In Honduras, Grand Plans for an Outsourced City

Honduras has its fair share of problems. The country, a major drug-trafficking thoroughfare, is ranked the most murderous in the world. Six in 10 Hondurans live in poverty and concerns about the country’s weak rule of law and systemic police corruption serve as a barrier to investment, perpetuating a lack of opportunity. With much of the insecurity plaguing Honduras coming from beyond its borders, President Porfirio Lobo is also looking outside his country for a way out of the seemingly intractable cycle. One plan under consideration is the creation of autonomous city-states on Honduran greenfields, or undeveloped lands, built and run by private investors and managed under the jurisdiction of autonomous councils and foreign rules. These city-states would avoid a country-wide arduous reform process by simply starting anew from the ground up, much like the British created autonomous Hong Kong within China with independent, imported rules.

Democratically elected to run Honduras in the aftermath of a messy coup, Lobo faced the challenge of trying to lift up a violent country beholden to endemic corruption and chronic underdevelopment. His team was searching for solutions when an aide stumbled upon a presentation on charter cities by U.S. economist Paul Rohmer.

Rohmer, who studies transfers of technology and governance as methods to spark economic growth, argues that if technology can be transferred to less developed countries instead of having to be redeveloped, then successful rules could also be handed over. Rohmer sees these ideas manifesting as charter cities—autonomous city-states located in developing countries and independently run using developed-country expertise and free-market principles. The independent city would be built and serviced by private enterprise, which would charge for its services. The city’s development authority retains the title to the land, leasing it at prices reflecting the human capital and spending power achieved by the city’s population. Taxes for individuals and corporations will be capped at 12 percent and 16 percent, respectively. Lobo was convinced and engaged Rohmer to launch the first charter city in Honduras. "What risk am I taking if they come here and build factories, schools, universities, hospitals—and where the people can live," said Lobo.

In July 2011 the Honduran legislature passed a decree creating special development regions, (REDs in Spanish) in under-populated parts of the country. In those areas, the government hopes to entice foreign investors to construct the city-states. These entities would be governed by a board of international, high-profile consultants, nominated by Lobo and tasked with ensuring RED development remains transparent. Citizens would opt-in to live in the city under the jurisdiction of its charter and would also be free to leave when they chose. However, in the initial stages they would not be able to elect the city’s management committee until the transparency council decides the project has reached a stage where it’s ready to undertake popular democracy. But proponents make the case that the new charter city could prevent economic migrants from making the treacherous journey to the United States, keeping them home and allowing them full residency rights, legal protection, and the opportunity to remain with their families.

Enter Mauritius. Rule of law and security are major concerns in the Central American country—not least for anyone trying to do business there. The Honduran government and Rohmer’s team have been looking to outsource legal jurisdiction of the charter city to a stable, outside legal system, free of possible domestic interference. The REDs team reached out to the government of the small African country of Mauritius to use its Supreme Court as a court of appeals. The island nation, which promotes itself as a global center for legal services, announced in November 2011 that it was considering the request. Mauritius uses the British Westminster Privy Council, a throwback to the Commonwealth colonial era, as its final court of arbitration. Still, the city’s legal framework will remain tied with its host country’s; judges will be approved by a majority from the Honduran Congress, as will laws. Perhaps most crucially, the Honduran legislature will be able to vote down the city’s autonomy or change its legal composition, but only in tandem with the passing of a referendum by the city’s citizens. Moreover, to combat concerns about the type of police corruption affecting other parts of the country, REDs will be authorized to have their own special police forces, trained and supervised by a trusted foreign entity.

However, there are doubts about the RED project. While the example of Hong Kong is touted as a model for these special economic zones, others give the example of Macau, China’s other former autonomous city state, which became a gambling and prostitution haven—industries the government would most likely rather not attract. Critics also argue the project is a throwback to colonialism, and that residents will live under the laws of the city in a way that is neither democratic nor autocratic. A blog post in The Independent argues: “If the public are shut out from determining the kind of society they want to live in, then far from the RED creating opportunity—in which people can determine their environment—they will be subjects.”

Learn more:

• Visit the RED website
• Read FAQs on charter cities
• The Judicial Committee of The Privy Council's website
• Watch a TED talk about charter cities by Paul Romer
• Read an interview with Paul Romer