(Page 3 of 4)
Romer’s departure was just the beginning of the Honduran free cities’ bad press. Toward the end of 2012, in response to a challenge by lawyers opposed to the idea, first the Honduran Supreme Court’s constitutional chamber, a subbody of the court, and later the full court declared that the SDR-enabling constitutional amendments went beyond the Honduran Congress’s authority, because “transferring national territory” was “expressly prohibited in the constitution.” One analyst close to the Honduran government thinks Romer’s public condemnation of the deal with MGK emboldened the Supreme Court to kill the plan.
Right after the Supreme Court decision, Patri Friedman’s Future Cities Development announced it was folding after spending about $500,000 of investors’ money. “The early political momentum for the RED program faltered, and the program’s implementation suffered a number of setbacks and delays over the last year,” read a statement on FCD’s website. “As a result, we no longer see any imminent development prospects in Honduras. Since our funding was contingent on making substantial progress within a year, we are winding down the company and returning our remaining funds to our investors.”
Sources in the free cities movement say FCD was already on the verge of shutting down before the Supreme Court decision. The group felt Honduran officials were dragging their feet on decisions such as choosing the site for the city, leaving potential investors unconvinced about the Honduran government’s reliability as a partner.
Most sources close to the project think the successful constitutional challenge was more a result of domestic politics and left-leaning anti-globalism than a reflection of widespread Honduran concern. Historian Dylan Evans, author of a forthcoming book on free cities, says he found in Honduras that “left-wing romantic ideology is immensely powerful in Latin America still today” and that “the default is to suspect any foreign involvement of being inherently rapacious and exploitative and ruthless capitalist, so unfortunately some of the people who might be best served by alternative legal arrangements are ironically most opposed to those things.”
One public relations professional who worked with a free cities company says that when she reached out to everyday Hondurans with presentations about the project, they would sometimes ask point blank: Why are you even talking to us? They knew the free cities either would or would not happen with or without citizens’ input.
“It’s really just a discussion among elites trying to bring it down,” Sanchez says. “But as a topic, it’s too technical, you know?” Public opinion won’t be settled, Sanchez says, “until people see brick and mortar being placed.”
The international development community, including such major players as the World Bank, the World Trade Organization, and the Bill & Melinda Gates Foundation, has not yet thrown its weight behind free cities. The Gates Foundation asked the libertarian economist Bryan Caplan to write an essay questioning its decision to not fund charter city research. Caplan, an economist at George Mason University, wrote that “there is virtually no downside” in supporting the idea. “A charter city begins on empty land,” he said. “It can only grow by voluntary migration of workers and investors. If no one chooses to relocate, they’re no worse off than they would have been if the charter city had never existed.”
Giancarlo Ibarguen of the Free Cities Institute thinks it could be a good thing that international development organizations and non-governmental organizations don’t have their hands in the free cities movement, “because they usually bring to developing countries a brilliant idea that ends up being more mercantilism and interventionism.…One of the things I like very much about what is happening in Honduras is it is really made in Honduras.”
Keeping the Tanks Away
Much of the media and academic chatter about free cities concentrates on the high-level economic development issues—tariffs, taxes, building regulations, the provision of services such as roads, electricity, and water. But in talks with the principals, a possibly more important consideration rises to prominence: basic public safety in a dangerous country.
“The security issue is huge,” Strong says. “If an American manager in Honduras must go from a gated community in an armored car to a gated factory, [then] a region in which normal life is possible, where you can walk on the streets, will be incredibly appealing. They do care about their workers, and a region in which workers and their families are not subject to random violence is appealing.”
Strong envisions the ideal free city as not just an industrial park but a full community, with schools, hospitals, welfare infrastructure, and security. But he believes those services can be supplied at lower cost and with more responsiveness to consumers than what a typical government offers. The publicist who was trying to sell the idea to grassroots Hondurans also found security to be a keen area of interest. If free cities were noticeably safer, they might attract domestic migrants.
Political safety is also a key concern, particularly for potential business operators. Shanker Singham of the International Roundtable for Trade and Competition, who is working with Strong, says, “If the investor community believes the host government can interfere in the same way they interfere in the rest of the country, obviously the investment proposition is the same as the rest of the country, and they simply won’t invest. In that case we have to make investors not so concerned about the nuclear option, about tanks rolling in.”
Behind the anxiety is an unanswered question: How would the government, and the people it represents, react to a Hong Kong–style economic miracle within an otherwise miserable country? How would they react to allegations from people who, in Singham’s words, are “terrified” that outside capitalists are “simply using their country to achieve some foreign investor’s profit”? With everything relying on the ceding sovereign keeping its word, it’s hard to know whether a successful free city would be able to survive for very long.
Singham thinks the uphill battle to win hearts and minds is worth it. “We see [SDRs] as a means to an end, and the end is poverty alleviation,” he says. “When you deviate from the free market and pro-competitive regulatory system, you are imposing deadweight losses on the economy and imposing a regressive tax on poor people. And that’s unconscionable and immoral, and that needs to be expressed clearly.”