Honduras

Bad news from Honduras:

The Honduran Supreme Court has ruled unconstitutional a project to build privately-run cities, with their own police and tax system.

The “model cities” project was backed by President Porfirio Lobo, who said it would attract foreign investment and create jobs

By 13 votes to one, Supreme Court judges decided that the proposal violated the principle of sovereignty.

Demonstrators celebrated the decision outside the court in Tegucigalpa.

“This is great news for the Honduran people. This decision has prevented the country going back into a feudal system that was in place 1,000 years ago,” said lawyer Fredin Funez.

The government proposal to create some 20 “special development zones – as the new cities were officially called – was approved by Congress last year.

The Supreme Court has now ruled that the law approved in Congress is unconstitutional, as it violates the territorial integrity of Honduras, as well as the sovereignty of the government.

“I am sad. All the Congress wanted was to give jobs to all Hondurans,” said Congress speaker Juan Orlando Hernandez.

Prior to this, there was a kerfuffle when Paul Romer, the great economic theorist and leading promoter of the idea of charter cities, made a stormy exit from the project which he had earlier been promoting, after a deal was made with a private development group without his knowledge. His complaint seems to be lack of transparency. For what it’s worth, that’s kind of my impression, too. MGK Group needed to proclaim to the world, and to Hondurans, what they were going to do, fill their minds with dreams of the future, sell the plan. Michael Strong, head of the MGK development group which would have built the charter cities, seems to have wanted to build a free-market paradise. But it seems to me they didn’t offer enough detail. Would more detail, faster, more publicly, have reassured the Supreme Court? What if MGK Group had managed to make the project popular enough to mobilize their own demonstrators in the street? MGK Group defends their lack of transparency thus:

Out of respect to the Honduran government and our ongoing collaboration with them, we are committed to not discussing speculative aspects of the project at this point in time. As the project moves forward in the months ahead we look forward to many exciting announcements as we work toward creating more jobs and better lives for Hondurans.

That’s plausible, but I think it might have been a mistake. If anything, I would err on the side of extreme transparency. Let the decision-makers keep a video blog, publish every day. Respond to comments. Go out there and shake hands with people like a politician on campaign. Make people feel they know you. Build trust. To beat existing governments at transparency wouldn’t be too hard, but it would take some work.

Another lesson from this is that ideology is important. I believe the demonstrators outside the Supreme Court were acting against their economic and political interests, that charter cities would have benefited Honduras. But it’s not surprising that people take their cue from rich countries and from the generally prevailing worldwide notion of sovereignty. As I wrote last month:

Strong open borders advocacy within rich countries makes the case for charter cities much more credible. When an economist in a rich country suggests that charter cities are a good idea, people in the developing country are entitled to ask: “If it’s such a good idea to surrender bits of our own sovereignty in this way, letting foreigners move into our country to work and run things, why don’t you do it? Why don’t you set up passport-free charter cities on the soil of your own countries?” Consider two answers:

  1. “We don’t need to do it, because we’re already rich, but it’s a good idea for you.”
  2. “Well, we should do it, and I’m dedicating a lot of my life to making the case for it. I’ve advocated every kind of open borders in every forum I can, I’ve put the critics to flight in a thousand debates, but so far, the inertial weight of narrow-minded nationalism and the sovereignty prejudice isn’t budging. If you take this small step in the right direction, you’ll be better than us: braver, freer, smarter, more just. And I will proclaim your success to the world, and try to get my own countrymen to follow your example, and pour scorn on them if they don’t.”

It is probably clear enough why answer (2) would be more persuasive to a developing country. Certainly, it has much less of the condescending air than answer (1) does. What would be better still is if open borders advocates in rich countries became widely known in developing countries. It seems a safe bet that people in poor countries, if they understood the issues at all, would root for those in rich countries who want to let them in. Maybe if they got used to thinking “open borders advocates are the good guys” from watching the US policy scene, they’d become more open to applying the same arguments to their own countries, by establishing charter cities.

I also have a feeling that institutional permanence is important, if you’re going to be entrusted with erecting the constitutional backbone of a charter city. Romer, looking at the Hong Kong precedent, preferred that the governance be managed by an established Western government, and didn’t think MGK Group was a plausible substitute. It makes me nervous too. What is MGK Group? What is its internal governance structure? What are its motives? If I can’t answer those questions– a PhD economist, with a specialization in public choice, with a lot of sympathy with and interest in the project– can’t figure out the answers to those questions, I can imagine how bewildering they must be to the Honduran on the street. Not that the average person on the street typically understands much about the workings of their national governments, either, but they’re used to not understanding that, and vaguely trusting in it. It has a certain mystique of old prestige. And again, ideology is important. I suspect that what would really make charter cities succeed is some sort of oblique endorsement by the United Nations, the one agency with a worldwide prestige rivaling, perhaps trumping, that of national governments. That, and a much more widespread belief that they are a good idea.

Nathan Smith

Nathan Smith is an assistant professor of economics at Fresno Pacific University. He did his Ph.D. in economics from George Mason University and has also worked for the World Bank. Smith proposed Don’t Restrict Immigration, Tax It, one of the more comprehensive keyhole solution proposals to address concerns surrounding open borders.

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