Astral Codex Ten

Special Economic Zones

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Special Economic Zones

Article

Special Economic Zones is a recurring concept in the Astral Codex Ten archive, appearing 3 times across 3 issues between July 05, 2021 and January 11, 2024. The archive places it in contexts such as “the closest existing analogue is Special Economic Zones”; “they’re not sure special economic zones consistently make areas develop faster”; “Regarding the widely varying success of SEZs - Read Lotta Moberg’s, “The Political Economy of Special Economic Zones."". It most often appears alongside Charter Cities Institute, GiveWell, Rethink Priorities.

Metadata

  • Category: Concepts
  • Mention count: 3
  • Issue count: 3
  • First seen: July 05, 2021
  • Last seen: January 11, 2024

Appears In

Source Context

Recovered passages from the original issue text. When the raw archive preserved outbound links inside the source passage, they are listed directly under the quote.

Model City Monday
July 05, 2021 · Original source
They bring up the usual reasons to think charter cities are hard, but their most damning point is that even if a city gets successfully founded, it might not actually increase growth. There aren’t enough existing charter cities to draw firm empirical conclusions, but the closest existing analogue is Special Economic Zones. A World Bank study finds that SEZs don’t consistently grow faster than their host countries. Some very conspicuously do (eg Dubai, Shenzhen), but these are matched by a few that grow less quickly, and overall it’s kind of a wash. The study tries to analyze whether there are consistent features of SEZs which make some do better than others, but it can’t really find any.
Inline links: World Bank study
Keep in mind potential biases - countries might make underperforming regions SEZs to fix their underperformance, or might make especially promising regions SEZs because they’re best placed to take advantage of better regulations. It then fine-tunes some of CCI’s models, incorporating the sort of pessimistic assumptions about growth that make sense in the context of the World Bank study, and finds that although they are nice, they don’t reach the same level of cost-effectiveness as other GiveWell top charities, even on time scales of decades.
Mark Lutter of CCI broadly supports the research, but argues that the World Bank study might underrate CCI’s work. The study only investigated SEZs between 0.5 and 10 square kilometers. This is more like a neighborhood than like a real city (Central Park is 3.5 square kilometers, Manhattan is 87, Shenzhen is 320). But Lutter thinks that “a city is the smallest unit that can support economic development”. He also thinks the SEZs were comparatively weak - slightly lower taxes or something boring like that, compared to the total overhaul involved in charter cities. He comes up with a reference class that includes Shenzhen, but not a lot of SEZs that don’t work, and says this is the proper comparison.
Inline links: broadly supports the research
Does Capitalism Beat Charity?
January 04, 2024 · Original source
RIP …so this doesn’t support the “invest in whatever companies give the best rate of return” narrative either. What’s left is strategy 3: Do something like donating to charity, but the donation should go to charities that promote capitalism somehow, or be an investment in companies doing charitable things (impact investing) I find this promising, but I don’t know what a good charity along these lines would be. There are some charities that send economists (or other professionals) to developing countries and advise them on how to do more capitalism. This kind of development aid has been roundly criticized and did especially badly in Russia. I’ve supported some of these that seem especially careful in the past, and would be willing to support them more if someone found a very good one with a strong track record. (also, I’m concerned that even though rich countries got rich because of capitalism, it’s no longer that easy for poor countries to get rich with the same type of capitalism - existing rich countries will outcompete them - and we’re not entirely sure how to help poor countries get rich now, although probably good institutions are always better than bad institutions) I am partial to Charter Cities Institute, which helps advise developing countries on creating charter cities that have better governance and less corruption than the rest of the region. But EA evaluator group Rethink Priorities has a report on why they don’t think this is quite as valuable as traditional charity (they’re not sure special economic zones consistently make areas develop faster, and they think this finding should be applied to charter cities too). Here’s CCI’s counterargument (they think SEZs aren’t a good reference class for the charter cities they want). I think both sides make good points but I’m currently more convinced by Rethink Priorities’ (although I do still donate to CCI sometimes). Finally, you could invest in developing-world projects and companies that seem unusually likely to make an overall economic difference there. I’m nervous about this because of China’s Belt and Road initiative, which did this at huge scale for infrastructure, but doesn’t seem to have done much good (and might have done some bad). Also, I’m not smart money, which means I’m exposed to adverse selection - if there’s a company that can’t raise enough money to build a dam in Kenya and needs your charity dollar to make the budget work, why hasn’t Wall Street come through for them? One plausible answer is “because it’s a bad company with a bad plan”. Admittedly another plausible answer is “because it has a 5% RoI, the next Instacart has a 6% RoI, and so Wall Street would prefer the next Instacart but you as a charitable individual should prefer the Kenyan dam.” I would potentially be willing to believe this if some smart charity evaluator would tell me which projects were good. But $1 million only gets you a fraction of a dam, and does get tens of thousands of clean water dispensers, so I would also want someone to present the specific case for why the dam would be better (not just the heuristic “capitalism is always better than charity”). I’m willing to believe that some capitalist charities - whether these are development aid think tanks, or investment in developing-world projects - could potentially be better than usual charities. The reason I’m not donating to these is that nobody’s done the hard work of identifying these and calculating their expected value, and I don’t feel qualified to do that work myself. I have a high prior that any nonprofit that hasn’t been rigorously shown to be good is probably bad, and the potential advantage of capitalism over normal charity usually isn’t enough to overcome my decreased certainty in its efficacy2. UPDATE: I respond to your comments and counterarguments here. 1Instacart is worth $10 billion and has 10 million customers, so naively you might say that it cost $1000 in investment per customer. But successful companies are worth more than the amount of investment it took to create them. I don’t know how much has ever been invested in Instacart total, but this also seems like the wrong question. You, today, can’t invest in “the next Instacart” - everyone wants to invest in the next successful company, but nobody can be sure which one it will be. All you can do is invest in a basket of promising-looking startups: most will fail but some will succeed. Because of this, I thought the best way to represent “the amount of investment money it originally took back when Instacart was founded in 2012 to create Instacart today” as the current value of $10 billion discounted by the rate of return a good VC gets on their investments, which I think is about 7.5%. That suggests it took about $5 billion of investment in 2012 to create the amount of value represented by Instacart today, ie 10 million customers getting a good deal on grocery delivery. That means $500 in investment per customer. Because most charities can’t take $5 billion in new funding, I chose to represent this as per million dollars, so 2,000 customers per $1 million. I understand this is a very shaky estimate and I’m hoping that all the comparisons I’m going to make are so order-of-magnitude different that nobody really cares about the specifics. There’s one thing that confuses me here, which is that Instacart has 10 million customers and makes $2.5 billion in revenue per year, suggesting each customer spends $250. But you can get a yearly subscription to Instacart for $100, after which the service is free. So either customers are overwhelmingly being stupid, not buying the subscription, and paying much more than it should cost - or I’m missing something here and the numbers are wrong. Again, I’m hoping all of this is done across so many orders of magnitude that it doesn’t matter. 2Doesn’t this principle also mean I shouldn’t do ACX Grants, where I donate to fledgling projects with no evidence of efficacy? Maybe, and every year I debate whether I should really do this. I think the arguments for a distinction are: ACX Grants go to charities where my donation potentially has a very high upside, so I’m not as concerned about the high prior on failure.
Inline links: roundly criticized, in Russia, no longer that easy, how to help poor countries get rich now, Charter Cities Institute, has a report, CCI’s counterargument, Belt and Road initiative, 2, here, 1, 2
Highlights From The Comments On Capitalism & Charity
January 11, 2024 · Original source
Regarding the widely varying success of SEZs - Read Lotta Moberg's, "The Political Economy of Special Economic Zones." Tl;dr privately financed zones are more likely to be successful than are crony capitalist, politically-motivated government financed zones, plus a lot more nuance worth reading for serious SEZ students. Moberg and Lutter are two of a handful of scholars who have done dissertations on zone related issues. The EA report was not informed by Moberg's research, thus they did not understand the political economy dynamics of different types of zones.
Like Michael, I think the theoretical case for charter cities and SEZs is strong. Rethink Priorities tried to supplement that with an empirical case, but it fell flat because most of them are poorly designed half-efforts that don’t work, and the empirical results reflected that. The natural next step would be to come up with some objective criteria for “well-done charter city / SEZ”, do a report-level amount of work demonstrating that these do work, and then argue that whatever we’re debating (eg CCI) fits the criteria for a well-done CC/SEZ and so its expected return should be in the group we’ve now proven to be good, not the other group Rethink Priorities proved to be bad. This would be a big effort, and AFAIK nobody has done it yet. So I continue to classify good CC/SEZs in the bin of “theoretically strong case, not super-strong empirical evidence yet”.
What you do with this bin is a value judgment, but my heuristic is that lots of things in it - the kind of things that are brilliant and well-intentioned and really should work and do work in flashy cases everyone knows about - then somehow fail to work when you try to scale them up. So although I’m (relatively) optimistic about CCs/SEZs and support them, I don’t yet think they’ve obviously proven their utility as the best form of charity.