A Private Libertarian City in Honduras

"Próspera is the first time in human history that a group of people has said there's a way to deliver governing services, privatized for profit in a completely free market way," says Joel Bomgar, a Mississippi state representative and president of Próspera Inc., the company that's building a privately run charter city on the Honduran island of Roatán called Próspera Village.

In Honduras, about half of the population lives in extreme poverty, and gross domestic product per capita is 25 times higher than in the United States. And yet the country has abundant natural resources and is close to major shipping lanes.

The problem is governance: Nobody wants to invest in Honduras because the country has a long history of political instability, expropriating private land, and legal agreements that aren't particularly binding. Honduras is ranked 154th out of 190 countries in contract enforcement on the World Bank's Ease of Doing Business Index and 133rd overall in ease of doing business.

Narco gangs once made Honduras the murder capital of the world, and though crime has dropped in the last 12 years, life there is still extremely dangerous in comparison to the U.S., which is one reason so many Hondurans make the risky journey to immigrate. U.S. Customs and Border Protection has reported more than 73,000 encounters with Hondurans at the U.S.-Mexico border so far this year.

Recently, the country's politics have been especially turbulent: A president was ousted by the military in 2009, and another was extradited to the U.S. for drug trafficking.

The nation recently elected its first democratic socialist president, Xiomara Castro, who has called for a "refounding." She wants to rewrite the constitution to recognize that "the capitalist system doesn't work for the majority" of people. She's calling for electricity to become a "public good…and a human right" and is laying the groundwork for the outright nationalization of the entire energy sector. And she's spending billions on cash transfers.

"Every millimeter of the [Honduran] homeland that [capitalists] took over on behalf of the sacrosanct free market…was watered with the blood of the native people," said Castro, who ran on abolishing the very law that authorized Próspera and similar zones in Honduras, in a September 2022 speech to the United Nations. "My government has embarked upon a process of national rebirth and is bringing profound change."

Meanwhile, a group of foreign investors has embarked on its own "refounding" of sorts. They've started a radical experiment in private governance, which they hope will become a model for how to create prosperity in poor countries all over the world.

"The concept of free private cities and charter cities, specifically what Próspera is trying to do, is the most transformative project in the world," says Bomgar. "There's not a big financial hub in Central America. There's not a sort of Singapore of Central America right now. And so that's what we're trying to create."

On the island of Roatán, a tourist hub with a land mass similar to Hong Kong, a group of libertarian entrepreneurs, including Bomgar, are trying to build a country within a country that's free of the dysfunction that hobbles the national government. And they're starting with a clean slate.

Próspera is based on the principle of true voluntarism, they say: All who live and work there have opted into the rules that govern the land, and they can change their minds and opt out at any time.

The first location being developed as part of this privately run charter city is called Próspera Village, but the project's co-founder and CEO, Erick Brimen, says that the particular plot of land doesn't matter as much as the rules governing it.

"Próspera is not a location. Próspera is a platform that delivers governance as a service in partnership with host governments that create a legal framework that allows that public-private partnership to emerge," says Brimen.

In 2017, the company began acquiring its first 58 acres, which at the time was mostly an undeveloped jungle. Today, Próspera Village is occupied by an office building, a schoolhouse, a factory for prefabricated building materials that's under construction, and a shared workspace for remote office workers. A 14-story luxury condo tower is also nearly complete. Development is happening here at a pace unheard of in a country where it can take years and several well-placed bribes to obtain a permit to put up a building of that size.

Próspera has so much autonomy thanks to a 2013 law authorizing Zones for Economic Development and Employment, or ZEDEs.

ZEDEs don't merely have favorable business and labor regulations, like China's Shenzhen. They make their own laws and regulations. Próspera created its own zoning code and levies its own taxes. Only the country's criminal laws still apply.

To become a full-time resident of Próspera, you just fill out an online application and pay a $1,300 fee, though Honduran nationals get an 80 percent discount. In lieu of a court system, they have access to the Próspera Arbitration Center to resolve any civil disputes, or they can opt for a different arbiter.

Companies can select their own regulation from a menu of options. Like Japan's biotech regulation? Use that. Singapore's banking laws? Use those. Or mix and match.

Depending on what industry they're in, some companies can opt out of regulation altogether, though at a cost.

"Then you're under common law legal liabilities, which can be very harsh. So you do have an incentive to be under regulation, and you need to have liability insurance that covers you," says Niklas Anzinger, who runs Infinita VC, a venture capital fund based in Próspera.

"So this way you have insurance [companies] looking at what you're doing in your regulation and like, 'Yeah, this [regulatory scheme] has been done multiple times before [in] multiple jurisdictions, it's cheap. And this one, ah, that's quite new, right? It's not been really tested. So there's gonna be a higher premium because we have to pay experts to assess the risk of what you're doing.' So, this way you have an open process to improve and develop and find the right kind of regulations for different businesses."

When Reason visited, Anzinger was hosting a seminar for companies that operate or are interested in operating here, including a biotech firm, which found it easier to run gene therapy trials at Próspera than in the U.S.

But President Castro has vowed to repeal the ZEDE law, calling it "criminal" legislation and an attempt to "steal our sovereignty."

Brimen says that even if a repeal vote is ratified by the Honduran congress, Próspera is protected by international treaties, and the government will risk paying damages of over $10 billion if it violates them. Brimen says he expects the Honduran government to back down.

"It's not just the cash cost to us [that will stop them]. It's the message that the Honduran government is appropriating a U.S. investment," says Brimen."So, on the one hand, you have this very bad outcome, and on the other, which I think they're starting to realize, begrudgingly to some extent, you have not [only] $10 billion [in damages] but a multiple of that in upside benefits in not just direct investment but of jobs, positive externalities…what would you do?"

Fernando Garcia, a former economic Minister whom Castro appointed as presidential commissioner against the ZEDEs, says what Brimen and his company are trying to pull off in Honduras is outrageous.

"It is as if I came to the United States with $500 million or $1 billion and asked for a constitutional amendment to buy Central Park in New York, to create a state within a state," says Garcia, speaking in Spanish.

He says that President Castro is defending the Honduran constitution and its national sovereignty by dismantling the ZEDE law because zones like Próspera "will later become free states, independent of her [political] process" if she doesn't act now. Brimen says ZEDEs are far from a threat to political sovereignty.

"It's the opposite. It's an exercise of sovereignty" says Brimen. "One has to more fully understand what sovereignty is to begin with. Sovereignty is about self-determination. And the power to be self-determined properly rests upon the people, not upon some institution that rules them."

Jorge Colindres is the technical secretary of Próspera ZEDE,* roughly the equivalent of its mayor. He says that his experience running a law firm in Honduras has made him acutely aware of the ways in which corruption and weak rule of law have crippled the country, which is why he became involved with the project early on.

"I've seen corruption at almost every government or institution. I've seen it at the municipalities, I've seen it with the prosecutor and the judges, at the environmental agency, at the health care agencies, essentially all over," says Colindres. "And on top of that, you have people demanding bribes and payments. It's horrible."

Colindres says that because Próspera must work to attract and keep investors and citizens, it's incentivized to eliminate corruption from its governance. Bomgar says this competitive structure will make all the difference.

"Unlike other governments, we don't have a monopoly of the use of force and coercion," says Bomgar. "So we live by the principles of nonaggression, self-ownership, and the rule of law and property rights. And unique to Próspera is the right to join but also the right to exit."

Voice matters here at Próspera—residents will be allowed to elect five of the nine members of the city council once the population surpasses 10,000—but political power mostly derives from exit, or voting with your feet. Colindres says that, for example, in a 10-story building, floor seven could be in Próspera, floor six in the general free zone regime of Honduras, and the remaining floors governed by the national regime.

"The basis of the legitimacy of government is consent of the people," says Colindres. "We do have consent of 100 percent of our residents, and that's where our powers stem from."

This opt-in arrangement has allowed Próspera to expand from five acres to 58, and then, during the height of the pandemic, the project expanded to more than 1,000 acres of a nearby resort and villa called Pristine Bay. The hotel at the center of that development remains outside Próspera's jurisdiction, and individual homeowners in the villas will be able to opt in or out.

Another major problem that many South and Central American countries have faced is runaway inflation. In the '90s, Honduras' inflation peaked at around 34 percent; it currently stands at about 9 percent. Próspera will have its own financial overseer who will make sure businesses have selected an applicable regulation standard for themselves, and Próspera is home to a bitcoin cafe and education center devoted to promoting the use of the cryptocurrency on Roatán.

"We provide educational support, technical support setting up [point-of-sale bitcoin infrastructure]," says Dusan Matuska, who runs the Roatán Bitcoin Center and says more than 50 merchants currently accept bitcoin on the island. "I think Próspera's main payment infrastructure will be bitcoin over time."

Próspera is primarily a governance model, so its territory doesn't have to be contiguous. We took a ferry ride to the mainland city of La Ceiba to visit another large territory that's participating in the project.

Though everything about Próspera has been voluntary to date, it's no wonder that Hondurans are worried about foreign businessmen violating their national sovereignty.  La Ceiba happens to also be a key battlefield in a successful 1911 coup backed by the American business magnate Sam Zemurray, who would later become the president of the United Fruit Company. Concerned that the president was hostile to his expansion plans, Zemurray used his wealth and influence to bring about regime change in a foreign country.

We drove along an unpaved road once partly occupied by railroad tracks that used to carry banana harvests to the port. The land was eventually abandoned and now is part of Próspera, which hopes to develop it into a major manufacturing hub.

Eric Paz manages the site, which is currently occupied by a tiny office building, a rundown schoolhouse, and several single-room homes lacking electricity and running water.

"Historically, this has been a community that has had a great lack of opportunities to develop, to be able to study, to be able to have access to health care, to be able to have access to decent work or to decent housing," says Paz.

Paz says Próspera has letters of interest from three companies eyeing the site—a medical supplies manufacturer, a maker of prefabricated housing materials, and an aeroponic farmer.

"Próspera is an opportunity for the region, and I could dare to say that it is an opportunity for the country, because we are trying to do something different," says Paz.

The ZEDE law made it through Congress on the grounds that it would attract investment and bring new opportunities. Garcia says that it hasn't made good on that promise because Próspera said it would generate 10,000 jobs by December 2021 but has only reported 1,000 to the government.

But Colindres says that it's absurd for the Castro regime, which has hamstrung special economic zones and imposed economically destructive policies after several years of COVID pandemic stagnation, to criticize the rate of job growth within the ZEDEs.

"Frankly, the Honduran population, they're not happy with this new socialist government," says Colindres. "In their first year, they butchered over 100,00 jobs and left tens of thousands of people without a formal job. While we are seeing an economic and democratic deterioration at the national level, here in Próspera, we're still creating jobs."

Back on the island of Roatán, some of those jobs have gone to locals from the island, like a carpenter who repurposes excess construction material to make furniture. Or Virginia Cecilia-Mann, Próspera's head cook, who lives in the neighboring village of Crawfish Rock.

"Until Próspera came here, there are moms that never had a job in their life," says Cecilia-Mann. "They don't have the educational level. Or maybe they don't speak the language that they need or just maybe other things, like they have kids at home and there's no one to watch them so they can't get a job that offers mother hours. All of those things, Próspera is offering to them."

Cecilia-Mann also spearheaded the creation of Próspera's on-site school, which teaches local kids using Khan Academy virtual learning. Victor Andino, who lives with his family in a house on the beach that directly abuts Próspera, sends his kids to the school.

"Nobody [else] is going to give you a teacher, who teaches English for free," says Andino. "I don't know much English. I can learn from my boy."

Andino is an electrician, and his wife works maintaining Próspera's many plants.

The company fills many of the location's administrative, security, and construction jobs with workers from the mainland. A mason from the mainland told us that work dried up during the pandemic and that outside of Próspera new construction projects tend to get held up by red tape.

"The permitting process is really slow," he said, speaking in Spanish. "You have to make bribes."

At a fork in the road at the top of a hill leading down into Próspera Village is a small convenience store where construction workers congregate at the end of the work day.

The owner, Lorena Webster, has lived here for 36 years. She's suspicious of her new neighbors.

"[Próspera's leadership] used to come and eat with us and talk with us and talk about the development that they [would] bring in [a] project to benefit the community in the future," says Webster. "So then we [were] always, well, happy because, at last, the place is going to grow, you know?"

Webster says members of the community changed their minds when they found out that the ZEDE law allows companies like Próspera to partner with the government to expropriate their land.

"Never again will the stereotype of a banana republic wear heavy upon us," said Castro in her U.N. speech. She regularly compares ZEDEs like Próspera to the United Fruit Company, which took advantage of politically weak Central American countries to boost its profits in banana cultivation.

Forty-three years after financing a coup in Honduras, United Fruit CEO Sam Zemurray helped orchestrate covert CIA operations in neighboring Guatemala, which led to the removal of another president he considered hostile to his company's business interests.

This legacy of corrupt governments colluding with powerful private landowners has left many locals wary of the ZEDEs.

"Maybe [at] the beginning it will benefit us because they may give us jobs. But in the future, the laws give them the privilege to take our land," she says, though she told Reason that nobody from Próspera has ever threatened to take her home or even offered to buy it.

"They say 'No, we won't [take your land.]' But does that guarantee that they won't? No," she says.

In the adjacent fishing village of Crawfish Rock, a store owner expressed the same fears.

"We live here. We [were] born here, we [were raised] here, and this is what we have," she says. She believes Próspera plans to take all of Crawfish Rock but told Reason they haven't done anything yet to make life worse in her village.

"They haven't bothered us, not at all," she says.

Though Prospera prohibits expropriation in its charter, the ZEDE law does permit the zones to partner with the government to take private lands for public infrastructure development.

Brimen says that Próspera's charter prohibits expropriation and that anyone who attempted to do so on behalf of the organization could be held personally liable. He says he's long supported a reform to the ZEDE law that would make the practice illegal.

"Próspera specifically cannot receive expropriated land into its jurisdiction, period. End of story. It's in our charter, it's in our bylaws, and, if we did, the people involved are personally liable," says Brimen. "I'm against expropriation as a matter of principle."

Brimen is originally from Venezuela, where socialist President Hugo Chávez became notorious for expropriating land and businesses, which eviscerated the economy.

"I think [seeing Venezuela's collapse under socialism] was a very visceral experience of what otherwise would've been read in a book and not understood firsthand," says Brimen.

Brimen says that when he enrolled in college, he wanted to study economic development and poverty to figure out why some countries get rich while others, like Venezuela, stay poor despite having abundant natural resources.

"I thought that what I wanted to do in my life was somehow eradicate poverty," says Brimen. "Yet I realized that I was asking the wrong question. It's not about how you end poverty but rather how you catalyze prosperity."

He says that when he studied the problem from this new perspective that the answer became obvious.

"I was unavoidably led to the empirical evidence that shows that in order for there to be maximized human prosperity, you need freedom. You need economic freedom," says Brimen. "And so the invention of Próspera is mostly around the business model, the public-private partnership approach to deploying an economic system with rule of law that is proven throughout history to unleash human potential."

Will this ambitious experiment catalyze prosperity in Honduras? Can a properly designed private government thrive and avoid the corrupt and violent fates of the 20th-century banana republics?

A lot is riding on Próspera's success or failure: the future of ZEDEs in Honduras, the promise or folly of separating governance and state. It's a bold test of the limits of the proposition that the private sector does everything better and that the profit motive is less corrupting than political processes for obtaining state power.

Brimen and his team say they'll deliver on the promise of creating a bastion of freedom and prosperity, just as long as the national government holds up its end of the deal.

"My vision for the next one to five years is you come back and see as big a leap it was to go from nothing to 1,000 acres," says Bomgar. "Perhaps not in just sort of geographic size but in vertical development…building the city toward the sky."

Brimen says that growth and investment are accelerating and that their biggest obstacle in the near term isn't economic or physical but political.

"The main wild card is how the Honduran government chooses to proceed," says Brimen.

*CORRECTION: The video version of this story originally identified Jorge Colindres as the "technical secretary of Prospera Inc." He is the technical secretary of Prospera ZEDE, which is a different legal entity.

Photos: TEDxJackson/Flickr/Creative Commons; TEDxJackson/Flickr/Creative Commons; Everett Collection/Newscom; Everett Collection/Newscom; Inti Oncon/dpa/picture-alliance/Newscom; Camilo Freedman/SOPA Images/Si/Newscom; Inti Oncon/dpa/picture-alliance/Newscom; Simon Liu/Flickr/Creative Commons; Seth Sidney Berry/SOPA Images//Newscom; Seth Sidney Berry/ZUMAPRESS/Newscom; Milo Espinoza/ZUMAPRESS/Newscom; Milo Espinoza/ZUMAPRESS/Newscom; Gustavo Amador/EFE/Newscom; Milo Espinoza/ZUMAPRESS/Newscom; Humberto Espinoza/EFE/Newscom; Seth Sidney Berry/ZUMAPRESS/Newscom; Seth Sidney Berry / SOPA Images//Newscom; Album/Oronoz/Newscom; Gustavo Amador/EFE/Newscom; 總統府/Flickr/Creative Commons; 總統府/Flickr/Creative Commons; Seth Sidney Berry/ZUMAPRESS/Newscom

• Editor: John Osterhoudt
• Graphics: Isaac Reese
• Translation: María Jose Inojosa Salina
• Camera: Jim Epstein