There is a thought-provoking podcast from Paul Romer posted on TED.com last week, where he's talking about setting up city-scale administrative zones governed by a coalition of nations. This may not be an entirely new idea, but it is certainly a bold concept for addressing some of the challenges faced in developing countries.
His basic premise goes something like this. People need to be given choices if they are to have access to opportunities for advancement. The rules that are in place in any given country can help or hinder people in making their choices, and sometimes it could help to set up a place where an entirely new set of rules can be established. Places like North Korea and South Korea started with the same set of rules, but when they split up as countries, each established a set of rules that put them on divergent development trajectories. Countries with 'bad' rules might benefit from setting up special zones with a new set of rules, which could attract investors and could be jointly managed with a partnership of nations.There are several examples where this has happened for more limited purposes, such as Guantanamo Bay in Cuba, the Dubai International Financial Centre and the Panama Canal zone. On a larger scale, Romer mentions Hong Kong as an example where two countries (Britain and China) agreed to a new set of rules , setting up a partnership with delegation of authority. (He sees his proposal as different from colonialism, on the grounds that colonialism was based on coercion and condescension.)
Rules often don't give service providers the means or incentive to
provide choices that are suitable for the poorer residents of a country
or city. But attempts to change rules often run into obstacles from
vested interests. If a charter city were set up where people could
choose to opt in, this could be a way to overcome objections.
He believes that cities are the right scale to provide choice and efficiency. Small towns don't provide the range of services or the scale necessary, and cities can also be denser, resulting in a smaller physical footprint than would be the case with settling the same number of people in smaller towns. I have read the view elsewhere (can't remember the reference now) that small settlements are actually better for accommodating growth in developing countries. The argument there was that small centres have governance models that are more easily able to accommodate growth effectively; but under Romer's model the charter city would have a new form of governance that should be able to address this issue.