Plans are afoot to build private cities in Honduras, complete with their own tax-systems, immigration policies, and alternative legal systems. The project has met with fierce criticism both within Honduras and around the world, but the debate has generated more heat than light, so last November I went to Honduras to see for myself what the fuss was all about. I'll be talking about what I discovered at HowtheLightGetsIn on 5 June, but here's a foretaste.
The idea for the project was inspired by the amazing success of post-colonial Hong Kong. In a 2007 article in The Weekly Standard,Ken Hagerty and Theodore Roosevelt Malloch noted that thanks to the agreement that China had signed with the UK in 1984, Hong Kong had remained a free city inside China after returning to Chinese sovereignty in 1997, with its own laws, democratic legislature, and independent judiciary. It had kept its free market economy, its low rate tax system, and its separate, convertible currency, an arrangement the Chinese referred to as "One Country, Two Systems."
Hagerty and Malloch were not the only ones to be intrigued. In 2002, several years before their article appeared in The Weekly Standard, an American advisor and former Regan speechwriter called Mark Klugman had proposed a similar idea to Pofirio Lobo, then President of the Honduran National Congress. Klugman suggested that Honduras might follow the Chinese model of allowing a few regions to have different legal, economic and financial arrangements. These LEAP Zones, as Klugman called them (to emphasize the need for reform in the full range of legal, economic, administrative, and political systems), would provide enclaves where industry could flourish away from the influence of the drug trafficking and other corruption that plagued the rest of Honduras.
Like most nations, Klugman argued, Honduras was too large to tackle corruption and crime everywhere simultaneously. LEAP Zones would offer the right scale for dramatic change. Lobo liked the idea, but did not have the political clout to pursue it at the time, so told Klugman, "ask
me again when I am president."
Seven years later, in November 2009, Lobo was elected President of Honduras and the following January, within days of taking office, he met with Klugman to discuss the idea of creating LEAP Zones. Together with Lobo's chief of staff, a visionary young lawyer called Octavio Sanchez,
and Ebal Diaz, a legal advisor, Klugman started work on designing the Constitutional Statute that would define the Special Development Regions, as they soon came to be known (RED in Spanish, an acronym of Regiones Especiales de Desarrollo).
Around the same time, an influential economist called Paul Romer was also becoming interested in the idea of creating free cities. In July 2009 Romer gave a talk at TEDGlobal, a conference for technology enthusiasts in Oxford, in which he suggested that free cities could provide an alternative route to economic development for poor countries. Although Romer spoke of "charter cities" rather than free cities, the idea was essentially the same as that proposed two years previously by Hagerty and Malloch.
In February of 2011, the Honduran Congress passed a constitutional amendment permitting the creation of the Special Development Regions. Later that year, in July, the Congress passed a constitutional statute defining their governance structure, and in September 2012 the government signed a memorandum of understanding with a group of international investors to kick start the initial phase of construction. Everything was going according to plan.
And then, in one fell swoop, the project was killed. On 18 October a plenary hearing of the Supreme Court of Justice declared the legislation permitting the Special Development Regions to be unconstitutional. In particular, the Court held that the legislation violated various
articles in the constitution referring to matters of sovereignty, the system of government, and the integrity of national territory.
It looked like the plan to create free cities was dead in the water, but Honduran politics is full of twists and turns. In January, Congress approved a modified version of the project that appeared to sidestep the constitutional objections. Still, it would be a brave man who would bet
on the project proceeding without further hiccups.
Beyond the legal hurdles, the project raises profound questions about governance, democracy and economic development. Should entire cities ever be handed over to the private sector? Can democracy be an obstacle to economic development? How can poor countries like Honduras escape the vicious circle of corruption and stagnation? So far, the debate around free cities has failed to address these questions in a mature and rational way. It is time we went beyond simplistic ideas about national sovereignty and neocolonialism, and calmly assessed the real pros and cons of such an adventurous idea.