The Future of Free Cities, Part 1

I am currently blogging from Roatán, Honduras, where I am participating in the “Future of Free Cities” conference, sponsored by Universidad Francisco Marroquín. The conference is about the economic and political preconditions for the establishment of free-enterprise zones in developing countries, as well as the internal governance of these territories. In his opening talk last night, Michael Strong used the rapid growth of Hong Kong, Singapore, Dubai, and Shenzhen to argue that economic freedom is an essential prerequisite to the elimination of poverty, and eliminating poverty is a moral imperative.

Much of the discussion here has revolved around a recent constitutional amendment passed in Honduras to establish “special development regions.” Here is a summary of the features of this amendment:

  • The government of Honduras has the option to create one or more REDs, but is not required to do so.
  • To create an RED and establish its basic system of governance, the amendment requires that the Congress pass a piece of enabling legislation that they call a Constitutional Statute. This requires a two-thirds majority to pass. A subsequent Congress can change this enabling legislation only with the same two-thirds majority and approval by referendum from the citizens living in the RED.
  • The REDs would be areas with their own legal personality and jurisdiction, their own administrative systems and laws. An RED can also negotiate international treaties with partner countries or organizations. Congress would need to ratify these international treaties with a simple majority.
  • Judges for its judicial system will be nominated by the governing authority in the RED but subject to approval by a 2/3rds majority in the Congress. The judicial arrangement would allow the use of an external body that acts as the court of final appeal for judicial decisions from the zone.
  • Laws developed by the governing authority of the RED require a ratifying vote by the Congress. This vote would be a simple vote to approve or reject. Approval requires only a simple majority.

From discussions with people here, I have gathered that the government is currently appointing members to a council that would write the initial charters of the regions, which would be developed on virgin land currently owned by the Honduran government. Until the charters are written and enacted, it is impossible to know exactly what autonomy these regions would enjoy. The constitutional amendment attempts to fortify the credibility of these autonomy arrangements by limiting congressional power to amend their basic laws; however, the ability of the central government to veto regional laws is a red flag. It appears that the government does intend these regions to be something more than export processing zones (EPZs), since the people living there will enjoy a modicum of political autonomy.

However, these regions are likely to prove much less exciting than the people here seem to expect. I don’t think these zones are likely to prove the thin end of the wedge that pries open the markets of Central America to a laissez-faire utopia. For one thing, these zones enjoy much less autonomy than do American states. Second, the charters are likely to focus on narrowly defined economic freedoms, such as suspension of costly labor regulations, rather than, say, completely private education, legalized guns and drugs, a minimal welfare state, and so on. EPZs already exist in many countries, and in practice these regions, should they come to fruition, are likely to operate in a similar way. El Salvador and Guatemala already have EPZs, but they haven’t led to a general liberalization of these societies. Nevertheless, if the special regions are large enough, we may see significant economic benefits over the long term for those who do move there, and that’s reason enough to support them.

In the next post, I’ll review some of the talks and my takeaway points from the conference.

2 thoughts on “The Future of Free Cities, Part 1

  1. Thanks a lot for your post Jason.
    Being unable to make it to the conference at the last minute, I am very curious to find out what was said and what happened there.

    Looking forward to whatever else you decide to write.

    Greg

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