The Blank Slate State

Will an isolated corner of Honduras become the new birthplace of liberty?

It is easy to take one look at Honduras and write it off as an irredeemable mess. The small Central American nation, wedged between the Pacific Ocean and the Caribbean, is the murder capital of the world, with the U.N. reporting over 80 homicides per 100,000 people in 2011, compared to slightly over 30 in Colombia and under 10 in the United States. Its average annual income of $4,300 per capita is below that of the Congo. According to the U.S. Agency for International Development, 65 percent of its people are living in poverty. The World Bank ranks Honduras 125 out of 185 on its “ease of doing business” list, below Uganda.

“Honduras is a country in meltdown, as homicides soar, drug trafficking overruns cities and coasts,” the Associated Press reported in January. “Many streets are riddled with potholes, and cities aren’t replacing stolen manhole covers.” As Robert Naiman, policy director of the U.S. advocacy group Just Foreign Policy, told the A.P., “In many ways, the state is no longer functioning.”

But where most observers see a dysfunctional state, a few dreamers see hope for an experiment that may upend our notions of what a state can accomplish. For the last few years, libertarians and other futurists have gazed upon this misgoverned mess of mountainous jungle and imagined a clean slate for innovations in political and economic growth. Honduras, they believe, can become a laboratory for creating wealth-producing institutions that can then be replicated worldwide. The only catch: To become a 21st-century trailblazer, Honduras—or at least a small territory within it—must become, well, not Honduras.

A Sci-fi Dream

The notion of carving out an area inside an existing country with its own set of laws—economically freer and less complicated for businesses and citizens to navigate—has been popularized under many names: charter cities, free cities, future cities, and LEAP (legal, economic, administrative, and political) zones. The notion of zones for trade and economic activity freer than the nation-states around them dates back as far as the Greek island of Delos in the second century B.C. and the Hanseatic League in the late Middle Ages. Hong Kong and other Chinese “special economic zones” are more direct ancestors. 

The idea seems to be gaining steam in the early 21st century, with policy entrepreneurs from all over the political spectrum hatching their own versions. Each variant proceeds from the insight that bad government hurts an economy’s prospects more than most people realize, yet can be escaped easier than you might imagine. Good governance, the theory goes, can blossom even within a bad system.

In beleaguered Honduras, a version of the free cities idea has been percolating for more than a decade in the mind of 37-year-old Octavio Sanchez, currently the chief of staff to President Porfirio Lobo. When he was a teenager, Sanchez told an NPR reporter in a story that aired in January, his favorite amusement was imagining futuristic policy solutions, which he wrote down at age 16 in a sort of political science fiction book of imagined bulletins from the Honduran government of 2050. Sanchez never believed his country’s poverty was due to some kind of inherent national defect. “Many all over the world,” he told NPR, “don’t understand we are poor not because we are dumb; we are poor because of institutional arrangements, not because of lack of capacity to imagine things.”

Sanchez, then working his way up the Honduran political pyramid, began musing over how to evade or change the clotted mass of laws, regulations, and practices he saw strangling the economy. In 2002, when Lobo, for whom he already worked, was head of the Honduran Congress, Sanchez started advancing the conversation with an American development consultant named Mark Klugmann, who latched onto the idea of what he called LEAP zones. Klugmann’s insight was that piecemeal attempts at enacting market reforms over entire economies tend to generate opposition from powerful coalitions of entrenched interests. Why not try doing the reforms all at once, but on a smaller level? Klugmann sold both Sanchez and Lobo on the notion that Honduras should have its own Hong Kong—a more market-friendly island within the stultifying state. That would make Hondurans richer quicker. 

After a period of slow germination, fortune came to the project in 2009 from an unlikely source: a constitutional crisis. The Honduran military, with the approval of the country’s Congress and Supreme Court, sent President Manuel Zelaya into exile because he was pushing a referendum that would have allowed him to remain in office beyond the four-year limit prescribed by the Constitution. Lobo won the next presidential election, taking office in early 2010, and Sanchez became his chief of staff, finally in a position to make his teenage political science fiction come true.

Around this time Sanchez discovered a YouTube video advocating something remarkably similar to the idea he and Klugmann had been hashing out for years. It was a TED talk delivered in July 2009 by Paul Romer, a respected development economist who teaches at New York University’s Stern School of Business.

Romer is the pioneer of “new growth theory,” emphasizing the importance of ideas and technology in economic development. Back in 1997 he was named one of the 25 most influential Americans by Time magazine, and he has long been considered a contender for the Nobel Memorial Prize in Economic Sciences. Romer had begun staking his reputation on a concept he called “charter cities,” launching an organization of the same name to promote it. 

In his viral TED talk, Romer used North and South Korea as a vivid example of how the rules under which a people operate affect their wealth and development. Haiti, he said, is an example of how governments can stifle growth by being too weak, not just by being too strong. He used China and its market zones, such as Shenzhen (modeled on the economic success of Hong Kong), as an example of how different rule zones within one polity can generate wealth and combat poverty. The Chinese/British alliance in Hong Kong, he claimed, “did more to reduce world poverty than all the aid programs we’ve undertaken in the last century.” 

Romer had been trying to convince various nations to carve out a charter city and had even received a commitment from Madagascar to launch one in 2008 (to be operated by the South Korean corporation Daewoo). But Marc Ravalomanana, the president Romer had convinced, resigned under pressure in 2009, and the Madagascar project died. Sanchez, delighted to find such a renowned intellectual on the side of free zones, invited Romer to participate in Honduras’ attempt to create them.

Into the RED Zone

The Honduras project began gathering steam and attracting international attention in 2011. In January and February, the Honduran Congress amended the constitution to allow for the creation of free cities. In July it passed a statute defining “special development regions” (SDRs)—in Spanish, regions especial de desarrollo, a.k.a. RED zones.

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  • Nazdrakke||

    Hmm.. Sounds more like creeping Moldbuggery than creeping libertarianism to me.

  • Irish||

    What the fuck is Moldbuggery?

  • The Immaculate Trouser||

    http://unqualified-reservations.blogspot.com/

    Basically he's a long-winded pseudo-paleoconservative contrarian whose ideas include some support for defensive networks of city-states as a viable alternative to the current nation-state model.

  • Nazdrakke||

    Moldbuggery starter kit.

  • Irish||

    Jesus Christ. I just went and looked at one of those essays and it was like a 15,000 word article about Richard Dawkins.

    Longwinded is right.

  • Nazdrakke||

    The Open letter essays are pretty interesting reading. Worth the time IMO, if nothing else for their evaluation of modern American politics. If you've got a day to kill. Long-winded indeed, but fun.

  • The Immaculate Trouser||

    The smug levels and insularity of the blog posts are absolutely insane -- limited exposure is recommended, if you value your mental development.

  • Nazdrakke||

    The smug levels and insularity of the blog posts are absolutely insane

    Helps to keep in mind that he was a leftist first, and is obviously permanently malformed as a result. Keeps the smug from sticking to your clothes while reading.

  • The Immaculate Trouser||

    Ah. He's an interesting guy, but essentially for the same reasons as Ayn Rand: he is not all that great at coming up with new ideas, but he's a champ at finding and demolishing a whole series of sacred cows that society has bent the knee to. Education is the big one that comes to mind, and some Moldbug stuff on the "Cathedral" is worth reading.

  • John Galt||

    If leftism can't cause permanent malformity in an organism nothing can.

  • jemkem06||

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    (Go to site and open "Home" for details)

  • jillian77||

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  • Bill||

    What a hypocrite. Klugmann spends all his time with the NYT pushing the US to go more socialist and now he wants Honduras to be more free market!

    Oh wait, Klugmann, not Krugman - NEVER MIND :)

  • The Immaculate Trouser||

    Quick correction: the RED acronym is spelled "regiones especial de desarrollo" in Spanish.

    Vis a vis the free cities project, I appreciate your reportage on the issue. The debate in Honduras is *not* occurring at the level of the common man (many reporters have construed the defeat of the first proposal as a blow against big corps for the little guy), but rather at the level of the elites. Whatever happens will most likely not concern the average Honduran until he or she sees the city actually get built and invested in.

    Anecdotally, I can say that my contacts in Honduras are mildly interested in the idea: mostly what Hondurans want are jobs and security, and there's no confidence in the current institutions. A lot of Honduras' population has emigrated to more successful countries in Latin America, N America and the Caribbean, and many would like to come back and invest in their country of origin. RED cities would be absolutely transformative for Central American politics, if implemented correctly.

  • Hyperion||

    Certainly cannot establish one of these RED (damn that somehow does not sound right in the context of discussing Libertarianism) cities, while having a majority of impoverished natives running around.

    Jobs would have to be available to the native citizens, first. Jobs, not welfare. Then this might have a chance.

  • The Immaculate Trouser||

    Nice thing is that the RED cities will have plenty of employment opportunities in both skilled and unskilled trades -- you are basically talking about building a city from the ground up.

    The project rises or falls by the truth of this statement:

    we are poor not because we are dumb; we are poor because of institutional arrangements, not because of lack of capacity to imagine things.

    IMO there's a good deal of evidence for this statement: the immigrant community of Hondurans has done quite well in the US, Canada, and Costa Rica -- I see no reason why they couldn't do even better in a truly free market environment. Honduras' population is small and mostly rural (~7-8 million) -- a free market city is quite self-sustaining and will employ much of the population, once it gets off the ground.

    Hell, Honduras will find it hard to find good help after a while!

  • Hyperion||

    We will see. Not holding my breath while waiting...

    Isn't Hondurus very prone to strong earthquakes?

  • The Immaculate Trouser||

    It's had its share of earthquakes, but so do plenty of prosperous places (Japan and Chile come to mind).

    Earthquakes are far more predictable and less damaging to an investor than an arbitrary and exploitative government.

  • Irish||

    Places with vastly different types of natural disasters have ended up prosperous. A free society, relatively free market and the rule of law are really the only commonality between different successful nations.

    California, up until relatively recently, was the greatest area of wealth creation on the planet, to the point where they are still the 10th largest economy in the world even 20 years after their growth started to lag. It's also the part of the United States most prone to natural disasters.

  • The Immaculate Trouser||

    All of the successful countries in Latin America (sans perhaps Uruguay) follow that same pattern: the "Latin California" (Argentina), Chile, Costa Rica, and Panama to some degree all experience high numbers of natural disasters.

    Humanity is pretty resilient: throw us a war, a natural disaster, or any other type of natural problem and we'll take it as a challenge to rebuild bigger and better than ever. The greatest impediment to human progress is human obstinance. This is generally true at the macro and micro level, in my observation.

  • hotsy totsy||

    Don't know if I'd include Argentina under the Kirchners as successful.

  • Ray||

    Argentina was the richest country in the world 100 years ago. What you see now is the result of 100 years of insane government.

  • Rufus J. Firefly||

    10th? Wasn't it as high as 4th at one point?

  • Hyperion||

    My only thought about that, was that when they go to building this city, they had better take that into account.

  • Cytotoxic||

    What will the RED policies be on drugs, guns, and speech? Will there be space for farming?

  • The Immaculate Trouser||

    All of those policies (except speech) will be determined by the investors, who will for all intents and purposes govern the city within the basic parameters set forth by the Honduran government -- which sets caps on income tax rates and has provisos for the protection of rights to free speech and other rights for residents. In theory, therefore, the answer is whatever answer will maximize the profits of investors.

    In practice, most of the orgs that have expressed interest in investment have been libertarian or libertarian-leaning; Michael Strong, for example, has expressed interest in adapting a simplified and more libertarian version of Texan commerce law, and in having legalized drugs in the city if his investment group has a majority share. (Obviously we all know what Petri Friedman's preferences would be if his group had some share in governance.)

    My guess if RED moves forward: guns will be protected (to further incent American investment and retirement in the city). Drug legalization will be better than surrounding states but not push the envelope too far (Honduras has problems with drug smuggling and a RED city will want a favorable FTA with the US, which will mean some level of cooperation on that issue with current policy).

    A RED project would intersect quite nicely with a Rand Presidency, methinks.

  • SAL||

    @The Immaculate Trouser: quick correction of your quick correction: it should be either the plural "regionES especialES de desarrollo" or the singular "región especial de desarrollo".

  • John Galt||

    So we're going to Honduras?

    Since I'm lazy, and allergic to both bullet holes and deep machete wounds, I'll wait until the rest of you get things rolling first.

  • The Immaculate Trouser||

    We'll have the piña coladas and barbacoa waiting for you.

  • John Galt||

    Sweet!

  • Lord Humungus||

    how are the womynz?

  • John Galt||

    Desperate to leave Honduras.

  • ||

    Desperate to leave Honduras.

    I'm sold!

  • Rufus J. Firefly||

    Honduras is probably too humid. Might make for a great Warren Zevon song but he's dead now. So...try and find a more convenient place. Northwest Kansas maybe? Whatever happened to that website that showcased it? Seems to have disappeared.

  • Harvard||

    Wouldn't Vermont be easier? Closer too. Of course they don't have monkeys and shit, but...just sayin'.

  • Rufus J. Firefly||

    You would have to use a machete to clear it of all those hippie-hipster-doofuses.

  • Gordilocks||

    This hippie is armed. Don't bring a machete to a gun fight.

  • ||

    Sadly, although I was initially really enthusiastic about free cities, I've since come to the conclusion that to the extent they will ever exist, which I suspect is very unlikely, they will most probably turn into dens of cronyism between the governing corporation and the host government, operating more like GSEs or pubic monopolies than truly free states. And then when they "fail" as the free states that they really aren't, you can officially bury and eulogize free market capitalism as both economic and political theory.

  • ||

    *public. That is *public monopolies

    Although that may have been more a Freudian slip than an actual typo

    http://media.tumblr.com/tumblr.....qlfwzk.gif

  • ||

    Yes, 6 billion people are obviously going to cross oceans and funnel themselves through 2 small land bridges to a tiny administrative district on either an island off the coast or a small piece of uninhabited land in a dysfunctional country in Central America. Good point. They'll have to watch out for that. Really though, the more important point is that it's a perfect analogue to a 3.8 million square mile country with a 15 trillion dollar economy and 7500 miles of land borders wherein exists one of the world's freest economies and a generous welfare state.

  • ||

    I feel like I'm getting the short end of the stick....

    Start dating black guys...

  • C. S. P. Schofield||

    Throw this into the mix; Honduras is one of the places that has a long history of producing top quality cigars (The others being Cuba, The Dominican Republic, and Nicaragua). So Honduras has a a high level luxury export. At the moment the country's cigars are in eclipse (Opus X is Dominican, and Master Blender and industry darling Pepin Garcia is working out of Nicaragua), but a little imagination could change that.

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  • Tom Beebe||

    why can't webmasters scrub there infoads?

  • Tom Beebe||

    Strikes me as akin to Federalism. If we accorded more power, MUCH more power, to the states, some would thrive and show the way for the rest. Not as complete a program as this article suggests, but certainly worthy of study.

  • waltercollin||

    as Francis responded I'm shocked that you able to earn 4615 in 1 month on the computer. did you see this page ............www.Mojo55.com

  • Mark22||

    The US homicide rate is 4.8 per 100000, and much of that is gang related and occurs in a tiny subpopulation.

  • lukescott610||

    If you think Marvin`s story is impossible,, 5 weeks ago my boyfriend basically also made $7683 grafting eighteen hours a week from home and they're buddy's sister-in-law`s neighbour was doing this for seven months and errned more than $7683 parttime from a labtop. applie the information available on this page... http://www.sea12.com

  • lukescott610||

    If you think Marvin`s story is impossible,, 5 weeks ago my boyfriend basically also made $7683 grafting eighteen hours a week from home and they're buddy's sister-in-law`s neighbour was doing this for seven months and errned more than $7683 parttime from a labtop. applie the information available on this page... http://www.sea12.com

  • trutherator||

    I danced for joy when Honduras defied all the global-socialists and left-fascists of the world and dethroned the coup-running dictator Manuel Zelaya, and when I heard that when Hillary Clinton called the constitutional president Roberto Micheletti to order him to resign and let Zelaya have his coup back, he said "No!"

    I was so glad I married a Honduran gal before, now had more reason than ever.

    And now this! Hallelujah! Thank you so much for the detail, and God bless Octavio Sanchez!

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