Can Charter Cities aid in Latin America’s search for prosperity?

Honduras (yes, tiny Honduras) took a bold step earlier this year which could alter its economic trajectory and potentially impact the rest of Latin America. Frustrated by a lack of results from economic liberalization and free trade agreements which have been thwarted by cronyism, corruption and a lack of competitiveness, the Honduran Congress passed a constitutional amendment in January giving the government the power to create special development regions, or Charter Cities, which will have their own legal jurisdiction, administrative systems and laws. Charter Cities are created with a governing system defined by the city’s own charter document rather than by state, provincial, regional or national laws. The most recent examples include Hong Kong and Shenzen in China but the history of cities based on a unique governing charter goes back to the 12th century founding of Lübeck, a prosperous trading outpost in northern Germany.

Today the creation of new Charter Cities is being talked about as a way to rapidly develop centres of industrial growth while reducing poverty in emerging markets. The model has received new life as a result of efforts by US economist Paul Romer who has highlighted that ideas and good rules—which are often lacking in developing countries like Honduras—are the main catalyst for economic development. Without proper laws or security new ideas and innovations cannot thrive.

Mr Romer’s version of Charter Cities require unused land to build the new city, ample labour from a source country and supervision from a foreign entity to guarantee the city’s charter (think the British government’s role in 20th century Hong Kong). There are some detractors however who question the feasibility of Charter Cities. For example, which developed countries will be willing to serve as a legal guarantor and will the populations of developing countries be willing to give up sovereignty over land in their national territory? It is still unclear if Charter Cities can be established in the risky political environments of most poor countries. An attempt at creating a Charter City in Madagascar was scuttled in 2009 by the overthrow of the government (for unrelated reasons) that was interested in the idea. For the project to move forward in Honduras the Congress will still have to agree on the charter which will govern the city. The government also needs to secure partner countries and investors. Nonetheless, successful Charter Cities have the potential to significantly influence governance in developing nations and cities. Some argue that Hong Kong’s economic success under the British helped to make reform in the rest of China possible, in turn doing more to reduce world poverty than all the official aid programs of the 20th century combined.

Honduras is hoping is that creating a new city with its own comprehensive and enforceable rules will lead to increased investment, rapid economic growth and employment. Then, Hondurans looking for work can find opportunities closer to home rather than making the arduous journey to the United States or getting involved in the drug trade.

The Chinese may already be thinking about something loosely based on this model in Colombia. China’s grand plan for building a “dry canal” connecting Colombia’s Pacific and Atlantic coasts includes the creation of a new city near Cartagena where imported Chinese goods could be assembled for re-export throughout the Americas. In today’s increasingly competitive global environment bold action is needed to achieve the widespread prosperity that is longed for by so many. In Latin America, Honduras has already made the first move.

Click here for the Spanish version in La Republica

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