Honduras is building a charter city? This is never going to work

December 21, 2011 15 By admin

A couple of years ago, I wrote a pretty critical post on Paul Romer’s proposal for ‘charter cities’. According to last week’s Economist, Honduras is now about to try and turn that blueprint into reality. I’m prepared to make a small bet it won’t work – any takers? 

Romer proposes building cities from scratch in the world’s poorest nations, outsourcing their design and government to rich tower_of_babel_4countries. Like their kindred proposal, Paul Collier’s ‘independent service authorities’, the underlying motive seems to be to liberate development from the supposedly dead hand of dysfunctional and corrupt states, transferring it instead into the hands of benign and honest technocrats. There’s probably some folk memory of the Pilgrim Fathers (below) at work somewhere. Here’s an excerpt from the Economist piece:

“The Honduran government wants to create what amounts to internal start-ups—quasi-independent city-states that begin with a clean slate and are then overseen by outside experts. They will have their own government, write their own laws, manage their own currency and, eventually, hold their own elections. This year the Honduran legislature has taken the first big steps towards the creation of what it called “special development regions”. It has passed a constitutional amendment making them possible and approved a “constitutional statute” that creates their autonomous legal framework. And on December 6th Porfirio Lobo, the Honduran president, appointed the first members of the “transparency commission”, the body that will oversee the new entities’ integrity.

The idea of setting up a charter city echoes the way that big companies adapt to change. They often set up new divisions unencumbered by old rules. These can be dramatic successes. Target, America’s second-largest discount retailer, began life as an internal start-up but eventually took over its parent company, Dayton Hudson.

Perhaps the most important feature of the new venture is the “transparency commission”, a kind of board of trustees that appoints the governors, supervises their actions and is meant to make sure that the entities are beyond reproach, not least when it comes to the corruption (often fuelled by the drugs trade) that plagues the region. “It is easier to create a board of trustees than to give control of part of your territory to a foreign nation,” says Octavio Sánchez Barrientos, the presidential chief of staff. A role for foreign government is still an option, but only Mauritius has so far signed on—as part of its push to become a global provider of legal services.

which way's Trujillo?Much will depend on the transparency commission. The first batch of members appointed this week comprises George Akerlof, another economist and Nobel laureate; Nancy Birdsall, formerly at the Inter-American Development Bank, who now runs the Centre for Global Development, a think-tank; Ong Boon Hwee, a former senior executive at Temasek Holdings and Singapore Power; and Harry Strachan, an investor who used to run INCAE, a leading Latin American business school, with Mr Romer himself in the chair.

The commission’s first job is to fill all of its nine seats. Then the hard work will start, first on investigating whether any foul play has already taken place: rumours are circulating that insiders have bought land in or near Trujillo and other potential sites. Next comes helping pick the regions’ locations and choosing developers in a way that inspires confidence not suspicion. The Honduran agency for public-private partnerships has already signed several memoranda of understanding with firms including South Korea’s Posco and two start-ups with libertarian leanings.

Last, but not least, comes security. Private security firms will have to protect the population in the new cities. Honduras is one of the world’s more corrupt countries, in 129th place out of 183 in a survey of outsiders’ perceptions by Transparency International, a Berlin-based lobby group. It also has the region’s highest murder rate. The local police have a poor reputation. Last month 176 police officers were arrested in a corruption crackdown.”

On the basis of the Economist piece, at least, the Trujillo charter city looks like a mess. The government is going to bypass constitution, laws etc, outsource the lot to private interests and rely for good governance on a commission of overstretched VIPs. If the hyperactive  Birdsall is typical, they will have so many other commitments that they really are not going to be able to invest the time to micromanage a potentially chaotic period of institution-building. I emailed Nancy about this and she replied that yes, there are big risks, but the world needs more experiments like this not least because ‘we don’t know in the development community how to ‘produce’ good governance’. She points out that there are resources, e.g. to pay at least one aide per member of the transparency board. But that still seems like a pretty skeletal arrangement and many of the criticisms I quoted in my original post apply in this case too. Got a bad feeling about this one.