A charter city finally in Honduras? (from Mark Lutter)

Prospera, Honduras just launched on the island of Roatan. It is a ZEDE (Zona de Empleo y Desarollo Economico), the legacy of Paul Romer’s time in Honduras promoting charter cities. It has substantial autonomy, different taxes, different courts, different labor law, and more. It is one of the most innovative jurisdictions in the world.

First, a bit of history. The ZEDE legislation was passed in 2013. It allows for the creation of a special jurisdiction with an almost unprecedented amount of autonomy. The only recent comparison is the Dubai International Financial Center, which, as the name suggests, focuses exclusively on finance. The ZEDE legislation allows for different labor law, environmental law, business registration, dispute resolution, and more. It is more analogous to Hong Kong, or at least the Hong Kong ideal, of one country, two systems.

In 2013 and 2014 rumors swirled about ZEDE projects, including a port in the Gulf of Fonseca, but nothing materialized. I even moved to Honduras in 2014, at the time the murder capital of the world, to be closer to the action. As late as 2017, the Honduran government was saying projects were about to begin.

The ZEDE legislation is the successor to the RED (Regiones Especiales de Desarrollo) legislation, which Romer helped introduce to build charter cities. Romer had a falling out with the Honduran government in 2012. Shortly after his departure, the RED legislation was declared unconstitutional. The ZEDE legislation was passed to address the constitutional shortcomings of the RED legislation, though it also benefitted from seeing the Supreme Court judges who ruled against the RED legislation fired. To be fair, the government claims they were fired for a ruling on a police brutality case, which I am wont to believe. If there was sufficient government support behind ZEDEs to fire Supreme Court justices, it would not have taken seven years for the first ZEDE to be launched.

I worked with much of the Prospera team under the previous incarnation, NeWAY Capital (I’m not sure of the formal relationship between the two). I left around the time they pivoted to Honduras, 2.5 years ago. I was skeptical, as Honduras was the place projects went to die. Years had gone by without projects gaining meaningful traction and I expected them to run out of funding before launching. I’m happy to have been proven wrong.

Congratulations to Erick Brimen and the team. It is a lot of work to create a new jurisdiction, especially one as innovative as Prospera. The Charter Cities Institute has two team members spending approximately two thirds of their time on developing a “Governance Handbook,” a guide to the governance of a new jurisdiction. It will likely take about 9 months to complete, and that is just for the handbook, not implementation…

Residency costs $1300 annually, unless you’re Honduran, in which case it costs $260. Becoming a resident also requires signing an “Agreement of Coexistence,” a legally binding contract between Prospera and the resident. Prospera, therefore, cannot change the terms without exposing itself to legal liability. Most governments have sovereign immunity, this goes a step beyond removing that, with a contract that clearly defines the rights and obligations on both sides.

After signing the Agreement of Coexistence, all residents are required to buy general liability insurance which will ensure themselves against both civil and criminal liability. General liability insurance, as well as criminal liability insurance, has been proposed by economist Robin Hanson, among others.

That is from an email by Mark Lutter, Founder and Executive Director of the Charter Cities Institute. I thank Massimo for drawing my attention to this.

Comments

I'm still not optimistic -- Hong Kong's ability to maintain its way of life is far from assured and it has a long of strengths and history that Prospera lacks. But I'm glad they're all willing to give this a try.

It shouldn't be hard to out-perform what Honduras has been doing for centuries. Whether they'll truly be permitted to do that is the harder question, Romer was unable to get satisfactory answers. But good luck to everyone involved.

Keep in mind that a hypothetical confrontation would pit a vastly wealthy ideologically centered ZEDE city or set of cities not against China but against...the Honduran state, and maybe some peasant militia.

Discover the configurations for your contact forwarding.

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All the best, its success would certainly gel with how I hope/wish the world works.

But rationally I’d give it a ~ 0% chance. Honduran IQ is 81. Hong Kong is 108. The delta is > two standard deviations. Yikes.

Also I’ve yet to hear a plausible counter to: if it’s institutional capital and (lack of) rule of law causing all of the problems, then explain Puerto Rico.....not exactly a Singapore of the Caribbean (Inb4 the Jones Act, no.)

*dropped the word almost before >

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Puerto Ricans are American citizens, so the smart, ambitious ones move to New York and Florida?

I live next to a lot of Puerto Rican’s I would put down the island failure to a very aggressive culture that is out of synch with the mainland and an inability for all social levels to integrate due to the language barrier. A Hong Kong of South America could be quite successful and may form a counter point to Miami. IQ is overrated and for a blog that idealizes emergent order I find the comment obsession with it troubling.

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Indeed. Washington screwed up Puerto Rico, so many of the smart, ambitious, and successful Puerto Ricans moved all throughout the US.

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This seems to get the causation backwards. What was the median IQ in Hong Kong 23, 75, or 122 years ago, whenever the pivotal moment was for Hong Kong's Success?

Or the reverse because BOTH Hong Kong and the other Asian Tiger, Singapore, are ethnically Chinese.

Why not examine a lower IQ nation like Ireland when net family size decreases, parental investment in offspring increases and then springs out as a New Tiger, economically?

What remains true is that David Lykken at the University of Minnesota - father of my HS and uni classmate Matt - redid the 1950s Study of Twinsa raised apart, with over 400 subjects.

Lykken and Bouchard, et al, found that IQ was not 40 to 60% heritable, but 70 to 80% inherited. Unfortunately, this limits how net environmental effects can compensate for parental genetic effects on offspring.

If so, then parental genetic effects on IQ ought to be observed by the persistence of family names over time. And, viola! After compiling a few sets of names into data bases, this persistence is what economic historian Gregory Clark measured.

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Average IQ of Hondurans could not matter less to the success of this project.

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Do they eat tacos in Honduras?

Is a baleada a taco ?

Finally a debate worthy of the MR comments section

Is a taco a sandwich?

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That is their national dish. Maybe a Honduran will be offended for bringing up the question. Not for PC reasons but patriotic ones.

No way, Pedro Sula?

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Only when they go to Taco bell. Wink.

Great Tamales, pupusas, pinchos and salsa though.

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Paper you might find interesting:

Financial Distancing: How Venture Capital Follows the Economy Down and Curtails Innovation

Sabrina T. Howell, Josh Lerner, Ramana Nanda, Richard R. Townsend

"We find that the implications for innovation are not benign: innovation conducted by VC-backed firms in recessions is less highly cited, less original, less general, and less closely related to fundamental science. These effects are more pronounced for startups financed by early-stage venture funds."

https://www.nber.org/papers/w27150

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"Residency costs $1300 annually, unless you’re Honduran, in which case it costs $260. "

If you can't pay, what happens?

You are made a slave?

Dropped in the sea?

Deported to some victim nation to become a burden on them?

Say, someone moves to Prospera, makes millions for years but pay no taxes to any other nation, but then suffers from something very debilitating that consumes all assets, especially a mental disability making them easy prey to fraud, like a number of Bernie Madoff's victims.

Not paying is a contract violation triggering creative destruction: euthanasia and sale of body parts to recover costs of contract enforcement?

What of a baby born to a woman who dies in child birth, or flees abandoning the baby?

Surely it would be pretty similar to any other country which requires you to apply for residency?

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If you don't pay, they put you in the first caravan to the USA and trigger Fox News viewers into wetting their diapers.

What is this charter city's policy on refugees? Do they have borders at all?

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$1300? If only my county's property tax was that low.

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Been to Roatan and Utila a couple times for diving vacations. I guess I was part of that 1 million tourists (https://earthobservatory.nasa.gov/images/87557/how-tourism-changed-the-face-of-roatan).

Even before charter cities, the Bay Islands were much better than Honduras mainland in terms of rule of law, services, facilities, employment, etc. Cruise ships and large results were visited by a lot of tourists. Hope these previously existing flourishing business are not used to show the success of the ZEDE.

I have no idea how the $260 fee is taken by the local population. Some may despise it, others may see it as the most desirable club with the longest line at the door. My inner idealist would have preferred a referendum, but if the changes bring prosperity I'd guess the locals wouldn't care that much about democracy.

For me there are two topics of interest. The extent of the exclusive economic zone, the shallow waters between Roatan and the mainland are as nice sedimentary basin (oil). The other topic is defense/drugs, the island has been relatively safe compared to the rest of Central Americy, no idea what could be the impact of this change....if it's not broken, why fix it?

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Man I feel like this story self produces a left wing documentary about “exploitation”, “the imposition of authoritarian neo liberal values”, and probably some fancy phrase like “neo colonialism” just for fun.

Because I like my left wing documentaries filled with high impact jargon like “neo colonialism.” Maybe if we’re really lucky we’ll get the old scorcher of a left wing phrase-“endemic to late capitalism”-de Rigeur parlance of the center left IYI intelligentsia.

Every single legislator save one voted for this thing several years ago. Even the socialist parties.

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Charter schools are good, charter countries are better, but we’ll have really made it when we have a charter planet (Mars).

Maybe, but I don't want to be part of the Roanoke Colony of Mars.

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Revealed preferences: people want to choose their neighbors and like low population density and high barriers to entry.

Let them have their gated communities.

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What about the monetary system? Will it be based on bitcoin?

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iPayTotal can assist you in creating your high-risk merchant account and provide you with customized credit card processing solutions.

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