Paul Romer on Growth and Cities

BBC Radio’s Global Business this week sees Peter Day in conversation with Professor Paul Romer from Stanford University, Paul Romer is an expert in the causes of long run run growth and his current focus is on the economics of new cities in developed and developing countries. It is a programme well worth listening to, Romer is tremendously optimistic about the opportunities created by faster economic growth - especially growth built around innovation and appropriate rules systems.

Long run growth is closely asscociated with the discovery / implementation of new ideas

1/ technologies

2/ rules that govern how people interact and how the economy works

The two are closely inter-connected - Social rules often hold back the potential in new technology

Is growth good?

New technologies are potentially harmful if not accompanied by rules that make growth sustainable e.g. that limit pollution and over-fishing. Rules that put the right price on fuel and on carbon. Rules that set minimum standards for water quality and sanitation. Rules (or general principles on what types of transport are allowed and the size and pattern of properties).

Devices are getting smaller and using less energy per unit of output - this kind of growth that has a huge human value does not necessarily destroy the natural environment.

Cities 2.0

Romer’s current project is about building brand new cities - the entry of new cities that can be designed with very different sets of rules about transport patterns, density patterns and use of carbon.

In the developing world there are many new cities that will have to be built - this is an enormous opportunity. Successful cities are hubs of creative activity and chaotic innovation. But the framework of rules for new cities becomes even more important - government sets the framework of rules, the private sector operates within these rules. Rules can be enforced by law or by social custom.

The internet will ultimately speed up innovation in physical technologies and this leads Romer to be optimistic on sustainable growth. We will always face trade-offs, compromises and limits to consume less energy per unit of income. We face resource constraints and these will become ever more apparent as global living standards rise - but this will not stop progress. Indeed the price mechanism may accelerate experimentation, innovation and progress in finding some solutions to environmental crises.

Economic growth is ok if you have the right rules - more value, higher quality of life, more time with the kids, better investment in the things we care about.

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