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.