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Free Cities: The Sequel
After the dissolution of Future Cities Development and the Supreme Court defeat, the dream of Honduran free zones seemed destined to join the sad but beautiful pile of bones of libertarian polities dating back to the early 1970s attempt to build a libertarian island near Tonga. (That sandbar was conquered by the King of Tonga in 1972.)
A similar free-cities rise and fall story has also played out in the former Soviet republic of Georgia. Klugmann and Romer both met in 2011–12 with Georgian President Mikheil Saakashvili, who became very excited about the idea of building a free city he had already named Lazika. But with a change of regime late last year, the Georgian free zone idea is currently dormant. Other free city initiatives have made initial entrees into Senegal, Jamaica, Morocco, and Guatemala, although none have yet borne fruit.
But Honduras still might. In January a second round of constitutional amendments to legalize free zones passed through Congress the requisite two times. Still ahead: the more complicated task of the new statute laying out the leeway those zones will have and the rules by which they will interface with Honduras proper. Elements of the Honduran judiciary and potential RED zone operators are both being kept in the loop as stakeholders of sorts, which makes sense. As someone close to the negotiations put it: If one intends to throw a party, it’s best to make sure that the cops aren’t going to shut it down and that people are still going to want to attend.
It’s uncertain whether the new law will emulate the rules set the first time around, although Sanchez says that is his goal. The new enabling law for the zones was expected to get through Congress in May, although non-Hondurans close to the project note that things often grind slowly in that nation. Whatever happens, there should be plenty of varieties available to those wishing to launch an SDR.
“The Honduran government wants to create as many of these as possible,” Strong says. “Their vision is of islands of prosperity in multiple locations, so [competing to get to operate one] is not a zero-sum game.”
Strong has left the MGK Group, whose website says it has “suspended operations.” He has launched a new organization, Elevator, which will compete to manage and run a Honduran SDR, paying off investors with money made after his group “purchases undeveloped land (or receives government land) and adds both physical infrastructure as well as world-class law, governance, and security,” he says. “Successful free zones around the world have seen significant land value gains following free zone designation, which typically consists of reduced taxes and regulation. We believe that having access to better-than-Hong Kong-quality legal institutions will increase land values to an even greater extent.”
Sanchez says he isn’t worried that the latest attempt will again be derailed by the Supreme Court, because the original opinion was legally flawed, and four members of the constitutional chamber that first overturned the law “were removed from office by Congress because of gross ignorance.” Non-Hondurans involved in the process think the Supreme Court decision was more a matter of internal politics and an expression of opposition to the president of Congress, the free cities supporter Juan Orlando Hernandez, who was (and still is) running for president. While another legal challenge is possible, even likely, Sanchez and others involved say the new law will be carefully crafted to be as bulletproof as possible.
Mark Klugmann, who has been working to sell free cities (LEAP zones, in his preferred terminology) to Honduras for more than a decade, says he is not discouraged by last year’s setbacks. “If the defeat in the Supreme Court last October caused some to think that the reform path of creating special LEAP jurisdictions is not politically viable, that it collides with reality…the truth is exactly opposite,” he says.
“What Honduras demonstrates,” Klugmann maintains, “is how robust this idea is—that it is hard to kill. Before the ink had dried on the reform’s obituaries, the Honduran leadership was back up on the horse, did it again, and once again, as two years earlier, won overwhelming congressional support: 90 percent of the legislature voting in favor, transcending the divisions of left and right, erasing the gulf between government and opposition. Honduras has taken the lead in disrupting the status quo.…Now the neighboring CAFTA countries, all competing for investment and jobs, must come to grips with the prospect of a game-changing challenge in their region. For those who care to see, what becomes clearer than ever is that this is a very powerful idea whose time has come.”