When building a startup, some of the most critical success variables involve the local ecosystem, access to capital and resources, and local regulations governing new ventures. Not all localities make it easy or flexible for entrepreneurs to start businesses and receive venture capital investment; that’s why in the U.S., most venture-backed companies incorporate in business-friendly Delaware. This reality is a worldwide issue, giving the concept of a charter city an advantage for entrepreneurship in emerging markets.
So what is a charter city in the first place? It’s a municipality granted the right to create a new governing system defined by the city’s charter, not by general law. This governing charter gives the city much more flexibility and allows its officials to place global best practices for commercial regulation.
By implementing best practices, charter cities create a regulatory infrastructure that paves the way for sustained economic prosperity. These trends lift residents out of poverty, attract foreign investment, and empower local entrepreneurs to create new ventures. Some examples of the charter initiative worldwide are Hong Kong, Dubai, Shenzhen, and Singapore, altogether estimated to have brought 800 million people out of poverty in only two to three generations and become financial or technology hubs.
A standout example of a charter city’s success is Shenzhen, known as China’s Silicon Valley. Although Shenzhen is currently a top business hub, as recently as the 1970s, it was a rural fishing town. In the late 70s, China began the “Opening of China,” implemented in two stages to reduce state ownership and central planning. First, the country opened itself up to foreign investment and permitted entrepreneurs to start businesses. Second, after about a decade, these state-owned businesses could take themselves privately or contract themselves out. Shenzhen was China’s first “special economic zone” and became one of the fastest-growing cities globally through the 1990s and 2000s. These economic reforms and independent city governance lifted millions out of poverty, expanded the middle class, and gave rise to China’s top businesses. More can be read about this transformation in the book “The Shenzhen Experiment” by Juan Du.
Many emerging markets can benefit from charter cities. Rapid economic development provides the tools and resources necessary to increase education, income, and foreign business relations. Most importantly, these trends create an opportunity for entrepreneurs and access to investment, which compounds growth for the local ecosystem. Cities can only accomplish these goals if the underlying regulations can support them, giving charter cities a leg up on traditional municipal setups.