In his famous 2009 TED talk, American economist Paul Romer proposed a revolutionary solution to the question of how a struggling country can break out of poverty when it’s trapped in a system of bad rules. The short answer? Charter cities. The longer answer is much more complex.
According to Romer, who co-received the 2018 Nobel Memorial Prize in Economic Sciences for his work in endogenous growth theory, a charter city is, in essence, “an opportunity to create new places, with new rules that people can opt in to.”
The Charter Cities Institute, a U.S.-based nonprofit dedicated to creating the ecosystem for charter cities, further defines a charter city as “a city granted a special jurisdiction to create a new governance system.” In other words, the model resembles a country within a country, with a level of judicial independence from the federal government.
Picture this: A developing nation struggles with issues of poverty, corruption, and unemployment but cannot effect substantial change when cornered by an impractical set of rules. However, in Romer’s vision, the charter city model can aid such countries by allowing for pro-business policies that facilitate economic success. In a host-guarantor partnership, the host country provides the land and citizens seeking employment opportunities, while the guarantor provides the capital.
However, does the charter city model actually work to lift struggling countries out of poverty? Proponents of the model argue that there is potential for a charter city to thrive as long as there are “good rules” rooted in delegation of responsibility and control from one country to another. Those in opposition accuse Romer of promoting neo-colonialism and imperialism.
During his lecture, Romer directly addresses that criticism, explaining that, while colonialism involves elements of coercion and condescension, the model “is all about choices, both for leaders and for the people who live in these new places.”
While some still received the argument with skepticism, others welcomed the proposal as an opportunity for economic growth. One of such dreamers was Octavio Sánchez, the ambitious chief of staff to former Honduran President Porfirio Lobo Sosa.
In February 2011, the Honduran National Congress passed legislation to create “REDs,” or special development regions, modeled after Romer’s charter cities. In a 2012 interview, Sánchez explained that the idea emerged from wanting “to divorce our economy from our political instability.” The Lobo administration imagined this project as a functional social order that builds from scratch, a blank slate.
Shortly after the legislation passed, the Honduran government advanced the project with counsel from Romer himself as chair of a transparency commission. However, after allegations of fraudulent elections that brought Lobo to power and with many leading officials accused of having ties to organized crime, Romer resigned from the project in 2012, claiming that the Honduran government “had deviated from transparency standards in model cities.”
Nevertheless, the economic experiment has survived against all odds. After the Supreme Court had declared the model cities unconstitutional, current President Juan Orlando Hernández re-branded the project as ZEDE (Zones for Employment and Economic Development).These zones are similar to REDs. However, in contrast, they are “unique in the extent of legal authority that is delegated to local governments, including taxes, labor law, environmental law, and dispute resolution,” according to Charter Cities Institute CEO Mark Lutter.
In 2013, ZEDE legislation was passed, but not without controversy. Experts in the country have continuously denounced the project, going as far as to call ZEDEs an example of “21st-century colonialism.” Although ZEDEs have been a source of public outcry, especially in the past year, there are two zones operating in the country: Próspera, located in Roatán, Bay Islands, and Ciudad Morazán, located near the city of Choloma, Cortés.
The complex laws involving ZEDEs in Honduras deserve an article of their own; in practice, ZEDEs have not been received well by Hondurans. Resentment and disagreement grew into action, with several protests taking place across the country in 2021. “Our territory is not for sale,” is the catch phrase anti-ZEDEs campaigns and organizations have adopted, with the aim of abolishing the law completely.
Although the Hernández administration has invested resources into improving public opinion about ZEDEs, efforts might prove futile. With general elections coming up on Nov. 28, the conversation has centered mainly on ZEDEs and whether the National Party’s long reign in the country will come to an end.
While Honduras’s charter city approach is just one of several across the world, it is the perfect example of why Romer’s model is ultimately unrealistic and can be oblivious to particular contexts and cultures—especially a country currently in political and economic turmoil.
Despite efforts to emphasize choice, most Hondurans, especially those of indigenous descent, do not believe that giving up their lands to ZEDEs was their decision. From accusations of land grabbing by Roatán’s indigenous community to the alleged under-the-table deals between foreign investors and municipalities, corruption has plagued any confidence in how the system works at the hands of the current government.
Failing to take into account the deep wounds colonization left in the country, the charter city model is unfortunately not a “one-size-fits-all” solution to the issue of poverty. Developing countries are susceptible to poor systems, partially a result of lasting negative effects from imperialism and interventionism.
In this case, Honduras cannot ignore the current corrupted state of politics and pretend to start political body from scratch.
As Romer himself said during a 2015 interview with iMoney Magazine, “[A reform zone] will be accountable in the way that governments around the world are accountable.” About his severed ties with the Honduran government, “They have passed a new law that crosses my bright red line,” he said. “It removes all possibility of electoral accountability for the people who run the zone.”
As long as governments are committed to transparency, the charter city model has potential. Unfortunately, that would require trusting our governments more than we often can.
