Charter City in Honduras = Development?

It started in 2007. The idea, that is.

Paul Romer, an economist and Stanford professor, began to reconceptualize the idea of economic development. Dr. Romer had considered our basic economic growth models which use inputs like labor, capital, wages, etc. and came to the conclusion that they lacked ‘ideas’ as an input. What if there was a way to create a city, like an embassy, that had a different set of rules by which it was governed so as to instigate development? In 2009, the idea had made its way to the TED stage in Oxford, England. TED stands for Technology, Entertainment, and Design and has become a premiere annual conference for presenting ground-breaking ideas such as this one. Here’s the idea in Dr. Romer’s own words:

When I was in Chicago, when I was a professor there before I went to Stanford, there was a woman who worked for my wife and me. My wife was in a residency program, so this woman helped cook and clean in our house. And she lived in the Cabrini-Green housing project in Chicago, which as many of you know is one of the most desperate failures in our public housing system. And the question that struck me, when I saw her and these two young children she was raising, is why she didn't have a chance to move to a city which could offer simple things like relatively low-cost housing and low crime. She simply didn't have that option in the United States. And I started to ask: why couldn't it be possible to create entirely new cities that could offer options like that for someone like her.

One of the models Romer frequently references is Hong Kong in the 1950s. The British entered into a sort of joint venture with China and took governing control of the island. They created a different set of rules, or ‘norms’ if you will, from China and allowed people to voluntarily move into this zone. The economic conditions of this area created opportunities that had not previously existed. Development of the island has been booming ever since. The charter city is similar, though it would operate more like a joint venture (a business concept) as opposed to a colony governed by a global power. Another similar sounding idea is a free trade zone, though the difference between these zones and the city is the scale. Free trade zones are designed around one idea: trade. However, a charter city would be designed around achieving complete self-sustainability in every regard: infrastructure, education, industry, healthcare, etc.
The idea continued to spread and was discovered by Xavier Arguello, Zelaya's presidential aide, and others in Honduras (WSJournal Article; full text). The idea then spread quickly to President Porfirio Lobo (pictured right), who met with Paul Romer in Washington D.C. to discuss the viability of a charter city in Honduras. This brings us to 2011, where Dr. Romer shared another TED talk in California, applying his charter city model to Honduras. In January, the Honduran Congress voted almost unanimously to change its constitution to allow for these types of developments within its borders. Allow me to reiterate a couple key points before continuing: This charter city utilizes unused land and residency is voluntary. Also, Honduras initiated contact in this interchange of ideas; it is not being thrust onto them by the US or any type of development organization. (Another WSJ article)

The charter city works like this.

First you have to determine who wants to play this game. Honduras has offered itself as the petri dish for this experiment. Discussions are underway with other governments like Canada, Denmark, Switzerland, and other well-established, more or less neutral countries that would enter into this charter city like a joint venture. The responsibility of these countries would be to act as a guarantor in the venture – someone who would ensure fairness between the residents that live there and the companies that operate there.
Second, a zone or location for the city is established. The last article I read said they were proposing a site just outside of Trujillo on the north coast. The second step would be to establish the charter itself – the rules, a point which Romer strongly emphasizes. Rules make the difference between nations; between opportunity and hopelessness; between North Korea and South Korea. Setting up the right kinds of rules with the right incentives and consequences is the key.

Third, you open it up to foreign investment. The appeal of a charter city is its potential. The initial investments for infrastructure will be made in order to reap the benefits of water and electricity payments for decades to come. Other companies will move in to establish themselves under this new, favorable set of rules and take advantage of the semi-cheap labor that exists here. Let’s remember that any residents are relocating voluntarily, and as Romer mentions, the risks associated with moving to this zone are far less than the risks already being taken by those illegally crossing the border to work in the States. Also, remember the governments that have chartered this city are acting as guardians to ensure that no abuses take place on either side – the people or the companies (this goes back to the rules). The companies are driven by profit to operate within the zone and perform well, which means its employees also do well and opportunities are made available for them to prosper.

Romer mentions that roughly 3 billion people live in cities, and this century we will see another 3 billion migrate to cities before we reach some sort of world population equilibrium. This means that the opportunity to implement new ideas for cities, like charter cities, will only exist in this century. And it’s clear that people are looking for different types of solutions after seeing previous methods fail, as is the case in Honduras. There exists some pessimism about the idea, but that’s not unlike any other great idea of the century. Ultimately, there’s only one way to know if it will work.