Source: NYTimes

IT’S THE ECONOMY

Who Wants to Buy Honduras?

By ADAM DAVIDSON

Published: May 8, 2012

Shortly after the 2009 coup that overthrew Manuel Zelaya, Honduras’s newly elected president, Porfirio Lobo, asked his aides to think big, really big. How could Honduras, the original banana republic, reform a political and economic system that kept nearly two-thirds of its people in grim poverty?

One young aide, Octavio Rubén Sánchez Barrientos, had no idea how to undo the entrenched power networks. Honduras’s economy is dominated by a handful of wealthy families; two American conglomerates, Dole and Chiquita, have controlled its agricultural exports; and desperately poor farmers barely eke out subsistence wages. Then a friend showed him a video lecture of the economist Paul Romer, which got Sánchez thinking of a ridiculously big idea: What if Honduras just started all over again?

Romer, in a series of papers in the 1980s, fundamentally changed the way economists think about the role of technology in economic growth. Since then, he has studied why some countries stay poor even when they have access to the same technology as wealthier ones. He eventually realized something that seems obvious to any nonacademic, that poor countries are saddled with laws and, crucially, customs that prevent new ideas from taking shape. He concluded that if they want to be rich, poor countries need to somehow undo their invidious systems (corruption, oppression of minorities, bureaucracy) and create an environment more conducive to business. Or they could just start from scratch.

Then he decided to put the theory into practice. In 2009, Romer developed the idea of charter cities — economic zones founded on the land of poor countries but governed with the legal and political system of, often, rich ones. There were a couple of interested parties. (The president of Madagascar was intrigued by a preliminary version of the idea, Romer told me, but he was soon ousted in a coup.) Then, in late 2010, Sánchez met with Romer, and the two hurriedly persuaded President Lobo to make Honduras the site of an economic experiment. The country quickly passed a constitutional amendment that allowed for the creation of a separately ruled Special Development Region.

According to Romer, becoming a wealthy country requires better-run cities because that’s where people are headed. Cities might offer horribly paying jobs in factories and domestic service, but many families make the move because they’re still earning far more than they can make by farming. In 1900, nearly 90 percent of the world’s population was rural. By 2000, three-quarters of people in the United States, Western Europe and other wealthy countries were city dwellers. In the next 40 years, the United Nations estimates, the world’s urban population will grow by nearly three billion, largely in poor countries.

It has been an ugly transition. I saw it firsthand a few years back, when I visited a family in San Pedro Sula, Honduras’s business capital. José Avila and Gloria Rodríguez, who worked much of their lives on a banana plantation for 25 cents a day, had recently moved to a lawless slum outside the city so that their children might have a better future. By the time I met them, they had just earned enough money to turn their shack into a concrete house. José was selling computers, and his oldest daughter, Joheny, was a star sock-machine repairwoman. Joheny insisted that she was one of the lucky ones. Many of the other women her age were able to work only as prostitutes or for drug dealers.

Romer’s charter city is trying to avoid this dark side of urbanization by adapting older, more successful models. The United Arab Emirates, Hong Kong and Singapore were able to build well-designed cities that housed and employed millions, in part by persuading foreigners to invest heavily. Dubai created a number of micro­cities — one of which, for instance, is governed by a system resembling English common law with judges from Britain, Singapore and New Zealand.


Each has had well-known flaws, but Romer said the core idea can be replicated without them. The new Honduran charter city can work, he said, if its foreign leadership can similarly assure investors that they’ve created a secure place to do business — somewhere that money is safe from corrupt political cronyism or the occasional coup. If a multinational company commits to building new factories, real estate developers will follow and build apartments, which then provide the capital for electricity, sewers, telecom and a police force.

Romer hasn’t yet been able to persuade any nations to take on the role of custodian (Sweden and Britain both passed), so Honduras has named a board of overseers until there are enough people to form a democracy. Romer, who is expected to be chairman, is hoping to build a city that can accommodate 10 million people, which is 2 million more than the current population of Honduras. His charter city will have extremely open immigration policies to attract foreign workers from all over. It will also tactically dissuade some from coming. Singapore, Romer said, provides a good (if sometimes overzealous) model. Its strict penalties for things like not flushing a public toilet may make for late-night jokes, but they signal to potential immigrants that it is a great place if you want to work hard and play by the rules.

There will be many rules in Romer’s charter city too. Even though he expects most initial opportunities will be fairly low-paying basic industrial jobs, the local government will mandate policies that ensure retirement savings, health care and education. According to Romer’s plan, the immigrants who arrive will not get rich, but their children will eventually be ready to climb the economic-development ladder.

Romer told me that the response to his charter city has been polarized. “Some people said, ‘This reeks of colonialism,’ ” he explained. “Other people said that everything we’ve been trying to do has had so little impact, maybe we should consider something different.” There are, of course, countless ways that this charter city could go wrong, but Romer has a point. Huge numbers of people are already moving to the world’s cities, too many of which are set up to create unstable poverty. Wealthy countries spend billions per year on projects designed to reform governments, build modern utilities or teach their workers new agricultural techniques. For all the cash, there has been very little success. Sponsoring a charter city, Romer said, may be a better (and cheaper) way to help.

It’s easy to criticize experimenting with the livelihoods of the poor, but having spent time in the chaotic slums of Honduras, Haiti, Jordan and Indonesia, I’ve found that the poor are already conducting daily experiments in how to make life better outside the formal economy. By and large, it isn’t working. We have to try some new things, probably many new things. And we have to accept that some of them won’t work.