This week the Honduran Supreme Court struck down the country's proposal to build several "model cities" throughout the nation. These model cities would have their own tax and justice systems, and generally be a new start for several of the countries poorest regions. The plan for the model cities passed the Honduran legislature and was signed by the country's president Porfirio Lobo in December 2011. American investors were ready to spend $15 million on necessary infrastructure projects, and foreign investors were lining up to build factories and call centers. The cancellation of the project, assuming there is no way around the court decision, is a tragedy.
Indeed, many Hondurans oppose the model city on ground that it takes away their sovereignty as a nation. This is understandable: the model cities would have their own economic and legal systems, and even be able to make free trade pacts and control their own immigration laws. Nor would the cities be democratic initially: a transparency commission consisting mostly of foreigners would appoint governors and eventually decide when the cities were ready to transition to a democratic system. Would be members included renowned American economists George Akerlof and Paul Romer, as well as several other thoroughly vetted think tank types. The cities would be as autonomous as possible, something like a Hong Kong for Honduras.
There is certainly a whiff of imperialism to the the whole idea, and most backlash against the project has come along these lines. Essentially, rich world types are entering a poor Central American country and saying "Hey, you guys are fucking this up. Let us run your country for you."Land would be taken from local people, including the long marginalized Garrifuna (black Hondurans), and handed over to the model city commissioners. These planners may see these growth centers as a utopian island in a sea of crime and corruption, but many Hondurans only smell condescension and belittlement.
But there is a but. Honduras is the most violent country in the world, and one of the poorest nations in the Western Hemisphere. Foreign companies do not invest heavily for security reasons and because of an unreliable investment climate. Domestic businesses are terrible, and the government sector is too corrupt to fix anything. An astounding portion of Honduran women become pregnant in their teens, and a tragic percentage of Honduran men become alcoholics. The education system, an absolutely critical component of long term growth and human happiness, is abysmal. All of this gets us to our but: opportunity costs. If Honduras was doing great, a risky proposal might be worth rejecting. But in the current state of the country, where institutions are failing left and right, model cities are definitely worth a shot.
And these cities are more than a shot in the dark: they have been well thought out and could have a tremendous impact. Model cities will bring jobs, increase income, lower crime and violence, and wipe away obvious corruption. The model cities will not become the next Silicon Valley overnight, workers will still be largely uneducated and low-skilled. There should be more focus on education in the cities, and business regulation will need to be especially strong in an environment where companies feel they are running the show. That said, it's still critical to have foreign investment. If corporations are investing in these cities, then their are more jobs. If there are more jobs, than people have more money to spend and the government recoups more in tax receipts. Education, security, and infrastructure will all improve because of the greater revenues from the humming economy. Foreign investment is not a panacea, but it can and would start a virtuous cycle. Hondurans, who often emigrate to the United States for money and work, could stay in their own country. The model cities would be safer, richer, and happier. Life would be better.
But alas, it seems this is not to be. I am not an expert on Honduran Constitutional Law, so I don't know if the court's reading of the country's legal documents was correct. But I am confident that their decision will be viewed as a mistake by historians of the future. In a country with few jobs but a surplus of crime, cities with new economic and legal policies could have have had a remarkable impact. Instead, Honduras will stick to its status quo, which has brought pain and unhappiness to so many good people.
