywhere where they can be secure in europe they want to go to germany or to sweden to the countries where there are more economic opportunities so how would your proposal fit into this say motivations and of the refugees sure so i i think it's a somewhat arbitrary uh distinction between say economic migration and um uh sort of uh the migration that comes from escaping escaping violence and i think it would be good from our perspective if we could accommodate everybody so you think about the parents of children who just want their children to live someplace safe and they want to work in a job uh that and then they want their children to get an education these are these are things that we we'd like to encourage for everybody i think it's a it's this sense of infeasibility and scarce resources that makes us fall back into the position of saying the only ones we can help are the extremes the people under the most extreme threat of violence it will give them asylum so you might keep that asylum policy in place for positions within europe but you could say to everyone else if you want to go someplace where you can be safe and get a job we can help create that and i think we have to remember that hong kong was a source of immense opportunity for people when they were fleeing from uh from mainland china it was not the opportunity of the welfare state but it was the opportunity of the chance to to get a job and and to work and for your children to to get an education that's the opportunity we can afford and i think it's the opportunity that most refugees want um so uh the the essence of making this work is some democracy which takes responsibility for appointing somebody who's in charge of say the perimeter security force in a city like this but also the police force that operates inside the city this is a key role for the for the european power beyond that um you you have to uh give the people who move there the opportunity to build the city that they will um they will live in so we shouldn't think of this as being something that involves huge capital outlays before people show up this is not the way cities have uh emerged uh historically think of this as a place where syd where people go economic opportunity emerges and then they build the city that they'll live in paul in terms of the ingredients that have to be how you say introduced to the city i've heard you talk uh repeatedly about law enforcement but our court systems are how how disputes are to be adjudicated and other things is this part of what the uh say in your your suggestion the european powers provide a structure so that this uh environment can bootstrap and take off sure i i think it's um it's important to focus not just on the police but also the courts for uh for handling you know criminal um criminal law um to be honest i suspect that um contract law which economists make a lot of fuss about is probably less important um if if you've got conditions of of security people can make deals can engage in trade based on basically a reputational equilibrium and as those deals become more and more complicated you could eventually make recourse to uh you know a contract uh explicit contracts and uh courts that enforce them but the fundamental challenge is to make sure that people feel safe from threat of violence if you don't have that you can't have even the principle of of you know voluntary exchange so i think the policing and the courts are an essential part of um of what uh has to be provided in the initial setup in a in a zone such as this uh are there other dimensions just to help our imaginations that you would put on that laundry list in addition to policing in courts yeah um let me just digress for a second and say uh i you know i apologize that i wasn't able to come the reason i'm not able to come is i actually have to make a trip to colombia the reason i have to go to colombia is that we've been working with the government in colombia to try and make room for their internal refugees the displaced people uh people displaced by violence in colombia and are trying to do this by increasing the uh all of its urban area uh so take especially the second tier cities and encourage them to plan for rapid expansion so that they could accommodate the hundreds of thousands of people who are still not um in permanent and permanent homes um now that experience uh shows that there's a there's another dimension where the the state has to be the first mover and it's on something which may sound kind of prosaic compared to safety but it turns out to be incredibly important for economic opportunity if you've got land which people will occupy in the kind of at the densities of urban urban life the government has to move first and define what will be the public space that will be used for mobility and uh utility corridors and in a sense all of the interconnections you want to make possible in a city those interconnections can only take place if you have the public space of the street the sidewalk um and then you know using that land the you know the sewer pipe the water pipe the electric electrical wires the bus that can take somebody from a place where they live to a place where they they work so what we're doing in expansion planning for expansion in these cities in colombia is making sure that the government sets aside uh the public space and then can let private individuals guide decisions about the the private space the the blocks that are that are left over once you protect the public space this is an initiative that doesn't take much money it just needs a commitment from the state that you you stake the public areas and you say don't build in these we're going to protect these eventually we'll pay them and put pipes in them and it'll uh it'll support a modern city now if you're um if you want to picture how this kind of city this brand new hong kong could evolve think about starting from that state somebody has staked the public space and this should include of course park space as well protect the riverfronts the waterfronts the green spaces if somebody stakes the public space and then says we're going to protect that but you the new residents can occupy the the private space we've seen how this can this can unfold there was a land invasion of some space outside of lima peru where the the priests who led this invasion um went in and staked uh 10 meter roads first that that area instead of staying permanently as a slum has grown into one of the most successful suburbs of of lima a more sort of trendy example would be uh the burning man camp that emerges every you know uh every year in in nevada uh the organizers go in and they stake the the streets and then they say all right come in and build the occupation for yourself and within a week they have a city of 70 000 people up up and running so so imagine that what this power does is say we're going to have a police force we'll have a court system for dealing with cases of violations of law and we're going to protect the public space that uh will be essential for the success of this city beyond that we're willing to let people pursue their own uh self-interest uh build their own structures in many cases that they'll live in initially they may be getting water off of a truck instead of from municipal water supply the roads may be dirt but uh as economic activity unfolds i employ employers will come seek these people out and as as economic activity unfolds eventually uh local residents will decide to pay for paving and municipal water and uh um this this city can evolve uh very rapidly into a successful uh competitive worldwide center of commerce opportunity let me keep on playing the devil's part because i think that both rob and i have this role to play today so to get some discussion it's very difficult to engineer the growth of a town or to create from scratch a conurbation there are also some of the examples that you were making if i understand correctly are examples of areas around the cities that already exist so you are recovering and you are restructuring areas slums and other areas that are around the existing cities rather than creating from scratch a new town and i believe this is also a large town the one that would also we are talking about millions of refugees here so it would be large so clearly there is there are in the world many examples of failures including in china there are all of these ghost towns that have been created through in this case people would go there must go over to some extent so you would have already the person there being resident uh but by force to a large extent by coercion um which is clearly different the situation and the economy of these areas would be mainly if i understand driven by housing building and construction more than you know typically when a new town is created it drives is based on some economic factor you know trade or natural resources other things so um no i don't know it's a it's it's not an easy uh process i would say yeah well let me yeah let me um and i think i think it's good to sort of challenge an idea like this and we should also be thinking about what what are different directions we could we could take it um that are still consistent with this idea of pragmatism um the vision i have is that um you have to have some source of uh exchange with the rest of the world because you're going to be acquiring resources from the rest of the world um you know in the process of economic development um there's a kind of a natural sequencing that that takes place but the first uh the first industry which would emerge there is almost surely going to be garment assembly there are firms that will travel all over the world and can very quickly set up garment assembly operations uh that offer uh jobs to people uh sewing shirts and and blouses um this this strikes many of us as a kind of a grim prospect because you wouldn't want someone to be stuck in a job like that forever but what we see over and over again is that these kinds of jobs as first jobs for people become the stepping stone to jobs that involve uh much more skill and it's typically skilled that people acquire on on the job so so imagine in the early stages that this is um this is a place which is a you know in competition with with bangladesh for um garment assembly it'll have better logistics to europe it'll have better logistics within the city itself because you've protected the public space if you've made enough room for expansion there'll be abundant land which will be available so it'll actually be cheaper for somebody to own a house it might be a house that they build uh on land that they're they're given so it starts with uh garment assembly light manufacturing you know kinds of activities that are migrating away from uh coastal uh coastal china and then it just like hong kong it moves uh quickly up uh kind of the scale of productive activities as the human capital of the residence there uh unfolds so so that's and construction is part of it but unless there's some um trade with the rest of the world probably facilitated by direct foreign investment i don't think it'll succeed now and one other thing i think is worth keeping in mind is if we if we started um several of these places and some of them didn't succeed that would be perfectly okay because there's almost no cost in setting one of these things up the way you set up burning man you go stake the public space and you say hey if people want to come they can come if nobody comes that's a very reassuring sign things aren't that bad in the places that they're leaving from uh and if nobody comes to this one but they go to some other one which offers a slightly different uh set of arrangements well that tells you they they preferred the other one instead of the instead of the first one so um i i think the process of defining the political jurisdiction defining things like a permanent right of abode which is distinct from say citizenship in the european um nation i think defining those things is very inexpensive and we should try it and if it if it doesn't succeed that'll be a that'll actually be a very reassuring sign okay do we have questions uh from the audience and paul will uh if you can't hear well we'll try to distill them and reframe them so uh yeah actually let me just say let me just say one other thing um what could lead why do i think is a source of failure a likely source of failure i think there are i think there are tens of millions of people who would leave at the drop of a hat if they could go someplace where it was just safe and they could just get a job i think one thing that could lead to a failure is if we replicate the experience of refugee camps and we say in effect the people who move to these places are prohibited from working um now you know that would that would clearly be a a foolish and wasteful thing to say we could have that same effect if we said well you can work here uh as long as you get um a decent minimum wage of you know uh you know 10 10 euros 15 euros because we don't want to allow exploitation of local labor that kind of labor market restriction could deprive people of the chance to get a first job in something like garment assembly to learn skills about quality control about teamwork about uh interaction with with supervisors and about marketing design related to these areas so i i think that um if i were to think about a failure mode i think it's most likely one that we create conditions of security but we don't give people a chance to work yeah what they are saying is very important indeed it goes even beyond your proposal the problem with some of the policies we have with refugees is that we do force them not to work even if we come to our countries because there is also this weight long waiting period before they could start being productive and that creates the type of problems that you were mentioning before but there are a few questions from the floor including one if i understand from jesus fernandez huertas moraga who presented a few days ago a very insightful proposal about how to because you were talking about some eu states and clearly there is a problem of coordination across eu states and he was talking more about relocation and resettlement but i think his proposal worth talking about so perhaps when jesus wants to say something else about this and also react to your proposals sure okay so uh i found your proposal really interesting and what our proposal has in common with yours according to what just you just mentioned is to give the possibility to refugees to choose what's going to be their preferred locations and in your case this would be these new cities we were also proposing that countries and willing to to receive refugees could pay a compensations to other countries that that would be willing to receive these refugees so in this case we could add your new cities but more exactly on your proposal what i would like to to to ask you about is what could go wrong in some sense and i would like to ask you about about one point that you already mentioned which is the existing refugee camps so some of these refugee camps are really large hundreds of thousands of people uh we can think about them in in kenya and tanzania even for western sahara you know there are western saharan people that are staying in refugee camps in algeria so i would like to to ask you to go a little bit deeper into what's wrong with these places why they are not developing into these new cities with opportunities that you are and then i'm thinking of another historical example you've talked about hong kong and i would like you to comment on on israel on the history of israel yeah yeah and how it relates to your proposal sure okay thank you yeah um so uh one one pragmatic track that is kind of can operate independently of what i'm describing is a track that many people are working on and your work may be part of this about trying to uh move from people trapped in refugee camps where they can't work to a situation where we allow them to to work and i think that's a track that's very worth pursuing because uh those people are already in place and it's um it's doing enormous harm that they can't work um i think these two possibilities could complement each other in the following sense imagine that there are some refugee camps where the local host government for political reasons cannot allow the refugees to um to work um to just not be condescending about this if we had a refugee camp with like 10 million refugees living in the united states i'm almost certain that our current political environment would not allow them to work there's so much political animosity and uh you know uh hostility towards towards immigrants i think we would do the same thing in the united states that a country like jordan has has done so we have to recognize that it's really hard to get a country to allow people who've entered essentially in a way that doesn't follow the legal mechanisms for migration don't let those people uh work but we should push as hard as we can to get countries to face reality and and let that happen but in parallel we should create places where these people could go so everybody who's currently stuck in a refugee camp is told you now have some options if you're not happy here you could always go back home but you could also move to one of these new zones where as soon as you get there you can you can get a job and i think um this would uh be beneficial from the point of view of giving some sense of um agency some sense of control to people who now feel helpless um trapped in in these camps so um i i think that the kind of allow work in camps uh agenda is complementary uh to this this one that i'm articulating now your question about israel uh hong kong was very beneficial in the sense not only that it offered opportunity for the people who moved into hong kong but indirectly it had real benefits for mainland china that was that was nearby if you look at the history of israel israel has offered opportunity for people who have moved in within its borders but it has not facilitated that same kind of uh spread of opportunity and self-determination uh to the to the areas uh nearby so you'd want to think you know carefully about what would make this evolve more like uh the experience in in hong kong and less like the experience in um in israel i think one of the in retrospect one of the mistakes uh you know if you could do it over uh one of the things you'd do differently is not to try to say exert uh a new create a new power that takes control over a place where people live and a place where people want to live or they lived before because uh they they will naturally resist the imposition of a regime that doesn't reflect their uh their interests so i think the the decision to create israel in a place where many people were already residents and there's a long history of you know of residents there i think that created uh conditions of of you know hostility that made it very difficult to have the kind of inclusion you want in a successful place so i would look uh for a place that is as sparsely inhabited as possible a place where almost nobody lives somewhere on the coast and if you have to supply it with water from desalination and recycling we know how to do that that's not very expensive but if you can start with a place where there's no history of grievance and entitlement and say you know you know come please if uh if this is attractive but by all means don't come if this is uh if this is offensive to you uh i i think that helps uh encourage um an evolution like that of hong kong rather than um an evolution um like that in in israel i i think the other thing that's um was a side effect of the conditions of hostility is that it's very difficult to have a truly inclusive society that's committed to equal treatment for everyone when people feel uh threatened by by violence and uh so israel has really struggled with creating the uh sort of implementing this this commitment to inclusion for uh for people who uh are you know or not are not from or for arab arab residents of israel so i i think you'd want to push very hard in the direction in any new place that you create of um equal treatment for all residents and this is another place where the pragmatism kicks in um if you let many new uh migrants move into europe what we would typically do or the united states what we typically do is okay well you're not voters you don't get the right to vote but you can live and work in in this environment the interesting thing about hong kong is that by saying you know the electoral control of your officials comes outside it has a disadvantage that you don't have local electoral control but as i said with the sunnis and shiites that might actually be an advantage in the beginning but more subtly um it allows uh you to bring in new citizens at a rapid pace uh and still to treat everybody the same you don't have to have a distinction between those who are citizens and those who are temporary migrants who might be long-term uh migrants maybe someday become citizens so uh to summarize i think that um making participation optional by starting someplace where people don't already live and then by committing to equal treatment of everybody regardless of their ethnicity regardless of their religious their religious persuasion equal treatment under the law i think is in conditions where people feel safe those are the best uh conditions under which to um i think emphasize uh education opportunity inclusion and ultimately social harmony we have another question now from francesco anasi if i understand let me know if there are more people willing to ask questions thank you for a very unexpected but enlightening intellectual exercise of imagination as you clearly demonstrated there is an economic case to be done for failed state and we discussed in the past few days here in trento about the economic case for refugee crisis un chr mentioned the fact that they need something like an investment of 70 million in order to duplicate the revenue that they could have in the longer term or professor dasman from ucl said you need to be careful not to move refugee into rural area because that might increase one percentage increase in those area will increase by one percentage of more the level of populism in those area whereas cities can absorb uh can absorb much better the the refugees my question are the following i mean as you clearly demonstrated as i said there is an economic case to be done and economies have a duty to perform into it so the question is what is the role of economist in performing the role into the public sphere for public goods when an economic case is to be done now if this question is too broad the alternative question might be how does your proposal fit into the research agenda that we are seeing nowadays thank you very much yeah that's a good this is a good question um uh so rob you're right this is uh this is a great festival i wish i wish i could be there i think economists have been have not done a good job of grappling with this question um because in effect you know there's a joke we tell about economics where the punch line is assume you have a can opener that's a joke about how to open a can what what economists tend to do about refugees is assume we have a place where we can have conditions of safety and inclusion in the political process and then ask uh what's the effect of bringing the refugees in and the answer there is it's clearly beneficial if you bring the refugees in they take less in terms of additional support than they generate in tax revenue they create uh more economic value than they capture for themselves so economists have um i think presented this kind of falsely optimistic picture of what would be possible in terms of bringing large numbers of refugees into europe because we haven't addressed the political and social costs associated with large-scale large-scale migration and the voters understand these these other costs very clearly and they think the economists are just are just nuts and so i think economists have to address the the social and political costs not just the economic costs of of large-scale migration but let me say that the reason i think that the economists go astray is that if you look at cases where you have a very small inflow of immigrants the political and social costs are negligible so economists act as if you can just scale those up and those costs will stay small but the problem is the political and social costs grow super linearly they grow much faster than uh with the rate of uh the number of new immigrants so what we should be doing as economists is saying okay we understand that there are political and social costs we've got to manage as well let's take account of all of those and come up with a feasible a feasible proposal and and as part of this let's recognize that we're going to start some new opportunities where we can treat everybody the same where we can provide inclusion let's be realistic that it might take decades to build a stable uh democratic system uh rather than rather than months and um i think this is this is the mistake the u.s has chronically made is thinking that an election held within months is going to lead to a stable democratic system and it just doesn't it just doesn't work so we need something more like as i said the british kind of transition to democracy and in in mauritius so i i hope economists start to recognize the reality of the political and social challenges but they should still keep making their basic point that the fiscal costs are negligible i mean hong kong didn't cost british taxpayers anything because it generated its own local revenue and was hugely hugely successful so um it is true that more immigrants can actually pay for themselves in a new city but we got to make that case and at the same time make the case that um we have to manage the the difficult challenge of creating a sort of a stable cohesive society uh that will be that will be durable another question there from the floor um yes good morning to you hey my name is georges bampat i work as an investor specifically in a social impact fund i just wanted to make a if i can sit down can make a reference to quite funny the reference to burning man because for those of us have been actually the economic activity during burning man is not the most prevalent human activity so but the question is actually um you devoted a lot of time thinking what would be the initial condition for setting up such an area so security infrastructure i would imagine the governments play a big role in setting up this this ideal setting but i would imagine at some point proper real economic activity away apart from the states have to kick in and and maybe there would be a contribution from the uh dismal science to say to to to tell us what would be the rule of the games of economic activity we expect some something growing from the ground and and secondly if we wanted to mobilize um you know funds like ours or all you know the large um economic uh power of social impact investors what will be the rules of the game for those people that also want to have an economic activity and not just charity in this type of environment sure yeah so uh first i think one of the things we have to recognize is that given the scale of what we're facing um there there are hundreds of millions of people who say when asked they would like to move to a new country um so we're dealing with a scale of at least hundreds of millions and it could well end up being in the billions you know one or two billion who want to move so we have to realize that philanthropic funds relative to the scale of the challenge are very very small so what we have to do is we have to prioritize the use of those philanthropic funds we have to ask where could they generate enormous returns by allowing all the other things that can happen from uh basically a mutually beneficial exchange uh the thing that that you know humans rely on for everything we do at scale so um to be clear i would not use philanthropic funds in a new uh site to pave the roads to lay water pipes lay sewer pipes build buildings all of that stuff can come through this process of mutually beneficial exchange i think the philanthropic funds should be devoted to creating the jurisdiction so that we have a place where it's like hong kong people can freely enter and they've got uh kind of legal status there um and then create providing the the security guarantees provided by a good system of policing and and courts um now i understand that burning man doesn't it only lasts a week so it doesn't illustrate you know permanent um employment opportunities but i think it does illustrate how this city could could a new city could grow literally you stake the streets that defines some private land um they straight that will be the streets in sidewalks someday that defines the private lands and you could say to people you know you can if you occupy a a lot in the private land it's yours if you build a house uh on this land it's it's yours um and again what what could a philanthropic uh funds do imagine what the philanthropic funds do is test and publicly announce the quality of the water that starts to be delivered on trucks there would quickly emerge entrepreneurs who'd be selling water on trucks people would dig latrines for for sanitation but it would be good to have somebody who assures buyers that the water is is safe so think of that as the kind of role for philanthropy but think about the you know the water delivered on the truck is by an entrepreneur the factory that hires people for uh for for garment assembly uh is is led by an entrepreneur uh some you know some firm that wants to build an airport hub where say dresses are flown to you know high fashion houses in paris every day um you know there's there are entrepreneurial entities that would even build and operate an entire an entire airport so save those philanthropic funds for those very few basics of creating the conditions required for success there is a lady here on the front i would like to ask you to break down the wall in israel please remove that wall and create two nations that would be the only way to have peace thank you a kind of political statement about the world in israel and she's saying that there is no need for walls okay yeah i you know i understand um that this kind of idea has some bad associations with it and it's not guaranteed that it would succeed um but let me go back to what i said in the beginning about the medic we have thousands of people dr dying every week right now and that should give some real urgency to um our decisions um there's nothing honorable about just standing by and doing nothing in conditions that are so dire so it's true that we could take risks by doing something we could create conditions that that don't work but if we do that we can adjust course and we we have to stop being so afraid we can't just look away we have to do something there's another question there i think we take two more and then hello i have a more different kind of question uh that is about inclusion in a political process which i found very interesting the new state that you're imagining wouldn't there be would there be hostility against the imposed set of values that you speak about there are more western democratic values and wouldn't there be a the culture will not feel imposed by these values and would go be hostile against these values when their own values let's say of this other culture could be for example the sharia which is the islamic law yeah now this is uh this this is another very um important practical issue if you could if you could start um a couple of these states it might be an interesting exercise to try and say well here's one where we're going to fully uh accommodate the kind of values that prevail in europe you might have another where you say here we're going to try and support certain kinds of more traditional values for example um we might support local uh you know local regulations about dress for men and women a certain level of modesty we're going to require in in how people dress um it it if we can set up both of these kinds of places it would be interesting to see which ones people choose and it wouldn't just be about dress it could be about available of alcohol there's a variety of ways i think um you could tailor the local rules um now that there's clearly a limit to what any european power will will support i mean no no european power is going to support a new city where uh genital mutilation is the the accepted practice so we have to be realistic that this is only variation within you know an acceptable um uh realm but i think if people have the choice to enter and they could even have a choice between more than one uh place i think that goes a long way towards avoiding the resentment that you uh that you alluded to you know it was interesting in hong kong there was very little desire for local democratic control of uh for example of the of the police force and the move towards local democracy only emerged when um when basically when it became clear that the transition was going to hand control back to the mainland chinese government so uh you know you could easily imagine residents being very happy living in a city in some ways like washington dc where some you know much larger entity is actually in control of the politics of the city but but you could also imagine uh a gradual devolution of some powers uh to the city uh to the city itself um you know by the way one other thing i forgot to mention is that you have to think about it back on the question of israel and tolerance of this zone you have to think about the benefits for people who are not in the zone as well as for the ones who are in the zone i think in libya for example it would be very useful if you could set up a couple of these zones maybe even just one of these zones on libyan soil one of the commitments could be that every libyan who wants to take refuge in this secure safe zone would have the right to do so and in a sense could have a kind of they could move to the front of the queue ahead of of people coming from from other areas um this you know for for libyans i think about olivia and family this would be potentially very valuable because the security situation there it's very tenuous and um you know if they knew there was a safe place like european security they could get their children to without having to risk uh a you know a crossing of the mediterranean that would give them uh a kind of an assurance that would be quite quite valuable um a new libyan emerging libyan government could also benefit from say some lease payments that uh might come along with this kind of lease arrangement so i think there are ways to design this so that it would be attractive to people who'd want to move and live there but would also offer benefits to people um who are part of the country that uh that engages in this uh in this arrangement is i think this is the last question we take okay i uh i try to be as short as possible uh first in terms of political feasibility because this these concerns concerns with the reasons why a state fails in some cases uh it was due to the fact that a weak institutional arrangement was torn apart by international tensions so rival international interests so this kind of strong one-state intervention in one territory could not trigger an international competition of this sort so those cities could turn from civic outposts into military outposts first and the second is why specifically cities because in in some cases if you stress too much the role of the conurbation model you can you could you could end up drying up the countryside and the more scattered areas of the country so in a way emptying uh territory that needs to be looked after and seen too thank you so um uh these are all great questions um i i think it would actually be a good thing if many different countries tried to compete by setting up such zones so imagine sweden says we want to set one up in libya imagine china says we want to set one up in the western sahara and uh you know imagine the united states says okay we want to set one up too and russia says we want to set one up too i think that kind of competition if it could all take place in a framework where every place guarantees that people have the right to enter and leave that kind of competition would be a good thing if you could structure it by some kind of treaty-like commitment it would it would be more reassuring to everybody i think if if there was a firm commitment that no outside power would use this to create a military base you know it shouldn't become a port that's an important military port it shouldn't be an important base for um you know for uh aircraft you know it might not be possible to um to avoid some military presence um in these different places and then i think we really have to think hard like medics and say well okay what if it did lead to uh military bases some chinese some russian some european some us um some indian you know many many parties could could get involved in this um all these countries have to learn how to live with each other in a kind of stable worldwide system i think they could live with each other in maintaining these stable outposts as well so i would prefer a kind of competition where these were not militarized zones but if it was a choice of no zones at all or uh zones where there is some military presence um i i think it would be better to have some of these zones the point on which i think one can't compromise is um on entry and exit that people can't be trapped in by something like a new version of the berlin wall um the final point about you know urban life is that uh look where people want to go is to cities they don't want to go to rural areas we heard about the potential disruption that can come if you force them into into rural areas and recall that protecting large swaths of land significantly increases the burden the security burden for any power that's providing um security so i think the only practical solution going forward is um hong kong scale uh urban environments which are not expensive to keep safe and you know agriculture which is going to take place in in countries that are uh that are at a farther uh you know that are farther along in the uh you know the state building process okay well first of all uh thank you paul i want to conclude by sharing with you two thoughts that occurred to me as this was proceeding the first of which is listening to you with a very broad imaginative scope and your ability to integrate across disciplines and take on powerful challenges reminded me that many years ago i had worked in washington and when after i had moved to new york i got on the amtrak train and paul i've told you this story i went from new york to washington and had one of the most fascinating train rides of my entire life i was on a very busy train seated with a gentleman who had a vivid imagination was gregarious and inspiring about three quarters of the way through he started to explore with me my background in training and he said well you should meet my son and it turned out the man i was riding on the train with was roy romer paul's father who then introduced us and today is the fruit of that uh that initial good fortune so i want to thank you uh paul inet is very proud that you deliver one of our lectures and we hope in the future that you will uh how do i say continue to inspire whatever the theme and that we can attract you here in person uh which i know was your intention until you had to go to columbia and and rob please um if you can think of a way to do it um uh pass on my email address to anybody who'd like to follow up with me or give me a list of the attendees and i'll i'll write them because um i'm sure there are many thoughts people would like to share and i i'm i'm keen to listen yeah thank you so much for offering this poll and really we we do hope as i joined robin saying that we would be very pleased to have you here in person next year one of the future edition of of this festival so i i have one second thought tito you weren't here at the outset when i made my introductory remarks and as i listened to you talk about setting up refugee camps and the idea of a refugee no-show meaning things were so good that no one had to come i thought about the trento economic festival and my role is the head of the institute for new economic thinking and immediately i came to the state of mind that if no one showed to the toronto economic festival i would have to convene psychiatrists to understand what was wrong with the world given the state of the economics profession and this extraordinary experience if people didn't show we could uh say the push the poll but we would we would need psychological help and in no small measure the need for that psychological help is is shown in this tremendous experience through the vast knowledge and imagination and the smile the man who sits next to me each year i come here each year we work together and i enjoy learning from you i enjoy experiencing your vision and annette thanks paul tito and all of you thank you rob thank you so much now it is it is rob who is really organizing this event so thank you so much rob thank you okay you