New Republic Takes Weirdly Pants-Wetting Look at Honduran ZEDEs (Free Zones)

The New Republic (which, yes, still exists after the self-important fleeing of most of its staff after Franklin Foer ceased being its editor for the second time) takes an unsupportedly pants-wetting look at the frightening thought of free-market-y economic and legal reform in parts of the disaster zone of Honduras. I have reported and written extensively on this process, now going under the name ZEDE for "Zones for Economic Development and Employment," most recently in August and at most length in July 2013.

The basic idea is carving out some territory in Honduras that could operate under fresh legal and economic rules, in the hopes that would spur economic growth above Honduras' current dismal record.

TNR's absolutely nutty headline, ""I've Seen All Sorts of Horrific Things in My Time. But None as Detrimental to the Country as This," reflects the unfounded and indeed unexplained fears of veteran local journalist Sandra Maribel Sanchez quoted in the story, who seems to be driven to vapors at the thought that someone, somewhere could have a chance of a freer economy or better legal institutions in her homeland. (Vague talk of mafias run amok in a country already strongly riven by crime and violence, and fears of environmental degradation, are in the story, but otherwise even most of the Honduran voices in the story are at least guardedly pro-the ZEDE experiment, making the headline all the stranger.)

Reporter Danielle Marie Mackey does a decent job on the history of the ZEDE idea and its complicated political process through the clotted Honduras system, giving fair voice to some of the ZEDE idea's defenders (though she overstates the role of economist Paul Romer, which is explained at length in my earlier reporting linked above).

But her story is framed by its headline as a scared presentation of some un-scary facts: that there is a distant possiblility that some people and businesses in Honduras may get to function under legal and political rules that are different, and maybe more conducive to wealth-creation, than those ruining the country as a whole; and that some of the people involved in managing the process are avowedly pro-free-market.

(As a fact-checking aside, Grover Norquist, one of the apparently scarily free market members of the Committee for the Adoption of Best Practices that is helping run the ZEDE process, is not a vice president of Polaroid, as the story states, and ZEDE intellectual pioneer Mark Klugmann's name has two ns at the end.)

Mark Lutter, an econ student based in Honduras who works on the ZEDE process, in the PanAm Post critiques the attitude behind the TNR piece:

Rich countries are rich because they have good institutions. Poor countries are poor because they have bad institutions. This is not some conspiratorial conservative viewpoint….Rather, that institutions matter is a consensus among economists. It is supported by some of the most cited economists: Daron Acemoglu and Andrei Shleifer, as well as numerous Nobel Laureates….

The basic problem is that Honduras, along with many other third-world countries, does not have functioning courts or police. Nor do they have basic rights to engage in commerce with others. If a Honduran wants to start a business, he must pay 39 percent of his per capita income, and he must wait 82 days to get the requisite construction permits. Economic growth is not possible without the creative destruction that comes with new businesses.

Further, experiences around the world have shown that when a country or region adopts good institutions, economic growth follows. Hong Kong, Singapore, and Dubai are classic examples. China, following Special Economic Zones, and South Korea are two more….

Of course, this does not mean the ZEDEs will be successful. As in most third-world countries, as well as a number of first-world ones, corruption is always a problem. The ZEDEs might be used to enrich already wealthy politicians and their families. However, Honduras would not need ZEDEs if it already had good institutions. The trick is getting a first-world legal system out of a third-world one.

If that trick works, to quote a phrase, it could be "the most un-detrimental thing" to ever happen to Honduras. If it doesn't work, well, not much can be worse than a murder capital of the world whose economy is 1/5 dependent on remittances from people in the United States.

Reason TV did a great video series from Honduras on the ZEDE concept: