The Blank Slate State

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

(Page 2 of 4)

The SDRs would be “autonomous legal entities” with “their own system of administration,” armed with the power to “promulgate their own rules and have their own judicial entities.” The national government in Tegucigalpa would retain control over defense, foreign affairs, elections, ID documents, and passports. Honduras would not be responsible for any debts or financial commitments of the SDRs and could not tax them. The SDRs’ own tax levels were capped by statute at 12 percent for individual income, 16 percent for corporate income, and a 5 percent sales tax. 

Judges in the zones would have to be approved by a two-thirds vote of the Honduran Congress, but the jurists themselves need not be Honduran. SDR residents would be free to “contractually consent to arbitration of judicial proceedings outside the SDR’s judicial entities and arbitration forums.” Ports and airports would be the SDR’s responsibility, and it could collect whatever related fees it saw fit. 

Initially, the Honduran president would appoint a governor and a Transparency Commission to oversee the charter cities; the commission would then appoint governors, as well as a consultative council that could veto a governor’s rules, plus an audit committee. According to Romer’s Charter Cities website, the governors’ powers would disappear in favor of a popularly elected “normative council” after the SDR had reached “population and economic benchmarks” set by the Transparency Commission.

Romer began telling the press he was chairman of the Transparency Commission, a role in which he would help guard against the skullduggery and corruption that so many associated with the Honduran government and business world. His involvement seemed a natural fit. But as Romer prophetically if jokingly warned in his TED talk, “Don’t send academics out in the wild.”

From the beginning, there were conflicts of visions between Romer, the Honduran government, and the libertarian activists and theorists attracted to the free cities model. Romer imagined not a small, organically growing project but one built from the beginning to house 10 million mostly immigrant residents (more than the population of the whole Republic of Honduras, now 8 million), on the theory that such size was necessary for economies of scale. 

Romer’s grand plans ran afoul of Honduran politics. The Honduran Congress included in its initial legislation a requirement that 90 percent of SDR employment go to Hondurans, a rule that could be amended in specific cases. Worse, contends Michael Strong, a major player in the free cities movement, Romer’s vision was impractical and relied too much on a sort of pre-central planning of how the zones would function, not allowing for the organic growth Strong prefers. Romer also wanted to contract out operations directly to a foreign sovereign, which smacked of neocolonialism to some. “We wanted a small startup near existing urban areas,” says Strong, “where one could prove the concept that improving law will attract capital” without having to spend the tens of billions upfront that Romer’s plan required. 

Strong was at the vanguard of a loose community of mostly libertarian policy and business entrepreneurs excited by Honduran free cities as an example of competitive governance. Just as competition and free entry and exit in markets create wealth and consumer satisfaction, they believed, so would governments work better if new entrants arose to compete over rules with existing sovereigns. The rules that allow citizens to thrive—which to the libertarian-minded meant lower taxes, less regulation, and free movement of people and capital—would provide a competitive example for other states to emulate.

Among the most prominent advocates of competitive governance was Patri Friedman, grandson of Nobel Prize–winning economist and libertarian intellectual giant Milton Friedman. Patri first promoted the concept in the context of the Seasteading Institute, which he founded in 2009 with the financial support of Peter Thiel, the billionaire co-founder of Paypal, who loves financing seemingly outrageous ideas on the cutting edge of physical and political science. Seasteading advocated a free city model based not on land ceded by an existing sovereign but on land freshly built, floating in international waters.

In April 2011 the Seasteading Institute co-sponsored, along with Giancarlo Ibarguen of the libertarian-leaning Guatemalan University Francisco Marroquin, a Future Cities Conference that spun off into a Ibarguen-run think tank dedicated to promoting the free cities model. One of the conference speakers was Michael Strong, who had helped promote “conscious capitalism” with the organization Flow, launched with Whole Foods founder John Mackey. 

After meeting the Honduran free cities team run by Sanchez, and after some initial collaborative meetings with one another, Friedman and Strong each launched his own company seeking partnership with the Hondurans. Friedman’s was called Future Cities Development (FCD); Strong’s, co-founded with Kevin Lyons, an entrepreneur and co-founder of Consent Unlimited (a nonprofit studying how to “expand the sphere of human consent at the expense of politics”), was called the MGK Group.

The idea seemed as close to actuation as it had ever been. But conflicts both within and without Honduras soon derailed the project.

‘Don’t Send Academics out in the Wild’

Paul Romer proved very useful in attracting international press attention from the likes of The Economist and The New York Times. But in September 2012 he left the project in a public huff after the Honduran government announced that it had signed a memorandum of understanding with the MGK Group to manage and operate an SDR. In a letter to President Lobo that he posted on the Charter Cities blog, Romer complained that the Hondurans not only failed to discuss the deal with him beforehand but also refused to let him review the agreement after the fact. As head of the Transparency Commission that was supposed to have executive power over SDRs, Romer believed the lack of consultation represented a breach of trust. In an October interview with The Economist, he condemned the MGK deal as an “overt act of deception.” MGK was “not really very serious,” he told the Canadian National Post in December. “They are kind of a nuisance and a distraction.”

According to everyone else involved, Romer actually was not head of the Transparency Commission, which did not yet exist. Romer said Lobo told him he had been appointed and even signed something to that effect in front of him but for whatever reason never formalized the appointment. 

Others close to the project think Romer assumed his starring role was in the bag and in talking to reporters tried to make it a fait accompli by acting as if it were already true. Among other things, many involved in the RED zone project found it suspicious that Romer frequently pointed to the website red.hn to buttress the claim that he was running the Transparency Commission. While red.hn appeared to be an official Honduran page, the site was launched in August 2011, registered in California, and has since disappeared from the Internet. Sanchez acknowledges that Romer “had been promised he would be part of that” but claims the “right political moment” to officially launch the Transparency Commission had not arrived. “I believe in essence he just got tired of waiting,” Sanchez says. Romer provided this comment on the controversy via email: “When the auditors resign from an account saying that they can’t vouch for the honesty of a firm’s financial statements, and the firm replies by saying that technically the auditors have no basis for commenting because the firm never notarized the engagement letter that it signed with the auditors, everyone knows what conclusion to draw.”

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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||

    my neighbor's mom makes $66 an hour on the internet. She has been without work for 5 months but last month her income was $16989 just working on the internet for a few hours. Read more on this site grand4.com
    (Go to site and open "Home" for details)

  • jillian77||

    If you think Leslie`s story is really cool,, last week my son made $7179 working 10 hours a week an their house and their co-worker's half-sister`s neighbour did this for 4 months and errned more than $7179 in their spare time at there computer. use the instructions available at this link... http://www.fox86.com

  • 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.

  • ||

    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!

  • ||

    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'.

  • ||

    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.

  • WilliamGiannone||

    just as Leonard answered I can't believe that any body able to earn $9772 in a few weeks on the computer. have you seen this web link... www.up444.com

  • 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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