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Making the World Safe From Democracy, One Charter City at a Time

If you’re a Lib­er­tar­i­an bil­lion­aire that was look­ing for­ward [1] to cre­at­ing your own pri­vate­ly man­aged [2] “Free City” [3] from a seri­ous­ly dis­tressed [4] coun­try — a city free from things [5] like democ­ra­cy [6]things may be look­ing up for you [7]:

Hon­duras Once Again Pass­es ‘Mod­el Cities’ Law

TEGUCIGALPA, Hon­duras Jan­u­ary 24, 2013 (AP)

The Hon­duran con­gress approved once again a “mod­el cities” project that the coun­try’s Supreme Court had pre­vi­ous­ly declared uncon­sti­tu­tion­al because it would cre­ate spe­cial devel­op­ment zones out­side the juris­dic­tion of ordi­nary Hon­duran law.

Con­gress­man Rodol­fo Irias of the rul­ing Nation­al Par­ty says the law “includes the nec­es­sary mod­i­fi­ca­tions” to answer con­cerns about uncon­sti­tu­tion­al­i­ty.

The vote was 110 to 13, with 5 absten­tions.

The court’s rejec­tion of the plan led Con­gress to fire four of the court’s five jus­tices in Decem­ber.

The plan would cre­ate “spe­cial devel­op­ment regions” with their own inde­pen­dent tax and jus­tice sys­tems, to spur eco­nom­ic growth in this Cen­tral Amer­i­can coun­try strug­gling with cor­rup­tion and crime.

The project was opposed by civic groups as well as the indige­nous peo­ple.

Ooooo...these char­ter cities sound so nice the Hon­duran leg­is­la­ture had to pass the plan twice. Although it sounds there are some Hon­durans that aren’t entire­ly on board with the idea. Per­haps they just weren’t sold on the idea behind the char­ter cities: that the key to revers­ing decades of pover­ty and deep, entrenched cor­rup­tion is to hand over gov­er­nance to Lib­er­tar­i­an bil­lion­aires? Why can’t they see the light? [8]

The New York Timne
Who Wants to Buy Hon­duras?

Pub­lished: May 8, 2012

Short­ly after the 2009 coup that over­threw Manuel Zelaya, Honduras’s new­ly elect­ed pres­i­dent, Por­firio Lobo, asked his aides to think big, real­ly big. How could Hon­duras, the orig­i­nal banana repub­lic, reform a polit­i­cal and eco­nom­ic sys­tem that kept near­ly two-thirds of its peo­ple in grim pover­ty?

One young aide, Octavio Rubén Sánchez Bar­ri­en­tos, had no idea how to undo the entrenched pow­er net­works. Honduras’s econ­o­my is dom­i­nat­ed by a hand­ful of wealthy fam­i­lies; two Amer­i­can con­glom­er­ates, Dole and Chiq­ui­ta, have con­trolled its agri­cul­tur­al exports; and des­per­ate­ly poor farm­ers bare­ly eke out sub­sis­tence wages. Then a friend showed him a video lec­ture of the econ­o­mist Paul Romer, which got Sánchez think­ing of a ridicu­lous­ly big idea: What if Hon­duras just start­ed all over again?

Romer, in a series of papers in the 1980s, fun­da­men­tal­ly changed the way econ­o­mists think about the role of tech­nol­o­gy in eco­nom­ic growth. Since then, he has stud­ied why some coun­tries stay poor even when they have access to the same tech­nol­o­gy as wealth­i­er ones. He even­tu­al­ly real­ized some­thing that seems obvi­ous to any nonaca­d­e­m­ic, that poor coun­tries are sad­dled with laws and, cru­cial­ly, cus­toms that pre­vent new ideas from tak­ing shape. He con­clud­ed that if they want to be rich, poor coun­tries need to some­how undo their invid­i­ous sys­tems (cor­rup­tion, oppres­sion of minori­ties, bureau­cra­cy) and cre­ate an envi­ron­ment more con­ducive to busi­ness. Or they could just start from scratch.

Then he decid­ed to put the the­o­ry into prac­tice. In 2009, Romer devel­oped the idea of char­ter cities — eco­nom­ic zones found­ed on the land of poor coun­tries but gov­erned with the legal and polit­i­cal sys­tem of, often, rich ones. There were a cou­ple of inter­est­ed par­ties. (The pres­i­dent of Mada­gas­car was intrigued by a pre­lim­i­nary ver­sion of the idea, Romer told me, but he was soon oust­ed in a coup.) Then, in late 2010, Sánchez met with Romer, and the two hur­ried­ly per­suad­ed Pres­i­dent Lobo to make Hon­duras the site of an eco­nom­ic exper­i­ment. The coun­try quick­ly passed a con­sti­tu­tion­al amend­ment that allowed for the cre­ation of a sep­a­rate­ly ruled Spe­cial Devel­op­ment Region.


Romer’s char­ter city is try­ing to avoid this dark side of urban­iza­tion by adapt­ing old­er, more suc­cess­ful mod­els. The Unit­ed Arab Emi­rates, Hong Kong and Sin­ga­pore were able to build well-designed cities that housed and employed mil­lions, in part by per­suad­ing for­eign­ers to invest heav­i­ly. Dubai cre­at­ed a num­ber of micro­cities — one of which, for instance, is gov­erned by a sys­tem resem­bling Eng­lish com­mon law with judges from Britain, Sin­ga­pore and New Zealand.

Each has had well-known flaws, but Romer said the core idea can be repli­cat­ed with­out them. The new Hon­duran char­ter city can work, he said, if its for­eign lead­er­ship can sim­i­lar­ly assure investors that they’ve cre­at­ed a secure place to do busi­ness — some­where that mon­ey is safe from cor­rupt polit­i­cal crony­ism or the occa­sion­al coup. If a multi­na­tion­al com­pa­ny com­mits to build­ing new fac­to­ries, real estate devel­op­ers will fol­low and build apart­ments, which then pro­vide the cap­i­tal for elec­tric­i­ty, sew­ers, tele­com and a police force.

Note that Pres­i­dent Lobo — the pres­i­dent that was “elect­ed” in 2009 fol­low­ing the coup — is a big exam­ple [9] of the kind of deep cor­rup­tion that he’s appar­ent­ly try­ing to fix with char­ter cities.

Also note that each of the “old­er, more suc­cess­ful mod­els” — The Unit­ed Arab Emi­rates, Hong Kong and Sin­ga­pore — are all unde­moc­ratc. And keep in mind that Patri Fried­man, Mil­ton Fried­man’s grand­son, stepped down as the head of Peter “I no longer believe democ­ra­cy is com­pat­i­ble with free­dom [10]” Thiel’s Seast­ead­er Insti­tute to lead Future Cities Devel­op­ment, Inc. [11] which is going to have its first project in Hon­duras [12].



Romer hasn’t yet been able to per­suade any nations to take on the role of cus­to­di­an (Swe­den and Britain both passed), so Hon­duras has named a board of over­seers until there are enough peo­ple to form a democ­ra­cy. Romer, who is expect­ed to be chair­man, is hop­ing to build a city that can accom­mo­date 10 mil­lion peo­ple, which is 2 mil­lion more than the cur­rent pop­u­la­tion of Hon­duras. His char­ter city will have extreme­ly open immi­gra­tion poli­cies to attract for­eign work­ers from all over. It will also tac­ti­cal­ly dis­suade some from com­ing. Sin­ga­pore, Romer said, pro­vides a good (if some­times overzeal­ous) mod­el. Its strict penal­ties for things like not flush­ing a pub­lic toi­let may make for late-night jokes, but they sig­nal to poten­tial immi­grants that it is a great place if you want to work hard and play by the rules.

There will be many rules in Romer’s char­ter city too. Even though he expects most ini­tial oppor­tu­ni­ties will be fair­ly low-pay­ing basic indus­tri­al jobs, the local gov­ern­ment will man­date poli­cies that ensure retire­ment sav­ings, health care and edu­ca­tion. Accord­ing to Romer’s plan, the immi­grants who arrive will not get rich, but their chil­dren will even­tu­al­ly be ready to climb the eco­nom­ic-devel­op­ment lad­der.


Hmmm...a planned char­ter city of fair­ly low-pay­ing basic indus­tri­al jobs. On the one hand, that means many of those planned jobs will be filled by robots in a decade or two, but on the oth­er hand at least Paul Romer is envi­sion a guar­an­teed health­care and edu­ca­tion man­date. It would be inter­est­ing to see if that health­care man­date includes guar­an­teed health­care even if the low-paid work­ers can’t afford it or if it’s one of those oth­er kinds of “man­dates” [13]. You also have to won­der if there’s going to be the kind of labor law man­dates that ensure work­ers can still afford to live with­out hav­ing to work so many hours that they don’t have enough free time to spend read­ing the his­to­ry of thi­er coun­triy. This might include the his­to­ry of how their oli­garch over­lords first took over and loot­ed the coun­try and then even­tu­al­ly imple­ment­ed an “anti-cor­rup­tion” scheme that involves sell­ing off cities to inter­na­tion­al Lib­er­tar­i­an con­sor­tiums that want to build pri­vate­ly run inter­na­tion­al-oli­garch-found­ed city states with a dis­tinct uber-Lib­er­tar­i­an busi­ness-first con­sti­tu­tion­al phi­los­o­phy. There won’t be an man­dates that ensure the work­ers have enough time to learn about all that because, you [14] know [15], that would be [16] anti-free­dom [17].

Unfor­tu­nate­ly, there isn’t much chance that we’ll find out how Mr. Romer’s envi­sioned man­dates would have played out because while the Char­ter Cities plan is back on the agen­da, Romer is no longer part of the project. He had been lead­ing the “Trans­paren­cy Pan­el” for the project to ensure that the whole endeav­or would be nego­ti­at­ed in a pub­lic, respon­si­ble man­ner that would lay the foun­da­tions for long-term trust between the Hon­duran pub­lic and the inter­na­tion­al investors that would be finan­cial­ly back­ing the cities. But he decid­ed to quit in protest last Octo­ber after he found out that the Hon­duran gov­ern­ment had already worked out a deal with the first group of investors in secret [18]:

The New York Times
Plan for Char­ter City to Fight Hon­duras Pover­ty Los­es Its Ini­tia­tor
Pub­lished: Sep­tem­ber 30, 2012

MEXICO CITY — Paul Romer is a respect­ed econ­o­mist with an uncon­ven­tion­al plan to lift peo­ple out of pover­ty. And in Hon­duras, he thought he had found a gov­ern­ment eager to put his ideas into prac­tice.

What if you sim­ply sweep aside the cor­rup­tion, the self-inter­est­ed elites, and the dis­tort­ed eco­nom­ic rules that sti­fle growth in many poor coun­tries and set up a brand new city with its own law and gov­er­nance?

The char­ter city, as Mr. Romer calls it, would be admin­is­tered by coun­tries that have devel­oped strong insti­tu­tions and rule of law. If it sounds crazy, think of Hong Kong.

Once Hon­duras signed on and its Con­gress passed a law at the begin­ning of 2011 to start the process, the con­cept moved from big idea to a ten­ta­tive pos­si­bil­i­ty. Sto­ries fol­lowed in The Econ­o­mist, The Wall Street Jour­nal and The New York Times Mag­a­zine.

But now, Mr. Romer, an expert on eco­nom­ic growth, is out of his own project, tripped up by the sort of opaque deci­sion mak­ing that his plan was sup­posed to change.


The tip­ping point came with the announce­ment a few weeks ago that the Hon­duran agency set up to over­see the project had signed a mem­o­ran­dum of under­stand­ing with its first investor group.

The news came as sur­prise to Mr. Romer. He believed that a tem­po­rary trans­paren­cy com­mis­sion he had formed with a group of well-known experts should have been con­sult­ed. He with­drew from the project.

The law set­ting up Honduras’s exper­i­ment in a char­ter city, a spe­cial devel­op­ment region, or RED in its Span­ish ini­tials, cre­ates flex­i­bil­i­ty that pro­motes inno­va­tions, but requires strict dis­clo­sure along the way, Mr. Romer said. “The one absolute prin­ci­ple is a com­mit­ment to trans­paren­cy,” he said.

The investor group is led by Michael Strong, an activist who has worked in the past with lib­er­tar­i­ans like John Mack­ey, the founder of Whole Foods. He promis­es that his investors include Sil­i­con Val­ley entre­pre­neurs and Cen­tral Amer­i­can investors, but when pressed for details, named only one Guatemalan busi­ness­man.

Oppo­nents on the left have been fil­ing chal­lenges with the Hon­duran Supreme Court against the char­ter cities plan. The news of the invest­ment deal brought more.

Accord­ing to Mr. Strong and oth­ers involved in the project, includ­ing Mark Klug­mann, an Amer­i­can con­sul­tant who is work­ing with Mr. Sánchez, the trans­paren­cy board nev­er legal­ly exist­ed. Mr. Sánchez agreed, although he had nev­er dis­put­ed the exis­tence of the board in the past.

Mr. Romer said that Pres­i­dent Lobo signed the decree in his pres­ence in Decem­ber. But he acknowl­edged that the board was on ten­u­ous legal foot­ing because of the chal­lenges in the Supreme Court. The decree was nev­er pub­lished.


Mr. Romer is now look­ing else­where.

“If it were easy to under­take social reform, it would have hap­pened,” he said. “You just have to keep try­ing.”

The loss of the ada­dem­ic vision­ary that was pro­vid­ing the intel­lec­tu­al jus­ti­fi­ca­tions for the project was cer­tain­ly a blow to the whole affair. Mr. Romer is still look­ing else­where [19] to cre­ate his vision but his leav­ing was­n’t a death­blow to the project. That came a few weeks lat­er [20]:

The Atlantic Cities
Prob­a­ble Death­blow of the Day: Char­ter Cities Struck Down in Hon­duras

Hen­ry Grabar
Oct 22, 2012

Over the last year, Paul Romer’s ambi­tious and con­tro­ver­sial vision for Char­ter Cities — for­eign-run eco­nom­ic colonies designed to bring wealth and sta­bil­i­ty to poor coun­tries — has been mov­ing quick­ly towards real­i­ty in the Hon­duran jun­gle. But a rapid series of set­backs may have brought the project to a halt.

Last month, the pro­jec­t’s Trans­paren­cy Com­mis­sion, an over­sight com­mit­tee fea­tur­ing Romer and sev­er­al oth­er promi­nent econ­o­mists, was exclud­ed from agree­ments between the Hon­duran gov­ern­ment and inter­na­tion­al devel­op­ment com­pa­nies, prompt­ing fears about cor­rup­tion. (One of those com­pa­nies, the Future Cities Devel­op­ment Cor­po­ra­tion — slo­gan: “Cre­at­ing Human­i­ty’s Future” — was found­ed by Patri Fried­man, grand­son of Mil­ton, who wrote in 2009 that “democ­ra­cy is not the answer.”)

Lat­er that month, a promi­nent Hon­duras human rights lawyer who had filed one of dozens of legal chal­lenges to the “mod­el cities” decree, was mur­dered, inspir­ing fur­ther spec­u­la­tion.

Last Wednes­day, the Hon­duran Supreme Court ruled that last Octo­ber’s alter­ations to the Hon­duran con­sti­tu­tion remov­ing nation­al ter­ri­to­ry from gov­ern­ment con­trol were uncon­sti­tu­tion­al. A branch of the court had come to that con­clu­sion ear­li­er this month, but because the deci­sion (4–1) was not unan­i­mous, the full court con­vened to vote. It struck down the leg­isla­tive decree 13 to 2.

Pres­i­dent Por­firio Lobo, one the pro­jec­t’s biggest sup­port­ers, was upset by the deci­sion, insin­u­at­ing that the court was influ­enced by exter­nal eco­nom­ic and polit­i­cal inter­ests. He encour­aged Hon­durans to go to the Supreme Court to look for the jobs that the body’s rul­ing had denied them. “I’m sure they’re not think­ing about the harm they’re doing to the Hon­duran peo­ple,” he said.


Death­blows like supreme court rul­ings that rule the project uncon­sti­tu­tion­al are dif­fi­cut hur­dles for any project that requires an aire of legit­i­ma­cy. Death­blows to promi­nent oppo­nents of the project are even worse [21]. But as the first arti­cle [7] indi­cat­ed, where there’s a will, and lots of mon­ey, and a cor­rupt gov­ern­ment, there’s a way [22]. Yes, things are look­ing up [23] for Lib­er­tar­i­an oli­garchs in Hon­duras.