Hong Kong on the Caribbean - good idea?

[mota bhai 2,675]

Last month, the Honduran Congress approved the creation of independent commercial cities called Employment and Economic Development zones (or "ZEDE" for their Spanish acronym). Supporters of the ZEDEs, including Honduran President Porfirio Lobo Sosa, hope they will offer an alternative to the corruption and governance challenges that hamstring Honduras's economy. They believe that replacing parts of Honduras's ineffective regulations with new rules and institutions overseen by international experts will stimulate much-needed competition, economic growth, and foreign investment.

Striving to create sort of a Hong Kong on the Caribbean is controversial, however, and detractors fear that the ZEDEs will fail, undermine the country's already weak institutions, and also hurt the land rights of marginalized indigenous groups.

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The government has sought out new approaches to tackling Honduras' problems. It started to explore the concept of charter cities in 2009 after the president's chief of staff viewed a TED talk by the famous economist Paul Romer on the subject.

According to Romer, autonomous economic zones attract investment, create jobs, and promote economic activity. They do so by adopting separate, investor-friendly regulatory environments governed by other countries with proven track records (e.g. the U.K. or Canada) instead of the often-corrupt local institutions. A zone's adoption of another country's regulatory regime provides the stability, predictability, and transparency that businesses seek out. It also allows the host nation to experiment with new (and hopefully superior) regulatory regimes before deploying them throughout its territory.

Romer rejects the notion that such zones are neocolonial because they do not rely upon two key underpinnings of colonialism -- coercion and condescension. Local leaders remain sovereign. They elect to invite another country to assist with the administration of the zone, specify the scope of authority ceded to the other country, and determine how that country is to be compensated.

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The broad contours of the concept have historical precedent. There are several well-known examples of successful zones, including the City of London, Hong Kong, Dubai, and the Bahamas.

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Not everyone in Honduras supports the creation of ZEDEs, however. Some lawyers, activists, and other opponents stress that ZEDEs are an affront to Honduran sovereignty. They even argue that the creation of separate judicial systems jeopardizes rights enshrined on the Honduran Constitution. Indeed, weak institutions may enable the ZEDEs to be captured by corporate interests that take advantage of Honduras instead of growing its economy.

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Only time will tell if ZEDEs help Honduras tackle the myriad challenges facing its weak state or further undermine its tenuous stability. Creating a new Hong Kong or Dubai on the Caribbean may be difficult, but even incremental success could catalyze much-needed economic growth and improvements to the rule of law in Honduras, not to mention set an example for other developing countries to follow.

http://www.theatlantic.com/international/archive/2013/07/should-struggling-countries-let-investors-run-their-cities/277720/